Income Tax Appellate Tribunal - Hyderabad
Tulsiram Gilda Public Charitable Trust vs Assistant Commissioner Of Income-Tax on 30 October, 1992
Equivalent citations: [1993]44ITD341(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. In the first two appeals, Tulsiram Gilda Public Charitable Trust, Hyderabad is the assessee. In the subsequent 3 appeals, the assessee is a different Trust and is known as Tulsiram Harikishan Gilda Public Charitable Trust, Hyderabad.
2. The main common question which arises in all these appeals is whether the revisionary action taken by the Commissioner under Section 263 of the Income-tax Act, 1961 is legally supportable or justifiable on facts and circumstances of these cases. Since common questions are involved they can be taken up together and disposed of by a common order for the sake of convenience.
3. Now let us trace the facts with regard to M/s. Tulsiram Gilda Public Charitable Trust relating to assessment years 1985-86 and 1986-87. The assessee is a Public Charitable Trust. It had filed its income-tax returns on 25-7-1985 for assessment year 1985-86 and on 29-7-1986 for assessment year 1986-87. For assessment year 1985-86 the assessment was completed under Section 143(1) on 24-1-1987 accepting the returned income. For assessment year 1986-87 also, assessment order was passed under Section 143(1) on 24-9-1987 accepting the returned income. Demand notices were sent on 30-9-1987 charging tax at the maximum marginal rate. Then the assessee filed applications under Section 143(2)(a)on27-10-1987inFormNo. 16A contending that the provisions of Section 161(1A) are not applicable and further contending that the income of the Trust has to be taxed only at ordinary rates and not at maximum marginal rates. It would appear that the contentions put forward on behalf of the assessee in its applications filed under Section 143(2)(a) dated 27-10-1987 were accepted by the Income-tax Officer and he ordered firstly that the assessee is a Charitable Trust and that its beneficiaries are public at large and therefore, the provisions of Section 160(1)(m) are not applicabi.e., He ordered that ordinary A. O. P. rates should be applied. Thus he ordered that the sum of Rs. 23,870 determined for assessment year 1985-86 and a sum of Rs. 30,613 for assessment year 1986-87 should be assessed at ordinary rates. Thus the Income-tax Officer passed separate assessment orders dated 28-3-1988 for assessment years 1985-86 and 1986-87 under Section 143 read with Section 143(2)(a) of the Income-tax Act. After going through the assessments, the learned Commissioner of Income-tax felt that because of the assessee's contravention of provisions of Section 13(1)(d) the income of the trust is not exempt under Section 11 or Section 12 both for assessment years 1985-86 and 1986-87 and in those circumstances, part of the relevant income is liable to be assessed as income belonging to the A.O.P. and maximum marginal rate should have been applied under the proviso to Section 164(2). Instead the Income-tax Officer completed the assessments for these two years by ordinary rates applicable to the A.O.P. which resulted in under-assessments which are both erroneous as well as prejudicial to the interests of the revenue. Therefore, a show-cause notice under Section 263 was issued to the assessee on 14-3-90 in answer to which the assessee filed written arguments on 13-3-90 before the learned Commissioner of Income-tax. In the arguments advanced on behalf of the assessee, the following are found:
(i) The investment made by the assessee Trust in M/s. Karnataka Stone Supplying Co., Salem was in the capacity of partner and the income derived from the partnership business no doubt comes under business income. If any business income is derived by Charitable Trust under Section 11 (4A) it should be taxed under Section 164(2) as A.O.P. and ordinary rate should only be applied to that A.O.P.
(ii) The proviso under Sub-section (2) of Section 164 which applies only when there was a contravention of Section 13(1)(c). Section 13(1)(d) does not control the main provision of Section 164(2) and as such the proviso applicable only in respect of income other than business income.
(iii) If the proviso is made to apply to the business income then what is given by way of concessional rate of tax under Section 164(2) will stand cancelled by the proviso because the investment is not made in the specified assets. As such the investment made in the business will stand by itself and will not be hit by the provisions of Section 11 (5) as otherwise there would be no need for having a provision like 164(2).
(iv) If the interpretation suggested by the Commissioner is adopted, then Charitable Trust cannot carry on any business undertaking, except at the peril of being assessed at maximum marginal rate, which in fact is not the intention of the Legislature. Support was sought to be obtained for the assessee's argument from the Board's Circular No. 387 dated 6-7-1984 which stated that a new Sub-section (1A) in Section 161 was inserted to cover only the Private Trust having profits and gains of business and maximum marginal rate does not apply to business profits of a Charitable Trust which are otherwise chargeable to tax. Hence a stand was taken that the business profits of a Charitable Trust are not chargeable at the maximum marginal rate and the proviso under Sub-section (2) to Section 164 applies only to any income not being the income from business of a Charitable Trust. The assessee Trust requested the learned Commissioner to drop the proceedings initiated under Section 263 of the Income-tax Act. The objection raised and the request for dropping the revisionary proceedings initiated by him under Section 263 were all rejected by the Commissioner.
4. While rejecting the objection and request of the assessee for dropping the revisionary proceedings, the Commissioner of Income-tax in his impugned order dated 30-3-90 disposing of the point in each of the assessment, years 1985-86 and 1986-87, held the following:
(i) When a proviso has been inserted under the main section, it is only an adjunct to the main provision and it does not have the effect of an independent provision. Therefore, the proviso under Section 264(2) must be read with Section 164(2) and not independently. If so done, it would be clear that the business profits derived by a charitable trust which are chargeable under Section 11(4A) is taxable as income of A.O.P. However, when once 13(1)(c) and 13(1)(d) are infringed, the income which is to be taxed under Section 164(2) has to be taxed at the maximum marginal rate.
(ii) A clear reading of Section 164(2) and the proviso thereunder would not indicate any distinction between the business income and non-business income. There was no need to import terms which are not there in the section. One has to look merely to what is merely stated. There is no room for any intendment. Nothing is to be read and nothing is to be implied and one can only look fairly at the language used. Even according to the assessee, the income earned by it was business income. There is contravention of provisions of Sections 11(5) and 13(1)(d) and as such income derived by the Trust has to be taxed at the maximum marginal rate as exemption under Section 11 is not available by virtue of the provisions of Sections 11(5) and 13(1)(d).
(iii) Board's circular No. 387 dated 6-7-84 applies only to private trusts having profits and gains of business. The last sentence in para 28.6 of the circular that where such a Trust (Charitable Trust) contravenes the provisions of Section 13(1)(c) or 13(1)(d) of the I.T. Act the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provisions. In other words business income of a private trust is chargeable to tax at the maximum marginal rate while business income of a charitable trust is not chargeable at the maximum marginal rate, unless the income incurred forfeiture of exemption by virtue of the provisions of Section 13(1)(d) of the Act. The Circular of the Board will not be of any avail to the assessee.
The Commissioner of Income-tax ultimately held the following:
The income of the Trust is business income and it has to be assessed to tax as income of the A.O.P. as there was contravention of provisions of Section 11(5) as well as provisions of Section 13(1)(d) and, therefore, it should be assessed at the maximum marginal rate. Thus he set aside the assessment orders passed by the Income-tax Officer under Section 143(3) read with Section 143(2)(a) both for assessment years 1985-86 and 1986-87 and directed him to redo the same in accordance with law.
5. Now in the case of the second Trust, which is the assessee in the later three appeals of this series, let us examine the facts relating to assessment years 1986-87, 1987-88 and 1988-89. In this case also, the assessee is a Public Charitable Trust and the assessment years involved are 1986-87, 1987-88 and 1988-89. The income-tax returns were filed for these years on 29-7-86, 7-7-87 and 20-7-88 respectively. Assessments were completed under Section 143(1). While completing the assessment for 1986-87, the Income-tax Officer charged income-tax at maximum marginal rate. The Trustees filed objection petition in Form No. 6A objecting to the levy of tax at the maximum marginal rate. The Income-tax Officer accepted the objection of the assessee and passed assessment orders under Section 143(3) read with Section 143(2)(a) for assessment year 1986-87. The said assessment order was passed on 28-3-88. In the said assessment order, the Income-tax Officer levied tax at ordinary A.O.P. rate on the business income of Rs. 29, 654 fixed for assessment year 1986-87. For assessment year 1987-88 assessment order was passed on 15-9-87 under Section 143(1) determining the business income at Rs. 27,971 and the Income-tax Officer directed that ordinary rate leviable on AOP should be collected from the assessee. So also for assessment year 1988-89, the Income-tax Officer passed an assessment order under Section 143(1) levying ordinary rates applicable to A.O.P. on business income determined for assessment year 1988-89. For the same reasons which were mentioned while initiating revisionary proceedings in the case of the Trust which was the assessee in the first two appeals, in the case of the second trust also, in levying maximum marginal rate after determining the business income of the assessee for assessment years 1986-87, 1987-88 and 1988-89 the orders were found erroneous and prejudicial to the interests of the revenue. Therefore, according to the learned Commissioner of Income-tax there was under-assessment made by the Income-tax Officer and they are liable to be revised. The same objections which the assessee filed in the case of the first named Trust were raised in the case of the second Trust also and the proposed revisionary action of the Commissioner is objected to and requested to be dropped. For similar reasons which are assigned in the case of the first named Trust, the learned Commissioner rejected all the contentions of the assessee by his common orders dated 30-3-90 and held that the assessee trust earned business income, that it contravened the provisions of Section 11(5) as well as 13(1)(d) and therefore, the business income earned by the assessee Trust for these three assessment years should be taxed at maximum marginal rate under the proviso to Section 164(2). Since he felt that there were under-assessments he set aside the assessment orders for these three years and directed the Income-tax Officer to reframe the assessments according to law. Aggrieved against the revisionary orders of the Commissioner of Income-tax dated 30-3-90 both these assessees came up in second appeals before this Tribunal and thus the matters stand for our consideration.
6. We have heard Shri K.L. Rathi, learned advocate for the assessee and Shri S.C. Jaini, the learned Departmental Representative. Shri K.L. Rathi contended the following. Proviso to Section 164(2) does not cover business income. Section 13(1)(d) provision (iii) says that every business fund need not be kept invested in approved securities under Section 11(5). To show the real intention of a proviso in an enactment, our attention is drawn by Shri K.L. Rathi to the Supreme Court's decision in CIT v. Madurai Mills Co. Ltd. [1973) 89 ITR 45 in which the intention of an enactment as per the headnote obtaining at page 46 of the reported decision is given as follows:
It is well settled that considerations stemming from legislative history must not be allowed to override the plain words of a statute.
A proviso cannot be construed as enlarging the scope of an enactment when it can be fairly and properly construed without attributing to it that effect. Further, if the language of the enacting part of the statute is plain and unambiguous and docs not contain the provisions which are said to occur in it, one cannot derive those provisions by implication from a proviso.
In order to highlight his argument that proviso to Section 164(2) does not apply to business income and unless it is so construed the reading of Section 164(2) would lead to absurd results, Shri K.L. Rathi brought to our notice, the Supreme Court's judgment in the case of K.P. Varghe.se v. ITO [1981] 131 ITR 597 wherein the Rule of interpretation in a case where literal construction would lead to absurd results is stated to be as follows:
A statutory provision must be so construed, if possible that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even do some violence to it, so as to achieve the obvious intention of the Legislature and produce a rational construction.
In support of the proposition that where two interpretations are available the interpretation which is favourable to the assessee should be adopted the learned counsel for the assessee brought to our notice the decision of the Supreme Court in CIT v. J.K. Hosiery Factory [1986] 159 ITR 85. In the facts of that case before the Hon'ble Supreme Court, there was unabsorbed depreciation of an unregistered firm of Rs. 43,963. It was sought to be carried forward for assessment year 1950-51 in which the firm was granted registration. The question is whether such carry forward is possible and in that connection, the Supreme Court inter alia held the following at page 85 as part of its headnote:
In case of doubt, the assessee is entitled to an interpretation which is favourable for him.
7. On the other hand, the learned departmental representative relied upon the orders of the learned Commissioner of Income-tax passed under Section 263 and contended that the business income earned by the assessee trusts are liable to be assessed at maximum marginal rate under the provisions of Section 164(2) of the Income-tax Act and, therefore, the two sets of impugned orders passed by the learned Commissioner of Income-tax under Section 263 are not liable to be disturbed and, on the other hand, they are entitled to be confirmed.
8. After having heard the arguments on both sides, we are of the opinion that one of the crucial argument advanced by Shri K.L. Rathi should be accepted as correct and on that ground it should be held that the provisions of Section 13(1)(d) were not in fact contravened by the assessee firm for not either depositing the business income or funds of the assessee trusts in approved securities under Section 11(5). Immediately we may refer to the provisions of Section 13(1)(d) proviso (iii) which is as follows:
13(1) Nothing contained in Section 11 or Section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof--
(d) in the case of a trust for charitable or religious institution any income thereof, if for any period during the previous year--
Pro v. (iii) any funds representing the profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year.
Under the said provision any fund of the trust or institution invested or deposited before 1st March 1983 otherwise than in one or more of the forms or modes specified in Sub-section (5) of Section 11 continue to remain so invested or deposited after 30th day of November 1983. Therefore, the funds of the Trust or institution which were previously invested or deposited before 1-3-83 should also remain so invested in the forms or modes prescribed under Sub-section (5) of Section 11 even after 30th day of November 1983. The funds of the Trusts or institutions should not be invested or deposited after 28-2-83 otherwise than in any one or more forms or modes specified in Sub-section (5) of Section 11. However, there are certain exceptions recognised by the proviso in which case funds of the trust or institutions need not be kept in one or more of the forms or modes specified in Sub-section (5) of Section 11. One of the exceptions is found under proviso (iii) mentioned in Section 13(1)(c). The said part of the proviso as well as explanation thereunder are the following:
Provided that nothing in this clause shall apply in relation to--
(iii) any funds representing the profits and gains of business being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year.
Explanation: Where the trust or institution has any other income in addition to profits and gains of business, the provisions of Clause (iii) of this proviso shall not apply unless trust or institution maintains separate books of account in respect of such business.
Now in this case each of these assessees were holding 25 per cent share in a partnership firm M/s. Karnataka Stone Supplying Co., Salem. Except share income which is considered as business income, the assessee did not derive any other type of income and, therefore, the explanation quoted above does not apply to either of these assessees. Now according to proviso (iii) if the funds representing the profits and gains of business and if they relate to any previous year relevant to assessment year commencing on 1-4-84 or subsequent assessment year they need not be business profits deposited in forms or modes specified in Sub-section (5) of Section 11. Therefore, the finding of the learned Commissioner of Income-tax that because the business income was not invested either in one of the forms or modes specified in Sub-section (5) of Section 11 and for that reason the provisions of Section 13(1)(d) are contravened by the assessee appears to be not correct under law. On the other hand, having regard to the correct interpretation of proviso (iii) to Section 13(1)(d), it would appear that business profit or gain which was derived in the assessment year commencing on 1-4-84 or for subsequent assessment year were not invested in the specified modes of investment under Sub-section (5) of Section 11. For that reason, it cannot be said that there was a contravention of Section 13(1)(d). That means even if the business funds or profits and gains derived from business were not deposited in any of the specified modes prescribed under Sub-section (5) of Section 11 there cannot be contravention of Section 13(1)(d) and this the main ground on which the learned Commissioner of Income-tax felt that the case of the assessee falls under proviso to Section 164(2) does not appear to be correct. On the other hand, even in the absence of the assessee trusts in these cases before us falling to deposit their business funds as well as profits and gains derived by them in their business in one or more of the modes specified in Sub-section (5) of Section 11 it should be taken that there was no contravention of Section 13(1)(d) and for that reason the assessee did not get exemption under Section 11 then, in our considered opinion the provision to Section 164(2) does not apply. Contravention of the proviso to Section 13(1)(c) or 13(1)(d) is only one of the modes which would earn disqualification for an assessee for getting exemption under Sections 11 and 12. This contravention of Sections 13(1)(c) and (d) is not exhaustive for being disqualified for exemption under Sections 11 & 12. For instance if an assessee trust does not spend 75 per cent of the income earned by it in a particular assessmentyear, the short-fall of expenditure from 75 per cent may be taxable unless and until the accumulation is sought for and obtained on filing Form No. 10A. Even for such short-fall in income exemption under Section 11 is not availabi.e., Thus there may be several modes by which the exemption under Section 11 may not be available to a particular assessee. But when such exemption under Section 11 is specifically not available to the assessee for the reason that there is contravention of the provisions of (c) and (d) of Section 13(1), then only the proviso under Section 164(2) applies and it does not apply in other cases or circumstances. That means business income derived by the assessee trusts which are public charitable trusts are ordinarily assessable to tax under Section 164(2) and only ordinary rates applicable to A.O.P. has to be applied to such income. But if such business income renders itself ineligible for exemption under Section 11 for the additional reason that it contravened the provisions of Section 13(1)(c) or (d) then the business income is assessable at maximum marginal rate. This, in our opinion is the correct interpretation of the provisions of Section 164(2) as well visa-vis the proviso thereunder. The contention of the assessee that Section 164(2) applies to business income and proviso thereunder applies to non-business income, according to us, is an argument which deserves to be rejected outright and it has no legal force.
9. The learned Commissioner held that the business funds invested by the first assessee for assessment year 1985-86 as well as 1986-87 and the business income derived by it were not withdrawn and the particulars of the same' are as under:
Asst. Year Previous Year Extent of funds ended on invested 1985-86 24-10-84 Rs. 1,33,870 1986-87 12-11-85 Rs. 1,46,807 Asst. Year Income derived Income withdrawn 1985-86 Rs. 23,870 Nil 1986-87 Rs. 30,464 Rs. 17,488
In the case of the second assessee, the following particulars are furnished :
Asst. Year Previous Year Extent of Income Income ended on funds invested derived withdrawn 1986-87 12-11-85 Rs. 1,63,804 Rs. 31,133 Rs. 15,010 1987-88 1-11-86 Rs. 1,82,079 Rs. 29,443 Rs. 11,168 1988-89 22-10-87 Rs. 2,03,337 Rs. 32,703 Rs. 11,445
As can be seen from the above tables, either business funds or the profits and gains from business which were alleged not to have been deposited in the specified modes prescribed under Sub-section (5) of Section 11 were all derived in the assessment year commencing from 1 -4-84 or subsequent assessment years. Therefore, the proviso (iii) to Section 13(1)(d) clearly applies to all the funds which were stated to have been not deposited in forms or modes specified under Sub-section (5) of Section 11. For all the above reasons we have to hold that these cases of two assessees were not governed by the proviso to Section 164(2) but they were governed by Section 164(2) only i.e. by the main sub-section itself and not of the proviso. Therefore, we are of the opinion that the action of the Income-tax Officer in applying ordinary rates applicable to AOP for the business income earned by these assessees for the assessment years under consideration before us is perfectly justified and such action of the Income-tax Officer is neither erroneous nor prejudicial to the interest of the revenue and the two sets of orders of the learned Commissioner do not appear to be correct under law and therefore, they are hereby set aside and the orders of the Income-tax Officer for these years are restored.
10. In the result, the appeals of the assessee are allowed.