1983 (2) TMI 71 - AT - Income Tax

Summary

Issues Involved:
1. Specificity of the purpose for accumulation under Section 11(2) of the Income-tax Act.
2. Issuance of notices under Sections 271(1)(a) and 274 of the Income-tax Act.
3. Allowability of foreign expenses for charitable purposes.
4. Allowance of depreciation on the assets of the trust.

Issue-wise Detailed Analysis:

1. Specificity of the Purpose for Accumulation under Section 11(2):

The primary issue in this case was whether the assessee's purpose for accumulating income, stated as "promotion of exports," met the specificity required under Section 11(2) of the Income-tax Act. The Income Tax Officer (ITO) and the Commissioner (Appeals) both held that the purpose was vague and not specific, thereby denying the benefit of accumulation. The Tribunal upheld this view, emphasizing that the purpose for accumulation must be clear and specific, detailing how the accumulated funds would be used for charitable purposes. The Tribunal noted that the assessee failed to provide a specific project or proposal justifying the accumulation, thus not meeting the requirements under Section 11(2).

2. Issuance of Notices under Sections 271(1)(a) and 274:

The assessee contended that the Commissioner should have held that there was no case for issuing notices under Sections 271(1)(a) and 274 of the Act. The Tribunal clarified that issuing a show-cause notice before levying a penalty is a procedural step to meet the requisites of natural justice. It does not give rise to any grievance, and the assessee can challenge the penalty if and when it is levied. Hence, the appeal on this point was dismissed.

3. Allowability of Foreign Expenses for Charitable Purposes:

The department contested the allowance of Rs. 9,71,597 incurred on establishment expenses, rent, travel, electricity, and stationery abroad, arguing that Section 11 excludes from exemption moneys spent on charitable purposes abroad. The Tribunal upheld the Commissioner's decision, stating that the object of the assessee-trust is the promotion of exports, which naturally involves activities abroad. The expenses incurred abroad were incidental to fulfilling the charitable object in India and should be deducted before computing the income of the assessee. Thus, the Commissioner's order on this point was upheld.

4. Allowance of Depreciation on the Assets of the Trust:

The ITO disallowed the depreciation on the assets of the trust, but the Commissioner allowed it, reasoning that the income of the trust should be computed in the commercial sense, which includes depreciation. The Tribunal upheld the Commissioner's order, citing previous decisions of the Tribunal that supported the allowance of depreciation on the assets of the trust. Consequently, the departmental appeal on this point was dismissed.

Conclusion:

The Tribunal dismissed the assessee's appeal regarding the specificity of the purpose for accumulation and the issuance of notices under Sections 271(1)(a) and 274. It also dismissed the department's appeal concerning the allowability of foreign expenses and the allowance of depreciation on the assets of the trust, thereby upholding the Commissioner's decisions on these points.