1986 (3) TMI 106 - AT - Income Tax

Summary

Issues:
1. Applicability of section 11 of the IT Act, 1961 to income of a Public Charitable Trust.
2. Treatment of entrance fees received by the trust as income.
3. Determination of whether entrance fees constitute voluntary contribution.
4. Compliance with provisions of sections 11 and 12 of the Act for computing income derived from trust property.
5. Justification of adding entrance fees as income for determining surplus.

Analysis:

Issue 1:
The primary issue in the appeal for the assessment year 1973-74 was the applicability of section 11 of the IT Act, 1961 to the income of a Public Charitable Trust named Breach Candy Swimming Bath Trust, Bombay. The Income Tax Officer (ITO) initially held that section 11 was not applicable due to the trust's intention to earn commercial profits. However, the Tribunal later ruled that the trust's predominant object was not profit-making, thus directing the ITO to compute income under section 11.

Issue 2:
The controversy arose regarding the treatment of entrance fees received by the trust as income. The ITO considered the entrance fees as income derived from the trust property, leading to their inclusion in determining the surplus under section 11. The trust contended that the entrance fees were capital receipts and should not be treated as income.

Issue 3:
The question of whether entrance fees constituted voluntary contribution under section 12 was raised. The trust argued that entrance fees did not fall under the category of voluntary contribution as defined in the Act. The Tribunal agreed that entrance fees did not meet the criteria of voluntary contribution, but this did not affect their treatment as income under section 11.

Issue 4:
The Tribunal analyzed the provisions of sections 11 and 12 to determine the treatment of entrance fees as income derived from trust property. It was established that entrance fees, being a form of income from the trust's property, were subject to inclusion in the computation of income under section 11, despite not meeting the definition of voluntary contribution under section 12.

Issue 5:
In the appeal for the assessment year 1980-81, the ITO added entrance fees as income derived from trust property for determining the surplus. The Tribunal upheld this decision, emphasizing that the inclusion of entrance fees as income was justified under the provisions of sections 11 and 12. The AAC's rejection of the appeal was confirmed, leading to the dismissal of both appeals.

In conclusion, the Tribunal affirmed the ITO's treatment of entrance fees as income derived from trust property, in compliance with the provisions of sections 11 and 12 of the IT Act, ultimately dismissing the appeals filed by the trust for the assessment years 1973-74 and 1980-81.