CHAMPA CHARITABLE TRUST Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961 made at the instance of the assessee, the Tribunal, Bombay "B" Bench, has referred the following question of law to this Court for opinion :

(2.) THE assessee is a charitable trust. In September, 1975, the assessee trust had received a donation of Rs. 1,00,000 from one Shri Laherchand Uttamchand Trust Fund. The assessee trust, in its turn, gave a donation of Rs. 50,000 during the previous years relevant to the asst. year 1976 -77 and Rs. 55,001 during the previous year relevant to the asst. year 1977 -78 to the very same trust, i.e., Shri Laherchand Uttamchand Trust Fund. The ITO completed the assessments for the two years treating assessee as a charitable trust entitled to exemption under S. 11 of the IT Act, 1961 ("the Act"). The CIT on perusal of the record of the case under S. 263, felt that the above order of the ITO was erroneous and prejudicial to the interests of the Revenue. In his opinion, the said Shri Laherchand Uttamchand Trust Fund having donated a sum of Rs. 1,00,000 to the assessee in September, 1975 became a 'substantial contributor' to the assessee trust within the meaning of s. 13(3)(b) of the Act and the assessee trust in its own turn having given a donation of Rs. 50,000 and Rs. 56,001 to the very same trust, i.e., Shri Laherchand Uttamchand Trust Fund during the previous years relevant to the asst. yrs. 1976 -77 and 1977 -78, the provisions of S. 13(1)(c)(ii) of the Act were attracted and as such, it was not entitled to any exemption under S. 11 of the Act. He, therefore, initiated proceeding for suo motu revision by issue of a notice under S. 263 of the Act and after hearing the assessee, held that by making donation to the assessee trust, the donor Shri Laherchand Uttamchand Trust Fund ("LU Trust") became a person who has made a substantial contribution to the assessee trust within the meaning of S. 13(3)(b). The assessee appealed to the Tribunal against the order of the CIT. At the time of hearing of the appeal before the Tribunal, it was contended by the assessee that S. 13(1)(c)(ii) is not applicable if the person, though a substantial contributor, happened to be a trust. In other words, the submission of the assessee was that the expression 'person' used in the said provision would include a trust too (sic). The CIT did not accept the above contention of the assessee and held that since part of the income or property of the assessee -trust during the relevant two years, had been used or applied directly for the benefit of the LU Trust, which was a "person" within the meaning of S. 13(3)(b) of the Act, the provisions of S. 13(1)(c)(ii) were attracted in the case of the assessee trust and, hence, it was not entitled to exemption under S. 11 of the Act. The assessee appealed to the Tribunal against the order of the CIT. Before the Tribunal, it was reiterated on behalf of the assessee that S. 13 of the Act will be attracted if the funds of one charitable trust are used for the benefit of another charitable trust, although the latter might have made substantial contribution to the former. The contention of the Revenue, on the other hand, was that as the term 'person' as defined in S. 2(31) of the Act, includes a 'trust', the same meaning has to be attributed to the expression "person" appearing in S. 13 of the Act. That being so, according to the Revenue, LU Trust was a 'person' who had made a substantial contribution to the assessee trust within the meaning of S. 13(3)(b) of the Act and donations by the assessee trust to it did fall under S. 13(1)(c)(ii) of the Act. The Tribunal accepted the contention of the Revenue and rejected the contention of the assessee that the definition of "person" occurring in S. 2(31) is not applicable to the word "person" occurring in s. 13 of the Act. In view of this finding, the Tribunal confirmed the order of the CIT and dismissed the appeal of the assessee. Hence, this reference at the instance of the assessee.

(3.) SEC . 11 of the Act exempts from tax certain income from property held for charitable or religious purposes. This exemption does not apply in certain cases specified in S. 13 of the Act. Sec. 13, so far as relevant, at the material time read as under :