{"id":163509,"date":"1998-07-16T00:00:00","date_gmt":"1998-07-15T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-r-b-shreeram-religious-vs-the-commissioner-of-income-tax-on-16-july-1998"},"modified":"2017-03-26T04:31:06","modified_gmt":"2017-03-25T23:01:06","slug":"ms-r-b-shreeram-religious-vs-the-commissioner-of-income-tax-on-16-july-1998","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-r-b-shreeram-religious-vs-the-commissioner-of-income-tax-on-16-july-1998","title":{"rendered":"M\/S. R.B. Shreeram Religious & … vs The Commissioner Of Income-Tax, … on 16 July, 1998"},"content":{"rendered":"
Supreme Court of India<\/div>\n
M\/S. R.B. Shreeram Religious & … vs The Commissioner Of Income-Tax, … on 16 July, 1998<\/div>\n
Author: M S Manohar.<\/div>\n
Bench: Sujata V. Manohar, S. Rajendra Babu<\/div>\n
           PETITIONER:\nM\/S. R.B. SHREERAM RELIGIOUS & CHARITABLE TRUST\n\n\tVs.\n\nRESPONDENT:\nTHE COMMISSIONER OF INCOME-TAX, VIDARBHA, NAGPUR\n\nDATE OF JUDGMENT:\t16\/07\/1998\n\nBENCH:\nSUJATA V. MANOHAR, S. RAJENDRA BABU\n\n\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
\t\t      J U D G M E N T
\nMrs. Sujata V. Manohar. J.\n<\/p>\n
     The  assessee   M\/S.  R.B.\t  Shreeram   Religious\t and
\nCharitable Trust,  the appellant  before us, is a registered
\npublic trust.  For the\tassessment year 1966-67 the assessee
\ndisclosed  in  its  income-tax\treturn,\t a  deficit  of\t Rs.
\n32,126\/-. The  Income-tax officer,  however,  added  to\t the
\nincome of  the assessee\t voluntary contributions received by
\nthe assessee-trust  amounting to a sum of Rs. 4,55,000\/- for
\nthe relevant  year. The\t Income tax  officer held  that\t the
\nvoluntary contributions amounting to Rs. 4,55,000\/- received
\nby the assessee during the relevant year were not applicable
\nsolely for  charitable and  religious purpose  and were also
\nnot actually  applied\tas such.  In appeal,  the  Appellate
\nAssistant Commissioner\theld that  out of  the\tsum  of\t Rs.
\n4,55,000\/-, a  sum of  Rs.4,00,000\/- could not be treated as
\nincome\tderived\t  from\tvoluntary  contributions.  Both\t the
\nrevenue as well as the assessee filed appeals from the order
\nof the\tAppellate Assistant  Commissioner before the Income-
\ntax Appellate  Tribunal. The  Tribunal\tallowed\t the  appeal
\nfiled by  the revenue  and dismissed the appeal filed by the
\nassessee.\n<\/p>\n
     At the  instance of  assessee, a  reference was made to
\nthe High  Court under  Section 256(1) of the Income-tax Act.
\nThe questions before the High Court, as reframed by the High
\nCourt in the impugned judgement, were as follows:-\n<\/p>\n
     “(1) Whether  on the  facts and  in
\n     the circumstances\tof the\tcase and
\n     having  regard   to  the\trelevant
\n     provisions of  the\t I.T.  Act,  the
\n     voluntary contributions aggregating
\n     to Rs.  55,000\/-  received\t by  the
\n     Assessee was  income liable  to  be
\n     taxed under the I.T. Act, 1961?
\n     (2) Whether on the facts and in the
\n     circumstances  of\t the  case   and
\n     having  regard   to  the\trelevant
\n     provisions\t  of\tthe   I.T.   Act
\n     voluntary contributions aggregating
\n     to Rs.  4,00,000\/- received  by the
\n     assessee was  income liable  to  be
\n     taxed under the I.T. Act, 1961?
\n     (3) Whether on the facts and in the
\n     circumstances of the case voluntary
\n     contributions  aggregating\t to  Rs.
\n     55,000\/- and  Rs.\t4,00,000\/-  were
\n     exempt u\/s\t 12(1) of  the I.T. Act,
\n     1961?\n<\/p><\/blockquote>\n
     (4) Whether on the facts and in the
\n     circumstances  of\t the  case   the
\n     Tribunal  mis-directed   itself  in
\n     holding that mere discharge of debt
\n     whether existing  or new during the
\n     year   from    out\t  of   voluntary
\n     contributions of  Rs. 55,000\/-  and
\n     Rs. 4,00,000\/- does not render it a
\n     solely\t charitable\t purpose
\n     admissible to exemption?
\n     (5)  Whether   on\tthe   facts  and
\n     circumstances of  the case the levy
\n     of interest  under Section\t 139 and
\n     215  of  the  I.T.\t Act,  1961  was
\n     justified in law?”<\/p><\/blockquote>\n
     Question No.  5 is not pressed. The High Court answered
\nthe remaining  questions against  the assessee and in favour
\nof the\trevenue. Hence the present appeal is filed before us
\nby the assessee-trust.\n<\/p>\n
     The amount\t of Rs.\t 4,55,000\/-  received  as  voluntary
\ncontributions consisted of the following:-\n<\/p>\n
     (1) A  cheque for Rs. 25,000\/- from
\n     Saraf  Mor\t  &  Co.   Ltd.,   dated
\n     2.11.65.\n<\/p><\/blockquote>\n
     (2) A  cheque for Rs. 10,000\/- from
\n     M\/S. Ferro Alloys Corporation Ltd.,
\n     dated 22.11.65.<\/p><\/blockquote>\n
\n     (3) A  cheque for Rs. 20,000\/- from\n     R.B.   Shreeram\tDurgaprasad    &\n     Fetehchand\t   Narsinghdas,\t   dated\n     19.11.66.\n<\/pre>\n
     These  three   cheques  constituted   the\tsum  of\t Rs.\n<\/p><\/blockquote>\n
55,,000\/-  received   by  the  assessee-trust  as  voluntary
\ncontributions. The  assessee also  had, during\tthe material
\nperiod, a  loan account\t with M\/s. R.B. Shreeram Durgaprasad
\n(mining Firm). Amounts were lent to the assessee by the said
\nmining firm  from time\tto time.  At the  beginning  of\t the
\nrelevant year pertaining to the assessment year 1966-67, the
\nassessee owed  to the  said mining  firm a  sum of  Rs. 7.65
\nlakhs under  the said loan account. During the relevant year
\nM\/s. R.B.  Shreeram  Durgaprasad  &  Fetehchand\t Narsinghdas
\n(Export Firm)  gave to\tthe assessee  a\t total\tsum  of\t Rs.
\n4,00,000\/- which  was shown as debited to the account of the
\ndonor Export  firm. The\t amount was  transferred to the said
\nmining firm.  By the  transfer of  the said  amount  to\t the
\nmining firm,  the liability  of the  assessee-trust  to\t the
\nmining firm under the said loan account was reduced. The sum
\nof Rs.55,000\/-\twas also similarly transferred to the mining
\nfirm, thus  reducing the liability of the assessee under the
\nsaid loan account.\n<\/p>\n
     The   Income-tax\t officer,   after    examining\t the
\nbalancesheet of\t the assessee for the years 1953-54 to 1966-
\n67 and\tafter examining the amounts lent under the said loan
\naccount to  the assessee-trust,\t held that  out of the total
\nincome\t earned\t  by   the   assessee-trust   amounting\t  to
\napproximately Rs.24,00,000\/-  was  these  assessment  years,
\nonly a\tsum of\tRs.7,12,219\/- was  invested in a Dharamshala
\nand the\t balance amounts  were invested in other properties,
\nadvances and investments. The Income-tax officer came to the
\nconclusion that the transfer of sum of Rs. 4,55,000\/- to the
\nsaid mining  firm cannot  be considered\t as  application  of
\nmoney for religious or charitable purposes. The assessee had
\ncontended that\tthe amount received by way of loans from the
\nsaid mining firm had been utilised for the construction of a
\nDharamshala. The  Income-tax officer, however, held that the
\namounts received  as loans  from the  mining  firm  did\t not
\nnecessarily go\tinto the  construction of a Dharamshala. The
\nfunds of the assessee were allowed to grow side by side with
\nthe loans from the mining firm.\n<\/p>\n
     Looking to the totality of circumstances the Income-tax
\nofficer\t gave\ta  finding   of\t fact\tthat  the  voluntary
\ncontributions were  not solely\tapplicable to  religious and
\ncharitable purposes  and were  not actually applied as such.
\nThis finding has been ultimately upheld by the Tribunal. The
\nTribunal has  also come\t to  the  conclusion  that  a  close
\nscrutiny of  the balance-sheet\tof the assessee-firm reveals
\nthat the  assessee used to transfer a substantial portion of
\nits income  to\tan  account  called  Dharamshala  and  other
\nBuildings Fund;\t and out  of this  Fund\t the  investment  in
\nDharamshala covered  only a  part of  the amount.  In  these
\ncircumstances  the   use  of   voluntary  contributions\t for
\ndischarge of  liability under  the loan account could not be
\nconsidered  as\tuse  of\t the  money  solely  for  charitable
\npurposes, especially because a part of the advance which had
\nbeen repaid  was an  advance of Rs. 2.51 lakhs by the mining
\nfirm of\t which interest was not charged. In this view of the
\nmatter the  Tribunal held  that the  voluntary contributions
\nwere not  applicable entirely  for religious  and charitable
\npurposes  and  were  not,  in  fact,  applied  entirely\t for
\nreligious or charitable purposes. The high court, in view of
\nthis finding  of fact,\thas come  to the conclusion that the
\nsaid amount  of Rs.4,55,000\/- has been rightly considered as
\nincome of the assessee not exempt under Section 12(1) of the
\nincome-tax Act as it stood at the relevant time.\n<\/p>\n
     Section 12\t of the\t Income-tax Act\t as it\tstood at the
\nrelevant time  (Prior to  its  amendment  in  1972)  was  as
\nfollows:-\n<\/p>\n
     Section 12:\n<\/p><\/blockquote>\n
     “Income of\t trusts or  institutions
\n     from  voluntary   contributions-(1)
\n     Any   income   of\t a   trust   for
\n     charitable or religious purposes or
\n     of\t a   charitable\t  or   religious
\n     institution derived  form voluntary
\n     contributions and applicable solely
\n     to charitable or religious purposes
\n     shall not\tbe included in the total
\n     income  of\t  the  trustees\t or  the
\n     institution, as the case may be.\n<\/p><\/blockquote>\n
     (2)    Notwithstanding\tanything
\n     contained in sub-section (1), where
\n     any  such\t contributions\tas   are
\n     referred to in sub-section (1), are
\n     made to  a trust or a charitable or
\n     religious institutions  by trust or
\n     a\t  charitable\t or    religious
\n     institution to which the provisions
\n     of\t  Section    11\t  apply,    such
\n     contributions shall,  in the  hands
\n     of\t  the\ttrust\tor   institution
\n     receiving\tthe   contributions,  be
\n     deemed to\tbe income  derived  from
\n     property for  the purposes\t of that
\n     section and  the provisions of that
\n     section shall apply accordingly.”<\/p><\/blockquote>\n
     The assessee  contends that Section 12(1) refers not to
\nthe voluntary  contributions themselves\t but to\t any  income
\nderived from  voluntary contributions  so received. In other
\nwords,\taccording  to  the  assessee,  the  exemption  under
\nSection 12(1) is applicable to any amount realised as income
\nfrom  out   of\tinvestment  of\tany  voluntary\tcontribution
\nreceived  by   the  assessee   during  the  year.  Voluntary
\ncontribution itself  is not  income at\tall. In support, the
\nassessee  relies  upon\tthe  definition\t of  ‘income’  under
\nSection 2(24)  as in  force at\tthe relevant  time.  Section
\n2(24) at  the relevant time did not expressly include in the
\ndefinition of ‘income’ voluntary contributions received by a
\npublic religious  or charitable\t trust.\t The  definition  of
\n‘income’ under\tSection\t 2(24)\twas,  however,\tsubsequently
\namended by  the Finance\t Act of\t 1972 by  including  in\t the
\ndefinition of  ‘income’ under  sub-clause (ii)(a) of Section
\n2(24), voluntary  contributions received  by a trust created
\nwholly or  partly for  charitable or religious purpose or by
\nan  institution\t  established  wholly  or  partly  for\tsuch
\npurpose. The  amended  definition  also\t excluded  from\t the
\ndefinition of  ‘income’ those  contributions which were made
\nwith a specific direction that they shall form a part of the
\ncorpus of  the\ttrust  or  the\tinstitution.  The  assessee,
\ntherefore,  contends   that  Section   12(1)  prior  to\t the
\namendment of 1972 should be interpreted as referring only to
\nany income which accrues to the trust by investing voluntary
\ncontributions which it has received.\n<\/p>\n
     In order  to examine  whether  this  interpretation  is
\ncorrect it  is necessary to read Section 12 as a whole. sub-
\nsection (1)  of section\t 12 excludes  from the\tincome of  a
\ntrust for  charitable or  religious purposes, income derived
\nfrom  voluntary\t  contribution\tand   applicable  solely  to
\ncharitable  and\t religious  purposes.  However,\t under\tsub-
\nsection (2)  such income will be deemed to be income derived
\nfrom property  for the\tpurposes  of  section  11  when\t the
\nvoluntary contribution\tis made by a charitable or religious
\ninstitution or\ttrust to  another  religious  or  charitable
\ninstitution or\ttrust. Sub-section  (2),  therefore,  is  an
\nexception to  sub-section (1).\tThe language  of sub-section
\n(2) makes  it clear  that the  subject-matter of sub-section
\n(2) as well as sub-section (1) is the voluntary contribution
\nitself. When  such a  voluntary contribution  is made  to  a
\nreligious or charitable trust by another similar trust, then
\nsuch a\tcontribution in\t the hands  of the  receiving  trust
\nshall be deemed to be its income derived from property under
\nSection 11,  and the  provisions of  Section 11\t will apply.
\nTherefore, when\t sub-sections (1) and (2) are read together,
\nthe phrase  ‘income derived  from voluntary contribution’ in
\nsub-section (1)\t refers to  income in  the form of voluntary
\ncontributions  received\t  by  the   recipient  religious  or
\ncharitable trust.  It has  no reference\t to the income which
\nmay later on be derived from such voluntary contributions as
\nand when  such contributions  are invested,  as contended by
\nthe  assessee.\tAlso  when  under  section  12(2)  voluntary
\ncontribution from one charitable trust to another charitable
\ntrust is  treated as  income of\t the recipient,\t there is no
\nreason why  under section 12(1), voluntary contribution from
\nothers to  the charitable  trust should\t not be\t treated  as
\nincome.\n<\/p>\n
     In this  connection our  attention has  been drawn to a
\nnumber of  decisions of\t various High  Courts  dealing\twith
\ninterpretation\tof   Section  12(2).  In  the  case  of\t Sri
\nDwarkadheesh Charitable Trust V. Income-tax Officer, Company
\nCircle, “C”  Ward, Kanpur  (98 ITR  557), the Allahabad High
\nCourt while interpreting Section 12(2) observed that section
\n12 is  confined to  voluntary contributions  which should be
\ntreated as  income. The\t Allahabad High\t Court was concerned
\nwith a\tcase where the donor specified that the contribution
\nwas towards  the corpus\t of the receiving trust’s funds. The
\nAllahabad  High\t  Court\t held\tthat  since   the  voluntary
\ncontribution was  made expressly  towards the  corpus of the
\ntrust, it  could not  be considered  as income. Hence it was
\nnot covered by section 12(2) which covers only income in the
\nform of\t voluntary contributions.  The same  view  has\tbeen
\ntaken by  the Gujarat  High Court in Commissioner of Income-
\ntax, Gujarat-IV\t v. Bal\t Utkarsh Society  (119 ITR 137). The
\nGujarat High  Court, following\tthe Allahabad  High  Court’s
\ndecision in  sri Dwarkadheesh  Charitable Trust\t (Supra) has
\nalso  observed\t that  Section\t (12(1)\t  covers   voluntary
\ncontributions which are received as income.  Sub-section (2)
\nwould apply if the voluntary contribution is from one public
\ncharitable trust  to another.  However, when  the  voluntary
\ncontribution  is   expressly  towards\tthe  corpus  of\t the
\nreceiving trust,  it  cannot  be  considered  as  income.  A
\nsimilar view  has been\ttaken by  the Kerala  High Court  in
\nCommissioner of\t Income-Tax V.\tVanchi Trust  &<\/a> another (127
\nITR 227),  and by  the Delhi  High court  in Commissioner of
\nIncome-Tax, Delhi-II  V. Eternal  science of  man’s  Society
\n(128 ITR  456). (See  also Sukhdeo  Gharity Estate, Ladnu V.
\nCommissioner of\t Income-tax, Rajasthan,\t Jaipur 149  ITR 470
\n[Raj]).\n<\/p>\n
     The Madras\t High Court  in the  case of Commissioner of
\nIncome-Tax, Tamil  Nadu-IV  v.\tShri  Billeswara  Charitable
\nTrust<\/a> (145  ITR 29)  was also  concerned with a case where a
\ncharitable  trust  had\treceived  a  donation  form  another
\ncharitable trust  towards its  corpus. The Madras High Court
\nalso held  that this  cannot be\t treated as  income  of\t the
\nreceiving trust. However, in the course of its judgment, the
\nMadras High  Court has\tobserved that  Section 12(1)  refers
\nonly  to   the\tincome\t which\tis  derived  from  voluntary
\ncontribution i.e.  voluntary  contribution,  when  invested,
\nwould fetch income. This income is covered by the provisions
\nof Section  12(1). Therefore,  voluntary contribution itself
\nwould not  be income.  These observations  do not seem to be
\ncorrect since  they do not take into account the language of
\nsub-sections (1)  and (2) of section 12 read as a whole. The
\ndefinition of  income under  section 2(24) of the Income-tax
\nAct as\tit stood  at the  relevant  time  was  an  extensive
\ndefinition.  Although it did not expressly include voluntary
\ncontributions received\tby was\tof income  by a religious or
\ncharitable trust,  as the  definition was not exhaustive, it
\nwould cover  income  in\t all  forms.  The  fact\t that  by  a
\nsubsequent  amendment  of  section  2(24),  such  income  is
\nexpressly included,  does not  make any\t difference  to\t the
\ninterpretation of Section 12.\n<\/p>\n
     Our attention  was also  drawn to\ta  decision  of\t the
\nTravancore-Cochin High\tCourt in  the case  of\tRev.  Father
\nPrior,\tSacred\tHeart’s\t monastery  v.\tIncome-Tax  Officer,
\n(Ernakulam), and  others (30  ITR 451). That case turns upon
\nthe provisions of the Cochin Income-tax Act and the language
\nused  in   the\trelevant  sections  therein.  It  does\tnot,
\ntherefore, throw any light on the present question.\n<\/p>\n
     Hence Section  12(1) refers  to any income derived by a
\ntrust for  religious or\t charitable purpose  in the  form of
\nvoluntary contributions.   If  such voluntary  contributions
\nare applicable\tsolely to  charitable or religious purposes,
\nthey shall not be included in the total income of the trust.
\nHad such  voluntary  contribution  been\t considered  as\t not
\nincome at  all, the  need for  section 12(1)  would not have
\narisen.\n<\/p>\n
     Undoubtedly by  a subsequent  amendment in\t 1972 to the
\ndefinition  of\t ‘income’  under  Section  2(24),  voluntary
\ncontributions not  being contributions towards the corpus of
\nsuch a\ttrust, are included in the definition of ‘income’ of
\nsuch a\treligious or charitable trust. Section 12 as amended
\nin  1972   also\t expressly   provides  that   any  voluntary
\ncontribution received by a trust for religious or charitable
\npurposes, not  being contribution  towards the corpus of the
\ntrust, shall, for the purpose of Section 11, be deemed to be
\nincome derived\tfrom property  held by\tthe trust wholly for
\ncharitable or  religious purposes.   This, however, does not
\nnecessarily imply  that prior  to the  amendment of  1972, a
\nvoluntary contribution\twhich was  not towards the corpus of
\nthe receiving  trust, was not income of the receiving trust.
\nIt was.\t  Even\tprior prior  to the  amendment of  1972, any
\nincome received\t by a  religious or  charitable trust in the
\nform of\t a voluntary  contribution would  be income  of\t the
\ntrust unless  such contribution\t was expressly\tmade towards
\nthe corpus  of the  trust’s fund.   Section  12,  therefore,
\nprescribed that\t such income  would not\t be included  in the
\ntotal income  of the  trust if\tit was\tapplicable solely to
\ncharitable or  religious purposes.   It\t would, however,  be
\ntreated as  income from\t property under\t Section 11 if it is
\nreceived from another charitable or religious trust.\n<\/p>\n
     The assessee  has relied  upon a  departmental circular
\nNo.20\/10\/67-IT(AI) dated 1.5.1967 which deals with exemption
\nof income  of a\t charitable trust under Section 11(1) of the
\nIncome-tax Act,\t 1961.\t Departmental circular,\t inter alia,
\nstates\tthat   provisions  of  Section\t11(1)  will  not  be
\napplicable to  capital receipts.   It states, “The donations
\nreceived by charitable trust from the members of the public,
\nbeing capital  receipts, cannot be regarded as income of the
\ntrust.\t Accordingly, the  donations received  by the  trust
\nshould be  excluded from  the income  of the  trust for\t the
\npurpose of calculating the accumulation limit of 25 per cent
\nexcept in  cases covered by Section 12(2) of Act”  The Board
\ncircular was  not dealing  with Section\t 12.  It was dealing
\nwith  the  application\tof  Section  11(1).    The  Circular
\ncorrectly pointed  out that Section 11(1) would be attracted
\nto cases  covered under section 12(2).\tUnder Section 12(1),
\nas it  stood then,  income by  way of voluntary contribution
\nwas totally  exempt provided it was applicable for religious
\nor charitable purposes.\t The Board Circular, therefore, must
\nbe read\t only as  interpreting\tSection\t 11(1)\tand  not  as
\ninterpreting Section  12(1) which was not the subject-matter
\nof the Board Circular.\n<\/p>\n
     To get  the benefit  of Section 12(1), the assessee was
\nrequired to  show that\tthe voluntary  contribution which it
\nhad  received\twas  applicable\t  solely  for  religious  or
\ncharitable purposes.   The  Tribunal, as  well as  the\tHigh
\nCourt,\trelying\t upon  the  Tribunal,  have  held  that\t the
\nvoluntary contribution\tamounting to  Rs.4,55,000\/- was\t not
\napplied and  was not  wholly  applicable  for  religious  or
\ncharitable purposes.   In  this\t view  of  the\tmatter,\t the
\nassessee, on  the facts\t of the present case, cannot get the
\nbenefit of Section 12(1).\n<\/p>\n
     The appeal\t is,  therefore,  dismissed.\tThere  will,
\nhowever, be no order as to costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India M\/S. R.B. Shreeram Religious & … vs The Commissioner Of Income-Tax, … on 16 July, 1998 Author: M S Manohar. Bench: Sujata V. Manohar, S. Rajendra Babu PETITIONER: M\/S. R.B. SHREERAM RELIGIOUS & CHARITABLE TRUST Vs. RESPONDENT: THE COMMISSIONER OF INCOME-TAX, VIDARBHA, NAGPUR DATE OF JUDGMENT: 16\/07\/1998 BENCH: SUJATA V. MANOHAR, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-163509","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nM\/S. R.B. 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