Commissioner of Income Tax vs Birla Jan Kalyan Trust

Ajit Kumar Sengupta, J.—In this reference u/s 256(1) of the income tax Act, 1961 (''the Act'') for the assessment year 1970-71, the following question of law has been referred to this Court :

Whether, on the facts and in the circumstances of the case, the proceedings u/s 147 of the income tax Act, 1961 are valid in law?

Shortly stated, the facts are that the ITO found that a ''nil'' return was filed originally but a claim for refund of Rs. 3,300 was made of tax deducted at source from interest earned by the trust. The ITO had accepted the claim and allowed the refund of Rs. 3,300. Subsequently, a supplementary claim allowed refund of Rs. 755 being tax deducted at source from dividend was also for by the ITO. The dividend and interest income had been claimed as exempt u/s 11 of the Act. Subsequently, the ITO found that the trustees of Birla Jan Kalyan Trust had received certain assets (shares) from the trustees of Raja Baldeodas Birla Santotikosh Trust in March 1964, as a gift. According to the ITO the trustees of Raja Baldeodas Birla Santotikosh Trust had no power to alienate any of the movable properties which came into their possession by virtue of the original deed dated 20-3-1943, because the Raja Baldeodas Birla Santotikosh Trust was a family trust and the assets belonging to it were not to be given in charity for charitable purposes. The gift of shares, according to the ITO, was void ab initio and the assessee was not the rightful owner of the said shares during the previous year under consideration. As the shares, according to the ITO, did not belong to the assessee, the income arising there from did not belong to it and it was not entitled to the refund of Rs. 4,055 granted to it by the ITO in the original assessment. In the light of this information, the ITO initiated action u/s 147(b) /148 to make a reassessment and withdrew the refund of Rs. 4,055. The assessee again had shown ''nil'' income in the return filed in response to the notice u/s 148 and a claim was made that the income earned by it during the year was exempt u/s 11. It was also contended that ''there was full and true disclosure of all material and primary fact and evidence'' at the time of the original assessment and, as such, proceedings u/s 147 should be dropped. The ITO did not accept the contention of the assessee and completed the reassessment u/s 147(b) . By his order u/s 147(b) , the ITO withdrew the refund of Rs. 4,055 on the footing that the assessee was not entitled to the credit for the tax deducted at source. The ITO also held that the entire income of Rs. 6,42,783 was not exempt u/s 11 inasmuch as the trustees of Birla Jan Kalyan Trust had not complied with the terms and conditions prescribed in section 11(2) in respect of the entire balance of Rs. 2,57,547 left after spending Rs. 3,85,236 on charity. The ITO''s argument was that the aggregate income of the assessee-trust was Rs. 6,42,783 and Rs. 3,85,236 was spent on charities and, as such, this amount was exempt u/s 11(1) (a) . The balance left was Rs. 2,57,547 which was more than 25 per cent of the income. But the assessee satisfied the conditions of section 11(2) in respect of only Rs. 1,00,000 and not in respect of the entire accumulation of Rs. 2,57,547. According to the ITO, the assessee-trust was not entitled to the benefit of exemption allowable u/s 11(2) in respect of the entire accumulation. The ITO held that the benefit of accumulation would be available only in respect of 25 per cent of the income, i.e., Rs. 1,60,696. Thus, the ITO added back Rs. 96,851 - Rs. 2,57,547 less Rs. 1,60,696.

Aggrieved, the assessee went up in appeal before the AAC. The AAC held that the assessee is the rightful owner of the shares of Raja Baldeodas Birla Santotikosh Trust and directed the ITO to treat the entire income as exempt and cancel his order of withdrawal of refund of the amount of Rs. 4,055.

Being not satisfied with the order of the AAC, the department filed an appeal to the Tribunal. The assessee also filed a cross-objection challenging the validity of the reassessment u/s 147(b) /148. The Tribunal, following the decision of the Calcutta High Court in the case of Baijnath Saboo and Others Vs. Income Tax Officer, ''J'' Ward and Others, held that the proceedings u/s 147(b) were without any jurisdiction inasmuch as there was no escapement of income and allowed the cross-objection of the assessee. Thereafter, the departmental appeal was dismissed as infructuous.

At the hearing Mr. Bajoria, the learned counsel, has relied on the decision of this Court in Baijnath Saboo''s case (supra) which has also been relied on by the Tribunal in holding that the proceedings have become infructuous. In that case, the petitioners were the trustees of Birla Jan Kalyan Trust which is the respondent in this case. In that case, the assessment year involved was 1968-69. In that case, the validity of the notice issued u/s 148 for the assessment year 1968- 69 was challenged. As the trust is a public charitable trust, the income of the said trust was also exempt. The said trust also claimed that it had received as gift certain shares from a private trust and, therefore, the taxes that were deducted at source in respect of the dividends on the shares which had been gifted to the public charitable trust were refundable to the trust. It came to the knowledge of the ITO that the gift from the private trust in favour of the public trust was void. As the private trust had no power to make a gift, therefore, the refund of the tax deducted at source given to the public charitable trust, according to the Income- tax Officer, was wrongly given and had to be rectified. It was for that purpose that the assessment for the year 1968-69 was sought to be reopened. After setting out the ground upon which the reopening was sought to be justified, the Court in Baijnath Saboo''s case (supra) proceeded to hold as follows :

The question, therefore, is whether there has been any escapement of income of the trust of which the petitioners are the trustees entitling the revenue authorities to reopen the said assessment. Section 147 of the income tax Act entitles the income tax Officer to reopen the assessment if he has reason to believe that income chargeable to tax has either (i) escaped assessment for the relevant year; and (ii) has been under-assessed; or (iii) has been assessed at too low a rate; or (iv) has been made the subject of excessive relief; or (v) excessive loss or depreciation allowance has been computed. As the trust of which the petitioners are the trustees is a public charitable trust, its income was not assessable to tax. Therefore, there is no question of any income escaping assessment because the income was not assessable, nor was there any question of any under-assessment or assessment at too low a rate. In this case, there is also no question of excessive loss or depreciation allowance being computed. If that was the position, then the only ground on which the assessment could have been reopened was that the income chargeable to tax had been made the subject of excessive relief. The income being not chargeable to tax being the income of a public charitable trust, there was no question of that income being given excessive relief. Therefore, the fact that the petitioners got away with refund which the petitioners were not entitled in law, does not authorise the income tax authorities to say that the petitioners had been given excessive relief on income chargeable to tax. This position seems to be fortified by the decision of the Supreme Court in the case of P. S. SUBRAMANYAN, Income Tax OFFICER, COMPANIES CIRCLE 1(1), BOMBAY, AND ANOTHER Vs. SIMPLEX MILLS LTD., . It appears that a similar view was also taken by the Kerala High Court in the decision of the case of Moidu v. ITO [1965] 2 ITJ 336.

In that view of the matter, the notice u/s 148 cannot be sustained and must be held to be without jurisdiction.... (p. 305)

It appears that an appeal was preferred against the said judgment for the assessment year 1968-69 in ITO v. Shri Baijnath Saboo [Civil Appeal No. 171 of 1978]. By the judgment delivered on 19-7-1982, the Court of Appeal dismissed the appeal on the following terms:

In our opinion, the learned judge is perfectly right. The learned Judge has referred to a decision of the Supreme Court in P. S. SUBRAMANYAN, Income Tax OFFICER, COMPANIES CIRCLE 1(1), BOMBAY, AND ANOTHER Vs. SIMPLEX MILLS LTD., He has also relied on a decision of the Kerala High Court in Moidu v. ITO [1965] 2 ITJ 336. These two decisions, admittedly, support the view taken by the learned Judge. Moreover, in our opinion, we do not think that the income tax Officer had authority to declare the gift to be void on the interpretation of the deed of gift.

In the circumstances, we affirm the judgment of the learned Judge and dismiss this appeal.

Since the validity of the reopening of the assessment for the earlier year has been decided by the Division Bench in the said appeal preferred by the department, in our view, it must be held, in the absence of any new fact or material, that there was no escapement of income in this case.

For the reasons aforesaid, we answer the question in this reference in the negative and in favour of the assessee. There will be no order as to costs.

Banerjee, J.

I agree.