Sree Narayana Chandrika Trust vs Commissioner of Income Tax

V.V. Kamat, J.—At the instance of the assessee, the following three questions expect our answer :

Was the Tribunal justified in holding that ss. 13(2)(h) and 13(3) of the Act are applicable to the instant case ? Is not the decision of this Hon''ble Tribunal in ITA No. 2(Coch)/1980 in the case of Sree Narayana Chandrika Trust, Irinjalakuda, in favour of the assessee ? Is not the reasoning of the Tribunal to hold so illegal and unjustified ?

Was the Tribunal justified in holding that the assessee appellant is not entitled to the exemption under s. 11 of the IT Act, 1961, in the instant case ?

Was the Tribunal right in holding that in the case of assessee a partner in the firm there is investment of funds by the assessee in a concern within the meaning of s. 13(2)(h) and s. 13(3) of the IT Act, 1961 ?

In fact, the main question is whether reopening under s. 147(a) of the IT Act is justified on the facts and circumstances of the case ?

The assessee - Sree Narayana Chandrika Trust, Irinjalakuda - got constituted as a charitable trust in pursuance of the trust deed dt. 15th March, 1972. The assessment year is 1973-74. The original assessment in regard thereto had been completed under s. 143(3) and therein, certain amount of income was excluded from the total income, in view of the application under s. 11(2) of the IT Act, 1961.

It was thereafter found out that the exemption granted by resorting to ss. 11 and 12 of the IT Act, 1961 was not proper as there was violation of the provisions of ss. 13(1)(c)(ii) and 13(2)(h) r/w s. 13(3) of the IT Act, 1961.

Recording such a conclusion as a ground for belief, the ITO found escapement of assessment. This was on account of the omission or failure on the part of the assessee in not disclosing certain primary facts. The assessment was reopened.

The ITO recorded the conclusion that this is a case where exemption granted under ss. 11 and 12 of the Act has to be withdrawn. He also found that the provisions of ss. 13(1)(c)(ii) and 13(2)(h) had been violated.

This view was confirmed in appeal by the AAC and also thereafter by the Tribunal.

On facts, the Tribunal has taken into consideration the close relationship of the partners of the firm of the managing trustees. The Tribunal has also further found that this closeness of relationship should have been disclosed at the inception itself during the original assessment proceedings. There was, therefore, justification to resort to s. 147(a) of the Act.

It was contended on behalf of the assessee that this was within the knowledge of the ITO during the original assessment proceeding itself. Factually, the assessee-trust had contributed Rs. 5,000 towards the capital of the firm, M/s. Beena Enterprises. The said firm had a total investment of Rs. 30,000. Therefore, the contribution was more than 16 per cent of the total investment.

The Tribunal further found that along with the return from the document (Annexure H thereto) the assessee had stated with reference thereto that list will be furnished. Such a list was not submitted. The Tribunal found that if only a list had been furnished, the ITO would have come to know about the relationship of the partners to the managing trustee and that would have given him an occasion to know whether any of the provisions of s. 13 were infringed. The Tribunal has also particularised the contents of Annexure H, which are as follows :

Name (s) of relative(s), author(s), founder(s), trustee(s), manager(s) and substantial contributor(s) and where any such author, founder, trustee, manager or substantial contributor is an HUF, also the names of the members of the family and their relatives.

It is on the basis of the above factual situation, the Tribunal recorded that the assessee had no justification to withhold the information viz. the relationship of the partners to the managing trustee. It is in this situation, the Tribunal justified resort to s. 147(a) of the IT Act, 1961. Before the Tribunal, the assessee had contended that in the matter of the sister-trust in the name and style Chandrika Educational Trust at Irinjalakuda with regard to the contribution of Rs. 100 in a firm for less than 5 per cent of the total capital, a letter dt. 4th Nov., 1970 was addressed to the CIT seeking his opinion, whether the said contribution of share capital would amount to 1investment and also in reply thereto dt. 22nd Dec., 1970 of the CIT that it would not be so. The Tribunal, in this context, emphasised the factual peculiarity that the contribution towards the Chandrika Educational Trust (Rs. 100) was for below 5 per cent of the total capital contribution. The contribution of Rs. 5,000 by the assessee-trust in the firm of M/s. Beena Enterprises exceeded the required five per cent as the said contribution was more than 16 per cent.

Thus, on the factual matrix, the reasoning of the Tribunal will have to be justified under the above situation.

Apart therefrom, in ITR Nos. 31 of 1990 and 145 of 1994 12. The provisions of s. 11(1A) of the Act as also of s. 13(1)(c)(ii) together with ss. 13(2) and 13(3) of the Act have been considered. Pinpointedly, s. 13(2)(h) is brought into focus with reference to the situation that if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year in any concern in which any person referred to in sub-s. (3) has a substantial interest. This provision is considered with reference to the question of grant of benefit under s. 11 of the Act to rule that it will not be available in the context to the relationship brought on record.

In our judgment, the legal position that is discussed by this Court in IT Ref. Nos. 31 of 1990 and 145 of 1994, [Chandrika Trusts case (supra)] which is also identical in character in subsequent assessment years such as 1974-75, 1975-76 and 1976-77 in the matter of M/s. Chandrika Educational Trust is not at all different. It is to be emphasised that M/s. Sree Narayana Chandrika Trust, Irinjalakuda is also of a cognate nature with M/s. Chandrika Educational Trust. In fact, it is seen from the judgment referred to above that the Tribunal had considered the position of law even with reference to the present assessee-trust with regard to the same situation. In our judgment, apart from the factual position discussed hereinbefore, the question is also covered by the above decision of this Court.

For all the above reasons, all the three above questions are answered in the affirmative in favour to the Revenue and against the assessee.