Calcutta High Court
Commissioner Of Income-Tax vs Birla Jan Kalyan Trust on 15 May, 1989
Equivalent citations: [1991]190ITR351(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1970-71, the following question of law has been referred to this court:
"Whether, on the facts and in the circumstances of the case, the proceedings under Section 147 of the Income-tax Act, 1961 are valid in law ?"
2. Shortly stated, the facts are that the Income-tax Officer found that a "nil" return was filed originally but a claim for refund of Rs. 3,300 was made of tax deducted at source from interest earned by the trust. The Income-tax Officer had accepted the claim and allowed the refund of Rs. 3,300. Subsequently, a supplementary claim for refund of Rs. 755 being tax deducted at source from dividend was also allowed by the Income-tax Officer, The dividend and interest income had been claimed as exempt under Section 11 of the Income-tax Act. Subsequently, the Income-tax Officer found that the trustees of Birla Jan Kalyan Trust had received certain assets (shares) from the trustees of Raja Baldeodas Birla Santotikosh Trust in March, 1964, as a gift. According to the Income-tax Officer, the trustees of Raja Baldeodas Birla Santotikosh Trust had no power to alienate any of the movable properties which came into their possession by virtue of the original deed dated May 20, 1943, because the Raja Baldeodas Birla Santotikosh Trust was a family trust and the assets belonging to it were not to be given in charity for charitable purposes, The gift of shares, according to the Income-tax Officer, was ab initio void and the assessee was not the rightful owner of the said shares during the previous year under consideration. As the shares did not, according to the Income-tax Officer, belong to the assessee, the income arising therefrom did not belong to it and it was not entitled to the refund of Rs. 4,055 granted to it by the Income-tax Officer in the original assessment. In the light of this information, the Income-tax Officer initiated action under Section 147(b)/148 to make a reassessment and withdrew the refund of Rs. 4,055. The assessee again had shown-"nil" income in the return filed in response to the notice under Section 148 and a claim was made that the income earned by it during the year was exempt under Section 11 of the Income-tax Act. It was also contended that "there was full and true disclosure of all material and primary facts and evidence" at the time of the original assessment and, as such, proceedings under Section 147 should be dropped. The Income-tax Officer did not accept the contention of the assessee and completed the reassessment under Section 147(b). By his order under Section 147(b), the Income-tax Officer withdrew the refund of Rs. 4,055 on the footing that the assessee was not entitled to the credit for the tax deducted at source. The Income-tax Officer also held that the entire income of Rs. 6,42,783 was not exempt under Section 11 inasmuch as the trustees of Birla Jan Kalyan Trust had not complied with the terms and conditions prescribed in Section 11(2) in respect of the entire balance of Rs. 2,57,547 left after spending Rs. 3,85,236 on charity. The Income-tax Officer's argument was that the aggregate income of the assessee-trust was Rs. 6,42,783 and Rs. 3,85,236 was spent on charities and, as such, this amount was exempt under Section 11(1)(a). The balance left was Rs. 2,57,547 which was more than 25% of the income. But the assessee satisfied the conditions of Section 11(2) in respect of only Rs. 1,00,000 and not in respect of the entire accumulation of Rs. 2,57,547. According to the Income-tax Officer, the assessee-trust was not entitled to the benefit of exemption allowable under Section 11(2) in respect of the entire accumulation. The Income-tax Officer held that the benefit of accumulation would be available only in respect of 25% of the income, i.e., Rs. 1,60,696. Thus, the Income-tax Officer added back Rs. 96,851--Rs. 2,57,547 less Rs. 1,60,696.
3. Aggrieved, the assessee went up in appeal before the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner held that the assessee is the rightful owner of the shares of Raja Baldeodas Birla Santotikosh Trust and directed the Income-tax Officer to treat the entire income as exempt and cancel his order of withdrawal of refund of the amount of Rs. 4,055.
4. Being not satisfied with the order of the Appellate Assistant Commissioner, the Department filed an appeal to the Tribunal. The assessee also filed a cross-objection challenging the validity of the reassessment under Section 147(b)/148. The Tribunal, following the decision of the Calcutta High Court in the case of Baijnath Saboo v. ITO [1978] 113 ITR 303, held that the proceedings under Section 147(b) were without any jurisdiction inasmuch as there was no escapement of income and allowed the cross-objection of the assessee, Thereafter, the departmental appeal was dismissed as infructuous.
5. At the hearing Mr. Bajoria, learned counsel, has relied on the decision of this court in Baijnath Saboo [1978] 113 ITR 303 which has also been relied on by the Tribunal in holding that the proceedings have become infructuous. In that case, the petitioners were the trustees of Birla Jan Kalyan Trust which is the respondent in this case. In that case, the assessment year involved was 1968-69. In that case, the validity of the notice issued under Section 148 of the Income-tax Act, 1961, for the assessment year 1968-69 was challenged. As the trust is a public charitable trust, the income of the said trust was also exempt. The said trust also claimed that it has received as gift certain shares from a private trust and, therefore, the taxes that were deducted at source in respect of the dividends on the shares which had been gifted to the public charitable trust were refundable to the trust. It came to the knowledge of the Income-tax Officer that the gift from the private trust in favour of the public trust was void. As the private trust had no power to make a gift, therefore, the refund of the tax deducted at source given to the public charitable trust, according to the Income-tax Officer, was wrongly given and had to be rectified. It was for that purpose that the assessment for the year 1968-69 was sought to be reopened. After setting out the ground upon which the reopening was sought to be justified, the court in Baijnath Saboo proceeded to hold as follows (p. 305) ;
"The question, therefore, is whether there has been any escapement of income of the trust of which the petitioners are the trustees entitling the revenue authorities to reopen the said assessment. Section 147 of the Income-tax Act entitles the Income-tax Officer to reopen the assessment if he has reason to believe that income chargeable to tax has either (i) escaped assessment for the relevant year ; and (ii) has been underassessed ; or (iii) has been assessed at too low a rate ; or (iv) has been made the subject of excessive relief ; or (v) excessive loss or depreciation allowance has been computed. As the trust of which the petitioners are the trustees is a public charitable trust, its income was not assessable to tax. Therefore, there is no question of any income escaping assessment because the income was not assessable, nor was there any question of any under-assessment or assessment at too low a rate. In this case, there is also no question of excessive loss or depreciation allowance being computed. If that was the position, then the only ground on which the assessment could have been reopened was that the income chargeable to tax had been made the subject of excessive relief. The income being not chargeable to tax, being the income of a public charitable trust, there was no question of that income being given excessive relief. Therefore, the fact that the petitioners got away with refund which the petitioners were not entitled in law, does not authorise the income-tax authorities to say that the petitioners had been given excessive relief on income chargeable to tax. This position seems to be fortified by the decision of the Supreme Court in the case of P.S. Subramanyan, ITO v. Simplex Mills Ltd. [1963] 48 ITR 182. It appears that a similar view was also taken by the Kerala High Court in the decision of the case of Moidu v. ITO [ 1965 ] 2 ITJ 336.
In that view of the matter, the notice under Section 148 cannot be sustained and must be held to be without jurisdiction."
6. It appears that an appeal was preferred against the said judgment for the assessment year 1968-69 in Civil Appeal No. 171 of 1978 in (ITO v. Shri Baijnath Saboo). By the judgment delivered on July 19, 1982, the court of appeal dismissed the appeal on the following terms :
"In our opinion, the learned judge is perfectly right. The learned judge has referred to a decision of the Supreme Court in P.S. Subramanyam, ITO v. Simplex Mills Ltd. [1963] 48 ITR 182. He has also relied on a decision of the Kerala High Court in Moidu v. ITO [1965] 2 ITJ, 336. These two decisions, admittedly, support the view taken by the learned judge. Moreover, in our opinion, we do not think that the Income-tax Officer had authority to declare the gift to be void on the interpretation of the deed of gift.
In the circumstances, we affirm the judgment of the learned judge and dismiss this appeal."
7. Since the validity of the reopening of the assessment for the earlier year has been decided by the Division Bench in the said appeal preferred by the Department, in our view, it must be held, in the absence of any new fact or material, that there was no escapement of income in this case.
8. For the reasons aforesaid, we answer the question in this reference in the negative and in favour of the assessee.
9. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
10. I agree.