Income Tax Appellate Tribunal - Madras
Vellayan Chettiar Trust vs Income-Tax Officer on 24 October, 1994
Equivalent citations: [1995]54ITD201(MAD)
ORDER
S. Kannan, A.M.
1. These two appeals, one by the assessee and the other by the department, were heard together and are disposed of by a common order.
2. The assessee, a charitable trust, was founded by one Smt. Valliammai Achi through a deed of declaration of trust dated 12-2-1968. The settlor herself and her three sons were the trustees.
3. By an indenture of sale dated 4-2-1985- a date falling within the year of accounting ending on 31-3-1985, being the previous year relevant to the assessment year 1985-86, which is now before us- the assessee trust sold one of its house properties- the Ambadi Road Property- to one A. Vellayan for a stated consideration of Rs. 3,85,000 the said amount being payable as follows:
(i) Rs. 2,00,000 on execution of the indenture of sale; and
(ii) Rs. 1,85,000 on or before 4-2-1988.
The vendor trust retained a lien over the property in question as and by way of security for the unpaid purchase consideration of Rs. 1,85,000.
4. Two other undisputed facts need to be noticed here. First, the vendee, A. Vellayan, is the son of one Arunachalam and the grandson of the settlor, the said Arunachalam being one of the four trustees of the trust. Secondly, the vendee, it is a matter of record, paid interest at the rate of 9% per annum on the unpaid purchase consideration.
5. In the course of the assessment proceedings for the assessment year 1985-86, the Assessing Officer found that the said purchaser, namely, Vellayan, being the son of one of the trustees, is a person coming within the purview of Section 13(3)(d) read with Explanation No. 1 (iv) to Sections 11, 12, 12A and Section 13 of the I.T. Act, 1961.
6. Thereafter, he directed his attention to the question whether the sale consideration of Rs. 3,85,000 was adequate. The assessee's case was that the sale consideration was adequate. In this regard it relied on the certificate (dated 3-10-1985) given by C.N. Srinivasan, an approved valuer, who had valued the property at Rs. 3,85,000 roundly. On his part, the Assessing Officer found that the ledger relating to the relevant previous year, which was seized on 12-8-1985 in the course of the operations undertaken under Section 132 of the Act, revealed that the assessee had booked an aggregate sum of Rs. 1,93,423 as the cost of construction of the building. To the said figure he added a further figure of Rs. 2,29,000, being the market value of the land (in February 1985 when the property was sold) as certified by the approved valuer, and determined the total cost of the property at Rs. 4,22,423. Going on the basis of the said figure of Rs. 4,22,423, the Assessing Officer concluded that the trust had sold the property in question for a consideration which is less than adequate, thereby conferring on the said Vellayan an indirect benefit. Since the said Vellayan was a relative of one of the directors of the trust, the Assessing Officer concluded that by virtue of the provisions of Section 13(2)(f) of the Act the assessee was not entitled to the benefit of exemption under Section 11 of the Act.
7. The Assessing Officer considered that the assessee was not entitled to exemption under Section 11 of the Act for another reason also. As pointed out earlier, Vellayan had paid interest at the rate of 9% per annum on the outstanding purchase consideration of Rs. 1,85,000. The Assessing Officer found that the assessee trust had in fact advanced a sum of Rs. 1,50,000 to one Sivakami Family Benefit Trust on interest at the rate of 15% per annum. Since the assessee trust had charged interest at only 9% per annum in the case of Vellayan, the Assessing Officer held that the assessee's case was also hit by Section 13(2)(a) or 13(2)(b).
8. Thereafter, the Assessing Officer directed his attention to the computation of capital gain arising from the sale of the property in question to the said Vellayan. Invoking the provisions of section 52(1) of the Act and after obtaining the prior permission of the I.A.C. in that regard, the Assessing Officer computed the capital gain at Rs. 1,97,953, adopting the figure of Rs. 4,22,423 as the starting point.
9. Again invoking the provisions of Section 13(2)(a)/13(2)(b) of the Act, the Assessing Officer held that a sum of Rs. 1,717 representing the differential of 6% interest (which enured to the benefit of the said Vellayan) must be brought to charge.
10. The Assessing Officer noted another violation of Section 13(1) of the Act. He found that the assessee had lent some money to one Children Benefit Trust, charging interest at the rate of 10% per annum only. According to him, interest at 15% per annum was the adequate rate of interest. He, therefore, brought to charge a sum of Rs. 325 (representing the differential rate of interest of 5%) in the hands of the assessee. He also held that such lending of money attracted the provisions of Section 13(1)(d) read with Section 11(5) of the Act.
11. The assessee had claimed that it had applied for charitable purposes an aggregate sum of Rs. 24,351, the break-up of which is as follows:--
Rs.
Donation 10,881 Expenses 8,673 Plan for Coimbatore house 3, 196 Expenses relating to Coimbatore house 1,601
As for the expenses of Rs. 8,673, the Assessing Officer held that only Rs. 94 was revenue deductible. As for the donation of Rs. 10,881 the Assessing Officer held that the assessee was entitled to deduction under section 80G of the Act in respect of an aggregate sum of Rs. 6,101 only. He, therefore, disallowed the balance of amount.
As for the expenses on Coimbatore house, he held that they had been incurred on capital account and not on revenue account; and accordingly negatived the assessee's claim that the sums had been applied to charitable purposes.
12. Predictably the assessee took up the matter before the CIT (Appeals).
13. On the question whether the sale of the property was hit by the provisions of Section 13(2)(f) of the Act, the CIT(A), agreeing with the Assessing Officer, held against the assessee. As for the application of provisions of section 52(1), however, following the Supreme Court case of K.P. Varghese v. ITO [1981] 131 ITR 597, the CIT(A) held that the section was not applicable. Consequently, he deleted the addition of Rs. 37,423 made by the Assessing Officer.
14. The CIT(A) upheld (a) the addition of Rs. 1,717 made by the Assessing Officer in relation to transaction with Vellayan, and (b) the addition of Rs. 325 in relation to the transaction with Childrens Benefit Trust.
15. One of the claims made by the assessee before the CIT(A) was that as it had filed Form No. 10 [under Section 11(2) of the Act] in relation to the assessment year 1983-84 (which covered the assessment year 1985-86 also), it was entitled to exemption under Section 11 of the Act. The CIT(A) dismissed the assessee's claim observing:
Since the exemption under Section 11 is being withdrawn because of violation referred above and the appellant has not made any application in the assessment year 1985-86 this claim of the appellant cannot be considered.
16. The Commissioner (Appeals) also declined to interfere in the matter of disallowance of the expenses made by the Assessing Officer and levy of interest under Sections 139(8) and 217 of the Act.
17. It is in these circumstances that both the assessee and the department are before us. The assessee is aggrieved because, barring a ground or two, all the other grounds had been dismissed by the Commissioner (Appeals). The department objects to the deletion by the Commissioner (A) of the addition of Rs. 37,423 made by the Assessing Officer while computing the capital gain arising on the sale of the property in question.
18. Departmental appeal : The department's case is that, even while deleting the addition of Rs. 37,423 in the light of the Supreme Court case of K.P. Varghese (supra), the Commissioner (Appeals) ignored the point that the addition was made under Section 13(2)(f) also.
19. We disagree. Plainly read, as we have read them, neither Section 13(1) nor Section 13(2) of the Act contemplates any addition to be made to the total income of the trust. Taken together, they indicate the circumstances, actual and deemed, in which the total income of a charitable trust would not be eligible for exemption under Section 11. If the circumstances detailed in Sections 13(1) and 13(2) of the Act are noticed in a particular case, then the only effect is that the trust in question is deprived of the benefit of exemption under Section 11 of the Act. We are unable to find anything in these Sections even remotely suggesting that any addition could be made to the total income of the trust. To hold that the existence of any one or more of the circumstances detailed in those sections, besides depriving the trust of the benefit of exemption under Section 11, would also warrant certain additions to the total income of the trust, is to read into those Sections something that is not there in those sections. Particularly, in relation to the deeming provisions of Section 13(2) of the Act, to do so would be to add to the section a further deeming provision which is not there.
20. The provisions of Section 10(2A) of the Income-tax Act, 1922, as judicially interpreted, offer a close parallel. The provisions of the said section of the old Act, which correspond in many ways to those of section 41(1) of the Income-tax Act, 1961, stipulated that where an allowance or deduction had been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee received any amount of such loss or expenditure or has obtained any benefit in respect of such trading liability by remission or cessation thereof, the amount received by him or the value of the benefit shall be deemed to be profits and gains, and such profits and gains shall also be deemed to have accrued during the previous year.
21. In the Gujarat case of Baroda Traders Ltd. v. CIT [1965] 57 ITR 490, relying on the aforesaid provisions, the Assessing Officer brought to charge in the hands of the assessee certain sums in the assessment for the assessment year 1959-60. The said sums related to a joint venture which the said company had earlier undertaken with one M/s. Chinubhai Jesingbhai. The said joint venture, however, had been stopped even in 1950. The assessee's case was that on the facts and in circumstances of the case the provisions of Section 10(2 A) could not be invoked. The matter reached the Gujarat High Court by way of reference at the instance of the assessee. Construing the said provisions, the Gujarat High Court held as follows:
(i) Section 10(2A) must be read along with Section 10(1) and an essential requirement for the application of Section 10(2A) was the existence of the business in the 'previous year'.
(ii) Sub-section (2A) created two fictions. The first was that though the amount received or the benefit derived in respect of a trading liability which had been allowed would not be income, it is to be deemed to be profits and gains. This fiction was necessary because, otherwise, the amount would not be profits or gains at all to start with- see the House of Lords case of British Mexican Petroleum Co. Ltd. v. Jackson 16 TC 570.
The second fiction was that such profits and gains would be deemed as having accrued during that previous year, i.e., the year of remission or cessation. The second fiction was necessary because unless it was deemed that it had accrued during the year of remission or cessation it could not be taxed for that particular year.
(iii) Section 10(2A) did not go further and provide that, in a case where the business was discontinued before the commencement of the previous year, i.e., the year of remission or cessation, it should be deemed to have continued during that year notwithstanding its discontinuance.
Thus, the Gujarat High Court did not permit the department to introduce into Section 10(2A) of the old Act a fiction that Parliament had not incorporated into that section.
22. In the case of Ramanlal Amarnath (Agency) Ltd. v. CIT [1973] 91 ITR 250, the Bombay High Court followed the aforesaid Gujarat case.
23. The Income-tax Act, 1961 has got over the aforesaid decisions by adding the words "whether the business or profession in respect of which the allowance or deduction has been made in existence in that year or not" in the corresponding provision of the Act of 1961, namely, section 41(1).
24. The point that we are here making is that it is not open to the Assessing Officer to incorporate into the provisions of a particular section fictions which had not been incorporated by Parliament. And, as already pointed out, the impugned addition of Rs. 37,423 could be sustained only if it can be shown that Section 13 contained a provision to that effect that the said sum must be deemed to be the income of the assessee-trust. That section, however, does not contain any such deeming provision. Therefore, no such deeming provision could be read into it.
25. In view of the foregoing, therefore, we dismiss the departmental appeal.
26. Assessee 's appeal: In the appeal filed by it, the assessee-trust has raised as many as 22 grounds. We proceed to deal with the various issues which are covered by the said grounds of appeal.
27. Issue No. 1 : Whether the assessee-trust could be denied the benefit of exemption under Section 11 of the Act because, as has been held by the lower authorities, the assessee-trust had sold one of its properties to Vellayan for a consideration that was less than adequate? (Ground Nos. 2 to 9). To recapitulate briefly the relevant facts. The assessee-trust was the owner of a property situated on Ambadi Road, Madras-84, which had been sold by the assessee-trust to one Vellayan for a stated consideration of Rs. 3,85,000. In support of its contention that the said consideration was adequate the assessee had filed a certificate from one C.N. Srinivasan, an approved valuer. On his part the Assessing Officer valued the property at Rs. 4,22,423, and concluded that the trust had sold the property in question to the said Vellayan- a person coming within the purview of Section 13(3)(d) read with Explanation l(iv)to Sections 11, 12, 12A and 13 of the Income-tax Act, 1961- for a consideration which was less than adequate, thereby conferring on the said Vellayan an indirect benefit. Accordingly, he held that the assessee was not entitled to the exemption under Section 11 of the Income-tax Act, 1961. The Commissioner (Appeals) declined to interfere in the matter.
28. Shri Philip George, the learned counsel for the assessee, took us through the facts and circumstances of the case and contended that the lower authorities were not justified in denying the assessee the benefit of exemption under Section 11 of the Act on this count. True, the said Vellayappan was a relative. But the sale consideration, namely, Rs. 3,35,000 received by the assessee-trust from the said Vellayappan could not be regarded as inadequate. Again, the assessee-trust had obtained adequate security for the balance of Rs. 1,85,000, which the said Vellayappan was obligated to pay by 4-2-1988. The security was in the shape of a lien over the property in question retained by the vendor-trust.
Elaborating his arguments in support of the contention that the sale consideration received by the assessee-trust was adequate, Shri Philip George drew our attention to the fact that for the purposes of registering the sale deed the Sub-Registrar had valued the entire property at Rs. 3,85,464 as detailed below :
Land value at the guideline value of Rs. 41,800 per ground (41,800X4.58 grounds) : Rs. 1,91,444 Valuation of the building : Rs. 1,94,020 Stamp duty was also paid on that basis. Against the backdrop of the fact that the Sub-Registrar had valued the property at Rs. 3,85,464, the sale consideration of Rs. 3,85,000 could not be regarded as inadequate.
Secondly, as per the assessee's books of account the cost of the building is Rs. 1,93,424, while the value placed by the Sub-Registrar on the building was marginally higher at Rs. 1,94,020. Thirdly, the approved valuer has also valued the property at Rs. 3,85,078. In that regard, while he had valued the building at Rs. 1,56,078, he had valued the land at the rate of Rs. 50,000 per ground. Fourthly, the Assessing Officer was not justified in adopting the value of the land at Rs. 2,29,000 as fixed by the approved valuer, even while rejecting the value of Rs. 1,56,078 placed by the registered valuer on the building. The Assessing Officer should have either accepted the report of the approved valuer in toto, or rejected it in toto.
In view of the foregoing, therefore, contended Shri Philip George, the assessee was entitled to succeed on this issue.
29. On his part the learned departmental representative strongly supported the orders of the lower authorities on this issue.
30. On a consideration of the rival submissions we are of the opinion that the points urged by Shri Philip George on behalf of the assessee are well taken. If we go by the value placed on the property for registration purposes by the Sub-Registrar, we find that the sale consideration received by the assessee is adequate. If we go by the approved valuer's certificate, we again find that the sale consideration received by the assessee is adequate. As rightly pointed out by the learned counsel for the assessee, the Assessing Officer has been, so to speak, selective in his approach in that he had adopted the higher value placed by the approved valuer on the land and on that basis has concluded that the sale consideration received by the assessee-trust was inadequate. In this process, he had clearly ignored the guideline valuation for the land in question. What is more, he had not brought on record any independent evidence to show that the land component of the property would have fetched a higher price than the guideline valuation of Rs. 41,800 per ground.
31. There is yet another consideration that is noteworthy. The adequacy or otherwise of the consideration contemplated by the scheme of the Act cannot be reduced to a mere arithmetical exercise, that too one involving a mere comparison of a slightly higher figure with a lower one. Whether in a particular case the consideration received is adequate or not must be judged having regard to the totality of the circumstances. Again, even at the best of circumstances the valuation of a property is an informed guess, and there is bound to be difference of opinion about the value of a particular property even among experts. What is required in such cases is that when confronted with two figures-one the sale consideration received and the other the valuation placed by experts on the property-a man of ordinary prudence must be able to say : "Yes, the sale consideration is less than adequate". In the case before us we are unable to give such a response.
32. In view of the foregoing therefore we hold that the lower authorities were not justified in concluding that the assessee was not entitled to the benefit of exemption under Section 11 on the ground that the sale consideration was less than adequate.
33. Issue No. 2: (a) Whether the lower authorities were justified in denying the assessee the benefit of exemption under Section 11 of the Act on the ground that the interest charged by the assessee (at 9% per annum) on the balance of sale consideration payable by the said Vellayan was less than adequate ?
(b) Whether the lower authorities were justified in treating the differential interest amount of Rs. 1,717 as the assessee's income ? (Ground Nos. 10 to 13).
As pointed out earlier, the indenture of sale deed dated February 4, 1985 stipulated that the consideration of Rs. 3,85,000 was payable as follows:
(i) Rs. 2 lakhs on execution of the indenture of sale; and
(ii) Rs. 1,85,000 on or before 4-2-1988.
The indenture also stipulated that the vendee will pay interest at the rate of 9% per annum on the said sum of Rs. 1,85,000. Again, under the said indenture, the vendor-trust had retained a lien over the property in question as and by way of security for the unpaid purchase consideration of Rs. 1,85,000. On the said facts, the Assessing Officer held first that the interest charged by the assessee-trust was less than adequate and that consequently the assessee was not entitled to exemption under Section 11 of the Act. Secondly, according to the Assessing Officer, because the assessee had charged interest at the rate of 15% per annum from one Sivagami Family Benefit Trust, to which it had lent a sum of Rs. 1,50,000, only that rate of interest could be regarded as adequate interest. On this basis, he brought to charge a sum of Rs. 1,717, representing the interest short-charged to the extent of 6%.
34. The Commissioner (Appeals) declined to interfere in the matter.
35. The learned counsel for the assessee contended that the lower authorities were not justified in taking the view that they had. Elaborating this point, the learned counsel contended that interest at the rate of 15% per annum came to be charged from the said Sivagami Family Benefit Trust, because there the assessee-trust did not acquire any lien on any property of the other trust, whereas in the case before us, the assessee-trust had retained lien on the Ambadi Road property sold to Vellayan as and by way of security for the unpaid portion of the sale consideration. Secondly, in the case before us, the balance of amount was realised quickly. This was yet another reason why the assessee-trust chose to charge interest at the rate of 9% per annum only.
36. On his part the learned departmental representative strongly supported the impugned orders of the lower authorities on this issue.
37. As we see it, the points urged by the learned counsel for the assessee are well taken. We, therefore, hold that the lower authorities were not justified in coming to the conclusion that the rate of interest of 9% per annum was less than adequate. Accordingly, we further hold that the lower authorities were not justified in concluding that the assessee should be denied the benefit of exemption under Section 11 on this score too.
38. This leaves for consideration the addition of Rs. 1,717 made by the Income-tax Officer to the income returned by the assessee. For the reasons given while disposing of the departmental appeal, we delete this addition.
Issue No. 3: (a) Whether the lower authorities were justified in denying the assessee the benefit of exemption under Section 11 of the Act on the ground that the interest charged by the assessee (at 10% per annum) in respect of the loan given by it to Children's Benefit Trust was inadequate ?
(b) Whether the lower authorities were justified in treating the differential interest amount of Rs. 325 as the assessee's income ? (Ground Nos. 14 to 16).
On the first aspect of the matter, at the time of the hearing, the learned counsel for the assessee drew our attention to the fact that, in the assessment for the assessment year 1984-85 also, the same issue had come up for consideration; and that in the appeal filed by the assessee on this issue the Tribunal had allowed the assessee's claim. He particularly highlighted the fact that the Tribunal had held not only that the interest rate of 10% could not be considered to be inadequate, but also that the advance was not without adequate security- see order dated September 29, 1993 of the I.T.A.T., C-Bench, Madras in ITA No. 2513 (Mad.)/1988 (assessment year 1984-85). He, therefore, urged that the assessee is entitled to succeed.
39. We agree. We hold that the assessee could not be denied the benefit of exemption on the grounds which had found favour with the lower authorities.
40. We also delete the addition of Rs. 325 made by the Assessing Officer, for the reasons discussed while dealing with the departmental appeal.
41. Issue No. 4: Disallowance of expenses:--
(Ground No. 19) During the previous year relevant to the assessment year 1985-86, which is now before us, the assessee had incurred an aggregate expenditure of Rs. 24,351, the break-up of which is as follows :
Donations Rs. 10,881
Land development expenses -- Rs. 8,470
Coimbatore property expenses -- Rs. 4,797
Other expenses -- Rs. 203
Rs. 24,351
The assessee's case was that the said outlay represented application of its income for charitable purposes. The said argument did not find favour with the Assessing Officer. According to him, only an expenditure of Rs. 94 (forming part of the aggregate expenses of Rs. 203 under the head 'Other expenses') alone was allowable as deduction. He further found that out of the donations of Rs. 10,881, donations aggregating to Rs. 6,101 alone were eligible for deduction under section 80G of the Act. He, therefore, allowed 80G deduction in respect of the said sum, and disallowed the rest.
42. The Commissioner (Appeals) declined to interfere in the matter because, to quote him, "the appellant has not proved that any of the expenses is applied for earning the income shown by the appellant".
43. We have looked into the facts of the case. We have considered the rival submissions. As for donations aggregating to Rs. 10,881, as pointed out earlier, the Assessing Officer allowed section 80G deduction in respect of an aggregate sum of Rs. 6,101, and disallowed the rest. But the assessee's case is that the donations made by it was application of its income for charitable purposes. This aspect of the matter has escaped the notice not only of the Assessing Officer, but also of the Commissioner (Appeals) who, it may be incidentally mentioned, applied a totally irrelevant yardstick. The issue here is not whether the expenses in question were incurred to earn income. The issue here is whether the sums paid out by the assessee could be regarded as application of its income for charitable purposes.
44. Be that as it may, we find that out of the aggregate sum of Rs. 4,797, which was disallowed by the Assessing Officer, an aggregate sum of Rs. 1,650 represented scholarship awarded by the assessee to certain students, the rest being donations to R.R. Sabha (Rs. 1,000), Rotary Club Meenambakkam (Rs. 500), Kasturba Gandhi School Building Reconstruction (Rs. 1,000), Guild of Service (Rs. 101) and the Lions Club, Central Madras (Rs. 630). Barring perhaps the donation of Rs. 1,000 to R.R. Sabha, which is a music Sabha, the rest of the donations were clearly for charitable purposes or were made to institutions which are interested in the promotion of the common weal.
As respects R.R. Sabha no evidence is forthcoming to show that the donation made to it was eligible for exemption under section 80G. For a fact, the learned counsel for the assessee could not indicate the circumstances in which the said donation came to be made.
45. In view of the foregoing, therefore, we hold that barring the sum of Rs. 1,000 donated to R.R. Sabha, the rest of the donations must be treated as application of the assessee's income for charitable purposes.
46. The rest of the expenses, namely, land development expenses (Rs. 8,470), Coimbatore Property Expenses (Rs. 4,797) and other expenses (Rs. 109) cannot, as we see it, be regarded as application of the assessee's income for charitable purposes. The development expenses relating to Nawab Garden property and the expenses relating to the Coimbatore property are squarely hit by the decision of the Madras High Court in the case of CIT v. S.RM.CT.M. Thiruppani Trust [1982] 134 ITR 555. The miscellaneous expenditure to the tune of Rs. 109 also appears to relate to some property dealings. Therefore, these items of expenditure cannot also be regarded as application of the assessee's income for charitable purposes.
47. We accordingly direct the Assessing Officer to examine the issue of application of the income of the assesisee-trust to charitable purposes in the light of the aforesaid observations.
48. Issue No. 5: Whether the lower authorities were justified in negativing the assessee's claim that it was accumulating its income for specific charitable purposes as provided for by Section 11(2A) of the Act ? (Ground No. 18) One of the grounds taken by the assessee before the Commissioner (Appeals) was that the Assessing Officer "failed to note that the appellant had made an application in the year 1983-84 for accumulation of its income to be used in the construction and as such it is eligible for the relief provided under Section 11". The Commissioner (Appeals) negatived the said contention observing : "since the exemption under Section 11 is being withdrawn because of violation referred to above and the appellant has not made any application in the assessment year 1985-86 this claim of the appellant cannot be considered". And the assessee's case is that the Commissioner (Appeals) was not justified in dismissing the assessee's claim.
49. In this regard, the learned counsel for the assessee drew our attention to the fact that, on July 22, 1983, the Board of trustees of the assessee-trust resolved that having regard to the dilapidated condition of the house property situated at No. 442, Raja Street, Coimbatore, the said property be demolished and a new building erected. It was also resolved that in view of the funds required for the construction of the proposed new building, "the amount as is available at the end of each year may be accumulated for a period of ten years and that necessary approvals from the income-tax authorities may also be obtained", (see page 75 of the paperbook filed by the assessee).
50. The learned counsel also drew our attention to the fact that in relation to the assessee's assessment for the assessment year 1983-84 the assessee filed Form No. 10 (pages 71 to 73 of the paperbook) bringing to the Assessing Officer's notice its intention to accumulate sufficient funds for the purposes of demolition of the "old building at door No. 442, Raja Street, Coimbatore, which is in a dilapidated condition and to erect a new building thereon". While the said notice in Form No. 10 specifically referred to the previous year relevant to the assessment year 1983-84, it did not specify the number of subsequent previous years, the income relating to which was proposed to be accumulated for the said purpose. But, according to the learned counsel for the assessee, this inadvertent omission did not matter, because the resolution passed by the Board of trustees on 22-7-1983 (a copy of which was enclosed to the said Form No. 10) clearly contemplated the accumulation of the assessee's income for a period of ten years. According to the learned counsel for the assessee, if the contents of the notice in Form No. 10 were read with the contents of the resolution enclosed thereto, it would be clear that the intention of the assessee was to accumulate its income for a period of ten years. According to the learned counsel for the assessee, therefore, the said notice in Form No. 10 would be applicable to the assessment year 1985-86, which is now before us. According to him, the Commissioner (Appeals) was not justified in holding that the assessee should have filed a notice in Form No. 10 for each and every assessment year a requirement not contemplated by the Act. In view of the foregoing, therefore, contended Shri Philip George, the assessee is entitled to succeed.
51. On his part Shri Narayanan, the learned departmental representative strongly supported the impugned order of the Commissioner (Appeals) on this issue.
52. On the facts as presented before us, we fear, we cannot properly adjudicate on this issue. Neither the learned counsel for the assessee, nor the departmental representative was in a position to enlighten us on the question whether the said notice in Form No. 10 (which according to the assessee was filed in relation to the assessment year 1983-84) was acted upon by the Assessing Officer for that assessment year. Secondly, paragraph 3 of the resolution passed by the Board of trustees on 22nd July, 1983 talks of the trustees and each one of them being severally authorised to negotiate and arrange suitable tenants for the building. Given the ratio of the Madras case of S.RM. CT.M. Thiruppani Trust(supra) how far the said objective could be regarded as charitable is a moot point.
53. In view of the foregoing, therefore, we consider that the fair order to pass on this issue is to remit this aspect of the matter to the Assessing Officer for fresh consideration and decision, having regard especially to the fate of the aforesaid notice in Form No. 10. We order accordingly. The Assessing Officer will, no doubt, give the assessee a reasonable opportunity of being heard. On its part, the assessee will, no doubt, co-operate with the Assessing Officer.
54. Issue No. 6: Whether the application of the maximum marginal rate of taxation was justified in this case ? Shri Philip George fairly stated that this issue is really a consequential one. He, however, urged that, even if it were to be ultimately held that the maximum marginal rate was applicable to this case, that rate must be applied not to the total income of the assessee, but only to that part of the income of the assessee, which has not been applied to charitable purposes. In this regard he referred to and relied on the decision of the Madras Bench 'B' of the Tribunal in the case of Tuluva Vellala Association v. ITO [IT Appeal No. 3984 (Mad.) of 1987 dated 29-4-1988].
55. As we see it, this issue is really consequential. While giving effect to this order of ours, the Assessing Officer will, no doubt, examine this issue and take a decision in accordance with law.
56. Issue No. 7: Levy of interest under Sections 139(8) and 217.
(Ground Nos. 19 to 22).
This issue is also consequential in nature. Even so, when the Assessing Officer passes an order giving effect to this order of ours, it will be open to the assessee to deny its liability to pay interest under the said sections.
57. In the result, the assessee's appeal is partly allowed.