1988 (7) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 13(1)(bb) of the Income Tax Act, 1961.
2. Timeliness and validity of filing Form No. 10 under Section 11(2) of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of Section 13(1)(bb) of the Income Tax Act, 1961:
The primary issue was whether the trust was entitled to exemption under Section 11 of the Act, considering the provisions of Section 13(1)(bb). The Income Tax Officer (ITO) argued that the trust was not entitled to the exemption because it was carrying on business not in the course of actually carrying out a primary purpose of the trust. The trust's object clause included "advancement of general public utility," which the ITO contended did not exempt it from Section 13(1)(bb).

The assessee argued that Section 13(1)(bb) applies only to trusts for the relief of the poor, education, or medical relief, and does not cover trusts with objects of general public utility. They contended that the trust was not carrying on business itself but was merely receiving a share of income from partnerships. The Commissioner (Appeals) accepted this argument, stating that the trust was not actively engaged in business activities but was deriving income from investments.

However, the Tribunal found that the trust's activities, including earning interest income and partnership shares, constituted carrying on business. The Tribunal ruled that the trust's case was clearly hit by Section 13(1)(bb) because the income was accumulated for constructing a hospital, which falls under "medical relief" as per Section 2(15). The Tribunal held that the distinction between the trust and the firm was an argument of convenience and that the trust was indeed carrying on business through its partnerships.

2. Timeliness and Validity of Filing Form No. 10 under Section 11(2):
The second issue was whether the trust complied with the procedural requirements of filing Form No. 10 for accumulation of income. The ITO rejected the forms as they were filed beyond the prescribed time. The Commissioner (Appeals) condoned the delay, considering it a technical and procedural lapse, and allowed the benefit of Section 11(2).

The Tribunal, however, found that the delay in filing Form No. 10 could not be brushed aside as merely technical. The Tribunal referred to Circular No. 273, which provided guidelines for condonation of delay, and noted that the assessee had not made an application for condonation before the concerned authority. The Tribunal suggested that the assessee could approach the concerned authorities for redressal of this grievance but did not condone the delay itself.

Conclusion:
The Tribunal reversed the Commissioner (Appeals)'s decision, holding that the trust was not entitled to exemption under Section 11 due to the applicability of Section 13(1)(bb). It also ruled that the delay in filing Form No. 10 was not condonable by the Commissioner (Appeals) and suggested that the assessee seek redressal from the appropriate authorities. All appeals by the revenue were allowed.