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TMI BlogIncome of trusts or institutions from contributions.X X X X Extracts X X X X X X X X Extracts X X X X ..... aritable or religious kind mentioned therein should be liable to tax as may be indicated within the terms of Section 11 ibid, in respect of contributions received from another such trust or institution, irrespective of whether the contributions constitute income of the receiving trust/institution or are an accretion of capital to its corpus. 3. The Assistant Commissioners, Authorised Representatives and Income-tax Officers in the charge may please be appraised of the position accordingly. Copy of letter No. 3326 dated 6-8-1971 from the Secy. General Indian Chamber of Commerce, Calcutta to the Chairman C.B.D.T- I am desired to invite your kind attention to the need for issuing a suitable clarification to the effect that section 12(2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 11 does not however, arise when corpus is transferred by one trust to another. It may here be added that by amendments made to section 11 by the Finance Act, 1970, 100% of the income derived from property has now to be spent by a trust and therefore the matter has assumed all the more importance. From the above it will be obvious that provisions of Section 12(2) were intended and would apply only to contributions made by a trust to another trust from out of its income derived from property and should not apply to contributions made by a trust from out of its corpus, or accumulated income which has been converted into corpus. Further on a reading of section 12(1) and 12(2) it is clear that the provisions of section 12(2) will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1971 addressed to the Chairman, Central Board of Direct Taxes and to say that the matter has been carefully considered. Having regard to the scheme of Section 12 of the Income-tax Act, 1961, the provisions of sub-section (2) thereof should be taken as not limited only to voluntary contributions constituting income of the receiving trust, but as being wide enough to cover all contributing trust. An endowment or capital donation which is intended to be held by the receiving trust as an accretion to the corpus of the trust would therefore fall within the purview of section 12(2) and the receiving trust would be liable to tax on these donations unless the conditions of exemption laid down in Section 11 (including the restriction of accumulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of such a trust must be applicable solely to charitable or religious purposes. Any income of a charitable or religious trust fulfilling the above conditions would be exempt from tax, irrespective of the fact whether such income is applied to charitable or religious purposes or is accumulated for application in future. In such a case it is not necessary that the conditions of exemption laid down in section 11 should be fulfilled by the trust. 3. A charitable trust may give its income by way of contribution to and other charitable trust. The income of the former trust would be exempt under section 11 on the ground that it is applied to a charitable purpose. The latter trust, even while accumulating the income so received, might claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. In view of the above the expression 'such contributions' in section 12(2) is not limited to voluntary contributions constituting income of the receiving trust but includes voluntary contributions forming part of its capital as in the case of an endowment or capital donations which is intended to be held as an accretion to the corpus of the trust. All these contributions would fall within the purview of section 12(2) and hence the receiving trust would be liable to tax on donations by way of voluntary contributions unless the conditions of exemption laid down in section 11 (including the restriction of accumulation and the obligation to apply the moneys to charitable or religious purposes in India) are fulfilled. 7. The question arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstinate clause has been laid down by Bhagwati, J., In Dominion of India V. Shirinbai A Irani, (1955) 1 S.C.R. 206 at 213: "If the words of the enactment are clear and are capable of only one interpretation on a plain and grammatical construction of the words thereof a non obstinate clause has to be read as clarifying whole position and must be understood to have been incorporated in the enactment by the legislature by way of abundant caution and not by way of limiting the ambit and scope of the operative part of the enactment" Similarly in Aswini Kumar Ghosh V. Arabinda Bose, (1953) S.C.R. 1 at 21 Patanjali Sastri, C.J., laid down the correct approach to the construction of a non obstinate clause in these words: "It should first be ascerta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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