1983 (11) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Whether the mortgage obtained by the petitioner to secure the loan of Rs. 75,000 is a mortgage of immovable property or movable property.
2. Whether the refusal to grant approval as and from August 28, 1970, by the respondents was reasonable.
3. Whether the petitioner complied with all the requirements of Rule 3 of Part C of the 4th Schedule to the I.T. Act.
4. Whether Rule 101 of the I.T. Rules had any statutory or legal force prior to April 1, 1971.
5. The effect of the violation of Rule 101 on the approval of the gratuity fund.
6. Whether the fresh deed of trust dated January 2, 1975, infringes Rule 101.

Detailed Analysis:

1. Mortgage of Immovable Property or Movable Property:
The core issue was whether the mortgage obtained by the petitioner to secure the loan of Rs. 75,000 was of immovable property or movable property. The court examined precedents and definitions from various statutes. It was determined that the printing machineries embedded in the earth at Swadesamitran Press constituted immovable property. The court referenced several cases, including Mohammed Ibrahim v. Northern Circars Fibre Trading Co., which established that machinery fixed to a cement platform and attached to iron pillars embedded in the ground is considered immovable property. Similarly, J. Kuppanna Chetty, A. Ramayya Chetty and Co. v. Collector of Anantapur and Perumal Naicker v. Ramaswami Kone reinforced that machinery embedded for the beneficial enjoyment of the property is immovable property. The court concluded that the mortgage in question was indeed of immovable property, thus not violating Rule 101 of the I.T. Rules.

2. Reasonableness of Refusal to Grant Approval from August 28, 1970:
The petitioner argued that the refusal to grant approval from August 28, 1970, imposed a financial liability of Rs. 15 lakhs, indicating an unreasonable exercise of power. The court acknowledged that the power to grant approval under Rule 2 of Part C of the 4th Schedule to the I.T. Act is coupled with a duty to exercise it reasonably. Since the mortgage was determined to be of immovable property, the refusal based on the alleged violation of Rule 101 was unfounded, making the refusal unreasonable.

3. Compliance with Requirements of Rule 3:
The petitioner contended that they had complied with all the requirements of Rule 3 and that approval should have been granted without reference to Rule 101. The court did not find any non-compliance with Rule 3 and noted that the refusal was primarily based on an incorrect interpretation of the mortgage's nature.

4. Statutory or Legal Force of Rule 101 Prior to April 1, 1971:
The petitioner argued that Rule 101 did not have statutory or legal force before April 1, 1971, when Section 9(1)(bb) was inserted in Part C of the 4th Schedule to the I.T. Act by the T.L. (Amend.) Act, 1970. The court did not delve into this issue in detail, as it had already determined that the mortgage was of immovable property, thus not violating Rule 101.

5. Effect of Violation of Rule 101:
The petitioner argued that neither the I.T. Act nor the I.T. Rules specified the effect of violating Rule 101, which references Section 20(3) of the Trusts Act. The court noted that a violation of Section 20 would constitute a breach of trust, making the trustee liable to make good any loss. However, since the mortgage was of immovable property, there was no violation of Rule 101, rendering this issue moot.

6. Fresh Deed of Trust Dated January 2, 1975:
The petitioner claimed that the fresh deed of trust dated January 2, 1975, provided that the gratuity scheme came into force from December 1, 1970, and thus did not infringe Rule 101. The court did not find any infringement of Rule 101, as the mortgage was of immovable property, and therefore, the fresh deed of trust was valid.

Conclusion:
The court allowed the writ petition, holding that the mortgage was of immovable property and thus did not violate Rule 101. Consequently, the refusal to grant approval from August 28, 1970, was unreasonable. A mandamus was issued directing the respondents to accord approval for the gratuity fund in accordance with the application dated October 27, 1975. There was no order as to costs.