1983 (8) TMI 159 - AT - Income Tax

Summary

Issues:
1. Whether the assessee trust qualifies for exemption under section 11 of the Income-tax Act, 1961.
2. Whether the trust is hit by section 13(1)(c) of the Act due to indirect benefits to the settlor.
3. Whether the sum of Rs. 6 lakhs received by the trust constitutes income.

Analysis:

Issue 1:
The primary issue in this case was whether the assessee trust qualified for exemption under section 11 of the Income-tax Act, 1961. The trust claimed to be a charitable trust, seeking exemption under section 11. However, both the Income Tax Officer (ITO) and the Commissioner (Appeals) held that the trust did not satisfy the requirements of 'charitable purpose' as defined under section 2(15) of the Act. The Commissioner (Appeals) rejected the contention that the trust was entitled to exemption under section 11, as it did not meet the criteria laid down in section 2(15).

Issue 2:
Another aspect of the case was whether the trust was hit by section 13(1)(c) of the Act due to indirect benefits to the settlor. The ITO held that even if the trust's income was exempt under section 11, it would still be impacted by section 13(1)(c) as the settlor was indirectly benefited by the trust. However, the Commissioner (Appeals) did not address this issue as the trust was not entitled to exemption under section 11.

Issue 3:
The final issue revolved around the sum of Rs. 6 lakhs received by the trust and whether it constituted income. The ITO treated this sum as income of the trust, rejecting the claim that it was a donation towards the corpus only. On appeal, the Commissioner (Appeals) found that the amounts received were to be treated as corpus contributions, and hence, capital receipts. The representatives for both the department and the assessee presented arguments regarding the nature of these receipts. The Tribunal ultimately held that the receipts did not constitute income as they were not expected with regularity and were dependent on the will of the donor.

In conclusion, the Appellate Tribunal upheld the order of the Commissioner (Appeals) based on the reasoning that the receipts did not meet the criteria to be considered income under the Income-tax Act. The appeal filed by the department was dismissed, emphasizing that the sum of Rs. 6 lakhs received by the trust did not fall within the scope of taxable income.