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Commissioner Of Income-Tax, A.P v. Amonbolu Rajiah
Structured Summary of the Provided Legal Opinion
Factual and Procedural Background
The assessee is an individual relevant to assessment year 1965-66 (previous year ending 4 November 1964). The Zilla Parishad owned land at Malkajgiri and intended to construct a building for Balika Unnata Patashala (a girls high school). Under an arrangement with the Zilla Parishad, the assessee advanced amounts to a contractor for construction of the school building. The advances were made between 13 April 1964 and 28 October 1964 and totalled Rs. 16,557, which the assessee debited to a school account. The Zilla Parishad took possession of the completed building and commenced the girls high school.
The assessee claimed a tax rebate on that amount under Section 88 of the Income-tax Act, 1961. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim on the ground that the donation was not made in cash, which they considered essential for Section 88. On appeal the Income-tax Appellate Tribunal (the Tribunal) allowed the assessee's appeal, holding that the donation was made in cash and, alternatively, that donation in kind was not precluded for allowance of the rebate under Section 88. The Commissioner referred the following question to the court under Section 256(1) of the Act: whether the assessee is entitled to rebate under Section 88 in respect of Rs. 16,557.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the assessee is entitled to rebate under Section 88 of the Income-tax Act, 1961, in respect of the sum of Rs. 16,557?
- Whether the word "sums" (or "sum") in Section 88 permits rebate for donations in kind (movable or immovable property) or is confined to payment of money (cash), i.e., whether a donation in kind can be treated as a donation of "sums paid" for purposes of Section 88.
Arguments of the Parties
Revenue's (Department's) Position
- The Income-tax Officer and the Appellate Assistant Commissioner rejected the assessee's claim on the basis that the donation was not made in cash, which they considered essential for claiming rebate under Section 88 of the Income-tax Act.
- By referring the question under Section 256(1), the Commissioner sought the court's view on entitlement to the rebate for Rs. 16,557, implicitly supporting the position that the rebate ought not to be allowed if the donation was not a payment of money to the local authority.
Assessee's Position (as reflected in the record and Tribunal's decision)
- The assessee claimed exemption under Section 88 for the amounts advanced for construction of the school building, treating those advances as donations eligible for rebate.
- The Tribunal held that the donation was made in cash (i.e., sums of money) and, additionally, concluded that donations in kind are not precluded from rebate under Section 88 (the Tribunal relied on a Bombay High Court decision to support a broader view).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of Income-tax v. Associated Cement Co. Ltd., [1968] 68 ITR 478 (Bom) | The Bombay High Court in that case treated the substance of a transaction as decisive: where an assessee's payments resulted in the university receiving the value (a rotary experimental kiln prepared out of funds), the court concluded that, in substance, a sum of money was paid by the assessee and the rebate applicable to "sums paid" could be allowed. | The court examined this authority and concluded that it does not establish a general rule that donations in kind qualify for rebate under Section 88. Rather, it holds that where, on facts, the substance of the transaction is that a sum of money has been paid (even if ultimately a movable was handed over), rebate may be permissible. The court distinguished the Tribunal's broader use of the case and noted the Bombay High Court itself treated the transaction as a payment of money in substance. |
| Income‑tax Appellate Tribunal order in I.T.As. Nos. 21345 and 21347 of 1967‑68 (8 October 1970) | The Tribunal relied on the Associated Cement decision to support the proposition that the rebate should not be disallowed on a narrow or technical interpretation of "sums paid" and suggested a broader application. | The court treated this Tribunal order as reflecting reliance on the Bombay High Court decision. The court indicated that if the Tribunal intended to say Section 88 permits rebate on donations of property generally (excluding money), that position is inconsistent with the plain language of Section 88. However, where the facts show in substance the donation amounted to payment of money, such a result is consistent with Section 88; the court agreed, on the facts before it, that the donation was of money and thus fell within the section. |
Court's Reasoning and Analysis
The court began with a textual analysis of Section 88, noting that the provision entitles an assessee to a deduction "on any sums paid by him in the previous year ... as donations to Government or to any local authority made on or after the 1st April, 1960, to be utilised for any charitable purpose." The court emphasized that the statutory term "sums" (or "sum") denotes a quantity of money and, drawing on a dictionary definition, concluded that the natural and plain meaning of "sum" is payment in money. Therefore, the ordinary grammatical reading of Section 88 confines the rebate to donations that are payments of money.
The court considered the Tribunal's contrary conclusion (that donation in kind need not be precluded) and examined the authority on which the Tribunal relied, Commissioner of Income-tax v. Associated Cement Co. Ltd. The Associated Cement facts showed that the assessee's board sanctioned funds that resulted in the fabrication and handing over of a rotary experimental kiln to a university; the Bombay High Court concluded that in substance the payment was a sum of money (Rs. 6,600) and not merely donation of a movable. The court noted that the Tribunal had extended that reasoning into a general proposition that donations in kind are acceptable for rebate; the court rejected that wider inference as unsupported by the Bombay High Court's reasoning and as inconsistent with the plain language of Section 88. The court observed that a head-note to the Bombay decision (stating donations need not be in actual cash) was misleading because the body of the judgment found that the substance of the transaction involved payment of money.
Turning to the facts of the present case, the court analyzed the relationship among the parties and the nature of the payments. It observed that the land on which the building was constructed belonged to the Zilla Parishad; this fact made it clear that any accretion to that immovable property would belong to the Zilla Parishad. The court considered two possibilities regarding the contractor: (a) if the contractor was appointed by the Zilla Parishad, payments made by the assessee to the contractor would amount to payment to the Zilla Parishad because the contractor would be acting as the Zilla Parishad's agent; (b) if the contractor was appointed pursuant to an arrangement between the Zilla Parishad and the assessee, the arrangement itself demonstrated the intention that the amounts be spent for construction of the building and that the amounts were meant as a donation earmarked for that purpose. In either scenario, the court concluded that the amounts advanced by the assessee were payments of money intended to effect payment to the Zilla Parishad for constructing the school building.
On that factual basis, the court agreed with the Tribunal's finding (on facts) that what was donated was a sum of money and not a donation of the building in kind. Because the donation, as found, was of money, it fell within the statutory language of "sums paid" in Section 88 and the rebate was allowable. However, the court reiterated that this outcome depends on the factual finding that the substance of the transaction was payment of money; it did not endorse a general rule that donations of movable or immovable property (excluding money) automatically qualify for rebate under Section 88.
Holding and Implications
Holding: The court answered the referred question in favour of the assessee and against the department, holding that the assessee is entitled to rebate under Section 88 in respect of the sum of Rs. 16,557, because on the facts the donation amounted to payment of money. The department was ordered to pay costs and an advocate's fee of Rs. 250 was awarded.
Implications:
- The direct effect is that the assessee's claim for rebate under Section 88 in respect of Rs. 16,557 is allowed; the department bears costs and an advocate's fee of Rs. 250.
- The court clarified the interpretive point that the word "sums" in Section 88, in its ordinary meaning, refers to payments of money. Accordingly, donations consisting strictly of movable or immovable property (i.e., donations in kind) do not, by virtue of being in kind alone, fall within Section 88 unless, on the facts, the substance of the transaction is that a sum of money was paid.
- The decision does not endorse a blanket rule allowing rebates for donations in kind; rather, it permits rebate where the factual substance of the transaction demonstrates that what was given was effectively a payment of money to the local authority.
Disposition
The question referred under Section 256(1) was answered in favour of the assessee. The department was ordered to pay costs; advocate's fee fixed at Rs. 250.
1. The assessee is an individual and is concerned with the assessment year 1965-66, for which the relevant accounting year is ending with November 4, 1964.
2. The Zilla Parishad owned a piece of land at Malkajgiri. The Zilla Parishad intended to construct a building for Balika Unnata Patashala. The assessee entered into an arrangement with the Zilla Parishad to donate necessary funds in order to construct the school building. A contractor, therefore, was appointed. The assessee was advancing from time to time various amounts to the contractor for the purpose of constructing the school building. The amounts were thus advanced between April 13, 1964, and October 28, 1964. The total amount thus advanced came to Rs. 16,557. The assessee debited that amount to the school account. The Zilla Parishad, who was also the owner of the land, took possession of the building from the contractor and commenced the Girls High School in that building.
3. The assessee claimed exemption from tax on the said amount under Section 88 of the Income-tax Act, 1961. The Income-tax Officer as well as the Appellate Assistant Commissioner rejected the claim on the ground that the donation was not made in cash which is essential for the application of Section 88 of the Act.
4. On an appeal to the Tribunal, the Tribunal took a contrary view. It held that in fact the donation was made in cash and, therefore, it squarely came within the purview of Section 88. Secondly, it was found that donation in kind was not precluded for the purpose of allowance of rebate under Section 88 of the Act. The Tribunal, consequently, allowed the appeal and granted rebate to the assessee on the said amount.
5. On an application by the Commissioner under Section 256(1) of the Act, the following question has been referred to us :
"Whether, on the facts and in the circumstances of the case, the assessee is entitled to rebate under Section 88 of the Income-tax Act, 1961, in respect of the sum of Rs. 16,557 ?."
6. Now Section 88, in so far as it is relevant, reads:
(1) Subject to the provisions of this section, the assessee shall be entitled to a deduction from the amount of income-tax on his total income with which he is chargeable for any assessment year of an amount ... on any sums paid by him in the previous year--...
(iii) as donations to Government or to any local authority made on or after the 1st April, 1960, to be utilised for any charitable purpose."
7. Even a casual reading of this provision would indicate that in order to attract the provisions of section 88, what must have been paid is the sums. That word can only mean payment in cash. According to Chambers' 20th Century Dictionary, the word "sum" means a quantity of money. It can admit of no meaning which would include within its fold property or a thing also. Thus, a plain reading of the section would only mean that it is only in a case where any sum is paid by way of donation to a local authority that the assessee would be entitled to rebate. On the other hand, if he donates a building or a thing which may have money value, merely because that donation is in kind it cannot be brought within the fold of Section 88. The conclusion of the Tribunal, therefore, that donation in kind is not precluded for the purpose of allowance of rebate in terms of Section 88 of the Act cannot be said to be correct. It is contrary to the plain language of Section 88. The Tribunal seems to have relied upon Commissioner of Income-tax v. Associated Cement Co, Ltd., [1968] 68 ITR 478 (Bom)., a decision of the Bombay High Court. The facts in brief of that case were that on 26th December, 1962, the University of Bombay wrote to the chairman of the board of directors of the assessee-company saying that their professor of chemical engineering was carrying out important laboratory experiments on certain chemicals and for that purpose he desired to institute pilot plant experiments on the problem. One of the items of the pilot plant was a."rotary experimental kiln". Since the assessee fabricated all their rotary kilns for cement making in its own workshop, the university requested the assessee to persuade the directors of the Associated Cement Company to arrange for the fabrication of a small rotary experimental furnace for the department which will enable the university to complete an investigation of national importance. Pursuant to this request, the board of directors sanctioned a sum of Rs. 5,000 for the pilot kiln department of chemical technology, University of Bombay. The pilot kiln was then prepared at a cost of Rs. 6,600. By another resolution, the board of directors sanctioned a further sum of Rs. 1,600. The Income-tax Officer was of the view that the rebate under Section 15B was not admissible. The Appellate Assistant Commissioner as well as the Tribunal reached a contrary conclusion. The Tribunal observed :
"It is learnt that the department is inclined to allow donations which take the shape of stock-in-trade as the only exception to the legal requirement of cash. If so the instant claim too is eligible by a slight extension of the same principle. The materials and labour have gone out of what otherwise would have gone into cost of production. The Appellate Assistant Commissioner's order is upheld."
8. Before the learned judges of the Bombay High Court, it was contended that the manner in which the donation was given showed that it was not a sum of money which was paid by the assessee but the donation was of movable property, viz., the kiln. Characterising the said contention as technical in the extreme, the learned judges observed that if one were to look to the substance of the transaction, there could be no doubt that in substance what the assessee-company gave to the University of Bombay was ultimately a sum of Rs. 6,600. That amount ultimately went out of its coffers and in another shape was received by the University of Bombay. The learned judges said:
"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."
9. We fail to see from this judgment how one can deduce that a donation in kind can also earn rebate under Section 88 of the Act. The finding of the Bombay High Court was that in substance it was the amount which was donated and not the kiln. There is no justification to make the following observation which the Tribunal made in its order on the basis of this judgment of the Bombay High Court.
"The disallowance of rebate on tax was based more on a technical misinterpretation of the objects of Section 88 than on a true understanding of its objects."
10. This passage nowhere appears in the body of the judgment. No doubt, the following head-note is given to the judgment:
"Held also, that in order that an assessee may be entitled to the rebate under Section 15B in respect of 'sums paid as donations', the donations need not be in the shape of actual cash."
11. With due respect to the author who gave that heading to that judgment, we are bound to say that it is misleading. The learned judges have not said anything of that kind. The judgment, on the other hand, on facts, found that it was cash which was donated and not a kiln. We do not, therefore, agree with the view taken by the Tribunal that even if it be taken that the donation was of the building itself after having been constructed by the assessee, the rebate would still be admissible.
12. Our attention was drawn to an earlier order of the Income-tax Appellate Tribunal made in I.T.As. Nos. 21345 and 21347 of 1967-68 on October 8, 1970. The Tribunal in the present order relied on the said order. The Tribunal in that case also relied upon Commissioner of Income-tax v. Associated Cement Company Ltd., [1968] 68 ITR 478 (Bom). The following observations then appear :
"Their Lordships were concerned with the meaning of the expression 'any suras paid by him.,....as donation'. In that case, the assessee, instead of donating Rs. 6,600 in cash, has donated a rotary experimental kiln for the purposes of research work to the University of Bombay, and their Lordships held that, in substance, the transaction amounted to payment of a donation which was entitled to the allowance of tax rebate. In view of the said decision of the Hon'ble Bombay High Court, we must hold, differing with the view expressed by the Tribunal in the said income-tax appeals, that the disallowance of rebate of tax was based more on a technical misinterpretation of the objects of the section than on a true understanding of its objects."
13. If the Tribunal by the said observations intended to say that Section 88 permits rebate even on the donation of movable or immovable property excluding money, we must say that it is inconsistent with the plain language of Section 88. On the other hand, if on the facts it was found that in substance what was donated was the sum of money and not the movable or immovable property, then such a decision would be valid under Section 88 of the Act. We, however, agree with the conclusion of the Tribunal that in the instant case what was donated was not the school building but was actually the money. When once it is found that the land on which the building was constructed belonged to the Zilla Parishad, then there would be no difficulty in holding that any accretion to the immovable property would be that of the Zilla Parishad.
14. In this case it is not clear whether the contractor was appointed by the assessee or by the Zilla Parishad. If the contractor was appointed by the Zilla Parishad, then the matter is very easy. The amount paid by the assessee to such contractor would amount to payment of the money to the Zilla Parishad itself because the contractor would be an agent of the Zilla Parishad. On the other hand, if, as it appears from the statement of facts, the contractor was appointed under an arrangement made between the Zilla Parishad and the assessee, even then the amount paid by the assessee to the contractor would amount to a payment to the Zilla Parishad for the purpose of constructing the building. The arrangement was intended to ensure that the amount was actually spent for the construction of the building and nothing more. The arrangement itself indicates that the intention was to donate the money earmarked for the purpose of constructing a girls school building. The Tribunal, therefore, was right in reaching the conclusion that it was a donation of money and not in kind. Once it is found that it was a donation of a sum of money, then such a case would squarely fall within the ambit of Section 88 of the Income-tax Act.
15. For the abovesaid reasons, we would answer the question in favour of the assessee and against the department subject of course to what is stated above in regard to Section 88 of the Act. The department will pay the costs. Advocate's fee Rs. 250.
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