9911796707
TMI Blog1991 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the donations made to other charitable trusts would be hit by the provisions of section 11(3) of the Income-tax Act, 1961 ? 4. Whether, on the facts and in the circumstances of the case, the authors of the trust and/or its trustees had substantial interest in M/s J. K. Commercial Corporation ? 5. Whether, on the facts and in the circumstances of the case, the interest/rent received by the assessee from various concerns was not adequate within the meaning of section 13(2)(a) of the Income-tax Act, 1961 ? 6. Whether, on the facts and in the circumstances of the case, the shares of M/s. J. K. Synthetics Ltd. received by the assessee-trust in earlier years would not be hit by the provisions of section 13(2)(h) of the Incometax Act, 1961 ? 7. Whether, on the facts and in the circumstances of the case, the transactions carried on by the assessee in shares would disentitle the assessee from being treated as a charitable institution within the meaning of section 2(15) of the Income-tax Act, 1961 ? 8. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that there is no mistake apparent on the face of the record in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other educational institutions, hostels for students and making provision for their equipment, upkeep and maintenance. (d) Grant-in-aid to schools, colleges and/or educational institutions. (e) To bind as apprentices to any profession, trade, industry or manufacture, poor and deserving youths on payment of such minimum and on such terms and conditions as the trustees may deem fit. (f) To give loans to poor and deserving students to enable them to prosecute their studies in Europe, America, India or elsewhere in such subjects and for such period as the trustees may think fit and on such terms as to repayment of the loan in such instalments, at such rate of interest or without interest or otherwise and subject to such provisions and conditions as the trustees may deem fit. (g) To establish, erect, fit up and furnish one or more polytechnic institute or institutes for the training of young men in technical, mechanical, scientific and other pursuits as the trustees may determine and to make provision for their upkeep and maintenance. (h) The establishment, equipment, upkeep and maintenance of industrial homes for men as well as women out of employment for teaching them all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the Income-tax Officer completed the assessment whereunder he determined the total income of the assessee at Rs. 8,61,690, With respect to the assessment year 1973-74, the proceedings followed practically the same course. In these proceedings too, section 144B was followed and assessment completed, determining the assessee's income at Rs. 36,50,739. The assessee preferred appeals against both the assessment orders which were disposed of by a common order dated February 10, 1977, by the Appellate Assistant Commissioner allowing the appeals in part, which resulted in both the Revenue and the assessee filing appeals to the Tribunal. The Tribunal allowed the appeals preferred by the assessee and dismissed the appeals filed by the Revenue by its order dated September 27, 1977. Thereafter, an application for rectification was filed under section 254(2) by the Revenue which was ultimately dismissed on December 22, 1979. It is then that both the Revenue and the assessee applied for and obtained this reference. We shall proceed to deal with each of the questions separately. Question No. 1.-While narrating the facts, we have mentioned the fact that, with respect to both the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trust), he ought to have given the assessee a notice about it and heard it in that behalf before giving any such directions. Since he has not done that, the said opinion or instructions, as it may be called, cannot be sustained. Question No. 1 (referred at the instance of the Revenue) is, accordingly, answered in the affirmative, that is, in favour of the assessee and against the Revenue. Question No. 2.-This question relates to the interpretation of clause 2(h) of the deed of trust. We have already set out clause 2. Clause 2(h) empowers the trustees to establish, equip and maintain industrial homes for teaching unemployed persons arts like handicraft and other home industries and to make provision for payment to them daily, weekly or monthly, such wages or remuneration as the trustees may determine on the basis of place, work or otherwise. The main idea underlying the clause is to impart training (teaching) in arts and handicrafts to unemployed men and women. No doubt, the clause provides for payment for such work, but, in the context, it must be understood as a payment in the nature of a stipend. It cannot be equated to regular wages nor can the said clause be understood as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lease rent of the building is concerned, it is brought to our notice that the property called Kamla Castle, Mussorie, was leased out at a meagre rent of Rs. 1,250 per month. It was submitted that it is a big bungalow at an important hill station and, therefore, the rent stipulated must be deemed to be inadequate. The Tribunal, however, pointed out that this property was donated by Sir Padampat Singhania in the "previous year" relevant to the assessment year 1971-72 and its value, as per the balance-sheet, was Rs. 2,86,347. The Tribunal also took into consideration the fact that properties in hill stations do not fetch income throughout the year but only during the tourist season. Accordingly, it held that the rent charged cannot be said to be inadequate. We are unable to see that this finding is open to objection in any manner. Question No. 5 is, accordingly, answered in the negative, that is, in favour of the assessee and against the Revenue. Question No. 6.-It appears that certain shares of J. K. Synthetics Ltd. were donated to the assessee-trust. They were 40,000 in number. J. K. Synthetics Ltd. appears to have issued bonus shares, 20,000 in number. The Income-tax Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent to which the said income is applied to charitable/religious purposes in India. Sub-section (2) of section 11 provided that even if the income is not so applied but is accumulated or set apart for application to such purposes in India, even then it shall be exempt, provided certain conditions specified in the sub-section are complied with. Sub-section (3) of section 11 then said that in case any income referred to in sub-section (2) is applied to purposes other than charitable or religious purposes or ceases to be accumulated or set apart for application to such purposes, it shall cease to be exempt and shall be included in the income of the previous years in which it is so applied for other purposes or ceases to be accumulated or set apart for application to such purposes. Section 12, as it obtained prior to April 1, 1973, contained two sub-sections. Under sub-section (1), any income of a trust created for charitable/religious purposes, derived from voluntary contributions and applicable solely to charitable or religious purposes, shall be exempt. Sub-section (2) dealt with a case where charitable/religious trust received contributions from another religious/charitable tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell. It reads: "(3) Any income referred to in sub-section (1) or sub-section (2) as is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto or is not utilised for the purpose for which it is so accumulated in the year immediately following the expiry of the period allowed in this behalf shall be deemed to be the income of such person of the previous year in which it is so applied, or ceases to be so accumulated or so set apart or, as the case may be, of the previous year immediately following the expiry of the period aforesaid." The Tribunal was of the opinion that contribution to other charitable trusts is within the power and competence of the trustees. It has relied upon sub-clause (k) of clause 2 of the deed of trust which, inter alia, empowers the trustees to apply the income of the trust for "the advancement of any other object of general public utility as the trustees may in their absolute discretion deem fit and in such way as they may consider most advantageous to the recipients." We are inclined to agree with it. A charitable purpose may be served in more than one way. One is to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritable/religious purposes and the provisions of sections 11 and 13 shall apply accordingly. Therefore, so far as the assessment year 1973-74 is concerned, the position (with respect to the amounts contributed by the assessee-trust to other charitable-trust from out of contributions received by it) is the same as the one obtaining with respect to income derived by the assessee-trust from the properties held under trust wholly for charitable or religious purposes. An incidental issue was also debated before us. It was contended by learned counsel for the assessee that the amended section 12 does not apply to the assessment year 1973-74 and that it applies to and with effect from the assessment year 1974-75. It is not possible to agree. Section 12 was amended (substituted) by the Finance Act, 1972, with effect from April 1, 1973. The contention of learned counsel was that the said section applies only to the financial year 1973-74, which would mean the assessment year 1974-75, but not to the assessment year 1972-73, for which the "previous year", in the case of the assessee, happens to be the calendar year 1972. His contention was that since section 12 has been substituted with eff ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
