Commissioner of Taxes, Assam Vs. M/S.
Jalannagar South Estate Ltd.& Ors  INSC 177 (4 August 1971)
CITATION: 1971 AIR 2135 1972 SCR (1) 17
Assam Agricultural Income-tax Act (Assam Act
9 of 1939) and Rules made there under, s. 8 and r. 2-Contribution to a charity
trust-If exemption can be claimed with respect to amount.
Exemption granted by Assistant
Commissioner-Larger deduction claimed by assessee in appeal to
Board-Jurisdiction of Board to express opinion on correctness of finding of
Assistant Commissioner as to the right to claim exemption.
The assessees made donations to a Charity
Trust and claimed that the amount should be considered as "amounts
actually spent for charitable purposes" under r. 2 of the rules framed
under the Assam Agricultural Income-tax Act, 1939, and therefore exempt from
assessment to tax. The Income-tax Officer rejected the claim but on appeal, the
Assistant Commissioner granted exemption to the extent of 60% of the amounts donated.
The Department bad no further right of appeal, but the assessees exercised
their right of appeal to the Board of Revenue claiming full exemption. The
Board of Revenue held that, (1) the assessees were not entitled to any
exemption under the Act, but as the order of the Assistant Commissioner had
become final, the assessees were entitled to retain the exemption granted; and
(2) even if they were entitled to some exemption, what was granted was more
than what they were entitled to.
The High Court, on reference, held that : (1)
the Board was not competent in the assessees' appeal to question the finding of
the Assistant Commissioner that the amounts donated to the Charity Trust were
actually spent for charitable purposes and (2) the Board was not justified in
holding that only 60% of the amounts donated, were admissible as deduction
Allowing the appeals,
HELD : (1) Since there was no right of appeal
to the Department an exemption granted by the Assistant Commissioner could not
be interfered with by the Board, but while considering whether the assessees
were entitled to the full exemption claimed, the Board had to examine the true
legal position under the Act and the rules for the purpose of deciding the
matter in issue. Therefore the Board was competent to determine whether the
Assistant Commissioner took the correct view in law. [20B-D] (2)Under r. 2 (1)
read with s. 8 (g) of the Act an assessee is entitled to deduct from his income
only the sum actually spent by him for charitable purposes as defined in the
rule. Assuming that an assessee may rely on an expenditure through an agency
and not 18 by himself, and that the objects of the Charity Trust are charitable
purposes as defined, it had to be established to the satisfaction of the
assessing authority that the amounts were actually spent for such charitable
purposes. Mere contribution to a charity fund would not entitle an assessee to
the exemption when it was not proved that the Charity Trust had in fact
expended the amounts donated for any such charitable purpose. [20G,H;21A-E]
CIVIL APPELLATE JURISDICTION : Civil Appeals
No. 1873 to 1876 of 1967.
Appeals by special leave from the judgment
and order dated August 8, 1966 of the Assam and Nagaland High Court in Ref.
Nos. 2 to 4 of 1965.
S.T. Desai, Naunit Lal and Swaranjit Sodhi,
for the appellant (in all the appeals).
M.C. Chagla, S. C. Majumdar and R. K. Jain,
for the respondents (in all the appeals).
The Judgment of the Court was delivered by
Hegde J,-These appeals by special leave arise from the decision of the High
Court of Assam and Nagaland in Tax References Nos. 2 to 4 of 1965 on its file
wherein the High Court of Assam and Nagaland answered the two questions of law
referred to it by the Assam Board of Revenue under S. 28(2) of the Assam
Agricultural Income-tax Act, 1939 (Assam Act IX of 1939) (to be hereinafter
referred to as the Act) in the negative. The two questions referred for the
advisory opinion of the High Court are (1)Whether on the facts and in the circumstances
of the case the Board was competent in course of appeals preferred by the
assessee to question the finding of Assistant Commissioner of Taxes to the
effect that the amount donated to Jalan Charity Trust were amounts actually
spent for 'Charitable purposes' within the meaning of Assam Agricultural
(2)Whether on the facts and in the circumstances
of the case the Board was justified in holding that only 60 per cent of the
amounts actually spent by the assessee for 'Charitable purposes' from the
Agricultural income was admissible as deduction under Rule 2(2) of the Rules
framed under the Assam Agricultural Income-Tax Act.
19 Aggrieved by the decision of the High
Court Commissioner of Taxes, Assam has brought this appeal.
We shall now briefly set out the facts
necessary for deciding the points in controversy in these appeals. Each of the
three assessees with whom we are concerned in these appeals had given certain
donations to the Jalan Charity Trust in the relevant assessment years, which in
the case of two the assessees is 1955-56 and in the case of the third is
1955-56 and 1957-58. The question for consideration is whether those donations
can be considered as " amounts actually spent for charitable purposes
under rule 2(1) of the rules framed under the Act.
The agricultural income of the assessee was
computed at 60 per cent of the total net income ascertained, by the Incometax
Officer under the Indian Income-tax Act, 1922. ]Before the Income-tax Officer
the assessees claimed exemption under S. 15-B of the Indian Income-tax Act in
respect of the donations made by them to the Jalan Trust, but that Officer did
not grant the exemption asked for but reserved that question for decision to a
latter date as he wanted to examine the nature of those donations. He
determined the income of the assessees for the years in question without taking
into consideration those donations. Thereafter the Agricultural Income-tax
Officer proceeded to assess the agricultural income of the assessees. Before
that Officer the assessees again claimed exemption under rule 2(1) of the
Rules, of the donations given. by them to the Jalan Charity Trust. That Officer
refused to grant the exemption asked for. Thereafter the assessees took up the
matter in appeal to the Assistant Commissioner. The Assistant Commissioner
granted to each of the assessees exemption to the extent of 60 per cent of the
amounts donated. Then the assessees took up the matter in appeal to the Board
of Re venue.The Department had no right to appeal against the order of the
Assistant Commissioner. The Board of Revenue came to the conclusion that the
assessees were 'not entitled to any exemption under the Act but all the same as
the order of the Assistant Commissioner had become final in respect of
exemption given, the assessees were entitled to retain the exemption granted by
the Assistant Commissioner.
Alternatively it also came to the conclusion
that even if the assessees were entitled to any exemption under 20 the Act and
the Rules, the exemption granted to them by the Assistant Commissioner was more
than what they were entitled to. Thereafter the assessees moved the Board to
refer to the High Court for its. opinion the two questions mentioned eerlier.
There is no substance in the first question
referred to above. It is true that the exemption granted by the Assistant
Commissioner could not be interfered with by the Board of Revenue. But all the
same while considering whether the assessees were entitled to the further
exemption claimed by them the Board of Revenue had to examine the true legal
position under the Act and the Rules for the purpose of deciding the matter in
issue before it. In our opinion the High Court was wholly in error in opining
that the Board of Revenue was not competent to determine the true position
under law in view of the decision of the Assistant Commissioner. The High Court
overlooked the fact that pronouncing on the, claim made by the assessees before
the Board of Revenue, the Board had to examine the legality ,of the claim. It
is one thing to say that the Board could not reverse the decision of the
Assistant Commissioner, which, had become final but it is entirely a different
thing to say that the Board was not competent to consider whether the Assistant
Commissioner took a correct view of the law or not when the true position in
law is necessary to be determined for deciding the issue before it.
Now coming to the second question unlike S.
15-B of the. Indian Income-Tax Act, 1922, which exempts any sums, paid to an
institution or a fund coming within the scope of that section upto the
prescribed limit, under Rule 2(1) read with S. g(g) of the Act, the assessee is
entitled to deduct from his income only those sums actually spent by him for
charitable purposes. Charitable purpose. under that rule is defined as including
relief to the poor, education, medical relief and the advancement of any other
(object of public utility.
Under rule 2(1) read with S. 8(g) before an
assessee can claim any exemption, he has to establish that in the relevant
year; he had actually spent for one or the other of the charitable purposes
mentioned in that rule the amount in respect of Which he claims examination.
Mere contribution to' a fund would not entitle him to the exemption claimed, 21
It is true that the assessees in these cases are proved to have contributed
certain amounts to the Jalan Trust Fund.
It may also be true-about which we express no
opinion-that the objects of Jalan Trust are similar to those mentioned' in rule
2(i). But there is no proof in these cases that the Jalan Trust had expended
the amounts donated by the assessees to that fund for any charitable purpose
during the relevant years. From the materials placed before the Court,, it
appears that Jalan Trust had spent in the years in question. some amounts for
charitable purposes. But the amount spent is much less than the donations
Further the assessees have not established
any correlation ship between the amounts spent by the Jalan Trust and the
amounts donated by them to the Trust. Under these circumstances it is not
necessary for us to decide whether the actual spending referred to in rule
2.(i) must be by the assessees themselves, or it may also be through some other
agency. In our opinion before the assessees can claim exemption under rule,
2(1) in regard to any amount, they have to establish to the satisfaction of the
assessing authority that they had actually spent that amount for charitable
purposes. No such proof is forthcoming in. these cases.
For the reasons mentioned, above these
appeals are allowed and the answers given by the High Court are revoked and in
place of those answers We answer both the questions in the affirmative and in
favour of the Revenue. The asses-sees to pay costs of the Commissioner-one
hearing fee., V.P.S. Appeals allowed.