072-NLR-NLR-V-66-TRUSTEE-CHEVALIER-CHRISTIAN-GOMES-CHARITABLE-TRUST-Appellant-and-DEPUTY-.pdf
SANSONI, J.—Trustee, Chevalier Christian Comes Charitable Trust v.. Deputy; 317 ;
Commissioner of Inland Revenue
1963Present: Sansoni, J., and L. B. de Silva, J .
TRUSTEE, CHEVALIER CHRISTIAN GOMES CHARITABLETRUST, Appellant, and DEPUTY COMMISSIONEROE INLAND REVENUE, Respondent
S. C. 6/63—Income Tax Case No. BRA/320
Income Tav Ordinance {Cap 242)—Sections 6 (J) (a) to {h), 6 (1A), 7C—“ Any offertory,subscription or other donation to a charitable institution ”—Trusts Ordinance{Cap. 87), s. 6.
Section 6 (1A) of the Income Tax Ordinance, as amended by Act No. 44 of 1958,reads as follows :
“ Any offertory, subscription or other donation to a charitable institu-tion shall be deemed to be such i ncome as is referred to in paragraph (h) ofsub-section (1). ”
By deed No. 1897 of 4th November, 1960, a person, who was entitled to certainimmovable property, constituted himself and three others to be the Trustees ofthat property and transferred it to himself and three others in trust for certainuses and purposes, subject to certain conditions and restrictions recited in thedeed. The trust thereby created was admittedly a trust established for a.charitable purpose.
Held,that the transfer of the property under deed No. 1897 was not a donationwithin the meaning of section 6 (1A) and, therefore, was not liable to tax.
Case stated under section 78 of the Income Tax Ordinance.
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H. V. Perera, Q.C., with 8. Ambalavanar and C. Pathmanathan,for the Assessee-AppeUant.' .
V. 8. A. Pullenayegum, Crown Counsel,'with H. L. de Silva, CrownCounsel, for the Respondent.
December 13, 1963. Sansoni, J.—
Cur. adv. vult.
By deed No. 1897 dated 4th November 1960 Chevalier Christian Gomez,•who was entitled to a share of certain immovable property in Kandy,constituted himself and three others to be the trustees of that share andtransferred it to himself and three others in trust for certain use9 andpurposes, subject to certain conditions and restrictions recited in thedeed. The Trust thereby created was to be called the Chevalier ChristianGomez Charitable Trust, and it is not in dispute that it is a Trustestablished for a charitable purpose.
2*—B 957 (9/64)
318 • SAKS ONI, J.—Trustee, Chevalier Christian Gomes Charitable Trust v. DejnUy
Commissioner of Inland Revenue
The share in question was valued at Rs. 150,000 in the deed. Thetransfer of the property to the trustees was treated by an assessor underthe Income Tax Ordinance as a donation to a charitable institution andtaxed accordingly for the year of assessment 1961-62. Appeals by thetrustees to the Commissioner of Inland Revenue and to the Board ofReview respectively were dismissed, and the matter has now come beforeus on a case stated upon the application of the trustees.
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Under the Income Tax Ordinance, Cap. 242, the words “ profits ” and“ income ” are defined in section 6. In section 6 (1) (a) to (g) certaincategories of profits and income are specified, and section 6 (1) (h) adds“ income from any other source whatsoever, not including profits of acasual and non-recurring nature.”
) The income of a public charitable institution or trust, or a religious bodyor institution, used to enjoy exemption from tax by reason of section7 (1) (d) and (e). The Income Tax (Amendment) Act, No. 44 of 1958,however, made certain amendments to the principal Ordinance. Section6 (1A) which was added immediately after Section 6 (1) provided that“Any offertory, subscription or other donation to a charitable institutionshall be deemed to be such income as is referred to in paragraph (h) ofsub-section (1).” Further, section 7 of the" principal Ordinance wasamended by the omission of clauses (d) and (e) of section 7 (1).
The appellants contended always that these amendments did notrender the transfer of the property under deed No. 1897 taxable (1)because it is not a donation within the meaning of section 6 (1A), and (2)because there was no charitable institution in existence when the deed wasexecuted. On the first point, I think the words “ Any offertory, sub-scription or other donation ” point only tc donations of a particular typebeing made taxable. I cannot ascribe any other reason for the specificmention of offertories and subscriptions. An offertory could be describedas an offering in money or kind made by the faithful as part of a religiousceremony. A subscription is generally a contribution of money madewhen funds are beiDg raised for a particular purpose. Whether the offer-tory is in money or kind, when it is associated with a subscription, thereis one characteristic common to both types of voluntary contributionand it is that they are intended to be expended on ths purposes of thetrust and not to be preserved intact. The words “ other donation ” in
-# SANS ONI, J.—Trustee, Chevalier Christian Gomes Charitable Trust 319
v. Deputy Commissioner of Inland Revenue
this context were added, I think, in order to include all voluntas y contri-butions in money or kind not falling within the meaning of “ offertory ”or “ subscription ”, but which are expendable.
This view is supported by the fact that Act No. 44 of 1958 which intro-duced this novel category of income also introduced exemptions from thetax in new section 7C. By that section any sum of money which consistedof an offertory, subscription or other donation to a charitable institution,or the proceeds of sale of any movable property donated to a charitableinstitution for conversion into money by the sale thereof, were exemptedfrom the tax if such sum was spent on a charitable purpose of that institu-tion. Single donations of not less than Rs. 1,000, or donations of several•sums aggregating to not less than Rs. 10,000, which were made in orderto be spent on a charitable purpose, were also exempted from the tax ifthey could not be spent within a prescribed time. Exemption had to beolaimed and obtained for this purpose from the Commissioner of InlaadRevenue, and if no such exemption was obtained the unspent portionsof the donation were taxable. It is reasonable to conclude that theamending Act contemplates only donations which are expendable.
Again, gifts of large sums of money, or valuable movables, and possiblyeven of immovable property could fall within the class of taxable dona-tions, though it is not necessary to decide all these questions on thisappeal. Even if immovable property comes within the expression“ other donation ”, immovable property which is subject to a trust wouldnot be included, as such property is not convertible into money and is ofa nature completely different from an “ offertory ” or a “ subscription ”.We are dealing with an Income Tax Ordinance, that is to say, an Ordinance-to enable tax to be levied on income, including a new category of income-comprising profits of a casual and non-recurring nature such as offer-tories and subscriptions and other donations. I cannot bring myself tobake the view that the value of lands donated subject to a trust andsubject to the condition that they shall not be sold, mortgaged, leased or•encumbered, should be treated as income or profits. That would be toentertain “ a fanciful notion foreign altogether to the scope and intent•of the Income Tax Code”, to use the words of Lord Macnaghten inTennant v. Smith L I would prefer to avoid producing such a harshresult. A far more reasonable result can be produced by giving to theword “ donation ” in this context an interpretation which does not
offend one’s sense of justice.
1 {1892) A. c. at 162.
320SANSONT, J.—Trustee, Chevalier Christian, Comes Charitable Trust •
v. Deputy Commissioner of Inland Revenue
The other argument urged for the appellants was that the word&“ donation to a charitable institution ” can only mean a donation to aninstitution already existing at the time of the donation. Under section 2of the amending Act “ charitahle institution ” means “ the trustee ortrustees of a trust, or a corporation or an unincorporate body of persons*established for a charitable purpose only or engaged solely in carrying out.a charitable purpose”. ■ If one reads seefion 6 (1A) along with this defini-tion it follows that the donation to be taxable must be a donation totrustees of a trust f stablished for a charitable purpose. One cannot have adonation to trustees of a trust that has not yet been established, anymore than one can have an offertory or subscription to a non-existenttrust; and at the time this particular deed was executed, there was notrust in existence. It was only on the appointment of the trustees andthe transfer of the lands to them that there came into existence a charit-able institution as defined in the Act. The amending Act proceeds on thefooting that there is an existing charitable institution to which a gift-is made ; but the same deed cannot both create a charitable institutionand also be a gift to an existing charitable institution.
The Trusts Ordinance, Cap. 87, enacts in section 6 that a trust is-created (omitting the other requirements) when the author of the trusttransfers the trust property to the trustee. Under this section a trust-was created by the execution of deed No. 1897. The Amending ActNo. 44 of 1958 did not make a transfer of property which created a trust-taxable. The question is not whether the deed is a donation impressedwith a charitable trust but whether it is a donation to a charitable insti-tution. I would hold for this reason also that the deed in question is nota donation covered by section 6 (1A).
For these reasons I would hold that the order of the Board of Reviewis wrong, and that the transfer in question was not liable to tax. Th&appellants are entitled to their costs of this appeal.
L. B. 7>e Silva, J.—I agree.
Appeal allowed-