TMI Blog1996 (2) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociation of the assessee-company, it was not authorised to distribute the income or the property of the income as dividend to its members. The assessee is an Indian company and in respect of its income liable to tax under the Income-tax Act, The assessee had not made the prescribed arrangements for the declaration and payment within India of dividends payable out of such income. The assessee, in the opinion of the C.I.T., was not a domestic company within the meaning of section 80B(2) of the Act. As the assessee was not a domestic company under section 80B(2) and has not made the prescribed arrangement for declaration and payment within India of dividends payable out of its income, the assessee was not entitled to the deduction under section 80M of the Act. 5. The C.I.T. further noted that the assessee had applied on 18-11-1983 under section 12A of the Act for registration of its research foundation as a charitable institution. On the same day, the assessee had also applied for recognition to its trust under section 80G of the Act. The revenue has registered the assessee as a charitable institution under section 12A on 26-11-1983 at Registration No. 3709. The assessee was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. The said sections grant exemption in respect of income of a charitable institution if certain conditions are fulfilled. However, as the assessee has not fulfilled conditions laid down under sections 11 to 13, the assessee was not entitled to exemption under section 11 of the Act. As a matter of fact, for the year under consideration, the assessee did not claim any exemption under section 11 of the Act and therefore, its income was to be computed under the other heads as a result of which the deduction under section 80M could not be denied to it. It is urged that once the exemption is lost under section 11 the assessee will be liable to tax in a normal course under the other provisions of the Act. By drawing our attention to the decision of the Tribunal in the case of Saurashtra Trust v. Seventh ITO [1987] 21 ITD 62 (Bom.), he pointed out that the income of the assessee was to be computed under the other provisions of the Act and in fact, there was no application of the provisions of section 164(2) of the Act. 8. The learned counsel has also drawn our attention to the decision of the Calcutta High Court hi the case of CIT v. Jayashree Charity Trust [1986] 159 ITR 280 and poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Sunil Pathak, on the other hand, strongly supported the order of the C.I.T. He took us through the objects incidental or ancillary to the attainment of the main objects. He pointed out that all the objects of the assessee-company are charitable in nature. As a matter of fact, the revenue had accepted the charitable character of the assessee by according it the registration under section 12A of the Act. As a matter of fact, there is no dispute that the assessee-company is a charitable institution and, therefore, it is in the nature of a trust. It is also clear from the perusal of the memorandum of Association and the Articles of Association that there is no profit motive and the assessee has been carrying on the business with a view to earn the profit for charitable purposes. The entire income of the assessee was to be applied for charitable purposes and no dividend out of profit could have been distributed. The assets of the assessee were also incapable of distribution. Thus, the assessee was a charitable institution and was assessable as the trust. 13. The learned departmental representative continued and pointed out that though the assessee has incorporated as a company but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or this proposition, the learned departmental representative has relied on the following decisions: (1) CIT v. Ootacamund Gymkhana Club [1977] 110 ITR 392 (Mad.); (2) Dharmaposhanam Co. v. CIT [1965] 58 ITR 600 (Ker.); (3) CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). 17. Regarding the assessee's reliance on the case of Jayashree Charity Trust, the learned departmental representative pointed out that the said decision of the Calcutta High Court has practically overruled by the same High Court in the case of Director of Income-tax (Exemption) v. Girdharilal Shewnarain Tantia Trust [1993] 199 ITR 215/71 Taxman 150. The learned departmental representative has drawn our attention to the following paragraph of the said decision: "Our attention has been drawn to the decision of this court in Jayashree Charity Trust [1986] 159 ITR 286 (Cal.), where relief under section 80K was allowed. There the court proceeded on the footing that section 80K would be applicable. It was recorded that 'there is no dispute that the assessee is entitled to deduction in respect of dividends attributable to profits and gains from industrial undertakings'. The Division Bench of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is a charitable institution and, therefore, its income and the tax thereon has to be determined with reference to sections 11 to 13 of the Act. Since sections 11 to 13 are complete code in itself the assessee is not entitled to deduction under section 80M of the Act. He pointed out that the computation of income should be in accordance with the provisions of the Act. Section 11(1) envisages the computation of income and, therefore, no other section should be imported into section 11(1) of the Act for determining the income of the assessee and the tax thereon. In this regard, he has relied on the decision of the Madras High Court in the case of CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485. He therefore, concluded that the Commissioner was justified in invoking the provisions of section 263 of the Act. 20. We have heard the rival submissions and the carefully study of the judicial decisions brought to our notice. The main issue in this appeal before us is the deduction under section 80M of the Act and determination of the status of the assessee. There is no doubt that the assessee was incorporated as a private limited company but its aims and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an an Indian company and therefore, a guarantee company registered under section 25 of the Companies Act is covered by the definition of domestic company. Once it is an Indian company it is not required to show that it has made the prescribed arrangements for declaration and payment of dividends within India. In other words, the condition regarding the arrangements to be made f or declaration and payment of dividend India is required to be fulfilled by companies other than the Indian companies. In the case before us, there is no doubt that the assessee before us is an Indian company incorporated under the Companies Act, 1956 and by virtue of its being an Indian company it need not specifically make the prescribed arrangement for declaration of payment within India of dividends. Since the assessee before us is a domestic company within the meaning of section 80B(2) we are of the opinion that the deduction under section 80M should not be denied to the assessee. 22. It is true that the assessee has been registered as a charitable institution under section 12A of the Act. It is also true that it was granted recognition under section 80G of the Act up to 31-3-1984. Thereafter the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of one trustee had not been allowed and the provisions of section 40A(7)(b)(b)(i) clearly provided that the disallowance contemplated under section 40A(7)(a) does not apply to any provision for the purpose of payment of any contribution towards such an approved gratuity fund, such amount on account of provision for contribution to the recognised gratuity fund should have been allowed as a deduction in working out business income for the assessment year 1981-82.' 22A. Though the learned departmental representative had made a strenuous efforts to distinguish the said decision from the facts of the case before us, but we are of the view that the distinguishing features are more artificial than real. We are also of the view that sections 11 to 13 are not charging sections. These sections grant exemption in respect of income of a charitable institution if certain conditions are fulfilled. If the assessee, by any chance, losses the exemption under section 11 of the Act, its income should be computed in the normal rate. In other words, it is not correct to lay down that sections 11 to 13 provide a self contained code for computing the income of a charitable trust which is not elig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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