9911796707
|
Home
Issues Involved:
1. Whether the refund of tax of Rs. 4,20,321 could be treated as the assessee's income available for application on the objects of the Trust. Issue-wise Detailed Analysis: 1. Treatment of Tax Refund as Income: The main issue in this appeal is whether the tax refund of Rs. 4,20,321 should be considered as the income of the assessee, a public charitable trust, available for application on its charitable objects. The assessment year in question is 1983-84, and the relevant previous year is 1982. Historically, the Income Tax Officer (ITO) had granted exemption to the assessee's entire income under Section 11 of the Income Tax Act. However, changes in the relevant provisions led the ITO to deny this exemption for the assessment years 1972-73 and 1973-74, resulting in a tax liability for the trust. The assessee appealed, and the Tribunal ultimately ruled in favor of the trust, leading to a refund of Rs. 4,20,321. The Revenue, however, did not accept this order and filed a reference to the Bombay High Court, which is still pending. In a meeting held on 29th March 1982, the Board of Trustees decided to set aside the refund amount without treating it as income, citing the pending High Court reference. They resolved to use the refund either for paying potential tax liabilities or for charitable purposes if no such liability arose. The ITO, in framing the assessment, included the refund as part of the trust's income but allowed its accumulation under Section 11(2) of the Act, given the pending High Court decision. The ITO determined the taxable surplus as "Nil" after accounting for statutory deductions and allowed accumulations. 2. Appeal and Arguments: The assessee appealed to the Appellate Assistant Commissioner (AAC), arguing that the refund should not be treated as income available for charitable purposes due to the pending High Court reference. The AAC rejected this contention, stating that at the time of receiving the refund, there was no existing tax liability, only a contingent one. The AAC cited various judicial precedents to support the view that contingent liabilities cannot be allowed as deductions. The assessee then appealed to the Tribunal, reiterating that the refund should not be considered income until the High Court decided the reference. They argued that treating the refund as income would leave no funds to pay potential tax liabilities if the High Court ruled against them. They also cited the Supreme Court's decision in CIT vs. Hindustan Housing & Land Development Trust, which held that disputed amounts could not be treated as income until the dispute was resolved. 3. Tribunal's Decision: The Tribunal agreed with the IT authorities. They held that the refund, granted due to the Tribunal's favorable order for the assessment years 1972-73 and 1973-74, constituted income available for application on the trust's objects. The pending High Court reference did not change the character of the refund as income. The Tribunal distinguished the present case from the cited precedents, noting that those cases dealt with compensation and excise duty refunds, not income tax refunds. The Tribunal also rejected the argument that the trustees would be personally liable for the refund amount if the High Court ruled against the trust. They stated that such potential liabilities did not alter the nature of the refund as income. 4. Alternative Submission: The Tribunal addressed the alternative submission that the intention to use the refund for paying taxes should be considered an application of income. They clarified that setting apart income for a purpose does not equate to its application. The refund amount had been set aside, not applied, and therefore could not be treated as applied income. 5. Conclusion: The Tribunal dismissed the appeal, emphasizing that the refund must be treated as income available for application on the trust's objects. They acknowledged the trust's predicament due to the ten-year accumulation limit and the pending High Court reference but stated that any remedy for such hardship must come from legislation, not judicial interpretation.
|
