R.B. Shreeram Religious & Charitable Trust Vs. The Commissioner of
Income-Tax, Vidarbha, Nagpur  INSC 336 (16 July 1998)
V. Manohar, S. Rajendra Babu Mrs. Sujata V. Manohar. J.
M/S. R.B. Shreeram Religious and Charitable Trust, the appellant before us, is
a registered public trust. For the assessment year 1966-67 the assessee
disclosed in its income-tax return, a deficit of Rs.32,126/-. The Income-tax
officer, however, added to the income of the assessee voluntary contributions
received by the assessee-trust amounting to a sum of Rs. 4,55,000/- for the
relevant year. The Income tax officer held that the voluntary contributions
amounting to Rs. 4,55,000/- received by the assessee during the relevant year
were not applicable solely for charitable and religious purpose and were also
not actually applied as such. In appeal, the Appellate Assistant Commissioner
held that out of the sum of Rs.4,55,000/-, a sum of Rs.4,00,000/- could not be
treated as income derived from voluntary contributions. Both the revenue as
well as the assessee filed appeals from the order of the Appellate Assistant
Commissioner before the Income- tax Appellate Tribunal. The Tribunal allowed
the appeal filed by the revenue and dismissed the appeal filed by the assessee.
instance of assessee, a reference was made to the High Court under Section
256(1) of the Income-tax Act.
questions before the High Court, as reframed by the High Court in the impugned judgement,
were as follows:-
Whether on the facts and in the circumstances of the case and having regard to
the relevant provisions of the I.T. Act, the voluntary contributions
aggregating to Rs.55,000/- received by the Assessee was income liable to be
taxed under the I.T. Act, 1961?
Whether on the facts and in the circumstances of the case and having regard to
the relevant provisions of the I.T. Act voluntary contributions aggregating to
Rs.4,00,000/- received by the assessee was income liable to be taxed under the
I.T. Act, 1961?
Whether on the facts and in the circumstances of the case voluntary
contributions aggregating to Rs.55,000/- and Rs. 4,00,000/- were exempt u/s
12(1) of the I.T. Act, 1961?
Whether on the facts and in the circumstances of the case the Tribunal mis-directed
itself in holding that mere discharge of debt whether existing or new during
the year from out of voluntary contributions of Rs. 55,000/- and Rs.4,00,000/-
does not render it a solely charitable purpose admissible to exemption?
Whether on the facts and circumstances of the case the levy of interest under
Section 139 and 215 of the I.T. Act, 1961 was justified in law?" Question
No. 5 is not pressed. The High Court answered the remaining questions against
the assessee and in favour of the revenue. Hence the present appeal is filed
before us by the assessee-trust.
amount of Rs. 4,55,000/- received as voluntary contributions consisted of the
(1) A cheque
for Rs. 25,000/- from Saraf Mor & Co. Ltd., dated 2.11.65.
(2) A cheque
for Rs. 10,000/- from M/S. Ferro Alloys Corporation Ltd., dated 22.11.65.
(3) A cheque
for Rs. 20,000/- from R.B. Shreeram Durgaprasad & Fetehchand Narsinghdas,
three cheques constituted the sum of Rs.55,,000/- received by the assessee-trust
as voluntary contributions. The assessee also had, during the material period,
a loan account with M/s. R.B. Shreeram Durgaprasad (mining Firm). Amounts were
lent to the assessee by the said mining firm from time to time. At the
beginning of the relevant year pertaining to the assessment year 1966-67, the assessee
owed to the said mining firm a sum of Rs. 7.65 lakhs under the said loan
account. During the relevant year M/s. R.B. Shreeram Durgaprasad & Fetehchand
Narsinghdas (Export Firm) gave to the assessee a total sum of Rs.4,00,000/-
which was shown as debited to the account of the donor Export firm. The amount
was transferred to the said mining firm. By the transfer of the said amount to
the mining firm, the liability of the assessee-trust to the mining firm under
the said loan account was reduced. The sum of Rs.55,000/- was also similarly
transferred to the mining firm, thus reducing the liability of the assessee
under the said loan account.
Income-tax officer, after examining the balancesheet of the assessee for the
years 1953-54 to 1966- 67 and after examining the amounts lent under the said
loan account to the assessee-trust, held that out of the total income earned by
the assessee-trust amounting to approximately Rs.24,00,000/- was these assessment
years, only a sum of Rs.7,12,219/- was invested in a Dharamshala and the
balance amounts were invested in other properties, advances and investments.
The Income-tax officer came to the conclusion that the transfer of sum of Rs. 4,55,000/-
to the said mining firm cannot be considered as application of money for
religious or charitable purposes. The assessee had contended that the amount
received by way of loans from the said mining firm had been utilised for the
construction of a Dharamshala. The Income-tax officer, however, held that the
amounts received as loans from the mining firm did not necessarily go into the
construction of a Dharamshala. The funds of the assessee were allowed to grow
side by side with the loans from the mining firm.
to the totality of circumstances the Income-tax officer gave a finding of fact
that the voluntary contributions were not solely applicable to religious and
charitable purposes and were not actually applied as such.
finding has been ultimately upheld by the Tribunal. The Tribunal has also come
to the conclusion that a close scrutiny of the balance-sheet of the assessee-firm
reveals that the assessee used to transfer a substantial portion of its income
to an account called Dharamshala and other Buildings Fund; and out of this Fund
the investment in Dharamshala covered only a part of the amount. In these
circumstances the use of voluntary contributions for discharge of liability
under the loan account could not be considered as use of the money solely for charitable
purposes, especially because a part of the advance which had been repaid was an
advance of Rs. 2.51 lakhs by the mining firm of which interest was not charged.
In this view of the matter the Tribunal held that the voluntary contributions
were not applicable entirely for religious and charitable purposes and were
not, in fact, applied entirely for religious or charitable purposes. The high
court, in view of this finding of fact, has come to the conclusion that the
said amount of Rs.4,55,000/- has been rightly considered as income of the assessee
not exempt under Section 12(1) of the income-tax Act as it stood at the
12 of the Income-tax Act as it stood at the relevant time (Prior to its
amendment in 1972) was as follows:- Section 12:
of trusts or institutions from voluntary contributions-
Any income of a trust for charitable or religious purposes or of a charitable
or religious institution derived form 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.
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 institutions by 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." The assessee
contends that Section 12(1) refers not to the voluntary contributions
themselves but to any income derived from voluntary contributions so received.
In other words, according to the assessee, the exemption under Section 12(1) is
applicable to any amount realised as income from out of investment of any
voluntary contribution received by the assessee during the year. Voluntary
contribution itself is not income at all. In support, the assessee relies upon
the definition of 'income' under Section 2(24) as in force at the relevant
time. Section 2(24) at the relevant time did not expressly include in the
definition of 'income' voluntary contributions received by a public religious
or charitable trust. The definition of 'income' under Section 2(24) was,
however, subsequently amended by the Finance Act of 1972 by including in the
definition of 'income' under sub-clause (ii)(a) of Section 2(24), voluntary
contributions received by a trust created wholly or partly for charitable or
religious purpose or by an institution established wholly or partly for such
purpose. The amended definition also excluded from the definition of 'income' those
contributions which were made with a specific direction that they shall form a
part of the corpus of the trust or the institution. The assessee, therefore,
contends that Section 12(1) prior to the amendment of 1972 should be
interpreted as referring only to any income which accrues to the trust by
investing voluntary contributions which it has received.
order to examine whether this interpretation is correct it is necessary to read
Section 12 as a whole. sub- section (1) of section 12 excludes from the income
of a trust for charitable or religious purposes, income derived from voluntary
contribution and applicable solely to charitable and religious purposes.
However, under sub- section (2) such income will be deemed to be income derived
from property for the purposes of section 11 when the voluntary contribution is
made by a charitable or religious institution or trust to another religious or
charitable institution or trust. Sub-section (2), therefore, is an exception to
sub-section (1). The language of sub-section (2) makes it clear that the
subject-matter of sub-section (2) as well as sub-section (1) is the voluntary
contribution itself. When such a voluntary contribution is made to a religious
or charitable trust by another similar trust, then such a contribution in the
hands of the receiving trust shall be deemed to be its income derived from
property under Section 11, and the provisions of Section 11 will apply.
when sub-sections (1) and (2) are read together, the phrase 'income derived from
voluntary contribution' in sub-section (1) refers to income in the form of
voluntary contributions received by the recipient religious or charitable
trust. It has no reference to the income which may later on be derived from
such voluntary contributions as and when such contributions are invested, as
contended by the assessee. Also when under section 12(2) voluntary contribution
from one charitable trust to another charitable trust is treated as income of
the recipient, there is no reason why under section 12(1), voluntary
contribution from others to the charitable trust should not be treated as
this connection our attention has been drawn to a number of decisions of
various High Courts dealing with interpretation of Section 12(2). In the case
of Sri Dwarkadheesh Charitable Trust V. Income-tax Officer, Company Circle,
"C" Ward, Kanpur (98 ITR 557), the Allahabad High Court while
interpreting Section 12(2) observed that section 12 is confined to voluntary
contributions which should be treated as income. The Allahabad High Court was
concerned with a case where the donor specified that the contribution was
towards the corpus of the receiving trust's funds. The Allahabad High Court
held that since the voluntary contribution was made expressly towards the
corpus of the trust, it could not be considered as income. Hence it was not
covered by section 12(2) which covers only income in the form of voluntary
contributions. The same view has been taken by the Gujarat High Court in
Commissioner of Income- tax, Gujarat-IV v. Bal Utkarsh Society (119 ITR 137).
The Gujarat High Court, following the Allahabad High Court's decision in sri Dwarkadheesh
Charitable Trust (Supra) has also observed that Section (12(1) covers voluntary
contributions which are received as income. Sub-section (2) would apply if the
voluntary contribution is from one public charitable trust to another. However,
when the voluntary contribution is expressly towards the corpus of the
receiving trust, it cannot be considered as income. A similar view has been
taken by the Kerala High Court in Commissioner of Income-Tax V. Vanchi Trust
& another (127 ITR 227), and by the Delhi High court in Commissioner of
Income-Tax, Delhi-II V. Eternal science of man's Society (128 ITR 456). (See
also Sukhdeo Gharity Estate, Ladnu V. Commissioner of Income-tax, Rajasthan,
Jaipur 149 ITR 470 [Raj]).
Madras High Court in the case of Commissioner of Income-Tax, Tamil Nadu-IV v. Shri
Billeswara Charitable Trust (145 ITR 29) was also concerned with a case where a
charitable trust had received a donation form another charitable trust towards
its corpus. The Madras High Court also held that this cannot be treated as
income of the receiving trust. However, in the course of its judgment, the
Madras High Court has observed that Section 12(1) refers only to the income
which is derived from voluntary contribution i.e. voluntary contribution, when
invested, would fetch income. This income is covered by the provisions of
Section 12(1). Therefore, voluntary contribution itself would not be income.
These observations do not seem to be correct since they do not take into
account the language of sub-sections (1) and (2) of section 12 read as a whole.
The definition of income under section 2(24) of the Income-tax Act as it stood at
the relevant time was an extensive definition. Although it did not expressly
include voluntary contributions received by was of income by a religious or
charitable trust, as the definition was not exhaustive, it would cover income
in all forms. The fact that by a subsequent amendment of section 2(24), such
income is expressly included, does not make any difference to the
interpretation of Section 12.
attention was also drawn to a decision of the Travancore-Cochin High Court in
the case of Rev. Father Prior, Sacred Heart's monastery v. Income-Tax Officer,
(Ernakulam), and others (30 ITR 451). That case turns upon the provisions of
the Cochin Income-tax Act and the language
used in the relevant sections therein. It does not, therefore, throw any light
on the present question.
Section 12(1) refers to any income derived by a trust for religious or
charitable purpose in the form of voluntary contributions. If such voluntary
contributions are applicable solely to charitable or religious purposes, they shall
not be included in the total income of the trust.
such voluntary contribution been considered as not income at all, the need for
section 12(1) would not have arisen.
by a subsequent amendment in 1972 to the definition of 'income' under Section
2(24), voluntary contributions not being contributions towards the corpus of
such a trust, are included in the definition of 'income' of such a religious or
charitable trust. Section 12 as amended in 1972 also expressly provides that
any voluntary contribution received by a trust for religious or charitable
purposes, not being contribution towards the corpus of the trust, shall, for
the purpose of Section 11, be deemed to be income derived from property held by
the trust wholly for charitable or religious purposes. This, however, does not
necessarily imply that prior to the amendment of 1972, a voluntary contribution
which was not towards the corpus of the receiving trust, was not income of the
was. Even prior prior to the amendment of 1972, any income received by a
religious or charitable trust in the form of a voluntary contribution would be
income of the trust unless such contribution was expressly made towards the
corpus of the trust's fund. Section 12, therefore, prescribed that such income
would not be included in the total income of the trust if it was applicable
solely to charitable or religious purposes. It would, however, be treated as
income from property under Section 11 if it is received from another charitable
or religious trust.
has relied upon a departmental circular No.20/10/67-IT(AI) dated 1.5.1967 which
deals with exemption of income of a charitable trust under Section 11(1) of the
Income-tax Act, 1961. Departmental circular, inter alia, states that provisions
of Section 11(1) will not be applicable to capital receipts. It states,
"The donations received by charitable trust from the members of the
public, being capital receipts, cannot be regarded as income of the trust.
Accordingly, the donations received by the trust should be excluded from the
income of the trust for the purpose of calculating the accumulation limit of 25
per cent except in cases covered by Section 12(2) of Act" The Board
circular was not dealing with Section 12. It was dealing with the application
of Section 11(1). The Circular correctly pointed out that Section 11(1) would
be attracted to cases covered under section 12(2). Under Section 12(1), as it
stood then, income by way of voluntary contribution was totally exempt provided
it was applicable for religious or charitable purposes. The Board Circular,
therefore, must be read only as interpreting Section 11(1) and not as
interpreting Section 12(1) which was not the subject-matter of the Board
the benefit of Section 12(1), the assessee was required to show that the
voluntary contribution which it had received was applicable solely for
religious or charitable purposes. The Tribunal, as well as the High Court,
relying upon the Tribunal, have held that the voluntary contribution amounting
to Rs.4,55,000/- was not applied and was not wholly applicable for religious or
charitable purposes. In this view of the matter, the assessee, on the facts of
the present case, cannot get the benefit of Section 12(1).
appeal is, therefore, dismissed. There will, however, be no order as to costs.