1998 (10) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 7,900 incurred on the visit of a foreign donor.
2. Applicability of sections 13(1)(c) and 13(3)(b) of the Income-tax Act, 1961.
3. Rectification under section 254(2) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 7,900 incurred on the visit of a foreign donor:
The Assessing Officer disallowed Rs. 7,900 spent on the visit of Adnan Khashoggi, invoking sections 13(1)(c) and 13(3)(b) of the Income-tax Act, 1961. This disallowance was confirmed by the CIT (Appeals) and subsequently contested by the assessee before the Tribunal. The Tribunal initially upheld the disallowance, but upon review, the Tribunal's earlier order dated 14-11-1991 for the assessment year 1986-87 was considered, which had held that the donation of US $2,50,000 should be taken as a corpus donation, and thus, the application of section 13 did not arise. Consequently, the Tribunal found a mistake apparent from the record and deleted the disallowance of Rs. 7,900.

2. Applicability of sections 13(1)(c) and 13(3)(b) of the Income-tax Act, 1961:
The Tribunal's initial order confirmed the applicability of sections 13(1)(c) and 13(3)(b), which led to the disallowance of the expenditure. However, upon further review, it was noted that the donation was intended as a corpus donation, which should not be treated as income under section 12 of the Act. Therefore, the provisions of section 13(1)(c) and 13(3)(b) were not applicable. The Tribunal's earlier order dated 14-11-1991 was cited, which had concluded that claiming exemption under section 11 and the application of section 13 did not arise for corpus donations.

3. Rectification under section 254(2) of the Income-tax Act, 1961:
The assessee filed a Miscellaneous Petition for rectification under section 254(2), arguing that the Tribunal's order dated 31-10-1994 contained a mistake apparent from the record. The Vice-President agreed with the assessee, holding that the Tribunal had erred in not following its previous order dated 14-11-1991, which had established that the donation was a corpus donation and thus, sections 13(1)(c) and 13(3)(b) were not applicable. However, the Judicial Member disagreed, stating that the trust could not spend any portion of the corpus fund on the donor, and thus, the provisions of section 13(1)(c)(ii) and section 13(3)(b) were attracted. The matter was referred to a Third Member due to the difference of opinion.

Third Member Decision:
The Third Member agreed with the Vice-President, stating that the Tribunal had indeed committed a mistake apparent from the record by not considering the earlier order dated 14-11-1991. It was concluded that the entire amount of US $2,50,000 was a corpus donation and not income, thus sections 13(1)(c) and 13(3)(b) were not applicable. The Third Member emphasized that the Tribunal should have followed its previous decision and rectified the mistake.

Final Order:
The Division Bench, in accordance with the majority view, allowed the Miscellaneous Petition filed by the assessee, thereby deleting the disallowance of Rs. 7,900 and rectifying the mistake in the Tribunal's order dated 31-10-1994.