COMMISSIONER OF INCOME TAX vs BHERUKA PUBLIC WELFARE TRUST

Y. R. Meena, J.

By this reference application, the Tribunal has referred the following two questions for our opinion :-

Whether, having regard to the fact that the assessee had income from the shares of a company in which the donor of the said shares had substantial interest within the meaning of section 13(2)(h) read with 13(1)(c) of the Income Tax Act, 1961 (''the Act''), the Tribunal was correct in law in holding the provisions of section 13(2) of 1 he said Act were riot attracted ?

Question raised in R.A. No. 22 (Cal.) of 1988:

Whether, on the facts and in the circumstances of the case and on a proper interpretation of section 2(15) of the Income Tax Act, 1961, the Tribunal is correct in law in holding that depreciation claimed in the accounts by the assessee was an outgoing for the purpose of determination of income in terms of section 11 (1) of the Income Tax Act, 1961 and in that view deleted the addition so made in this regard ?"

The assessee is a trust. The trust received donation to the extent of Rs. 18,11,134 during the accounting year ending 30-6-1982. Such donation includes shares of the face value of Rs. 14 lakhs of Transport Corpn. of India Ltd. (1,40,000 equity shares of Rs. 10 each), received from Shri Prabhu Dayal Agarwal and Chogmal Agarwal on 28-8-1981. The Income Tax Officer found that the donor had substantial interest in Transport Corpn. of India Ltd. within the meaning of section 13(2)(h) of the Income Tax Act, 1961 (''the Act). Therefore, the Income Tax Officer invoked the provisions of section 13(4) and brought to tax the dividend income derived by the trust of Rs. 1,68,000.

In appeal, the Commissioner (Appeals) found that the donation of shares does not amount to investment by the assessee for acquisition of shares. Therefore, the provisions of section 13(2) (h) are not attracted.

In appeal before the Tribunal, the Tribunal has confirmed the view taken by the Commissioner (Appeals) that the provisions of section 13(1)(c), read with section 13(2) (h) are not attracted in the case of this assessee. However, the Tribunal remitted the matter back to the Income Tax Officer to examine whether the provisions of section 13(1)(a) can be attracted or not.

Mr. Ram Chandra Prosad, the learned counsel for the revenue, placed reliance on the order of the assessing officer and submits that the matter has right] '' y been remitted back to the assessing officer since the assessing officer has not examined the applicability of section 13(])(a). He further submits that when the donation is with a condition that it will form part of the corpus, it amounts to investment by the assessee.

Mr. NXL Poddar, the learned counsel for the assessee, submits that the assessee is a charitable trust. When there was a donation of shares of the assessee, the assessee had not incurred any expense. There is no investment by the assessee in acquiring the shares in question. When there is no investment by the assessee, the provisions of section 13(1)(c) are not attracted. For section 13(])(c), he submits that in view of the Board''s Circular, the provisions of section 13(1)(d)are applicable with effect will the assessment year 1984-85 and not from the assessment Year 1983-84. Therefore, when the provisions of section 13(1)(d) are not applicable in (lie year 1983-84, no purpose will be served in case the matter is remitted back to the A.0. For depreciation, he submits that in case of charitable trust, income will be taken on commercial basis as shown by the assessee in t lie books of account and it should not be computed as per the provisions of the Act. He drew our attention to the definition of ''total income'' in section 2(45) of the Act. He further submits that even the provision of section 14 which provides heads of income is also not applicable. He placed reliance on the decision in Commissioner of Income Tax Vs. Birla Charity Trust, and Commissioner of Wealth Tax Vs. Bharat Charity Trust, . For the application of the provisions of section 13(1)(a), he placed reliance on the decisions in Commissioner of Income Tax Vs. Deoria Public Charitable Trust, and Commissioner of Income Tax Vs. Savan Public Charitable Trust, . For depreciation, he placed reliance on the decisions Commissioner of Income Tax, Karnataka-I Vs. Society of the Sisters of St. Anne, , COMMISSIONER OF Income Tax Vs. RAIPUR PALLOTTINE SOCIETY., and Commissioner of Income Tax Vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust, . He further submits that this Court held that depreciation is expenditure in the case of Commissioner of Income Tax Vs. Indian Jute Mills Association, . in the case of Deoria Public Charitable Trust (supra), this Court has considered whether the provisions of section 13(1)(l) are applicable in [lie assessment year 1983-84. At page 115, this Court has quoted the Board''s Circular. The relevant portion of the Circular reads as under:

"The issue has been considered in the Board and it is decided that the provisions of section 13(1)(d) would be applicable from the assessment year 1984-85 and not from the assessment year 1983-84. It is also decided that appellate decisions on this issue, hitherto in favour of the assessee, may not be further contested, and pending appeals/ references may be withdrawn by the Chief Commissioners of Income Tax in exercise of the powers delegated to them."

When the Board itself has clarified the position as to from which assessment year the provisions of section 13(1)(c~ will be applicable, it was decided that the provisions of section 13(1)(a) will be applicable from the assessment year 1984-85. In this case, the year under consideration is 1983-84. In view of the Board''s Circular dated 15-3-1991 and the decision of this Court in the case of Deoria Public Charitable Trust (supra), in our view, no purpose will be served in case the matter is remitted back to the assessing officer to examine the applicability of the provisions of section 13(1)(d,.

The next issue relevant to question no. 1 is whether the provisions of section 13(1)(c), read with section 13(2)(h) are attracted to tax the dividend income in this case. There is no dispute that the shares from which the dividend income is derived are donated by Prabhu Daval Agar and Clilioginal Agarwal. This Court has considered a similar issue whether it can be taken that there was an investment by the assessee when he received shares free of charge.

In the case of Birla Charity Trust (supra), this Court held that the assessee received the shares (if company by way of donation. The assessee did riot deal with or commit or lay out any part of its existing assets to acquire the said shares. In such case, there was no investment of the fund of the assessee within the meaning of section 13(2)(b).

This Court again has considered similar issue in the case of Bharat Charity Trust (supra). This Court has considered section 21A of the Wealth Tax Act, 1957 corresponding to section 3(1)(a) of the Income Tax Act and the issue before the Court was when the assessee received the shares by way of donation, would it amount to investment of the assessee ? This Court held that when there was no investment of the fund of the assessee within the meaning of section 13(2)(h) and when there was no investment of the assessee in acquiring the shares, the charitable trust had not well within the provisions of the Wealth Tax Act.

When the shares are received but there is no investment on the part of the assessee, the Tribunal is justified in holding that the assessee''s income from shares is not hit by the provisions of section 13(2)(h), read with section 13(1)(c).

Question referred is regarding depreciation and the issue is whether the Tribunal is justified in holding that the depreciation claimed in the accounts by the assessee was an outgoing for the purpose of determination of income in terms of section 11(1) of the Income Tax Act, 196 1. During Z course of assessment, the assessee claimed depreciation worth up to Rs. 21,779 which has been disallowed by the assessing officer. In appeal before the Commissioner (Appeals), it did not allow the claim on the ground that when there is no business of the assessee, he is not entitled for deduction on account of depreciation. The Tribunal has allowed the claim following the view taken by the Karnataka High Court in Society of Sisters SI. Anne case (supra).

The learned counsel for the assessee submits that there are decisions of various High Courts including this Court where a view has been taken that in case of charitable trust the income should be computed on commercial basis as shown in the books of the account of the assessee and not strictly as per the provisions of the Act. He placed reliance on the decision ill Society of the Sisters of St. Anne''s case (supra), Raipur llallolline Society''s case (supra) and Sheth Manilal Ranchhoddas Vishranz Bhavan Trust''s case (supra). In Society of the Sisters of St. Anne''s case (Supra), the Karnataka High court has considered how the income of the charitable trust should be computed and whether the amount of depreciation debited to the accounts of the charitable institution is to be deducted to arrive at the income available for application to charitable purposes. At page 33 the Court has quoted part of Circular No. 5-P(LXX) of 1968/19-7-1968. The Board has clarified that "income" referred u/s 11 (1) should be understood in its commercial sense, ie., book income after adding back any appropriation or application thereof towards the purpose of the trust or otherwise and also after adding back an * v debits made in capital expenditure in regard thereto f or the purpose of'' tile trust or otherwise. It should be noted in this connection that the amounts so added back will become chargeable to tax u/s 11 (3) to the extent that they represent outgoings for purposes other than those of the trust.

Though there is a Board Circular and there are some decisions of the various High Courts and even this High court in Commissioner of Income Tax, Central-I Vs. Jayashree Charity Trust, has followed the decision of the Madras High Court in Commissioner of Income Tax Vs. Rao Bahadur Calavala Cunnan Chetty Charities, and held that while computing the income of charitable trust, income has to be arrived at in commercial manner.

It is true that a view has been taken by the various High Courts including this Court in the cases referred to above, that in case of charitable trust income should be computed and arrived at in commercial manner but nowhere in the Act it prohibits to calculate or compute the income as per the provisions of the Act. Section 11 (1) refers to income and not total income defined in section 2(45) of the Act but income itself has been defined in section 2(24). The question as arises to why the meaning of income given in section 2(24) should not be taken for income referred in section 11 (1) Act. Therefore, decision referred also requires reconsideration.

But in the case at hand the assessment year involved is 1983-84; even if we differ from the view taken by this Court, it will take another five years to conclude. The tax effect is only Rs. 7,000. Therefore, no purpose will be served to differ on this issue with the view taken by this Court in Jayashree Charity Trust''s case (supra) and we leave the issue open to consider this issue in an appropriate case in future.

In the result, in view of these facts, we answer both the questions in the affirmative,i.e., in favour of the assessee and against the revenue.

Mazumdar, J. - I agree.