2003 (3) TMI 49 - HC - Income Tax

Assessee-is a society registered under section 12A - 1. Whether, on the facts and in the circumstances of the case, section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(d) of the Act are attracted So as to deny to the assessee the operation of and benefit under the provisions of section 11 of the Act? - 2. Whether the finding of the Income-tax Appellate Tribunal that the assessee was attracted by the provisions of section 13 of the Act is perverse and not based upon any evidence? - 3. Whether the conclusions drawn holding that the assessee has violated the above provisions of the Act are perverse when the notice was issued under section 13(3)(d) of the Act? and 4. Whether the Assessing Officer was not unreasonable in bringing the entire amount of donations received by the assessee to tax? - the appeal fails

Summary

Issues Involved:
1. Applicability of section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(d) of the Income Tax Act, 1961.
2. Perverse finding of the Income Tax Appellate Tribunal.
3. Validity of conclusions regarding violations of the Act.
4. Reasonableness of the Assessing Officer in taxing the entire amount of donations.

Detailed Analysis:

1. Applicability of Section 13(1)(c)(ii) read with Sections 13(2)(b) and 13(3)(d) of the Act:
The primary issue was whether the provisions of section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(d) of the Act were applicable to deny the assessee the benefit under section 11 of the Act. The Assessing Officer concluded that the assessee violated these provisions by misutilizing the trust funds. Specifically, the chairman of the society obtained a loan of Rs. 12 lakhs against the society's FDRs and routed the funds to a member without adequate security. Additionally, funds were used for personal gain in land transactions. The court held that the jurisdictional facts supported the application of the correct provisions, section 13(1)(c)(ii) read with sections 13(2)(b) and 13(3)(cc) of the Act, despite a typographical error in the assessment order.

2. Perverse Finding of the Income Tax Appellate Tribunal:
The appellant argued that the Tribunal's finding was perverse and not based on evidence. However, the court noted that the Tribunal and other authorities had thoroughly examined the facts and evidence, including statements from involved parties and documentary evidence. The court found no perversity in the Tribunal's findings and upheld the conclusion that the funds were misutilized.

3. Validity of Conclusions Regarding Violations of the Act:
The appellant contended that the conclusions drawn by the authorities were perverse, particularly since the notice was issued under section 13(3)(d). The court, however, found that the factual findings supported the application of section 13(3)(cc) instead. The court emphasized that the misutilization of funds was evident from the transactions, and the authorities correctly applied the relevant provisions of the Act.

4. Reasonableness of the Assessing Officer in Taxing the Entire Amount of Donations:
The appellant argued that only the misutilized amount should be taxed, not the entire donations received. The court rejected this argument, stating that the provisions of section 11 read with section 13 of the Act do not apply to cases of unfair dealing with trust funds. The court held that the entire amount of donations could be brought to tax due to the misutilization of funds.

Conclusion:
The court dismissed the appeal, finding no substantial questions of law. The authorities' findings were based on thorough examination and evidence, and the application of the relevant provisions of the Act was justified. The court upheld the decision to tax the entire amount of donations received by the trust for the assessment year 1993-94 due to the misutilization of funds.