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TMI Blog1995 (10) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... e land, its development followed by construction thereupon, sale of flats at market rate was not a business venture but, an activity carried out towards the objects of the trust for providing housing to the poorer section of Parsi community and therefore, the trust continues to retain its charitable character. 2. The facts as are noted in the order of assessment and the order of the DIT is brought out briefly below. The assessee-trust in its statement of income had sought for accumulation of ₹ 65 lakhs for the specific purpose of construction of buildings for housing the poor section of the Parsi community and this was stated pursuant to the resolution dated 16-10-1990. The appellant had leased out land owned by it to M/s Spenta Co-op. Housing Society Ltd., a Parsi society for fifty years at an annual rent of ₹ 75,000. On this land development was carried out followed by construction of sixty flats which flats was sold to richer class and a surplus of ₹ 7,09,13,678.75 was generated. The generated funds was treated as on capital account and so transferred vide a resolution dated 12-12-1990 to a composite scheme of housing. Of the above surplus the appellant util ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achieve the larger objective and hence, not hit by the provisions of section 11(4A) of the Act and directed the DDIT to issue instructions to the Assessing Officer for completing the assessments accordingly. He noted the DDIT had forwarded the DIT's letter dated 4-3-1993 to the Assessing Officer as his directions under section 144A of the Act and the present assessment order as such was framed. 4.1 DIT considered the notification dated 17-10-1989 issued by the Central Board of Direct Taxes in exercise of powers conferred on it by section 120 of the Act by which it had authorized the DIT to perform the functions of the Commissioner in respect of the class of cases of clauses (21), (22), (22A), (23), (23A) and (23C) of section 10, sections 11 and 12 of the Act, assessed or assessable by any Income-tax authority. He accordingly concluded that by virtue of the above stated notification, he has the necessary sanction of law to invoke the section 263 of the Act in respect of assessments framed with reference to sections 11 and 12 of the Act. He had also considered the sequence of events as brought out earlier like the series of advises issued by DIT at the first instance, the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by CBDT which was the reason not to add the words power to the DIT in relation to assessments concerning sections 11 12 of the Act. He contended that the DIT therefore, could not have the power of revision assigned to the Commissioner under section 263 of the Act. He placed reliance on the meaning of the term 'function', 'power' as defined in Jowitts Dictionary of English Law - 2nd edition, Volume 2 ; Venkataramayya's Law Lexicon and Blacks Law Dictionary - revised 4th edition. The learned counsel contended that the term function only extends to administrative functions and do not extend such other execution of filing of appeals or reference or revision and that since, section 263 grants a power of revision to the Commissioner which not having been extended to the DIT by the notification, his action of revising the order is beyond his jurisdiction. 5.1 The learned departmental representatives Mr. Tilakchand and Mr. Dixit referred to Sampath Aiyangar's Law of Income-tax, the notification and submitted that the notification had been so issued consequent to the decentralization by the CBDT and for effective implementation of the Act. Reliance was placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. This is also reproduced below for the sake of convenience :-- In exercise of the powers conferred by sub-sections (1) and (2) of section 120 of the Income-tax Act, 1961, and in supersession of any order issued by the Directors General as authorized under clause (b) of the notification of the Govt. of India in the Min. of Finance, Central Board of Direct Taxes, No. S.O. 358(E) dated 30-3-1988, so far as it relates to the jurisdiction of Directors, the Central Board of Direct Taxes hereby : (a) directs that the Directors specified in column (2) of the schedule hereto annexed shall exercise their powers vested in them under section 132 of the Act and perform their functions relating thereto in respect of the territorial areas of the whole of India 1. Director of Income-tax (Investigation), Delhi Union Territory of Delhi The notification by which DIT is appointed under section 132 of the Act gives them the power of impounding property found in the premises searched. Considering the special nature of functions under that section, the notification has the words 'power' in the notification appointing Directors to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in refusing the status of a charitable trust, he could not take any remedial measures to correct a wrong done, which means that the Commissioner is not empowered to act according to the statute, which is a ridiculous proposition. According to the notification issued by CBDT, the DIT has to function as the Commissioner with reference to the assessments falling under the provisions of sections 11 12 of the Act. The functioning as Commissioner within the provisions of sections 11 12 of the Act confers upon the power to grant registration as a charitable or religious trust because, every trust having income is required to get itself registered. In the exercise of his function as the Commissioner, if he comes across case/cases which have failed to comply with the provisions or has been wrongly granted the status as charitable trust then, he has the power to withdraw such registration. Therefore, a DIT when performs the function of the Commissioner with reference to sections 11 12 of the Act, as conferred upon by the CBDT, he acts as such and this action could be said to be complete only when he can correct the wrong implementation of the Act. In order to correct the wrong imple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greed by his reply dated 6-5-1992. The Assessing Officer however, did not complete the assessment but, preferred to submit his detailed report dated 23-12-1992 to DIT giving reasons for holding the trust to be charitable and calling for directions of DIT by forwarding the same to DDIT. The DDIT submitted a report to DIT dated 19-1-1993 enclosing the report of Assessing Officer dated 23-12-1992 stating that the predecessor DIT had felt that the activity of the trust as not of charitable nature. The DIT replied to this report to DDIT vide his letter dated 4-3-1993 accepting the views of the Assessing Officer that the trust is charitable in nature which directions were enclosed by DDIT to Assessing Officer on the same date as his directions under section 144A of the Act and the assessment was accordingly framed on 11-3-1993. The counsel submitted that the DIT was closely involved with the assessment proceeding and the Assessing Officer was all through guided by him and acted in accordance with those guidance because he was subservient to the DDIT DIT and has to act according to the directions issued under section 144A of the Act. Since, the Assessing Officer had framed the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin his powers in not following any imposition by his superiors which they are not so authorized by the Act. On these contentions and in the light of the observation of the DIT in para 8 of his order reproduced earlier, it gives an impression that the DIT was more affected in the Assessing Officer not following his first guidance dated 6-5-1992 holding that the activity of the trust was business activity and therefore, not covered by section 11(4A) of the Act. Further since, the successor DIT had revised the guidance dated 19-1-1993 holding that the trust's activity as wholly charitable despite he being invited to the directions of the predecessor DIT where he had held the trust's activity as a business, the DIT took upon himself that he could also revise his predecessor's views. This action of the DIT is therefore based on personal prejudice and since, the Act does not permit revision of an order of Assessing Officer with a view to revise the orders of his predecessor DIT, we have to strike down this basis of revision of the order as illegal and against the provisions of the Act. The Act does not contain any provision by which an order of Commissioner could be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n so framed pursuant to the directions while the fact may that no such direction was ever issued. This decision however, does not apply to a situation similar to the those in Kiran Co.'s case and in Virendra Kumar Jhamb's case where the assessments were framed pursuant to the settlements reached with the Commissioner. 7. The contention of the assessee was that the order was framed on the direction given by DDIT under section 144A of the Act and to that extent the Assessing Officer could not be said to have applied his mind and therefore, that portion of the order based on the direction of DDIT under section 144A of the Act, could not be revised under section 263. According to the counsel the amendment to section 263 of the Act which permits revision of orders that are made in pursuance to the directions under section 144A of the Act is intended to cover all those cases and to that part of the order of assessment which is not guided by the directions under section 144A of the Act. The support of the argument was with reference to the earlier decisions which have held that the order could not be erroneous when he follows his superior orders. The Supreme Court decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to make it prejudicial to the interests of the revenue. Considering the volume and the tax involved, the CBDT from time to time had issued such notifications to the effect that Inspecting Assistant Commissioners of Income-tax, Deputy Commissioners of Income-tax would also act as Assessing Officer singly or shall have concurrent jurisdiction. The order of assessment passed by Assessing Officer or Assessing Officer under directions of Inspecting Assistant Commissioner (IAC) or by IAC all are performing the functions of an Assessing Officer. This is clearly brought out in the Notes on Clauses to the Taxation Laws Amendment Bill, 1984 by which the Explanation to section 263 was introduced covering the orders framed as per the directions received under section 144A of the Act. This is reproduced below for the sake of facility : Sub-clause (a) seeks to insert an Explanation to sub-section (1) of section 263. Under the existing provisions, the Commissioner is empowered to revise any order passed by the Income-tax Officer under the Income-tax Act if he considers that such an order is erroneous insofar as prejudicial to the interests of the revenue. The Explanation seeks to clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has the approval of the learned legal luminary Mr. N.A. Palkhiwala. The approval of the Municipal Commissioner for occupation of the property at Gibbs Road floor by floor is also placed on our record. The application dated 22-6-1988 to the Charity Commissioner of Maharashtra State made under section 36(1)(a) of the Bombay Public Trusts Act, 1950 referring to a resolution passed on 3-1-1984 for the construction on Gibbs Road Plot, lease of the land to a co-op. society at an annual lease of ₹ 75,000, price fixed for the sale of flats. The said authority vide order dated 17-11-1990 accorded sanction to the lease of the land at an annual lease rent of ₹ 75,000 for fifty years to Spenta Co-op. Housing Society Ltd. 8.1 The assessee contended the same submissions as were made before the Assessing Officer, DDIT and DIT and had placed on our record all of such submissions at pages 3 to 69 of the paper book. It has also placed at pages 80 to 87 the copy of the resolutions of utilization of the surplus from sale of Spenta flats. The counsel submitted that conversion of an existing capital asset into another for acquisition of another capital asset for the objective of the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allow the construction and sale of flats to people and utilize the funds so collected in providing housing for the poor. The resolutions of the trust are in line with the scheme floated by the State Government and they had carried their intentions by leasing the land to a co-op. society of Parsis for fifty years, constructed thereupon flats, indicated the price at which it was proposed to be sold to the Charity Commissioner while seeking his approval for the lease. The Charity Commissioner was to ensure that surplus land owned by public charitable trust would be allowed to be retained by the trust only if it constructed flats to house the poor and for achievement of this objective it could sell, or lease land and construct houses thereupon and sell them at the market price because there was no other way to augment resources by such trusts. The Charity Commissioner had granted his approval of the low lease rent, permitted the sale of flats and realize the proceeds and utilize the proceeds for construction of flats for housing the poor Parsis. The fact that sixty flats were constructed on the leased land to Spent Coop. Housing Society which were sold to the richer sections o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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