1995-VIL-372-CAL-DT

Equivalent Citation: [1996] 218 ITR 254, 139 CTR 524, 76 TAXMANN 88

CALCUTTA HIGH COURT

Date: 25.02.1995

ANANDA MARGA PRACHARAKA SANGHA

Vs

COMMISSIONER OF INCOME-TAX

BENCH

Judge(s)  : AJIT KUMAR SENGUPTA., SHYAMAL KUMAR SEN 

JUDGMENT

AJIT K. SENGUPTA J.--In this reference under section 256(2) of the Income-tax Act, 1961, the following questions of law have been referred by the Tribunal :

" 1. Whether, on the facts and in the circumstances of the case and on a true and correct interpretation of the relevant provisions of the Income-tax Act, 1961, the Tribunal was legally justified in holding that the assessee is not entitled to the exemption under section 11 of the Income-tax Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case and on a true and correct interpretation of the relevant provisions of the Act, the Tribunal was justified in holding that the assessee is not entitled to the exemption under section 11 of the Income-tax Act, 1961, on the ground of subsequent grant of registration under section 12A of the Income-tax Act, 1961 ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the provision of section 13(1)(c) of the Income-tax Act, 1961, is applicable to the facts of the present case and as such the assessee is not entitled to get exemption under section 11 of the Income-tax Act, 1961 ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the sum of Rs. 1,29,966 being the legal expenses incurred by the assessee for defending Marga Guru, the president of the association and other members of the association against criminal charges is not allowable as a permissible expenditure while computing the income of the assessee ?

5. Whether the Tribunal was justified in law in holding that the legal expenses incurred by the assessee for defending criminal charges arising out of the personal civil rights and unconnected with the aims and objects of the assessee-organisation as such are not allowable deduction ? "

The facts as found by the Tribunal are as follows :

The assessee is the Ananda Marga Pracharaka Sangha. The assessment year involved is 1979-80. The assessee claimed to be a charitable institution entitled to exemption under section 11 of the Income-tax Act, 1961. The Assessing Officer denied the benefit of section 11 to the assessee and further made disallowances in respect of the following items :

Rs.

(1) Legal expenses 1,32,016

(2) Travelling expenses 30,000

(3) Marga Guru's quarters expenses 6,668

(4) Dharma Mahachakra expenses 5,100

(5) Women Welfare expenses 590

(6) Children home expenses 1,500

(7) Relief expenses 400

(8) Donation 211

(9) Depreciation 99,636

On appeal by the assessee, the Commissioner of Income-tax (Appeals) held that the assessee was entitled to the benefit of section 11 of the Act. He further restricted the disallowance of Rs. 30,000 out of travelling expenses to Rs. 10,000. He maintained the disallowances of Rs. 1,32,016 on account of legal expenses and Rs. 6,668 on account of Marga Guru's quarters expenses. He deleted the disallowances in respect of items (4) to (8) above. Further, in respect of disallowances of Rs. 99,636 on account of depreciation by the Assessing Officer, he directed the Assessing Officer to examine the claim in the light of the provisions of the Act.

Aggrieved by the aforesaid order of the Commissioner of Income-tax (Appeals), the Department came up in appeal before the Tribunal on the points that the assessee is not entitled to the benefit of section 11 of the Act and is also not entitled to deductions in respect of items (4) to (8) above. The assessee filed a cross-objection thereto in respect of the items not allowed by the Commissioner of Income-tax (Appeals), that is to say, Rs. 10,000 on account of travelling expenses, Rs. 1,32,016 on account of legal expenses, Rs. 6,668 on account of Marga Guru's quarters expenses, and also in respect of depreciation.

The Tribunal considered the facts and circumstances of the case and held that the assessee was not entitled to exemption under section 11 of the Act. It also deleted certain disallowances with the following observations :

"5. The issues as to allowability of Rs. 1,32,016 on account of legal expenses and benefit of section 11 of the Act are inter-related. We, therefore, proceed to discuss the question of allowability of Rs. 1,32,016.

6. In the constitution of the assessee, the following aims and objects have been mentioned : 1. To propagate the ideals and the philosophy of 'Ananda Marga' through discourses, open addresses, personal contact and through the medium of literature in the shape of books, pamphlets and periodicals, etc., and/or art, e.g., visual displays, and other media.

2. To arrange meetings, to instil knowledge amongst the people.

3. To take up the following for the welfare of the human race :

(a) Literacy drive,

(b) Social reforms,

(c) Relief work,

(d) Anti-corruption and anti-rowdyism,

(e) Encouragement of literary faculties,

(f) Encouragement of moral and cultural aspects,

(g) Economic, physical, mental and spiritual development.

4. To exert and expand all its resources for the cause of peace, social security and universal world fraternity.

5. To collect and raise funds from worldly sources such as charity donations from members of the society for promoting causes beneficial to mankind irrespective of distinctions like caste, creed, colour or nationality and to help the Government of the country, State or municipality in all its constructive programmes.

It is stated by learned counsel for the assessee that the aforesaid expenditure of Rs. 1,32,016 was incurred in respect of the following :

(i) Marga Guru Ananda Murtiji and his disciples and the saints of the assessee-Sangha were convicted by the Court of Sessions Judge, Patna, on a charge of murder and appeal from the said conviction was filed before the High Court of Patna on which Rs. 99,120 were spent for payment to the advocates.

(ii) Proceedings were initiated in the Judge Court at Alipore, Calcutta, for deportation of one Amitabha, a U. S. A. national and worker of the Sangha. Rs. 7,339 were paid to advocates for that proceeding.

(iii) Manindra Deba and other workers of the Sangha were prosecuted under section 307 of the Indian Penal Code and also under the Explosives Act in the Court of Sessions at Patna and Rs. 723.50 were spent in defending that case.

(iv) A case was instituted against some workers of the Sangha under section 307 of the Indian Penal Code and also under the Explosives Act on the charge of attempting on the life of the then Chief Justice of India and in defending that case, Rs. 6,000 were spent.

(v) Some workers of the Sangha were involved in the case of murder of Shri L. N. Mishra, the then Minister of the Central Government, and Rs. 7,000 were spent for defending these cases.

(vi) Rs. 6,000 were spent in instituting suit in the Court of Sub-Judge, Ranchi, for damages for malicious prosecution.

(vii) Rs. 2,300 were spent in instituting suit for damages for assault by the police on some of the workers when they were in police custody.

(viii) Rs. 1,483.65 were spent for travelling and obtaining certified copies and stationery for the said litigation.

(ix) Rs. 2,050 were paid to advocates in Ananda Nagar land acquisition case for getting injunction from the High Court at Calcutta.

7. The contention of learned counsel for the assessee is that false complaints were made by the rival group against the Marga Guru, the saints and the workers of the Sangha and on the basis of these false complaints they were involved in the criminal cases relating to the charges of murder and attempting to commit murder and also under the Explosives Act. In order to protect the good name of the institution and to prove the innocence of the Marga Guru and the other members of the Sangha, it was necessary to defend them and as such the expenditure was incurred for the purpose of protecting the members of the Sangha. Thus, according to him, this expenditure should have been allowed by the Income-tax Officer and the Commissioner of Income-tax (Appeals). He in support placed reliance upon the following authorities :

(i) Parshva Properties Ltd. v. CIT [1976] 104 ITR 631 (Cal.) ;

(ii) CIT v. Ahmedabad Controlled Iron and Steel Reg. Stockholders Association (P.) Ltd. [1975] 99 ITR 567 (Guj) ;

(iii) Lakshmiji Sugar Mills Co. (P.) Ltd. v. CIT [1975] 98 ITR 568 (Delhi) ;

(iv) Iron Traders Pvt. Ltd. v. CIT [1974] 97 ITR 606 (Delhi) ;

(v) Rohtas Industries Ltd. v. CIT [1968] 67 ITR 361 (Patna) ; and

(vi) J. B. Advani and Co. Ltd. v. CIT [1950] 18 ITR 557 (Bom).

8. The learned Departmental Representative, on the other hand, contended that litigation expenses for defending Marga Guru and the members of their association cannot be allowed as expenses out of the income of the assessee. According to him, the income of the assessee has been improperly spent for the benefit of these persons who were responsible for their personal acts and omissions.

9. We have minutely considered the respective submissions of the parties and all the case-laws referred to by learned counsel for the assessee. The case-laws touching the subject-matter in issue discuss the principles laid down by the Supreme Court in the case, viz., CIT v. H. Hirjee [1953] 23 ITR 427 and CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544. The following observations of the Supreme Court in the case of H. Hirjee [1953] 23 ITR 427 are pertinent (sic).

In the case of Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544, the Supreme Court observed as under (at page 549) :

' That provision does not make any distinction between civil litigation and criminal litigation. In fact, expenses incurred in connection with litigation are not separately dealt with under that provision. In our opinion, it makes no difference whether the proceedings are civil or criminal. All that the court has to see is whether the legal expenses were incurred by the assessee in his character as a trader, in other words, whether the transaction in respect of which proceedings are taken arose out of and was incidental to the assessee's business. Further, we have to see whether the expenditure in question was bona fide incurred wholly and exclusively for the purpose of business (see CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971] 82 ITR 166 (SC)). It is true that in some of the cases, this court has held that an expenditure incurred by an accused assessee to defend himself against a criminal charge did not fall within the scope of section 10(2)(xv). These decisions were rendered on the facts of those cases.'

10. It is, thus, apparent that the test of allowability of litigation expenses incurred in litigation is not based upon the final outcome of the litigation and as also whether litigation is criminal or civil-what is essential for allowability of the expenditure is whether the expenditure has been incurred in relation to the business income which is under computation.

11. Applying the aforesaid test to the facts of the instant case, what is necessary to be seen is as to whether the litigation expenses were incurred for the purpose of the assessee which claims its aims and objects as religious, philosophical and beneficial to mankind. A charge of murder or attempt to commit murder cannot by any stretch of imagination be said to be incidental to such aims and objects of the assessee. It also cannot be imagined that such fallacious charges can ever arise during the course of service to mankind within the aims and objects exhibited in the constitution of the assessee. Such charges cannot be correlated even remotely to the aims and objects of the assessee. They are obviously personal to the Marga Guru and the members of his association. No amount of income of the assessee can be spent on defending such charges though the accused are members of the assessee. In the case of Smt. Saraswati Dalmia v. CIT [1981] 7 Taxman 186, before the Delhi High Court, the facts were that the assessee was the chairman of an insurance company. She was prosecuted for misappropriation of certain securities of the said insurance company. The Delhi High Court maintained the disallowance of legal expenses spent in defending the assessee since the expenditure was not incurred for an act having emanated in the ordinary course of the business. The High Court considered the cases of Ahmedabad Stockholders Association [1975] 99 ITR 567 (Guj) and Lakshmiji Sugar Mills v. CIT [1975] 98 ITR 568 (Delhi) and distinguished them on facts. It is, thus, abundantly clear that expenses incurred for defending criminal charges arising out of the personal acts and omissions and for vindicating personal civil rights unconnected with the aims and objects of the assesseeorganisation are not allowable deductions. The tax authorities below, therefore, rightly disallowed the expenses incurred in that regard.

12. However, it appears that the claim of Rs. 2,050 out of the total claim of Rs. 1,32,016 was not separately considered by the tax authorities below. The said expenditure is said to have been incurred for getting injunction order from the High Court at Calcutta in connection with the acquisition of land. Full facts in respect thereof are not before us. This point is, therefore, remitted to the Income-tax Officer who shall consider the claim of Rs. 2,050 afresh. If it was incurred in litigation for the protection of the property of the assessee, it is allowable....

20. Now, we come to the crucial point as to whether the assessee-organisation is entitled to exemption under section 11 of the Income-tax Act, 1961. It is to be noticed that the assessee has been registered under section 12A by the Commissioner on January 18, 1982. However, we do not subscribe to the argument of learned counsel for the assessee that the said registration must be taken as retrospective. Section 12A begins with the sentence ' the provisions of sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled '. Thus, by the mere fact of grant of registration in the subsequent years it cannot be assumed that the requirement of section 12A is fulfilled for the instant assessment year. The assessee failed to establish that the requirements of section 12A were fulfilled for the instant assessment year and, therefore, subsequent grant of registration is of no avail to the assessee.

21. Next, it is to be seen that according to section 13, section 11 does not apply in certain cases. One of such cases mentioned in clause (c) of sub-section (1) of section 13 is that any income of a charitable or religious trust or institution has been used or applied directly or indirectly for the benefit of any person referred to in sub-section (3). Marga Guru and other saints of the Organisation undisputedly came within such persons referred to in sub-section (3). The assessee spent Rs. 1,29,966 (Rs. 1,32,016 - Rs. 2,050) directly for the benefit of these persons in defending them against serious criminal charges and in vindicating their personal civil rights, as has been held above. In this view, the assessee cannot get exemption under section 11. The finding of the Commissioner of Income-tax (Appeals), on this point, is contradictory to his own finding that the assessee is not entitled to deduction of Rs. 1,32,016. It is, therefore, held that the assessee is not entitled to exemption under section 11."

At the hear ing before us, learned counsel for the assessee directed his submission to the question of the assessee's entitlement to exemption under section 11 in the context of its objects. The Income-tax Officer was of the opinion that the assessee-organisation is a social as well as spiritual organisation having political overtones not conforming with the definition of charitable purpose in section 2(15) of the Act and is not, therefore, entitled to exemption under clause 11. The Assessing Officer has denied exemption firstly on this ground, but in order to fortify the denial he has further observed that the assessee even if accepted as a charitable institution, attracts the vice of section 13(1)(c) of the Act in so far as the Marga Guru and the executive members of the organisation have personally derived benefit by having their defence in the criminal proceedings at the expense of the funds of the assessee. Therefore, the legal expenses incurred by the assessee could not be said to be for a charitable purpose in nature within the meaning of the provisions of section 2(15). The assessee-society also attracted the disqualification under section 13(1)(c), for benefit having thereby accrued to the founder, the Marga Guru, as well as the executive members who stand in a position similar to that of the trustees of a trust. These are the two main contentions on which the assessee was denied the benefit of exemption as a charitable institution. The Commissioner of Income-tax (Appeals), however, found that the contention of the Assessing Officer that the assessee is not a charitable or public religious trust is untenable since the Commissioner has duly registered the institution as a charitable one under section 12A of the Act. He also went through the objects of the assessee as have been set out in the foregoing paragraph. A reading of the objects does not convince that any of them could be said to have any political colour. Learned counsel has submitted that the assessment has been guided by a general bias and, therefore, the same has influenced the consideration of the matter in a partial manner having the vitiating effect on the totality of the findings against the assessee. It has been urged that the basic object of the assessee-organisation is to disseminate universal, moral and spiritual ideals among all sections of society at large to enable them to find the true meaning and purpose of human life. So, this object can have social as well as spiritual import and content but is totally divorced from any political purpose since by such aim the assessee does not seek ascendency to State control or Governmental powers nor does it aspire to mould the shape of things to come in the affairs of the Government and governance of the people of the country.

As for the violation of section 13(1)(c), the only matter that has been turned against the assessee is the fact that the assessee had to spend funds in defending its Guru as well as some of its executive members against certain criminal charges brought against them in criminal proceedings. Learned counsel emphasised that these criminal proceedings were the outcome of malicious implication of the Marga Guru and the executive members so as to bring the society into disrepute and discredit the assessee before the public. The Commissioner of Income-tax (Appeals) was convinced by the argument that the defence of the said Marga Guru and the executive members was essential for the self-preservation of the assessee because failure to provide a fitting defence against the criminal proceedings, which were as alleged by the assessee brought with the sole purpose of maligning the assessee, would bring the society into disrepute. But for such defence, the Marga Guru or the executive members would have been defenceless as they have no means of their own to arrange for their defence by reason of complete devotion to the work of the assessee-society, it is submitted. The Tribunal has taken the view that as in the case of allowability of litigation expenses in either civil or criminal proceedings in a trade, in this case also the crucial factor for consideration is whether the assessee can be regarded as having incurred the liability to spend for the litigation in its capacity as a charitable institution or whether the expenditure has been incurred in relation to the carrying on of its charitable activity. The Tribunal's answer was that the assessee which claims its aims and objects as religious, philosophical and humanitarian objects must be above all suspicion and cannot give rise to any occasion where the devotees of such objects could be accused of high crime like murder. According to the Tribunal, it is unimaginable that such grave criminal charges can ever arise during the course of service to mankind within the aims and objects exhibited in the constitution of the assessee. Such charges cannot be correlated in the view of the Tribunal, even remotely, to the aims and objects of the assessee. Thus, the Tribunal comes to a conclusion that such criminal charges must be considered as personal to the Marga Guru and the members of his association and the assessee as a charitable organisation is not entitled to spend on defending such charges, immaterial that the accused are members of the assessee. Learned counsel for the assessee submitted that such a view cannot be realistic and lacks in perception of the social realities. The Tribunal's assumption that any organisation which engages itself in humanitarian work and for social and spiritual uplift of the people cannot get involved in criminal charges is described by learned counsel as a subjective expression of opinion not stemming from experience. Any public organisation which has as its aim the eradication of illiteracy, social and spiritual uplift of the people and service to the humanity, more often than not, has to face fierce and ruthless resistance from various groups influential in the community who wage war against social change. Therefore, the vanguard of such selfless work always runs the risk of incurring the wrath of influential men and very often lands up in criminal courts in framed-up proceedings. Such reality cannot be brushed aside.

Learned counsel for the assessee then referred to the decision of the Gujarat High Court in CIT v. Ahmedabad Controlled Iron and Steel Reg. Stockholders Association Pvt. Ltd. [1975] 99 ITR 567, where the said High Court held that the consideration of admissibility of the expenditure for defence in criminal prosecution requires a distinction of such criminal proceedings. There may be a criminal proceeding where the assessee defends himself or his employees against charges arising in the course of carrying on the business. The other class of cases are those where the assessee defends either himself or a third person unrelated to the carrying on of the business. The expenditure in that case is not allowable as expenditure of the business. Even where the expenditure is partly for the purposes of the business and partly for defending himself not as a trader but as an ordinary person from Punishment likely to be imposed on conclusion of the prosecution, the expenses cannot be allowed. But, the position becomes different in the first situation. For example, where the assessee incurs expenditure in defending his employee the assessee would be protecting his own business interests by defending the employee. The expenditure in such a situation shall be wholly and exclusively incurred for the purposes of the business. In the case cited the assessee was a private limited company and was a partner in a firm represented by its managing directors. There was a first information report against the firm as also against the individual partners that they had committed an offence under the Essential Commodities Act. The assessee incurred expenditure in defending its managing director. The court held that the managing director of the assessee-company stood in the same position as the agent or employee of an assessee to the limited extent to which the allegations contained in the first information report were against him. According to the Gujarat High Court, in trying to defend its managing director, the assessee was defending its own name as an upright business organisation. Therefore, the amounts spent were allowed. Similarly, in Lakshmiji Sugar Mills Co. Pvt. Ltd. v. CIT [1975] 98 ITR 568 (Delhi), the expenditure was incurred by the assessee-company for the defence of its director and its employees against the criminal charge of offering bribe. The amount so spent was held to have been incurred to protect the good name of the business because the prosecution has emanated from an act which took place in the ordinary course of business. Lastly, the assessee's learned counsel relied on the judgment of this court in Parshva Properties Ltd. v. CIT [1976] 104 ITR 631.

Learned counsel for the Revenue heavily relied upon the Tribunal's observation. It is submitted that the society, despite its high objectives is, in fact, a cult organisation and is also known as such. It was emphasised that the circumstances in which the Marga Guru and the executive members face trial in the criminal court per se show that there was something essentially wrong with the course of activities and the manner of functioning of the society. Therefore, the Tribunal was not incorrect in saying that in the context of the high precepts of social and philosophical morality for which the society avowedly exists, the occasion for criminal prosecution in such circumstances cannot arise. Therefore, it cannot be said that the prosecutions were merely coincidental to the course of the assessee's functioning for the noble. purposes for which it purports to exist. Therefore, the expenditure incurred by the society is nothing but for the personal benefit of the Marga Guru and his prominent aids who also stand in the position of trustees. The true nature of the expenditure incurred is an aberration of the proclaimed objects of the assessee-society and is disallowable on that ground ; it also attracts the mischief of section 13(1)(c) disqualifying the society from the exemption in its entirety.

According to learned counsel for the Revenue, the principles in the decisions cited could have applied if it could have been shown that the criminal proceedings arose or emanated directly from the course of carrying out the objects of the trust. It is also pointed out that the first information report showed that there was internal dissension in the organisation of the society. It is undeniable that some of the disciples defected and proved to be rebels against Marga Guru and the self-same dissenters happened to be the victims of the crime. The charge of murder emanating from such circumstances cannot be said to be either prima facie groundless or a direct incident of the assessee's course of the activity for the noble purpose of social and moral uplift of the people and society at large.

We have considered the contentions of the parties. In our view, the same principle as applies to allowability of expenses for defence in a criminal proceeding emanating in the course of carrying on a trade shall also apply to expenses for defence that a charitable institution may have to incur for the defence of any of its founders or trustees getting involved in criminal prosecution in the course of carrying out the objects of the trust. Because, though the criminal indictment is personal and the benefit may accrue to the person indicted where the expenses are met by the charitable institution, such personal benefit is immaterial in the context that the defence of such founders or office-bearers is primarily in the interest of the charitable institution since the very existence of the society is imperilled unless its fair name is saved. The prosecution may be of the office-bearer or office-bearers but where the trial emanates from the execution of the objects of the trust, it is of prime and prior interest of the charitable institution or society to have the fitting defence so that the infamy which the criminal prosecution brings does not jeopardise the functioning of the society in its efforts to achieve its objects. Benefit can be said to accrue to the person charged and brought to trial only where the charge has nothing to do with the society's functioning and the proceeding arises completely outside the field of its activity. In the former case where the criminal proceeding is connected with the affairs of the society and the implementation of its object, the benefit that may coincidentally accrue to the founder or the trustees cannot have any material bearing on the question of the society's purity as a charitable trust and the disqualification in section 13(1)(c) cannot be attracted.

The decisions which have been relied upon by counsel for the assessee lends support to the view taken by us. More to the point is the later decision of this court in Parshva Properties Ltd. v. CIT [1976] 104 ITR 631. Sabyasachi Mukharji J., as he then was, laid down the principles decisive of the question of deductibility of expenditure of this nature in a trade. The court laid down there that it was necessary to find out in which capacity the expenditure was incurred. In that case also a director an the manager of the company were prosecuted, convicted and sentenced. However, on appeal before the High Court, the director was acquitted while the conviction of other two was confirmed. The decision further laid down that the ultimate result or decision of the litigation for which the expenses were incurred would not in any way affect the question of allowability of the expenditure. But, what is the more important matter emerging as a principle from the decision in that case is the observation to the following effect (at page 641) :

" It is, in our opinion, a wrong approach to consider whether the accident occurred in the usual course of business. The question is whether in defending the employees of a limited company who were prosecuted for their work done as employees and during the course of employment of the assessee, the assessee had incurred the expenditure which could be allowed as deduction in carrying on the business of the assessee. The aim and purpose of the expenditure was to protect the assessee's employees and thereby to protect the assessee's good name and thereby to carry on the business. Further, it has to be borne in mind that unless an assessee was prepared to defend its employees for consequences while working as employees and in the course of employment, it will be difficult for an assessee to obtain the services and co-operation of its employees without which it was not possible for any assessee to carry on its business. In so far as the expenses were incurred in defending the accused persons in respect of the acts alleged to have been committed in the course of employment of the assessee while carrying on the business of the assessee, in our opinion, unless it can be said that the expenditure was not incurred bona fide, which is not the case here, it should be allowed in computing the total income of the assessee under section 10(2)(xv) of the Act."

By analogy here the founder and the other members of the executive committee of the society would not have been involved in the criminal proceeding but for their activity in connection with pursuing the objects of the society. The Tribunal has misconceived the gravity of the criminal charge as a determinative factor. The criminal charges of murder are no doubt major criminal charges but the material consideration is not what charges have been framed but whether the charges arose in connection with their activity in the capacity as the office-bearers of the society. That position is indisputable.

Therefore, in the instant case, the crucial question is whether the provision for the defence of the founder as also the executive members of the assessee-society could be an expenditure that directly emanated from the assessee's carrying on of activity for its objects. Now, the nexus with the activity for the objects of a charitable institution may arise in two fold ways. One may be that the criminal charge may be such as may not be directly related to the objects but the clearance of the founder and/or the executive members from such charges is absolutely elementary for the fulfilment of its objects. In the absence of a defence, the very existence of the society would have been at a stake, it being totally debunked in the public eye and ultimate vindication of the innocence of the accused founder and/or the executive members thus becomes a bare need. The result of the criminal prosecution without a proper defence would have such a devastating impact on the society itself that the avoidance of such impact by presenting a defence against the criminal charges against the founder and/or the executive members has to be the society's own cause.

What the society did by spending for the defence in the criminal prosecution was protecting and defending its own existence. Thus, the expenditure has a direct link with the implementation of its objects because but for such defence, the society itself would have been exterminated from the scene. From that angle of vision it cannot be said that the defence of the Guru or the other front-ranking leaders of the socio-philosophical movement which the society set out to forge ahead was unrelated to its activity or to its objects.

So long as the society's objects have received the approbation from the Revenue authorities and in so far as the Commissioner of Income-tax has registered the society as a charitable institution any unfavourable impression that one may subjectively bear in mind on account of the criminal proceedings would not alter matters. It may be mentioned here that the registration of the charitable society as a charitable society under section 12A is not an idle or empty formality. This is apparent from the tenor of the provisions of section 12A. It requires that not only an application should be filed in. the prescribed form setting out the details of the origin of the trust but also the names and addresses of the trustees and/or managers. The form further requires a certified copy of the instrument of its creation as well as two copies of the latest accounts of the applicant-trust or institution for as far back as three years to accompany each application. The requirement of obtaining the details as also the copies of the past accounts cannot be said to be a ceremonial one. The purpose is to examine the objects of creation as well as an empirical study of the past activities of the applicant for three years where the application is made belatedly so that the Commissioner could come to a conclusion on examination of all the factors that the applicant is really a charitable trust or institution eligible for registration. This point is of great moment because the society's plea is that its existence was dependent on the effective defence of its founder and the executive members and such defence was an absolute necessity for its subsistence and survival as well of its objects. Anything on which the very survival of the charitable institution is dependent has to be held as having a nexus with the charitable institution and any act done towards such survival would be an act towards or part and parcel of the implementation of its charitable objects.

That apart, another aspect of the matter has also been lost sight of by the Tribunal because of the obsession with the gravity of the criminal allegations against the founder and the leading disciples who govern and mould the society. This exclusiveness of the identity of the accused as the leading personages of the society itself furnishes the nexus between the prosecution and the course of activity of the society. They are prosecuted in crimes allegedly arising in their pursuit of the objects. The proof of the crimes would have shown that the leaders adopted evil means that vitiate the very objects and until criminal charge is proved, one cannot prejudice the objects. This, however, infallibly points to one conclusion that the criminal prosecution arose. in the course of activity of the assessee.

There is yet another point worthy of note. In the case, the prosecution ended in the acquittal of the accused Guru and the executive members. Though it has been held by the judiciary that whether a litigation in a criminal case has relation with the carrying on of a business or not does not depend on the ultimate result, yet in our view in the peculiar context of the instant case the acquittal has great impact. Ordinarily, in the case of business expenditure, the litigation cost may not become a business expenditure, if it is otherwise not so, merely by virtue of the acquittal. If the cause of the criminal action is not emanating from the course of the carrying on of the business, the result of acquittal will not change that position. Conversely, if the cause of criminal prosecution relates to carrying on business, the conviction would not matter as far as the question of allowability of the expenditure is concerned. But, in the present case, the criminal charge itself was that the accused as leaders of the society allegedly inspired the murders in a foul and sinister attempt to retain their grip on the society. The allegation has not been proved. Once the innocence of the accused is no more liable to be questioned, the criminal charges have to be taken to have arisen from the course of their activities. The society can have a say that their activities were wrongly projected and they were falsely and maliciously implicated in criminal charges. It cannot but be said that they would not have to face the trial in the criminal court but for pursuing the path they took to achieve their objects.

Learned counsel for the assessee argued one more point. He referred us to the provisions of section 30 of the West Bengal Societies Registration Act, which says that the society has an obligation to follow the direction of the donor where the donors make any donation with the specific instruction to use it for a purpose specified and not otherwise. Such instruction has a binding force on the society and the society has a legal obligation to carry out such instructions strictly in accordance with it. We have examined the provisions of section 30. We find that, as contended on behalf of the assessee, the said section creates a statutory obligation in the matter of using the gift for a purpose specified by the donors. The said section reads as follows :

" 30. Terms of gift, to be observed.--(1) Where a society accepts a gift of any kind from any person for a specific purpose it shall not use the gift or any part thereof for any other purpose without the written consent of the donor or if the donor be dead, without the written consent of the Registrar. The Registrar shall not give such consent unless he is satisfied that the purpose for which the gift was made is incapable of execution by the society.

(2) For any contravention of the provision of sub-section (1), every officer in default shall be punishable with fine which may extend to two hundred and fifty rupees. "

In order to impress on us this point, learned counsel took us through the income and expenditure account of the society wherein it is shown that the accounts as; audited clearly indicate donations as having been received from its supporters for the specific purpose of incurring legal cost for the defence of the members in the litigation. Income and expenditure account for the period ending December 31, 1978, shows on the income side an entry " Donation for legal expenses ". According to learned counsel for the assessee, this entry is sufficient evidence to show that the society was to use these donations for the exclusive purpose of meeting the legal cost in defence of the members and workers of the society. Therefore, this particular receipt by way of donation for this specific purpose could not constitute the revenue of the assessee. It is merely a constructive trustee in respect of the said fund which formed itself with such donations. But, it is too late in the day to plead this particular point. We do not find that the Tribunal was addressed in respect of the particular factual aspect that the donors fixed the assessee with the obligation to spend for the specific purpose. We cannot come to a conclusion in vacuum. The contention necessarily requires fact-finding, viz., whether donors gifted for a specific purpose, which is not possible in a reference proceeding. The matter was not brought before the Tribunal nor has it been gone into by the Tribunal. We, on our own, cannot accept this part of the submission of learned counsel.

In the foregoing paragraphs, we have dealt with questions Nos. 1, 3 and 4, but question No. 5 is connected with question No. 4. It relates to an expense of Rs. 7,339 on litigation relating to the deportation of one disciple, named Amitabha, a U. S. national, and the criminal proceeding against one Monindra Deba and other workers under section 307 of the Indian Penal Code, for possession of explosives. But, these expenses are incurred not for the founder or the executive members or any trustees, but for the common workers. Therefore, such expenses cannot have total disqualifying effect. So, the only question raised is about the allowability of the expenses as application of income.

In our view, the question of personal civil rights of the persons may or may not have nexus with the objects of the assessee. At least no evidence is there to rely upon to come to a finding that such legal expenses were so related to the society's activity. In that view, we hold that the expenses for defending the worker against criminal charges or for restoring the personal civil rights of a worker will depend on the facts of the case which have not been brought out by the Tribunal. The only proper course for us is to remand the matter to the Tribunal for determination of the facts relating to the question after giving the parties opportunity to lead evidence, and decide in the light of the facts and the principles laid down by us in the foregoing paragraphs.

The remaining question involved (question No. 2) is the effect of the subsequent grant of registration under section 12A of the Act. The learned assessee's counsel submits that registration whenever granted shall have retrospective effect and the eligibility for exemption of any year anterior to such grant of registration cannot be denied. We are inclined to accept the view urged by the assessee's learned counsel. It was, however, submitted on behalf of the Revenue that the provisions of section 12A are quite clear that the provisions of sections 11 and 12 shall have no application in relation to the income of any trust or institution unless the trust or institution has applied for registration. So long as it is indisputable that for the instant year under reference the assessee did not receive any registration, the exemption cannot avail to the assessee.

We have considered the rival contentions. We are inclined to accept the submission that where the application for registration is admitted belatedly and the registration has been granted by condoning the delay, the registration shall have retrospective effect from the date of creation of the trust. Otherwise, the very purpose of condoning the delay becomes nugatory. Therefore, in order to save the provision from the absurdity of self-negation we construe that the provision inserted below section 12A(a) impliedly requires that the condonation of delay will relate back the effect of registration to the very date of creation of the trust or institution.

As a matter of fact, by the amendment of the proviso below clause (a) of section 12A by the Finance (No. 2) Act, 1991, with effect from October 1, 1991, it is now made clear by the Legislature itself that where condonation is granted and the trust is registered upon condonation, the registration shall have effect from the date of creation of the trust. It has been argued on behalf of the Revenue that this retrospective operation has been given effect only from October 1, 1991. Therefore, according to the Revenue, the registration of a trust upon condonation of the delay in making the application for registration can have retrospective effect only where such registration upon condonation is granted on or after the said date. That is the intention of the Legislature, otherwise the Legislature would not have specified the effective date for the operation of the amended proviso. We are not, however, inclined to accept this view. According to us, before the amendment, the proviso as worded left a vacuum or a gap not providing an answer this way or the other to the question whether the condonation of delay and registration upon the belated application would entitle the applicant charitable trust or institution to the benefit of such legislation from inception. Therefore, the duty falls on the court to uncover the legislative intent by proper reading of the provisions. The very intention of the Legislature to allow the trust or institution to make a belated application explaining the cause of delay postulates that the delay in making the application, when occurring for reasonable cause, should not stand in the way of a trust getting privilege of exemption. The requirement of the main provision, i.e., clause (a) is that the trust or institution shall make the application before July 1, 1973, for the pre-existent trust or before the expiry of a period of one year from the date of creation of the oncoming trust. Thus, a trust even when created before July 1, 1973, could now approach the Commissioner for registration explaining the cause for delay. This necessarily shall require the applicant to explain the full course of the delay beginning right from July 1, 1973, or in the case of a trust created after the said date from the date of its creation. Condonation would imply acceptance of the explanation for the delay for the entire period. It is, therefore, equitable to say that when the entire period of delay has been satisfactorily explained as for good cause, there cannot be any denial of the resultant benefit of the registration for such lost time. In our view, the subsequent amendment only made patent what was latent in the earlier proviso. That apart, it is one principle of interpretation that on any aspect as regards which the law is vague or silent the subsequent legislation removing such vagueness or silence can be taken as guidance for construction of the unamended provisions. Following that principle, we uphold the contentions urged before us by learned counsel for the assessee.

For the reasons aforesaid, we answer questions Nos. 1 to 4 in the negative and in favour of the assessee. We decline to answer question No. 5 and remand the matter to the Tribunal for determination afresh in the light of the observations made in this judgment.

There will be no order as to costs.

SHYAMAL KUMAR SEN J.--I agree.

 

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