c COMMISSIONER OF TAXES, ASSAM v. M/S. JALANNAGAR SOUTH ESTATE LTD. & ORS. August 4, 1971 [K. S. HEGDE AND A. N. GROVER, JJ.] Assam Agricultural Income-tax Act (Assam Act 9 of 1939) and Rules made thereunder, s. 8 and r. 2-Contribution to a charily trust- !/ exemption can be claimed with respect to amount.
Exemption granted by Assistant Commissioner-Larger deduction claimed by assessee in appeal to Board-Jurisdiction~( Board to express opinion on correctness of finding of Assistant Commissioner as to the right to claim exemption.
The assessees made donations to a Charity Trust and claimed that the amount should be considered as "amounts actually spent for chari- table purposes" under r. 2 of the. rnles frame,d under the Assam Agri- cultural Ince me-tax Act, 1939, and therefore exempt from assessment to tax. The Income-tax Officer rejected the claim but on appeal, the Assistant Commissioner granted exemption to the extent of 60 % of the amounts donated. The Department had no further right of appeal, but the assessees exercised their right of appeal to the Board of Revenue claiming full exemption .. The Board of Revenue held that, (I) the assessees were not entitled to any exemption under the Act, but as the order of the Assistant Commissioner had become final, the assessees were entitled to retain the exemption granted; and (2) even if they were entitled to some exemption, what was granted was more than what they were entitled to.
The High Court, on reference, held that: (I) the Board was not competent in the assessees' appeal to question the finding of the Assistant Commissioner that the amounts donated to the Charity Trust were actually spent for charitable purposes and (2) the Board was not justified in holding that only 60 % of the amounts donated, were admissible as deduction
Allowing the appeals, HELD : (I) Since there was no right of appeal to the Depart- ment an exemption granted by the Assistant Commissioner could not be interfered with by the Board, but while considering whether the assessees were entitled to the full exemption claimed, the Board had to examine the true legal position under the Act and the rules for the purpose of deciding the matter in issue. Therefore the Board was competent to determine whether the Assistant Commissioner took the correct view in law. [20B-DJ
(2) Under r. 2 (I) read with s. 8 (g) of the Acl an assessee is entitled to deduct from his income only the sum actually spent by him for charitable purposes as defined in the rule. Assuming that ;\n assessee may rely on an expenditure through an agency and not [ 1972j 1 S.C.R.
by himself, and that the objects of the Charity Trust are charitable purposes as defined, it had to be established to the satisfaction of the assessing authority that the amounts were actually spent for such chantable purposes. Mere contribution to a charity fund would not entitle an assessee to the exemption when it was not proved that the Charity Trust had in fact expended the amounts donated for any such charitable purpose. [20G,H;21'A-E]
CIVIL APPELLArE J1m1so1cT10N : Civil Appeals No. 1873 to 1876 of 1967. Appeals by special leave from the judgment and order dated August 8, 1966 of the Assam and Nagaland High Court in Ref. Nos. 2 to 4 of 1965.
S. T. Desai, Naunit Lal and Sirnranjit Sodhi, for the appelJant (in all the appeals). M. C. Chagla, S. C. Majumdar and R. K. Jain, for the respondents (in all the appeals). The Judgment of the Court was delivered by
Hegde J,-These appeals by special leave arise from the decision of the High Court of Assam and Nagaland c: in Tax References Nos. 2 to 4 of 1965 on its file wherein the High Court of Assam and Nagaland answered the two
questions of law referred to it by the Assam Board of Re- venue under s. 28(2) of the Assam Agricutural Income-tax Act, 1939 (Assam Act IX of 1939) (to t e hereinafter re- ferred to as the Act) in the negative. The two questions
referred for the advisory opinion of the High Court are 0) Whether on the facts and in the cir- cumstances of the case the Board was competent in course of appeals preferred by the assessee to
question the finding of Assistant Commissioner of Taxes to the effect that the amount donated to Jalan Charity Trust were amounts actually spent for 'Charitable purposes' within the mean-
ing of Assam Agricultural l ncome-Tax Act. (2) Whether on the facts and in the circum- stances of the case the Board was justified in hold- ing that only 60 per cent of the amounts actually
spent by the assessee for 'Charitable purposes' from the Agricultural income was admissil le as deductio1~ under Rule 2(2) of the Rules framed under the Assam Agricultural Income-Tax Act.
COMMR. TAXES v. JALANNAGAR ESTATE (Hegde, J.) A Aggrieved by the decision of the High Court Commissio- ner of Taxes, Assam has brought this appeal. We shall now briefly set out the facts neces-
sary for deciding the points in controversy in these appeals. Each of the three assessees with whom we are concerned 8 in these appeals had given certain donations to t~e .Jalan Charity Trust in the relevant assessment years, which m the case of two the assessees is 1955-56 and in the case of the third is 1955-56 and 1957-58. The question for consider-
tion is whether those donations can be considered as c "amounts actually spent for charitable purposes under rule 2(1) of the rules framed under the Act. The agricultural income of the assessee was computed
at 60 per cent of the total net income ascertained by the Income-tax Officer under the Indian Income-tax Ac;t, 1922. Before the Income-tax Officer the assessees claimed exemp- D tion under s. 15-B of the Indian Income-tax Act in respect of the donations made by them to the Jalan Trust, but
that Officer did not grant the exemption asked for but re- served that question for decision to a latter date as he wanted to examine the nature of those donations. He determined E the income of the assessees for the years in question without taking into consideration those donations. Thereafter the
Agricultural Income-tax Officer proceeded to assess the agricultural income of the assessees. Before th~t Officer the assessees again claimed exemption under rule 2(1) of the Rules, of the donations given by them to the Jalan Charity F Trust. That Officer refused to grant the exemption asked for. Thereafter the assessees took up the matter in appeal to the Assistant Commissioner. The Assistant Commis-
sioner granted to each of the assessees exemption to the extent of 60 per cent of the amounts donated. Then the assessees took up the matter in appeal to the Board of Re- G venue.The Department had no right to appeal against the
order of the Assistant Commissioner. The Board of Re- venue came to the conclusion that the assessees were not entitled to any exemption under the Act but all the same as . the order of the Assistant Commissioner had become final H m resP_Cct of exemp~ion given, the assessees were entitled t? retam the exe~pt101:1 granted by the Assistant Commis-
s10ne~. Alternatively It also came to the conclusion that even If the assessees were entitled to any exemption under (1972] l S.C.R. the Act and the Rules, the exemption granted to them by
the Assistant Commissioner was more than what they were entitled to. Thereafter the assessees moved the Board to refer to the High Court for its opinion the two questions mentioned eerlier.
There is no substance in the first question referred to above. It is true that the exemption granted by the Assis- tant Commissioner could not be interfered with by the Board of Revenue. But all the same while considering
whether the asscssees were entitled to the further exemption claimed by them the Board of Revenue had to examine the true legal position under the Act and the Rules for the pur- pose of deciding the matter in issue before it. In our opi- nii:m the High Court was wholly in error in opining that
the Board of Revenue was not competent to determine the true position under Jaw in view of the decision of .the Assis- tant Commissioner. The High Court overlooked the fact that pronouncing on the claim made by the assessees before the Board of Revenue, the Board had to examine the legality of the claim. It is one thing to say that the Board could not reverse the decision of the Assistant Commissioner, which
had become final but it is entirely a different thing to say th~t the Board was not competent to consider whether the Assistant Commissioner took a correct view of the law or not when the true position in law is necessary to be deter- mined for deciding the issue before it.
Now coming to the second question unlike s. 15~B of the Indian Income-Tax Act, 1922, which exempts any sums paid to an institution or a fund coming within the scope of that section upto the prescribed limit, under Rule 2(1) read with s. 8(g) of the Act, the assessee is entitled to deduct from his income only those sums actually spent by
him for charitable purposes. Charitable purpose under that rule is defined as including relief to the poor, education, medical relief and the advancement of any other object of public utility,
Under rule 2(i) read with s. S(g) ~efore a.n assessee can claim any exemption, he has to establish that 111 the relevant year, he had actually spe~t for. one or the other of t~e H charitable purposes ment10ned 111 that rule the am<:mn~ 111 respect of which he claims exemption.
Mere . contn~utlon to a fund would not entitle him to the exemption claimed. t- COMMR. TAXES v. JALANNAGAR ESTATE (Hegde, /.) A It is true that the assessees in these cases are proved to have contributed certain amounts to the Jalan Trust Fund. It
may also be true-about which we express no opinion-that the objects of Jalan Trust are similar to those mentioned in rule 2(i). But there is no proof in these cases that the B Jalan Trust had expended the amounts donated by the asses- sees to that fund for any charitable purpose during the rele- vant years. From the materials placed before the Court,
it appears that Jalan Trust had spent :in the years in question some amounts for charitable purposes. But the amount spent is much less than the donations received. Further c the assessees have not established anycor-relationship bet- ween the amounts spent by the Jalan Trust and the amounts
donated by them to the Trust. Under these circumstances it is not necessary for us to decide whether the actual spend· ing referred to in rule 2(i) must be by the assessees themselves or it may also be through some other agency.
Tn our opi- D nion before the assessees can c\aim exemption under rule 2(1) in regard to any amount, they have to establish to the satisfaction of the assessing authority that they had actually spent that amount for charitable purposes. No such proof
is forthcoming in these cases. For the reasons mentioned above these appeals are a II owed and the answers given by the High Court are revoked and in place of those answers we answer both the questions in the affirmative and in favour of the Revenue. The asses- sees to pay costs of the Commissioner-one hearing fee.
V.P..S. Appeals allowed.