9911796707
TMI Blog1987 (7) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... stees of M/s. Muthoottu Charitable Trust have, within the meaning of Explanation 3 to sec. 13 of the Income-tax Act, 1961, substantial interest in the firm M/s. Muthoottu Mini Chitty Fund Kozhencherry. In terms of Sec. 13(1)(c) r.w. Sec. 13(2)(b) of the IT Act, exemption u/s. 11 or 12 will not enure to a trust if its funds remain invested for any period during the previous year in any concern in which any trustee has substantial interest. The accounts of the assessee reveal that the entire amount received as contribution from M/s. Muthoottu Mini Chitty Fund during the previous year remained invested in the said chitty fund. 2. The income of the trust, contributed exclusively by M/s. Muthoottu Mini Chitty Fund, is used or applied during the previous year by the latter without charging adequate compensation and thereby violated sec. 13(1)(c) r.w. sections 13(2)(a), 13(2)(b) and 13(3)(b). 3. The conditions specified in sub-clauses (i), (ii) and (iii) of sec. 11(2)(b) are not also fulfilled. 4. In the above circumstances the order of the Income-tax Officer granting exemption u/s. 11 is erroneous and prejudicial to the interest of revenue and the assessment order requires suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributed to the Trust is in any way money over which the subscribers had any claim or any right of property. I have examined the records once again in the light of the letter filed on 11-3-1985. I am convinced that the assessment order as passed by the ITO is erroneous and is prejudicial to the interest of revenue. The assessment order is, therefore, set aside and the ITO is directed to recompute the income in accordance with law." 4. Against these orders the assessee filed the present appeals. At the time of hearing the assessee's counsel filed photostat copies of the Commissioner's notices dated 5-11-1984 and 27-2-1985, copy of the Trust Deed dated 16-8-1976, copy of the assessment orders dated 14-2-1983 for the asst. year 1980-81 and dated 29-9-1983 for the assessment year 1981-82 in the case of MMCF and copies of the orders of the Tribunal dated 27-12-1985 and 4-12-1986 in the case of MMCF for the assessment years 1979-80 and 1980-81, copy of the assessee's letter dated 8-3-1985 filed before the Commissioner for the assessment year 1981-82, photostat copy of Pay-in-slip dated 25-4-1984 of the Federal Bank Ltd., Kozhencherry showing the payment into the account of Muthoottu Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 11(2)(b)(i), (ii) and (iii) does not arise. 5. At the time of hearing the departmental representative filed type written copies of the reasons given by the Commissioner in his notices u/s 263, constitution of the firm M/s MMCF showing the names of the partners and their relationship inter se, copies of the balance-sheets of the assessee-trust as on 31-3-1980 and 31-3-1981 and copies of form No. 10 filed by the assessee. His arguments were to the following effect : The trust was constituted on 16-8-1976 with effect from 1-4-1977. The authors of the trust were M. George, M. Mathew and Mathew M. Thomas. The assessment order for the assessment year 1980-81 was passed on 2-12-82. The Commissioner issued the notice dated 5-11-1984 and posted the case for hearing on 19-11-1984. Since the order u/s 263 had to be passed by 1-12-1984 as per the time limit prescribed in sec. 263(2) he refused the adjournment sought by the assessee. The refusal to grant adjournment would not amount to denial of reasonable opportunity to be heard. Please see the case of Nawab Bros. v. CIT [1980] 124 ITR 307 (MP). The three trustees namely, M. Mathew, his wife Smt. Sesamma Mathew and Roy M. Mathew, along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in the assessment years 1980-81 and 1981-82 was not applied for any charitable purposes, but was set apart or accumulated for application to such purposes later. The assessee had also given notice in the prescribed form regarding accumulation of income. However, the amounts in question which were set apart or accumulated were not invested in any specified investment or securities nor deposited in any banking company or units of a financial corporation or in any other prescribed mode. The firm MMCF does not come under any of the categories mentioned in sec. 11(2)(b). Hence no exemption is available in respect of the income derived during the previous years relevant to the assessment year under appeal, which was accumulated. The Income-tax Officer had also stated that the information that the funds of the trust remained uninvested with the Chitty Fund was available on record at the time when the assessments were made. Hence the Commissioner did not need any fresh information before taking recourse to action under section 263. M. Mathew and Roy M. Mathew, the two trustees have substantial interest in the firm MMCF within the meaning of the Explanation 3 to section 13. In terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers. Hence it is not correct to say that MMCF utilised the contributions or collections for their benefits. As soon as the amounts are received by the trust, the same are deposited by the trust in their bank accounts and MMCF does not have any control over such funds. This argument also is not tenable. From clause (b) of the bye-laws it is seen that out of the amount foregone by the bidding subscriber 20% is to be contributed to the trust after appropriating 5% towards expenses. Hence the moment a bidding subscriber foregoes certain amount, 25% thereof is due to the Trust, and that is the point of accrual of the income on the basis of which the trust has been offering its income in the income-tax returns. The audit report filed by the very same Chartered Accountant certifies that the accounts of the trust give a true and fair view of the gross income over expenses and also the state of affairs of the institution. Hence to argue now that no income arose to the trust till all the bidding subscribers had paid their subscriptions is quite futile and has to be rejected outright. The annexure to the audit report also shows the accumulated amount to be Rs. 3,18,587 and states further tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod during the previous year without either adequate security or adequate interest or both. Here also we have to see whether it can be said that the income or property of the trust is lent or continued to be lent. In the aforesaid decision it was also held that for an amount to fall within the mischief of sec. 13(2)(a) of the IT Act, 1961, there must be a loan and to constitute a loan there must be a positive act of lending, coupled with an acceptance by the other side of the money as a loan and that the relationship of borrower and lender must come into existence by the act of the parties. As already stated above the amounts under consideration were received by the assessee trust only on 25-4-1984. The revenue has not brought any material on record to show that the assessee trust had physically lent the money to MMCF and that MMCF has accepted the amount as a loan and that the relationship of lender and borrower existed there. The only material relied on by the departmental representative was the balance-sheets of the assessee trust as on 31-3-1980 and 31-3-1981 wherein the name of MMCF was shown on the assets side of the balance-sheets. According to the departmental representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts of Rs. 1,10,187 and Rs. 19,510 as ' contribution receivable '. The departmental representative referred to Form No. 10 viz., the notices to the Income-tax Officer under section 11(2) of the Income-tax Act, 1961 filed by the assessee for the two assessment years under consideration and urged that without any income arising to the trust there could be no accumulation. We notice that in the copies of the resolutions enclosed with the said Form No. 10, it is clearly mentioned as under : " The Chairman informed that the working of the trust for the years 31-3-1980/31-3-1981 has resulted in a surplus of Rs. 1,10,187.42/ Rs. 19,510.20 as excess of income over expenditure. The meeting authorised Shri M. Mathew to collect the same amounts from Muthoottu Mini Chitty Fund since the contribution to Muthoottu Charitable Trust from Chitty Nos. 74 and 79 are being collected by Muthoottu Mini Chitty Fund." This clearly shows that the moneys referred to in Form No. 10 were not physically made available to the assessee as on 31-3-1980 and 31-3-1981. As we have already mentioned above, we found that the said amounts were paid by MMCF to the assessee trust only on 25-4-1984. So, under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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