Income Tax Appellate Tribunal - Madras
Kottur Rengaswamy Mudaliar Estate vs Income-Tax Officer on 10 January, 1992
Equivalent citations: [1992]42ITD711(MAD)
ORDER
S. Kannan, Accountant Member
1. Centered as they are on certain common issues, these two appeals by the assessee-trust were heard together and are disposed of by a common order.
2. The assessee is a trust which during the relevant point of time had both agricultural and non-agricultural income. In the original assessments relating to the two assessment years in question, in the context of the assessee's claim for exemption under Section 11 of the Act, the assessee's case was that the income applied by it to charitable purposes must be attributed to its non-agricultural income and that, if so attributed, the assessee was entitled to full exemption under Section 11 of the Act. The Assessing Officer, however, took a different line. Finding that both agricultural and non-agricultural income of the assessee were mixed up, he concluded that the income applied to charitable purposes must be regarded as having come out of the two streams of income, namely, agricultural and non-agricultural, on proportionate basis. Proceeding to calculate on the aforesaid basis the non-agricultural income applied to charitable purposes, the Assessing Officer found that there were shortfall in the application of such income to such purposes. Accordingly, he brought the short-falls to tax.
3. The first appellate authority declined to interfere in the matter. The assessee took up the matter in appeal before the ITAT contending, inter alia, that the assessee was maintaining separate books of account for agricultural and non-agricultural operations and that consequently, the lower authorities were not justified in denying the assessee the benefit of exemption under Section 11 to the full extent. Finding that this plea was raised before them for the first time, the Tribunal set aside the assessment orders and remitted the matter to the first appellate authority for fresh consideration and decision. This was on 30-4-1976.
4. On 21-1-1985 the first appellate authority, in his turn, remitted the matter to the Assessing Officer for fresh consideration and decision.
5. The Assessing Officer re-examined the matter and found that -
- the assessee had maintained two sets of books of account, one relating to agricultural income and the other called general account relating to non-agricultural income;
- priodically amounts were being transferred from the former set of accounts to the latter;
- not only the expenses of the assessee-trust but also the income applied by it to charitable purposes flowed from the general account.
The Assessing Officer, therefore, concluded that, by reason of the aforesaid transfer, agricultural income actually credited to general account lost its separate character of agricultural income and merged into a composite fund of the trust from which applications to charitable purposes have been made, and that consequently the exemption available to the assessee under Section 11 would have to be calculated on a pro rata basis. In this regard, the Assessing Officer observed:
Though it can be accepted that the Trust's non-agricultural income is sufficient to enable the Trust to meet its whole expenses out of it, from the way the Trust is accounting for its agricultural and non-agricultural income in the general account, it could be verified that the Trust is meeting its expenses only from the composite fund consisting of both agricultural and non-agricultural receipts. Hence, the contentions submitted before the Income-tax Appellate Tribunal do not merit any fresh consideration as the actual facts are contrary to the assessee's assertion that the expenses of the Trust were met out only from non-agricultural income.
He, therefore, completed the assessments in the same manner as they had been done initially. This was on 30-11-1987.
6. Predictably the assessee took up the matter in appeal before the Dy. Commissioner (Appeals), F-Range, Madras. The basic issue that was raised was that the reassessments made on 30-11-1987 were barred by limitation. On the exemption issue it was contended that the Assessing Officer was not justified in not granting the full exemption available to the assessee under Section 11 of the Act.
7. None of the aforesaid contentions found favour with the D.C. (Appeals). It is in these circumstances that the assessee is now before us. Shri Philip George, the learned counsel for the assessee reiterated before us the arguments that had earlier been advanced unsuccessfully before the D.C. (Appeals). Thus the basic contention of Mr. Philip George was that the impugned assessment orders which were passed on 30-11-1987 were hit by the bar of limitation. It is a matter of record that on 21-1-1985 the first appellate authority remitted the matter to the Assessing Officer for de novo examination. Therefore, under the provisions of Section 153(2A) of the Act the reassessments ought to have been completed on or before 31-3-1987. They were, however, completed on 30-11-1987. Therefore, the reassessment were clearly hit by the bar of limitation. In this regard he referred to and relied upon the CBDT Circular No. 10-P(V-68) of 1968 dated 11-10-1968.
Turning then to the merits of the case, he contended that as has been held by the Bombay High Court in the case of CIT v. Silk & Art Silk Mills Association Ltd. [1990] 182 ITR 38' there is no question of apportioning the sum applied to charitable purpose as had been done by the Assessing Officer.
In view of the foregoing, therefore, contended Shri Philip George, the assessee is entitled to succeed.
8. On his part Shri G. Natarajan, the learned Departmental Representative, strongly supported the impugned orders of the lower authorities. On the limitation issue, he contended that the provisions of Section 153(2A) are not applicable to assessment years 1969-70 and 1970-71 which are before us. Secondly, the Circular referred to and relied upon by Shri Philip George, being purely administrative in nature, is not applicable to the case before us.
As for the merits of the case Shri Natarajan strongly contended that the assessee having in effect maintained only one set of accounts, apportionment was necessary. In this regard he referred to and relied upon the Allahabad case of CIT v. Panchayati Akhara Nirmal [1991] 190 ITR 121.
9. In his reply Shri Philip George vehemently contended that the Board's Circular referred to above was binding on the lower authorities and that consequently the assessments are hit by bar of limitation.
10. We have looked into the facts of the case. We have considered the rival submissions.
11. On the limitation issue, we consider that the impugned assessments are not hit by the bar of limitation. Section 153 of the Act prescribes time limit for completion of assessment and reassessment. Prior to the insertion of Sub-section (2A) to Section 153 by the Taxation Laws (Amendment) Act, 1970 w.e.f, 1-4-1971, Section 153(3) in terms stipulated that the assessments, reassessments and recomputation thereunder referred to may be completed at any time. The fresh assessments of the type under consideration were one of the items falling under the said sub-section.
12. Sub-section (2A), which was introduced with effect from 1-4-1971, for the first time prescribed time limit for completion of fresh assessment in pursuance of an order under Section 146 or 250 or 254 or 263 or 264 of the Act. But the Sub-section makes it clear that its provisions are applicable only to the assessment years 1971-72 and onwards and not to earlier assessment years. Consequential amendments were also made to Sub-section (3) of Section 153. Therefore, the fresh assessments before us, relating as they do to the assessment years 1969-70 and 1970-71, are not hit by the bar of limitation prescribed under Section 153(2A) of the Act.
13. As we see it/the Circular referred to and relied upon by Shri Philip George cannot avail the assessee for more reasons than one. Firstly, it was purely an administrative Circular designed to regulate and for monitor the working of the Department. Even here -- this is the second point -- the Circular itself makes it clear that in cases of the type referred to therein, fresh assessments should normally be completed within a period of two years. The use of the word "normally" is significant. At the time when the Circular was issued, the Act did not prescribe any time limit for making fresh assessments in cases of the type referred to in the said Circular. It could not have been the intention of the Board that fresh assessments in all such cases should invariably be completed within a period of two years, irrespective of the nature and the extent of the inquiries that might be warranted by each case. Finally, the Board cannot acting under Section 119 of the Act issue Circulars overriding, contravening, or in effect amending the provisions of the Act - see CIT v. Autofin. Ltd. [1985] 151 ITR 741 (AP); CIT v. Sahney Steel & Press Works Ltd. [1985] 152 ITR 39 (AP) and CIT v. Ramchandra Poddar Charitable Trust (1987] 164 ITR 66 (Cal.). Indeed in Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1 the Supreme Court made it clear that the Court will not give effect to a Circular which seeks to curtail or narrow down the provisions of the Act.
It is significant to note that different types of Circulars, namely those conferring a benefit on the assessee came to be considered in the cases of Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC) and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC). They were not purely administrative in nature. They were designed to confer some benefit on the assessees.
14. We, therefore, decide the limitation issue against the assessee and dismiss the related ground.
15. This brings us on to the merits of the case. The scheme of the Act is that the tax is charged in respect of the total income of the previous year of an assessee. The scheme also contemplates exclusion from the total income of certain types of income. Thus, we have Chapter III dealing with incomes which do not form part of total income. The fasciculous of Sections 10 to 13A (both inclusive) collected under this Chapter has the effect of carving out certain categories of income from the total income of the assessee. The result of such carving out of certain categories of income from the total income is that such categories of income by reason of not being included in the total income of the assessee are completely exempt from the purview of the Act.
16. The scheme of the Act further contemplates certain other types of income which are included in the total income of the assessee but in respect of which the Act provides relief by way of deduction in computing the total income (see the heading 'C.-Deductions in respect of certain income' of Chapter VI-A) or of granting certain relief from tax payable (Chapter VIII and IX).
17. We are here concerned with Section 10(1) and 11, both of which, as pointed out earlier, fall under Chapter III.
18. Section 10(1) stipulates that agricultural income will not be included in the total income of the assessee, the term "agricultural income" having been defined under Section 2(1) of the Act as it stood at the relevant point of time. The exclusion of agricultural income from the total income of the assessee has been impelled by the constitutional consideration that 'Taxes on agricultural income" can be levied only by the Legislature of a State and not by Parliament (see Entry 82 of List I and Entry 46 of List II in Schedule VII to the Constitution).
19. Section 11 of the Act deals with 'Income from property held for charitable or religious purposes'. Exemption under Section 11 is available in respect of income derived from property held under trust wholly for charitable or religious purposes, if and only if the various conditions set out not only in that section but also in Sections 12, 12A, 13 and 60 to 63 are fulfilled.
20. Even though the focus of Section 11 is on a particular class of income, namely income from property held in trust wholly and exclusively for religious and charitable purposes, yet income derived from one category of property, namely, agricultural lands, is not covered by that section for the simple reason that agricultural income is exempt from income-tax to start with. To put it differently if a public charitable trust were to hold agricultural land only, then the agricultural income derived by it would be exempt under Section 10(1) itself, because, as we have noticed earlier, under the Constitution, Parliament is not competent to levy tax on agricultural income. The position will not be any different even if a public charitable trust were to hold properties, some of which are agricultural land. Here agricultural income will be exempt under Section 10(1) and non-agricultural income will be exempt under Section 11, provided, of course, the assessee satisfies the conditions laid down in Sections 11 to 13 and 60 to 63. In other words, Section 11 deals with income which but for the provisions of Section 11 would have been included in the total income of the assessee-trust.
21. In the case before us the assessee-trust holds both agricultural and non-agricultural property. And it is a matter of record that agricultural and non-agricultural income were mixed and the income applied by the assessee-trust to charitable purposes flowed from the mixed fund. Now the question that arises for consideration is whether for purposes of the exemption available under Section 11 the income applied for charitable or religious purposes must be attributed exclusively to non-agricultural income or proportionately to agricultural income on the one hand and non-agricultural income on the other. In such cases, as we see it, it will be reasonable to apply the rationale behind the doctrine of attribution. In the case of Paton v. IRC 21 TC 626 Lord Wright explained the doctrine thus:
...In the ordinary course, a person paying interest does not generally appropriate the payment to income or to any particular piece of income or any specific asset: he has the general body of available funds, say his banking a/c, If he has only one, and he pays by drawing on that a/c, which may include income, borrowed money, capital and so forth. This is what is meant by payment out of a mixed fund, or payments made out of the general till, or payments made neutrally. The Revenue authorities have no right in such cases to appropriate those payments to non-taxable rather than taxable moneys. Hence the tax-payer is given the right of attribution in the way most favourable to himself. It is presumed in the absence of evidence to the contrary that payments are made out of income.
The said doctrine can certainly avail the assessee. With the result it will not be reasonable to apportion the income applied to charitable purposes between the agricultural and non-agricultural incomes.
22. In this connection we may here highlight the fact that the said view was taken by the Calcutta High Court in the case of CIT v. Ashoka Charity Trust [1982] 135 ITR 556'. Respectfully following the said decision, we hold that the assessee is entitled to succeed.
23. In view of the foregoing, therefore, we set aside the orders of the lower authorities and direct the Assessing Officer to calculate the exemption available to the assessee under Section 11 on the footing that the income actually applied by the assessee during the relevant previous year for wholly charitable and religious purposes came out of or was wholly attributable to non-agricultural income of the assessee-trust.
24. In the result, both the appeals are allowed.