Commissioner of Income Tax vs Nirmala Bakubhai Foundation

B.C. Patel, J.—The Tribunal has referred the following questions for the opinion of this Court.

So far as IT Ref. No. 161 of 1984 is concerned, the following two questions are referred for the opinion of this Court :

Whether, on the facts and in the circumstances of the case, the assessee was entitled to claim exemption under s. 11 of the IT Act, 1961 in

respect of the contribution of Rs. 2,12,970 made to B. M. Institute ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest received by the assessee on fixed

deposits made with Shahibag Entrepreneurs was covered under s. 13(2)(a) of the Act, and, therefore, the assessee''s claim for exemption under s.

11 of the IT Act, 1961 was not affected.

So far as IT Ref. No. 56 of 1985 is concerned, the following questions are referred to this Court for opinion :

Whether, on the facts and in the circumstances of the case, the assessee was entitled to claim exemption under s. 11 of the IT Act, 1961 in

respect of the contribution of Rs. 2,73,102 made to B. M. Institute ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest received by the assessee on fixed

deposits made with Shahibag Entrepreneurs Pvt. Ltd. was covered under s. 13(2)(a) and, therefore, the assessee''s claim for exemption under s.

11 of the IT Act, 1961 was not affected ?

The assessee is a charitable trust and the relevant year for the assessment is 1978-79. The previous year ended on 31st March, 1978. B. M.

Institute is also a charitable entity to which out of the amounts paid Rs. 2,12,970 were claimed under s. 11 of the IT Act, 1961 (hereinafter

referred to as ""the Act""). It appears that on 1st April, 1977 in the books of account of the assessee, there was an outstanding debit balance of Rs.

5,29,678.08 and on 31st March, 1978 there was a debit balance to the tune of Rs. 7,36,359.78. During the year Rs. 4,85,008.25 have been paid

to B. M. Institute by the assessee. On 31st March, 1978, the assessee passed a resolution resolving that out of the total amount of Rs.

9,87,743.50 advanced to B. M. Institute the amount of Rs. 2,12,969.54 be treated as contribution from the foundation to B. M. Institute and the

same be earmarked for meeting the excess expenditure, in the income and expenditure account of the Institute as on 1st April, 1977. The amount

be adjusted against the deposit balance in the income and expenditure account of the Institute as on 1st April, 1977. Thus, it appears that during

the year the assessee has paid in all Rs. 4,58,008.25. The CIT(A) upheld the ITO''s action in disallowing deduction of Rs. 2,12,970 under s. 11 of

the Act. Against which, on appeal, the Tribunal held ""once the assessee had shown that it had earned income of Rs. 2,16,304 in the previous year

relevant to the assessment year under appeal, we are not prepared to accede to the stand taken on behalf of the Revenue that the assessee would

not be entitled to claim exemption under s. 11 of the Act in respect of contribution of Rs. 2,12,970 made to B. M. Institute merely because the

assessee had not paid in cash the said amount to the said Institute but it had passed necessary resolutions as well as entries in its books of

accounts. For all these reasons, we have no hesitation in upholding the assessee''s claim for exemption under s. 11 of the Act in respect of

contribution of Rs. 2,12,970 made to B. M. Institute. The ITO is, therefore, directed to modify the assessment accordingly.

Thus, on record there is a finding that the assessee earned income of Rs. 2,16,304 in the previous year relevant to the assessment year under

appeal and a sum of Rs. 4,85,008.25 has been paid during the year to B. M. Institute which includes the income earned by the assessee. The copy

of account produced on the record clearly indicates that by different cheques or pay orders, the amount has been paid to B. M. Institute and a

decision was taken that out of the total amount, only Rs. 2,12,967.54 be treated by way of contribution from the foundation to B. M. Institute. In

our view, it would attract the provisions contained in s. 11 of the Act and in the facts and circumstances of case, the Tribunal is justified in taking

the view and therefore, with regard to that question, we answer in favour of the assessee and against the Revenue.

So far as the question No. 2 referred to this Court is concerned, the same is covered by the decision of this Court in the case of Commissioner

of Income Tax Vs. Sarladevi Sarabhai Trust-No. 2, . Considering various aspects, the Court has held as under :

The CBDT Circular No. 45 dt. 2nd Sept., 1970, clearly indicates that s. 13(2)(h) will cover only those cases in which investments are made by

the assessee-trust in the capital of the concerns to which s. 13(2) applies. The circular further indicates that in case of lendings by the trust, the

provisions of clause (a) of sub-s. (2) of s. 13 will apply and not s. 13(2)(h) and any contrary interpretation would not be a harmonious

interpretation of cls. (a) and (h) of sub-s. (2) of s. 13. It is, therefore, obvious that if at all, clause (a) of sub-s. (2) of s. 13 will apply and not clause

(h) thereof, if it is shown that lending was without adequate security or adequate interest or both. Under these circumstances, if deposits are made

by a trust in such concerns, such deposits will not be covered by s. 13(2)(h) and if at all, it is only s. 13(2)(a) which would apply to such deposits.

In the instant case, the CIT(A) held that the interest received by the assessee on fixed deposits made with Shahibaug Entrepreneurs Pvt. Ltd.

was covered under s. 13(2)(a) of the Act and the Tribunal has confirmed the decision rendered by the CIT(A) and in view of the aforesaid

decision, this question is required to be answered in favour of the assessee and against the Revenue.

Thus, questions referred in IT Ref. No. 161 of 1984 are answered accordingly with no order as to costs.

In view of what we have stated in IT Ref. No. 161 of 1984, the questions referred in IT Ref No. 56 of 1985 are required to be answered in

favour of the assessee and against the Revenue and accordingly the same are answered with no order as to costs.