9911796707
TMI Blog2012 (5) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... d 19.06.1968 - the payment of taxes under the VDIS is to be deducted before arriving at the commercial income of the assessee-trust that is available for application to charitable purposes – in favour of assessee. Expenditure incurred outside India on events/activities held in connection with the exhibition – Held that:- The provision as it existed after the amendment made in Section 11(1)(a) w.e.f. 1.4.1952 makes a reference to application or accumulation for application of the income of the trust "to such religious or charitable purposes as relate to anything done within the taxable territories" - even if relocate the words "in India" in the manner in which assessee suggests in the definition , it would make no difference to the -meaning to be ascribed to the group of words - the amount spent by the assessee-trust cannot be considered as application of the income of the trust in India - against assessee. Non Applicability of Section 28(iii) on trust - non-refundable admission fee from its members as well as annual subscription charges – Held that:- The annual subscription fees is a "recurring receipt, receivable by the assessee-trust by mere efflux of time irrespective of whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee outside India. (Hanover, Germany). The expenditure was also incurred outside India. The Assessing Officer took the view that the expenditure cannot be considered as application of income in India for charitable purposes. He accordingly considered the aggregate of these two amounts as income not applied for charitable purposes in India and computed the surplus of the assessee-trust in the following manner: - "Gross Receipts Rs. 2,56,84,141/- Less Exemption u/s 11(1) Amount actually applied* Rs. 77,94,166/- Application applied u/s 11(2) Rs. 33,00,000/- 25% of Income accumulated for application. Rs. 64,21,035/- Assets purchased Rs. 1,12,011/- Surplus Rs. 80,56,929/-" Rs. 1,76,27,212/- 4. The CIT (Appeals) upheld the view taken by the Assessing Officer with regard to the payment of taxes and the expenditure incurred in Germany in connection with a trade fair held there. He accordingly confirmed the computation: of the surplus at Rs. 80,56,929/- as made by the Assessing Officer. 5. The assessee carried the matter in further appeal before the Tribunal. The Tribunal found that the taxes paid under VDIS related to the assessment years 1989-90 to 1997-98 and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing income shall not be included in the total income of the previous year of the person in receipt of the income-- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of [fifteen] per cent of the income from such property;" 9. So far as the first question regarding payment of the taxes is concerned, the argument of the Revenue before us is that the taxes paid represent the share of the government in the profits or surplus of the trust and neither under the Act nor under commercial principles can taxes be considered as an appropriate deduction in ascertaining the amount available to the assessee for application to charitable purposes. It is submitted that payment of taxes no doubt may deplete the liquid resources of the assessee but the availability of liquid resources and the computation of the income available for application to charitable purposes are two different exercises which sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial principles and in doing so, all outgoings including outgoing by way of income tax paid by the assessee-trust must be deducted and it is only from the surplus income in the hands of the trustees that the question of application or accumulation or setting apart of income can arise. The question was examined by the Madras High Court in CIT v. Janaki Ammal Ayya Nadar Trust [1985] 153 ITR 159. In this judgment, the Court placed reliance on circular No. 5 dated 19.06.1968 issued by the CBDT. The relevant portion of the circular is extracted below: -- "2. Section 11(1) provides that subject to the provisions of sections 60 to 63, 'the following income shall not be included in the total income of the previous year.............. ' The reference in sub-section (1)(a) is invariably to 'income' and not to 'total income'. The expression 'total income' has been specifically defined in section 2(45) of the Act as 'the total amount of income computed in the -manner laid down in this Act'. It would, accordingly be incorrect to assign to the word 'income', used in section 11(1) (a), the same meaning as has been specifically assigned to the expression 'total income', vide section 2(45).' 3. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 11(1)(a) of the Act must be assigned the same meaning as the words "total income" as defined in Section 2(45) of the Act. The CBDT itself has opined in the circular cited above that it would be incorrect to assign to the word "income" used in Section 11(1)(a) the same meaning as "has been statutorily assigned to the expression "total income" under Section 2(45) of the Act. Having regard to the authorities noticed above and keeping in view the fact that the long-settled position, which has also been accepted by the CBDT, should not be upset, particularly where the statute which we are dealing with is an all India statute, we express our agreement with the judicial trend and hold that the payment of taxes under the VDIS is to be deducted before arriving at the commercial income of the assessee-trust that is available for application to charitable purposes. We are thus in agreement with the view taken by the Tribunal on this point. 13. We now proceed to the examination of the second substantial question of law framed by us. The question is whether the expenditure of Rs. 38,29,535 incurred by the assessee-trust on events/activities held in connection with the exhibition in Han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s without the taxable territories; and (ii) where the property is held under trust or legal obligation created after such commencement, and the income therefrom is applied without the taxable territories to charitable purposes which tend to promote international welfare in which India is interested, the Central Board of Revenue may, by general or special order, direct that it shall not be included in the total income; (b) in the case of income derived from business carried on on behalf of a religious or charitable institution, unless the income is applied wholly for the purposes of the institution and either-- (i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution, or (ii) the work in connection with the business is mainly carried on by beneficiaries of the institution; (c) if it is applied to purposes other than religious or charitable purposes or ceases to be accumulated or set apart from application thereto in which case it shall be deemed to be the income of the year in which it is so applied or ceases to be so accumulated or set apart. (ii) Any income of a religious or charitable institution derived from volu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ementation of such purposes. Be that as it may, the position is put beyond doubt by the proviso to Section 4(3)(i) of the old Act. It says that the income of the trust shall stand included in its total income if it is applied to religious or charitable purposes throughout/within the taxable territories. The proviso is indicative of the object of the main provision. In the main part, it was provided that the income of the trust should be applied within the taxable territories to religious or charitable purposes and in the proviso an exception was carved out to provide that if the income is applied outside the taxable territories, even though to religious or charitable purposes, the trust will not secure the exemption from tax in respect of such income. Two situations were anticipated for which provision was made in the proviso itself. In these two situations, the Central Board of Revenue (CBR, the present CBDT) was empowered to direct by general or special order, that in such cases the income of the trust shall not be included in the total income merely because the income was applied to charitable purposes outside the taxable territories. The first situation was where the property w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made to income tax for the assessment years 1952-53 and 1953-54, the assessee claimed exemption in respect of the income arising from the trust property as per section 4(3)(i) of the old Act. The taxing authorities noticed that there were four religious objects enumerated in the trust deed out of which two were to be effectuated in Mecca and Madina. The trust deed also conferred absolute discretion upon the trustees to apply the income of the trust to one or more of the four categories of religious purposes. The Income Tax Officer, on a construction of the trust deed held that so far as the income that was to be applied, to religious and charitable purposes situated outside the taxable territories was concerned, since no order had been made by the CBR under clause (a) of the proviso to section 4(3)(i) of the old Act, the income did not qualify for exemption. His view was upheld by the Appellant Assistant Commissioner on a different ground. The assessee carried the matter in appeal to the Tribunal which affirmed the view taken by the taxing authorities. On a reference to the Andhra Pradesh High Court, it was held by me Division Bench (reported in (1963) 48 ITR 992) that if there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome shall not be included in the total income of the previous year of the person in receipt of the income- (a) to (b)** ** ** (c) Income [derived] from property held under trust -- (i) Created on or after the 1st day of April, 1952, for a charitable purposes which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) For charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India; Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;" 21. Here again it may be noticed that sub-clause (ii) of clause (c) of sub-section (i) of Section 11, in substance provides for the same condition which was imposed by sub-clause (i) of clause (a) of the proviso to Section 4(3)(i) of the old Act. Sub-clause (i) of the clause (c) of sub-section (1) of Section 11 of the Act is in the same terms a sub-clause (ii) of clause (a) of the proviso to Section 4(3)(i) of the old Act. Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e says, the income of the trust can be applied even outside India so long as the charitable purposes are in India, then there is no need for a trust which tends to promote international welfare in which India is interested and which was created after 1.4.1952 to apply to the CBDT for a general of special order directing that the income to the extent to which it is applied to the. promotion of international welfare outside India shall not be denied the exemption, nor would it be necessary for a charitable or religious trust created before the aforesaid date to seek such an order from CBDT in respect of its income which is applied to charitable or religious purposes outside India. In our opinion, therefore, the words "in India" appearing in Section 11(l)(a) and the words "outside India" appearing in Section 11(1)(c) of the Act qualify the verb "applied" appearing in these provisions and not the words "such purposes". 23. Mr. Vohra protests that we would be changing the group of words appearing in Section 11(1)(a) by displacing the words "in India" and transposing them between the words "applied" and the words "to such purposes" and thus re-drafting the clause in the following manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied in India for charitable or religious purposes, we are doing any violence to the provisions nor can it be said that we are condoning an absurd result, 24. We do not intend to burden this order with a plethora of authorities on the construction of a Section, but since a point of grammar is also involved in the interpretation of the provision, we think it fit and appropriate to briefly refer to a few rules of interpretation laid down in some of the decided cases. In Jugalkishore Saraf v. M/s. Raw Cotton Co. Ltd., AIR 1955 SC 376, S.R, Das, J. speaking for the Supreme Court observed as follows:- "The cardinal rule of construction of statutes is to read the statute literally, that is by giving to the words used by the legislature their ordinary, natural and grammatical meaning. If however, such a reading leads to absurdity and the words are susceptible of another meaning the Court may adopt the same. But if no such alternative construction is possible, the Court must adopt the ordinary rule of literal interpretation. In the present case a literal construction of the rule leads to no apparent absurdity and, therefore, there can be no compelling reason for departing from that g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of legal obligation under the trust, restrict the application of the income to purposes within the taxable territories, that would be sufficient compliance with the clause" At page 219, the following observations appear as commentary on the proviso to the section: - "Proviso. Para. (a). - Foreign charities. - The substantive part of cl. (i) enacts that exemption can be claimed in respect of only such portion of the trust-income as is applied to religious or charitable purposes within the taxable territories. Para (a) of the Proviso is a corollary to that substantive provision and it provides that such portion of the income of a religious or charitable trust is to be included in the total income as is in fact applied to religious or charitable purposes outside the taxable territories. In other words, the Revenue confines the right of exemption to only such trusts as are administered for the benefit of the public of India and does not extend it to foreign charities; Two exceptional cases are, however, provided for, in which the Central Board of Revenue may by general or special' order grant exemption from tax in respect of income applied to religious or charitable purposes out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to him, the income is applied to the charitable purposes only. 28. What Mr. Vohra says is not without force or merit but we are required to interpret the statute as it is and not in the manner in which we think the law ought to be. We need to distance ourselves from matters of policy. Innovative thinking has its limits. Judicial adventurism, masquerading as judicial innovativeness should not result in legislation. Policy, so far as we are concerned, is uncharted territory into which we should feel chary of making forays. Secondly, we ought to be wise enough to know that in the matter of exemption from tax in all India statute, judicial restraint, and not innovativeness or novelty, may be the proper approach to follow in order that, the long settled legal position is not turned upside-down. We must, however, appreciate the tenacity with which the matter was argued before us by the learned-counsel on behalf of the assessee but we are. afraid that he is looking up the wrong tree. 29. The next submission of the learned counsel for the assessee was that in case the expenditure incurred in Germany is not to be considered as application of the income of the trust in India for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court noticed that the income tax authorities did not allow the assessee's claim under Section 80HHB because the assessee had not complied with certain formalities such as creation of reserves in its accounts. It is in this background that this Court held that it will be extremely unfair not to give the benefit to the assessee under Section 80HHB. It was thus directed that the Income Tax Department should not stand on Mere technicalities and must give an opportunity to the assessee to fulfil the requirements of Section 80HHB(3) within a reasonable time. It has to be remembered that the writ court can issue such direction based on equitable considerations and in the interest of justice, but our jurisdiction under Section 260A of the Act is not so wide as writ jurisdiction. We have no such discretion in the absence of any specific provision in the Act. We are accordingly unable to accept the request of the assessee. 31. We, therefore, hold that the amount of Rs. 38,29,535/- spent by the assessee-trust in Hanover, Germany cannot be considered as application of the income of the trust in India for charitable purposes. The substantial question of law is thus answered in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other relevant statistics." From the above, the Assessing Officer took the view that, there were specific services rendered by the assessee to its members and therefore the annual subscription fee was assessable under Section 28(iii). 33. On appeal the CIT (Appeals) held that the annual subscription received from the members was not taxable under Section 28(iii). The Revenue carried the matter in appeal to the Tribunal. We note that the Tribunal has not separately dealt with the, assessability or otherwise the annual subscription fee, though it has referred to the assessability of the non-refundable admission fee and decided that issue specifically. We also find that in paragraph 13, the Tribunal has considered the non-refundable admission fee and the annual subscription charges in a consolidated manner and it seems to us that they have been dealt with together. In the circumstances, we proceed to frame the following substantial question of law on the footing that the Tribunal has decided the issue in favour of the assessee: "Whether on a proper interpretation of Section 28(iii) of the Act, the Tribunal was right in law in holding that the annual subscription fees received by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the Tribunal was wrong in holding that the annual subscription fees was not assessable under the section. The substantial question of law is thus answered in the affirmative, in favour of the assessee and against the Revenue. 35. Turning to the other appeals, we take up the appeal for the assessment year 2002-03 which is ITA No.520/2011. In this order the first substantial question of law relates to the applicability of Section 28(iii) of the Act. For the reasons stated by us in ITA No.472/2011 and 18/2011, this question is answered in the affirmative, in favour of the assessee and against the Revenue. 36. The only other substantial question of law which arises in this appeal relates to the corpus donation of Rs. 7,70,000/- received by the assessee. The finding of fact recorded by the Tribunal is that the members who paid the one-time admission fee were aware that it can be spent by the assessee only for the purposes of acquiring a capital asset and, therefore, the amount must be held to be a corpus donation, not taxable as income. Since this is essentially a finding of fact no substantial question of law arises for our consideration. 37. We now take up ITA No.20/2011 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40. As regards the provision for bad and doubtful debts, the question again is whether in computing the income of the trust on commercial principles, the provision can be deducted or where the deduction can be allowed only in accordance with the provisions of Section 36(i)(vii) read with Section 36(2)(i) of the Act. We have already held that the income of the trust available for application to charitable purposes in India should be computed not in accordance with the strict provisions of the Income Tax Act but should be computed in accordance with commercial principles and it is on this footing that the payment of Income Tax Act under the VDIS was treated as a deduction and as proper amplication of the income of the trust. The same line of reasoning holds good for the provision for bad and doubtful debts. Even under the computation provision of the Act such a provision was considered allowable up to and including the assessment year 1988-89 and it was only from the assessment year 1989-90 that the Act required that a mere provision would not be allowable as a deduction and the actual writing off of the debt was a necessary pre-condition. Be that as it may, under the commercial pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
