1989 (6) TMI 91 - AT - Income Tax

Summary

Issues Involved:
1. Charitable nature of the trust and exemption u/s 11.
2. Validity and effect of the renunciation deed.
3. Delay in filing Form No. 10.
4. Registration u/s 12A and its implications.

Summary:

1. Charitable Nature of the Trust and Exemption u/s 11:
The primary issue was whether the trust, known as Mrs. Dwarika Prasad Trust, was entitled to exemption as a charitable institution u/s 11 of the Income-tax Act, 1961. The Income-tax Officer (ITO) contested the charitable nature of the trust, particularly citing clause (d) of the will, which allowed 1/4th of the property to be used for the benefit of family members, thus interpreting it as non-charitable. The Appellate Assistant Commissioner (AAC) and the Accountant Member of the Tribunal, however, concluded that the trust was entitled to exemption, noting that no income was actually applied in a manner contravening section 13(1)(c) of the Act. The Supreme Court's judgment in CIT v. Dharmodayam Co. was cited, indicating that mere provisions for non-charitable purposes that were not acted upon did not invalidate the charitable nature of the trust.

2. Validity and Effect of the Renunciation Deed:
The renunciation deed executed on 8-9-1980 by the beneficiaries, relinquishing their rights in favor of charitable purposes, was another point of contention. The ITO argued that the deed was not valid as it was not authorized by the original will and could not be applied retrospectively. However, the AAC and the Accountant Member held that the renunciation deed was valid and had retrospective effect, thereby reinforcing the charitable nature of the trust. The Judicial Member dissented, arguing that the renunciation deed did not involve all beneficiaries and hence did not extinguish the private character of the trust.

3. Delay in Filing Form No. 10:
The ITO also objected to the delayed filing of Form No. 10, which is a notice for accumulation of income. The form was filed on 24-11-1979, well after the due date. However, the AAC and the Accountant Member ruled that the delay was inconsequential, citing judgments such as CIT v. Shree Padmanabhaswami Temple Trust and Second ITO v. M.C.T. Trust, which held that the section did not prescribe a time limit for the application of income.

4. Registration u/s 12A and Its Implications:
The trust was registered as a charitable institution by the Commissioner of Income-tax on 17-9-1983. The AAC and the Accountant Member emphasized that this registration implied compliance with the requirements of sections 11 and 12. The Judicial Member, however, argued that registration u/s 12A was merely procedural and did not preclude the ITO from examining the nature of the trust.

Third Member Order:
The President of the Tribunal, acting as the Third Member, agreed with the AAC and the Accountant Member, concluding that the trust was entitled to exemption. The renunciation deed was deemed valid and effective from the date of the will, and the registration u/s 12A was not a mere formality but a significant factor in granting exemption. The delay in filing Form No. 10 was also considered non-fatal to the claim of exemption. Consequently, the appeals of the revenue were dismissed, and the trust's income was held to be exempt.