Rajasthan High Court - Jaipur
Shree Poongalia Jain Swetamber Mandir vs Commissioner Of Income-Tax on 19 May, 1987
Author: S.C. Agrawal
Bench: S.C. Agrawal
JUDGMENT Agrawal, J.
1. In these references relating to the assessment years 1972-73, 1973-74 and 1974-75, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as " the Tribunal"), has referred the following questions for the opinion of this court :
" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the appellant-trust could not be granted exemption under Section 11/12 of the Income-tax Act, 1961, for the assessment years 1972-73, 1973-74 and 1974-75?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the claims of the appellant-trust in respect of exemption under Section 11/12 of the Income-tax Act, 1961, for the assessment years 1972-73 and 1973-74 were forfeited by virtue of the provisions of Section 13(1)(c) read with the Explanation to Section 13(1) and Section 13(2)(a) and Section 13(3) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that any part of the income or property of the appellant-trust was during the previous years relevant to the assessment years 1972-73, 1973-74 and 1974-75 used or applied directly or indirectly for the benefit of any person referred to in Section 13(3) of the Income-tax Act, 1961 ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the firm of Sobhagmal Gokulchand, Jaipur, and/or its partners were persons referred to in Sub-section (3) of Section 13 of the Income-tax Act, 1961 ?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that any part of the income or property of the appellant-trust was lent to any person referred to in Sub-section (3) of Section 13 of the Income-tax Act, 1961, for any period during the relevant previous years without either adequate security or adequate interest or both within the meaning of Clause (a) of Sub-section (2) of Section 13 and Section 13(1) and deemed to have been used or applied for the benefit of any such person ? "
Shri Poongalia Jain Swetamber Mandir, Station Road, Jaipur (hereinafter referred to as " the assessee "), is a religious trust. It is registered as a trust under Section 12A of the Income-tax Act, 1961 (hereinafter referred to as " the Act "). It has a Jain temple situated at Station Road, Jaipur. The said temple was built some time in the year 1901 by late Shri Gokulchand and Shri Bhairoolalji. The temple is being managed by five trustees, namely, Rikhab Chand Poongalia, Gopi Chand Poongalia, Shikhar Chand Poongalia, Vimal Chand Poongalia and Deep Chand Chajed. Two of these trustees, namely, Rikhab Chand Poongalia and Shikhar Chand Poongalia, are grandsons of Shri Gokulchand, one of the founders of the trust. The property of the temple, particularly the shops facing the Station Road, are let out since long and nominal rent is being received. Besides rental income, the assessee also derives income from interest on a current account with Sobhagmal Gokulchand, a partnership firm, and also from general collections received from the worshippers in the temple. There are three partners in the firm, Sobhagmal Gokulchand. Two of the partners are Rikhab Chand Poongalia and Shikhar Chand Poongalia, who are trustees of the assessee, and the third partner in the said firm is Smt. Madan Sunder, the mother of Rikhab Chand Poongalia and Shikhar Chand Poongalia. In the previous years relevant to the assessment years in question, the firm, Sobhagmal Gokulchand, had been paying interest at the rate of 6 per cent. per annum on the amount lying to the credit of the assessee with them. The partners of Sobhagmal Gokulchand had lodged on June 25, 1970, with the trustees of the assessee the title deeds of the immovable property belonging to the Hindu undivided family of the three partners, situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, by way of equitable mortgage as security. The Income-tax Officer, District Central Circle-VI, Jaipur, by his orders (annexures B, B-1 and B-2) disallowed the claim of the assessee for exemp-tion under Section 11 or 12 of the Act in respect of the income of the assessee on the ground that the interest income was from deposits made with Sobhagmal Gokulchand which is a partnership firm in which the two, trustees are also partners and the rate of interest charged was not adequate and no adequate security has been taken and in view of the provisions of Section 13(2)(a) of the Act, the assessee-trust could not enjoy exemption under Section 11 or Section 12. On appeal, the Appellate Assistant Commissioner of Income-tax, Central Range, Jaipur, by his order (annexure "G") dated September 2, 1977, upheld the orders of the Income-tax Officer on the view that the provisions of Section 13(2)(a) were applicable and the assessee was not entitled to exemption under Section 11 or Section 12. The Tribunal, on further appeal, by its order (annexure " H ") dated April 29, 1978, upheld the order of the Appellate Assistant Commissioner and held that the assessee cannot be granted exemption under Section 11 or Section 12 for the assessment years under consideration. Thereupon, this reference has been made by the Tribunal at the instance of the assessee. Originally, these references were registered as one reference case, but since the references relate to three assessment years, by order of this court dated February 3, 1987, the references have been ordered to be registered as three separate references, being References Nos. 98, 98A and 98B of 1979.
2. Before we deal with the contentions that were urged by Shri T.C. Jain, learned counsel for the assessee, and Shri R.N. Surolia learned counsel for the Revenue, we may briefly refer to the relevant provisions of the Act,
3. Under Sections 11 and 12 of the Act, income from property held for charitable or religious purposes and income of trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes has been granted exemption from tax. Section 13 withdraws the exemption granted under Sections 11 and 12 in respect of matters covered by the said section. Clause (c) of Sub-section (1) of Section 13 relates to trust for charitable or religious purposes or a charitable or religious institution and Sub-clause (ii) of Clause (c) provides that if any part of the income of such trust for charitable or religious purposes or charitable or religious institution or any property of the institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in Sub-section (3) of Section 13, then the income of the said trust or institution would not be entitled to the exemption under Section 11 or 12. In Sub-section (2) of Section 13, it is provided that for the purpose of Clause (c) of Sub-section (1) of Section 13, the income or the property of the trust or institution or any part of such income or property shall be deemed to have been used or applied for the benefit of a person referred to in Sub-section (3) if it is used or applied in the manner prescribed in Clauses (a) to (h) of Sub-section (2) of Section 13. Clause (a) of Sub-section (2) of Section 13 provides for such a consequence if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in Sub-section (3), for any period during the previous year without either adequate security or adequate interest or both. In Sub-section (3) of Section 13, the persons referred to in Clause (c) of Sub-section (1) and Sub-section (2) of Section 13 are specified. Sub-section (3) of Section 13 was amended by the Finance Act, 1972, with effect from April 1, 1973, and as a result of the said amendment, Clause (cc) was inserted and in Clause (d) the words " member, trustee or manager " were substituted for the words "or member".
4. In the present case, the question which needs to be considered is as to whether the provisions of Section 13(2)(a) are attracted to the case of the assessee and in view of the aforesaid provisions, the assessee is not entitled to exemption under Section 11 or 12 in view of Clause (a) of Subsection (1) of Section 13 of the Act.
5. Shri Jain, learned counsel for the assessee, has contended that the provisions of Section 13(2)(a) cannot be applied to the present case inasmuch as the money of the assessee which is lying in deposit with Sobhagmal Gokulchand was neither lent without adequate security nor without adequate interest. The aforesaid submission of Shri Jain is in respect of all the three assessment years in question. As regards the assessment year 1972-73, Shri Jain has raised a further contention that the provisions of Section 13(1)(c) and 13(2)(a) are not applicable for the reason that none of the partners of Sobhagmal Gokulchand could be regarded as a person mentioned in Sub-section (3) of Section 13 during that assessment year.
6. We will first deal with the general contention urged by Shri Jain in relation to all the three assessment years, namely, that the provisions of Section 13(2)(a) are not applicable because the money of the assessee which was lying in deposit with Sobhagmal Gokulchand could not be said to be lent without adequate security or without adequate interest.
7. As regards adequacy of the security, Shri Jain has placed reliance on the letter (annexure " E-1 ") dated June 25, 1970, addressed by the three partners of Sobhagmal Gokulchand to the trustees of the assessee whereby they lodged with the trustees the title deeds of the immovable property situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, and having a market value of Rs. 1,50,000 towards the security for the monies of the assessee lying with the said firm. In the said letter, it has also been stated that the property is owned by the joint Hindu family consisting of three members who were also partners of Sobhagmal Gokulchand and that the title deeds of the property were being lodged with the consent of the members of the said Hindu undivided family. The partners have also stated that the title deeds of the immovable property so lodged, may be treated as creation of an equitable mortgage in favour of the trustee and that the partners of the firm individually also guaranteed and stood as surety for the repayment of the monies of the Mandir as and when demanded from the firm. It may be stated that at the beginning of the previous year relevant to the assessment year 1972-73, the amount belonging to the assessee which was lying with Sobhagmal Gokulchand was Rs. 96,298.51 and at the end of the said year the said amount was Rs. 99,996.87. At the end of the previous year relevant to the assessment year 1973-74, the amount lying in deposit with Sobhagmal Gokulchand was Rs. 1,05,425.36. At the end of the previous year relevant to the assessment year 1974-75, the said amount was Rs. 1,08,788.50. Shri Jain has also invited our attention to pages 394 and 395 of Mulla's Transfer of Property Act, 6th Edition, to show that the provisions of Section 58(f) of the Transfer of Property Act, 1882, relating to mortgage by deposit of title deeds, have been made applicable to the City of Jaipur and that it is permissible to create a mortgage by deposit of title deeds in Jaipur City. Shri Jain has also brought to our notice the decision of the Tribunal dated February 14, 1984, in ITO v. Poongalia Jain Swetamber Mandir, [I.T. Appeal Nos. 487 and 488 (Jp.) of 1983], relating to the assessment years 1977-78 and 1978-79, wherein the Tribunal has found that the security that was furnished by the partners of Sobhagmal Gokulchand in respect of the monies of the assessee deposited with the said firm was an adequate security.
8. In the present case, the Tribunal has held that the security referred to above was not adequate for the reason that the share of undivided family in the immovable property is not defined and there is no partition of the Hindu undivided family in respect of the secured property and that so long as the property is not divided, it would be difficult to know the share of the respective members of the Hindu undivided family in the said property. The Tribunal has also observed that before the authorities below or before the Tribunal, the actual document by which the immovable property was given as security was never filed and in the absence of such document or its copy, it would be difficult to accept that really the immovable property was given as security for the deposit made to the said firm by the assessee. We, however, find that a letter (annexure "A") dated October 29, 1976, was addressed by the trustees of the assessee to the Income-tax Officer wherein it was stated that the partners of Sobhagmal Gokulchand had long before lodged the title deeds of immovable property belonging to them of the market value of more than Rs. 1,50,000 as security for the advances and that in the opinion of the trustees, the equitable mortgage so created was adequate enough for the money so lent. Before the Appellate Assistant Commissioner an affidavit (annexure "F") of all the five trustees dated August 19, 1977, was filed. In the said affidavit, it has been stated that the three partners of Sobhagmal Gokulchand had on June 25, 1970, lodged with the trustees the title deeds of the immovable property belonging to the Hindu undivided family of the said three partners and situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, whose market value was more than Rs. 1,50,000, by way of equitable mortgage as security for the monies belonging to the assessee which were lying in current account with the firm, Sobhagmal Gokulchand. In the said affidavit, it was also stated that the said title deeds of immovable property were duly received by the trustees from Sobhagmal Gokulchand along with their letter dated June 25, 1970, and the said title deeds along with the aforesaid letter have all along been in their possession since then, in their capacity as trustees of the Mandir. In the affidavit, the trustees have also stated that in their opinion, the equitable mortgage as created was adequate security for the monies of the said Mandir so lying in a current account with the firm of Sobhagmal Gokulchand. We find that the letter dated June 25, 1970, to which reference has been made in the aforesaid affidavit is part of the record as annexure " F-1 " which shows that the said letter had also been placed before the authorities. In these circumstances, we are unable to agree with the Tribunal that before the authorities below or before the Tribunal, the actual document by which the immovable property was given as security was not filed and in the absence of such document or copy thereof, it was difficult to accept that really the immovable property was given as security for the deposit made with the said firm by the assessee. On the basis of the letter dated June 25, 1970, addressed by the three partners of Sobhagmal Gokulchand to the trustees of the assessee and the affidavit dated August 19, 1977, of all the five trustees of the assessee, we are of the view that all the three partners of Sobhagmal Gokulchand had lodged, by way of security, the title deeds of the immovable property situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, which was having a market value of Rs. 1,50,000 at that time, as security for the monies of the assessee lying with the said firm. The said property was owned by the joint Hindu family consisting of three partners of Sobhagmal Gokulchand and the title deeds of the property had been lodged with the consent of all the members of the said Hindu undivided family.
9. We are unable to appreciate the other reason given by the Tribunal for holding that the security was not adequate, namely, the share of the Hindu undivided family in the immovable property was not defined and there was no partition of the Hindu undivided family in respect of the secured property and so long as the property is not divided, it would be difficult to know the shares of respective members of the Hindu undivided family in the said property. As noticed earlier in the letter dated June 25, 1970, it has been mentioned that the property is owned by the joint Hindu family consisting of three members who were also partners of Sobhagmal Gokulchand and who had addressed the said letter dated June 25, 1970. It means that all the members of the Hindu undivided family had created the mortgage by the deposit of title deeds in respect of the entire property and since the market value of the said property was said to be more than Rs. 1,50,000 and the monies of the assessee lying with Sobhagmal Gokulchand during the previous years relevant to the assessment years in question were near about Rs. 1,00,000, it cannot be said that the said security was not adequate security. In our opinion, therefore, the Tribunal was not justified in holding that the security given by the partners of the firm, Sobhagmal Gokulchand, for the monies of the assessee lying with the said firm was not an adequate security.
10. We may now deal with the question as to whether the interest of 6 per cent. per annum which was being paid by Sobhagmal Gokulchand to the assessee on the monies lying with the said firm was adequate or not. In this connection, Shri Jain has urged that 6 per cent. per annum was the rate of interest prevailing at that time and the firm, Sobhagmal Gokulchand, paid the assessee, the same interest as to its other depositors. Shri Jain has also referred to the certificate (annexure " E ") dated September 15, 1976, issued by the Bank of Baroda, Johari Bazar Branch, Jaipur, with regard to the rates applicable on various deposits for a period of 12 months during the years 1971 to 1976. According to that letter, the rate of interest on fixed deposits for a period of 12 months during the period from April 1, 1970, to January 10, 1971, was 5 1/2 per cent. and it was 6 per cent. during the period from January 11, 1971, to March 31, 1974. In support of his submission that the rate of interest paid by the Sobhagmal Gokulchand cannot be regarded as inadequate, Shri Jain has invited our attention to the provisions of Section 80 of the Negotiable Instruments Act, 1881, Section 34 of the Land Acquisition Act, 1894, and Section 13(3) of the Rajasthan Premises (Control of Rent and Eviction) Act, 1950, whereunder the rate of interest prescribed is 6 per cent. Shri Jain has also submitted that under the notification dated October 1, 1965, issued under Section 29 of the Rajasthan Money-Lenders Act, 1963, the maximum rate of interest payable on secured loans has been fixed as 9 per cent. and on unsecured loans, the said rate has been fixed as 12 per cent. In this connection, Shri Jain has also urged that the question regarding adequacy of interest under Section 13(2)(a) has to be judged from a common man's angle and it cannot be said that the rate of interest of 6 per cent. paid by Sobhagmal Gokulchand was not adequate rate of interest. Shri Jain has also urged that in any event it was for the Department to produce evidence to show that interest paid by Sobhagmal Gokulchand was not adequate and that in the present case, there is no material on the record whatsoever to show that the said rate was not adequate.
11. We find considerable force in the aforesaid submissions of Shri Jain. The Act does not lay down any criterion as regards determination of the adequacy of the interest paid on money lent by the trust. The rate of interest is dependent on various factors. The rate of interest is less where loan is with security and more where it is without security. The rate of interest for the purpose of deposit differs from the rate for the purpose of borrowing. For the purpose of judging the adequacy of the rate of interest in the present case, what is relevant to be considered is the rate prevalent in the market for the purpose of depositing money and the rate of interest for the purpose of borrowing money cannot be made the criterion for judging the adequacy of the rate of interest. The Appellate Assistant Commissioner as well as the Tribunal have held that the rate of interest paid by Sobhagmal Gokulchand was not adequate for the reason that the banks were charging interest at the rate of 12 per cent. to 15 per cent. on money advanced by them. In our opinion, the rate of interest which is charged by the banks on money advanced by them cannot be used as a criterion for judging the adequacy of rate of interest paid on monies deposited by the assessee with Sobhagmal Gokulchand. The more appropriate criterion would be the rate of interest that was paid by the banks on deposits made with them. As noticed earlier, during the relevant period, the rate of interest which was being paid by the banks on fixed deposits for a period of 12 months was 5 1/2 per cent. to 6 per cent. which was the same as the interest paid by Sobhagmal Gokulchand to the assessee.
12. The other reason that has been given by the Tribunal for holding that the rate of interest was not adequate is that in the matter of refund of money under Section 244 of the Act, interest was payable at the rate of 12 per cent. with effect from April 1, 1972, and earlier from October 1, 1967, the rate of interest was 9 per cent. In our opinion, the aforesaid rate of interest prescribed under Section 244 cannot be held to be the sole criterion for adjudging the adequacy of rates of interest because we find that in other enactments, namely, the Negotiable Instruments Act, the Land Acquisition Act and the Rajasthan Premises (Control of Rent and Eviction) Act, the rate of interest that had been prescribed was 6 per cent. There was no other material before the Tribunal on the basis of which it could hold that the rate of interest paid by Sobhagmal Gokulchand on the money of the assessee lying with the said firm was not adequate. In the circumstances, we are unable to agree with the finding recorded by the Tribunal that the interest that was being paid by Sobhagmal Gokulchand on the money belonging to the assessee which were lying with the firm was not adequate.
13. Since we are of the opinion that the Tribunal was not justified in holding that the security given by the partners of Sobhagmal Gokulchand for the money of the assessee lying with the firm and the interest paid by the said firm on the said money was not adequate and for that reason, the provisions of Section 13(2)(a) are not attracted, we do not consider it necessary to deal with the other contention urged by Shri Jain in relation to the assessment year 1972-73, that none of the partners of the firm, Sobhagmal Gokulchand, could be regarded as person mentioned in Sub-section (3) of Section 13 during the said assessment year. In these circumstances, we do not consider it necessary to deal with questions Nos. 2, 3 and 4 and the said questions are returned unanswered.
14. Questions Nos. 1 and 5 are answered as under :
Question No. 1: On the facts and in the circumstances of the case, the Tribunal was not justified in holding that the trust could not be granted exemption under Section 11/12 for the assessment years 1972-73, 1973-74 and 1974-75.
Question No 5 : On the facts and in the circumstances of the case, the Tribunal was not justified in holding that any part of the income or property of the appellant-trust was lent to any person referred to in Sub-section (3) of Section 13 for any period during the relevant previous years without either adequate security or adequate interest or both within the meaning of Clause (a) of Sub-section (2) of Section 13 and was, therefore, for the purpose of Clause (a) of Section 13(1) deemed to have been used or applied for the benefit of any such person.
15. There will be no order as to costs.