Income-tax---

----Income---Business---Souvenir produced by association of employees of a particular company---Collection from businessmen for advertisements in souvenir---Publication of souvenir did not amount to adventure in the nature of trade---Association not covered by S.2(24)(ii-a)---Excess of collections over cost of bringing out souvenir---Not assessable as income---Indian Income Tax Act, 1961, Ss.2(24) & 28.

The assessee was a registered society of the employees of a company S. It was registered on August 21, 1963. During the periods ending on December, 31, 1979, December 31, 1980, and December 31, 1981, the association collected certain amounts as advertisement charges for bringing out a souvenir. Though advertisements were collected during the period of three years, the souvenir was ultimately published in the year 1981. The Income-tax Officer assessed to tax the difference between the amount received and the expenses, amounting to Rs.99,001, treating it as revenue receipts. The Tribunal held that the amounts received by the association could not be treated as trading receipts and they were mere voluntary contributions or donations. The Tribunal confirmed the finding recorded by the authorities below that the association was not a charitable institution. On a reference:

Held, that bringing out the souvenir, having regard to the circum stances of this case, could not be said to be either a trade or an adventure in the nature of trade. The association was not a charitable institution. It was also not one of the institutions specified in section 2(24)(ii-a) of the Income Tax Act, 1961. It is only voluntary contributions received by such institutions that are treated as income. Therefore, the voluntary contributions received by the assessee-association could not be treated as income or trading receipts.

Automobile Association of Bengal v. CIT (1968) 69 ITR 878 (Cal.) and CIT v. Trustees of Visha Nima Charity Trust (1982) 138 ITR 564 (Bom.) ref.

S.R. Ashok for the Commissioner.

M. Suryanarayana Murthy for the Assessee.

JUDGMENT

SYED SHAH MUHAMMED QUADRI, J.---At the instance of the Revenue, the following question is referred to this Court under section 256(1) of the Income Tax Act, 1961, for opinion:

"Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was correct in holding that the amount received by way of advertising charges are voluntary contributions or donations and are not trading receipts?"

The brief facts of the case are" The respondent is a registered society of the employees of S.R.M.T. Staff Association. It was registered on August 21,1963. During the periods ending on December 31, 1979, December 31, 1980, and December 31,1981, the respondent-association collected certain amounts from various businessmen for bringing out a souvenir requesting them to send their advertisements for publication in the said souvenir. Though the advertisements were collected during the period of three years, it appears that the souvenir was ultimately published in the year, 1981. The Income-tax Officer assessed to tax the difference of the amount received and the expenses, amounting to Rs.99,001, treating as "revenue receipts" in the hands of the association, negativing the claim of the association that it is a charitable institution and entitled to exemption and that the amounts paid to the association by the businessmen, were voluntary contributions. The association went in appeal before the Commissioner of Income-tax (Appeals), who held that the amounts paid by the businessmen towards advertisements could not be considered as "donations." However, on further appeal, the Income-tax Appellate Tribunal held, following the judgment of the Bombay High Court in CIT v. Trustees of Visha Nima Charity Trust (1982) 138 ITR 564, that the amounts received by the association could not be treated as "trading receipts." and they were mere voluntary contributions or donations. It may be noted here that the Tribunal confirmed the finding recorded by the authorities below that the association was not a charitable institution. The appeals of the assessee were thus allowed of February 11, 1986. It is from, that order the abovesaid question arose.

Shri S.R. Ashok, learned standing counsel appearing on behalf of the Income-tax Department, contends that the Tribunal, has erroneously followed the judgment of the Bombay High Court as the case before the Bombay High Court was that of a charitable institution and, therefore, the contributions received have to be held not as donations or voluntary contributions, but "trading receipts".

Learned counsel appearing on behalf of the association brought to our notice the provisions of clause (24) of section 2 of the Income-tax act it support of his contention that the said receipts by the assessee cannot be treated as "income." He argues that this was not a case where the association was publishing a souvenir every year and collecting contributions, that though the amounts were collected during the period of three years, the souvenir was brought out only in one year and that it shows that the businessmen have given the amounts as voluntary contributions and not as consideration for advertisements and, therefore, the view of the Tribunal requires approval of this Court.

The respondent-association claimed the status of a charitable institution, but that claim was negatived by the Income-tax Officer, and the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal. The respondent-association collected the amounts with a view to bring out a souvenir to augment the funds for the purpose of the association. Bringing out the souvenir, having regard to the circumstances of this case, cannot be said to be either a trade or an adventure in the nature of trade. A businessman would no doubt like to have his concern advertised in magazines and newspapers. But mere giving an advertisement in a souvenir to be published by an association of employees, which has neither any circulation nor any demand in the market, cannot be treated as one with the object to advertisement of their firm for earning profits. It can only be treated as a mere voluntary contribution or donation with a view to help the association. The fact that the rate of contribution depending upon the size of the advertisement in the souvenir would, in our view, make no difference to the nature of payment made by the businessmen to the association. But then even if the payments are of casual nature, and fall within the definition of "income" as defined in clause (24) of section 2 of the Income Tax Act, they would nonetheless be taxable. The said definition in so far as it is relevant for our purpose, reads as tinder

"(24) 'income' includes...

(ii-a) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, or by an association or institution referred to in clause (21) or clause (23) or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) of clause (23-C), of section 10:

Explanation.---For the purposes of this sub-clause, 'trust' includes any other legal obligation.."

On a perusal of clause (ii-a) of the definition of "income", extracted above, it is clear that voluntary contributions received by (1) a trust created wholly or partly for charitable or religious purposes; (2) by an institution established wholly or partly for such purposes; (3) by an association or institution referred to in clause (21) of section 10, viz, a scientific research association approved for the purpose of clause (ii) of subsection (1) of section 35; or an association or institution referred to in clause (23) of section 10, viz, an association or institution established in India which may be notified by the Central Government for encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as notified by the Central Government in that behalf; (4) or by a fund or trust or institution referred to in sub-clause (vi) or sub-clause (v) of clause (23-C) of section 10, viz, any other fund or institution established for charitable purposes which may be noticed by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States and any trust or institution wholly for public religious purpose or wholly for public religious and charitable purposes, which may be notified by the Central Government would fall within the definition of "income".

We have already noted above that the assessee-association has been held as not a charitable institution. It is not also one of the institutions which are specified above. It is only voluntary contributions received by such institutions specified above, which are treated as "income" within the meaning of clause (24) of section 2 of the Income Tax Act, 1961. Therefore, voluntary contributions received by the respondent-association cannot be treated as "income" or trading receipts.

In Automobile Association of Bengal v. CIT (1968) ITR 878 (Cal), the Automobile Association of Bengal was publishing a monthly magazine for the benefit of its members and for that purpose it used to receive advertisements both from the members as well as non-members. There the question was whether there was a mutuality between the contributors to the funds and the participators in the funds. The Calcutta High Court held that to attract the principle of mutuality, there must be an identity between the contributors to the fund and the participators in the fund. The assessee association was accepting money from some of its members by way of advertisement charges fund was making profit out of it, which increased the funds of the assessee, and the benefits out of the same came to the members but not to the contributors to the advertisement. Since money was collected by the assessee-association by way of advertisement charges from a certain number of members but the profit made thereon was not distributed amongst them as advertisers, there was absence of mutuality which made the profit the income of the association.

The principle laid down in the above case has no application to the question with which we are concerned here.

In the Bombay High Court's case CIT v Trustees of Visha Nima Charity Trust (1982) 138 ITR 564, the assessee was a trust which was held to be a charitable trust. It received voluntary contributions from various institutions and members of the public by way of donations. It was the taxability of those contributions that fell for consideration. The Division Bench of the Bombay High Court held that the trust was framed primarily by the members of a particular caste, but the objects thereof were of general public charity. The members of the public to whom the appeal was addressed, contributed to the trust for the purpose of advertisement in the souvenir publisher by the trust and for purchase of tickets for the charity show conducted by the trust. On those facts, it was held that the contributions could not be regarded as income derived by the trust. It is obvious that in that case the contributions were received by a charitable institution, therefore, the contributions were held as not being the "income of the trust". We must observe that clause (ii-a) of clause (24) of section 2 of the Income-tax Act, to which we have already made reference above, was inserted by the Finance Act, 1972, with effect from April 1973. Therefore the effect of that clause was not at all considered by the Bombay High Court as the contributions in that case were received during the assessment year 1965-66.

For the above reasons, we answer the question in the affirmative, though for different reasons, i.e., in favour of the assessee and against the Revenue.

Reference is accordingly answered no costs.

M.B.A./1246/FCReference answered.