TMI Blog1982 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... be briefly stated : There was an educational institution known as Darbar High School at Pali, which was wholly financed and run by the Rajasthan Government. As the number of students coming from different villages of Pali District was increasing, the existing building of the school was found to be inadequate to accommodate the growing number of students and the Maharaja Shri Umed Mills Ltd., Pali (hereinafter called " the assessee "), agreed to construct a new building for the school and hand over the same to the State Government, subject to the condition that the name of the school was changed to Bangur High School. The work of construction of the new school building started in the year 1952 and was completed in the year 1954. A total sum of Rs. 1,34,935 was spent by the assessee on the construction of the new school building up to the end of the accounting year relevant to the assessment year 1954-55 and out of the amount so spent, a sum of Rs. 1,00,000 was debited by the assessee to its profit and loss account, in the accounting year corresponding to the assessment year 1954-55, as donation made to Bangur High School and a rebate was claimed in respect of the aforesaid sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which exemption was claimed were not actually paid to the donee and in the absence of delivery of cash, s. 15B could not be made applicable, to allow rebate for the amount spent by the assessee on the construction of the new school building. Another head in respect of which exemption was claimed by the assessee relates to the payment of Rs. 3,600 in two assessment years 1955-56 and 1956-57 to the Rajasthan Arogya Bhawan Hospital at Bikaner. The claim was disallowed by the ITO on the ground that the impugned donation was made by the assessee in consideration of the hospital authorities agreeing to maintain and reserve two beds for the employees of the assessee and that the donation was an expenditure incurred for securing certain benefits by the assessee in the hospital. The AAC also agreed with the ITO in this respect and disallowed the exemption of the amounts given by way of donation to the Arogya Bhawan Hospital. The third head under which exemption was claimed by the assessee was in respect of donations of Rs. 50,000 in each of the assessment years 1956-57 and 1957-58 by the assessee towards the construction of a hospital building at Pali, which, upon completion, was na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to interpret, for the purpose of deciding this reference, runs as under : " 15B. Exemption on account of donations for charitable Purposes.-(1) The tax shall not be payable by an assessee in respect of any sums paid by him on or after the 1st day of April, 1953, as donations to any institution or fund to which this section applies or in respect of any sums paid by him on or after the 1st day of April, 1960, as donations to the Government or to any local authority to be utilised for any charitable purpose as defined in sub-section (3) of section 4: Provided that in the case of a company this exemption shall apply only in respect of income-tax and not in respect of super-tax payable by it : Provided further that this exemption shall not apply (a) if the aggregate of the sums so paid by the assessee is less than two hundred and fifty rupees, (b) to any sums paid in excess of seven and a half per cent. of the assessee's total income as reduced by any portion thereof exempt from tax under any other provisions of this Act, or one hundred and fifty thousand rupees, whichever is less. (2) This section applies to any institution or fund established in the taxable terri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to the learned counsel, " sum " is a quantity of money or currency and may be cash or cheque, but could not be building material or cost of construction of building, either for the purpose of a hospital or a school. In " Words and Phrases " (Permanent edition), vol. 40A, published by West Publishing Co., Saint Paul, it has been mentioned with reference to the word " sum " that though popularly it is used to denote money, the word means value or the price value of the property. In our view, in the ultimate analysis what is of importance is the substance of the transaction and not the mere form thereof. If the assessee would have made a cash grant for charitable purpose, either of a school or a hospital, and the State Government would have constructed the school building or the hospital building out of the amount donated by the assessee, the sum so paid by the assessee would have been certainly exempted under s. 15B of the Act. But if the donor, instead of handing over the cash amount of donation to the State Government for the purposes of the institution agreed to get the construction of the school building or the hospital building made out of the said grant under the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was with the consent of the University at its disposal and utilised it for the preparation of the kiln. In substance, therefore, the amount was paid to the University, though ultimately because of the exertions of the assessee, the kiln came to be prepared out of that amount and was handed over to the University. In our opinion, looking to the substance of this transaction there is no doubt that the sum of Rs. 6,600 was paid by the assessee-company as a donation to the University of Bombay. Any other construction upon this transaction would, in our opinion, be unnecessarily limiting the language of the section as well as its purpose ........" The same view was taken by the Mysore High Court in CIT v. Bangalore Woollen, Cotton and Silk Mills Co. Ltd. [1973] 91 ITR 166. In that case the assessee, which was a company carrying on business in the manufacture and sale of woollen and cotton fabrics, made donations of cloth of the value of Rs. 6,834 to charitable institutions. The decision of the Bombay High Court in Associated Cement Company's case [1968] 68 ITR 478, was relied upon by the learned judges of the Mysore High Court and it was observed as under (p. 169): " The literal con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68 ITR 478, and it was again emphasised that the court must look to the substance of the transaction in considering the claim of an assessee for deduction and it was observed that a donation in kind was also not precluded for the purposes of allowance of rebate. In the last mentioned case [1979] 118 ITR 525, the assessee manufactured automatic lathe and donated its 1000th lathe to the Government Polytechnical Institute at Aundh at a function arranged for the purpose and it was held that the fact that the assessee had donated the amount in kind and not in cash would not make any difference in allowing the deduction claimed. In CIT v. Khandelwal Laboratories Private Ltd. [1979] 118 ITR 531 (Bom), the assessee carrying on business of manufacture and sale of pharmaceutical goods, instead of money, made donations of goods in the shape of medicines of the value of Rs. 44,945 to the National Defence Fund. The view taken in Associated Cement Co.'s case [1968] 68 ITR 478, was again followed by the Bombay High Court and it was held that it makes no difference if instead of taking cash from the Defence Department in respect of the value of medicines supplied and giving the same back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment and according to the plans and sketches supplied by the State and under the supervision of the P.W.D. authorities of the State Government. After the completion of the school building, the same was handed over to the State Government and it is the State Government which is solely running the school in the new building, with its own finances. Thus, looking to the substance of the matter, the construction of the new school building by the assessee represented donation of money by it to the institution through the agency of the State Government. It would be of little consequence that either the assessee would have given the sums which represented the donation in cash and the State Government would have got the building constructed through its public works department or that the assessee got the building constructed and handed over the same to the State Government upon its completion, as it would appear as if the assessee had paid in cash the cost of construction including building material and labour charges, etc., to the State Government for the purposes of the institution. The arrangement which was arrived at by the State Government and the assessee in this case appears to have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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