Donation for Water Supply Scheme Not Taxable as Income

Sukhdeo Charity Estate, Ladnu Versus Commissioner Of Income-Tax, Rajasthan, Jaipur

Sukhdeo Charity Estate, Ladnu Versus Commissioner Of Income-Tax, Rajasthan, Jaipur - [1984] 149 ITR 470, 42 CTR 218, 19 TAXMANN 222 Issues Involved:
1. Whether the sum of Rs. 1,00,000 received by the assessee-trust from the Calcutta trust is liable to be included as part of the income of the assessee-trust u/s 12(2) of the I.T. Act, 1961.

Summary:

1. Facts of the Case:
One Sukhdeo Sarawagi set apart Rs. 6,08,000 in trust for religious and charitable purposes before his death in 1933. The trust was formally constituted on January 25, 1963. The assessee-trust initiated a water supply scheme for Ladnu, with the Government of Rajasthan agreeing to fund Rs. 7 lakhs out of a total estimated cost of Rs. 10 lakhs, provided the trustees collected Rs. 3 lakhs in advance. The assessee-trust received Rs. 70,000 and subsequently Rs. 1,00,000 from the Calcutta trust for this scheme. The Income-tax Officer (ITO) treated the Rs. 1,00,000 as income u/s 12(2) of the Act of 1961 and issued a penalty notice for late filing and inaccurate particulars.

2. Appellate Proceedings:
The assessee-trust appealed to the Appellate Assistant Commissioner (AAC) and later to the Income-tax Appellate Tribunal (Tribunal), both of which upheld the ITO's decision. The Tribunal referred the question of law to the High Court.

3. Legal Analysis:
Section 12(2) of the Act of 1961 deals with income received by one charitable trust from another. The provision has undergone changes, notably by the Finance Act of 1972. The relevant assessment year is 1964-65, so the provisions of the Act of 1961 apply. The court examined whether the Rs. 1,00,000 donation falls within the definition of 'income' derived from voluntary contributions. The court discussed various precedents, noting that the intention of the donor and the recipient at the time of the donation is crucial. The court concluded that the donation was meant for a specific purpose (the water supply scheme) and thus should be treated as corpus, not income.

4. Conclusion:
The court held that the sum of Rs. 1,00,000 received by the assessee-trust from the Calcutta trust is not liable to be included as part of the income of the assessee-trust u/s 12(2) of the Act of 1961. The question was answered in the negative, in favor of the assessee and against the Revenue.