Commissioner of Income Tax vs Bigabass Maheshwari Sewa Samiti

This appeal by the Revenue, seeks to challenge the order of the Tribunal, dt. 24th June, 2005, whereby the appeal of the assessee was allowed.

The appeal was admitted on 4th Aug., 2006, by formulating two substantial questions of law, which read as under:

(1) Whether on the facts and in the circumstances of the case, the learned Tribunal is justified in setting aside the assessment order, ignoring the provisions of Section 147 of the IT Act, 1961 the AO validly issued notice u/s 148 of the Act?

(2) Whether on the facts and in the circumstances of the case, the learned Tribunal is justified in allowing the exemption u/s 11(i)(d) of the IT Act, 1961, ignoring the fact that the objects of the trust providing benefit to Maheshwari community was hit by the provisions contained in Clause (i) of Section 13 in view of the decision in Ghulam Mohidin Trust v. CIT (2001) 168 CTR (J&K) 367 : (2001) 248 ITR 587 , which is squarely applicable in this case?.

The necessary facts are, that the assessee is a charitable trust, which came into existence on 17th Oct., 1995, and was granted registration by Registrar of Societies on the same day. The registration u/s 12AA was granted to the trust on 14th Aug., 1997. The return of income, for the year under consideration (financial year 1997-98), corresponding to asst. yr. 1998-99, was filed on 31st March, 2000, declaring nil income. The return was duly accompanied, with the audit report in Form No. 10B and return was assessed u/s 143(1)(a) on 21st March, 2000. However, thereafter, notice u/s 148 was issued on 28th May, 2001, on the basis of reasons recorded, and forming part of the assessment order, being as under:

During the year under consideration, the trust has shown receipt of donation of Rs. 30,16,598 in the corpus fund. Whereas the amount has been received without specific directions, therefore, this amount cannot be treated for corpus. Further, the registration u/s 12AA was granted w.e.f. 14th Aug., 1997, therefore donation of Rs. 12,11,100 received before 14th Aug., 1997 is liable to tax, which has not been shown as taxable.

The assessee, in response to the notice submitted, that the return already filed may be treated as return in response to notice u/s 148, consequently, the assessment was completed on the total income of Rs. 33,09,100 and was upheld in appeal. The controversy, raised before the Tribunal, was on two standpoints; first being about validity of the issuance of notice u/s 148, and other being about admissibility of the exemption, with respect to fund received by the assessee, before grant of registration u/s 12AA i.e. 14th Aug., 1997. On both the aspects, the learned Tribunal decided in favour of the assessee, and allowed the appeal.

Taking the second aspect first, which (is) comprehended by question No. 2, the controversy centers round the applicability of the provisions under Sections 11, 13 and Section 12AA. Admittedly, the registration u/s 12AA was granted w.e.f. 14th Aug., 1997, and a sum of Rs. 12,11,100 was received prior to this 14th Aug., 1997. The learned Tribunal found, that according to Section 12A, the provisions of Sections 11 and 12 did not apply, in relation to any trust or institution, unless conditions prescribed in Clauses (a) and (b) are fulfilled. The controversy does not relate to Clause (b), while Clause (a) provides that the person in receipt of the income has made application for registration of the trust or institution in the prescribed manner before first day of July 1973, or before expiry of one year from the date of creation of trust, or establishment of the institution, whichever is earlier, and such trust/institution is registered u/s 12AA. Then, the proviso to this clause deals with the situation in cases where application is made after the expiry of said period, and provides that in cases of delay, the provisions of Sections 11 and 12 shall apply from the date of creation of the trust, if the CIT, for reasons to be recorded in writing, is satisfied that the person in receipt of income, was prevented from making application before expiry of the aforesaid period, for sufficient reasons. Present is not a case, covered by this clause, because the CIT has not condoned the delay, and has granted registration w.e.f. 14th Aug., 1997. Then, Clause (ii) of the proviso provides, rather, provides for the eventualities, where the CIT is not satisfied, about aforesaid sufficient reason, and provides, that in such cases, the provisions of Sections 11 and 12 shall apply from the first date of financial year in which application is made. The learned Tribunal found that, thus, the provisions of Sections 11 and 12 apply from the first day of the financial year, in which registration was granted, being 1st April, 1997, and therefore, the amount was found to be exempt.

The questions framed by this Court contemplate non-applicability of exemption, in view of the provisions contained in Section 13(1)(a) and (b), which excludes the applicability of Section 11(1)(d) in the eventualities enumerated in Section 11(1)(a) and (b). Before proceeding further, we may gainfully quote and reproduce provisions of Section 13(1)(a) and (b), which read as under:

Section 11 not to apply in certain cases.- (1) Nothing contained in Section 11 or Section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-

(a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public;

(b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste.

Combined reading of two Clauses (a) and (b), makes it clear, that Clause (a) comprehend cases, where the income from the property, held under a trust for private religious purposes, which does not enure for the purposes of public, while Clause (b) provides for cases, where the trust for charitable purposes, or charitable institution, is created and established for benefit of any particular religion, community or caste. The learned CIT while discussing the appeal of the assessee, has purported to quote Clauses 6 and 13 of the trust. Clause 6 relates to the eligibility of membership, while Clause 13 relates to the rules regarding stay of marriage party, etc. in the bhawan of the trust.

Apparently, this aspect has not been considered by the learned Tribunal, and therefore, the question was framed. We have gone through the judgment in Ghulam Mohidin Trust v. CIT (supra), and a look thereat, makes it clear that the beneficiaries of the trust were confined to Muslim community intelligentsia. In the case in hand, even from reading of two Clauses 6 and 13, as quoted by learned CIT, it does not show, that the trust was created or established for the benefit of any particular religion, community, or caste. At best, Clause 13 shows to be providing for some preference, in favour of the persons belonging to a particular community. So far Clause 6 is concerned, that does not talk anything about as to for whose benefit the trust has been created.

However, instead to stand on ceremonies, we requested the learned Counsel for the assessee, to make available the copy of the trust deed, if available with him, and the same was made available to us, and perusal thereof shows a detailed list of objects of the trust, and all those objects in categorical terms state, about the beneficiaries being the society at large, and does not confine to any particular caste, community, or even religion.

In that view of the matter, to say the least, the ineligibility provided in Section 13(1)(a) or (b) is not attracted. The question No. 2 is accordingly answered against the Revenue and in favour of the assessee.

Coming to question No. 1, a look at the judgment of the Tribunal shows that the learned Tribunal has proceeded on two judgments of Hon''ble the Supreme Court, being in Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, and Ganga Saran and Sons P. Ltd. Vs. Income Tax Officer and Others, . In Lakhmani Mewaldas''s case (supra), it has been held, that the reasons, which led to the formation of the belief, contemplated by Section 147(a), must have a material belief on the question of escapement of income of the assessee from assessment and does not mean a purely subjective satisfaction on the part of the ITO. Where livelink between the material before the ITO, and the belief he was to form regarding escapement of income, is missing, such material was stated to be not sufficient for forming belief, and same view was taken in Ganga Saran''s case (supra).

Then, applying these judgments, it has been found by the learned Tribunal that one of the conditions necessary for issuance of notice u/s 148, being under statement of income of the assessee, is not fulfilled. It has been held, that in order to bring an item within the purview of Section 147, it is of utmost importance, that the AO should have reason to believe, based on relevant and cogent material, that such income has escaped assessment. It has been found, that there was no material direct or indirect, available with the AO, which could show that the receipt of donations, amounting to Rs. 30,16,598, was without any specific direction of corpus fund. The assessee has shown the receipts, as having been received in the corpus fund, coupled with the report of the auditor. The AO had not inquired into the nature of the receipts, before issuing notice u/s 148, and in earlier years also, the amount was held to be received in the corpus fund.

In our view, the learned Tribunal has rightly examined the controversy. It is significant to note that the learned Tribunal has further found that AO cannot initiate reassessment proceedings, simply to verify the contents of the return, unlike before it was vested in him in making regular assessment. It was found that the time-limit available for issuance of notice and making assessment u/s 143(3) had expired, but then, on that count, he cannot assume the jurisdiction by venturing to make assessment u/s 148. Even after hearing learned Counsel for the parties at length, we are satisfied that the reasons given by the learned Tribunal are in accordance with law.

Accordingly, question No. 1 is also answered against the Revenue.

The net result is that the appeal therefore has no force and is dismissed.