Commissioner of Income Tax vs Andhra Pradesh State Road Transport Corporation

Bilal Nazki J.

Two questions have been referred to this Court at the instance of the Revenue and the questions are:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in directing the Assessing Officer to allow the benefits u/s 11 of the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that the provisions contained in Section 12A(b) are only directory in nature and not mandatory ?

Before these questions are answered, it may be pointed out that the assessee in this case is the Andhra Pradesh State Road Transport Corporation. The Andhra Pradesh High Court in its judgment reported in Andhra Pradesh State Road Transport Corporation Vs. Commissioner of Income Tax, , declared that the Corporation was entitled to exemption u/s 11 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), holding it to be a charitable institution in view of its objects. This decision has been affirmed by the Supreme Court in Commissioner of Income Tax, A.P. Vs. Andhra Pradesh State Road Transport Corporation, .

The assessment years for which the reference has been made are 1974-75 to 1976-77 and 1978-79. In view of the judgment of this Court and the Supreme Court referred to above, question No. 1 loses significance in the context as to whether the assessee is a charitable institution or not, but becomes relevant in view of the second question. In order to avail of the benefits u/s 11 of the Act, it is contended by learned senior counsel appearing for the Revenue that the assessee has to satisfy the requirements of Section 12A(b). Section 12A(b) of the Act lays down:

Where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds fifty thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

This provision has a reference to the Explanation below Sub-section (2) of Section 288 and the Explanation reads as under:

Explanation.�In this Section, ''accountant'' means a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of Sub-section (2) of Section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.

It was the case of the Revenue that there was no certificate of the chartered accountant furnished along with the return of income for the relevant assessment years and there was no report of the accountant in the prescribed form duly signed. In other words, it is submitted that since the audit report was not furnished in terms of Form No. 10B as laid down by Section 12A(b) read with rule 17B of the Rules, therefore, there was no question of grant of exemption u/s 11 of the Act even if the institution was a charitable institution.

6 learned Counsel appearing for the assessee contends that the requirement of a report by the accountant in terms of Section 12A(b) was not mandatory, and in any case, this report was furnished before the final assessment was made. He further contends that as a matter of fact, as early as in the year 1978, the Board issued instructions being Board''s Instruction No. 1/1148 on February 9, 1978, and these instructions laid down:

Charitable trusts

Section 12A

The Board have considered whether the requirement u/s 12A(b) of filing audit report ''along with the return of income'' is mandatory so as to disentitle the trust from claiming exemption under Sections 11 and 12 in case of omission to furnish such report in the prescribed form along with the return.

Normally, it should be possible for a charitable or religious trust or institution, to file the auditor''s report along with the return of total income, where such trust or institution claims exemption under Sections 11 and 12. However, in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report the exemption as available to such trust under Sections 11 and 12 may not be denied merely on account of delay in furnishing the auditor''s report and the Income Tax Officer should record reasons for accepting a belated audit report.

7 Learned senior counsel appearing for the Income Tax Department submits that these instructions are not binding on the Department and had not been issued in accordance with Section 119 of the Act. He submits that in any case, it is the function of the courts to interpret statutes and the Board cannot interpret the statute, and if the instructions of the Board are contrary to the statute, these instructions cannot be enforced. Section 119 of the Act lays down that the Board may from time to time issue such orders, instructions and directions as it may deem fit for the proper administration of the Act and the authorities and all other persons employed in the execution of the Act shall observe and follow the orders, instructions and directions of the Board.

Coming to the first argument that Section 12A(b) is mandatory, learned Counsel appearing for the assessee relies on a judgment of the Bombay High Court in Commissioner Of Income Tax Vs. Nagpur Hotel Owners Association, . One of the questions, which was before the Bombay High Court was (page 442):

Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal is correct in holding that the application in Form No. 10 under rule 17 of the Income Tax Rules, 1962, could be filed even after the assessment is completed ?

The assessee in this case claimed exemption as charitable institution for the assessment years 1974-75 and 1975-76. The exemption was refused by the Income Tax Officer on the grounds that�

(a) it was not duly registered with the Commissioner of Income Tax u/s 12A(a) of the Act, and

(b) no notice of accumulation of income as required u/s 11(2) was filed.

The court held that the Income Tax Rules could not fix a time-limit for submitting the application in Form No. 10B under rule 17.

11.Reference has been placed on some other judgments also, but in our opinion, the matter can be disposed of on the ground that there is a circular which has been reproduced hereinabove, which lays down that exemption u/s 11 of the Act should not be rejected only on the ground that there had been delay in filing the report by the accountant in terms of Section 12A(b). There is a direct judgment of the Supreme Court in Paper Products Ltd. Vs. Commissioner of Central Excise, . In this case, the Supreme Court held (page 130):

It is clear from the abovesaid pronouncements of this Court that, apart from the fact that the circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said circulars even on the ground of the same being inconsistent with the statutory provision. The ratio of the judgment of this Court further precludes the right of the Department to file an appeal against the correctness or the binding nature of the circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the circular which is in force at the relevant point of time.

Since the Supreme Court has laid down that the Department has no right to challenge a circular issued by the Board on any ground whatsoever including the ground that it was inconsistent with the statutory provision,therefore, both questions will have to be answered in favour of the assessee and against the Department,

13 The reference is accordingly answered in favour of the assessee and against the Department.