Commissioner Of Income Tax vs Divine Light Mission
2004 Latest Caselaw 402 Del

JUDGMENT

B.C. Patel, C.J.

1. For the asst. yr. 1966-67 onwards, these references/appeals are before the Court. All the references/appeals pertain to the same assessed.

2. The following are the questions referred by the Tribunal :

"IT Ref. No. 158 of 1985

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that provisions of Section 12 of the IT Act were applicable to donations of Rs. 41,359 which were credited to the suspense account ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 2,00,739 made by ITO on account of capital expenditure ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 7,820 and 1,900 being credits in the name of Mahatma Satyanand and Mahatma Gianand, respectively ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 34,163 made by the ITO on account of membership subscription ?

IT Ref. No. 99 of 1986

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 70,742 made by the ITO on account of amount spent on acquiring/constructing capital asset ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 34,525 made by the ITO on account of membership subscription received holding that it is income from property held under trust and not income from other sources ?

IT Ref. No. 100 of 1986

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding the interest income of Rs. 2,582 being interest earned on FD receipts as income from property held under trust ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 5,86,142 on account of amount spent on acquiring/constructing capital asset ?

IT Ref. No. 141 of 1989

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition, made by the ITO as income received by the assessed-mission, by way of subscription from its members by ignoring the material fact that this as a matter of fact, was a payment entitling contractual liability of the payer being entitled to the membership of the mission and as such not voluntary in nature ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition made by the ITO of Rs. 12,004 being interest on fixed deposit and saving bank accounts of the assessed-mission with various banks by ignoring the material fact that this income had not been set apart for any specific utilisation ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 4,09,917 made by the ITO holding it as capital expenditure ?

IT Ref. No. 171 of 1989

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition made by the ITO as income received by the assessed-mission by way of subscription from its members by ignoring the material fact that this, as a matter of fact, was a payment entailing contractual liability of the payer being entitled to the membership of the mission and as such not voluntary in nature ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition made by the ITO of Rs. 10,919 being interest on fixed deposit and saving bank accounts of the assessed-mission with various banks by ignoring the material fact that this income had not been set apart for any specific utilisation ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 2,26,662 made by the ITO holding it as capital expenditure ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in excluding the agricultural income of Rs. 8,187 ?

IT Ref. No. 107 of 1990

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income received by the assessed by way of subscription from its members was not assessable to income-tax by virtue of Section 11 of the IT Act, 1961 ?

IT Ref. No. 199 of 1990

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income received by the assessed-mission by way of subscription from its members is not assessable to income-tax ?

IT Ref. No. 24 of 1991

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 34,163 made by the ITO on account of membership subscription ?

IT Ref. No. 454 of 1992

1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that membership subscription, interest income, agricultural income and income from properties held under trust are exempt within the meaning of Section 11 of the IT Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the receipt of donations of Rs. 4,84,506 is exempt under Section 11 of the IT Act, 1961 ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in directing to allow deduction of Rs. 1,63,101 being amount applied for the purpose of trust ?

IT Appeal No. 150 of 2001

1. Whether Tribunal was correct in law and on the facts in treating the receipts from the subscription, bank interest and agricultural income as income covered by the provision of Section 11 when the AO treated the same income from other sources in view of the fact that the assessed was not entitled to the benefit of Section 11 of the IT Act?

2. Whether Tribunal was correct in law and on facts in treating a sum of Rs. 2,31,943 being the expenditure incurred by the assessed on construction of the college building of Ashram at Nasik, Hissar, Calcutta and Meerut as application of income within the meaning of Section 11 of the Act when the benefit of Section 11 was not allowable to the assessed ?

3. Whether assessed is entitled to benefit under Section 11 of the Act ?"

3. Considering the aforesaid questions, essentially there are four questions before the Court, which will cover some of the issues as under :

"1. Whether the income received by the assessed by way of subscription from its members was assessable to IT Act, 1961 or was exempted under Section 11 thereof ?

2. Whether the amount spent on acquiring/constructing capital asset was rightly deleted by the Tribunal ?

3. Whether the Tribunal was correct in law in holding the interest income earned on fixed deposit receipts as income from property held under trust ?

4. Whether the Tribunal was correct in law in holding that the agricultural income was income from property held under the trust ?"

4. In IT Ref. Nos. 141 and 171 of 1989, there is one common question :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 2,26,662 (in IT Ref. 171 of 1989) and Rs. 4,09,917 (in IT Ref. 141 of 1989) by holding to be an application towards object of the trust ?"

On behalf of the Revenue, it is fairly stated that this question is required to be decided in favor of the assessed and against the Revenue, on the question of facts as the amount has been spent for the object of the trust.

5. In IT Ref. No. 454 of 1992, following question is carved out over and above the group of four questions :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the receipt of donation of Rs. 4,84,506 is exempt under Section 11 of the IT Act, 1961 ?"

On behalf of the Revenue, it is fairly stated that this question is required to be answered in favor of the assessed and against the Revenue on the facts.

6. In IT Appeal No. 150 of 2001, the following additional question is carved out over and above the aforesaid four questions referred in para 3 :

"Whether, the Tribunal was correct in law and on facts, in treating the sum of Rs. 2,31,943 being the expenditure incurred by the assessed on construction of the college building of Ashram at Nasik, Hissar, Calcutta and Meerut within the meaning of Section 11 of the IT Act, 1961, when the benefit of Section 11 was not allowable to the assessed ?"

On behalf of the Revenue, it is fairly stated that this question is required to be answered in favor of the assessed as it is a question of fact and has been admitted and appreciated by the Tribunal and has been answered in favor of the assessed that the amount so spend was towards the object of the trust.

7. With regard to question No. 2 of para 3, in respect of the amount spent on acquiring/constructing capital asset, it is no more required to be discussed as the same is covered by the decision of the apex Court in S.RM.CT.M. Triuppani Trust v. CIT (1998) 230 ITR 636 (SC). The question is required to be answered against the Revenue and in favor of the assessed.

8. So far as the question No. 3 of para 3 with regard to interest on fixed deposit receipt is concerned, it is fairly stated that in view of the provisions of law, it is required to be answered in favor of the assessed and against the Revenue, inasmuch as, Section 11(5) mandates that the amount is required to be invested in prescribed modes and the amount has been invested in a bank, which is the prescribed mode. Interest is derived from the investment so made and, therefore, is not taxable.

9. So far as question No. 4 of paragraph No. 3 with regard to agricultural income is concerned, Section 10(1) of the Act specifically points out that agricultural income shall not be included in computing the total income of a previous year and hence, the question is required to be answered in favor of the assessed and against the Revenue. This income is not required to be considered at all even for the purpose of Section 11 of the Act.

10. Over and above these questions, the following other question is required to be examined :

IT Ref. No. 158 of 1985 "Whether, on the facts and in the facts and circumstances of the case, the Tribunal was correct in law in holding that provisions of Section 12 of the IT Act were applicable to donations of Rs. 41,459 which were credited to the suspense account ?"

11. In IT Ref. No. 158 of 1985, the question raised is whether the amount being kept in suspense account would qualify for the purpose of exemption under Section 12 of the IT Act, 1961 or not ? The amount cannot be separated and kept in suspense account but the amount received by the trust is required to be spent for a particular object or it is required to be set apart for the said object. Over and above this, the amount set apart for the object of the trust is required to be communicated to the AO in Form No. 10. The assessed, having not done so, the provisions of Section 12 cannot be attracted. If an assessed is seeking a benefit, then he can request for the benefit, provided the procedure required to be followed under the Act or the Rules is followed by the assessed, In the instant case, by stating that the amount is kept in a suspense account, the assessed cannot get the benefit as the same was not kept in a separate account for a separate object by following the procedure indicated in the Act or the Rules and, therefore, this question is required to be answered against the assessed and in favor of the Revenue.

12. We now take up the only remaining question (question No. 1 in para 3) with regard to income received by the assessed by way of subscription from its members and, that is, whether such income was assessable to tax under the IT Act, 1961, or was exempted under Section 11.

13. The amount received by way of subscription as well as voluntary contributions came to be considered in the case of Trustees of Shri Kot Hindu Stree Mandal v. CIT (1994) 209 ITR 396 (Bom) and in the case of CIT v. Madhya Pradesh Anaj Tilhan Vyapau Mahasangh (1988) 171 ITR 677 (MP).

14. The contributions are voluntary and are made willingly and without compulsion. Money is to be gifted or is given gratuitously without consideration. These tests should be satisfied for contribution. However, when a person pays membership fee or subscription to a society or a trust, he does not make a gift of the membership fee or subscription amount to the society. The amount of subscription paid by a member to the society can never be considered as gratuitous payment made by the member, to the society or. as a payment without consideration.

15. In the case of Trustees of Shri Kot Hindu Stree Mandal's case (supra), the High Court of Bombay examined a similar question. Voluntary contributions do not mean annual subscriptions. It amounts to gift made from disinterested motives for benefit of others. In Society of Writers to the Signet v. IRC (1886) 2 Tax Cases 257 (C Sess), the Court held that the entrance fees and subscriptions paid by entrants to a society or institution as a condition precedent to their membership and as the price of admission to the privileges and benefits of the society or institution are given under a contract and are not voluntary. In view of the Bombay High Court, membership and subscription amounts received by the assessed-trust/society from its members cannot be characterised as voluntary contribution within the meaning of the expression "fund" in Section 12 of the IT Act, 1961.

16. Thus, there is a distinction between voluntary contribution and subscription. When a sum is paid in the nature of gift or a gratuitous payment to the trust without any consideration, it would be considered as voluntary contribution. Subscription is not to be treated as voluntary contribution.

17. Voluntary contribution is an act not coupled with compulsion. One may contribute or one may not contribute. Therefore, it is rightly said that it is in the nature of a gift. But so far as subscription is concerned, it is with some compulsion. If one wants to become a member of a trust and if he is required to pay subscription, as in the instant case, then, it amounts to compulsion. Sometimes it becomes a question of prestige, i.e., to say that a person is a member of a charitable institution. If a person had made voluntary contribution to the said trust, then on payment of such contribution he does not become a member. The membership may be coupled with benefits or duties and that all depends on the nature of the trust, and terms and conditions of the contract.

18. Sometimes members are getting certain privileges or rights. Therefore, such subscription fee has been considered as income of institutions.

19. Coming to income derived from property and property held under trust, one has to consider the meaning of the word "income". Even by an Act (Finance Act No. 1972) w.e.f. 1st April, 1973, voluntary contribution received by a trust has been included in the definition of "income". The amount of fee covers membership or subscription, which is not included in income. However, the term is very wide. It refers to receiving money or monetary benefits, perquisites, etc. Therefore, it is certain that it is an income.

20. Before us, learned counsel for the assessed, submitted that in view of All India Spinners' Association v. CIT (1944) 12 ITR 482 (PC), the subscription be considered as income.

21. In the case of CIT v. Cotton Textiles Export Promotion Council (1968) 67 ITR 539 (Bom), the Bombay High Court examined the question.

22. The Cotton Textiles Export Promotion Council was established with its principle object, as indicated in the memorandum of association to promote, support, protect, maintain and increase the export of cloth and yarn. It undertook many other activities with the idea, as its name implied, of promoting the export in cotton textiles from this country. Market studies, collection of statistics and other information regarding the manufacture or trade in cloth and yarn in various countries, propagating information useful to that trade, laying down standards of quality in packing and so on. Where the activities with regard to income and property, in the form of mandate for application of income and property was solely for the promotion of the objects of the society, as indicated in the memorandum of association and by whatever method property or income was to be utilised by way of dividends, bonus or otherwise or by way of profits, etc. For this, there were two sources about the funds for its activities, namely, grants made by the Government and subscriptions of its members. Section 4(3)(i) of the IT Act, 1922, was for grant of exemption. Section 4(3)(i) reads as under :

"Subject to the provisions of Clause (c) of Sub-section (1) of Section 16, any income derived from property held under trust or other legal obligations, wholly for religious or charitable purposes, insofar as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto."

Thus, income derived from property held under trust or other legal obligations came to be considered by the Court. In the instant case, we are not required to consider whether the assessed can be said to be a charitable trust or not as it is an admitted position and not in question. But the question is only with regard to income derived from property held under trust is there or not. By way of subscription, if the amount is received, can it be said that that is income derived from property held under trust. The Bombay High Court observed that the question is beyond controversy in view of the decision of the Supreme Court in the case of CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). Under almost identical provisions, the Andhra Chamber of Commerce was constituted and when a similar attempt to tax that chamber was made, one of the questions which arose was whether the objects and purposes of the Chamber of Commerce showed that it was for general public utility. Considering various decisions, the Bombay High Court held that Tribunal was right in holding that the property held by the assessed-company was for an object of general public utility and was voluntary for charitable purposes. The question posed before the Court was upon the words used in Sub-section (3) of Section 4 "any income derived from property held under trust" and its interpretation. On behalf of the Revenue, it was contended that it is not the requirement of sub-section that the income of the assessed should be held under trust but that the income should be derived from "property which held under trust". In that case, all the company receipts in the shape of property was the income which they received from the grants made by the Central Government and a comparatively small amount from the subscriptions from its members. There is no "property" as such held in trust. The other contention was that whatever may be said of the income received from Government by way of grant, the subscription which this company receives from its members was not income for a charitable purpose. It was further submitted that the property held under trust in that case from which the income of this company is being derived is the business of the company itself. The word "property" includes the business of the company. All the income which the company derived or received is in the shape of grants and subscriptions from members which cannot possibly have received by the company except from its business. It was, therefore, submitted that the entire income of the company must be held to be the income derived from its business, which is its property. The Court pointed out that the entire business or the organisation of the assessed commenced with the object of promoting the export trade of the country. The object was held as charitable purpose, as defined in the Act. The Court held that the income which the company received from the two admitted sources, namely, grants from Government and subscriptions from its members, was income which it could not have received but for its business or organisation and it would, therefore, be income derived from such business or organisation, which as shown can be held to be the property of the company. The Division Bench further pointed out :

"We have already held that the property held under trust was the business or organisation itself and whether we consider either of the two sources of income of this company, namely, the grants or the subscriptions from its members, both arose directly and substantially from that business or organisation. If the organisation had not existed, the grants would not have been paid to the company nor would the subscriptions have been received by the company. Therefore, even upon the construction put upon the word "derived", the income would be derived from the business or organisation which we held was the property held under trust in this case."

23. It is in view of this, that the question whether on the facts and circumstances of the case, the assessed's income is exempted under Section 4(3)(i) of the IT Act or not, was answered in the affirmative.

24. In view of the Division Bench judgment of the Bombay High Court, it was submitted by the assessed that the assessed-trust is a charitable trust for which there is no doubt. The objects of the trust were placed before the Court. We have perused the same and in fact there is no dispute with regard to the fact that it is a charitable trust and, therefore, we are not required to examine this aspect at all.

25. In view of the judgment of the Division Bench of the Bombay High Court in the case of Cotton Textiles Export Promotion Council's case (supra), we are of the view that the property held under trust was the organisation itself and the source of money, that is to say, the subscriptions from its members arose directly and substantially from that of organisation. In the absence of organisation, there would have been no question of subscriptions and following the Division Bench judgment of the Bombay High Court in the case of Cotton Textiles Export Promotion Council (supra), we are of the opinion that the subscription is to be considered as income derived from property held under trust.

26. Hence, it is clear that the subscription is to be treated as income and exempted under Section 11 of the Act. The question, therefore, is required to be answered in favor of the assessed and against the Revenue.

27. The references are disposed of accordingly.