1992 (7) TMI 148 - AT - Income Tax

Tribunal rules voluntary contributions to trust not taxable income under Income-tax Act

National Engineering Co-ordination Committee. Versus Assistant Commissioner Of Income-Tax.

The Tribunal ruled in favor of the appellant, a charitable trust, determining that the voluntary chick levy collected from poultry farmers and hatcheries ... Charitable Or Religious Trust, Charitable Trust, Income From Business, Income From Property, Voluntary Contributions Issues Involved:1. Whether the assessee is a charitable trust.2. Whether the activity carried on by the assessee amounts to a business activity.3. Whether the chick levy voluntarily contributed by the poultry farmers and hatcheries or collected by the assessee is income from business activity.4. Whether such an income is exempt or taxable.5. Whether the provisions of section 13(1)(d) of the Act are applicable.Detailed Analysis:1. Whether the assessee is a charitable trust:The appellant is a charitable society established on 31-5-1982, registered under the Societies Registration Act, 1860, and also as a public charitable trust under the Bombay Public Trust Act on 2-8-1982. It is registered under section 12A of the Income-tax Act. The main objects of the appellant, as per clause 3 of the Memorandum, include promoting the welfare of poultry farmers, ensuring fair prices for their products, and undertaking activities to achieve these objectives. The department accepted that the objects of the assessee trust are of general public utility and therefore of a charitable nature within the meaning of section 2(15) of the Income-tax Act.2. Whether the activity carried on by the assessee amounts to a business activity:The lower authorities held that the appellant is carrying on business by collecting chick levy from poultry farmers and hatcheries. However, the appellant contended that its activities do not constitute business as it does not derive income by way of profits and gains from business. The voluntary contributions are received as chick levy from both members and non-members, and extending facilities to the poultry farmers and hatcheries to improve and protect the egg industry does not amount to rendering services against specific charges. The Tribunal concluded that the assessee trust is not carrying on business activities either as commonly understood or within the meaning of section 11(4A).3. Whether the chick levy voluntarily contributed by the poultry farmers and hatcheries or collected by the assessee is income from business activity:The appellant argued that the chick levy is a voluntary contribution and not a business receipt. The Tribunal found that the chick levy is indeed a voluntary contribution made by the poultry farmers and hatcheries, and there is no provision in the Memorandum or Constitution of the assessee trust for the recovery of the chick levy. The contributions are made voluntarily, and the NECC has not taken any action against any member or non-member for non-payment of chick levy. Therefore, the chick levy is not income from business activity.4. Whether such an income is exempt or taxable:The Tribunal held that the chick levy is a voluntary contribution within the meaning of section 12 of the Income-tax Act and not a business receipt. Consequently, it is exempt from tax under section 11 of the Income-tax Act. The Tribunal also noted that the existence of surplus in the hands of the assessee trust merely denotes that in those years, the amount of voluntary contribution received happened to be more than the amount applied to charitable purposes, which does not lead to the inference that the assessee is carrying on business.5. Whether the provisions of section 13(1)(d) of the Act are applicable:The department contended that the assessee trust is ineligible for exemption on the ground that it had made investments or deposits otherwise than in the permitted manner, thereby attracting the mischief of section 11(5) read with section 13(1)(d) of the Income-tax Act. The Tribunal found that the advances made by the NECC to ACIL constituted monies applied by the NECC to its charitable objects and activities. The advances were not made for earning income or return but to further the basic object of NECC. Therefore, the provisions of section 11(5) read with section 13(1)(d) do not apply, and the assessee does not lose the benefit of exemption under section 11.Conclusion:The Tribunal set aside the orders of the CIT Pune under section 263 for the assessment years 1984-85 and 1985-86 and of the CIT (Appeals) for the assessment years 1984-85 to 1988-89, and those of the Asstt. CIT for the assessment years 1984-85 to 1988-89. The Tribunal directed the Asstt. CIT to compute the income of the assessee after allowing the exemption under section 11. The appellant succeeded, and all the appeals were allowed.