COMMISSIONER OF INCOME-TAX VS BHORUKA PUBLIC WELFARE TRUST, 2001 PTD-CALCUTTA-HIGH-COURT-INDIA 3434 (1999)

(a) Income‑tax‑‑‑

‑‑‑‑Charitable purposes‑‑‑Charitable trust‑‑‑Exemption‑‑‑Denial of exemption ‑‑‑‑Investment of trust funds in concern in which person who has made a substantial contribution to trust has substantial interest‑‑‑Law applicable‑‑‑Section 13(l)(d) applies only from assessment year 1984‑85‑‑ Donation of shares to trust in June, 1982‑‑‑Section 13(1)(d) was not applicable for assessment year 1983‑84‑‑‑Receipt of shares did not amount to investment of trust funds in shares‑‑‑Exemption could not be denied under S.13(2)(h)‑‑‑Indian Income Tax Act, 1961, Ss.11 & 13‑‑‑CBDT Circular, dated 15-3‑1991.

The assessee was a trust. The trust received donation to the extent of Rs:18,11,134 during the accounting year ending June 30, 1982. Such donation included shares of the face value of Rs.14,00,000 of Transport Corporation of India Ltd. (1,40,000 equity shares of Rs.10 each), received from P and C on August 28, 1981. The Income‑tax Officer found that the donor had substantial interest in Transport Corporation of India Ltd. within the meaning of section 13(2)(h) of the Income Tax Act, 1961. Therefore, the Income‑tax Officer invoked the provisions of section 13(4) and brought to tax the dividend income derived by the trust. The Commissioner of Income‑(Appeals) and the Tribunal, however, held that the assessee was entitled to exemption. .On a reference:

Held, that the assessee received the shares of the company by way of donation. The assessee did not deal with or commit or lay out any part of its existing assets to acquire the said shares. In such case, there was no investment of the fund of the assessee within the meaning of section 13(2)(h).

CIT v.. Birla Charity Trust (1988) 170 ITR 150 (Cal.) fol.

That the Board had clarified that section 13(1)(d) would be applicable only from the assessment year 1984‑85. Hence, it would not be applicable for the assessment year 1983‑84.

(b) Income‑tax‑‑‑

‑‑‑‑Charitable purposes‑‑‑Charitable trust‑‑‑Exemption‑‑‑Computation of income of trust‑‑‑Depreciation is deductible‑‑‑Indian Income Tax Act, 1961.

Depreciation claimed in the accounts by the assessee was an outgoing for the purpose of determination of income in terms of section 11(1).

CIT v. Jayashree Charity Trust (1986) 159 ITR 280 (Cal.) fol.

Obiter Dicta: The decision in CIT v. Jayashree Charity Trust (1986) .159 ITR 280 (Cal.) requires reconsideration.

CIT v. Deoria Public Charitable Trust (1992) 196 ITR 110 (Cal.); CIT v. Indian Jute Mills Association (1982) 134 ITR 68 (Cal.); CIT v. Raipur Pallotine Society (1989) 180 ITR 579 (MP); CIT v. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad.); CIT v. Savan Public Charitable Trust (1993) 201 ITR 877 (Cal.); CIT v. Sheth Manilal Ratichhoddas Vishram Bhavan Trust (1992) 198 ITR 598 (Guj.); CIT v. Society of the Sisters of St. Anne (1984) 146 ITR 28 (Kar.) and CWT v. Bharat Charity Trust (1993) 199 ITR 420 (Cal.) ref.

Ram Chandra Prosad for the Commissioner.

N.K. Poddar for the Assessee.

JUDGMENT

Y.R. MEENA, J.‑‑‑By this reference application, the Tribunal has referred the following two questions for our opinion:

"Question raised in R.A. No.21 (Cal.) of 1988:

Whether, having regard to the fact that the assessee had income from the shares of a company in which the donor of the said shares had substantial interest within the meaning of section 13(2)(h) read with section 13(1)!c) of the Income Tax Act, 1961, the Tribunal was correct in law in holding the provisions of section 13(2) of the said Act were not attracted?

Question raised in R.A. No.22 (Cal.) of 1988:

Whether, on the facts and in the circumstances of the case and on a proper interpretation of section 2(15) of the Income Tax Act, 1961, the Tribunal is correct in law in holding that depreciation claimed in the accounts by the assessee was an outgoing for the purpose of determination of income in terms of section 11(1) of the Income Tax Act, 1961, and in that view deleted the addition so made in this regard?"

The assessee is a trust. The trust received donation to the extent of Rs.18,11,134 during the accounting year ending June 30, 1982. Such donation includes shares of the face value of Rs.14,00,000 of Transport Corporation of India Limited (1,40,000 equity shares .of Rs.10 each), received from Shri Prabhu Dayal Agarwal and Chogmal Agarwal on August 28, 1981. The Income‑tax Officer found that the donors had substantial interest in Transport Corporation of India Limited within the meaning of section 13(2)(h) of the Income‑tax Act. Therefore, the Income tax Officer invoked the provisions of section 13(4) and brought to tax the dividend income derived by the trust of Rs.1,68,000.

In appeal, the Commissioner of Income‑tax (Appeals) found that the donation of shares does not amount to investment by the assessee for acquisition of shares. Therefore, the provisions of section 13(2)(h) of the Act are not attracted.

In appeal before the Tribunal, the Tribunal has confirmed the view taken by the Commissioner of Income‑tax (Appeals) that the provisions of section 13(1)(c) read with section 13(2)(h) are not attracted to the case of this assessee. However, the Tribunal remitted the matter back to the Income‑tax officer to examine whether the provisions of section 13(1)(d) of the Act can be attracted or not.

Mr. Ram Chandra Prosad, learned counsel for the Revenue, placed reliance on the order of the Assessing officer and submits that the matter has rightly been remitted back to the Assessing Officer since the Assessing Officer has not examined the applicability of section 13(1)(d). He further submits that when the donation is with a condition that it will form part of the corpus, it amounts to investment by the assessee.

Mr. N.K. Poddar, learned counsel for the assessee, submits that the assessee is a charitable trust. When there was a donation of shares of the assessee, the assessee has not incurred any expense. There is no investment by the assessee in acquiring the shares in question. When there is no investment by the assessee, the provision of section 13(1)(c) is not attracted. For section 13(1)(d), he submits that in view of the Board's Circular, the provisions of section 13(1)(d) are applicable with effect from the assessment year 1984‑85, and not from the assessment year 1983‑84. Therefore, when the provisions of section 13(1)(d) are not applicable in the year 1983‑84, no purpose will be served, in case, the matter is remitted back to the Assessing Officer. For depreciation, he submits that in the case of a charitable trust, income will be taken on commercial basis as shown by the assessee in the books of account and it should not be computed as per the provisions of the Income‑tax Act. He drew our attention to the definition of total income in section 2(45) of the Act. He further submits that even the provision of section 14 which provides heads of income is also not applicable. He places reliance on the decision reported in CIT v Birla Charity Trust (1988) 17(ITR 150 (Cal.) and CWT v. Bharat Charity Trust (1993) 199 ITR 420 (Cal.; For the application of the provisions of section 13(1)(d), he placed reliance on the decisions reported in CIT v. Deoria Public Charitable Trust (1992; 196 ITR 110 (Cal.) and CIT v. Savan Public Charitable Trust, (1993) 201 ITR 877 (Cal.). For depreciation, he placed reliance on the decision; reported in CIT v. Society of the Sisters of St. Anne (1984) 146 ITR 2f (Kar); CIT v. Raipur Pallottine Society (1989) 180 ITR 579 (MP) and CI7 v. Sheth Manila] Ranchhoddas Vishram Bhavan Trust (19921 198 ITR 59f (Guj.). He further submits that this Court held that depreciation i expenditure in the case reported in CIT v. Indian Jute Mills Associatiot (1982) 13 ITR 68 (Cal.). In the case of CIT v. Deoria Public Charitabh Trust (1992) 196 ITR 110 (Cal.), this Court has considered whether thi provisions of section 13(1)(d) are applicable to the assessment year 1983‑84 At page 115, this Court has quoted the Board's Circular. The relevan portion of the circular reads as under:

"The issue has been considered in the Board and it is decided that the provisions of section i3(1)(d) would be applicable from the assessment year 1984‑85 and not from the assessment year 1983‑84 It is also decided that appellate decisions on this issue, hitherto in favour of the assessee, may not be further contested, and pending appeals/references may be withdrawn by the Chief Commissioner of Income‑tax, in exercise of the powers delegated to them."

When the Board itself has clarified the position as to from which assessment year the provisions of section 13(1)(d) will be applicable, it was decided that the provisions of section 13(1)(d) will be applicable from the assessment year 1984‑85. In this case, the year under consideration in 1983‑84. In view of the Board's Circular, dated March 15, 1991, and the decision of this Court in the case of CIT v. Deoria Public Charitable Trust (1992) 196 ITR 110, in our view, no purpose will be served in case the matter is remitted back to the Assessing Officer to examine the applicability of the provisions of section 13(1)(d) of the Act.

The next issue relevant to Question No. l is whether the provisions of section 13(1)(c) read with section 13(2)(h) are attracted to tax the dividend income in this case. There is no dispute that the shares from which the dividend income is derived are donated by Prabhu Dayal Agarwal and Chhogmal Agarwal. This Court has considered a similar issue whether it can be taken that there was an investment by the assessee when he received shares free of charge.

In the case of CIT v. Birla Charity Trust (1988) 170 ITR 150, this Court held that the assessee received the shares of the company by way of donation. The assessee did not deal with or commit or lay out any part of its existing assets to acquire the said shares. In such a case, there was no investment of the fund of the assessee within the meaning of section 13(2)(h)

This Court again has considered similar issue in the case of CWT v. Bharat Charity Trust (1993) 199 ITR 420. This Court has considered the corresponding section 21A of the Wealth Tax Act to section 13(1)(d) of the Income‑tax, Act and the issue before the Court was whether when the assessee received the shares by way of donation it would amount to investment of the assessee.

This Court held that when there was no investment of the fund of the assessee within the meaning of section 13(2)(h) and when there was no investment of the assessee in acquiring the shares the charitable trust did not fall within the provisions of the Wealth Tax Act, 1957.

When the shares are received there was no investment on the part of the assessee. The Tribunal is justified in holding that the assessee's income from shares is not hit by the provisions of section 13(2)(h) read with

The question referred regarding depreciation, the issue whether the Tribunal is justified in holding that the depreciation claimed in the accounts by the assessee was an outgoing for the purpose of determination of income in terms of section 11(1) of the Income Tax Act, 1961? During the course of assessment, the assessee claimed depreciation worth Rs.21,779 which has been disallowed by the Assessing Officer. In appeal before the Commissioner of Income‑tax (Appeals), he did not allow the claim on the ground that when there is no business of the assessee he is not entitled for deduction on account of depreciation. The Tribunal has allowed the claim following the view taken by the Karnataka High Court in CIT v. Society of the Sisters of St. Anne Learned counsel for the assessee submits that there are decisions of the various High Courts including this Court, where the view has been taken that in the case of a charitable trust the income should be computed on commercial basis as shown in the books of the account 'of the assessee and not strictly as per the provisions of the Income Tax Act, 1961. He placed reliance on the decision reported in CIT v. Society of the Sisters of St. Anne (1984) 146 ITR 28 (Kar.); CIT v. Raipur Pallottine Society (1989) 180 ITR 579 (MP) and CIT v. Sheih Manilal Ranchhoddas Vishram Bhavan Trust, (1992) 198 ITR 598 (Guj.). In CIT v. Society of the Sisters of St. Anne (1984) 146 ITR 28, the Karnataka High Court has considered how the income of the charitable trust should be computed and whether the amount of depreciation debited to the accounts of the charitable institution is to be deducted to arrive at the income available for application to charitable purposes. At page 33, the Court has quoted part of the Circular No.5P(LXX‑6) of 1968, dated July 19, 1968. The Board has clarified that "income" referred under section 11(1) should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made in capital expenditure in regard thereto for the purpose of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust.

Though there is a Board Circular and some decisions of the various High Courts and even this High Court in CIT v. Jayashree Charity Trust (1986) 159 ITR 280 has followed the decision of the Madras High Court in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 and held that while computing the income of the charitable trust, income to be arrived at in the commercial manner.

It is true that the view has been taken by various High Courts including this Court in the cases referred to above that in the case of a charitable trust income should be computed and arrived at in the commercial manner but nowhere in the Act it prohibits to calculate or compute the income as per the provisions of the Act. Section 11(1) refers to income and not total income defined in section 2(45) but income itself has been defined in the Act in section 2(24) why the meaning of income given in section 2(24) should not be taken for income referred in section 11(1) of the Act. Therefore the decision referred to also requires re‑consideration.

But in the case in hand the assessment year involved is 1983‑84, even if we differ from the view taken by this Court it will take another five years to conclude. The tax effect is only Rs.7,000. Therefore, no purpose will be served to differ on this issue with the view taken by this Court in Jayashree Charity Trust's case (1986) 159 ITR 280. and we leave the issue open to consider this issue in the appropriate case in future.

In the result, in view of these facts, we answer both the questions in the affirmative, i.e., in favour of the assessee and against the Revenue.

Ranjan Kumar Mazumdar, J.‑‑‑I agree.

M.B.A./344/FC Reference answered