9911796707
TMI Blog1989 (4) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... l proceedings, ultimately, the claim for exemption came to be granted. After the coming into force of the Income-tax Act, 1961, exemption was again claimed under section 11 of the said Act. There were several protracted proceedings which led to the filing of numerous writ petitions. To the deed of declaration of trust dated March 1, 1954, a supplementary deed was executed by the donor on June 28, 1961, directing that the surplus income of the trust should be utilised only for educational purposes. The appellant thereupon filed C. S. No. 90 of 1961, by way of originating summons in the High Court. It was held by the High Court that the trustees were bound by the supplementary deed and, therefore, the entire income had to be spent for the purposes mentioned in the supplementary deed. There were proposals for the reopening of assessments. For the years 1968-69 and 1969-70, the Income-tax Officer rejected the assessee's claim for exemption under section 11(1) of the Income-tax Act. Aggrieved by such assessments, the appellant preferred 1. T. A. Nos. 21 and 41 of 1972-73. During the pendency of the appeals, the appellant had questioned the validity of the reopening of assessments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -83, the respondent issued notice dated October 7, 1982, calling upon the appellant-trust to file return under section 14(2) of the Wealth-tax Act. Similarly, for the assessment year 1983-84 also, another notice dated September 13, 1983, was issued under section 14(2) of the Act calling upon the appellant to file a return under the Act. The appellant-trust sent its replies on November 16, 1982, and January 10, 1983, respectively, contending that the appellant was not liable to pay wealth-tax since there is a final adjudication to the effect that the appellant is a public charitable trust. Notwithstanding the same, the appellant filed "nil" return for these years. Thereafter, no action was taken and the appellant was expecting, as a matter of course, a "nil" assessment order as in the previous years. But, to its shock and surprise, the respondent issued notices on January 22, 1987, calling upon the appellant to attend an enquiry with regard to the assessment of wealth-tax for the years 1974-75 and 1975-76. The appellant was also called upon to produce the balance-sheet and other records. It is under these circumstances that a writ of mandamus was filed restraining the respondent f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of introducing that section is to see that the funds of the trust are properly applied. Therefore, the exemption granted under section 5(1)(i) is not absolute and unconditional but is subject to section 21A of the Act. Should the appellant come within the mischief of section 21A, it would be liable to wealth-tax in the manner provided in that section. Each assessment year is a separate and self-contained one. Therefore, the question of estoppel or res judicata will not arise. Merely because for the assessment years 1977-78, 1978-79 and 1980-81 one view was taken, it does not estop the respondent from taking proceedings for the assessment years in question, namely, 1974-75 and 1975-76. For the assessment year 1974-75, proceedings under section 17 of the Wealth-tax Act were initiated on March 17, 1983, on the ground that the respondent had reason to believe that by reason of the omission on the part of the assessee-trust to furnish a return of wealth under section 14(1) of the Wealth-tax Act, wealth chargeable to tax has escaped assessment. In response to the said notice, the appellant has filed a "nil" return of wealth on April 16, 1983. In that it claimed exemption.. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be said to have escaped assessment by reason of the non-filing of the return by the trust for the relevant assessment year. Likewise, there has not been any omission or failure on the part of the trust to disclose fully and truly all material facts. For the assessment year 1975-76, the notice under section 17(1) is invalid and inoperative because it has been addressed to "Thanthi Trust" and not to the proper person. The said notice has also not been served in accordance with section 41 of the Wealth-tax Act. The trust is not an assessee liable to assessment. When the Wealth-tax Officer himself had granted exemption under section 5(1) of the Act and has dropped proceedings for the earlier years, the net wealth cannot be said to have escaped assessment by reason of the trust not having filed any return of net wealth for the relevant assessment year ; nor can the net wealth of the trust be said to have escaped assessment by reason of any omission or failure on the part of the trust to disclose fully and truly all material facts. Dr. Debi Pal, learned counsel for the appellant, after taking us through the relevant provisions of the Wealth-tax Act as well as the Income-tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 21A of the Act is applicable to the facts and circumstances of the case. He would have it in the counter-affidavit that the applicability of the provisions of section 21A has to be considered. This certainly does not fall within the scope of section 17 of the Act. Citing the decision in Sheo Nath Singh v. AA C of IT [1971] 82 ITR 147 (SC), it is submitted that there must be reason to believe that income has escaped assessment. So long as that is lacking in this case, the issue of notice cannot be supported. Regarding the assessment year 1974-75, returns have been filed as of fact. That cannot be gainsaid. It is somewhat surprising that for the assessment year 1976-77, the trust has received a "nil" demand notice on December 4, 1981. This is squarely based on the judgment in CIT v. Thanthi Trust [1982] 137 ITR 735. For the subsequent years also, it was a case of "nil" demand though section 21A was there. All that the appellant would endeavour to contend is that there is no finding or reasonable belief that section 21A is applicable. It has been held in Writ Petition No. 540 of 1981, etc., batch, as well as in Hari Babu v. CIT [1974] 96 ITR 118 (All), that the mere non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be made liable. In other words, a trust is not an assessable unit. A careful reading of section 17 of the Wealth-tax Act postulates an obligation to file a return under section 14 of the said Act. In other words, only if the net wealth is exigible to tax, there is an obligation to file return. Therefore, section 5(1)(i) does not impose a statutory obligation on the appellant-trust which is a public charitable trust to file a return. For this proposition, reliance is placed on the decision in CIT v. Thanthi Trust [1982] 137 ITR 735. As a matter of fact, this position has been made still clearer in Modi Charitable Fund Society v. ITO [1983] 142 ITR 818 (All), wherein the Allahabad High Court has held that if there is no statutory obligation to file a return, it could not be said that income chargeable to tax has escaped assessment. In that case, it has been pointed out that under section 139(4A) of the Income-tax Act, even if the trust is exempt, the income-tax return will have to be filed. As far as the Wealth-tax Act is concerned, there is no such provision. Section 21A of the Wealth-tax Act merely enables assessment if there is a diversion of the income by the trustees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Wealth-tax Act, the defect in the impugned notice is curable. The decision in Coimbatore Club v WTO [1985] 153 ITR l72 (Mad), is a clear authority for the proposition Again, in the case of a club which is a society registered under the Societies Registration Act, it was held to be an individual unit as could be seen from the decision in 1. Devarajan v. Tamil Nadu Farmers Service Cooperative Federation [1981] 131 ITR 506 (Mad). Thus, it is urged that there are no valid grounds for the assessee to come by way of a writ petition and claim exemption. In reply, Dr. Debi Pal would submit that the argument of the Department does violence to section 14 of the Wealth-tax Act. Section 14 throws an obligation to file a return only when the net wealth is assessable under the Act. Should the Wealth-tax Officer be of opinion that the net wealth is assessable and yet no return has been filed, he could always call upon the assessee to file a return under section 14(2) of the Act. Should the assessee fail to file a return, then again, there is section 16. Imposition of penalty for failure to comply with the requirement is talked of under section 18 of the Act. Therefore, to say that after the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st is not a "person". The contention that service of notice is a mere procedural requirement has been rejected in CIT v. Thayaballi Mulla Jeevaji Kapasi [1967] 66 ITR 147 (SC). In the case on hand, notice was not served either on the manager or on the trustee but was merely addressed to "Thanthi Trust". It is the service of notice which must be at reasonable hours that gives jurisdiction as seen from the above decision, namely, CIT v. Thayaballi Mulla Jeevaji Kapasi [1967] 66 ITR 147 (SC). Section 42C of the Wealth-tax Act cannot come to the aid of the Department. That talks merely of procedural defects. The decision cited in this behalf is P. N. Sasikumar v. CIT [1988] 170 ITR 80 (Ker). Likewise, in Sewlal Daga v. CIT [1965] 55 ITR 406 (Cal), where there was an improper service of notice, the notice was held to be invalid. The points that arise for determination in this case are as follows (i) Whether there is scope for invoking section 17(1) of the Wealth-tax Act in this case for the assessment years in question ? (ii) Whether there is scope for invoking section 21 A of the Wealth tax Act in this case ? (iii) Whether the notice issued is valid? We will set out now the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings for the assessment years 1965-66, 1966-67, 1967-68 and 1969-70 were dropped. It requires to be stated at this stage that no proceedings were initiated for the assessment of the net wealth of the trust in respect of the assessment years 1970-71, 1971-72 and 1972-73. While the matter stood thus, on January 29, 1981, this court held, as could be seen from the decision in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad), that the property held by the Thanthi Trust was entitled to exemption under section 11 of the Income-tax Act, 1961. As the trust is for public charitable purposes, as referred to earlier, special leave to appeal against the said decision on that question was refused (sic) by the Supreme Court. On December 4, 1981, the trust received a "nil" demand notice for the assessment year 1976-77. On March 7, 1985, for the assessment year 1977-78, the trust filed "nil" return under protest because it was visited with a notice under section 14(2) of the Act on September 3, 1977. On March 13, 1985, the trust received a "nil" demand notice for the assessment year 1980-81. For the assessment year 1979-80, no proceedings were initiated. As regards the assessment year 1981 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The next section that has to be looked at is section 5 of the Wealth-tax Act. That talks of exemption in respect of certain assets. Section 14 occurring in Chapter IV in relation to the assessment of an assessee throws an obligation on the assessee to file a return of wealth in the prescribed form if his net wealth is assessable under the Act. Sub-section (2) states that notwithstanding anything contained in sub-section (1), if the Wealth-tax Officer is of the opinion that the net wealth is assessable, he may serve notice on the assessee calling upon him to file a return. Then comes the important section which has a bearing on this case, namely, section 17. That deals with wealth escaping assessment as the marginal note clearly indicates. That section is extracted in full. 17. (1) If the Wealth-tax Officer (a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under section 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a notice under section 16A of the Act was issued on October 21, 1978, for determining the market value of the assets as on June 30, 1973. That relates to the assessment year 1974-75. Having regard to the terms of section 16A of the Act, that section could be invoked only in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Wealth-tax Officer is of opinion that the value so returned is less than its fair market value. As a matter of fact, the matter did not rest there. A date was fixed for inspection. That came to be cancelled. Therefore, notwithstanding the fact that a return was filed, the counter-affidavit takes the stand that section 17 had come to be invoked because the respondent had reason to believe, by reason of the omission on the part of the appellant-trust to furnish a return of wealth under section 14(1) of the Act, that wealth chargeable to tax has escaped assessment. That this is palpably wrong is the contention. In opposition to this, Mrs. Nalini Chidambaram, learned counsel for the respondent, would submit that in response to the notice under section 17 issued on March 17, 1983, the assessee-trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys down that the officer must have some prima facie ground before him for taking action under section 148 of the Income-tax Act, 1961. Though that case relates to section 148 of the Income-tax Act, that section corresponds to section 17 of the Wealth-tax Act. Therein, it has been observed as follows (at p. 607) "In other words, he must have some prima facie grounds before him for taking action under section 148. Further his report mentions : 'Hence proper investigation regarding these loans is necessary'. In other words, his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under section 148. Before issuing a notice under section 148, the Income-tax Officer must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively, notwithstanding that there has been no omis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s [1976] 103 ITR 437, 439 (SC), the headnote reads as under "Two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (i) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure, on the part of the assessee (a) to make a return under section 139 for the assessment year to the Income-tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must coexist to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by section 148(2)." In CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust [1977] 108 ITR 555 (SC), it has been held as follows (headnote) : "Section 3 of the Wealth-tax Act, 1957, imposes the charge of wealth-tax 'subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's omission to disclose fully and truly all material facts, income chargeable to tax had escaped assessment. In our judgment, the law laid down by this court in the above case is fully applicable to the facts of the present case. There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court." In this legal background, we will analyse the position for the assessment year 1974-75. Point No. 1 : -Since there was a factual controversy as to whether the return was filed or not, we will take it that the return had not been filed for 1974-75 just as for the succeeding year. Even then, the question would be w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciency of the reasons which have weighed with the Income-tax Officer in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a bearing on matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and that such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid." Where, therefore, it is not, even the definite stand of the Revenue that section 21A is applicable to the appellant-trust as a result of which it is found that the net wealth of the trust has escaped assessment, we are unable to see as to how section 17(1) could be invoked. So far, we have proceeded on the footing that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, namely, March 24, 1984. It cannot be by a curious act of coincidence. Therefore, the very basis of relying on the returns of the assessee under the Income-tax Act for invoking section 17(1) is not tenable. Thus, it is clear that there is no possibility of invoking section 17(1) at all in this case. Point No. 2 :-According to Mrs. Nalini Chidambaram, learned counsel for the respondent, after the introduction of section 21A, there is an obligation on the part of every assessee to file a return. Section 21A was inserted by the Finance Act 16 of 1972 with effect from April 1, 1973. It is clear by a reading of the marginal note that it relates to assessment in cases of diversion of property or of income from property held under trust for public charitable or religious purposes. By a careful reading of the said section, we find that it does not even indirectly suggest the filing of return. The section merely enables an assessment being made if there is diversion of funds. We do not find the basis for the argument that after the introduction of section 21A, there is an obligation on the part of the assessee to file a return. However, reliance is placed by the Revenue on Managing She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice or for concealment of assets. All these provisions are not there without any purpose. If, therefore, there is no obligation on the part of the assessee to file a return, it could not be said that his net wealth has escaped assessment. In this connection, we may usefully refer to the decision in Modi Charitable Fund Society v. ITO 1983] 142 ITR 818 (All) Wherein the headnote reads as follows "(ii) Since the petitioner was under no statutory obligation to file the return for the relevant year, it could not be said that income chargeable to tax had escaped assessment by reason of its omission or failure to file the return. The petitioner-society had been granted a certificate of exemption and, therefore, there could be no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant year. Therefore, clause (a) of section 147 would not apply to the present case." This point is elaborated at page 823, wherein the following observation is found : "Coming to the merits of the case, the undisputed facts are that the society was granted a certificate of exemption under section 4(3) of the 1922 Act by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts necessary for its assessment for this year." In this connection, it is necessary to note that under section 139(4A) of the Income-tax Act, 1961, even if a trust is exempt, the income-tax return will have to be filed. But, unfortunately, for the Revenue, there is no corresponding provision in the Wealth-tax Act to that effect. Therefore, section 21A of the Wealth-tax Act cannot be invoked because it is merely an enabling provision to make an assessment if there is a diversion of the funds of the trust. In the case on hand, the categorical stand of the trust is that it is exempt under section 5(1) of the Wealth-tax Act. If that be so, there is no statutory obligation on its part to file a return. This is an important point to be borne in mind. However, as we have already stated, if at all section 17(1) could be invoked in a case where no return is filed, it could be done subject to the satisfaction of two conditions, namely, the Wealth-tax Officer having reason to believe (i) that the net wealth has escaped assessment ; and (ii) that the escapement is due to the failure to file a return or by reason of the failure to disclose fully and truly all the material facts in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... They occupy a representative position representing the trust and they are not strangers to the trust. When the trustee acts, it is only the trust that acts, as the trustee fully represents the trust. A business carried on on behalf of a trust rather indicates a business which is not held in trust, than a business of the trust run by the trustees." In Trustees of Gordhandas Govindram Family Charity. Trust v. CIT [1973] 88 ITR 47, 52 (SC), it was laid down as follows : "Now, let us turn to the other question, viz., whether the trust in question can be considered as a trust created for public purpose of a charitable or religious nature. As seen earlier, the trust in question was created primarily for the benefit of the members of the family of Gordhandas Govindram Seksaria. That is clear from the title given to the trust as well as from the various provisions to which we have made reference earlier. Therefore, it is not possible to hold that the trust in question is a trust for any public purpose. It is clearly a private trust. The character of the trust in question came to be considered by the Bombay High Court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT 1952 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the respondent contended that in failing to follow up the information that the respondent was in 'Bombay or in Ceylon', the Income-tax Officer was guilty of negligence, and, therefore, service by affixing cannot be regarded as duly made. Counsel relied upon the decision of the Madras High Court in Myitkyina Trading Depot v. Deputy Tahsildar [1957] 32 ITR 393 (Mad), and the decision of the Calcutta High Court in Gopiram Agarwalla v. First Addl. ITO [1959] 37 ITR 493. In Myitkyina Trading Depot's case [1957] 32 ITR 393, an unregistered firm which had its business mainly in Rangoon and had a branch office in Madras was assessed for the assessment year 1939-40. Proceedings for assessment were commenced against the firm after the partners had left for Burma and notice was served after the business was closed by affixing it on the house in which the respective wives of the partners resided, and proceedings for reassessment were completed ex parte. Assessments for the subsequent years 1940-41 and 1941-42 were also completed in their absence. On these facts, the Madras High Court held that there was no proper or due service of the notice under section 34 on the assessee and the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical objection' or a mere 'irregularity' and such vital infirmity cannot be cured or obliterated by relying on section 292B of the Income-tax Act. It is not a case of a notice issued or served, but which is beset with any mistake, defect or omission. This is a case of 'no notice' to 'the assessee'. As stated by the Calcutta High Court in Sunrolling Mills P. Ltd. v. ITO [1986] 160 ITR 412, 416, section 292B does not empower the Income-tax Officer to act without jurisdiction. In that case, the Calcutta High Court held that section 292B does not authorise the Income-tax Officer to convert a proceeding under section 147(b) of the Act into a proceeding under section 147(a) and that action cannot be justified by taking recourse to section 292B of the Act. It is not a mere technicality and it is question of jurisdiction. We are of the view that the said reasoning will apply in this case also. On this basis, we hold that the Appellate Tribunal was in error in holding that section 292B is applicable in the instant case and in reversing the orders of the Appellate Assistant Commissioner for these four assessment years." One other case that can be usefully referred to in this connection is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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