TMI Blog1989 (7) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and section 273 of the Act were proper or the directions in the assessment in that regard were void ab initio and should be expunged. 2. To understand the dispute which travels from the inception of the appellant-assessee and for which the first assessment year was 1978-79, the history of the case must necessarily be brought in close focus which is as follows : By a Resolution dated 12th of May, 1976 -the Price Fixation Committee of the Government of India meeting at Bombay passed a Resolution that one Institution be created for carrying out research and development activities on various export-oriented agricultural produce especially onions to begin with, with a view to improve yield and quality of the produce. For the purpose it was further resolved that a development fund may be collected from the exporters out of the exports of onions. To start with it was decided that contribution @ Rs. 300 per Metric Ton towards the development fund shall be collected. Such rate of collection was, however, to be re-decided in the Price Fixation Committee meetings from time to time. 3. On the same day i.e. on12th May, 1976itself the Fifth Meeting of the Price Fixation Advisory Committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of fresh L/Cs. 5. On 4th October, 1976 NAFED again informed all its Associated Shippers about changes of price for export of Indian onions and also intimated that against the earlier collection of Rs. 300 per M.T. towards 'Development Fund' the contribution henceforth was to be Rs. 100 and that the prices as also the collection rate was to be valid for shipment up to 31st October, 1976. 6. On 8th November, 1976 yet another communication followed from NAFED in which price for export of onions was modified inasmuch as whereas for Far East Ports the price was fixed at Rs. 1,025, for Arabian Gulf Ports it was increased to Rs. 1,625 whereas the Development Fund collection charges remained Rs. 100 per M.T. as earlier. Similar communications were addressed also on 10th of December, 1976 and21st February, 1977in which the Development Fund collection rate remained the same. Vide letter dated 29th of April, 1977 the rate came to be increased to Rs. 200 per M.T. On1st March, 1983the collection for Development Fund was intimated to be only Rs. 5 per M.T. These details are being incorporated to show that the variations regarding the rate of collection for Development Fund were being dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Association. (i) To invest the money of the Association not required immediately. (j) To purchase or take on lease or in exchange, hire or otherwise acquire any real and personal property and in particular any land, buildings, laboratories, machinery, plant, appliances and any rights or privileges necessary or convenient for the purposes of the Association and to construct, erect, alter, improve and maintain any building which may from time to time be required for the purposes of the Association and to manage, develop, sell, let, dispose of or mortgage or turn to account or otherwise deal with all or part of the said property. (k) To pay all expenses preliminary or incidental to the formation of the Association and its registration. (1) To collect and disseminate statistical and other technical information in respect of the agriculture in all its aspects. (m) To do all aspects of scientific research in the field of agriculture expressly mentioned therein or otherwise conducive to the dominant and main objects of the Association provided however that none of the objects/activities of the Association will be undertaken for profit nor shall it involve any profit moti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from NAFED up to31st March, 1978were of the order of Rs. 1,31,38,625-75. 11. The Income-tax Officer assessed the aforesaid amount as income of the Foundation in respect of assessment year 1978-79 by referring to the provisions of section 2(24)(iia) of the Act. According to the assessing officer the Foundation was not recognised under section 35(1)(ii) during the previous year relevant to the assessment year 1978-79 for which the accounts were closed on31st March, 1978and a subsequent approval of the Foundation could not cover the contributions made earlier and exemption granted. 12. In the mean time on 1st April, 1977 the NAFED through the Central Board of Direct Taxes, Government of India, Ministry of Finance, had forwarded an application to the Indian Council of Agricultural Research, New Delhi, for approval under section 35(1)(ii) of the Income-tax Act, 1961 of the assessee Foundation i.e. before its registration under (The) Societies Registration Act. -In the application, a copy of which is given to us at pages 47 to 49 of the assessee's first paper book, it was stated that the Foundation had been set up for research and other scientific investigation into the growth and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Foundation under section 35(1)(ii) of the Income-tax Act, 1961 and a fresh application in the prescribed form was filled in and sent again. The relevant portion of this letter must be reproduced because the said communication coupled with the earlier communications resulted in the Notification No. 3163/F. No. 203/86/79-IIA dated 29th January, 1980 published in Part II, Section (11) of the Gazette of India by which the assessee-Foundation was recognised for the purposes of clause (ii) of sub-section (1) of section 35 of the Income-tax Act, 1961 as applied for and, therefore, it had the effect of the assessee's income being exempted under section 10(21) of the Act: "TO BE PUBLISHED IN PART 11 SECTION (11) OF THE GAZETTE OF INDIA GOVERNMENT OF INDIA MINISTRY OF FINANCE (DEPARTMENT OF REVENUE) NEW DELHI , THE 29TH JANUARY, 1980 NOTIFICATION INCOME-TAX No. 3163/F.No. 203/86/79-IIA, II/It is hereby notified for general information that the institution mentioned below has been approved by the Indian Council of Agricultural Research, the prescribed authority for the purposes of clause (ii) of sub-section (1) of section 35 of the Income-tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s commenced a receipt or contribution for business would be in the nature of capital and can never assume the character of revenue receipt liable for tax. The State Trading Corporation of India Ltd. was incorporated as a company on18th May, 1956, its entire share capital being subscribed by the Government of India. Its first accounts were closed on30th June, 1957. It started its trading activities towards the beginning of July, 1956. By a letter dated21st June, 1956, the Government of India, Ministry of Commerce and Industry, conveyed to the company a sanction of Rs. 2 lakhs "as grant-in-aid". This letter was captioned as follows : "State Trading Corporation - Initial establishment and miscellaneous expenditure - Transfer of funds - Sanctioned." The amount in question was sanctioned before the company had commenced its trading activities. The amount was not spent at all and the company under intimation to the Government treated it as a capital reserve. When the company was assessed to income-tax for the assessment year 1958-59, in respect of its first yew of business for the accounting period ending on 30th June, 1957, the Income-tax Officer treated the sum of Rs. 2 lakhs as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be decided against the assessee, but when for the assessment year under appeal i.e. 1979-80 it was pointed out and asserted for the assessee that the facts in the case of State Trading Corpn. of India Ltd. came to be wrongly noticed by the earlier Bench and that the contributions were received by the NAFED from the Exporters towards the Development Fund which necessarily formed corpus or capital of the assessee-Foundation and, therefore, beyond the scope of taxation till recognition under section 35(1)(ii) was granted on 27th April, 1979 the contention assumed great importance. Delhi Bench 'A', as it was then constituted, thought it fit to propose the constitution of a larger Bench to the President on the ground that the matter required a deeper thought and if there was no difference between a "Development Fund" and "Corpus" then even voluntary contributions would qualify for exemption. The President accepted the same and was pleased to direct that the matter be heard by a larger Bench and that is how the present Full Bench came to be constituted and is disposing of the appeal for this year. 20. Shri Ganesan, appearing for the assessee, made three-fold submissions as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly." "Section 35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed --- (ii) any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research : Provided that such association, university, college or institution is for the time being approved for the purposes of this clause by the prescribed authority. " "Section 43. In sections 28 to 41 and in this section, unless the context otherwise requires --- (4) (i) scientific research means any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries; (ii) references to expenditure incurred on scientific research include all expenditure incurred for the prosecution, or the provision of faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was to be accepted then even voluntary contributions could be easily held to be levy and beyond the scope of section 12 because a person may say that " I shall contribute to a trust a part of my income which should be considered as a levy". His argument was that self-contribution would remain voluntary contribution whatever may be the terminology used. In this connection, he laid emphasis on the composition of the Price Fixation Committee and submitted that when Exporters themselves were to determine the quantum of contribution towards the Development Fund and when there were variations at their instance it would be totally clouded view of the matter if one was to hold the contributions as anything, but voluntary in nature by the Exporters for a Development Fund created to help them and when contributions were being allowed as deduction under section 35(1)(ii) of the Act. Mr. Ganesan, on the other hand, very strenuously emphasised that once it is accepted that the Price Fixation Committee was an agency of the Government of India, the extent of participation and influence of the Exporters in determining rate of contribution in relation to their exports had no meaning and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling the sequence of events and the fact that though approval by the ICAR was granted to the assessee as a Scientific Research Institution u/s 35(1)(ii) of the Act. On29th January, 1980it was made effective from 27th of April, 1979. Mr. Ganesan's focus on the said date assumes importance because though the assessee had earlier written to the ICAR that it had commenced research activities, but it was informed that such could not be the case in the absence of proper infrastructure. In other words, unless the assessee-Foundation was recognised as an approved scientific research institute it could not be an entity which could be properly defined because it is not even the Revenue's case that it could fit in in any definition under section 11, 12 or 2(24)(iia) or section 2(15) of the Act, but as a Scientific Research Institute under obligation to do research as obliged by the Resolution of May 1976 passed by the Price Fixation Committee. Under such circumstances any receipt or contribution could be in the nature of capital or corpus earmarked for the activities to be commenced after approval of the assessee as research institution. 27. Though we have already dealt with certain aspects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier year. Again in L. G. Ramamurthi's case the Hon'ble Madras High Court held that no Tribunal on fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts, but if another Bench of the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more Members for which there is a provision in the Income-tax Act itself. The relevant provision in this regard are section 255(3) of the Act. 31. We have already narrated the facts and circumstances which prompted the suggestion for constituting a larger Bench under section 255(3) of the Act and which came to be accepted by the President of the Tribunal and, therefore the agitation for the Revenue that there was no occasion for re-considering the question decided by the Tribunal in respect of assessment year 1978-79 is totally unwarranted and unjustified. In any case, the Larger Bench was not constituted to take a different view than the one adopted for the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from27th April, 1979that the assessee became an activated Scientific Research Institution and its related activities commenced from that day cannot be said to be wrong or diluted by any assertion from whatever quarter it may have come. 35. Next it was argued for the Revenue that the Hon'ble Delhi High Court judgment in the case of State Trading Corpn. of India Ltd. was only an authority for the proposition that receipts which could otherwise may be treated as Revenue in character could not be taxed till activities commenced and such pre-commencement receipts would assume the character of capital receipt. We have already dealt with the Hon'ble Delhi High Court judgment in detail. At this stage it is sufficient to reiterate that the principle of law laid down is that before activities of a given entity commence there can be no question of any receipt being considered as Revenue in character. In the present case also, therefore, before27th April, 1979receipts of the Foundation, which as held by us above, were voluntary contributions, were towards capital of the Foundation which term is synonymous with corpus. In the present case, we have seen as a fact that the assessee was treatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c and charitable societies are separately mentioned for registration purposes, but in view of the extended definition of the term trust' in sub-clause (iia) of subsection (24) of section 2 of the Act, the definition under the Registration Act loses its significance. Therefore, Mr. Ganesan's claim of being outside the purview of Income-tax Act, 1961, is rejected. 40. Independent of the above, in view of the assessee's own stand before the ICAR that it wanted recognition to get the benefits of section 10(21) of the Act it must be held that Mr. Ganesan's argument contradicted the assessee. Here, we like to observe that though alternative contentions are not strange bed fellows, but sometime these have the effect of demolishing each other. For it would be a strange alternative contention if a person has to take the plea that he could not be termed as a trespasser because when he entered the place there was sign of "To-Let" and at the same time contending that he was miles away when he was supposed to have trespassed. 41. Another contention of Mr. Ganesan, which must be dealt with and rejected is with regard to his submission that since trusts are referred to in Chapter III and Scie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to them and arrived at the conclusion that the contributions in the present case were received by the assessee without any specification as to treat them as part of the corpus of the foundation nor the assessee was recognised by the prescribed authority as a scientific organisation referred to in section 35(1)(ii) of the Income-tax Act and consequently they were taxable as income within the meaning of section 2(24)(iia). For arriving at this view the learned Bench distinguished the ruling of the Delhi High Court in the case of State Trading Corpn. of India Ltd. by pointing out that what was received in that case was subsidy from the Government before its incorporation and that the said receipt of subsidy could not be treated as receipt derived from the business because it was received before the business or the trading activity of the company commenced. Actually reliance was placed by the assessee for the earlier year on this decision for the proposition that moneys received before starting of business could not be treated as trading receipts but only be treated as capital receipts and as in this case the prescribed authority had recognised the assessee for the purpose of exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court decision did not say that because what was received from the Government was a subsidy and therefore it was not taxable. In this case the controversy that arose between the assessee and the department was as to when the business activities commenced. My learned Brother has already noticed that according to the Departmental Representative the activities of research commenced sometimes in 1976 but the view canvassed on behalf of the assessee was that that could not be a correct view because when the assessee applied to the prescribed authority for the grant of exemption u/s 35 of the Income-tax Act, the prescribed authority had specifically pointed out that the infrastructure facilities not having been set up by them, it was premature to recognise the assessee u/s 35(1)(ii) and that the assessee was advised to again approach after having made some beginning in this regard. This was the reply given by the prescribed authority on5-7-1977in response to the application made by the assessee on13-4-1977. Subsequently the assessee made another application on2-6-1979and it is only thereafter that the prescribed authority granted recognition on29-1-1980with retrospective effect from2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .'s case did not decide this issue in any clear manner. After referring to the principle laid down by the Delhi High Court, the earlier Bench did not say as to how that principle was inapplicable to the facts of this case but closed the discussion by saying that that decision was distinguishable on facts particularly after having noted the facts incorrectly. 5. Another mistake that appeared to us to have crept into the order of the earlier Bench was the following finding in para 10 of its order :--- "As to the claim of capital receipt, we do not find any substance. The lower authorities recorded a specific finding to the effect that no indication was made regarding the nature of the contributions. In the face of this specific finding, we are unable to change the nature and form of the receipt. The donations were rightly received by the assessee-Foundation after its incorporation and within the relevant previous year. As such, we see no reason to interfere in this regard. The decision of the Hon'ble High Court of Delhi in the case of State Trading Corpn. ofIndiaLtd. relied on behalf of the assessee is distinguishable on facts as in that case the STC received the subsidy from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of Sri Dwarkadheesh Charitable Trust v. ITO [1975] 98 ITR 557 and of Rajasthan High Court in Sukhdeo Charity Estate's case. In other words, a fund which is to be kept up and built up as a fixed capital to be used for any purpose other than as capital and the income from which alone is to be applied for the purpose of the Trust. Though there are several meanings of the expression "corpus", the meaning that is most apposite for the purposes of section 2(24)(iia) is "fixed capital". In a scientific research Organisation, the moneys received towards development fund is nothing but a capital and therefore corpus. This aspect has not been dealt with at all by the earlier Bench as we have endeavoured to indicate above. Furthermore, by letter dated24-11-1977the NAFED informed the assessee that the funds to be transferred to it should be utilised for research. This cannot but mean that the amount was towards corpus. Secondly on14-3-1978the NAFED had written to the Secretary of the assessee, a letter making its intention more explicit in the following manner :--- "National Agricultural Cooperative Marketing Federation India Limited Head Office:SapnaBuilding, 54, East of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of scientific research are meant to improve the lot of the people, meant to increase the production of onions, increase the capacity of exports and in the ultimate analysis increase the Foreign Exchange earnings and to reduce the price for domestic use. There may be several other benefits accruing from the research carried on on onions. Since all those benefits accrue to the good of the general public, that activity satisfies fully the requirements of charitable purposes as defined in section 2(15) of the Income-tax Act. The definition given for 'charitable purpose' in section 2(15) includes the relief of the poor, education, medical relief and the advancement of any other object of general public utility. Here by the scientific research to be carried out by the assessee, the general public is going to get enormous benefit and therefore the general public utility is being advanced and that is the object of the scientific research. Such being the object of the scientific research, to advance the general public utility, the institution must be said to be existing for a charitable purpose. The expression "charitable purpose" used in this definition must have the same meaning as is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use section 2(24)(iia) is again to be read along with section 12, which says by incorporating the entire definition of section 2(24)(iia) into section 12, that such contributions would be deemed as income derived from property held under trust wholly for charitable or religious purposes for the purpose of section 11. In other words, if there are voluntary contributions received by a trust, that income shall not be subjected to tax if the conditions prescribed in section 11 are satisfied. Section 11' prescribes that the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes inIndia, shall not be included in the total income. If it is accumulated, then subject to the limits of accumulation also the income so derived shall not be included in the total income. There is another interdiction to the application of section 11 by section 13, which says that if any part of the income from the property so held is used for private religious purposes, which does not enure for the benefit of the public or is established for a particular religious community or caste or if the income enures for the b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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