Income Tax Appellate Tribunal - Mumbai
Saurashtra Trust vs Seventh Income-Tax Officer on 27 November, 1986
Equivalent citations: [1987]21ITD62(MUM)
ORDER
I.S. Nigam, Accountant Member
1. These two appeals relating to the assessment years 1981-82 and 1982-83, filed by the assessee against the consolidated order of the Commissioner (Appeals), for the sake of convenience are disposed of by a common order.
2. The assessee is a trust. The first grievance common to both the assessment years is that the claim, of exemption as laid down under Section 11 of the Income-tax Act, 1961 ('the Act') was wrongly not allowed by the Commissioner (Appeals). Here it will be necessary to point out that the Commissioner (Appeals) in his order has allowed the claim of exemption as laid down under Section 11 on the income from house property amounting to Rs. 47,197 for the assessment year 1981-82 and Rs. 48,642 for the assessment year 1982-83 and the claim of exemption is, therefore, limited to the other incomes, which was only business income for the assessment year 1981-82 and business income and income from long-term capital gains for the assessment year 1982-83. Both the assessee's learned counsel, Shri S.P. Mehta, as well as the learned departmental representative, Shri Subramanian, submitted to us that the identical issue cropped up in the appeals for the assessment years 1975-76 to 1978-79 [IT Appeal Nos. 647 to 650 (Bom.) of 1983] and the facts relevant to the point at issue as well as the arguments of both the sides were the same as were before the Tribunal in the appeals for the four earlier assessment years 1975-76 to 1978-79.
3. We have carefully considered the rival submissions. Following, with respect, the order of the Tribunal dated 11-6-1985 in the appeals for the assessment years 1975-76 to 1978-79, we hold that the assessee was not entitled to the claim of exemption as laid down under Section 11 and this claim for exemption was rightly not allowed by the revenue authorities on income other than income from house property.
4. The next grievance is that in the computation of business income, which, as already described, was held liable to tax and not exempt, the income-tax authorities wrongly did not allow carry forward of loss determined for the assessment year 1981-82 and set off of this loss against the income for the assessment year 1982-83. Another grievance was that in computing the business income for the assessment year 1981-82 the provision for gratuity amounting to Rs. 27,582 was wrongly not allowed as a deduction and for the assessment year 1982-83 the claim of investment allowance was wrongly not entertained.
5. The assessee's learned counsel, Shri Mehta, submitted to us that once the income was held not exempt and liable to tax, it must follow as a corollary that the income should be determined in accordance with the provisions of the Act. Even otherwise, according to Shri Mehta, the prescribed return of total income in the case of assessees claiming exemption under Section 11 (Form No. 3A) in item 7 of Part I provides for deduction of unabsorbed losses or allowances brought forward from the earlier years under Sections 32(2), 35(4) and 72 to 79 of the Act and investment allowance/development rebate/development allowance under Sections 32A(3)/33(2)/33A(2) of the Act and this supports the contention that even in the case of a charitable trust claiming exemption under Section 11 the income from business should be worked out after allowing unabsorbed losses and investment allowance admissible under the Act. Shri Mehta pointed out that the gratuity fund of the assessee-trust was recognised by the Commissioner by order dated 10-1-1980 with effect from 12-9-1979 and, therefore, for the assessment year 1981-82 for which the relevant previous year was 1-4-1980 to 31-3-1981 the gratuity fund was an approved gratuity fund. Proceeding further Shri Mehta filed a list of contributions to the recognised gratuity fund where the provision for payment to the trustees of the gratuity fund for Bombay amounting to Rs. 2,36,413, Surat amounting to Rs. 20,080 and Bhuj amounting to Rs. 5,821 was allowed as a deduction in working out the business income and only the provision for payment to the trustees of the gratuity fund for Rajkot amounting to Rs. 27,582 was not allowed by the ITO. Shri Mehta also pointed out that these provisions for payment to the trustees of the gratuity fund were also actually paid between May to August 1981 in the case of Bombay and in April 1981 in the case of Surat, Bhuj and Rajkot. He, therefore, vehemently argued before us that the claim of deduction of provision for payment to the trustees of the gratuity fund for Rajkot amounting to Rs. 27,582 in working out the business income was wrongly not allowed by the revenue authorities.
6. On the other hand, the learned departmental representative, Shri Subramanian, submitted to us that where the assessee was a trust the income has to be computed in accordance with the provisions of Chapter III of the Act, and the other provisions of the Act mentioned in other Chapters of the Act, have no application. He, therefore, submitted that there was no question of carry forward of the business loss determined for the assessment year 1981-82 and its set off against the income for the assessment year 1982-83 or the allowance of the claim of investment allowance in working out the business income for the assessment year 1982-83. Coming to the claim of deduction of provision for gratuity amounting to Rs. 27,582, Shri Subramanian referred to the ruling of the Hon'ble Supreme Court in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 wherein their Lordships laid down that irrespective of whether a provision was made or not the claim of deduction for gratuity was not admissible unless the provisions of Section 40A(7) of the Act were complied with and to another ruling of the Hon'ble Calcutta High Court in the case of Hindustan Aluminium Corporation Ltd. v. CIT [1983] 144 ITR 474 wherein their Lordships laid down that unless an amount was transferred to the fund and had gone irretrievably out of the coffers of the assessee, having regard to the provisions of Section 40A(7) with retrospective effect from 1-4-1973 the claim of deduction of a mere provision could not be allowed.
7. The assessee's learned counsel, Shri Mehta, in reply pointed out that the gratuity fund in the present case was recognised by the Commissioner by order dated 10-1-1980 with effect from 12-9-1979, which covered the previous year relevant to the assessment year 1981-82, and, therefore, the requirements of Section 40A(7) had been complied with in the present case. Our attention was invited to Sub-clause (i) of Clause (b) of Section 40A(7), which specifically lays down that the disallowance contemplated under Clause (a) will not apply to any provision made by the assessee for the purpose of payment of a sum by way of contribution towards an approved gratuity fund or for the purpose of payment of any gratuity that has become payable during the previous year. He, therefore, vehemently argued before us that both the rulings cited by the learned departmental representative, Shri Subramanian, do not apply in the present case.
8. We have carefully considered the rival submissions. Chapter III deals with incomes, which do not form part of the total income, i.e., in other words, incomes which are exempt under the various provisions of Sections 10 to 13A of the Act. Viewed in this context when the income of the assessee- trust other than income from house property was held to be not entitled to exemption under any of the provisions of Chapter III, it automatically follows that the income from these sources will have to be worked out under the provisions of other Chapters. It might perhaps not be out of place to mention here that even in the case of a trust the prescribed form of return of total income (Form No. 3A) by item 7 of Part I of the statement of total income and net agricultural income makes the following provisions :
7. Deduct : (a) Unabsorbed losses/allowances brought forward from earlier years - under Sections 32(2), 35(4), and 72 to 79.
(6) Investment allowances/development rebate/development allowance - under Sections 32A(3)/33(2)/33A(2).
This clearly shows that even in the case of a trust, unabsorbed losses or allowances brought forward from the earlier years or investment allowance, etc., admissible, to which effect could not be given in the earlier years or which are admissible against the income for the current year, should be allowed in working out the income. We, therefore, see no reason why the income from business should not be worked out under the provisions of the Act, and the various allowances, which have been given under the various provisions of the Act, should not be given to the assessee. This means that if there was an assessed business loss for the assessment year 1981-82, which the assessee was entitled to carry forward to the following assessment year 1982-83, this benefit, which has been given to the assessee by Section 72, cannot be denied to it. It also follows that if the conditions laid down by Sub-section (1) of Section 72 are met in the present case, the assessee will also be entitled to set off the loss brought forward from the assessment year 1981-82 against the income from business for the assessment year 1982-83 and the amount, if any, which could not be set off can be carried forward to the following assessment years and so on and so forth up to the limit laid down under that section. We, however, find that the assessee's claim of carry forward of business loss assessed for the assessment year 1981-82 against the business income for the assessment year 1982-83 has not been examined from this angle. We, therefore, direct the ITO to examine the assessee's claim in the light of our observations in this order and determine the relief, if any, admissible to the assessee- trust accordingly.
9. It also follows as a corollary that in working out the business income under the provisions of the Act, the assessee will be entitled to the claim of investment allowance if admissible under Section 32A. Here again we find that the claim of investment allowance was not entertained by the revenue authorities on the ground that the assessee being a trust was not entitled to the computation of income under the head 'Profits and gains of business or profession' in accordance with the provisions of the Act, relating to the computation of business income. We, therefore, direct the ITO to entertain the claim of investment allowance in the computation of business income for the assessment year 1982-83 and take a decision thereon on merits and in accordance with law.
10. This brings us to the remaining ground, which relates only to the assessment year 1981-82 against the disallowance of the claim of deduction in working out the business income of the provision of Rs. 27,582 for contribution to the gratuity fund, which, as already described, was recognised by the Commissioner with effect from 12-9-1979 and the period of recognition covers the previous year relevant to the assessment year 1981-82 under consideration here. It is not under dispute that out of the total provision for payment to the recognised gratuity fund of Rs. 2,89,896 only the payment of Rs. 27,582 relating to Rajkot has not been allowed and not the other payments aggregating to Rs. 2,62,314. Besides, the provisions of Sub-clause (i) of Clause (b) of Section 40A(7) are very clear that the disallowance contemplated under Section 40A(7)(a) does not apply to any provision for the purpose of payment of any contribution towards an approved gratuity fund. Viewed in this context, it is not under dispute that this amount of Rs. 27,582 was a provision for payment to an approved gratuity fund where the period of approval covered the previous year relevant to this assessment year, the amount of provision was actually paid in April 1981 and the other amounts on account of provision for payment to this very fund amounting in the aggregate to Rs. 2,62,314 had already been allowed by the ITO as a deduction in working out the business income for the assessment year 1981-82. We have, therefore, no hesitation in holding that this amount of Rs. 27,582 on account of provision for contribution to the recognised gratuity fund for Rajkot, as in the case of Bombay, Surat and Bhuj, should also have been allowed as a deduction in working out the business income for the assessment year 1981-82. We direct accordingly.
11. The appeals are partly allowed.