' CHANDURKAR, J.-The assessee is a company established for the advancement of an object of general public utility i. e. To support, protect, maintain, increase and promote exports of gems and jewellery including pearls, precious and semi-precious stones, diamonds, synthetic stones, imitation jewellery, gold and non-gold jewellery and articles thereof. It was to undertake market studies in individual foreign countries and carry out such other object as may be necessary for the promotion of export of gems and jewellery. There is no dispute that the assessee-Company is a company whose income is applicable only to charitable purpose as defined in section 2(15) of the Income-tax Act, 1961. The assessee-Company receives grants-in-aid from the Government of India. Some of the conditions on which these grants-in-aid are given are the following :
(i) The finds should be kept with the State Bank of India, the total expenditure should not be more than the expenditure approved by the Central Government for each project ; separate accounts should be kept for Code and non-Code projects and the accounts were to be audited by Chartered Accountants approved by the Government.
(ii) Any amount unspent was to be surrendered to the Government by the end of the financial years unless allowed to be adjusted against next year's grant.
(iii) The grant should be spent upon the object for which it had been sanctioned. The assests acquired wholly or substantially out of Government grant-in-aid would not, without prior sanction of Central Government, be disposed of, encumbered or utilised for purposes other than those for which the grant was sanctioned.
2. In the relevant assessm ent year 1967-68, the previous years corresponding to which ended on 31-3-1967, the assessee-Company received Rs, 1,00,000 as grant-in-aid from the Government subject to the abovementioned conditions. During that year the company also received subscription from its members amounting to Rs, 1,19,000. The Income and Expenditure account for that year showed a surplus of Rs, 70,672.33. In the assessment year 1968-69 the excess of income over expenditure was Rs, 17,432.49.
3. The Income-tax Officer brought to tax the sum of Rs, 70,672 less a deduction of 25% under section 11(1)(a) of the Income-tax Act, 1961. A similar assessment was also made for the next year.
4. In appeal against this assessm ent, the assessee-Company took the stand that the grants-in-aid by the Government were in the nature of voluntary contributions and hence exempt under section 12 (1) of the Act. This contention was accepted by the Appellate Assisstant Commissioner who directed exclusion of the grants-in-aid and amounts received from the Government for working out the surplus under section 11(1) (a) of the Act for each of the two years under consideration.
5. The Department filed appeals for these years before the Income-tax Appellate Tribunal and the Department's case was that the grants-in-aid could not be considered as voluntary contribution for the purpose of section 12 (I) of the Act having regard to the fact that the grants were made subject to conditions referred to earlier. The Tribunal confirmed the view of the Appellate Assistant Commissioner that the amounts given by the Government were voluntary contributions and were not in the nature of any price paid for any benefit or privilege nor they were for any consideration.
The conditions imposed by the Government, according to the Tribunal, did not change the nature of the payment which was initially a voluntary contribution. The order of the Appellate Assistant Commissioner was, therefore, upheld.
6. Arising out of that order of the Tribunal, the following question has been referred to this Court under section 256(1) of the Act : "Whether on the facts and in the circumstances of the case, the grants received by the assessee from Government for each of the years under consideration were voluntary contributions and, therefore, exempt under section 12 (1) of the Income-tax Act, 1961?"
7. The only argument advanced on behalf of the Revenue by Mr. Joshi is that while making contributions the Government imposed certain conditions and having regard to the fact that the conditions governed the grants, the grants could not be considered to be a donation or a voluntary contribution or in other words, it was not a pure and simple gift by the Government. The relevant provision is in section 12 (1) as it was prior to the amendment by Finance Act of 1972. That provision read, as follows : "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."
As already pointed out it is not in dispute that the company in question is one established for charitable purposes. Now it is well-known that grants-in-aid are made by the Government to provide certain institutions with sufficient funds to carry on their charitable activities. The institutions or associations to which the grant is made have no right to ask for the grant. It is solely within the discretion of the Government to make grants to institutions of a charitable nature. The Government does not expect any return for the grants given by it to such institutions. There is nothing which is required to be done by these institutions for the Government, which can be considered as consideration for the grant. To borrow the language of the Lord President, in Society of Writers to the Signet v. Commissioner of Inland Revenue (I) who was considering the meaning of the words "voluntarily contributed", in the context of an exemption for property acquired by or with funds voluntarily contributed to anybody, corporate or unincorporate, within a period of 30 years immediately preceding in section 11 of the Customs and Inland Revenue Act, 1885, the meaning of the word "volunttry" is "money gifted -voluntarily contributed in the sense of being gratuitously given". While dealing with the meaning of the words "voluntarily contributed", the learned Lord President observed as follows : "In one sense, all money paid willingly, without compulsion, is voluntarily contributed ; but that certainly cannot be the meaning of this section. When a man pays his debts, if he is an honourable man, he pays them quite willingly, and not a matter of obligation only, but as a matter of honour. At all events, he does it quite voluntarily ; and everything that is paid under a contract is paid voluntarily, unless some dispute arises about the meaning or effect of the contract. But surely that is not the meaning of the word 'voluntarily' in this clause of exemption. There is another meaning of the word which seems much more appropriate, and that is, money gifted-voluntarily contributed in the sense of being gratuitously given. Which, then, of these meanings are we to take in the present case? I think the meaning of the statute undoubtedly is that, if money be given, presented to the Society in any form, without consideration by anybody, any property purchased with that money, if it be given within a certain period, shall be exempt from liability."
8. It is difficult to see how any of the conditions attached to the grant affects in the instant case, the voluntary nature of the contribution. The conditions referred to above and relied upon by the learned counsel for the Revenue are merely intended to see that the amounts are properly utilised.
These conditions did not, therefore, detract from the voluntary nature of the grant.
9. Mr. Joshi has relied on a decision in Inland Revenue Commissioners v. National Book League (2).
The National Book League was a company limited by guarantee and was a body, established for charitable purposes only. But it had headquarters in London. The league provided limited club facilities for its members. In December, 1951 the League resolved to increase its then subscriptions of 1-Is for London members and 1 s 6 d. For country members except in the case of members who entered into deeds of covenant to remain members and to pay their annual subscription at the then existing rates for at least seven years. More than two thousand members entered into such covenants with the league. The League claimed exemption from tax under section 447 (1) (b) of the Income-tax Act, 1952 for the years 1951-52 and 1952-53 on payments received by the League by virtue of the deeds of covenant. The Special Commissioners held that the benefits given by the League to its members were trifling and illusory and that the League was entitled to exemption from tax.
10. This decision of the Special Commissioners was reversed by Vaisey, J. In appeal by the League the Court of Appeal held that as the benefits {{FOOT NOTE}}
(1) (1886) 2 Tax Cas 257 (272) (2) (1958) 34 I T R 461 {{FOOT NOTE}} conferred on the members by the League were not minimal and negligible and the members, who had entered into these covenants, had not paid the covenanted sums without any condition or stipulation on the part of the League, such members could not accordingly be treated as donors of the covenanted sums and such sums were not pure income profit in the hands of the charity and were not entitled to exemption from tax.
11. There is hardly any similarity between the facts in that case and the facts in the instant case. It was found in that case that the arrangement brought about by the covenant amounted to a contract and that the covenantors would continue to have the advantage of membership at a lower subscription rate than other persons and that they would be immune from the possibility of increase of subscription rates during the while period of the covenant. It is obvious, therefore, that the amounts in question in that case were consideration for those privileges and that is how the sums paid were not held entitled to exemption.
12. The conditions in the instant case, as already pointed out, are merely to see that the funds are properly applied and accounted for. There is no element of any consideration anywhere for the grant. It is clear, therefore, that the finding recorded by the Appellate Assistant Commissioner and the Tribunal that the grants-in-aid were voluntary contributions was clearly justified in law.
13. In that view of the matter, the question referred has to be answered in the affirmative and against the Revenue. The question is accordingly answered. The assessee to get costs of this Reference.