Commissioner Of Income-Tax vs M/S. Charat Ram Foundation
2001 Latest Caselaw 325 Del

ORDER

Arijit Pasayat, C. J.

1. These four reference applications under Section 256(1) of the Income-tax Act, 1961 (in short 'Act') relate to assessment years 1972-73 and 1973-74. While two of the reference applications have been filed by the Revenue, two others have been filed by the assessed. following question has been referred, at the instance of Revenue, for opinion of this Court by the Income-tax Appellate Tribunal Delhi Bench-C Delhi (in short 'Tribunal'):-

"Whether on the facts and in the circumstances of the case, the Tribunal is correct in holding that the dividend income from the bonus shares of MMLSR (P) Ltd. held by the assessed was exempted under Section under Section 11 for the assessment years 1972-73 and 1973-74?"

So far as the assessed's references are concerned, following questions have been referred:

"(1) Whether the Tribunal was correct in holding that the eight persons who subscribed their names to the memorandum of association of the assessed society could be regarded as "founders" of an "institution" viz., the assessed society, for the purposes of section 13(3)(a) of the Income-tax Act, 1961, for the assessment years 1972-73 and 1973-74?

(2) Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the various persons who had made contributions to the assessed society could be regarded as persons who had made "substantial contributions" to the society within the meaning of section 13(3)(b) of the Income-tax Act, 1961, for the assessment years 1972-73 and 1973-74?

(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the assessed's contention that only contributions received by the assessed society during the previous years relevant to the assessment years 1972-73 and 1973-74 could be taken into account in determining whether any one of the aforesaid persons had made substantial contributions to the society for the assessment years 1972-73 and 1973-74?"

2. A brief reference to the factual position as highlighted in the statement of case would suffice.

assessed is a society, registered under the Societies Registration Act, 1960 (in short the "Societies Act"). It was formed when eight persons came together for the purpose of forming a society. It was registered as such on 12th December 1957 by the Registrar of Societies, Delhi. Originally the name of the society was "Charat Ram & Sons Charitable Trust Society". Subsequently the name was changed to "Charat Ram Foundation" w.e.f. 2nd December 1960. It had acquired a number of shares in a company viz. Madan Mohan Lal Siri Ram (P) Ltd. (hereinafter referred to as the "company"). During the assessment years 1957 and 1960, 1000 shares each were purchased. In 1966, 1404 shares were allotted as bonus shares. During the assessment years in question, assessed received several donations. Names of the donors and the amounts donated are as follows:

___________________________________________________________ Name of Party Amount ___________________________________________________________

(a) M/s. Industrial & Allied Sales Private Ltd. Rs. 15,000/-

  (b) MMLSR (P) Ltd.         Rs. 50,000/-

  (c) M/s. Shriram Service Ltd.       Rs. 7,500/-

  ____________________________________________________________ 
    Total               Rs. 72,500/-
         ____________________________________________________________ 

 

assessed was registered under Section 12-A of the Act on 2nd August, 1975. For the assessment years 1972-73 Income-tax Officer (in short "I.T.O.") determined taxable income as Rs.57,369/-. The dividend income of Rs.45,954/- was held to be taxable as according to the I.T.O. shares held by the trustees in the company exceeded the prescribed limit. assessed had also claimed expenses of Rs.2,09,946/-. The expenditure for charitable purpose was held to be only Rs.56,000/-; as the I.T.O. was of the view that provisions of Section 13 of the Act had been violated. assessed carried the matter in appeals before the Appellate Assistant Commissioner (in short "A.A.C."). Before the said authority, assessed's stand was that subscribers to the Memorandum of Association were not to be treated as "founders" within the meaning of Section 13 of the Act and further the I.T.O. was not justified in holding about non-entitlement for exemption under Section 11 of the Act. A.A.C. was of the view that since Bharat Ram Charat Ram (P) Ltd. had contributed Rs. 93,000/- as donation to the assessed it was to be held that the company was to be considered as a person, who had made a substantial contribution within the meaning of Section 13(3)(b). It was held that in the list of share- holdings of the company, Lala Charat Ram his wife and their relatives as well as Bharat Ram Charat Ram (P) Ltd. held 19274 shares out of the total 80000 share-holdings. This goes to 24.9% and therefore the share-holdings of these persons as referred to in Clause (a) and (b) of Section 13(3) exceeded the 20% limit and therefore Section 13(1)(c)(ii) was applicable. It was also held that for the purpose of Section 13(4) or Section 13(2)(h) there was no scope for making a difference between original equity shares and the bonus shares. In essence, it was held that I.T.O. was justified in applying the provisions of Section 13 to the assessed and rejecting its claim for exemption under Section 11 on the dividend income. Similar conclusions were arrived at for the assessment year 1973-74 except that the amounts involved were to be in those years. Matter was carried in appeals before the Tribunal. Considering stands of the parties it came to hold that the eight signatories to the memorandum of association could not be called "authors" of a trust. Looking to the objects of the society and the manner in which it was constituted and had been run it is not difficult to look upon the society as an "institution" within the meaning of Section 13(3)(b) of the Act. Persons who subscribed to the memorandum of association would be described as founders of the society. So far as the contributors are concerned, it was held that they had made substantial contribution. To put differently, it was held that the company could be described as a concern in which persons mentioned in Section 13(3)(a), (b) and (d) had substantial interest. assessed's stand that contributions should be relateable only to the previous year in question was not found tenable. So far as Section 13(2)(h) is concerned, it was held that the bonus shares of the company were to be exempted terms of Section 11 of the Act. On being moved for reference, questions as set out above, have been referred for opinion of this Court.

3. So far as the question referred, at the instance of Revenue is concerned, in view of the decision of this Court in ITRs. 307 and 308 of 1978 disposed of on 16th February 2001, the question has to be answered in the affirmative, in favor of the assessed and against the Revenue.

4. so far as the first question referred, at the instance of assessed, is concerned, the question turns round the meaning of the expressions "founder" and "institution". It is to be noted that the expression "institution" has not been defined. "Stroud Judicial Dictionary" (Third edition) Volume 2.p. 1471, defines "institution" as follows:

The word "institution" in the phrase "charitable institution" has been held to mean institutions in the sense in which boards of rade and chambers of commerce are institutions. Such, for example, as a charity organisation society or a society for the prevention of cru(SIC) (Minster of National Revenue v. Tcusts & Guarantee Co. (1940) AC 138). The word denotes as observed by (Lord Macnaghten in Mayor of Manchester etc. v. MoAdam: 3 TC 497 (HL) "....an undertaking formed to promote some defined purpose, having in view, generally, the instructions or education of the public. It is the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle." The word "institution" both in legal and colloquial use, admits of application to physical things. One of its meaning as defined in Websters' Dictionary is "an establishment, especially of public character or affecting a community". The term is sometimes used as descriptive of an establishment or place where the business or operation of a society or association is carried on. At other times, it is used to designate the organized body. Looking to the objects of the society and the manner in which it was constituted and has been run, it is not difficult to look upon it as an "institution" within the meaning of section 13(3)(b). The word "founder" again is not defined. One perforce turns to the lexicons. Stroud's judicial Dictionary points out:-

(1) In law there are tow manners of foundations...

(a) the incorporation and (b) the first gift of the revenue is called the foundation, and he who gives it is the "founder" (Sutton's Hospital. 10 Rep. 330)."

Much to the same effect is the meaning given in Chambers, Twentieth Contury Dictionary (1971) which defines the word "founder" as "one who founds, establishes or originates: an endower". In our view the persons who subscribed to the memorandum of association of the assessed society could therefore, be described as the "founders" of the assessed society. The position has been rightly analysed by the Tribunal and therefore the answer to the question is in the affirmative, in favor of the Revenue and against the assessed.

5. Second question relates to the scope and ambit of the expression "substantial contribution". The list of the contributors has been indicated by the A.A.C. and the Tribunal. The total amount of investment was Rs.5,42,285/- by eleven donors. Argument of the assessed was that none of the eleven donors had made a substantial contribution in relation to their financial capacity or in relation to the contributions made by others similarly situated. As the expression "substantial contribution" may mean something quite different to a person who is affluent from what it may mean to a person who is not so. But the language of a taxing statute does not recognise such a differentiation. In the immortal words of Rowla(SIC), J. in Cape Brandy Syndicate v. I.R.C. (1921) 1 KB 64: "In a taming Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." The principle has been followed in large number of cases. A few may be noted here. (M/s. Aphali Pharmaceuticals Ltd. v. State of Maharashtra and Others ; M/s. Goodyear India Ltd. v. State of Haryana and Another , Sutlej Cotton Mills Ltd. v. Commissioner of Income-tax , M/s. Saraswati Sugar Mills v. Haryana State Board and Others with Upper Doab Sugar Mills Ltd. and another v. Union of India and others , M/s. Oswal Agro Mills Ltd. etc. etc. v. Collector of Central Excise and Others etc. etc. , Calcutta Jute Manufacturing Co. and Another v. Commercial Tax Officer and Others ). Therefore the expression "substantial contribution" has to be understood in its ordinary or popular sense. Out of the 80000 shares of the company 19274 shares were held by the founders, substantial contributors and the relatives; the exact figures being 717, 12,174 and 6383. To put it differently 24.69% of the shares were held by these persons. Tribunal, therefore, rightly held that the persons mentioned in Sections 13(3)(a)(b) and (d) had a substantial interest. Question, therefore, has to be answered in the affirmative, in favor of the Revenue and against the assessed.

6. So far as the third question is concerned, assessed's stand before the Tribunal was that the contributions in order to become substantial contribution have to be invested during a particular previous year. The language of the provision is crystal clear and it is not permissible to read the expression "during the previous year" into Section 13(3)(6). That being the position, Tribunal was justified in its conclusions. The answer to the question, therefore, is answered in the affirmative, in favor of the Revenue and against the assessed.

7. All the four reference applications are accordingly disposed of.