Case: State Of Maharashtra &amp; Ors Vs. The Salvation Army, Western India Territory

1. The respondent in this appeal is the Salvation Army, Western India Territory. It is a part of the worldwide organization known as the Salvation Army. The headquarters of the organisation is in London. The organisation in India was registered as a public limited company uncle the Indian Companies Act, l9l3, having obtained a licence to carry on its activities without suffixing the word limited after its name. It is also registered underthe Bombay Public Trusts Act, 1950 (hereinafter called the Act) and carries on various charitable activities. The Company has its headquarters in Bombay. The funds of the Company are administered under the Articles of Association by a Board consisting of a General, a Chief of Staff and various other officers The accounting year of the Company is from 1st of October to the 30th of September of each year. In the years ending 3-9-1954, 30-9-l955 and 30-9-1956, the respondent received three sums from the international organisation, namely Rupees 1,97,302/-, Rupees 2,50,228-14-o and Rupees 2,67,732-15-0. Besides these amounts, the respondent had made collections in India. Upon all these amounts the respondent was called upon to pay a contribution of 2 per cent as required by Section 58 of the Act read with Rule 32 of the Bombay Public Trust Rules. The respondent claimed exemption from liability to pay contribution upon three donations. Appellant No. 3 disallowed the claim. The respondents appeal against the order was dismissed by appellant No. 4. The respondent thereupon filed a writ petition in the High Court of Bombay for a declaration that the provision for levy of contribution contained in Section 58 of the Act and rules 32 and 33 of the Rules as also the provisions of Sections 2 and 4 of the Maharashtra Act 29 of l962 (hereinafter referred to as the "Amending Act of l962") were beyond the powers of the State Legislature and that the levy of contribution on the three donations was therefore illegal. The respondent also prayed for quashing the orders passed by appellants 3 and 4 disallowing its claim for exemption from levy of contribution upon the aforesaid sums.2. A learned Single Judge of the High Court held that the levy, was bad as it was not a fee but tax.3. Against this decision, an appeal was preferred. before the Division Bench by the appellants. The Bench came to the conclusion that though the levy of 2 per cent on the gross income of the public trusts was a fee in the beginning, it assumed the character of a tax by the end of 31st March, 1958 as there was a surplus of Rs. 30,44,541 by that time and therefore the levy assumed the character of tax and was illegal from that date. The Court further held that the levy of contribution on the three donations was ultra vires as the actual levy was made after it assumed the character of a tax. It is against this judgment that this appeal has been filed on the basis of certificate granted by the High Court.

Reasoning: That there is correlation between the levy and the services can be proved by showing that on the face of the legislative provision itself, the collections are not merged in the general revenue but are set apart and appropriated for rendering these services. Thus, two elements are essential in order that a payment may be regarded as a fee.In the first place, it must be levied in consideration of certain services which the individuals accept either willingly or unwillingly and in the second place, the amount collected must be earmarked to meet the expenses of rendering these services and must not go to the general revenue of the State to be spent for general publicto the statement given by the Attorney General during the course of argument, the total contribution under Section 58 of the Act came to Rs. 1,73,56,874/- treating the figures of total receipts in the years 1953 to 1956 as receipts only under Section 58. There is a mistake in the figures of the chart given by the Attorney General for the years 1963, 1964, 1965 and 1966. Substituting the correct figures for those years which tally with the earlier chart given by the Attorney General, also during the course of the argument, the amount of revenue receipts under S. 58 would come to Rs. 1,90,19,978/ instead of Rs. 1.73,56,874/- The total revenue expenditure from 1953 to 1970 according to exhibit 1 is Rs. 1,17,86,443/-. Although in exhibit 1 the total revenue expenditure is shown to be 53.33 per cent of the total of Rs. 2,20,78,080/- actually the percentage has to be calculated with reference to the figure of Rupees 1,90,19,978/-. Calculating on that basis, the percentage will come to about 62. On the basis of the decision of this Court in the Delhi Cloth and General Mills case, (1970) 2 SCR 348   = (AIR 1971 SC 344  ), (supra) the levy was in the nature of fee as the expenditure was 62 per cent of the contributions levied and as there was approximateprecautionary measures to see that public trusts are administered for the purposes intended by the authors of the trusts and exercising control and supervision with a view to preserve the trust properties from being wasted or misappropriated by trustees are certainly special services for the benefit of the trusts. Therefore, there is no substance in the argument that no special benefits were or are being conferred upon the public trusts in administering the provisions of theis not disputed that the collections by way of contribution exceeded the expenditure from 1953 onwards.s we said, the fee must, as far practically as possible, be commensurate with the services rendered. One should not seek for any mathematical accuracy in these matters but be content with rough approximations. The services are mostly rendered by the officers of the Charity Organisation. With the proliferation of public trusts in the State, it became necessary to expand the Charity Organisation and to increase the staff for supervision and control. It also became necessary to have more regional offices for the more effective and immediate supervision and control. The expenditure in constructing buildings for locating the head office and regional offices and the increase in the allowances or other amenities to the staff have also to be included in the costs of the services. When there is surplus, it cannot immediately be said that the surplus must necessarily go in reduction of the rate of contribution to be levied thereafter. We think that it would neither be expedient nor prudent to lay down any abstract proposition that whenever there is surplus in a particular year or a number of years, that surplus must always be taken into consideration and the rate of the contribution should be reduced for the next year or subsequent years. An organisation like the one in question may have to incur capital expenditure for the better administration of the trusts and it might not be able to foresee all the contingencies in which such expenditure will have to be incurred for the more efficient working of the organisation. This Court has expressly stated in the Delhi Cloth and General Mills case, (1970) 2 SCR 348   = (AIR 1971 SC 344  ) (supra) that services worth 61 per cent of contribution would be sufficient quid pro quo to make a levy a fee. So, when we find that in this case the organisation has been rendering services worth 62 per cent of the contribution, it cannot per se be said that there is no correlation between the fee levied and the services rendered. But at the same time when it is seen that after taking into account the capital and other expenditure necessary for the efficient functioning of the organisation for the better administration of the trusts, a large surplus is still left, then the question will arise whether it is permissible for the organisation to continue the levy at the same rate which will only result in further surplus and to invest this surplus solely for earning income or to divert the surplus for other objects, though charitable in nature. We do not think any such levy for investment or diversion of the surplus would be consistent with the principle behind the levy of a fee. While we do not think it necessary that all available surplus in a year or for some years should always go in for reducing the rate of contribution for the subsequent year or years, we are of the view that the organisation cannot be allowed to accumulate an unreasonable amount - unreasonable in the sense that the amount might not be reasonably requited for the proper and efficient working of the organisation in a foreseeable future. No hard and fast rule applicable in all contingencies can be formulated. The Court will have to draw a line somewhere when the surplus must be taken into consideration for reducing the levy of contribution. In drawing the line, the Court will have to look into the nature of the organisation, the potentiality for its growth, the multiplication in its work consequent on its expansion for rendering the services visualized by the Act and the necessity for capital expenditure in the near future as also the amount of levy collected or expected to be collected in a year. As already stated, the Division Bench was of the view that the stage when the surplus must be taken into account to determine the character of the levy was reached by the end of March 31, 1958 when the available surplus came to Rs. 30,44,541/-. The Division Bench was alive to the desirability of locating the head office and regional offices in buildings to be owned by the organisation and incurring of capital expenditure in that behalf. The Charity Organisation has purchased a building worth about Rs. 30 lakhs. Even according to the Division Bench investment of the surplus in buildings for locating the head and regional offices cannot be said to be diversion of the surplus for purposes alien to the object of the organisation, namely, the better administration of the trusts. Therefore, we do not think that the contribution had assumed the character of a tax at the end of March, 1958.24. The surplus in the account of the Public Trusts Administration Fund at the end of March, 1970, was Rs. 84,49,473/- after meeting the capital expenditure of Rs. 17,46,794/- incurred during the years 1953 to 1970. In the figure of Rs. 84,49,473/- is included the figure of Rs. 7,06,016/-, the accumulated balances under the repealed enactments transferred to the Public Trusts Administration Fund, plus interest of Rs. 7,13,004/- on the said figure vide exhibit No. 3. Even deducting the Rs. 14 lakhs from Rs. 84 lakhs, the surplus in the account of the Public Trusts Administration Fund at the end of March, 1970, was Rs. 70 lakhs. Allowing the capital expenditure of Rs. 30- lakhs on the building said to have been purchased by the Charity Organisation, the surplus was Rs. 40 lakhs.As we said, as a matter of principle, expenses for service should be correlated to the contribution levied under Section 58 of the Act. And the capital expenses should be met from the surplus funds including the sum of Rs. 14 lakhs (receipt under Sec. 61 plus interest thereon: Total: Rs. 14 lakhs).The surplus at the end of March, 1970 being Rs. 40 lakhs cr. to be more accurate, Rs. 54 lakhs, the rate of fee at 2 per cent cannot continue in any event after March, 1970 without taking into account the corpus of Rs. 54 lakhs and the income therefrom.We think that the contribution at the rate of 2 Per cent on the gross income of the trusts after March 31, 1970 onwards undoubtedly assumed the character of a tax as that merely augmented the income of the Charity Organisation. If the Organisation is allowed to go on increasing its surplus year after year out of the amount of fee collected under S. 58 of the Act, it would demonstrate that the fee levied was unjustifiably disproportionate to the service rendered. We are, therefore, of the opinion that before levying any fee or determining its rate after March, 1970, the Charity Organisation has to balance its budget in the light of this judgment.The respondent has an independent legal personality as it was registered under the Companies Act and so the amounts which it received cannot but be regarded as donations coming within the purview of S. 58 of the Act and Rule 32. The Division Bench held that these amounts were donations made by the international organisation in London to the respondent. We think that the High Court was right.27. As already stated, the Amending Act came into force on 17-8-1962. The Division Bench was of the view that the levy of contribution on these amounts was ultra vires for the reason that at the time the levy was made it had ceased to be a fee and become a tax. We do not think that the High Court was right. No doubt, the demand for contribution was made only after the Amending Act came into force. But by virtue of the retrospective operation of the amended Section 58 as provided in Section 4 of the Amending Act, the respondent became liable to pay contribution in respect of the three donations in the years in which they were received. It may be recalled that these three amounts were received by the respondent in the years 1954, 1955 and 1956. By virtue of the deeming provision in Section 58 as amended, these donations became exigible to pay the contribution in the relevant years. We do not understand how these amounts which became exigible to levy of contribution in those years by virtue of the deeming provisions in Section 58 became exonerated from the liability even on the basis of the reasoning of the Division Bench that the levy assumed the character of a tax after 31st March, 1958.The fact that the actual levy was made after 1962 would not make any difference in the liability of the respondent to pay the contribution in respect of these amounts as the liability was incurred when the levy had not assumed the character of tax even according to the Division Bench.28. We, therefore, hold that the respondent is liable to pay contributions in respect of the three sums and that the Division Bench went wrong in quashing the orders passed by appellants 3 and 4 upholding the levy of contribution on these sums. We also hold that after 31st March, 1970, the levy at the rate of 2 per cent of the gross income of the trusts cannot be justified as a fee. This does not mean that no levy of contribution was permissible thereafter. We only say that any levy thereafter should have correlation with the services, taking into consideration the existence of the surplus fund which was not immediately required for further expenditure by way of services including capital expenditure. We declare that levy of contribution at the rate of 2 per cent of the annual gross income of the trusts became levy of tax after 31st March, 1970 and was without the authority of law. Since there was a prayer in the writ petition to declare Rule 32 as ultra vires, we think that the respondent is entitled to this relief.Civil Appeal No. 488 of 197330. In this appeal, the points for consideration are practically the same. For the reasons we have given in our judgment in Civil Appeal No. 487 of 1973, we do not think that the Division Bench was justified in holding that the respondent was not liable to pay contribution. in respect of the donations in question here and in quashing the order dated 30th March, 1965.