ORDER
S.N. Rotho, Accountant Member
1. This appeal has been filed by the department against the order dated 30-3-1982 of the Commissioner (Appeals), relating to the assessment year 1976-77, the previous year of which ended on 31-3-1976.
The assessee is a trust assessed through its trustees in the status of an
AOP. The assessee-trust was created by an indenture dated 12-11-1975
executed by the settlor, namely, Silk and Rayon Textile Export Promotion
Council, Bombay. The settlor was a company incorporated under the
Companies Act, 1956, having its liability limited by guarantee. The settlor
made an initial contribution of Rs. 5 lakhs and created a fund called
‘Silk and Rayon Textile Export Promotion Council Staff Welfare Fund’.
The purpose of the fund was to provide benefit and assistance to the
employees of the settlor-company in accordance with the scheme framed
by it. The object of the scheme was such that it would benefit the staff of
the settlor-company only. The case of the assessee, before the ITO, was
that the assessee was a charitable trust, the income of which was exempt
under Section 11 of the Income-tax Act, 1961 (‘the Act’). The ITO did
not agree, and refused to allow the benefit of exemption under Section 11
to the assessee, on the ground that it did not satisfy the requirements of
‘charitable purpose’ as defined under Section 2(15) of the Act.
3. The ITO also held that even if it is assumed that the income of the
assessee-trust was exempted under Section 11 yet the trust would be hit by
Section 13(l)(c) of the Act, because the settlor was indirectly benefited by
the trust.
4. The assessee-trust received in all a sum of Rs. 6 lakhs from the settlor
during the year under consideration. The case of the assessee before
the ITO was that the donation of Rs. 6 lakhs received by it did not repre
sent the income of the assessee because they were mere donations and
were not in the nature of income. Further, this sum was shown as a
donation towards the corpus only. The ITO observed that there was no
direction letter from the donor at the time of the donation to treat the
sum of Rs. 6 lakhs as the corpus of the fund. Hence, he rejected the claim
of the assessee and treated the aforesaid sum of Rs. 6 lakhs as the income
of the assessee, and assessed the same to tax accordingly.
5. The assessee appealed to the Commissioner (Appeals) and contested
(0 that it was engaged for the charitable purposes within the meaning of
4.
Section 2(15) and so its income was exempt under Section 11, (ii) that it was not hit by Section 13(l)(c) and in any case, (iii)the sum of Rs. 6 lakhs received during the year under consideration could not be regarded as income. The Commissioner (Appeals) rejected the first two contentions of the assessee and confirmed the finding of the ITO that the assessee-trust was not entitled to exemption under Section 11 as it did not come under Section 2(15). As the assessee’s income was not exempt under Section 11, there was no question of the applicability of the provisions of Section 13(l)(c). Hence, the Commissioner (Appeals) rejected these two grounds.
6. Coming to the third ground raised by the assessee before her, the
Commissioner (Appeals) found force in the same. She found that the
assessee received Rs. 5 lakhs as initial contribution and subsequently
another sum of Rs. 1 lakh to be used towards the same purpose of the
trust, namely, the welfare of the employees of the settlor-company. The
Commissioner (Appeals) observed that the letter dated 24-9-1977 from the
settlor-company clearly showed that the amounts received by the assessee
were to be treated as corpus contributions. Hence, she held these receipts
to be capital receipts and in this view of the matter, held that the sum of
Rs. 6 lakhs could not be taxed as revenue receipts or income.
7. Shri Roy Alphonso, the learned representative for the department,
urged before us that the Commissioner (Appeals) erred in her decision.
He pointed out that Section 12 of the Act had no application to the facts
of this case, because Section 11 does not apply to the assessee. Hence, he
urged that the concept of corpus funds was wrongly pressed into service
by the learned Commissioner (Appeals). According to Shri Roy Alphonso,
the assessee-trust itself took over the duties of the employer, namely, the
settlor-company. Those duties were to look after the interests of the
employees of the settlor-company. The assessee was receiving regular
amounts for being spent towards that purpose. Hence, he urged that
those receipts were in the nature of income in the hands of the assessee-
trust.
8. Shri Dinesh Vyas, the learned representative for the assessee, on the
other hand, supported the order of the Commissioner (Appeals). He point
ed out that the very concept of ‘income’ has now been clearly laid down
by various judicial decisions. The famous definition of ‘income’ given in
the case of CIT v. Shaw Wallace & Co. 6 ITC 178 (PC) is :
. . . Income, . . . connotes a periodical monetary return ‘coming in’ with some sort of regularity, or expected regularity, from definite sources. …
This definition has also been referred to by the Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27. In the case of Rani Amrit Kunwar v. CIT [1946] 14 ITR 561 and H.H. Maharani Shri Vijaykuverba Saheb of Morvi v. CIT [1963] 49 ITR 594, the Allahabad High Court and the Bombay High Court, respectively, held that ‘income’ need not necessarily arise from any business activity, investment or outlay, or any enforceable obligation to pay,it may be voluntary or [may be] attributable to some custom, usage or traditional obligation, but mere casual payments or windfalls do not constitute income. Voluntary payments in order to become taxable under the Act must have an origin which a practical man would regard as a real source of income (see page 90 of Kanga and Palkhivala’s commentary on Income-tax, Vol. 1, Seventh edition). He stated that so long as the assessee-trust could not claim as a matter of right any amount from the settlor-company, the receipts remained windfalls or casual receipts, not necessarily recurring. His point was that any receipt which depended on the sweet will of the donor could not be regarded as income as has been held in the case of Rani Amrit Kunwar (supra). He took us through the trust deed, dated 25-11-1975, which states that the funds would be created by the initial donation of Rs. 5 lakhs. Clause (2) of the deed says that the trustees will be possessed of any additional fund which may be paid by the settlor. There is no compulsion anywhere in the trust deed on the part of the settlor to go on paying money to the trust. Under the circumstances he urged that the receipts of the assessee-trust” amounting to Rs. 6 lakhs did not partake the nature of income.
9. Shri Roy Alphonso replied that if the receipts were not income, then
they were in the nature of casual receipts and so they will be taxed under
the exceptions to Section 10(3) of the Act.
10. We have considered the contentions of both the parties, as well as
the facts on record. We find force in the contentions raised for the asses-
see. As has been held in the cases of Rani Amrit Kunwar and H.H.
Maharani Shri Vijaykuverba Saheb of Morvi (supra), a receipt cannot be
treated as an income unless it is expected with some sort of regularity as a
matter of right, and which a practical man would consider as coming from
a definite source. On going through the trust deed under which the asses-
see came into existence, we do not find anything therein to bind the settlor
to go on paying regularly and periodically definite amount to the assessee-
trust. Hence, the learned representative for the assessee was quite correct
in his contention that the receipts by the assessee-trust depended entirely
on the sweet will of the settlor-donor. Under the circumstances, the
receipts do not come within the accepted notion of income chargeable
under the Act. Hence, the same escapes the net of taxation on this ground
alone. We have considered the argument of the learned representative for
the department based on the provisions of Section 10(5), but we do not
find any force in the same. Firstly, that section applies to receipts which
were both casual and non-recurring. Secondly, that provision applies only
to items which can be regarded as income because that section begins with
the words that ‘the following incomes will be exempt from tax’. Thus, if an item is not income at all, then there is no question of exempting the same under Section 10(3). Section 10(3) is invoked in a case where an item of receipt is income and yet the assessee claims the same to be exempt under Section 10(3). In this case, we have already held that the receipts under consideration did not constitute income at all, and so, there is no question of exempting the same under Section 10(3). If the exemption under Section 10(J) does not apply to a case, then the exceptions to Section 10(3) will not apply either. Hence, we are not impressed by this argument raised for the revenue.
11. For the above reasons, we uphold the order of the Commissioner
(Appeals), though on somewhat different reasons.
12. In the result, the appeal is dismissed.