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Section 10(22) in The Income- Tax Act, 1995
The Income- Tax Act, 1995
Section 11 in The Income- Tax Act, 1995
Section 11(2) in The Income- Tax Act, 1995
The Societies Registration Act, 1860

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Income Tax Appellate Tribunal - Delhi
Commissioner Of Income-Tax vs Angoori Devi Sher Singh on 26 May, 1987
Equivalent citations: 1987 22 ITD 35 Delhi
Bench: K Srivastava, S Narayanan, S Mehra

ORDER

S. Narayanan, Accountant Member

1. The Commissioner of Income-tax, Delhi-VI, New Delhi requires the Tribunal to state a case and refer the following questions of law as arising out of the Tribunal's order dated 19-3-1986 :--

1. Whether, on the facts and in the circumstances of the case, the ITAT was justified in exempting the income of the assessee-society under Section 10(22) of the Act when no educational institution for educational purposes was in existence ?

2. Whether, on the facts and in the circumstances of the case, the ITAT was justified in restoring the matter back to the ITO to examine the allowability of accumulation under Section 11(2) of the Act when the Tribunal itself held the income of the assessee to be exempt under Section 10(22) ?

2. The first objection taken by the department before the Tribunal for this assessment year was as under :--

On facts and in the circumstances of the case as well as in law the AAC erred in directing the ITO to compute the income of the assessee-trust in accordance with order dated 20-11-79 of the ITAT for the asst. year 1971-72 in ITA No. 15 (Del.)/76-77; and to treat the income as exempt in spite of delay in filing the Audit Report under Section 12-A(b).

3. In spite of having taken such an objection the Department was not in a position to file a copy of the order of the Tribunal for the assessment year 1971-72. The assessee also was unable to do so. The records of the Tribunal were, therefore, looked into by the Registry. The appeal folder for the A.Y. 1971-72 was then located. The order for that year was seen to have been passed by the Tribunal on 30-11-1979 (and not on 20-11-1979 as stated in the department's ground of appeal supra) and the appeal was numbered as I.T.A. No. 15 (Del.)/76-77. This order disclosed the following position.

4. The assessee is a society registered under the Societies Registration Act, 1860 vide certificate issued on 9-6-1970. Assessment for the year 1971-72 was made on a total income of Rs. 79,600. The assessee apparently claimed before the Income-tax Officer for that year that it was an educational institution and hence its income was exempt under Section 10(22) of the Act. The Income-tax Officer did not accept this claim. He noted the following in this regard :

(i) There was no evidence to show that the assessee was a genuine educational institution.

(ii) There was no notice given for accumulation of the income of the assessee.

(iii) The income of the assessee was taxable under Section 12(2) of the Act.

5. The assessee appealed against the assessment. The Appellate Assistant Commissioner held that the sum of Rs. 79,600 which the assessee had received was shown to be towards the corpus of its funds, the funds having been received from Shri Bhagwan Charitable Trust. In that view he held that no income was taxable. The Department then filed an appeal.

6. Before the Tribunal it was once again stressed for the assessee that even the Income-tax Officer had accepted the fact that the amount received by the assessee trust was towards the corpus of its funds. The Tribunal dismissed the Revenue's appeal. It confirmed the findings of the Appellate Assistant Commissioner.

7. In the light of the above position taken note of from the order of the Tribunal for the A.Y. 1971-72, the objection raised for the Department this year (1976-77) was considered by the Tribunal. First of all it looked at the reasoning and findings recorded by the Appellate Asstt. Commissioner for the A.Y. 1971-72. This was because the Tribunal in its order of 30-11-1979 supra was pleased to observe that the Appellate Asstt. Commissioner "had given a very logical and detailed reasoning on the subject matter". The Appellate Asstt. Commissioner's order for the A.Y. 1971-72 is dated 8-1-1976. The following is recorded in his order:--

(i) The assessee-society was founded on 9-6-1970 with the sole object of establishing, developing and maintaining an educational institution in the name of Angoori Devi Sher Singh Girls College, to manage, supervise and administer its affairs. For this purpose (towards establishment of a college and purchase of land and construction of building thereon) another charitable trust viz. Shri Bhagwan Charitable Trust gave a donation to the assessee towards its corpus. This donation was for a sum of Rs. 3,20,000.

(ii) The actual process of establishing the Girls College was got underway. There were negotiations going on with the University of Delhi and the University Grants Commission and hence, the donation of Rs. 3,20,000 had not been spent up to the relevant accounting year, i.e., up to 31-3-1971.

(iii) The accounts of the assessee were audited for the period ending on 31-3-1973. On 18-8-1973 the assessee gave to the Income-tax Officer a notice under Section 11(2) for accumulation of its income for six years. The Income-tax Officer, however, while completing the assessment for the year 1971-72 rejected the assessee's claim to be an educational institution and taxed the sum of Rs. 79,600, as noticed above. See para 4 above. Details of the donations received were as under:--0 Rs.

(a) Cash 1,000

(b) Cheque dated 9-3-1971 2,93,000

(c) Amount received from Shri Bhagwan

Charitable Trust on 31-3-1971 26,000

3,20,000

The sum of Rs. 26,000 was received after 31-3-1971. Till 31-3-1971 what was received was only Rs.2,94,000, i.e., this was entirely from Shri Bhagwan Charitable Trust. The total receipt consisted of (i) Rs. 2,40,000 and (ii) Rs. 79,600.

(iv) The Income-tax Officer had taxed the amount of Rs. 79,600 on the basis of a reference about the assessee in the assessment order of Shri Bhagwan Charitable Trust for the assessment year 1971-72. The Income-tax Officer assessing Shri Bhagwan Charitable Trust had observed that the assessee-society here could not be accepted as an educational society and that it had been formed with the specific and limited purpose of receiving donations from Shri Bhagwan Charitable Trust.

(v) The genesis of the assessee-society was in a resolution dated 30-3-1963 passed by the trustees of Shri Bhagwan Charitable Trust. This was to the effect that out of the income of that trust for the previous year relevant to the assessment year 1964-65 and for six subsequent years 75% of the gross income should be accumulated or set apart to enable Shri Bhagwan Charitable Trust to establish an educational institution. On 23-8-1968 trustees of Shri Bhagwan Charitable Trust passed another resolution for establishing an aided girls college in the name of Angoori Devi Sher Singh Girls College out of donations which were being accumulated under the resolution of 30-3-1963. After a considerable correspondence with the Delhi University and U.G.C. Shri Bhagwan Charitable Trust got the approval of the University to start a college from the academic year 1970-71. On receipt of such approval the assessee-society was formed on 9-6-1970. In compliance with the conditions laid down by the Delhi University for endowment of a sum of Rs. 3,20,000 and a farther sum of Rs. 2,00,000 for the college building Shri Bhagwan Charitable Trust transferred to the assessee Rs. 3,20,000 as noted above. This included Rs. 79,600 out of the income of Shri Bhagwan Charitable Trust for the year ending 31-3-1971 plus Rs. 2,40,000 being the amount accumulated up to the year ending 31-3-1970 by Shri Bhagwan Charitable Trust under Section 11(2) of the Act. According to the Income-tax Officer, assessing Shri Bhagwan Charitable Trust, since the proposed college had not come into existence on 31-3-1971 the assessee-society was not an educational institution ; but this finding was considered erroneous by the Appellate Assistant Commissioner, Special Range-IV as seen from his order dated 26-3-1973.

(vi) In the order dated 26-3-1973 passed on the appeal filed by Shri Bhagwan Charitable Trust the Appellate Assistant Commissioner, Range-IV had observed as under :-- Even if the new society had not been established, Shri Bhagwan Charitable Trust had necessarily to constitute a governing body for the new college and transfer funds thereto as laid down by the University. The fact that the new society was not able to spend its income received by way of donations, for reasons beyond its control, will not make it a case of circumvention of Section 11(2) by Shri Bhagwan Charitable Trust.

(vii) The above factual position showed clearly that the assessee-society was an educational institution. It only received voluntary contributions from another charitable trust. Such donations formed a part of its corpus. The Income-tax Officer wrongly treated the receipt of Rs. 79,600 as a voluntary donation received which was not applied for charitable purposes. Any contribution with the specific direction that it shall form a part of the corpus of the donee-trust cannot be deemed to be income derived from property held under trust. Under the circumstances, the Income-tax Officer was not justified in bringing to tax Rs. 79,600. The Tribunal as already noted, confirmed the above findings of the Appellate Assistant Commissioner for the A.Y. 1971-72.

8. Coming to the A.Y. 1976-77 the Tribunal noted that the Income-tax Officer had not given any reason except to remark that the Department did not accept the order of the Appellate Asstt. Commissioner for the A.Y. 1971-72 and had filed an appeal before the Tribunal. (That appeal was dismissed by the Tribunal as already noted.)

9. The second aspect mentioned by the Income-tax Officer for this A.Y. (1976-77) was with regard to registration under Section 12A. He noted that registration was granted under the Commissioner of Income-tax's order dated 23-9-1979 and that exemption under Section 80G was also granted for the period 1-4-1979 to 31-3-1980 under the Commissioner of Income-tax's order dated 23-9-1979; that however, the audit report under Section 12A(b) was filed by the assessee only on 23-3-1979 and not along with the return of income which had been filed on 4-9-1978. The Income-tax Officer therefore held that the assessee was not entitled to the benefits of Section 11 of the Income-tax Act, 1961.

10. The third aspect mentioned by the Income-tax Officer was that the assessee-society though ostensibly established in 1970 had not utilised its income for any charitable purpose for 9 years. He rejected the assessee's case that the proposed college could not be started due to shortage of funds and the society was seeking to start a smaller educational institution. The Income-tax Officer, therefore, held that till such time as the educational institution was actually started, exemption was not available to the assessee under Section 10(22) of the Act. In this view, he brought to tax the interest income of Rs. 45,110 shown by the assessee in its income and expenditure account.

11. The assessee contested this assessment in appeal. It is not clear what were the grounds of appeal raised before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner's order is very brief and is not very helpful. All that it says is as under :-- The present appeal is directed against the order of the ITO in holding that the appellant trust was not entitled to be covered under Section 10(22) of the Income-tax Act. He had based his finding on the strength of order passed by him for the assessment year 1971-72. The Authorised Representative of the appellant has however drawn my attention to the fact that the Income Tax Appellate Tribunal Jabalpur Bench Camp--Delhi vide their order contained in ITA No. 15/Del/76-77 assessment year 1971-72 dated 30th November '79 have accepted the contention of the appellant. Even in the assessment order 72-73 the AAC A Range vide order No. 1565/79-80 dated 7-2-80 has followed the decision of the ITAT. In view of the above, the ITO is directed to compute the. income of the trust in accordance with the decisions referred to above. He is further directed to allow accumulation of income to the extent of Rs. 43,793 under Section 11(2) of the Act.

The Revenue contested the above order in appeal raising the objection reproduced in para 2 supra.

12. The Tribunal found no substance in the above objection for the revenue. It recorded the following findings in this regard :--

(i) The Tribunal had confirmed on 30-11-1979 the findings recorded by the Appellate Asstt. Commissioner for the assessment year 1971-72. By its order for 1971-72 it specifically rejected the revenue's objection to the effect that the assessee was not an educational institution whose income was derived from property held under trust in terms of Section 11. Hence following the said order of 30-11-1979, the first part of the objection taken for the revenue had to be rejected.

(ii) As regards the audit report being filed on 23-3-1979, that could not be a ground for denying the assessee the benefit of Section 11. This was because of the interpretation of the term 'along with' occurring in Section 12A(b). That term was of a directory and not a mandatory nature. Since the report had been filed before the completion of assessment under Section 143(3), the benefit of exemption under Section 11 could not be denied.

13. The Tribunal then took up for consideration the second ground of objection taken by the revenue before it. This objection was as under:-- On the facts and in circumstances of the case, the AAC erred in directing to allow accumulation of Rs. 43,307 under Section 11(2) without verifying as to whether the prescribed conditions for accumulation are fulfilled in this case.

On this ground the Tribunal observed as under:--

We have considered the position. We find that the Appellate Assistant Commissioner has given a direction in this matter without any reference to the Income-tax Officer. No doubt, the powers of the Appellate Assistant Commissioner are wide but when he touches upon an aspect that was not considered by the Income-tax Officer at all, and especially when it requires a factual inquiry as well, he ought to have given an opportunity to the Income-tax Officer of being heard. This not having been done, we find it necessary to restore this aspect and only this limited aspect to the file of the Income-tax Officer for disposal afresh after hearing the assessee in the matter.

14. On the above facts and circumstances and after hearing the parties before us, we do not see that question No. 1 raised by the Commissioner arises for reference. This is because the issue sought to be raised by the Commissioner's question does not arise out of the order of the Tribunal. Though the Tribunal has used the expression "educational institution" in para 6 of its order of 19-3-1986, its finding was that the assessee was entitled to exemption under Section 11. Hence this question is not referred.

15. Question No. 2 of the Commissioner is based on a misconception. As we have noted above the Tribunal did not hold that the income of the assessee was exempt under Section 10(22). As regards restoration of the enquiry to the Income-tax Officer recorded in paragraph 14 of the Tribunal's order of 19-3-1986, that was in the exercise of the discretionary power of the Tribunal. Such exercise is not seen to be arbitrary or capricious and hence no question of law can arise in the matter. We, therefore, do not refer question No. 2 also.

16. The reference application is rejected.

S.S. Mehra, Judicial Member

1. I have the privilege of going through the order prepared by Dr. S. Narayanan, the learned Accountant Member rejecting the reference application. I, however, regret my inability to be able to disagree with the conclusion arrived at. The facts by and large appear to have fully been incorporated in the draft order of the learned Accountant Member. Nonetheless for the sake of continuity and clarification brief facts are being stated.

2. In ITA No. 2059 (Del.) 84 for the asst. year 1976-77 the revenue took the following two grounds before the Tribunal :--

1. On facts and in circumstances of the case as well as in law the AAC erred in directing the ITO to compute the income of the assessee-trust in accordance with order dated 20-11-79 of the ITAT for the asst. year 1971-72 in ITAT No. 15 (Del.) 76-77 and to treat the income as exempt in spite of delay in filing the audit report under Section 12A(b).

2. On the facts and in circumstances of the case, the AAC erred in directing to allow accumulation of Rs. 43,307 under Section 11(2) without verifying as to whether the prescribed conditions for accumulation are fulfilled in this case.

3. The said appeal was allowed for statistical purposes vide order dated 19-3-1986 of 'B' Bench of the ITAT, New Delhi and in fact issue No. 2 pertaining to accumulation of Rs. 43,307 under Section 11(2) of the Income-tax Act, 1961 was restored to the lower authorities for examining the allowability.

4. The revenue thereafter raised the following two questions for being referred to the Hon'ble Delhi High Court for their esteemed opinion:--

1. Whether on the facts and in the circumstances of the case the ITAT was justified in exempting the income of the assessee-society under Section 10(22) of the Act when no educational institution for educational purposes was in existence ?

2. Whether on the facts and in the circumstances of the case the ITAT was justified in restoring the matter back to the ITO to examine the allowability of accumulation under Section 11(2) of the Act when the Tribunal itself held the income of the assessee to be exempt under Section 10(22) ?

5. The assessee appears to have put up a claim for exemption under Section 10(22) of the Act. The learned ITO after detailed discussions denied exemption with the following observation :-- To establish, develop and maintain the educational institution called by Anguri Devi Sher Singh Girls College and to manage, supervisor and administrator its affairs.

6. The said finding was subsequently contested by the assessee and the learned AAC allowed relief in the matter noticing the Tribunal's order for the asst. year 1971-72 and the first appellate order for the asst. year 1972-73.

7. On appeal by the revenue what the Bench did has been mentioned earlier. Vide order dated 19-3-1986 the Bench examined each aspect of the matter and came to the conclusion that the assessee was entitled to exemption under Section 10(22) of the Act and also observed that the issue pertaining accumulation required examination. From the above facts, I am of the view, that the following question of law does definitely arise for making reference:-- Whether, on the facts and in the circumstances of the case, the ITAT was justified in exempting income of the assessee under Section 10(22) of the Act ?

8. I am, therefore, of the view that the above question of law is referable one and does arise from the Tribunal's order. The said question should, therefore, be referred for the esteemed opinion of the Hon'ble Delhi High Court.

Order under Section 255(4) of the Income-tax Act, 1961 - We have been able to differ with respect to the above reference application. The matter is, therefore, to be placed before the President for proceeding under Section 255(4) of the Act. The difference of opinion is as under:-- Whether, on the facts and in the circumstances of the case, the question formulated by the Judicial Member emanates from the Tribunal's order and warrants reference thereof ?

ORDER

K.C, Srivastava, Accountant Member

1. The above reference application had come up before the Members constituting the "B" Bench of Delhi Benches. But while hearing the reference application there was a difference of opinion between the two Members. Whereas the learned Accountant Member was inclined to reject the Commissioner's reference application, the learned Judicial Member was inclined to refer the following question as a question of law to the Hon'ble High Court :-- Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in exempting income of the assessee under Section 10(22) of the Income-tax Act, 1961 ?

2. On this difference of opinion the following point of difference had been referred to me by the President, Income-tax Appellate Tribunal under Section 255(4) of the Income-tax Act, 1961 :-- Whether, on the facts and in the circumstances of the case, the question formulated by the Judicial Member emanates from the Tribunal's order and warrants reference thereof ?

3. I have heard the Departmental Representative and the learned counsel for the assessee. I entirely agree with the learned Accountant Member and am further of the view that the question as formulated by the Judicial Member does not. arise from the order of the Tribunal and, therefore, does not warrant any reference. The reason for the above view is not far to seek.

4. The Tribunal had considered the question of exemption of the income of the assessee as an educational institution as well as the question of its income being not chargeable to tax under the provisions of Section 11 of the Income-tax Act. As the matter had come up for consideration before the Tribunal in earlier years as well, the Tribunal considered the earlier orders specially for the assessment year 1971-72 and held that the income of the institution derived from property held under trust in terms of Section 11 and the same finding was given in this year. The Tribunal further considered the question of application of the income of the trust and restored the matter to the Income-tax Officer for ascertaining afresh the question of the extent of exemption of income under Section 11. The Tribunal has not held that the assessee was an institution exempt under Section 10(22) of the Income-tax Act. In view of this, the observation of the learned Judicial Member that the Tribunal came to the conclusion that the assessee was entitled to exemption under Section 10(22) is not borne out by the records. In case the Tribunal had held that the assessee was entitled to exemption under Section 10(22) there could have been no question of directing the Income-tax Officer to ascertain the extent of the chargeable income under Section 11(2) of the Income-tax Act. The question as suggested by the Judicial Member, therefore, does not arise out of the aforesaid order of the Tribunal. In view of this that question cannot be referred for the opinion of the Hon'ble High Court.

5. Now this matter would go back to the Bench to pass the order on the reference application.