Income Tax Appellate Tribunal - Hyderabad
Hyderabad Stock Exchange Ltd. vs Income-Tax Officer on 13 October, 1992
Equivalent citations: [1993]44ITD192(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. The assessee in this case is Hyderabad Stock Exchange Limited which is also the appellant in this appeal. The assessment year involved is 1983-84. The only question in this appeal is whether the assessment order dated 19-3-1986 passed by the Income-tax Officer, G-Ward, Company Circle, Hyderabad is either erroneous or prejudicial to the interest of the Revenue and if so liable for revisionary jurisdiction under Section 263 of the Income-tax Act, 1961 as also whether the revisionary order of the Commissioner of Income-tax, A.P.-I, Hyderabad dated 22-3-1988 is just, legal and valid.
2. For the assessment year 1983-84, the assessee filed a return of loss of Rs. 70,217. The assessee filed an application for condonation of delay in filing notice under Section 11(2)(a) of the Income-tax Act, 1961 seeking permission to accumulate the income earned for that year. The Income-tax Officer found that the learned Commissioner of Income-tax, A. P. permitted the assessee to accumulate its income pertaining to financial years 1972-73 to 1982-83 i.e., up to 31-3-1982 and since the accumulated income of Rs. 5,66,735 had crossed the period of 10 years limit, he proposed to assess Rs. 5,66,735 in the hands of the assessee for assessment year 1983-84. The authorised representative for the assessee replied to the Income-tax Officer stating that the assessee acquired property in March 1984 and the proposed assessment of Rs. 5,66,735 is therefore, not called for. The Income-tax Officer appeared to have been satisfied with this explanation and therefore, having regard to the provisions of Section 11(2)(a) held that the accumulated building fund of Rs. 3,432 pertaining to 1973-74 had to be brought to tax in assessment year 1984-85. Ultimately, he determined the income of the assessee at Rs. 3,07,151 and he held it to be exempt under Section 11 of the Income-tax Act. Thus he passed the assessment order dated 19-3-1986.
3. The learned Commissioner of Income-tax, A.P.-I, Hyderabad had sought to revise the assessment order under Section 263 of the I.T. Act. He took note of the fact that the assessee had accumulated an amount of Rs. 5,66,735 towards building fund from out of the income derived by it during the previous years relevant to assessment years 1973-74 to 1982-83 (both years inclusive). In the notice under Section 11(2) of the Income-tax Act in relation to assessment year 1973-74, it was mentioned by the assessee that it intended to accumulate its income for the financial year 1972-73 and subsequent 10 years. The Commissioner of the Income-tax, A.P-I, Hyderabad vide his orders dated 13-3-1984 rejected the application for condonation of delay in filing the notice under Section 11(2) of the Income-tax Act in relation to assessment year 1983-84 and held the assessee exchange entitled to accumulate its income for 10 years only i.e., for financial years 1972-73 to 1982-83. He found that the period of accumulation extends only up to 31-3-1982. The learned Commissioner held that the accumulated building fund was not utilised for the purpose for which it was intended up to 31-3-1982 or in the next financial year i.e., up to the assessment year 1983-84 and the unspent accumulation of Rs. 4,60,901 has to be taxed as income of the assessee for assessment year 1983-84. Again the request for accumulation for the assessment year 1983-84 was held to be belated since the application was filed on 14-12-1983. The Commissioner had rejected the assessee's request for condonation of delay for filing the said notice and in view of the said order the sum of Rs. 1,90,000 accumulated during the previous year relevant to assessment year 1983-84 has to be brought to tax as the income of the assessee as the conditions under Section 11(2)(a) of the Act remained unfulfilled. Thus according to the Commissioner of Income-tax, Rs. 5,66,735 and the income earned in the previous year relevant to assessment year 1983-84 which was offered for assessment should both be brought to tax. However, the Income-tax Officer did not bring to tax a sum of Rs. 5,66,735 for assessment year 1983-84 and the said failure on the part of the Income-tax Officer had resulted in under-assessment. A show cause notice was issued on 23-2-1988 and on 17-3-1988 written objections and further particulars were filed by the assessee exchange objecting to the invocation of revisionary jurisdiction under Section 263. The following grounds were taken in the objections :
(i) The accumulation set apart is out of income earned during the Financial Year. The first Financial Year ended on 31-3-1973 and the accumulation starts from 1-4-1973. The 10 years period as mentioned in Section 11(2)(a) commences from 1-4-1973 and expires on 31-3-1983.
(ii) The time for utilisation of the accumulated funds i.e., the year immediately following the expiry of the period of 10 years expired on 31-3-1984 and the assessee has utilised the accumulated amount in purchase of the land on 5-1-1984. Thus there is no contravention.
(iii) Each year's accumulation should be treated as a separate accumulation within the meaning of Section 11(2).
(iv) Under Section 11 (3), the Income-tax Officer had discretion to allow any person to apply the accumulated income for alternate charitable purposes as may be specified in the application and the Income-tax Officer while allowing the application for accumulation for assessment year 1983-84 should be deemed to have allowed accumulation under Section 11(3).
(v) There is no power to prescribe time limit for submission of form No. 10 and as such the Income-tax Officer should decide the application on merits and pass necessary orders.
The learned Commissioner had discussed each of the objections raised by the assessee and rejected each one of them. He held that the first financial year of the accumulated period being 1972-73, the period of 10 years mentioned in Section 11(2)(a) ends with financial year 1981-82. Under Section 11(3) of the I.T. Act any income so accumulated but remaining unspent before the expiry of 10 years period or before the expiry of the previous year immediately following the expiry period aforesaid has to be taken as the income of the assessee for the previous year immediately following the expiry of the period of 10 years mentioned in Section 11(2)(a). According to the provision, the learned Commissioner of Income-tax felt that the accumulated Income during the financial years 1972-73 to 1981-82 but remained unspent during this period of 10 years should be deemed to be the income of the previous year 1982-83 relevant to assessment year 1983-84.
4. This finding of the learned Commissioner was assailed as erroneous by Shri Y. Ratnakar, learned advocate for the assessee. He contended that the accumulation set apart is out of income earned in any financial year. The first financial year ended on 31-3-1973. It had opportunity to spend the income of that year during the course of the said financial year either on the first day or on the last day or any day in between. The question of accumulation would arise only after the expiry of the financial year i.e., in this case the accumulation starts from 1-4-1973. The ten years period of accumulation ends by 31-3-1983. Now let us see the time limit for utilisation of the set apart funds. Section 11(3)(c) is very clear on this point. The section as far as it is relevant for our consideration reads as follows :
11 (3) Any income referred to in Sub-section (2) which--
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(c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in Clause (a) of that sub-section or in the year immediately following the expiry thereof 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 set apart or ceases to remain so invested or deposited or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.
The previous year immediately following the expiry of the period of 10 years expires on 31-3-1984. If the accumulation is not utilised before 31-3-1984, then according to Shri Y. Ratnakar, the set apart amount during assessment year 1973-74 becomes taxable in assessment year 1984-85. But in this case, the assessee had utilised this amount in purchase of land on 5-1-1984 itself and so there was no contravention of provisions of Section 11(3). Sri Ratnakar contended that the Commissioner cannot legally impose any conditions while condoning the delay nor can he reduce the period available for accumulation while condoning the delay as is done in this case. The learned Commissioner of Income-tax, A.P-I, by his order dated 12-3-1984 under which he dealt with the question of condonation of delay for accumulation for assessment years 1972-73, 1973-74, 1976-77, 1977-78, 1979-80, 1980-81, 1981-82, 1982-83 and 1983 84 a copy of which is now furnished at page 51 & 52 of the paper compilation filed before us, held the following while granting accumulation of income relating to financial year 1972-73 :
In the notice filed for the assessment year 1973-74, the assessee had mentioned that it intends to accumulate its income for the financial year 1972-73 and the subsequent 10 years. As stated above, it is entitled to accumulate its income for the financial year 1972-73 relevant for the assessment year 1973-74 up to the end of the financial year 1981-82 relevant to the assessment year 1982-83. Since this application filed for the assessment year 1973-74 covers the request for accumulation in respect of the subsequent assessment years also, it is enough if the delay in filing the application is condoned. Accordingly under the powers vested in me under Section 119(2)(b) of the Income-tax Act, 1961, vide Central Board of Direct Taxes Order F.No. 180/57/80/IT.AI, dated 3-6-1980, I hereby condone the delay in filing the notice under Section 11 (2) before the Income-tax Officer in respect of the financial year 1972-73 relevant to the assessment year 1973-74. Accordingly the assessee is permitted to accumulate its income pertaining to the financial years 1972-73 to 1981-82 up to 31-3-1982 as permitted under Section 11(2)(a) of the Income-tax Act.
Shri Y. Ratnakar argues that this order should be taken to be the order passed by the Commissioner of Income-tax, A.P-I, Hyderabad exercising his powers under Section 11(2) (a) after condoning the delay in filing form No. 10. It is clear from a reading of the order that the learned Commissioner had granted full term of 10 years for accumulation. The incoine relating to financial year 1972-73 is the income for which accumulation is asked for. Up to what date the period of accumulation extends or allowed is determined by law and not by the order passed by the Commissioner of Income-tax, A.P-I. His mistaken impression about the period of accumulation or about start of the accumulation period or end of the accumulation period should not bind the assessee if it is shown to be against the provision of the statute, namely, Section 11(2)(a).
5. On the other hand, the learned Departmental Representative, contends that the period of accumulation allowable to the assessee was the period specifically stated by the Commissioner of Income-tax in his order dated 12-3-1984. That means, it extends for financial years 1972-73 to 1981-82 and the accumulation is allowed only up to 31-3-1982 and the subsequent accumulation after 31-3-1982 since it was not utilised even by 31-3-1983 is correctly brought to tax in assessment year 1983-84.
6. We are unable to accept the contention of the learned Departmental Representative. The learned Commissioner had granted 10 years period as the period of accumulation. The income for financial year 1972-73 is the first year's income for which accumulation is prayed for. No permission for accumulation is needed if the said amount is to be spent within 31-3-1983 itself. Permission for accumulation is needed only if the amount is accumulated or set apart after the close of the financial year i.e., if accumulation starts from 1-4-1973. Thus the 10 years accumulation extends up to 31-3-1983. Simply because the Commissioner had a mistaken notion about the period of accumulation available under law and simply because he erroneously thought that the period of accumulation starts even on 1-3-1972 cannot be binding against the assessee. Further Section 11(2)(a) does not vest in the Commissioner any authority to restrict the period of accumulation from out of the period prayed for. Suppose if 10 years accumulation is prayed for, can the Commissioner of Income-tax restrict it only to 6 or 7 years ? Under Section 11(2)(a) such power did not appear to have been conferred on the Commissioner of Income-tax. Section 11(2)(a) states as follows :
Such person specifies, by notice in writing to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years;
Therefore, it can be seen that the applicant has to state only the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, and the period in no case shall exceed 10 years. The section does not speak about any further discretionary power having been granted to the Commissioner of Income-tax to cut short the period of accumulation. It is submitted by Shri Ratnakar that originally, the power to condone the delay in filing form No. 10 is vested with the C.B.D.T. which was made over to the Commissioner by a circular to admit application under Section 11(2). While entertaining such applications it was stated in the circular that the Commissioners should satisfy themselves of the fulfilment of the following conditions only and none others :
(i) that the genuineness of the Trust is not in doubt.
(ii) that the failure to give notice to the Income-tax Officer under Section 11 (2) of the Act and investment of the money in the prescribed securities was due only to oversight.
(iii) that the trustees or the settlor have not been benefited by such failure directly or indirectly.
(iv) that the Trust agrees to deposit its funds in the prescribed securities prior to the issue of the Government sanction extending the time under Section 11 (2) and
(v) that the accumulation or setting apart of income was necessary for carrying out the objects of the trust.
After having been satisfied about fulfilment of the conditions set out above, the Commissioners have to automatically exercise their power under Section 11 (2) including allowing maximum period of accumulation up to 10 years if prayed for. The Commissioners are not further called upon to prescribe the period of accumulation.
The period of accumulation is to be determined according to law and it is not left to the discretion of the Commissioner while allowing 11(2) application. Therefore, we are satisfied with the merit in the argument that the order of the Commissioner of Income-tax dated 12-3-1984 should be read only as an order permitting accumulation for a full period of 10 years. The period of accumulation is a point of law to be determined and it is not vested in the Commissioner to prescribe the dates within which the accumulation is permitted. Therefore, even though the order of the Commissioner states that the period of accumulation extends only to 31-3-1982, it is not binding against the assessee, the assessee is entitled to show that the period thus limited by the Commissioner is wrong in law. We are satisfied that in fact the period of accumulation extends up to 31-3-1983.
7. The further question would be what is the date within which the utilisation of the accumulated income is to be made. As per for utilization of accumulated funds, the Legislature thought it fit to extend the period for utilisation for one more year from the end of 10 year period of accumulation. Under Section 11(3)(c), the question of the accumulated income being considered as deemed income is dealt with. According to it the accumulated income should be utilised during the 10 years period of accumulation or in the year immediately following the expiry thereof. That means, in the facts and circumstances of this case, the assessee is at liberty to utilise the accumulated building fund up to 31-3-1984. Now in this case, the building site was purchased on 5-1-1984. Therefore, there is no contravention of Section 11(3) and the accumulated income up to 31-3-1983 cannot become deemed income of the assessee for assessment year 1983-84. Had it remained unspent for assessment year 1983-84 also, then it would have been taxable only in assessment year 1984-85 according to Section 11(3). Therefore, under no circumstances, the building fund accumulated can be taxable as deemed income of the assessee under Section 11(3) in assessment year 1983-84. Thus, the order of the Income-tax Officer does not appear to be erroneous under law. If it is not erroneous, there is no question of its being prejudicial to the interest of the Revenue. For assessment year 1983-84 also, application was filed for condonation of delay on 14-12-1983. This was rejected by the learned Commissioner of Income-tax observing at the close of para 2 of his order now found at page 52 of the paper compilation filed before us :
Thus according to the provisions of Section 11(2), the assessee is entitled for accumulation of its income for the financial year 1972-73 and its subsequent 9 years up to 31-3-1982 i.e., up to assessment year 1982-83 only. In view of this, the application for accumulation of income filed for the financial year 1982-83 cannot be entertained and accordingly the application filed by the assessee on 14-12-1983 for condonation of delay in filing the notice under Section 11(2) for the assessment year 1983-84 is rejected.
We also found that period of accumulation is available to the assessee up to 31-3-1983 which is the previous year relevant to assessment year 1983-84. Therefore, the application for accumulation filed by the assessee for assessment year 1983-84 cannot be said to be falling outside the maximum allowable accumulated period of 10 years and hence, in our view, the learned Commissioner had wrongly rejected the application for accumulation for assessment year 1983-84.
8. The next contention raised by the assessee's counsel by Shri Y. Ratnakar was that each year's accumulation is separate and distinct and even supposing that utilisation of accumulated funds was not made within the 10 years period or in the year immediately following the expiry of that period, then the portion of the accumulated income liable to be taxed as deemed income is the accumulated income relating to assessment year 1973-74 i.e,Rs. 3,432 and not the whole of the accumulated income.
9. We cannot accept this plea. Section 11(3) commences with the words 'any income referred to in Sub-section (2), if not applied to charitable or religious purposes ceases to be accumulated or set apart, ceases to remain invested or deposited in the forms or modes specified in Subsection (5) of Section 11 or is not utilised within 10 years period of accumulation or in the immediately following year following the expiry of 10 years period of accumulation shall be deemed to be the income of such person. Therefore, the deemed income is the income referred to in Subsection (2). Sub-section (2) inter alia refers to accumulated income for a period of 10 years. Therefore, it follows that if conditions set out in Section 11 (3) are not fulfilled the whole of the accumulated income shall become the deemed income of the assessee under Section 11 (3). Therefore, in view of this, the argument that the deemed income under Section 11(3) could only be the accumulated income relating to financial year 1972-73 equivalent to assessment year 1973-74 is not correct.
10. In view of the above, we hold that the revisionary order of the learned Commissioner of Income-tax passed under Section 263 of the Income-tax Act does not appear to be valid under law and therefore, it is set aside. The appeal is allowed.