1985 (1) TMI 72 - AT - Income Tax

Summary

Issues Involved:
1. Addition of income of certain schools to the income of the assessee.
2. Validity of the revised return filed by the assessee.
3. Reality and existence of the trusts.
4. Jurisdiction of the Income Tax Officer (ITO) versus the Charity Commissioner.
5. Applicability of sections 11, 12, and 13 of the Income Tax Act.

Detailed Analysis:

1. Addition of Income of Certain Schools to the Income of the Assessee:
The primary issue was whether the income of certain schools should be added to the income of the assessee. The assessee claimed that the income belonged to certain trusts, namely "Haeems Education Trust" and "Nelson Education Trust." The ITO, however, regarded the income as belonging to the assessee. The ITO's conclusion was based on the assessee's contradictory conduct in filing returns, the manner of dealing with school funds, and a deposition stating that the trusts were not functioning. The ITO aimed to "pierce the veil of unreality" to show that the trusts were not real.

2. Validity of the Revised Return Filed by the Assessee:
The assessee had filed two returns: an original return disclosing income from the business of running schools and a revised return denying any business of his own. The revised return was filed after a search and seizure operation. The ITO did not regard the revised return as valid under section 139(5) and proceeded with the assessment based on the original return and the contentions raised.

3. Reality and Existence of the Trusts:
The assessee argued that the trusts were real, supported by documents such as the trust deeds, registration certificates, and recognition certificates from the Ahmedabad Municipal Corporation School Board. The ITO, however, questioned the reality of the trusts based on several grounds, including the lack of books of accounts, contradictory returns, and the assessee's deposition that the trusts were not functioning.

4. Jurisdiction of the Income Tax Officer (ITO) versus the Charity Commissioner:
The assessee's counsel argued that the Charity Commissioner's certificate regarding the trust was a judgment in rem, implying that the ITO could not go behind it. The Tribunal, however, held that the ITO has exclusive jurisdiction for the purpose of assessment to decide the question of income, even if the trust deed was valid. The Tribunal cited the Gujarat High Court's decisions in CIT vs. Thobhandas Jivanlal Gajjar and Keshavlal Punjaram & Ors. vs. CIT, which established that the ITO has the authority to determine whether the receipts are "income" and taxable.

5. Applicability of Sections 11, 12, and 13 of the Income Tax Act:
The ld. Departmental Representative argued that even if the trust deed was valid, the applicability of sections 11, 12, and 13 remained. The AAC had stated that the assessee had not fulfilled the conditions prescribed in section 12A because the original registration was not renewed. However, the Tribunal held that section 12A only requires registration, not renewal. The AAC's view that the income could be regarded as the income of the assessee due to the lack of proof of spending for charitable purposes was also rejected.

Conclusion:
The Tribunal concluded that the trusts existed as per the execution of the trust deed and the fulfilment of section 6 of the Indian Trust Act, 1882. The ITO's attempt to lift the veil and question the legal existence of the trusts was not upheld. 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 income of the trust cannot be regarded as the income of the assessee.