Law:

Section:

section 12(1) [as it stood prior to the amendment by the finance act, 1972], read with section 2(15), of the income-tax act, 1961-charitable or religious trust-exemption of voluntary contributions-assesses, a charitable trust, received grant-in-aid from government subject to certain conditions, none of which affected voluntary nature of contribution-nothing was done by assessee for government which could be considered as consideration for grant-whether grant received by assessee from government was a voluntary contribution exempt under section 12(1)-held, on facts, yes Facts The assessee-company was set up for the advancement of an object of general public utility and its income was utilised only for charitable purposes. During the assessment year 1967-68 the assessee received Rs. 1 lakh as grant-in-aid from the Government subject to the conditions: (i ) that the funds should be kept with the bank; (ii) that the total expenditure should not be more than the expenditure approved by the Government for each project; (iii) that separate accounts should be kept for code and non-code projects and the accounts were to be audited by the, chartered accountants approved by the Government; (iv) that any amount unspent was to be surrendered to the Government; (v) that the grant should be spent upon the object for which it had been sanctioned; and (vi) that the assets acquired wholly or substantially out of the grant-in-aid would not, without prior sanction of the Government, be disposed of, encumbered or utilised for purposes other than those for which the grant was sanctioned. The assessee's income for the relevant assessment year, which consisted of grants-in-aid from the Government and subscription from its members, showed a surplus. The ITO brought to tax the said surplus after allowing deduction under section 11(1)(a). On appeal, the AAC, accepting the assessee's contention that the aid by the Government was in the nature of voluntary contribution and hence exempt under section 12(1), directed exclusion of Rs. 1 lakh for working out the surplus under section 11(1)(a). The AAC's order was confirmed by the Tribunal. On reference: Held It was well known that the…

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