Voluntary trust donations not income under Income-tax Act

The court ruled that the donation received by the charitable trust from another charitable trust towards its corpus did not constitute income under section 12(2) of the Income-tax Act, 1961. The court emphasized that voluntary contributions towards the corpus are not considered income and are excluded from deemed income. The decision was against the Revenue, with costs awarded to the assessee.

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Issues Involved:
1. Whether the donation made by Swadharma Swarajya Sangha to the assessee-trust constitutes income u/s 12(2) of the Income-tax Act, 1961.

Summary:

Issue 1: Whether the donation made by Swadharma Swarajya Sangha to the assessee-trust constitutes income u/s 12(2) of the Income-tax Act, 1961.

The assessee, a charitable trust, received a donation from Swadharma Swarajya Sangha, another charitable trust, towards its corpus. During the assessment for the year 1972-73, the ITO treated this donation as income u/s 12(2) of the Act but granted an exemption. The AAC, however, concluded that the donation was towards the corpus and not income, thus deleting it from the assessment. The Tribunal upheld this view, stating that the donation was specifically for the corpus and not income within the meaning of s. 12(1) and thus outside s. 12(2).

The Revenue contended that any donation from one charitable trust to another should be treated as income u/s 12(2). The court examined the scheme of the Act, particularly sections 10, 11, and 12, and noted that s. 12(1) exempts income derived from voluntary contributions if applied solely for charitable purposes. The term "income derived from voluntary contributions" implies that voluntary contributions themselves are not income but can generate income if invested.

The court emphasized that voluntary contributions are typically windfalls and not regular income, thus inherently non-income. Section 12(2) aims to prevent trusts from claiming exemptions by transferring income to other trusts, but it does not convert capital donations into income. The amendments to ss. 2(24)(ii) and 12 by the Finance Act (16 of 1972) further clarified that contributions to the corpus are excluded from deemed income.

The court referred to several decisions, including Sri Dwarkadheesh Charitable Trust v. ITO, CIT v. Bal Utkarsh Society, CIT v. Vanchi Trust, and CIT v. Eternal Science of Man's Society, which supported the view that donations to the corpus are not income u/s 12(2).

Conclusion:
The court concluded that the donation received by the assessee from Swadharma Swarajya Sangha, being towards the corpus, does not constitute income u/s 12(2) of the Act. The question was answered in the negative and against the Revenue, with costs awarded to the assessee.

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