1982 (6) TMI 75 - AT - Income Tax

Summary

Issues:
1. Applicability of sections 11, 12, 13(1) & (2) of the Act on a Public Charitable Trust.
2. Taxability of donation amount of Rs. 26,502 made to the trust.
3. Interpretation of provisions of s. 13(2)(a) regarding loans without adequate security.

Detailed Analysis:
1. The judgment involves an appeal by a Public Charitable Trust against the order of the Appellate Assistant Commissioner of Income-tax, R. Range, Bombay. The trust's income tax assessment for the financial year ending 31st March, 1974, was disputed due to loans received by the trustees from donations, which were considered as hundi loans drawn on firms where the trustees had substantial interest. The Income Tax Officer (ITO) concluded that the provisions of s. 13 attracted, making the trust taxable u/s 164(2) of the Act. The Appellate Assistant Commissioner upheld this decision, denying the trust exemption u/s 12. The appeal before the Tribunal contested this, arguing that the donation amounts were not the income of the trust as they were donated to the trust's corpus by the trustees in their individual capacity.

2. The Tribunal examined the facts and legal provisions, determining that the donations made to the trust were voluntary and formed part of the trust's corpus, not constituting income. The Tribunal emphasized that donations received by a trust wholly for charitable purposes, under the direction of donors to form part of the corpus, are not taxable as income of the trust. As the donations were voluntarily made by the trustees and formed part of the corpus, they did not fall under the purview of s. 13(2)(a) as there was no evidence of lending by the trust to the donors without adequate security or interest. Consequently, the Tribunal held that the lower authorities were unjustified in assessing the donation amount of Rs. 26,502 as the trust's income for the relevant year, setting aside their orders and allowing the appeal.

3. In a separate observation, another member of the Tribunal concurred with the decision to allow the appeal. The member highlighted that the alleged donations to the trust were given via cheques or hundies on concerns in which the trustees had substantial interest. However, the donations were collected by the trust during the previous year under appeal, negating the applicability of s. 13(3). The member noted that since the cheques and hundies were collected promptly, there was no question of the funds being held by the concerned firms. This swift collection rendered the provisions of s. 13(3) inapplicable and also undermined the ITO's argument regarding taxability, as the donations would not have been effective if not collected promptly.