1989 (3) TMI 168 - AT - Income Tax

Additional Ground Assessment Year Charitable Trust Power To Admit Additional Ground Religious Trust

Issues involved:
1. Whether the requirements of section 12A(b) were satisfied.
2. Whether the assessee-trust was entitled to exemption under section 11 in light of section 13(1)(d).

Issue-wise detailed analysis:

1. Whether the requirements of section 12A(b) were satisfied:

The primary issue was whether the requirements of section 12A(b) of the Income-tax Act, 1961, were met. The assessee, a charitable institution, had been granted tax exemption in previous years, but the exemption was denied for the assessment year 1984-85 on the grounds that section 12A(b) requirements were not satisfied. Section 11 grants exemption on income derived from property held for charitable or religious purposes, subject to conditions. Section 12A imposes additional conditions, including the requirement that if the income exceeds Rs. 25,000, the accounts must be audited by an accountant, and the audit report must be furnished with the return of income.

The controversy centered on the interpretation of "such accountant." The accounts were audited by Lovelock & Lewis, but the certificate was given by Khare Associates. The Inspecting Assistant Commissioner (IAC) held that the same firm that audited the accounts must also provide the certificate, interpreting "such accountant" to mean the same accountant. The Commissioner (A) agreed with this view.

The assessee argued that section 12A(b) only requires that the accounts be audited by a Chartered Accountant and that the return be accompanied by a certificate from a Chartered Accountant. There is no requirement that the same auditor must provide both the audit and the certificate.

The Tribunal held that the statutory auditor need not be the same person providing the certificate under section 12A(b). The expression "such accountant" refers to any Chartered Accountant as defined in the Explanation below sub-section (2) of section 288. The Tribunal concluded that the certificate given by Khare Associates was valid as long as it was based on a proper audit, and there was no evidence of a false certificate. Therefore, the view of the department that only the statutory auditor could provide the certificate was not supported by the language of section 12A(b).

2. Whether the assessee-trust was entitled to exemption under section 11 in light of section 13(1)(d):

The second issue arose from the assessee-trust's holding of certain shares not in the prescribed form under section 11(5). Under section 13(1)(d), effective from 1-4-1984, a trust is not entitled to exemption if its funds are invested or deposited in non-prescribed forms after 28-2-1983, or if funds invested before 1-4-1983 remain so after 30-11-1983. The IAC denied exemption because the shares continued to be held in non-prescribed forms after 30-11-1983. The assessee argued that it made efforts to sell the shares but could not get an appropriate price.

The Commissioner (A) upheld the IAC's view, distinguishing a CBDT circular cited by the assessee. The assessee then argued before the Tribunal that the shares formed part of the corpus of the trust as of 1-6-1973, invoking the proviso to section 13(1)(d), which exempts assets forming part of the corpus as of that date.

The Tribunal considered Rule 29 of the Income-tax (Appellate) Tribunal Rules, which allows additional evidence if it is decisive or if the income-tax authorities did not give sufficient opportunity to adduce evidence. The Tribunal admitted the additional evidence, noting it was decisive and of clinching value, and remitted the case to the Commissioner (A) for verification of the evidence and applicability of the exception under section 13(1)(d).

Conclusion:

The appeal was allowed for statistical purposes, with the Tribunal holding that the certificate by Khare Associates was valid and remitting the second issue to the Commissioner (A) for further examination of the additional evidence regarding the shares forming part of the corpus of the trust.

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