Commissioner of Income Tax vs 21st Society of Immaculate Conception

R. Jayasimha Babu , J.

Tax Case No. 1018 of 1990 :

The nuns working in a convent, who rendered service, who have taken a vow of poverty and are only maintained by the society which looks

after their bare minimal needs and who make over to the society all the income they receive for the services rendered as teachers in a school which

is in part funded by the State, so far as salaries to teachers are concerned, are regarded as the cause for denying the benefit of the exemption u/s

11 of the Income Tax Act, 1961, to the charitable institution. All the authorities below, except the Assessing Officer, have rightly rejected such a

view. The approach of the Revenue, ignores the reality and focuses merely on the form of the account. The assessment year is 1982-83.

It is undisputed that the assessee-society is a charitable institution, which is otherwise, eligible to claim the benefit of Section 11 of the Act and

that the sisters, who are members of the society, are required not to possess any worldly wealth, and are required to lead a life of poverty and

austerity. In order that they continue to render services while being bound by such vows, their bare minimal needs must be taken care of. Instead

of their spending money from out of the salary, which they receive for the work done by them in the educational institution as teachers, they had

made over all their earnings to the society, and the society incurred expenditure required for their maintenance. Their monetary contribution to the

society was obviously the difference between the amount of the salary and other payments, which they received for their work as teachers minus

the amount expended on them for their maintenance. The Income Tax Officer sought to deny the benefit of Section 11 of the Act to the society on

the ground that Section 13 of the Act had been violated. Sections 12, 13(3)(b) as also Section 13(1)(c) of the Act could not possibly be invoked

in this case, as the reality and the substance of the matter is that the amounts made over by the nuns to the society was only the amount which was

available for use by the society for purposes other than their maintenance. The amounts spent on their maintenance had for the purpose of

convenience been spent through the society instead of each one of the sisters paying their own bills separately. The expenditure so incurred was

not out of other donations made to the society, but out of the monies which the nuns themselves had earned and for the purpose of convenience

made over to the society instead of first deducting from such donation the amount required for their own maintenance. The form in which this has

been done, has been misunderstood by the Assessing Officer. The very sacrifice made by the nuns has been held against them by treating them as

beneficiaries of their own donations. Seen in the proper perspective the donation, which they made was the donation of what was available for

purposes other than their maintenance. That amount was not in excess of any provision of the law, which would come in the way of denial of

exemptions to the society. No part of the amount so ascertained was spent on their maintenance.

Even in matters of taxation, the form is not always conclusive. There are cases where the substance must be looked at in order to ascertain the

real nature of the transaction. Even while it is permissible to pierce the corporate veil in certain circumstances, while dealing with chantries, it is

necessary to similarly ascertain the substance of the transaction rather than merely look at the form for the purpose of withholding from a charity

the exemptions which have been provided under the law.

We, therefore, answer the question referred to us, viz., whether, on the facts and in the circumstances of the case, the assessee-society was

entitled to exemption u/s 11 of the Income Tax Act, 1961, in the affirmative, against the Revenue and in favour of the assessee.

Tax Cases Nos. 684 and 685 of 1987 :

The respondent has still not been served, though 11 years have elapsed since the references were made. Instead of returning those references

on that ground, the question referred therein, being similar to the question considered and answered by us in T. C. No. 1018 of 1990, we answer

the question in these cases also in favour of the assessee, and against the Revenue.

As the assessee has not been represented before us, there will be no order as to costs.