1979 (1) TMI 81 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act, 1961.
2. Whether donations received constituted income.
3. Requirement of spending income within the same year for exemption under Section 10(21).
4. Obligation to file returns under Section 139(1).

Issue-wise Detailed Analysis:

1. Validity of Notices Issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the validity of notices issued under Section 148 for the assessment years 1973-74, 1974-75, 1975-76, and 1976-77, on the grounds that income had escaped assessment. The petitioner argued that there was no escapement of income as all primary facts had been disclosed to the Income Tax Officer (ITO). The ITO had previously examined the returns and granted refunds for the tax deducted at source. The court found that the reasons recorded by the ITO for reopening the assessments were not tenable. The court held that allowing the proceedings to continue would unnecessarily prejudice the petitioner and would be futile and vexatious. Consequently, the notices under Section 148 were quashed, and the ITO was restrained from taking any further action based on these notices.

2. Whether Donations Received Constituted Income:
The petitioner contended that the donations received from M/s. Orissa Cement Ltd. did not constitute income. The court observed that the petitioner had received substantial donations, which were not immediately utilized for scientific research due to the need to build infrastructure and acquire apparatus. The court noted that the donations were allowed to accumulate and were carried forward for future utilization. It was held that the donations, even if considered income, were exempt under Section 10(21) as they were intended for scientific research and were not diverted for other purposes.

3. Requirement of Spending Income within the Same Year for Exemption under Section 10(21):
The petitioner argued that there was no requirement under Section 10(21) to spend the income within the same year for it to qualify for exemption. The court referred to letters from the Board of Direct Taxes, which stated that there was no such requirement. The court held that the assumption of the ITO that income had to be spent during the year for exemption was without basis. It was concluded that the income could be accumulated and carried forward for future use in scientific research.

4. Obligation to File Returns under Section 139(1):
The petitioner maintained that it had no obligation to file returns under Section 139(1) as its income was exempt under Section 10(21). The court found that the petitioner had disclosed all relevant information in the returns filed for the assessment years 1974-75 and 1975-76, and the ITO had accepted that the income was exempt from tax. For the other two years, where no returns were filed, the court held that the same legal position applied, and there was no liability to file returns. The court concluded that there was no suppression of facts by the petitioner, and the proceedings initiated under Section 148 were unwarranted.

Conclusion:
The court allowed the applications, quashed the notices under Section 148 for the assessment years in question, and restrained the ITO from taking further action based on these notices. The petitioner was awarded costs, with a consolidated hearing fee of Rs. 250.