1975 (2) TMI 132 - SC - Companies Law

Supreme Court: 2% contribution on public trusts became unlawful tax post-1970; respondent liable for 1950s donations.

State of Maharashtra and Ors. Versus Salvation Army, Western India Territory and Ors.

The SC determined that the levy of a 2% contribution on the gross income of public trusts under Section 58 of the Bombay Public Trusts Act, 1950, ... - Issues Involved:1. Nature of the levy under Section 58 read with Rule 32(3) - whether it was a tax or a fee.2. Justification of the levy of contribution on the three donations received by the respondent.Detailed Analysis:1. Nature of the Levy under Section 58 Read with Rule 32(3):Initial Characterization as a Fee:The levy of 2% on the gross income of public trusts under Section 58 of the Bombay Public Trusts Act, 1950, was initially characterized as a fee. A fee is generally defined as a charge for a special service rendered to individuals by the government or some other agency. The amount of fee levied is supposed to be based on the expenses incurred by the government or the agency in rendering the service.Distinction Between Fee and Tax:A tax is a compulsory exaction of money by a public authority for a public purpose enforceable by law and is not a payment for any specific service rendered. In contrast, a fee must have a correlation to the expenses incurred in rendering the service. The Court cited various precedents to elucidate this distinction, including Hingir-Ramour Coal Co. Ltd. v. The State of Orissa and H.H. Sudhundra Thirtha Swamiar v. Commissioner for Hindu Religious & Charitable Endowments Mysore.Accumulation of Surplus:The Court noted that from 1953 to 1970, the total receipts were Rs. 2,20,78,080, and the total revenue expenditure was Rs. 1,17,86,443. The surplus in the account of the Public Trusts Administration Fund at the end of March 1970 was Rs. 84,49,473. The Court held that the levy was initially a fee as the expenditure was 62% of the contributions levied, showing an approximate correlation.Transition to a Tax:The Court acknowledged that if a fee results in a substantial surplus, it may assume the character of a tax. By the end of March 31, 1970, the surplus was Rs. 84,49,473, and the Court concluded that the levy at the rate of 2% on the gross income of the trusts after this date assumed the character of a tax. The Court emphasized that any levy after March 31, 1970, should have a correlation with the services rendered, considering the existence of the surplus fund.Conclusion:The Court declared that the levy of contribution at the rate of 2% of the annual gross income of the trusts became a tax after March 31, 1970, and was without the authority of law.2. Justification of the Levy of Contribution on the Three Donations:Background:The respondent received three sums from the international organization in the years ending 30-9-1954, 30-9-1955, and 30-9-1956. The respondent claimed exemption from liability to pay contribution on these donations, which was disallowed by the appellants.Legal Personality and Donations:The Court held that the respondent, registered under the Companies Act, had an independent legal personality, and the amounts received were donations coming within the purview of Section 58 of the Act and Rule 32. The Division Bench was correct in holding that these amounts were donations made by the international organization in London to the respondent.Retrospective Operation of the Amending Act:The Amending Act of 1962, which came into force on 17-8-1962, provided for the retrospective operation of the amended Section 58. The Court held that by virtue of the deeming provision in Section 58 as amended, the respondent became liable to pay contribution in respect of the three donations in the years they were received (1954, 1955, and 1956).Conclusion:The Court concluded that the respondent was liable to pay contributions in respect of the three sums and that the Division Bench erred in quashing the orders upholding the levy of contribution on these sums.Separate Judgments Delivered:The judgment in Civil Appeal No. 488 of 1973 followed the reasoning in Civil Appeal No. 487 of 1973, concluding that the respondent was liable to pay contribution in respect of the donations in question and quashing the order dated 30th March 1965. The Court made no order as to costs in both appeals.