Law: Income Tax Act, 1961

Section: 256(1)

Income tax---Income derived from voluntary contributions Significance of --Donation towards corpus by one charitable trust to another Not income of latter. The use of the expression "Income derived from voluntary contributions" is significant. The word "derived" connotes obtaining or drawing or taking or receiving from a source. When something is stated to be derived from something else, the latter is a source, while the former is that which flows from that source. A voluntary contribution understood that way is not by itself income. It is that from which income flows. By implication, therefore, voluntary contributions may be regarded as non income without anything more indicated in the Act. It does not matter for the non income character of the voluntary contributions that they are applied or expended or appropriated to defray the current expenses of the charity. The essence of a windfall or voluntary contributions as opposed to income is that it is unexpected. The characteristic of income is that it is a periodical monetary return coming in within regularity or at least expected regularity. So, voluntary contributions per se are not dealt with by the Act. They need not be in order to stand outside the field of taxation because they are windfalls and hence the very antithesis of income and, therefore, there is no need to exempt them or to exclude them from the total income. They stay out on account of their innate character as non income. Where it has been found that the assessee (which is a charitable trust) has received the donation from another trust for the specific purpose that it shall be held as part of the corpus or capital of the assessee, donation received by the assessee would fall outside scope of the Act. Commissioner of Income tax v. Eternal Science of Man's Society, (1981) 128 I T R 456 (Delhi); Commissioner of Income tax v. Vanchi Trusts (1981) 127 I T R 227 (Ker.); Commissioner of Income tax v. Bal Utkarsh Society (1979) 119 I T R 137 (Guj.) and Sri Dawarkadeesh Charitable Trust v. Income tax Officer (1975) 98 I T R 557 (All.) ref. JUDGMENT RATNAM, J. This reference under section 256(1), Income tax Act 1961 (hereinafter referred to as the Act)…

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