Income Tax Appellate Tribunal - Delhi Dharma Pratishthanam vs Income-Tax Officer on 21 August, 1984 Equivalent citations: 1985 11 ITD 40 DelhiBench: G Krishnamurthy, S Vice, S Kapur
G. Krishnamurthy, Senior Vice President
1. In this appeal filed by the assessee, a charitable institution, the question that arose for our consideration is whether the donations received by this charitable institution could be deemed to be the income liable to tax under any of the provisions of the Income-tax Act, 1961 ('the Act').
2. This Dharma Pratishthanam is a society registered under the Societies Registration Act, 1860, on 29-3-1979. As seen from the preamble of this Dharma Pratishthanam, the importance, significance and benefits of bringing about universal peace, spiritual regeneration by the technique of transcendental meditation is sought to be brought about so that by the practice of this technique, the mediators developed in them the experience of transcendental consciousness, which is supposed to be the field of all possibilities, home for all the law of nature, and the state of infinite correlation. It is claimed that with this great benefit in the field of physiology, psychology, sociology and ecology were noticed, and that they were substantiated by the scientific researches carried out in more than 200 universities and research institutions all over the world. Inspired by this phenomenal success of this technique, Maharishi Mahesh Yogi inaugurated in 1975 what is described as the age of enlightenment, to usher in and perpetuate the age of enlightenment. Maharishi founded the world Government of the age of the enlightenment in 1976. Inspired by the success of this movement, a global plan was formed to establish Sidha Land in every one million population of the world, where 100 people will participate and do some activities to make themselves sufficient, giving preference to unemployed people and unused or underused land and other resources. It is also proposed to intensify the Yoga Shakti, whose ultimate aim is to generate truth in the atmosphere. This movement has grown in 114 countries of the world with approximately 25 lakh meditators. With this background, it was proposed to bring the achievements of Vedas and science in the field of dharma, the eternal principle that upholds the existence of the universe, for the benefit of mankind and in particular to bring enlightenment, peace, prosperity, progress to the people of India, the land of Vedas. It was for this purpose that this society was registered under the Societies Registration Act with Registrar Office at B-IV/59, Safdarjung Enclave, New Delhi. The main objects of the society are:
1. To establish dharma through the practical application of the wisdom contained in Vedas and Vedic literature and thereby unfold the full human potentials for the integrated development of mankind and its environment, and thereby maintain high degree of coherence in the collective consciousness of India and the world and thereby usher in and perpetuate the sunshine of the age of enlightenment for all mankind.
2. To propagate and apply the science of yoga through the science of creative intelligence and, its practical aspect, the transcendental meditation and TM-Sidhi Programme as propounded by His Holiness, Maharishi Mahesh Yogi.
3. To conduct and promote the science of yagyas as prescribed in Vedas and Vedic literature and to create facilities, whereby the yagyas could be performed throughout India and abroad.
3. That this is charitable institution, the income whereof is exempt under Section 11 of the Act is not an issue in dispute. But during the assessment year under appeal, the assessee received donations from the Age of Enlightenment Trust, Channel Islands, as per details given below:
(i) 25-1-1980 20,000
(ii) 26-6-1979 25,000 pstl. (iii) 25-6-1979 3,30,000 (iv) 13-12-1979 1,00,000
The assessee claimed exemption from tax on these donations on the ground that they did not partake the character of income under the provisions of Section 2(24)(iia) and also under Section 12 of the Act. The ITO allowed exemption only in respect of the donation of 20,000 received on 25-1-1980 and levied tax on the equivalent of the balance. The reasons given by the ITO for the rejection of the assessee's claim may better be quoted in his own words:
The assessee-trust has credited its capital fund with Rs. 52,45,214. The said donations are received from the Age of Enlightenment Trust, Jersey. The assessee-Pratishthanam was asked to file the confirmation letters and Form No. 3. The scrutiny of the same reveals that U.K. Pound Sterling 20,000 are towards the corpus of the society and the balance amount equal to Rs. 48,83,550 is for general and running expenses on Veda Yoga and Udyog Vibhag. These activities cannot be treated as corpus. Moreover, the scrutiny of Form No. 3 which was filed with the Ministry of Home Affairs, Govt. of India, reveals that the purpose of donations is for spreading T.M. & T.N. In view of these facts, the balance amount of Rs. 48,83,550 is treated as income of the assessee-Pratishthanam as the conditions set forth in Section 2(24)(iia) are not fulfilled.
The main emphasis of the ITO in levying tax on the equivalent of the other sums received by way of donations appears to be that that amount was received for general and running expenses on Veda, Yoga, and that they could not be treated as corpus. It would also appear that had there been proof to show that those amounts also were received as and by way of corpus, the ITO would not be levying tax on it treating it as income.
4. Aggrieved by this treatment, appeal was filed before the Commissioner (Appeals), who substantially agreed with the ITO's view. Before him, the assessee produced letters obtained from the donors showing that those amounts were donated towards corpus. Based upon this clarification, it was contended before the Commissioner (Appeals) that the exemption contemplated in Section 2(24)(iia) was available to the assessee but the Commissioner (Appeals) was not willing to accept the contention because those amounts were not utilised for the purpose of creation of any capital assets but were used towards running expenses of the trust. According to him, if any donation, though received towards corpus, if utilised otherwise than for the purpose of creating a corpus, it loses the exemption. No amount received by way of donation towards corpus, according to the Commissioner (Appeals), should be spent for the running expenses of the institution. Before the Commissioner (Appeals), reliance was placed on the decisions in Sri Dwarkadheesh Charitable Trust v. ITO  98 ITR 557 (All.), CIT v. Bal Utkarsh Society  119 ITR 137 (Guj.) and Chairman, Andhra Pradesh Welfare Funds. CIT  143 ITR 82 (AP) as well as CIT' v. Gem & Jewellery Export Promotion Council  143 ITR 579 (Bom.). The Commissioner (Appeals) declined to apply the law enunciated in these decisions on the simple ground that those were the cases decided before the insertion of Section 2(24)(iia) and Section 12 by the Finance Act, 1972, with effect from 1-4-1973. The specific reason of the Commissioner (Appeals), which weigh with him in rejecting the assessee's contentions is:
The contributions were not separately invested, they were not retained in fact, they were in fact applied in the day-to-day activity of the foundation. They were not used for acquisition of any specific capital asset for the foundation. It is, therefore, not possible to hold that these receipts were towards the corpus merely because the donor chose to add these words in two of its letters.
It was against this order of the Commissioner (Appeals) that the present appeal is directed.
5. The contentions raised by the learned Counsel for the assessee, Shri Gauri Shanker, before us now is very succinct and simple. He submits that neither in the language of Section 2(24)(iia) nor in Section 12, is there any stipulation that the amounts meant for forming part of corpus, if spent otherwise than for that purpose, but essentially for the purpose of the furtherance of the objects of the trust, the trust would lose the exemption. After tracing the history behind the introduction of Section 2(24)(iia) and after taking us through the Wanchoo Committee report on the Direct Taxes Enquiry, based upon which the above section was stated to have been inserted, the learned Counsel for the assessee submitted that the authorities below have proceeded on a total misconception of law, which resulted in the miscarriage of justice and virtually turning against the assessee what was in effect meant to confer benefit. He originally opened his arguments by formulating four propositions, which are:
1. Even if the income is spent for the purposes of the trust, still the receipt retains its character as non-taxable.
2. Under Section 2(24)(iia), read with Section 12, the voluntary contributions having been specified to form part of the corpus did not constitute income at all.
3. The amount was received towards corpus, though it was stated by the department to be ambiguous as to its nature at the time of receipt.
4. Lastly, even assuming the direction, still under the circumstances, it is to be disregarded and it continued to remain as part of the corpus, irrespective of the fact as to how it was spent and continue to enjoy the exemption from tax, all because they were invested for the furtherance of the objects of the trust.
But as the arguments have developed, Shri Gauri Shanker emphasised that part of his argument, which related to the contention that the contributions though formed part of the corpus but were spent for the purpose of the objects of the trust the contributions did not lose the exemption (sic). He also filed before us a statement showing that even as per the ITO's order, the income that was taken as per income and expenditure account was Rs. 26.81 lakhs. Adding thereto donations credited to capital account of about Rs. 14.37 lakhs, it gave a total of Rs. 41.18 lakhs out of which the amount spent for the furtherance of the objects of the trust was Rs. 46.34 lakhs besides capital expenditure of Rs. 6.33 lakhs giving a total of Rs. 52.67 lakhs which at once meant that all the money received was spent for the purposes of the trust. Even if the entire income is taken as income within the meaning of Section 2(24)(iia), still the amount, having been spent, satisfied the requirements of section 11 and viewed from that angle also, the contributions had to be exempted from the levy of tax. The learned Counsel for the department in a lucid way submitted that the requirements of Section 2(24)(iia) have to be scrupulously satisfied and any deviation in the requirements of the law will render the contributions liable to tax. Relying upon the orders of the authorities below, he submitted that the amounts were not stipulated as towards corpus. Even assuming that the contributions were towards corpus, they must have been accumulated and not spent. Section 2(24)(iia) contemplated that any amount received towards corpus is to be exempted solely because that amount would be retained as corpus for ever, invested in such a way as to yield income and only the income would be spent for the furtherance of the objects of the trust. It is not in the contemplation when Section 2(24)(iia) was enacted that the corpus would be spent for day-to-day expenditure. Since the trust violated that basic requirement of law, it forfeited the claim for exemption. Developing this argument further, the learned departmental representative submitted that the statement filed showing the computation of income does not advance the case of the assessee any further because when nothing was to be spent out of corpus, showing that the corpus was spent towards the objects, the trust would not convert the case of the assessee from that of taxability to non-taxability.
6. We have carefully considered the arguments addressed to us at some length and have gone through the relevant provisions of the Act as well as the paper book filed before us and we are of the view that there is a misconception of the legal proposition. Section 2(24)(iia) is the relevant section, which is in the following terms and which needs to be reproduced here:
(24) 'income' includes--
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(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution.
An analysis of this section shows that (a) there must be a trust created wholly or partly for charitable or religious purposes, or (b) by an institution established wholly or partly for such purposes, (c) such a trust must receive voluntary contributions, and (d) the exception is that those contributions, if made with a specific direction, they shall form part of the corpus of the trust or institution. Then such voluntary contributions are considered as income for the purposes of the Act. In other words, voluntary contributions towards the corpus are not regarded as income, the object being that they shall form a fund, which is not an income under the Act. In this context we may also refer to the recommendations made by the Direct Taxes Enquiry Committee popularly known as Wanchoo Committee, where in paragraph 3.62 after noticing that there was a certain abuse of Section 11 in that even trust which do not enure for the benefit of the public are getting exemption in respect of their income received by way of voluntary contributions and observing that there was no justification for exempting from tax any income, by way of voluntary contributions, of private religious trusts and charitable trusts affording benefits to the relatives of the author, founder, etc. It recommended that Section 12 be suitably amended to provide that the benefit of tax exemption in respect of income received by way of voluntary contribution will be available only to charitable and religious trusts which enure wholly for the benefit of the public, that the voluntary contributions received by religious and charitable trusts will be treated as income of such trusts for the purposes of Sections 11 and 13. It also recommended at the same time that voluntary contributions in the nature of endowments or for specific projects related to the objects of the trust may be allowed to be accumulated or set apart. It is this recommendation, which was acted upon by the Government and as a consequence, Section 2(24)(iia) came to be enacted with effect from 1-4-1973 and Section 12 was also substituted with effect from the same date. It is also necessary to notice what exactly it provided for:
12. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of Section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and Section 13 shall apply accordingly.
It, therefore, follows by a combined reading of Section 2(24)(iia) and Section 12 that voluntary contributions received by a trust created wholly for charitable or religious purposes other than contributions made towards the corpus will be deemed to be the income derived from the property held under trust and the provisions of Section 11 and Section 13 are made to apply. Now even if voluntary contributions are received by a trust which are not specifically earmarked for the corpus, if they satisfy the requirements of Section 11, they continue to enjoy the exemption provided for under Section 11. To put it simply, a voluntary contribution received by a charitable or religious trust will earn exemption (a) if it is received with a specific direction that it forms part of the corpus of the trust, or (b) it satisfies the requirements of Section 11. If either of these conditions are satisfied, the exemption from the levy of tax is available. As the department in this case has, as we see from the orders passed by the authorities below, approached the problem only from the point of view as to whether the contributions received were towards corpus or not and not from the standpoint whether, even if they are to be taken as income within the meaning of Section 2(24)(iia), it still satisfies the requirements of Section 11. It is to satisfy us that this requirement is fully met and that the statement had been filed before us at the time of hearing which helps the assessee's case almost in a full way. Assuming for the sake of argument that the amounts received by the assessee are voluntary contributions not with a specific direction that they shall form part of the corpus, then it becomes the income liable to be processed under Section 11. Section 11 says that subject to the provisions of Sections 60 to 63 of the Act, the income derived from property held under trust, to the extent to which such income is applied to such purposes in India or any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property, will not be included in the total income of the person. Now the voluntary donation, which is to be treated as income within the meaning of Section 2(24)(iia) by the injunction of Section 12, is to be treated as income derived from the property held under trust wholly for charitable or religious purposes for the purposes of Section 11 and if we apply Section 11, we find that that income was spent for the purposes for which the trust is established and this is an admitted fact. Therefore, the entire contributions, though regarded as income, becomes eligible for exemption and no part of it can be said to be income which forfeited the claim of exemption. This is the clear outcome of reading of Section 2(24)(iia), Section 12 and Section 11 together as applied to the facts of the present case. When this situation was pointed out, the learned departmental representative did not have much of argument.
7. That apart we find that out of the four donations received, the first donation received on 25-6-1979 of 3,00,000 was received for the purchase and investment in Sidha Land Project which is a capital project and thus formed part of the corpus. The last one received on 25-1-1980 of 20,000 was also received towards the corpus of the society. That these two amounts were received towards the corpus, clearly emerged out of the discussion that took place during the course of hearing. Once it is shown that these two amounts were received towards the corpus, it ceased to be the income within the meaning of Section 2(24)(iia). They are clearly out of the purview of taxation. The long arms of tax law cannot reach them. That leaves us with the other two items of 25,000 received on 26-6-1979 and 1,00,000 received on 13-12-1979, which were claimed by the department to have been received without specification that they were towards corpus but spent for expenses though later clarified to be towards corpus and whether the later clarification converted them into corpus. This controversy also is to be resolved in favour of the assessee for more than one reason. Assuming in favour of the revenue that these contributions were to be treated as income for non-specification, still these were to be treated as income derived from a trust wholly and exclusively for charitable or religious purposes for the purpose of Section 11 and since that amount was also spent, it became eligible for exemption under Section 11, read with Section 2(24)(iia) and Section
8. That leaves us with the question whether any amount received towards corpus can be spent for running expenses and if so spent, whether it loses the exemption from the levy of tax. We have read the relevant sections carefully and we find nothing in those sections even remotely suggesting the above view. Section 2(24)(iia) when it provided that the voluntary contributions should be made with a specific direction that they shall form part of the corpus of the trust or institution, in order that it is not to be treated as income, it was laying emphasis on the wish, will and desire of the donor. The donor must grant it with a direction that it shall form part of the corpus. The section did not either by implication, or overtly or otherwise, enjoin upon the trust that the trustee shall retain it for ever as corpus, even if when an occasion arises that in order to keep the trust alive and to prevent it from failure, it should not spend any amount out of it. If a donor donates money with a specific direction that it shall form part of the corpus, the trustee is expected to honour the wish of the donor. But if the trustee utilises it for a different purpose, then it is a simple case of breach of trust for which delinquency, the trustee can be proceeded against under the Indian Trusts Act, 1882, or other appropriate legislation but that is not to say that for the misbehaviour of the trustee, the trust loses exemption under the Act. This kind of inflexibility, as contended for by the revenue, is difficult to see or comprehend from the language of Section 2(24)(iia) or section 12. The requirement of Section 2(24)(iia) is that the voluntary contribution, when received, should contain a stipulation that it shall form part of corpus. The trustee cannot possibly influence the donor at that time, except that the trustee should act in accordance with the confidence reposed in him by the donor. Take an example, where A makes a voluntary contribution of Rs. 1 lakh to a trust created wholly for charitable or religious purposes and it has no other income. The object of the trust is to promote education or relief of poor. How can the trustee utilise this money without buying the books, if it is for the purpose of education, or necessary utensils or provisions, if it is for providing relief to the poor by way of providing food and if the money is spent out of the donation of Rs. 1 lakh for the purchase of books, utensils, etc. Would it mean that the sum of Rs. 1 lakh would become taxable as income of the trust? We do not think that this is the object of the legislation. In any case, this is contrary to what is recommended by the Direct Taxes Enquiry Committee, which was accepted by the Government. What is earmarked for corpus is not to be treated as income not because it is spent for the purpose of the trust but because that forms the fund of the trust. It is nowhere laid down that the funds of the trust should never be spent for the purposes of the trust unless it is a direction of the donor that the fund shall be invested in such a way as to produce income and only the income shall be spent for the purposes of the trust. Even so, if a departure is made by the trustee in the implementation of this wish of the donor, the trustee is to be penalised and not the trust. Looked at from any angle, we find it difficult to subscribe to the view so forcefully put forward before us by the learned departmental representative and so explained in the orders of the authorities below.
9. We, therefore, accept the contentions raised on behalf of the assessee and hold that the voluntary contributions are not to be treated as income. In the view that we have taken, we thought it unnecessary to go into the question whether a voluntary contribution received initially without a specific direction that it shall form part of the corpus could be converted into a specific direction making the voluntary contribution a part of the corpus even though, prima facie, we do not find any suggestion to the contrary from the language of the sections.
10. In the result, the appeal is allowed.
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