1963 (3) TMI 3 - SC - Income Tax

Whether agricultural income-tax mentioned in condition (b) in Part I of the Schedule must be read in terms of the definition in section 2(2) and hence as including super-tax? Whether the Explanation to rule 17 is controlled by the rule itself or is to be interpreted and applied independently of the rule? Whether the hospitals which were subject to the general inspection by the civil surgeon can be treated as hospitals in receipt of a grant from the Government within the meaning of the notification issued under rule17 ? Whether the scholarships paid to students through an institution recognised by the State Government or a local authority were donations within the meaning of rule 117 ? Whether the scholarships paid to students directly would amount to donations to an institution or to a fund within the scope of rule 17 ? Held that - The first question must be answered by saying that condition (b) only restricts the amount of income-tax leviable under the Act and has nothing to do with the amount of super-tax that can be levied. This is the way in which the question was answered by the High Court and, in our opinion, rightly. The answer to the question is that in spite of the Explanation no exemption can be granted under rule 17 unless the institution or fund is one for charitable purpose and has further been approved by the State Government for the purpose of the rule, that is, for the purpose of earning exemption under it. the dispensaries in the district were under the control of the Assistant Surgeon who was posted at the Memorial Hospital, Balrampur. It may be that this Assistant Surgeon was a Government employee but it does not appear what service he was rendering in the hospitals. In any case, this ground has been nowhere relied upon by the appellant as constituting a grant by the State Government within the meaning of the notification under rule 17. We are, therefore, unable to go into this question. The first part of question must, therefore, be answered in the affirmative as the High Court has done. For the same reason the second part of the question has also to be answered in the affirmative.

Issues Involved:
1. Interpretation of condition (b) in the Schedule of Rates under the Uttar Pradesh Agricultural Income-tax Act, 1949.
2. Exemption of sums paid to charities under rule 17 of the Uttar Pradesh Agricultural Income-tax Act.
3. Treatment of hospitals subject to inspection by civil surgeons as hospitals in receipt of a grant from the Government.
4. Scholarships paid to students as donations to an institution or fund under rule 17.
5. Ultra vires nature of rule 17 in relation to section 8 of the Act.

Issue-wise Detailed Analysis:

1. Interpretation of Condition (b) in the Schedule of Rates:
The first question addressed was whether condition (b) in the Schedule of Rates applies to Part I alone or to both Parts I and II. The appellant contended that "agricultural income-tax" in condition (b) should include super-tax, based on the definition in section 2(2). However, the court held that condition (b) restricts only the amount of income-tax and does not include super-tax. The court reasoned that the legislature might have intended to benefit only those with smaller incomes and that the Schedule's division into two parts indicated different taxes. Thus, condition (b) applies only to income-tax and not super-tax.

2. Exemption of Sums Paid to Charities under Rule 17:
The second issue involved the interpretation of rule 17 and its Explanation. The appellant sought exemption for donations to institutions or funds for charitable purposes, even if not approved by the State Government. The court held that the word "and" in the rule should be understood in a conjunctive sense, requiring both the charitable purpose and State Government approval for exemption. The court emphasized that the approval ensures funds are utilized for charitable purposes, and the Explanation indicates what charities the Government could approve.

3. Treatment of Hospitals Subject to Inspection by Civil Surgeons:
The third issue was whether hospitals inspected by civil surgeons could be considered as receiving a grant from the Government. The court noted that the appellant needed to show that the hospitals received a grant, but it was admitted that no cash grants were made. The court found that inspection by Government medical officers did not constitute a grant, as there was no evidence that the inspection served the hospitals' charitable purposes. The court highlighted that the appellant's munificence deserved more consideration from the State Government.

4. Scholarships Paid to Students as Donations to an Institution or Fund:
The fourth issue involved whether scholarships paid to students through recognized institutions or directly could be considered donations under rule 17. The court affirmed that scholarships paid to recognized institutions were donations, as the institutions utilized the funds for their purpose. Similarly, scholarships paid directly to students were also considered donations, benefiting the institutions indirectly. The court answered both parts of the question in the affirmative, aligning with the High Court's decision.

5. Ultra Vires Nature of Rule 17 in Relation to Section 8 of the Act:
The final issue was whether rule 17 was ultra vires section 8 of the Act. The High Court had answered this question against the respondent, and since the respondent did not file an appeal, the Supreme Court did not entertain this point. Consequently, the court did not allow the respondent's counsel to argue this issue.

Conclusion:
The appeals were decided based on the answers provided, with no order as to costs.

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