Income Tax Appellate Tribunal - Mumbai
R.B.V.K. Udyog Mandir Charity Trust vs Sixth Income-Tax Officer on 20 May, 1987
Equivalent citations: [1987]22ITD449(MUM)
ORDER
K.C. Srivastava, Accountant Member
1. This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals) and relates to the assessment year 1980-81. The assessee is a charitable trust. This trust came into existence in 1962. The trust was admitted as a charitable trust by the ITO and it has been found that the primary object of the trust was the economic, social and general welfare and upliftment of women in India. For this purpose, the trust was carrying on several activities, giving employment to women and selling the products produced by them. There were several other trusts by the settlors belonging to the same family of Rao Bahadur Vissanji Khimji and in 1979 as many as 7 trusts including the assessee moved an application Under Section 50A(2) of the Public Trust Act, 1950 for amalgamation of these 7 trusts. The Commissioner for Charities considered the application and after considering the trustees of the trust, he held that it was necessary and expedient to amalgamate the 7 trusts and to have a scheme for running all these trusts. The Charity Commissioner permitted the amalgamation by an order dated 7-2-1980. The accounting year of the trusts ended on 31-12-1979. It was held by the Charity Commissioner that the registration of the trusts had to be cancelled and the new trust was to be known as Rao Bahadur Vissanji Khimji Charitable Trust. The properties of all the 7 trusts were deemed to to be the properties of the amalgamated trust. The Charity Commissioner also approved of the detailed scheme which included the property of the trust, the objects of the trust and other matters relating to the administration of the trust. One of the objects of the trust was the economic, social and general welfare and upliftment of women in India and advancement and propagation of education to women, and to give to them medical aid by establishing hospitals, maternity homes, etc.
2. In the earlier two assessment years, the trust had accumulated two amounts of Rs. 25,000 and Rs. 15,000 for the purpose of construction of a school building and this accumulation had been permitted by the Income-tax Department, under the provisions of Section 11(2) of the IT Act. These assessments permitted the above accumulations that had been made in February 1981 and March 1982. For the current year ending 31-12-1979, the assessee-trust had claimed accumulation of its income to the extent of Rs. 60,000. The ITO was of the view that the assessee-trust after the amalgamation with 6 other trusts had lost its separate indentity and hence the claim for accumulation could not be accepted. According to the ITO, there was no specific provision under the Income-tax Act, but he referred to the fact that there was no mention of the accumulation in the order of the Charity Commissioner. The ITO therefore did not allow the benefit of accumulation to the extent of Rs. 60,000 as claimed by the assessee and he further made an addition of Rs. 1,00,000 in respect of which the assessee had claimed accumulations. It may be mentioned that when the matter came before the CIT (A), he reduced the addition of Rs. 1 lakh to Rs. 40,000 as he found that the addition of Rs. 60,000 was uncalled for and the assessee had not got the benefit of accumulation in respect of this amount of Rs. 60,000.
3. It may be mentioned that while approving the action of the ITO, the Inspecting Assistant Commissioner noted that the return for the current assessment year was filed on 26-6-1980 together with Form No. 10 for acccumulation of Rs. 60,000 and the resolution dated 25-6-1980 passed by the trust. He also noted that the resolution was passed much after the order of the Charity Commissioner which was silent about the use of the money accumulated in the past. The IAC also observed that the return for the year 1981-82 had not been filed. The IAC was of the view that in these circumstances, the assessee could not be permitted to accumulate Rs. 60,000 as asked for by him. The IAC however took note of the fact that the amalgamated trust vide its letter dated 16th June, 1983 had confirmed that the accumulation for surplus income made by the assessee-trust and allowed by the ITO in the earlier years as well as in the current year will be utilised within the prescribed time mentioned in the original application for the purpose for which the accumulations were made. The IAC further observed that, the assessee had complied with the provisions of the law, but he was trying to escape through the tax net by not making any provision in the scheme sanctioned by the Charity Commissioner and also by not filing any return of income for the subsequent assessment year. Approval of the addition of Rs. 1 lakh was stated to be on a protective basis.
4. To complete the picture, it may be mentioned that the Department had registered the new trust in February 1981. As regards the objection of the IAC, that the return for the assessment "year 1981-82 had not been filed by the trust, we find that for the assessment year 1981-82 an assessment has been made and accumulation Under Section 11(2) had been allowed to the extent of Rs. 60,000.
5. When the matter came before the Commissioner of Income-tax (Appeals), he considered the argument of the counsel for the assessee that once Form No. 10 is submitted, the action of the ITO is merely a formality. In this connection, he referred to an order of the Tribunal in ITA No. 1822/Bom/82 dated 26-2-1983. The Tribunal had not accepted the plea of the assessee that the ITO had no power to reject the request for accumulation. He further noted the fact that long before the close of the accounting year on 31-12-1979, the assessee-trust along with 6 other trusts had requested for amalgamation of these trusts, but in the order passed by the Charity Commissioner on 4-2-1980, there was absolutely no indication that the trust had undertaken to honour the appellant trust in terms of Form No. 10 submitted to the ITO from time to time. According to the learned CIT (A), that application filed on 26-6-80 was merely a scrap of paper which was not supported by any resolution of the trustees indicating the purpose of the accumulation and this resolution was not enforceable as it had been passed by the old charitable trust which had ceased to exist with effect from 4-2-1980. The addition of Rs. 1 lakh was therefore upheld by the CIT (A). However, as the amount of Rs. 60,000 was not allowed as deduction on the ground of accumulation the same was deleted.
6. Before us, the learned counsel for the assessee took us through the main documents and submitted that the objection raised by the ITO as well as the GIT (A) Is without any justification. He submitted that the ITO may have the power to scrutinise the application made in Form No. 10 for the purpose of application, but for rejecting any such request, there should be adequate reasons. He submitted that the accumulations already permitted in earlier years could not be added as income of this year as the ITO had not brought out any circumstances justifying1 this action. He contended that the learned CIT (A) has wrongly relied on the order of the Tribunal referred to in the order of the CIT (A) and submitted that the question involved there was entirely different. That was the case of Cotton Textiles Export Promotion Council v. First ITO [1983] 4 ITD 642 (Bom.). In that case, where accumulation Under Section 11(2) was requested, but the ITO had declined to allow it for the reason that the requirement of Section 11(2) were not satisfied. The Tribunal held that the ITO had the power to consider the request for accumulation on merits after ascertaining the facts. The Tribunal held that in view of the elaborate procedure laid down in Section 11(2) and 11(3) read with the relevant rules and forms, it would be illogical to conclude that the ITO has no power to accept or reject the application and that once an application in the prescribed form is filed, it has got to be automatically accepted by the ITO. Where the object of accumulation is vague and nonspecific, the ITO can decline to accept the claim of the assessee. It was submitted that the assessee was not questioning the general power with the ITO, but the justification for the denial of the assessee's claim in this year. He pointed out that the two accumulations which had already been permitted in earlier years could not be added as the income in this year merely on the ground that the trust has amalgamated with 6 other trusts. He pointed out that in all such amalgamations, not only the properties of the trusts are taken over by the now trust, the liabilities and assets of all the trusts are also taken over by the trustees of the new trust. In this connection, the learned counsel pointed out that for the accumulation of the current year, the resolution of the trust was sent in the name of the old trust though it had been amalgamated by that date. Similarly, Form No. 10 also mentioned the name of the old trust in an application filed in June 1980. It was submitted that it may be a technical flaw, but as for the accounting period, the old trust was in existence, such action might have been taken. In this connection, he drew our attention to the letter written by the trust to the ITO on 16 February, 1983 confirming that the accumulations of the old trust allowed by the ITO in the past year as well as the investment made against these accumulations will be carefully taken care of and the same sum utilised within the period mentioned in the original application for the purposes for which the accumulations were made. The Departmental Representative has relied on the order of the ITO and the CIT (A).
7. We have considered the facts of the case and the rival arguments. In our view, there has been some misconception of the legal provisions and the requirements of law. We first proceed to consider the question regarding the addition of Rs. 40,000 which had been permitted as accumulation by the ITO in the assessments of the assessee-trust in the early years. Up to the end of this accounting period, the trust continued to exist in the same form and the income which had been earned was also by the old trust. It is true that when the assessments were taken up, the trust had been amalgamated with several other trusts and one common trust was formed as a result of the order of the Charity Commissioner. A reading of the order of the Charity Commissioner would show that the new trust was to step in shoes of all the other 7 trusts and the properties of the trusts were taken over by the amalgamated trust. It would be unreasonable to consider that the liabilities and obligations of the various trusts were not taken over by the new trust. The ITO has noted this specific undertaking given by the trust that the accumulations made in the past would be carefully taken care of and be utilised within the period mentioned in the original application. This letter was before the ITO as well as before the CIT (A). The mere fact that there was any technical flaw in the resolution being sent in the name of the old trust cannot decide the issue. .As far as the accumulations in the earlier two years were concerned, they had been permitted to be made under the provisions of Section 11(2) and it must be presumed that the ITO was satisfied that conditions under that section were fulfilled. The power of the ITO to withdraw that benefit is given in Subsection (3) of Section 11 which provides that if the income accumulated is applied to purposes other than charitable or religious purposes, or ceases to be accumulated or set apart, for application thereto, or ceases to remain invested or deposited in any of the forms or modes specified in Sub-Section (5), or is not utilised for the purpose for which it is so accumulated or set apart during the specified period, shall be deemed to be the income of such person of the previous year in which the income accumulated is applied, or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or, as the case may be. In the present case, it cannot bo held, that any of the situations contemplated under Sub-Section (3) have arisen. Merely because the trust has been amagamated with other trusts with simiiar objects, it cannot, be held that the accumulated amounts have been applied for any purposes other than charitable and it is nobody's case that the amounts invested have ceased to be invested in the year in question. There was also no question of not utilising it for the purpose for which the accumulations had been permitted as the period during which the contemplated building was to be constructed was still not over. The trust has given a specific clarification and unertaking regarding the utilisation of the accumulated amount. Tims, the treatment of the accumulated income as the income of this year was not justified as none of the conditions given in Sub-Section (3) are satisfied. Amalgamation of the trusts is a normal procedure and it is for the Charity Commissioner to consider all the aspects before permitting- any such amalgamation. The ITO has also not brought on record any material or any circumstance which may show that there was any intention not to utilise the accumulated amount for the intended purpose. The addition of Rs. 40,000 was therefore without any justification. The question of the power of the ITO to look into the applications in Form No. 10 does not arise in this case.
8. Now we may come to the other question regarding the request for accumulation for the current year. This request has been made within a period of 6 months from the end of the accounting period and it is stated that the intended amount was also . deposited in fixed deposit. The resolution itself is no doubt vague, but considering the fact that in earlier years the trust was accumulating for the construction of the building and Form No. 10 also gives the same purpose, as given in earlier years the request of the assessee should be considered by the ITO. We find that an amount of Rs. 60,000 has been allowed as a deduction in the assessment of the trust for the assessment year 1981-82. It is not very clear whether this was a separate amount or it was the same amount as has been added by the ITO in the current year. As we have laid down the principles above, we would direct the ITO to consider the application of the assessee in Form No. 10 in accordance with law and in case it satisfies the conditions, the permission should be granted.
9. Thus, while deleting the addition of Rs. 40,000 which was upheld by the CIT (A), we restore the matter to the ITO for considering the application of the assessee in Form No. 10. The request should not be rejected for any technical reason, but on the consideration of the Substance of the claim and the spirit of law.
10. The appeal is allowed for statistical purposes.