Decided on August 31,1982



Prakash Narain, Accountant Member - (1.) THE assessee had joined U.P. Congress Committee sometime in February 1977 as an Editor of its Urdu weekly Jadid Shah. His salary was fixed at Rs. 350 per month. He was promoted as its Editor with effect from July 1977 on a monthly salary of Rs. 553 per month. Earlier to the taking of the above employment also, he was a journalist. At the relevant time he thought of compiling an 'Encyclopaedia of Muslims in India' enumerating therein their achievements, past and present and their contribution to the enrichment pf national life, their tireless efforts in the struggle of India for liberation from foreign yoke and above all, the exemplary spirit of devotion and the strong sense of self-sacrifice that they had displayed in the development of nationalism and national integration. A number of circulars containing the appeal to the public in this regard were also issued by him. With the above purpose he approached a number of persons requesting them to furnish their photographs and events of life together with an amount of Rs. 100 being the charges of blocks, etc. THEy were also requested to enrol their names as advance subscribers to the Encyclopaedia.
(2.) A number of Muslims of repute, responded to the appeal of the assessee and sent their contributions to him. We were told that the first contribution was received by him on 10-8-1974. The total contribution in the assessment year 1977-78 amounted to Rs. 46,050. In the subsequent year, i.e., the assessment year 1978-79, there was a further contribution of Rs. 26,000. It was not denied before us that a part of the above amount was also in the nature of donation. The ITO while making the assessments of the assessee for the assessment years 1975-76 and 1976-77 did not take into consideration the above donations or the interest thereon which was earned by the assessee by advancing them to various parties. This question, however, attracted his attention in the assessment years 1977-78 and 1978-79. In the meantime, there was another development. The assessee founded an institute called 'Encyclopaedia Publications and Research Institute'. A memorandum of association and articles of association of this institute were also duly drafted. The object of the institute as appeared from these documents was as under : The main object of the Institute will be to make research regarding the intellectuals and educate the masses about their achievements with a view to induce them to develop similar qualities in themselves and in carrying out the above object, the Institute will devote itself: (a) to collect the bio-data and life sketches of intellectuals in every vocation, profession or walk of life throughout India ; (b) to compile, publish and print an Encyclopaedia of such intellectuals enumerating their achievements, exemplary spirit of devotion and self-sacrifice for uplift of the masses ; (c) to spread useful information about aforesaid intellectuals with a view to infuse similar spirit in the masses ; (d) i. to accept donations and funds and acquire assets, etc., for the above purpose from various donors, who will be issued receipts showing the purpose for which the donation has been made, which will tantamount to absolute divesting of funds by the donors for such purpose ; ii. to accept donations and funds collected by individuals for similar or allied objects in the manner mentioned in (i) above. The above institute was also registered under the Societies Registration Act, 1860 on 1-8-1980. A certificate to this effect was also issued on 2-8-1980.
(3.) THE ITO in the above orders held that the receipts by the assessee were in the nature of donations. He came to this conclusion on the basis of certain facts. He found that the counterfoils of receipts issued by the assessee, though appearing in the name of Encyclopaedia Publications, did not show the purpose for which the collections were made, as the column relating thereto had been left blank. He admitted that the receipt was signed on behalf of 'Encyclopaedia Publications'. He also noticed that the assessee had incurred an expenditure of Rs. 3,200 up to the assessment year 1975-76 towards the above purpose. It was stated before him that the collections were towards the cost of the book. This was not accepted by the ITO on the ground that they were not uniform and they differed from person to person. He also observed that the above donations were not exempt in view of the provisions of Section 13 of the Income-tax Act, 1961 ('the Act'). After holding that they were in the nature of donations, he further held that they were the income of the assessee. He also, as a consequence, assessed the interest earned by the assessee on the advances made out of the above amounts. THE ITO did not take into consideration either the memorandum of association or the articles of association, or the fact that the institute had been registered under the Societies Registration Act, on the ground that these events had taken place after the end of the accounting years, relevant for the assessment years under consideration.;

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