TaxTMI 
TaxTMI 
1980 (8) TMI 201
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....re 1970-71, 1971-72 and 1972-73. M/s. Daulat Ram General Education Society, New Delhi, is the assessee-respondent in Income-tax References Nos. 226 and 227 of 1977 and the assessment years are 1969-70 and 1970-71. All three assessees are charitable institutions. The questions in the respective references are as follows : Eternal Science of Man's Society, New Delhi. " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sum of Rs. 4 lakhs received by the assessee-trust in the form of Rs. 40,000 shares of Motor & General Finance Ltd. from M/s. Daulat Ram Public Trust was not taxable income in the hands of the receiving trust under the provisions of section 11 and section 12(2) of the Income-tax Act, 1961, for the assessment year 1970-71 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in excluding the interest income of Rs. 14,896 for the assessment year 1971-72 and Rs. 34,305 for the assessment year 1972-73 by holding that the ....
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....s amendment by the Finance Act of 1972 with effect from 1st April, 1973, stood as follows : " 12. Income of trusts or institutions from voluntary contributions.- (1) Any income of a trust for charitable or religious purposes or of a charitable or religious institution derived from voluntary contributions and applicable solely to charitable or religious purposes shall not be included in the total income of the trustees or the institution, as the case may be. (2) Notwithstanding anything contained in sub-section (1), where any such contributions as are referred to in sub-section (1) are made to a trust or a charitable or religious institution by a trust or a charitable or religious institution to which the provisions of section 11 apply, such contributions shall, in the hands of the trust or institution receiving the contributions, be deemed to be income derived from property for the purposes of that section and the provisions of that section shall apply accordingly. " Section 13 makes s. 11 inapplicable in certain cases. It ....
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....tor and General Finance Ltd. from M/s. Daulat Ram Public Trust. This public trust was also governed by the provisions of ss. 11, 12 and 13 of the Act. These shares of Motor and General Finance Ltd. were donated to the assessee-respondent by way of an endowment fund to form a part of the corpus of the assessee-society. The assessee received them as such with the further restrictions that these shares could not be utilized by the assessee for its objects nor could the shares be sold without the prior permission of the donor trust. It was only the dividend income of the shares which could be utilized for the objects of the assessee. As the assessee did not expend any monies in the relevant year, it gave notice to the ITO that it would accumulate the funds. The notice was given on 14th July, 1970, under s. 11(2) of the Act in Form No. 10. The purpose of the accumulation was mentioned therein but was subsequently revised on 6th June, 1972, and 4th November, 1972. The ITO felt that the assessee-society was not entitled to the benefits of the exemption under s. 11 and added the value of the 40,000 shares of Motor and General Finance Ltd. amounting to Rs. 4 lakhs as also the divid....
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.... s. 11(2) of the Act. With regard to the assessment years 1971-72 and 1972-73, the ITO found that the amounts of Rs. 74,886 and Rs. 1,11,229 earned as dividend income and interest for the two years respectively, had not been spent during the years under consideration. Further, as the notice with regard to accumulation of income in Form No. 10 was defective for the assessment year 1970-71 and, therefore, out of time, there was no valid notice in operation. She also held that the accumulated funds were not invested as per the requirements of s. 11(2)(b) of the Act, so the assessee was not entitled to the exemption under s. 11(2) of the Act. She also noted that the founding members of the society together with their relatives had a substantial interest as defined in s. 13(4), Expln. 3(i), in the two companies, i.e., Motor and General Finance Ltd. and Goodwill India Ltd. Therefore, she held that the income of the trust received from funds invested in those two companies was liable to tax under s. 13(4) of the Act. She also observed that under s. 13(3) of the Act, it was the collective shareholding of all the interested persons that had to be taken into consideration in establishi....
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....was filed on 14th July, 1970, and subsequently, revised on 7th June, 1972, and 4th November, 1972. The donation of 22,130 shares of Motor and General Finance Ltd. received by the assessee-mission from Daulat Ram Public Trust and valued at Rs. 2,21,300 was held to be taxable by the ITO. She also held the Form No. 10 to be invalid and belated for the same reasons as noticed above in the case of Eternal Science of Man's Society, New Delhi. In the dual circumstances, she held that investment in Govt. securities was inadequate, and taxed the dividend income as well. For the years 1971-72 and 1972-73, the provisions of s. 13 were held to be applicable by her, as the founder members of the society together with their relatives and M/s. Daulat Ram Public Trust had a substantial interest in the two companies, Motor and General Finance Ltd. and Goodwill India Ltd. She, therefore, held the dividend income from these two companies chargeable to tax under s. 13(4) read with s. 13(2)(h) of the Act. The interest income of Rs. 13,764.80 and Rs. 17,021 for the assessment years 1971-72 and 1972-73, respectively, was also included in the total income for the purpose of tax. On appeal, th....
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....n by the trust were to be treated as income in the hands of the recipient assessee-society. In the assessment year 1970-71, the assessee also earned a dividend income of Rs. 69,469. No amount of this was spent in that year. The assessee, however, gave a notice on 14th July, 1970, in Form No. 10 regarding accumulation of funds. This was subsequently revised on 7th June, 1972, and further clarified on 4th November, 1972. For similar reasons as set out in the case of Eternal Science of Man's Society, the ITO held the Form No. 10 to be invalid and belated. She also held that the investment in Govt. securities was inadequate as the income was Rs. 2,20,000 + Rs. 69,469 = Rs. 2,89,469. Thus the benefit of the exemption under s. 11 was not available to the assessee-society. But s. 11(1)- the exemption of 25 per cent.-was taken into consideration in arriving at the total income. On appeal, the AAC dealt with the matter at length. But on the same reasoning as in the Eternal Science of Man's Society, he dismissed both the appeals. On further appeal by the assessee, the Tribunal followed its decision in the Eternal Science of Man's Society and allowed both the appeals. On ....
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...., the voluntary contributions did not constitute income in the hands of the recipient trust. The conditions imposed on the voluntary contributions ensured that they were to be part of the capital or corpus of the donee trust. These voluntary contributions not being income, would fall outside the scope of s. 12(1) and therefore, outside the ambit of a s. 12(2) of the Act. The position has now been clarified in the amended s. 12 which was substituted in place of the section as set out above. The new s. 12 provides that any voluntary contributions received by a charitable trust would be deemed to be income derived from property unless they contain a specific direction that they shall form a part of the corpus of the recipient trust. Therefore, such capital contributions can be retained by the donee trust as corpus without attracting any income-tax liability. Further, s. 2(24) of the Act which defines income, did not include " voluntary contributions " prior to its amendment by the Finance Act, 1972, with effect from 1st April, 1973. By this amendment cl. (iia) was introduced which provided as follows : " (iia)....
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....vestments. Clause (a) of sub-s. (2) of s. 13 appears to provide for a situation where income or property of the trust is lent to a person specified in sub-s. (3) of s. 13 without adequate security or adequate interest or both. Clause (h) of sub-s. (2) of s. 13, however, appears to deal with a situation where funds of the trust are or continue to remain invested in a concern in which a person specified in sub-s. (3) has a substantial interest. The two provisions have to be construed in a harmonious manner. If investments are held to include loans, as urged by counsel for the revenue, it would render cl. (a) of sub-s. (2) of s. 13 otiose. Since a specific provision for loans has been made in cl. (a) of sub-s. (2) of s. 13, we feel that these should not be included in the generic term as investments in cl. (h) of sub s. (2) of s. 13. It would thus appear that if the funds of the trust are invested in debentures or loans then cl. (a) of sub-s. (2) of s. 13 would be applicable ; whereas if the funds are invested in equity capital, i.e., shares, etc., then cl. (h) of sub-s. (2) of s. 13 would be attracted. This distinction also accords with reason, as in the former case there is no parti....