2002 (7) TMI 34 - HC - Income Tax

Specific-purpose donations to a public charitable trust left unspent: treated as tied funds, not taxable trust income upheld.

The dominant issue was whether a voluntary contribution received by an anonymized public charitable trust, not utilized for the trust's objects during the ... Exemption under section 12 - Public charitable trust - voluntary contribution - Whether the Appellate Tribunal is right in law and on facts in holding that donation received by the assessee-trust, which was not utilised for the object of the trust, was not income of the trust? - HELD THAT:- No question of seeking any permission of the Income-tax Officer for accumulation of income as the contribution was received by the assessee-trust for a specific purpose and towards maintenance of the trust. We are, therefore, of the view that the reliance placed on this decision is also misconceived. In the present reference the assessee is claiming the benefit of section 11 on the ground that the contribution received by the assessee-trust was towards a specific purpose for construction of wadi and hence, it would not be treated as the income of the trust. - In the above view of the matter, we are of the view that the Tribunal his not committed any error in holding that the donation received by the assessee-trust which was not utilised for the object of the trust was not income of the trust. We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. Issues:Interpretation of section 12 of the Income-tax Act regarding treatment of voluntary contributions made to charitable trusts with specific directions.Analysis:The case involved the interpretation of section 12 of the Income-tax Act in relation to a charitable trust receiving a donation for a specific purpose. The assessee, a public charitable trust, received a sum of Rs. 1,85,064 towards the construction of wadi for caste people. The Income-tax Officer initially treated this amount as income of the trust, adding it to the total income. However, the Deputy Commissioner of Income-tax (Appeals) directed the exclusion of this amount from the income, stating it should form part of the corpus of the trust as it was received with a specific direction. The Tribunal upheld this decision, citing a similar precedent involving a different trust.The court referred to a previous judgment involving a trust fund for a specific purpose, stating that contributions with specific directions to form part of the corpus are exempt under section 12 of the Act. The court emphasized that any voluntary contribution designated for the corpus of the trust would not be considered income derived from charitable or religious purposes. The court also addressed arguments based on Supreme Court judgments related to different issues, clarifying that they were not applicable in the present case.Further, the court distinguished cases where trusts accumulated income for charitable purposes, highlighting that the present issue involved a specific purpose donation. The court rejected the Revenue's arguments based on various Supreme Court judgments concerning accumulation of income and application for exemption under section 11, emphasizing the unique circumstances of the present case. Ultimately, the court upheld the Tribunal's decision, ruling that the donation received by the trust, which was not utilized for the trust's object, was not considered income of the trust under section 12.In conclusion, the court found in favor of the assessee, affirming that the donation received with a specific purpose should be excluded from the trust's income. The court answered the referred question in the affirmative, supporting the assessee's position. The reference was disposed of accordingly, with no order as to costs.