9911796707
TMI Blog1997 (3) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1961, by judgment dated March 2, 1962, it was held that the trustees were bound by the supplementary document to utilise the surplus funds of the Thanthi Trust for the educational purposes mentioned in the supplementary document. For the assessment year 1968-69, the trust claimed exemption under section 11 of the Income-tax Act on the ground that seventy per cent. of the income had been applied for charitable purposes. A similar claim was made for the assessment year 1969-70. The claim of exemption was denied for the assessment years 1968-69 and 1969-70. The trust filed appeals and even while the appeals were pending, an attempt was made to reopen the assessments for the earlier years 1956-57 to 1961-62 as also 1965-66 and 1967-68. By judgment dated December 21, 1972, the reopening of the assessment for the earlier years was held to be invalid, so far as the assessment years 1956-57, 1958-59, 1960-61 and 1961-62 in the writ petitions filed by the trust. However, the reopening of the assessments for the years 1957-58, 1959-60, 1965-66, 1966-67 and 1967-68 were held to be valid, subject to certain conditions. The said judgment is in Thanthi Trust v. ITO [1973] 91 ITR 261 (Mad). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued on September 28, 1984, and a "nil" return was filed. A notice dated January 25, 1989, was issued under section 16(2) of the Wealth-tax Act, calling upon the petitioner to attend an enquiry. Writ Petition No. 1509 of 1989 is for a similar relief in respect of the assessment year 1984-85. Similarly, for the assessment year 1985-86 a "nil" return was filed in response to a notice issued under section 14(2) of the Wealth-tax Act. The respondent issued a further notice under section 16 of the Wealth-tax Act on November 29, 1989. Writ Petition No. 16230 of 1989 is for a similar relief in respect of the assessment year 1985-86. We have now seen the scope of the first four writ petitions, viz., Writ Petitions Nos. 1576 and 1577 of 1987, 1509 and 16230 of 1989. We will now refer to the facts of the next three writ petitions, viz., Writ Petitions Nos. 4154 to 4156 of 1991 relating to the assessment years 1986-87, 1987-88 and 1988-89, respectively. In respect of the assessment year 1986-87, the petitioner had not filed any return under section 14(1) of the Wealth-tax Act, on the ground that the trust is not liable for payment of any wealth-tax. No notice under section 14(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the respondents, says that so far as the assessment year 1986-87 is concerned, there is likelihood of the bar of limitation setting in. Accordingly, there will be an interim stay in respect of the notice relating to the assessment year 1986-87. So far as the other assessment years, viz., 1987-88 and 1988-89, are concerned, learned counsel for the Department says no prejudice will be caused to the petitioner and the Department may be permitted to file the counter affidavit. This statement of counsel is recorded and four weeks' time for filing counter affidavit is granted. After the filing of the counter affidavit, the petitioners are given three weeks' time to file a reply statement..." It is unfortunate that in spite of what transpired in the court on March 27, 1991, the respondent had passed an order on March 25, 1991, itself in the presence of the auditors of the petitioner-trust, holding that there was violation of section 13(1)(d) of the Income-tax Act and that, therefore, the assessee-trust was not entitled to exemption under section 11 of the Income-tax Act and, consequently, the trust forfeits the exemption under the Wealth-tax Act, by virtue of section 21A of the Wealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1986-87 to 1988-89. We have already noticed and referred to the circumstances under which the assessment orders came to be passed. We have also extracted the orders passed on various dates, commencing from the admission of the writ petitions on March 21, 1991. The averments of the petitioner in W. M. P. Nos. 7621 to 7626 of 1991, relating to the hearing on March 25, 1991, have not been controverted by the respondents. According to the petitioner, their auditors reminded the respondent about the stay petitions coming up for orders on March 27, 1991, before this court. In spite of the said representation, the assessment orders had been passed, as if the auditors were present and heard before passing the assessment orders. We are not certainly satisfied about the manner in which the assessment orders came to be passed. The principle of natural justice should be followed and substantially complied with. We have no hesitation in holding that on March 25, 1991, the petitioner was not prepared to go on with the hearing and we are satisfied that they had only asked for an adjournment of the case on March 25, 1991. In any event, inasmuch as the question of assessment for the years 1982-83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will only refer to the arguments and will not give our conclusions or opinions, because it might prejudice the authorities in passing final orders. According to the petitioners, it has been held for the purpose of income-tax under the Income-tax Act that the trust had been validly and genuinely created and any deviation by the founder of the trust or the trustees from the declared purposes would amount only to a breach of trust and would not detract from the declaration of the trust by the subsequent conduct of the founder in dealing with the funds of the trust. Therefore, the contention is that the subsequent Income-tax Officers considering the validity of the trust cannot make a roving enquiry into the application of the funds of the trust. This judgment is reported in Thanthi Trust v. ITO [1973] 91 ITR 261 (Mad). So far as the utilisation of the funds credited to the educational institutions in the books of account, there is a reference to the facts that the college authorities had subsequently withdrawn and utilised the amounts and that there was no time limit prescribed in the Wealth-tax Act for such application. The above reasoning itself substantiates the view that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws introduced from time to time. We therefore do not accept the argument of the petitioner that the wealth-tax authorities cannot once again go into the assessability of the petitioner's wealth, though said to be held under a trust. The second line of argument is based entirely on the judgment of the Division Bench of this court in Thanthi Trust v. WTO [1989] 178 ITR 1, which no doubt refers to the wealth-tax assessment for the years 1974-75 and 1975-76. The said writ petitions were also filed against the notices proposing to conduct an enquiry. By an order dated March 13, 1987, a learned single judge of this court dismissed the writ petition on the ground that the petitioner could urge all the points before the assessing authorities and the appellate authorities. Aggrieved by the said order, Writ Appeals (Nos.) 652 and 653 of 1987 were preferred before the Division Bench of this court and the judgment of the Division Bench is reported in Thanthi Trust v. WTO [1989] 178 ITR 1. The facts of the said case are slightly different and it will be convenient to notice the same. It is also interesting to note that the Division Bench of this court has observed as follows in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to file a return. Only when there is an obligation to file a return and if in spite of that no return is filed, section 14(2) could be invoked. In response to that, if no return is filed, section 16 is there for the Wealth-tax Officer to invoke... " : Relying on the above passages in the judgment of the Division Bench, learned senior counsel for the petitioners proceeded to make considerable argument on the plea that before issuing a notice under section 14(2) of the Wealth-tax Act, the authority has to form an opinion that "a person is assessable under this Act". Learned counsel agrees that the opinion is based on the subjective satisfaction of the authority. But he contends that all the same it must be reflected in the notice or at least in the counter affidavit filed before the court. He would buttress his argument by pointing out that the counter affidavit only refers to section 21A, which plea had been rejected in Thanthi Trust v. WTO [1989] 178 ITR 1 (Mad). Therefore, he continues to urge that there is nothing to be enquired into under section 16(2) or 16(4) of the Act. He would go to the extent of saying that a return is called for under section 14(1) only when the net we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the obiter dicta in Thanthi Trust's case [1989] 178 ITR 1 (Mad), relating to sections 14(1) and 14(2) cannot be relied on by the petitioners. To recapitulate the facts of the present case, notices were issued under section 14(2) of the Wealth-tax Act, requiring the petitioner-trust to file the returns. Whenever they filed nil returns, claiming exemption under section 5 of the Wealth-tax Act, the respondents had issued notices under section 16(2) of the Wealth-tax Act. Section 16(4) was invoked when no return was filed. Sections 16(2) and 16(4) of the Wealth-tax Act, as they stood at the relevant point of time, were as follows : "16. (2) If the Wealth-tax Officer is not so satisfied, he shall serve a notice on the assessee either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the assessee may rely in support of his return. 16. (4) For the purpose of making an assessment under this Act, the Wealth-tax Officer may serve, on any person who has made a return under sub-section (1) of section 14 or upon whom a notice has been served under sub-section (2) of that section, or who has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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