COMMISSIONER OF INCOME TAX Vs. CHARAT RAM FOUNDATION

JUDGEMENT

(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 tiled hut the Revenue, two others have been filed by the assessee. 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'):-

(2.) A brief reference to the factual position as highlighted in the statement of case would suffice. Assessee is a society, registered under the Societies Registration Act, 1960 (in short the "Societies Act"). It was formed when eight persons come together for the purpose of forming a society. It was registered as such on 12/12/1957 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. 2/12/1960. 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, assessee 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. 15,000.00 (b) MMLSR (P) Ltd. Rs.50,000.00 (c) M/s. Shriram Service Ltd. Rs. 7,500.00 Total Rs. 72,500.00 Assessee was registered under Section 12-A of the Act on 2/08/1975. For the assessment years 1972-73 Income tax Officer (in short "I.T.O.") determined taxable income as Rs. 57,368.00. The dividend income of Rs. 45,954.00 was held to be taxable as according to the I.T.O. shares held by the trustees in the company exceeded the prescribed limit. Assessee had also claimed expenses of Rs. 2,09,946.00. The expenditure for charitable purpose was held to be only Rs. 56,000.00 ; as the I.T.O. was of the . view that provisions of Section 13 of the Act had been violated. Assessee carried the matter in appeal before the Appellate Assistant Commissioner ( in short "A.A.C,"). Before the said authority, assessee's stands 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. 93,000.00 as donation to the assessee 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 Clauses (a) and (b) of Section 13(3) exceeded the 20% limit and therefore Section 13(l)(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 assessee 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. Assessee's stand that contributions should be relatable 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 in 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 IT Rs. 307 and 308 of 1978 disposed of on 1 6/02/2001, the question has to be answered in the affirmative, in favour of the assessee and against the Revenue.