State of Maharashtra & Ors Vs. The
Salvation Army, Western India Territory [1975] INSC 28 (10 February 1975)
MATHEW, KUTTYIL KURIEN MATHEW, KUTTYIL KURIEN
BHAGWATI, P.N.
UNTWALIA, N.L.
CITATION: 1975 AIR 846 1975 SCR (3) 475 1975
SCC (1) 509
CITATOR INFO :
F 1975 SC2037 (19) R 1975 SC2193 (3) F 1978
SC1181 (6) C 1980 SC1008 (20,51) R 1989 SC 100 (16)
ACT:
Bombay Public Trusts Act, 1950, ss. 57 and 58
and Rule 32 of rules framed under Act--Difference between tax and
fee--Liability for contribution by public trust at 2% of gross income--If tax
or fee.
HEADNOTE:
Section 57(1) of the Bombay Public Trusts
Act, 1950 states that there shall be established a Fund to be called the
'Public Trusts Administration Fund' and that the fund shall vest in the Charity
Commissioner appointed under the Act.
One of the amounts which go to make the Fund
is the contribution made by a public trust under s. 58. Section 58 as amended
by Amending Act, 1962, provides that in the case of a public trust, other than
a dharmada, the contribution shall be at the prescribed rate on the gross
annual income.
Gross annual income is defined to mean the
gross income from all sources, including donations and offerings, excluding,
inter alia payments made with a specific direction sat the payment made, shall
form part of the corpus of the public trust. Rule 32 of the rules made under
the Act prescribed the rate of 2% of the gross annual income. In the Amending
Act, provision was made in s. 4 for retrospective operation of the provisions
of the Act and the rule.
The respondent was registered as a public
limited company under the Indian Companies Act, 1913, and also under the Bombay
Public Trusts Act, 1950. In the years 1954, 1955 and 1956 it received certain
sums from its international Organization. Upon these amounts and other
collections in India, in 1963, the respondent was called upon to pay the
contribution of 2% as required by s. 58 of the Act read with r. 32. The
respondent thereupon filed a writ petition in the High Court challenging the
levy. The High Court held that though the levy was a fee in the beginning. it
assumed the character of a tax by the end of 31 March, 1958, when there was a
substantial surplus with the Fund, and that thereafter the levy was illegal and
ultra vires as the actual levy was made after it assumed the character of a
tax.
In appeal to this Court,
HELD : (1) The respondent has an independent
legal personality as it was registered under the Companies Act, and so, the
amounts Which it received cannot but be regarded as donations coming within
purview of s. 58 and r. 32.
[487C-D] 2 (a) A tax is a compulsory exaction
of money by a public authotiry for a public purpose enforceable by law and is
not a payment for any specific service rendered. The levy of a tax is for the
purpose of general revenue, which, when collected, forms part of the public
revenues of the State.
There is no element of quid pro quo between
the tax payer and the public authority. A fee, however, is generally defined to
be a charge for a special service rendered to individuals by the government or
some other agency like a local authority or statutory corporation. The amount
of fee levied is supposed to be based on the expenses incurred on rendering the
services though, in many cases, the costs are arbitrarily assessed. Fees are
generally uniform but absence of uniformity is not a criterion on which alone
it can be said that the levy is in the nature of a tax. As a fee is regarded as
a sort of return or consideration for services rendered it is necessary that
the levy of a fee should be correlated to the expenses incurred in rendering
the services. It is also generally necessary that the payments demanded for
rendering services must be set apart or specifically appropriated for that
purpose and that they should not be merged in the general revenue of the State
to be spent for general public purposes. It may not, however, be possible to
prove in every case that the fees collected always approximate to the expenses
that are incurred in rendering the particular kind of services or in performing
any particular work for the benefit of certain individuals.
[481E-482C] 476 In the present case, the
revenue expenditure, is about 62% of the amount of revenue receipts from 1953
to 1970. As there is approximate correlation, the levy is in the nature of a
fee. [484B-C] Hingir-Rampur Coal Co. Ltd. v. The State of Orissa [1961] 2
S.C.R. 537 at 549, H. H. Sudhundra Tirtha Swamiar v. Commissioner for Hindu
Religious & Chairtable Endowments, Mysore, [1963] Sup. 2 S.C.R. 302 at 323;
The Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Tirtha
Swamiar of Shirur Mutt [1954] S.C.R. 1005 at 1037, 1040, Mahant Sri Jaganath
Ramanuj Das and Another v. The State of Orissa and Another [1954] S.C.R. 1046
at 1053 Ratilal Panachand Gandhi v. The State of Bombay [1954] S.C.R. 1055 at
1075 nagar Mahapalika Varanasi v. Durga Das Bhattachary as Others [1968] 3
S.C.R. 374, at 385; and Government of Madras v. Zenith Lamp and Electrical Lid.
[1973] 1 S.C.C.
162, referred to.
Delhi Cloth and General Mills Co. Ltd. v.
Chief Commissioner, Delhi [1970] 2 S.C.R. 348, at 354, followed.
(b) A review of the relevant provisions in
the Act leads to the conclusion that the provisions are enacted with a view
that public trusts are administered for the purpose intended by the authors of
the trust and for preserving the-trust properties from waste and
misappropriation by trustees.
Taking precautionary measures to see that
public trusts are administered for the purposes intended by the authors of the
trust and exercising control and supervision with a view to preserve the trust
properties from being wasted or misappropriated by trustees are certainly
special services for the benefit of the trust. Therefore it could not be
contended that no special benefits were or are being conferred upon the public
trust in administering the provisions of the Act. [484F-H] (3) The services are
mostly rendered by the officers of the Charity Organization' With the
proliferation of public trusts in the State it became necessary to expand the
charity Organization and to increase the staff for supervision and control. It
also became necessary to have more regional offices for the more effective and
immediate supervision and control. The expenditure in constructing buildings
for locating the head office and regional offices and the increase in
allowances or other amenities to the staff have also to be included in the
costs of the services.
When there is surplus it cannot immediately
be said that the surplus must necessarily go in reduction of the rate of
contribution to be levied thereafter. It would neither be expedient nor prudent
to lay down any abstract proposition that whenever there is surplus in a
particular year or years that the surplus must always be taken into
consideration and the rate of the contribution should be reduced for the next
year or subsequent years. An Organization like the one in question may have to
incur capital expenditure for the better allowances or other amenities to the
staff have also to be included in the costs of administration of the trust and
it might not be able to foresee all the contingencies in which such expenditure
Will have to be incurred for the more efficient working of the Organization.
But, at the same time, when it is seen that after taking into account the
capital and other expenditure necessary for the efficient functioning of the
organization for the better administration of the trust. a very large surplus
is still left, then the question will arise whether it is permissible for the
organization to continue the levy at the same rate which would only result in
further surplus and to invest this surplus solely for earning income or to
divert the surplus for other objects, though charitable in nature.
Such levy for investment or diversion of the
surplus would not be consistent with the principles behind the levy of a fee.
No hard and fast rule applicable in all contingencies can be formulated. While
it is not necessary that all available surplus should always go in reducing the
rate of contribution for subsequent years, the Organization cannot be. allowed
to accumulate unreasonable amounts, that is, amounts which may not reasonably
be required for the proper and efficient working of the Organization in a
foreseeable future. In drawing the line, the Court will have to look into the
nature of the Organization, the potentiality for its growth, the multiplication
in its work consequent on its expansion for rendering the services visualized
by the Act and the necessity for capital expenditure in the near future as also
the amount of levy collected or expected to be collected in a year. [485C-486C]
477 (a) in the present case, there was an available surplus which was used for
purchasing a building. Even according to the High Court investment of the
surplus in buildings or locating the head and regional offices cannot be said
to be diversion of the surplus for purposes alien to the object of the
organization namely, the better administration of the trust Therefore, it could
not be said that by the end of March 1958, when there was some surplus the
contribution had assumed the character of a tax [486C-E] (b) But, by the end of
March, 1970, there was a surplus Rs. 54 lacs. The rate of fee at 2 % cannot
continue, thereafter, without taking into account the corpus of Rs.. 54 lacs
and the income therefrom, If the Organization is allowed to go on increasing
its surplus year after year out of the amount of fee collected under s. 58 of
the Act it would demonstrate that the fee levied was unjustifiably
disproportionate to the service rendered. The contribution at the rate of 2% on
the gross income after 31st March.
1970, undoubtedly, assumed the character of
tax as that merely augmented the income of the Charity Organisation.
Therefore, before levying any fee or
determining its rate after 1970 the Charity Organisation has to balance its
budget. [486G-487A] (4) The High Court was of the view that the levy of
contribution was ultra vires at the time the levy was made because it ceased to
be a fee and became a tax. By virtue of the retrospective operation of the
amended s. 58 as provided in s. 4 of the Amending Act, the respondent became
liable to pay contribution in respect of the 3 donations in the year in which
they were received, that is, in 1954 1955 and 1956. Therefore, even on the
basis of the reasoning of the High Court that the levy assumed the character of
a tax after 31st March, 1958, it could not be held that the levy of
contribution in those years became exonerated from the liability. The fact that
the actual levy was made after 1962 would not make any difference in the
liability to pay the contribution as the liability was incurred when the levy
had not assumed the character of tax even according to the High [487D-H] (5)
(a) The respondent, therefore, is liable to pay contributions in respect of the
three sums and the High Court was wrong in quashing the orders passed. [487H]
(b) After 31st March 1970, the levy at 2 % of the gross income cannot be
justified as a fee. [487H] (c) This does not mean that no levy of contribution
was permissible thereafter. It only means that in levying a fee thereafter it
should have correlation with the services, taking into consideration the
existence of the surplus fund and the income therefrom. [488A-B] (d) Rule 32 is
ultra vires. [488B]
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 487 and 488 of 1973.
From the Judgment and order dated the 31st
January, 1972 of the Bombay High Court in O.S. No. 38 & 39 of 1971.
Niren De, Attoney General of India, S.
Baptista and M. N. Shroff, for, the appellants. (in both the appeals).
P. P. Khambatia, Ashok Desai, A. G. Meneses,
and K. John, for the respondents. (In C.A. No. 487/73).
Ashok Desai, A. G. Meneses and K. J. John,
for the respondent Nos.. 1, 2 & 4-8 (In C.A. No. 488/73).
1. Civil Appeal No. 487 of 1973 MATHEW J.-The
respondent in this appeal is the Salvation Army, Western India Territory. It is
a part of the worldwide organization known as the Salvation Army. The
headquarters of the organization is 16-423SCI/75 478 in London.The Organization
in India was registered as a public limited company under the Indian Companies
Act, 1913, having obtained a licence to carry on its activities without
suffixing the word limited, after its name. It is also registered under the
Bombay public Trusts Act, 1950 (hereinafter called the 'Act') and carries on
various charitable activities. Ile Company has its headquarters in Bombay. The
funds of the Company are administered under the Articles of Association by a
Board consisting of a General, a Chief of Staff and various other officers. The
accounting year of the Company is from 1st of October to the 30th of September
of each year. in the years ending 30-9-1954, 30-91955 and 30-9-1956, the
respondent received three sums from the international Organization, namely, Rs.
1,97,302/-, Rs.
2,50,228-14-0 and Rs. 2,67,732-15-0. Besides
these amounts, the respondent had made collections in India. Upon all these
amounts the respondent was called upon to, pay & contribution of 2 per cent
as required by s. 58 of the Act read with rule 32 of the Bombay Public Trust
Rules. The respondent claimed exemption from liability to pay contribution upon
the three donations. Appellant No. 3 disallowed the claim. The respondent's appeal
against the order was dismissed by appellant No. 4. The respondent thereupon
filed a writ partition in the High Court of Bombay for a declaration that the
provision for levy of contribution contained in s.58 of the Act and rules 32
and 33 of the Rules as also the provisions of sections 2 and 4 of the
Maharashtra Act 29 of 1962 (hereinafter referred to as the "Amending Act
of 1962") were beyond the powers of the State Legislature and that the
levy of contribution on the three donations was therefore illegal. The
respondent also prayed for quashing the orders passed by appellants 3 and 4
disallowing its claim for exemption from levy of contribution upon the
aforesaid sums.
A learned Single Judge of the High Court held
that the levy was bad as it was not a fee but tax.
Against this decision, an appeal was
preferred before the Division Bench by the appellants. The Bench came to the
conclusion that though the levy of 2 per cent on the gross income of the public
trusts was a fee in the beginning, it assumed the character of a tax by the,
end of 31st March, 1958 as there was a surplus of Rs. 30,44,541 by that time
and therefore, the levy assumed the character of tax and was illegal from that
date. The Court further held that the levy of contribution on the three
donations was ultra vires as the actual levy was made after it assumed the
character of a tax. It is against this judgment that this appeal has been filed
on the basis of certificate granted by the High Court.
The Act was brought into force from 14-8-1950.
The object of the Act is to regulate and make better provision for the
administration of public religious and charitable trusts in the State of
Bombay. 57(1) states that there shall be established a fund to be called the
Public Trusts Administration. Fund and that the Fund shall vest In-the Charity
Commissioner appointed under the Act. ;Clauses (a) to (f) of sub-section (2) of
the section specify the amounts which go to 479 make the fund. of these, clause
(b) concerns the contribution made under s.58.
Section 58 was amended by the Amending Act of
1962 and the Amending Act came into force on 27-8-1962. That section, at all
times, prescribed that every public trust shall pay to the Public Trusts
Administration Fund annually such contribution on such date and in such manner
as may be prescribed. The contribution to be paid was originally fixed by rule
32 which was also amended by the Amending Act of 1962.
Section 58 as it originally stood provided
that the contribution prescribed under the section shall, in the case of public
trusts other than dharmada, be fixed at rates in proportion to the gross
annual, income of such public trust and the Explanation stated that, for the
purpose or the section, the gross annual income shall include gross income from
all sources in a year excluding donation given or offering made with a specific
direction that they shall form part of the corpus of the public trust.
Rule 32(1) of the Bombay Public Trust Rules,
195 1, framed under s.84, clause (b), provided that every public trust other
than a trust exclusively for the purpose of secular education imparted by a
recognised institution or exclusively for the purpose of medical relief shall
pay annually to the Public Trusts Administration Fund out of its property or
funds a contribution at the rate of 2 per cent of its ,gross annual income or,
where the public trust is a dharmada, its gross annual collection or receipts.
In subrule (3) of Rule 32, it was provided that in calculating the gross annual
income or receipts for the purpose of assessing the contribution the following
deduction shall be allowed :
"donations given with specific
directions that they shall form part of the corpus (vide Explanation to
s.58)." By a Government notification dated 3-12-1953, rule 32 was amended.
The provision for levy of contribution was substantially the same as in
sub-rule (1) of Rule 32 but the amended sub-rule (3) of Rule 32 was as follows:
"(3) In calculating the gross annual
income of a Public Trust, or where the public trust is a dharmada, its gross'
annual collection or receipts, for the purpose of assessing the contribution,
the following deductions shall be allowed, namely:" and clause (iii)
corresponding to the original clause (iii) of Rule 32 (3) ran as follows :
"donation received during the year from
any sources." This rule was patently ultra vires of s.58 itself, for, the
Explanation to s.58 excluded donations given or offerings made with a specific
direction that they shall form part of the corpus of the public trust. But Clause
(iii) of Rule 32(3), after its amendment in 1953, excluded all donations
received during the year from any source. The state 480 legislature therefore
passed the Amending Act of 1962 which inserted certain provisions of Rule 32 of
the Rules as substantive provisions in the Bombay Public Trust Act, 1950.
The legislation amended s.58 itself and the
amended section was substituted for the old section. The amended section, so
far as it is material, provides:
"58(1) Subject to the provisions of this
section, every publictrust shall pay to the Public Trusts Administration Fund
annually such contribution at a rate or rates not exceeding five per cent of
the gross annual income, or as the case may be, of the gross collection or
receipt, on such date, and in such manner, as may be prescribed.
The contribution prescribed under this
section shall:
(i) in the case of a dharmada, be fixed at a
rate or rates on the gross annual collection or receipts of the dharmada.
(ii) in the case of other public trusts, be
fixed at a rate or rates on the gross annual income of such public trust.
Explanation(1).
For the purpose of this sub-section ' gross
annual income' means gross income from all sources in a year (including all
donations and offerings), but does not include any payment made or anything
given with a specific direction that it shall form part of the corpus of the
public trust, nor include any deductions which the State Government may allow
by rules............
Provision was also made for the period during
which Rule 32 remained in operation and therefore s.4 of the Amending Act of
1962 provided for retrospective operation of the provisions of the Act. Section
4 provides :
"The substitution of section 58 in the
principal Act by section 2 of this Act shall be and shall always be deemed to
have been made in the principal Act and the provisions of clause (iii) of
sub-rule (3) of rule 32 of the Bombay Public Trust Rules, 1951, shall be deemed
to have been deleted from the date on which those rules came into force; and accordingly,
rule 32 of these rules as amended shall be deemed always to have been validly
made and to have full effect, as if it had been duly made under the principal
Act as amended by this Act and anything done or action taken under that Rule
shall be deemed to have been validly done or taken." An amendment was also
effected by the Act itself in Rule 32 by deleting clause (iii) of sub-rule (3)
of Rule 32.
The validity of these amendments was not
challenged before this Court.
The two main questions which arise for
consideration in this appeal are : (1) whether the levy of contribution under
s.
58 read with rule 32(3) was a tax from the
inception of the levy or whether, although the levy was a fee in its inception,
it assumed the character 481 of tax in any subsequent year by reason of the
accumulation of the surplus of the income over the expenditure, and (2) whether
the levy of contribution on the three donations was justified.
As already stated, the learned Single Judge
was of the view that the levy was in the nature of a tax from its inception for
the reason that the contribution levied had no correlation to the services
rendered. The learned Judge in taking this view was largely influenced by the
statement of the income and expenditure of the charity organisation contained
in Exhibit 1 for the, years from 1953 to 19'70.
The learned Judge said that the ratio of
revenue expenditure to the receipt every year was 53.33 per cent on an average
and that there was always a surplus of about 47 per cent after meeting all the
annual recurring expenditure, that accumulation to the extent of 47 per cent on
an average every year had ultimately brought about the result that even after
meeting the total expenditure, the surplus came to Rs. 44,60,973 on 31-3-1965,
that it was augmented further to Rs. 84,49,473 31-3-1970 and therefore the levy
was at all times a tax and was beyound the power of the legislature. He further
held that the respondent was not liable to pay contribution in respect of the
three amounts.
On appeal, the Division Bench, after
considering the distinction between a fee and a tax as laid down by this Court
came to the conclusion that the contribution at the rate of 2 per cent of the
income of the trusts was a fee till the end of March 31, 1958 and that, on
account of the accumulation of surplus to the tune of Rs. 30,44,541 ,by the end
of the year 1958, it assumed the character of a tax and therefore, after 31st
March 1958, the levy became ultra vires the powers of the legislature.
Now the first question for consideration is:
What is the nature of a fee ? It is idle to parade the familiar learning on the
question of the distinction between a tax and a fee..
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. The levy of a tax is for the purpose of
general revenue which when collected forms part of the public revenues of the
State.
There is no element of quid pro quo between
the tax payer and the public authority. A fee is generally defined to be a
charge for a special service rendered to individuals by the government or some
other agency like a local authority or statutory corporation. The amount of fee
levied is supposed, to be based on the expenses incurred by the Government or
the agency in rendering the service though in many cases the costs are
arbitrarily assessed. Fees are ordinarily uniform but absence of uniformity is
not a criterion on which alone it can be said that a levy is in the nature of
tax. In the case of a fee, no account is taken of the varying abilities of
different recipients of the service to pay. As a fee is regarded as a sort of
return or consideration for services rendered, it is necessary that the levy of
fees should be correlated to the expenses incurred by the agency in rendering
the services.
"If the special service rendered is
distinctly and primarily meant for the benefit of a specified class or area the
482 fact that in benefiting the specified class or area the state as a whole
may ultimately and indirectly be benefited would not detract from the character
of the levy as a fee."(1). It is also generally necessary that the
payments demanded for rendering of such services must be set ,apart or
specifically appropriated for that purpose and that they should not be merged
in the general revenue of the State to be spent ,for general public purposes.
It may not be possible to prove in every case that the fees that are collected
by the Government or the agency always approximate to the expenses that are
incurred by it in rendering the particular kind of services or in performing
any particular work for the benefit of certain individuals. "A levy in the
nature of a fee does not cease to be of that character merely because there is
an element of compulsion or coerciveness present in it, nor is it a postulate
of a fee that it must have direct relation to the actual services rendered by
the authority to individual who obtains the benefit of the service. If with a
view to provide a specific service, levy is imposed by law and expenses for
maintaining the service are met out of the amounts collected there being a
reasonable relation between the levy and the expenses incurred for rendering
the service, the levy would be in the nature of a fee and not in the nature of
a tax."(2) That there is correlation between the levy and the services can
be proved by showing that on the face of the legislative provision itself, the
collections are not merged in the general revenue but are set apart and appropriated
for rendering these services. Thus, two elements are essential in order that a
payment may be regarded as a fee. In the first place, it must be levied in
consideration of certain services which the individuals accept either willingly
or unwillingly and in the second place, the amount collected must be earmarked
to meet the expenses of rendering these services and must not go to the general
revenue of the state to be spent for general public purposes. (3) In Nagar
Mahapaliga, Varanasi v. Durga Das Bhattacharya & Others(4) the question was
whether a certain by-law under which the owners of rickshaws were liable to pay
an annual sum of Rs 30/and the drivers a sum of Rs. 5/par took the character of
a fee. In the course of the judgment the Court said :
"The High Court was of the opinion that
the amount of Rs. 68,000 spent for paying the byelanes and Rs. 20,000 for
lighting of streets and lanes cannot be considered to have been spent in
rendering services to the rickshaw owners and rickshaw drivers. The reason was
that (1) see Hinger-Ramour Cod Co. Lt. v. The State of Orissa [1961 ]2 S. C. R.
537 at (2) see H. H. Sudhundra Thirtha Swamiar v. Commissioner for Hindu
Religious & Charitable Endownments Mysore, (1963) Supp. 2 S. C. R. 302, at
323.
(3) see Commissioner Hindu Religious
Endowments. Madras v. Sri Lakshmindra Thirtha Swamiar of Shirur Mutt. [1954] S.
C. R. 1005, at 1037, 1040; Mahant Sri Jagannath Ramanuj Das and Another v.
The State of Orissa and Another, [1954] S. C.
R. 1046 at 1053; and Ratilal Panachand Gandhi the State of Bombay [1954] S. C.
R. 1055 at 1075.
(4). [1968] 3. S. C. R. 374, at 385.
483 under s. 7(a) of the Act it was the
statutory duty of the Municipal Board to light public streets and places and
under cl. (h) of the same section to construct and maintain public streets,
culverts, etc. The expenditure under these two items was incurred by the
Municipal board in the discharge of its statutory duty and it is manifest-that
the licence fee cannot be imposed for reimbursing the cost of ordinary
municipal services which the Municipal Board was bound under the statute to
provide to the general public (see the decision of the Madras High Court in
India Sugar and Refineries Ltd. v. The Municipal Council, Hospet (I.L.R. 1943
Madras 521)." In Delhi Cloth and General Mills Co. Ltd. v. Chief Commissioner,
Delhi(1) the point for consideration was whether the amount payable for renewal
of licence to run the factory in question was, a fee or tax. The Court
observed:
"The High Court further found, which
finding being of fact, must be considered as final that 60% of the amount of
licence fees which were being realized was actually spent on services rendered
to the factory owners. It can, therefore, hardly be contended that the levy of
the licence fee was wholly, unrelated to the expenditure incurred out of the
total realization." In Government of Madras v. Zerith Lamp and Electrical
Ltd.(1), Court considered. in the context of levy of Court fees, the relevant
factors which might be taken into consideration in adjudging whether the levy
was a fee or tax. The Court said:
.lm15 "While levying fees the
appropriate legislature is competent to take into account all relevant factors,
the value of the subject-matter of the dispute, the steps necessary in the
prosecution of a suit or matters the entire cost of the upkeep of courts and
officers administering civil justice, the vexatious nature of a certain type of
litigation and other relevant matters." In the light of this discussion,
let us see whether the levy here was in fee and if it was a fee at the
inception, whether, by reason of the accumulation of surplus, it became a tax
in any subsequent year. According to exhibit 1, the total receipts from all
sources from the year 1953 to the year 1970 came to Rs. 2,20,78,080/-.
According to the statement given by the Attorney General during the course of
argument the total contribution under s.58 of the Act came to Rs. 1,73,56,874/treating
the figures, of total receipts in the years 1953 to 1956 as receipts only under
s.58. There is a mistake in the figure, of the chart given by the Attorney
General for the years 1963, 1964, 1965 and 1966.
Substituting the correct figures for those
years which tally with the earlier chart given by the Attorney General, also
during the course of the arguments the amount of revenue receipts (1) [1970] 2
S. C. R. 348, at 354.
(2) [1973] 1 S. C. R. 162.
484 under s. 58 would come to Rs.
1,90,19,978/( instead of Rs. 1,73,56,874/-. The total revenue expenditure from
1953 to 1970 according to exhibit 1 is Rs. 1,17,86,443/-. Although in exhibit 1
the total revenue expenditure is shown to be 53.33 per cent of the total of Rs.
2,20,78,080/actually the percentage has to be calculated with reference to the
figure of Rs. 1,90,19,978/-. Calculating on that basis, the percentage will
come to about 62. On the basis of the decision of this Court in the Delhi Cloth
and General Mills case (supra) the levy was in the nature of fee as the
expenditure was 62 per cent of the contributions levied and as there was
approximate correlation.
It was, however, argued on behalf of the
respondent on the basis of the decisions in Corporation of Calcutta v. Liberty
Cinema(1) and Nagar Mahapalika, varanasi v. Durga Das Bhattacharya (supra) that
the exercise of the power of supervision and control of public trusts under the
provisions of the Act would not be special services, that performance of the
statutory functions and duties under the Act is owed to the public and cannot
be regarded as special benefits to the public trusts in the state for which a
fee can be exacted as consideration.
The object of the Act as seen from its
preamble is to regulate and make better provisions for the administration of
public religious and charitable trusts in the State of Bombay. Chapter IV of
the Act provides for registration of public trusts. Chapter V deals with
submission of the budgets by the trustees of certain trusts and maintenance of
accounts. Chapter V-A concerns the investment of public trust money and
restrictions on alienations of trust property. Chapter VI deals with control.
It makes provisions for supervision and control over public trusts, for issuing
directions by the Commissioner, for suspension and removal of trustees and for
protection of charities in general. A review of the relevant provisions in
these chapters can only lead to the conclusion that the provisions are enacted
with a view that public trusts are administered for the purpose intended by the
authors of the trusts and for preserving the trust properties from waste and
misappropriation by trustees. Taking precautionary measures to see that public
trusts are administered for the purposes intended by the authors of the trusts
and exercising control and supervision with a view to preserve the trust
properties from being wasted or misappropriated by trustees are certainly
special services for the benefit of the trust.
Therefore, there is no substance in the
argument that no special benefits were or are being conferred up on the public
trusts in administering the provisions of the Act.
The question then is whether, by reason of
the accumulation of surplus from 1953 onwards, the levy of contribution became
a tax and if it became a tax, the point of time at which the levy assumed that character.
It is not dispute that the collections by way of contribution exceeded the
expenditure from 1953 onwards.
The respondent submitted that surplus must be
taken into consideration in determining the character of the levy.
Relying upon the decisions in Mukundaraya v.
State of Mysore(1) and Dalpathbhai Hemhand v. Chansma Municipality,(2) the
respondent contended (1) [1965] 2 S. C. R. 477.
485 that the benefit of the surplus should go
to those who have to pay the contributions and that the rate of the levy should
at any rate be reduced so as to maintain the just relation between the levy and
the services. In other words, the argument was that if it is found that the cc
imposed resulted in surplus, the rate of the subsequent imposition should
correspondingly be reduced so that it may be commensurate with the expenses
that are to be incurred in connection with the services.
As we said, the fee must, as far practically
as possible, be commensurate with the services rendered. One should not seek
for any mathematical accuracy in these matters but be content with rough
approximations. The services are mostly rendered by the officers of the Charity
Organization. With the proliferation of public trusts, in the State it became
necessary to expand the Charity Organization and to increase the staff for
supervision and control. It also became necessary to have more regional offices
for the more effective and immediate supervision sad control. The expenditure
in constructing buildings for locating the head office and regional offices and
the increase in the allowances or other amenities to the staff have also to be
included in the costs of the services. When there is surplus, it cannot
immediately be said that the surplus must necessarily go in reduction of the rate
of contribution to be levied thereafter. We think that it would neither be
expedient nor prudent to lay down any abstract proposition that whenever there
is surplus in a particular year or a number of years, that surplus must always
be taken into consideration and the rate of the contribution should be reduced
for the next year or subsequent years. An Organization like the one in question
may have to incur capital expenditure for the better administration of the
trusts and it might not be able to foresee all the contingencies in which such
expenditure will have to be incurred for the more efficient working of the
organization.
This Court has expressly stated in the Delhi
Cloth and general Mills case (supra) that services worth 61 per cent of
contribution would be sufficient quid pro quo to make a levy a fee. So, when we
find that in this case the Organization has been rendering services worth 62
per cent of the contribution, it cannot per se be said that there is no
correlation between the fee levied and the services rendered. But at the same
time when it is seen that after taking into account the capital and other
expenditure necessary for the efficient functioning of the Organization for
'the better administration of the trusts, a large surplus is still left, then
the question will arise whether it is permissible for the Organisation to
continue the levy at the same rate which will only result in further surplus
and to invest this surplus solely for earning income or to divert the surplus
for other objects, though charitable in nature. We do not think any such levy
for investment or diversion of the surplus would be consistent with the
principle behind the levy of a fee. While we do not think it necessary that all
available surplus in a year or for some years should always go in for reducing
the rate of contribution for the subsequent year or years, (1) A.I.R. [1960]
Mysore 18.
(2) A.I.R. [1968] Gujarat 38.
486 we are of the view that the organisation
cannot be allowed to accumulate an unreasonable amount unreasonable in the
sense that the amount might not be reasonably required for the proper and
efficient working of the Organisation in a foreseeable future. No hard and fast
rule applicable in all contingencies can be formulated. The Court will have to
draw a line somewhere when the surplus must be taken into consideration for
reducing the levy of contribution. In drawing the fine, the Court will have to
look into the nature of the organisation. the potentiality for its growth, the
multiplication in its work consequent on its expansion for rendering the
services visualized by the Act and the necessity for capital expenditure in the
near future, as also the amount of levy collected or expected to be collected
in a year. As already stated, the Division Bench was of the view that the stage
when the surplus must be taken into account to determine the character of the
levy was reached by the end of March, 31, 1958 when the available surplus came
to Rs. 30,44,541/-. The Division Bench was alive to the desirability of
locating the head office and regional offices in buildings to be owned by the
Organisation and incurring of capital expenditure in that behalf. The Charity
Organisation has purchased a building worth about Rs. 30 lakhs. Even according
to the Division Bench, investment of the surplus in buildings for locating the
head and regional offices cannot be said to be diversion of the surplus for
purposes alien to the object of the organisation, namely, the better
administration of the trusts. Therefore, we do not think that the contribution
had assumed the character of a tax at the end of March, 1958.
The surplus in the account of the Public
Trusts Administration Fund at the end of March, 1970, was Rs. 84,49,473/after
meeting the capital expenditure of Rs. 17,46,794/incurred during the years 1953
to 1970. In the figure of Rs. 84,49,473/is included the figure of Rs. 7,06,016/-,
the accumulated balances under the repealed enactments transferred to the
Public Trusts Administration Fund, plus interest of Rs. 7,13,004/on the said
figure vide exhibit No. 3. Even deducting the Rs. 14 lakhs from Rs. 84 lakhs,
the surplus in the, account of the Public Trusts Administration Fund at the end
of March,, 1970, was Rs. 70 lakhs. Allowing the capital expenditure of Rs. 30
lakhs on the buildings said to have been purchased by the Charity,
Organisation, the surplus was Rs. 40 lakhs. As we said, as a matter, of
principle, expenses for service should be correlated to the contribution levied
under s. 58 of the Act. And the capital expenses should be met from the surplus
funds including the sum of Rs. 14 lakhs (receipt under s. 61 plus interest
thereon: Total: Rs. 14 lakhs).
The surplus, at the end of March, 1970 being
Rs. 40 lakhs or' to be more accurate, Rs. 54 lakhs, the rate of fee at 2 per
cent cannot continue, in any event after March, 1970 without taking into
account the corpus of Rs. 54 lakhs and the income therefrom. We think that the
contribution at the rate of 2 per cent on the gross income of the trusts after
March 31, 1970 onwards undoubtedly assumed the character of a tax as that
merely augmented the income of the Charity Organisation, If, the Organisation
is allowed to go on increasing its surplus year after year out of the amount of
fee collected under s. 58 of the Act, it would demonstrate that the fee levied
was unjustifiably disproportionate to 487 the service rendered. We are,
therefore, of the opinion that before levying any fee or determining its rate
after March, 1970. the Charity Organisation has to balance its budget in the
light of this judgment.
The respondent raised two contentions before
the High Court with respect to its liability to pay contribution in respect of
the three amounts in question. It was first contended that these amounts were
not received by way of donations, and, second, that at the time when the
respondent was sought to be made liable for contribution on these amounts, the
levy had ceased to be fee and had assumed the character of tax. The respondent
made a return of these amounts on 8-11960 on the basis that it was not liable
to pay contribution on these amounts. No decision was taken on this return
until 10-6-1963 and on that date a notice of demand was made for' contribution
in respect of these amounts.
The respondent has an independent legal
personality as it was registered under the Companies Act and so the amounts
which it received cannot but be regarded as donations coming within the purview
of s. 58 of the Act and Rule 32. The Division Bench held that these amounts
were donations made by the international organisation in London to the
respondent. We think that the High Court was right.
As already stated, the Amending Act came into
force on 17-81962. The Division Bench was of the view that the levy of
contribution on these amounts was ultra vires for the reason that at the time
the levy was made it had ceased to be a fee and become a tax. We do not think
that the High Court was right. No doubt, the demand for contribution was made
only after the Amending Act came into force. But by virtue of the retrospective
operation of the amended s. 58 as provided in s. 4 of the Amending Act, the
respondent became liable to pay contribution in respect of the three donations
in the years in which they were received. It may be recalled that these three
amounts were received by the respondent in the years 1954, 1955 and 1956. By
virtue of the deeming provision in s. 58 as amended, these donations became
eligible to pay the contribution in the relevant years. We do not understand
how these amounts which became eligible to levy of contribution in those years
by virtue of the deeming provisions in s. 58 became exonerated for the
liability even on the basis of the reasoning of the Division Bench that the
levy assumed the character of a tax after 31st March, 1958.
The fact that the actual levy was made after
1962 would not make any difference in the liability of the respondent to pay
the contribution in respect of these amounts as the liability was incurred when
the levy had not assumed the character of tax even according to the Division
Bench.
We, therefore, hold that the respondent is
liable to pay contributions in respect of the three sums and that the Division
Bench went wrong in quashing the orders passed by appellants 3 and 4 upholding
the levy of contribution on these sums. We also hold that after 31st March, 1970, the levy at the rate of 2 per cent of the gross income of the trust
cannot be justified as a fee. This does not mean that no 488 levy of
contribution was permissible thereafter. We only say that any% levy thereafter
should have correlation with the services, taking into consideration the
existence of the surplus fund which was not immediately required for further
expenditure by way of services including ,capital expenditure. We declare that
levy of contribution at the rate of 2 per cent of the annual gross income of
the trusts became levy of tax after 31st March, 1970 and was without the
authority of law. Since there was a prayer in the writ petition to declare Rule
32 as ultra vires, we think that the respondent is entitled to this relief.
We allow the appeal to the extent indicated
but make no order as to costs.
II. Civil Appeal No. 488 of 1973 In this
appeal, the points for consideration are practically the same. For the reasons
we have given in our judgment in Civil Appeal No. 487 of 1973, we do not think
that the Division Bench was justified in holding that the respondent was not
liable to pay contribution in respect of the donations in question here and in
quashing the order dated 30th March, 1965. We, therefore, allow the appeal
subject to the. declaration of the nature of the levy after 31st March, 1970,
made in the judgment in Civil Appeal No. 487 of 1973. We make no order as to
costs.
Appeal allowed.
V.P.S.
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