1991 (1) TMI 188 - AT - Income Tax

Summary

Issues Involved:
1. Whether a donation made by the assessee-trust to another charitable trust attracts the provisions of section 13(1)(c)(ii) of the Income-tax Act, 1961.
2. Whether the donee trust can be treated as a 'person' under section 2(31) and section 13(3) of the Act.
3. Whether the donation can be considered as an application of the assessee's income for the benefit of the donee trust, violating section 13(1)(c)(ii).

Detailed Analysis:

1. Applicability of Section 13(1)(c)(ii):
The primary issue is whether the donation of Rs. 85,000 by the assessee-trust to Shree Hazarimal Somani Charitable Trust (HSMT) results in the loss of exemption under section 13(1)(c)(ii) read with section 13(3)(b) of the Income-tax Act. The Assessing Officer (A.O.) argued that by making this donation, the assessee-trust applied its income for the benefit of HSMT, thereby attracting the provisions of section 13(1)(c)(ii) and losing the exemption under section 11. This view was upheld by the first appellate authority (AAC), who also followed the ITAT decision in the Champa Charitable Trust case.

2. Definition of 'Person':
The assessee contended that HSMT should not be considered a 'person' under section 13(3) of the Act. According to the assessee, the term 'person' should refer to a human entity capable of having relatives, as implied in section 13(3)(d). The Departmental Representative countered that the term 'person' includes juridical persons as defined in section 2(31) of the Act, which encompasses trusts.

3. Application of Income:
The assessee argued that the donation was made for charitable purposes within the objects of the appellant-trust and did not benefit HSMT or its beneficiaries directly or indirectly. The assessee relied on various judicial precedents, including the Madhya Pradesh High Court's decision in Shrigopal Rameshwardas v. Addl. CIT and the Supreme Court's decision in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association, to support their interpretation of the term 'person' and 'benefit'.

Tribunal's Findings:

1. Interpretation of 'Person':
The Tribunal examined the definition of 'person' under section 2(31) and the specific context of section 13(3). It was noted that the term 'person' in section 13(3) must be interpreted in the context of the entire sub-section, which includes references to individuals and entities capable of having relatives. The Tribunal concluded that a trust could not be considered a 'person' for the purposes of section 13(3) as it cannot have relatives.

2. Application of Income:
The Tribunal found that the donation did not result in any direct or indirect benefit to HSMT or its beneficiaries. The donation was made for charitable purposes within the objects of the appellant-trust, and there was no evidence of any direct, limited, or beneficial enjoyment of the donated amount by any specific person. The Tribunal referred to the Madras High Court's decision in Manickavasagam Chettiar v. CIT, which emphasized that the benefit must be real and not notional, concrete and not abstract.

3. Legislative Intent:
The Tribunal considered the legislative intent behind sections 11 to 13, which aimed to prevent the abuse of charitable trusts for personal gain. The Tribunal referred to the Finance Minister's speech during the budget for 1970-71 and the Supreme Court's decision in Surat Art Silk Cloth Mfrs. Association to support the interpretation that the term 'person' should be construed to mean a human being in the context of section 13(3).

Conclusion:
The Tribunal concluded that there was no infraction of the provisions of section 13 as the transaction in question did not benefit the donee-trust or its beneficiaries. Consequently, the appellant-trust retained its exemption under section 11 of the Income-tax Act. The appeal was allowed.

Separate Judgment by Accountant Member:
The Accountant Member agreed with the conclusions reached by the Judicial Member and emphasized that the term 'person' in the context of section 13(3) should be interpreted as a human being. The Accountant Member also referred to various judicial precedents and legislative notes to support this interpretation. The appeal was allowed, and the exemption under section 11 was upheld.