1989 (7) TMI 160 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of sections 11, 12, and 2(24)(iia) of the Income-tax Act, 1961 on the assessee's claim of exemption from taxation.
2. Taxability of sums received from National Agricultural Co-operative Marketing Federation of India (NAFED) as income or capital.
3. Validity of interest levy under section 217 and initiation of proceedings under sections 271(1)(c) and 273 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Sections 11, 12, and 2(24)(iia) of the Income-tax Act, 1961:
The Tribunal examined whether the provisions of sections 11, 12, and 2(24)(iia) affected the assessee's claim of exemption. The assessee argued that the contributions were not voluntary and were directed collections, thus not falling under the definition of income as per section 2(24)(iia). The Tribunal noted that the contributions were decided by the Price Fixation Committee, which included exporters, indicating that the collections were voluntary. The Tribunal also considered the extended definition of 'trust' in section 2(24)(iia), which includes any "other legal obligation," and concluded that the assessee, being a scientific research institution, fell within the ambit of taxable entities as per the Income-tax Act.

2. Taxability of Sums Received from NAFED:
The Tribunal analyzed whether the sums totaling Rs. 14,05,340 received from NAFED were taxable as income or constituted capital/corpus. The Tribunal referred to the judgment of the Delhi High Court in the case of State Trading Corpn. of India Ltd., which held that amounts received before the commencement of business activities are capital receipts. The Tribunal noted that the assessee was recognized as a scientific research institution only from 27th April 1979. Therefore, any contributions received before this date were considered capital receipts, forming the corpus of the foundation, and not taxable as income. The Tribunal emphasized that the contributions were explicitly towards the development fund, which constitutes the corpus.

3. Validity of Interest Levy under Section 217 and Initiation of Proceedings under Sections 271(1)(c) and 273:
Given the Tribunal's decision that the sums received were capital receipts and not taxable, the issues regarding the levy of interest under section 217 and the initiation of penalty proceedings under sections 271(1)(c) and 273 became academic. Consequently, the Tribunal did not address these issues in detail.

Separate Judgments:
The President of the Tribunal concurred with the conclusions but provided additional reasoning. He emphasized that the earlier Tribunal's decision for the assessment year 1978-79 was based on incorrect facts and did not consider the specific direction that contributions were towards the corpus. He reiterated that the contributions were capital receipts and, therefore, not taxable. Another Judicial Member, Shri V.P. Elhence, agreed with the conclusion and reasoning.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the sum of Rs. 14,05,340 received from NAFED was not taxable for the assessment year 1979-80 as it constituted capital or corpus for the foundation's activities. The issues regarding the levy of interest and penalty proceedings were not addressed due to the primary decision on the taxability of the sums received.