Issues have arisen before courts regarding the taxability of gifts received by the heads of religious and spiritual bodies under the Income-Tax Act, 1961 (Act). The majority view seems to be that such gifts received in individual capacities – not as trustees of public trusts for them – should be liable to tax. However, the Madras High Court in its recent decision in the case of CIT v. Gopala Naicker Bangaru, (2010 236 CTR (Mad) 82, has held that such receipts are not taxable.

The assessee in the case before the High Court (HC) is the head of a religious cult. Devotees ‘make their offerings for contribution voluntarily to him at the time of his birthday and the same has been accounted for as capital receipts'. During the previous year relevant to A.Y. 2004-05, he received Rs1.75 crore as gifts on his birthday. The A.O. ‘treated the gifts as having nexus to his profession as a religious head' and taxed the same. The CIT(A) allowed the appeal of the assessee on the ground that the ‘gifts are not consideration for profession/vocation' following the decision in CIT v. Vanamamalai Ramanuja Jeer Swamigal, (1998) 231 ITR 632 (Mad). The Tribunal upheld the CIT(A)'s decision on the ground that the gifts received have no direct nexus with any of his activities.

Department's contention

The I-T Department's case was that the assessee was living with his family and the gifts received were deposited in his bank account and declared in his wealth-tax return for the A.Y. 2005-06. Even though two charitable trusts are run by him, the asssessee did not deposit the donations in the bank accounts of the trust(s). Hence, the receipts were his individual income.

In support of the view that the amount is not taxable, the assessee relied on the following decisions:

1. CIT v. Balamuralikrishna (1988) 177 ITR 447 (Mad), where a musician on completion of 30 years received Rs 30,000 from his fans. The amount was held not taxable on the ground that there is no nexus between the receipts and his profession and the amount was received because of goodwill of the fans.

2. In C.P. Chitrarasu v. CIT (1986) 160 ITR 534 (Mad), a sum of Rs 51,000 collected and given to a politician by his fan was held not taxable on the ground that there is nothing to show that the sum was received because of exercise of a profession.

In the decision in the case of CIT v. Vanamamalai (supra), the case relied upon by the HC, a sum of Rs 12,156 was ‘kanikkai' and ‘sambhavanai'. It was held that the said amounts were paid by the devotees out of personal regard, esteem and veneration and the assessee was not exercising any profession or avocation and the voluntary offerings made are not on account of any profession or vocation in which he was engaged.

Debatable issue

The HC's decision which seems to be based more on consistency principle raises a debatable issue on the basis of following decisions, which support the Department's case:

In P. Krishna Menon v. CIT (1959) 35 ITR 48 (SC), the assessee after retirement as a Superintendent of Police, studied Vedanta Philosophy and was expounding the same to interested public. One of his disciples transferred the entire balance in his bank account to the assessee, which was taxed as his income. The Supreme Court held that teaching of Vedanta can be properly called the carrying on of a vocation.

In Maharaj Shri Govindlalji Ranchodlalji v. CIT (1958) 34 ITR 92 (Bom), the assessee was a descendant of Shri Vallabhacharyaji, who founded the faith ‘Vallabh Sampradaya'; he was not a Sanyasi, was married and had children. He is to be succeeded by his sons who inherit and divide the properties. It was held that even practice of religion can become a vocation more so when it brings in a steady income.

In Dr. K. George Thomas v. CIT (1985) 156 ITR 412 (SC), the assessee was propagating the ideals of the Indian Christian Crusade and was engaged in a movement for the spread of religion, etc., for which money was collected. The Supreme Court held there was a link between the activities of the assessee and the payments received by him and the link was close enough; the receipts were on account of his carrying on of his vocation and hence taxable.

In Father Epharam v. CIT (1989) 176 ITR 78 (Ker), a priest at a monastery received substantial foreign remittances and the surplus remaining after distribution to other priests for performing mass, was treated as income of the assessee. It was held that there was a close link between the or vocation of the assessee and the payments received by him and so the appeal was dismissed.

The foregoing discussion regarding the decisions in favour and against the I-T Department's view shows that the weight of the judicial decisions on the issue considered is in favour of the Department and hence, the HC's decision needs to be contested before the Supreme Court.

(The author is a former chairman of CBDT.)

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