1985 (1) TMI 71 - AT - Income Tax

Summary

Issues Involved:
1. Addition of income from certain schools to the income of the assessee.
2. Validity of the revised return filed by the assessee.
3. Recognition and existence of the trusts managing the schools.
4. Jurisdiction of the Income Tax Officer (ITO) versus the Charity Commissioner's certificate.
5. Applicability of sections 11, 12, and 13 of the Income-tax Act, 1961.
6. Compliance with section 12A(a) of the Income-tax Act, 1961.
7. Execution and operation of the trust deeds.
8. Doctrine of lifting the veil.

Detailed Analysis:

1. Addition of Income from Certain Schools to the Income of the Assessee:
The primary issue revolves around whether the income from certain schools should be added to the income of the assessee. The Income Tax Officer (ITO) considered the income from the schools as belonging to the assessee, while the assessee claimed it belonged to certain trusts. The ITO's decision was based on various factors, including the assessee's contradictory conduct in filing returns and handling school funds as if they belonged to him.

2. Validity of the Revised Return Filed by the Assessee:
The assessee filed an original return showing income from the schools as his own and later filed a revised return denying any business of his own. The ITO did not regard the revised return as valid under section 139(5) of the Income-tax Act, 1961, as it was filed after search and seizure operations and during assessment proceedings.

3. Recognition and Existence of the Trusts Managing the Schools:
The assessee presented documents such as trust deeds, registration certificates, and recognition certificates from the municipal school board to establish the existence of the trusts. However, the ITO questioned the authenticity of the trusts based on several grounds, including the absence of books of account and the assessee's deposition that the trusts were not functioning.

4. Jurisdiction of the Income Tax Officer (ITO) versus the Charity Commissioner's Certificate:
The assessee argued that the Charity Commissioner's certificate regarding the trust was a judgment in rem, implying that the ITO could not question the existence of the trust. However, the Tribunal noted that the High Court's decision in Ishwarlal Nanalal was concerned with the jurisdiction of civil courts and not the ITO. The Tribunal held that the ITO has exclusive jurisdiction to decide the question of income, even if a trust is recognized by the Charity Commissioner.

5. Applicability of Sections 11, 12, and 13 of the Income-tax Act, 1961:
The learned departmental representative argued that even if the trust deed was valid, the applicability of sections 11, 12, and 13 of the Act remained. The Tribunal noted that the execution of the trust deed and the fulfilment of the requirements under section 6 of the Indian Trusts Act indicated the existence of the trusts, which could not be disregarded by the ITO.

6. Compliance with Section 12A(a) of the Income-tax Act, 1961:
The Appellate Assistant Commissioner (AAC) confirmed the ITO's order, stating that the assessee had not fulfilled the conditions prescribed in section 12A(a) because the original registration was not renewed. However, the Tribunal clarified that section 12A(a) requires only registration and not renewal, thus the AAC's view had no basis.

7. Execution and Operation of the Trust Deeds:
The Tribunal emphasized that the execution of the trust deeds and the fulfilment of the requirements under section 6 of the Indian Trusts Act led to the coming into existence of the trusts. The trusts would be extinguished only as provided under section 77 of the Indian Trusts Act, which was not the case here.

8. Doctrine of Lifting the Veil:
The ITO attempted to lift the veil to question the legal existence of the trusts. The Tribunal held that this doctrine has limited application and cannot be used to question the legal form of the trusts. The existence of the trusts could not be displaced by the assessee's conduct or any irregularities.

Conclusion:
The Tribunal concluded that the income of the trusts could not be regarded as the income of the assessee. The appeal was partly allowed, with the Tribunal holding that the ITO could consider the existence of the trust despite the Charity Commissioner's certificate, but ultimately recognizing the legal existence of the trusts based on the execution of the trust deeds and compliance with the Indian Trusts Act.