1971 (11) TMI 14 - HC - Income Tax

Petitioner is a public and charitable trust - statutory conditions for exemption of accumulation prescribing the time limit, laid down in paragraphs 2 and 4 in Form No. 10 issued under rule 17 whether these are ultra vires as the rule-making authority has exceeded its limit in including in the Form these paragraphs held, yes

Issues Involved:
1. Exemption from income tax for a public charitable trust.
2. Compliance with statutory conditions for tax exemption.
3. Validity of investment in non-approved securities.
4. Interpretation of Section 11 of the Income-tax Act, 1961.
5. Authority and limits of rule-making power under the Income-tax Act.
6. Validity of Form No. 10 and Rule 17 of the Income-tax Rules, 1962.
7. Timeliness and procedural compliance for tax exemption claims.

Issue-Wise Detailed Analysis:

1. Exemption from Income Tax for a Public Charitable Trust
The petitioner, a public and charitable trust, was initially exempt from income tax under the provisions prevailing before 1952. Post-1952 amendments required compliance with certain statutory conditions to maintain this exemption. The trust successfully secured such exemption until the assessment year 1961-62. However, for the year 1962-63, the revenue department denied the exemption due to alleged non-compliance with statutory formalities.

2. Compliance with Statutory Conditions for Tax Exemption
The board of trustees resolved on March 1, 1963, to accumulate the trust's income for ten years to fund major charitable projects. The petitioner notified the Income-tax Officer using Form 10 on March 14, 1963, and sought clarification from the Commissioner of Income-tax about the investment in Madras Industrial Investment Corporation Ltd. The Commissioner deemed the investment irregular as it was not in Government-approved securities. Despite efforts to regularize the investment, the trust had to reinvest the funds in approved Government securities by November 1964.

3. Validity of Investment in Non-Approved Securities
The trust's investment in Madras Industrial Investment Corporation Ltd. was not approved by the Central Government as a public security. Consequently, the investment was returned, and the trust reinvested the funds in approved securities. The Income-tax Officer denied the tax relief, citing improper and untimely investment as per Form 10 and Rule 17 of the Income-tax Rules, 1962.

4. Interpretation of Section 11 of the Income-tax Act, 1961
Section 11(1)(a) deals with income applied to charitable purposes and allows accumulation of income for future application, not exceeding 25% of the income or Rs. 10,000, whichever is higher. Section 11(2) provides an exception if certain conditions are met: a written notice to the Income-tax Officer specifying the purpose and period of accumulation (not exceeding ten years) and investment in approved securities.

5. Authority and Limits of Rule-Making Power under the Income-tax Act
The court scrutinized the rule-making power under Section 295 of the Act. It emphasized that delegated legislation must align with the parent statute's intent and cannot introduce conditions that contradict or nullify statutory rights. The court held that the rule-making authority exceeded its limits by imposing a time limit for filing Form 10, which was not contemplated by the legislature.

6. Validity of Form No. 10 and Rule 17 of the Income-tax Rules, 1962
Form No. 10, prescribed under Rule 17, included time-bound requirements for investment and notice, which were not stipulated in Section 11. The court found paragraphs 2 and 4 of Form No. 10 ultra vires, as they imposed additional conditions not supported by the Act. The court ruled that the statutory concession under Section 11 should not be negated by procedural rules.

7. Timeliness and Procedural Compliance for Tax Exemption Claims
The court noted that the trust took reasonable steps to comply with the statutory requirements and invested in what it believed to be an approved public institution. The delay in reinvestment was not deemed unreasonable. The court emphasized that statutory rights should not be defeated by procedural technicalities introduced by subordinate legislation.

Conclusion:
The court dismissed W.Ps. Nos. 3443 to 3445 of 1967 as infructuous and allowed W.Ps. Nos. 436 and 535 to 537 of 1969, making the rules nisi absolute. The court held that the rule-making authority's imposition of a time limit in Form No. 10 was ultra vires and that the trust's efforts to comply with statutory conditions were reasonable. The statutory concession under Section 11 should prevail, and procedural rules should not undermine it.

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