TMI Blog1974 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... tions made by the J. K. Charitable Trust subject to the condition that the shares will constitute part of the corpus of the petitioner-trusts. On 25th July, 1972, each of the petitioner-trusts filed its return of income for the assessment year 1972-73. They claimed refund of the tax paid at source on the dividend income of the shares received by the petitioner-trusts by way of donations. On 25th August, 1973, the Income-tax Officer required the petitioners to supply him the names and addresses of the donors of the shares and to inform him whether the donors were charitable trusts or institutions. In reply the petitioners informed the officer that all the shares were received by them by way of donations from the J. K. Charitable Trust and that the income of those shares by way of dividend was exempt under section 11 of the Income-tax Act, 1961. The Income-tax Officer felt that the donations as such were covered by section 12(2) of the Income-tax Act, 1961, and so were liable to be dealt with under section 11 of the Act. He required the petitioners to show cause why they should not be so dealt with. The petitioners filed written explanations stating that the donations received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or religious purposes, while section 12 provides for income of trusts or institutions from voluntary contributions. Section 13, which is the last section in this Chapter, makes section 11 inapplicable to certain cases specified in it. Section 11 exempts 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 in India. It permits accumulation of such income to the extent of 25 per cent. or Rs. 10,000, whichever is higher, on pain of the excess being brought to tax. The restriction against accumulation contained in sub section (1) is relieved by sub-section (2), provided the conditions mentioned in it are fulfilled. Section 12 deals with income of trusts or institutions from voluntary contributions. It states : " 12. (1) Any income of a trust for charitable or religious purposes or of a charitable or religious institution derived from voluntary contributions and applicable solely to charitable or religious purposes shall not be included in the total income of the trustees or the institution, as the case may be. (2) Notwithstanding anything contained in sub-section (1) where any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the receiving trust, it will not be a voluntary contribution which is income in its hands. Such a contribution will not be covered by sub-section (1) of section 12, and so also not by sub section (2). Normally, if a charitable trust makes a gift of property which constitutes its own capital or corpus, it will be income in the hands of the receiving trust. The receiving trust will be free to apply or spend the property which is the subject-matter of gift for any of the purposes for which it can spend money or property ; though the property was capital in the hands of the donor trust, it will be deemed to be income in the hands of the receiving trust. But, if the donor trust makes the gift on the express condition that the subject-matter will constitute capital or corpus of the receiving trust, and the donee-trust accepts the gift or donation subject to the condition that it will form part of the capital or corpus of the donee-trust, the subject-matter of the donation becomes part of the corpus or capital of the donee-trust. In such a case the subject-matter of the donation will not constitute, or be deemed to be, the income of the receiving trust. There is no law which p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereunder. Income from property held under trust is exempt under section 11(1) only to the extent to which it is applied for charitable or religious purposes, except to the limited extent to which accumulation is permitted by that section. Reading section 12(1) to deal with the same kind of income, namely, income from property held under trust, would nullify the conditions and limitations placed by section 11, because under section 12(1) such income is unconditionally exempt from being included in the total income. This will create an impasse in the working of the Act. A construction which creates serious difficulties and anomalies in the working of inter-linked provisions of a statute is to be avoided. The fact that section 12(1) is confined to voluntary contributions cnly does not advance the argument, because in the case of a charitable trust the constitution of its endowment or initial corpus is also from voluntary contributions. When a charitable or religious trust is created, the properties which constitute its initial corpus come by way of voluntary contributions from the settlors. The income of all such properties is already within the purview of section 11. The cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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