1990 (11) TMI 184 - AT - Income Tax

Summary

Issues Involved:
1. Definition and scope of "record" under Section 263.
2. Validity of the notice issued under Section 263.
3. Nature of receipts (donations/contributions) as income.

Detailed Analysis:

1. Definition and Scope of "Record" under Section 263:

Section 263 of the Income-tax Act, 1961, empowers the Commissioner to revise an order passed by the Assessing Officer (AO) if it is erroneous and prejudicial to the interests of the revenue. The term "record" was not defined until its insertion by the Finance Act, 1988, with effect from 1-6-1988. The definition was further modified by the Finance Act, 1989, to include all records relating to any proceedings under the Act available at the time of examination by the Commissioner.

Prior to this definition, judicial decisions, such as those by the Bombay High Court in Bennett Coleman & Co. Ltd. v. ITO and the Calcutta High Court in Ganga Properties v. ITO, held that "record" referred to the materials available at the time the AO made the order, not subsequent materials. The Tribunal in Sri Vegi Bhadrachalam v. WTO also supported this view. In the present case, the statement of the managing trustee, Mr. Bhandari, recorded after the AO's order, could not form part of the "record" for the Commissioner's revision under Section 263. The Tribunal concluded that the Commissioner could not have based his revisionary order on Mr. Bhandari's subsequent statement.

2. Validity of the Notice Issued under Section 263:

The Commissioner issued a notice under Section 263 to withdraw the exemption allowed under Section 11, which was not applicable as the assessee claimed exemption under Section 10(21). The Commissioner later acknowledged this as a typographical error, asserting that the intention was to withdraw the exemption under Section 10. The Tribunal found that the notice's substance was understood by the assessee, and the procedural irregularity did not invalidate the proceedings. However, since the primary issue of the "record" was decided in favor of the assessee, the Tribunal did not delve further into the validity of the notice.

3. Nature of Receipts (Donations/Contributions) as Income:

The Commissioner argued that the AO did not consider the taxability of the surplus amount of Rs. 15,97,827 under Section 10(21). The Orissa High Court in Dalmia Institute of Scientific & Industrial Research v. ITO held that there is no requirement under Section 10(21) for the income to be spent in the relevant year itself. At the time of assessment, there was no evidence suggesting that the surplus was used for purposes other than research activities. The Tribunal found no material before the Commissioner to conclude that the AO's order was erroneous and prejudicial to the interests of the revenue. Therefore, the Tribunal vacated the Commissioner's order and restored the AO's order.

Conclusion:

The Tribunal allowed the appeal, ruling that the Commissioner could not consider materials that came into existence after the AO's order for the purpose of revision under Section 263. The notice's procedural irregularity did not invalidate the proceedings, but the primary issue regarding the "record" was decisive. The receipts (donations/contributions) were not deemed taxable as there was no evidence of their misuse. The AO's order was restored.