Income Tax Appellate Tribunal - Mumbai
Trustees Of Parsi Panchayat Funds And ... vs Director Of Income-Tax on 18 October, 1995
Equivalent citations: [1996]57ITD328(MUM)
ORDER
A. Kalyanasundharam, Accountant Member
1. The assessee, a charitable trust has filed this appeal aggrieved by the order passed by Director of Income-tax (Exemption) [hereinafter referred to as DIT] under Section 263 of the Income-tax Act, 1961 (hereinafter referred to as the Act). The appellant in this appeal has raised questions (a) challenging the jurisdiction of DIT in invoking Section 263 of the Act; (b) challenging the order of DIT in holding the order of assessment as erroneous and prejudicial to the interests of revenue which order was passed in consonance with the directions of DIT; (c) challenging the order of DIT in revising the order passed in pursuance to the directions issued under Section 144A of the Act; and (d) challenging on merits that the leasing of the land, its development followed by construction thereupon, sale of flats at market rate was not a business venture but, an activity carried out towards the objects of the trust for providing housing to the poorer section of Parsi community and therefore, the trust continues to retain its charitable character.
2. The facts as are noted in the order of assessment and the order of the DIT is brought out briefly below. The assessee-trust in its statement of income had sought for accumulation of Rs. 65 lakhs for the specific purpose of construction of buildings for housing the poor section of the Parsi community and this was stated pursuant to the resolution dated 16-10-1990. The appellant had leased out land owned by it to M/s Spenta Co-op. Housing Society Ltd., a Parsi society for fifty years at an annual rent of Rs. 75,000. On this land development was carried out followed by construction of sixty flats which flats was sold to richer class and a surplus of Rs. 7,09,13,678.75 was generated. The generated funds was treated as on capital account and so transferred vide a resolution dated 12-12-1990 to a composite scheme of housing. Of the above surplus the appellant utilized Rs. 4,96,38,106 in the construction of flats that were given on nominal rent to the poor section of the Parsi community. The balance of the surplus Rs. 2,12,75,572.75 was placed in fixed deposit with British Bank of Middle East on 31-3-1990. The Assessing Officer (hereinafter referred to as AO) observed in his order dated 11-3-1993 that the activity of lease of land, its development, construction thereupon, sale of flats was not an activity hit by the provisions of Section 11 (4A) of the Act and hence, the surplus of over Rs. 7 crores was not liable to the taxed.
3. The DIT issued a notice dated 9-12-1994 to the appellant calling for its reply to his proposal of treating the activity of lease and development of land, construction of flats and its sale realizing over Rs. 7 crores as in the nature of business activity which activity is not covered by Sub-Clause (b) of Section 11 (4A) of the Act and hence liable to be taxed. The appellants challenged the notice on DIT assuming jurisdiction as Commissioner under Section 263 of the Act; that the assessments was framed under a close scrutiny of the DIT, DDIT and the Assessing Officer because it was a monitored case; the action amounts to review of the decision because of change of opinion which is outside the scope of the Section 263 of the Act; and that the objective of providing housing to the poor section of the community was not possible in any other manner and since, the surplus was utilized for housing the poor indicating the achievement of the objective, the activity could not have been construed to be a business proposition.
4. The DIT in his order dated 13-2-1995 noted that a letter dated 6-5-1992 was issued by him in which it was categorically mentioned that the activity resulting in the surplus of over Rs. 7 crores was a business activity which was not adopted by the Assessing Officer. He also noted that the Assessing Officer had sent in a detailed submission to DIT vide letter dated 23-12-1992 on which report of Deputy Director of Income-tax (DDIT) was called for by him and DDIT submitted his report dated 19-1-1993 wherein he had echoed the views of the DIT dated 6-5-1992. He had noted that the successor DIT vide his letter dated 4-3-1993 had expressed that he is in agreement with the views of the Assessing Officer that the lease, sale of flats, etc., was only a means to achieve the larger objective and hence, not hit by the provisions of Section 11 (4A) of the Act and directed the DDIT to issue instructions to the Assessing Officer for completing the assessments accordingly. He noted the DDIT had forwarded the DIT's letter dated 4-3-1993 to the Assessing Officer as his directions under Section 144A of the Act and the present assessment order as such was framed.
4.1 DIT considered the notification dated 17-10-1989 issued by the Central Board of Direct Taxes in exercise of powers conferred on it by Section 120 of the Act by which it had authorized the DIT to perform the functions of the Commissioner in respect of the class of cases of Clauses (21), (22), (22A), (23), (23A) and (23C) of Section 10, Sections 11 and 12 of the Act, assessed or assessable by any Income-tax authority. He accordingly concluded that by virtue of the above stated notification, he has the necessary sanction of law to invoke the Section 263 of the Act in respect of assessments framed with reference to Sections 11 and 12 of the Act. He had also considered the sequence of events as brought out earlier like the series of advises issued by DIT at the first instance, the second time based on which the present assessment was framed and his present proposed action to revise the order of assessment. In para 8 of his order he concluded as under :--
The DDIT did not add though as stated, he was of the view that the surplus realized in business activity is not eligible for exemption 11(4A) and therefore, it was brought to be brought to tax. This letter of the DD was to be sent to the assessee from the present DD in pursuance of the request made for having a copy of the direction under Section 144A and therefore, guidance/directions issued though were confidential in nature yet they had public to appreciate the sequence of events and at this stage, the present DIT, predecessor's predecessor who had issued the earlier guidance had occasion to see the assessment made and came to the conclusion that the assessment was done erroneously which was prejudicial to the interest of revenue. In the light of the above, I am of the opinion that DIT is competent to revise the assessment and there being no statutory direction of the predecessor DIT is not to be taken any cognizance. If any cognizance was to be taken then the direction of the predecessor DIT is equally competent.
4.2 He opined that after the insertion of Section 11(4A) of the Act, the activity of the assessee could not be exempted because the surplus was realized by the sale of flats to richer members of the community and the subsequent utilization of the surplus for charitable purpose is of no consequence. He concluded that the surplus is liable to be taxed and directed to cancel the assessment.
5. The appellant trust was represented by the learned Counsel Mr. Soli Dastur and he was assisted by Mr. Pardiwala & Mr. Kolwala. The contention of the learned Counsel Mr. Dastur was the Act had defined Commissioner and DIT in Sections 2(16) & (21) separately though, they are so appointed by the power under Section 117(4) of the Act. He contended that this basic difference in their respective roles needs to be appreciated. He referred to the notification issued by CBDT by which the DIT was to function as a Commissioner and to the notification issued by CBDT by which the DIT was to function as Commissioner and provided the power with reference to Section 132 of the Act. He pleaded that the terms 'function' and 'function and power' have been clearly appreciated by CBDT which was the reason not to add the words power to the DIT in relation to assessments concerning Sections 11 & 12 of the Act. He contended that the DIT therefore, could not have the power of revision assigned to the Commissioner under Section 263 of the Act. He placed reliance on the meaning of the term 'function', 'power' as defined in Jowitts Dictionary of English Law - 2nd edition, Volume 2; Venkataramayya's Law Lexicon and Blacks Law Dictionary - revised 4th edition. The learned Counsel contended that the term function only extends to administrative functions and do not extend such other execution of filing of appeals or reference or revision and that since, Section 263 grants a power of revision to the Commissioner which not having been extended to the DIT by the notification, his action of revising the order is beyond his jurisdiction.
5.1 The learned departmental representatives Mr. Tilakchand and Mr. Dixit referred to Sampath Aiyangar's Law of Income-tax, the notification and submitted that the notification had been so issued consequent to the decentralization by the CBDT and for effective implementation of the Act. Reliance was placed on the meaning of function given by Twentieth Century Chambers Dictionary.
5.2 On this jurisdictional aspect, we may observe that the Act defines the Commissioner and DIT with reference to the various functions they are required to carry out and execute as appointed by the CBDT. The various functions of the Government are necessarily to be executed by officials who need to be appointed which appointment is governed by the provisions contained in the statute. Both the Sections 2(16) & (21) define the Commissioner and the DIT respectively, as a person who has been so appointed by Section 117(4) of the Act. By means of the power conferred on the CBDT by Section 120 of the Act, they could designate any person to carry out such functions of any authority under the Act. The notification dated 17-10-1989 by means of which the Directors were authorized to perform the functions of the Commissioner is reproduced below :--
In exercise of the powers conferred by Sub-section (1), Sub-section (2) and Clause (a) of Sub-section (4) of Section 120 of the Income-tax Act, 1961, the Central Board of Direct taxes hereby :--
(a) authorizes the Directors specified in column (2) of the schedule hereto annexed having their headquarters at the places specified in the corresponding entries in column (3) of the said schedule to perform all the functions of the Commissioner in respect of the class of cases specified in the corresponding entries in column (4) of the said schedule :
1. Director of Income- Bombay All cases of persons claiming tax (E) exemption under Clauses (21), (22), (22A), (23), (23A) & (23C) of Section 10, Section 11 and Section 12 of the Income-
tax Act, 1961, assessed or assessable by any Income-tax authority having head-
quarters at Bombay.
The learned Counsel for the assessee had referred to the notification dated 6-9-1989 by means of which jurisdiction of the Directors were indicated, for making his point that this notification indicates that the Directors shall exercise their powers vested in them and perform their functions while the notification of 17-10-1989 does not provide any power to the Director and since, Section 263 is a power of the Commissioner which is not conferred upon the Director of Income-tax, he could not have invoked them and therefore, his order is beyond his jurisdiction. This is also reproduced below for the sake of convenience:--
In exercise of the powers conferred by Sub-sections (1) and (2) of Section 120 of the Income-tax Act, 1961, and in supersession of any order issued by the Directors General as authorized under Clause (b) of the notification of the Govt, of India in the Min. of Finance, Central Board of Direct Taxes, No. S.O. 358(E) dated 30-3-1988, so far as it relates to the jurisdiction of Directors, the Central Board of Direct Taxes hereby:
(a) directs that the Directors specified in column (2) of the schedule hereto annexed shall exercise their powers vested in them under Section 132 of the Act and perform their functions relating thereto in respect of the territorial areas of the whole of India
1. Director of Income-tax (Investigation), Union Territory of Delhi Delhi The notification by which DIT is appointed under Section 132 of the Act gives them the power of impounding property found in the premises searched. Considering the special nature of functions under that section, the notification has the words 'power' in the notification appointing Directors to act under that section. The power referred in that section is magisterial powers and therefore, it had to be specifically so indicated because, without those powers vested on him specifically, he would not be in a position to authorize the seizure of property.
It is worth noting that both the notifications use of the term 'perform the functions'. The term 'function' indicates the various duties to be performed with reference to the provisions of the Act and the person so appointed can perform his functions by executing his duties only when he acts in pursuance to the provisions of the Act. In order to act in pursuance to the provisions he has necessarily have the sanction to perform such a function or act without which authority the DIT could not carry out the responsibilities conferred upon him by the Act. The functions conferred upon the DIT by the CBDT to perform as the Commissioner is not with a view to be silent spectator but to actively carry out such duties as the Commissioner and the rider is that the DIT so appointed shall carry out the functions of the Commissioner in relation to the assessments of class of cases,f ailing under Sections 11 & 12 of the Act. The term 'assessments of class of cases falling under Sections 11 & 12' covers proper implementation of those two sections on those cases by the authorities in the assessments framed on them.
The Section 11 of the Act prescribes the manner of assessment of a charitable or religious trust and Section 12 of the Act states that the voluntary contributions shall be deemed to be the income of the trust and their investment would be governed by the provisions of Section 13 of the Act. Section 12A of the Act prescribes conditions that should be fulfilled by persons before they could be granted registration as trusts governed by the provisions of Sections 11 & 12 of the Act. The application for registration is to be made to the Chief Commissioner or the Commissioner who alone could grant registration to the trust based on the report of the authorities under him that all of the conditions specified in Sections 11 to 13 have been duly complied with. If the argument of the assessee is to be accepted then, the DIT acting as a Commissioner does not possess the power to grant registration. In a hypothetical case where the assessee pleads and objects to the stand of the authorities in refusing the status of a charitable trust, he could not take any remedial measures to correct a wrong done, which means that the Commissioner is not empowered to act according to the statute, which is a ridiculous proposition.
According to the notification issued by CBDT, the DIT has to function as the Commissioner with reference to the assessments falling under the provisions of Sections 11 & 12 of the Act. The functioning as Commissioner within the provisions of Sections 11 & 12 of the Act confers upon the power to grant registration as a charitable or religious trust because, every trust having income is required to get itself registered. In the exercise of his function as the Commissioner, if he cornes across case/cases which have failed to comply with the provisions or has been wrongly granted the status as charitable trust then, he has the power to withdraw such registration. Therefore, a DIT when performs the function of the Commissioner with reference to Sections 11 & 12 of the Act, as conferred upon by the CBDT, he acts as such and this action could be said to be complete only when he can correct the wrong implementation of the Act. In order to correct the wrong implementation of the Act in the assessment of persons, the Act has conferred upon the Commissioner the power to revise the order of assessment under Section 263 of the Act. The DIT who is appointed to carry out the functions of the Commissioner of assessing persons and grant them the status of charitable & religious trust and exempt their incomes from being taxed has the inherent duty to ensure that such implementation is not misplaced and thereby valuable revenue is collected. In the course of prevention of revenue not being lost, the function as the Commissioner could be effective only if he acts by invoking the inherent power contained in him. Section 263 of the Act states that the Commissioner may call for and examine the record ... if he finds that the order passed is erroneous insofar as it is prejudicial to the interests of revenue, he may ... pass such an order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The performance of the functions of a Commissioner covers enhancing, modifying, cancelling or directing a fresh assessment.
Therefore, in our view the omission of the words 'power' in the notification appointing the PIT to function as the Commissioner would not deter from the real concept of power built within it. We therefore are of the opinion that the DIT while carrying out the functions of the Commissioner as conferred by the notification on him, has the necessary power of the Commissioner though, it is limited to the assessments framed with reference to the provisions of Sections 11 & 12 of the Act. Therefore, this claim of the assessee is without any sanction of law and therefore, is rejected.
6. The learned Counsels for the appellants strongly contended that the DIT had exceeded his jurisdiction in as much as the assessments as framed was in accordance with the directions of the predecessor DIT and the Act does not permit a revision of the order of DIT by another DIT. The learned Counsels for the appellant-trust submitted that after the initiation of the assessments proceeding by selecting the case for scrutiny, the Assessing Officer had called for the direction of DDIT under Section 144A of the Act by providing complete facts. The DDIT submitted a report to DIT on 10-4-1992 to which report the then DIT agreed by his reply dated 6-5-1992. The Assessing Officer however, did not complete the assessment but, preferred to submit his detailed report dated 23-12-1992 to DIT giving reasons for holding the trust to be charitable and calling for directions of DIT by forwarding the same to DDIT. The DDIT submitted a report to DIT dated 19-1-1993 enclosing the report of Assessing Officer dated 23-12-1992 stating that the predecessor DIT had felt that the activity of the trust as not of charitable nature. The DIT replied to this report to DDIT vide his letter dated 4-3-1993 accepting the views of the Assessing Officer that the trust is charitable in nature which directions were enclosed by DDIT to Assessing Of ficer on the same date as his directions under Section 144A of the Act and the assessment was accordingly framed on 11 -3-1993.
The counsel submitted that the DIT was closely involved with the assessment proceeding and the Assessing Officer was all through guided by him and acted in accordance with those guidance because he was subservient to the DDIT & DIT and has to act according to the directions issued under Section 144A of the Act. Since, the Assessing Officer had framed the assessment according to the directions of DIT & DDIT, the error if any in the order of assessment could not be attributed to wrong application of mind by the Assessing Officer. He contended that the revision of an order is not possible which order is so made in the implementation of the directions issued by superior authorities. In support of this contention he placed reliance on the Madhya Pradesh decision in H.H. Maharaja Raja Pawar Dewas v. CIT[1982] 138 ITR 518 & on the Bombay High Court decision in Brihan Maharashtra Sugar Syndicate Ltd. v. P.R. Joglekar Dy. CAIT[1987] 165 ITR 279. Further reliance was placed on the Supreme Court decisions in Sirpur Paper Mills Ltd. v. CWT [1970] 77 ITR 6, on the Allahabad High Court decision in Union of India v. Sheo Shanker Silaram [1974] 95 ITR 523 and on the Calcutta High Court decision in ITO v. Eastern Scales (P.) Ltd. [1978] 115 ITR 323. Reliance was placed on the order of the Bombay Bench 'A' in Kiran & Co. v. ITO[IT Appeal Nos. 1623 to 1626 (Bom.) of 1986 dated 22-6-1990] for the assessment years 1981-82 to 1984-85 where the assessment was framed based on the acceptance of a settlement petition before the Commissioner was held as an order passed pursuant to the direction of a superior authority and hence, not capable of being revised. Reliance was also placed on the order of the Bombay High Court in Virendra Kumar Jhamb v. CIT[Writ Petition No. 877 of 1990 dated 24-4-1990] in which case after extensive investigation, the Commissioner had issued directions to accept the returns filed by the appellant pursuant to such an understanding with him was sought to be revised. Though, there is no finality in the said order but, it contained observations to the effect that superior authority's direction if followed, does not lead to any error in the order of Assessing Officer.
The departmental representative on the other hand contended that the Assessing Officer who had not carried out the assessments based on the guidance issued by DIT at the first time on 6-5-1992 and merely for the reason he had completed after the second guidance issued on 4-3-1993 by DIT, it could not be concluded that he had acted according to the directions of the DIT because the Act does not empower the superior authorities to issue any directions to the Assessing Officer in framing of an assessment. The Assessing Officer would be within his powers in not following any imposition by his superiors which they are not so authorized by the Act.
On these contentions and in the light of the observation of the DIT in para 8 of his order reproduced earlier, it gives an impression that the DIT was more affected in the Assessing Officer not following his first guidance dated 6-5-1992 holding that the activity of the trust was business activity and therefore, not covered by Section 11(4A) of the Act. Further since, the successor DIT had revised the guidance dated 19-1-1993 holding that the trust's activity as wholly charitable despite he being invited to the directions of the predecessor DIT where he had held the trust's activity as a business, the DIT took upon himself that he could also revise his predecessor's views. This action of the DIT is therefore based on personal prejudice and since, the Act does not permit revision of an order of Assessing Officer with a view to revise the orders of his predecessor DIT, we have to strike down this basis of revision of the order as illegal and against the provisions of the Act.
The Act does not contain any provision by which an order of Commissioner could be revised by another Commissioner and the decisions cited by both parties are in support of the view that the order passed in pursuance of a direction of a superior authority like the appellate authority, or the High Court or as a consequence of settlement arrived at by the Commissioner could not be the subject-matter of revision because the Assessing Officer could not be said to have applied his mind to it and therefore, his order could not be said to be erroneous so as to be prejudicial to the interests of the revenue. Even assuming that the Assessing Officer had the option to choose between the two guidance of two different DIT's and if has chosen to follow one of them, then too it is not open to the third DIT to hold that the order of Assessing Officer is erroneous because, the Assessing Officer had not applied his mind but merely implemented the direction of his superiors. Therefore, to this extent we uphold the objection of the assessee.
The Supreme Court in Sirpur Paper Mills Ltd.'s case (supra) had categorically observed that the superior authority could not issue any direction in regard to the manner of framing of an assessment and the authority following such an order could not be held to have applied his mind which is the primary requirement and accordingly had set aside the order of the Commissioner who finalized the revision pursuant to the instructions of CBDT. This decision lays down that the superior authority could not interfere with the statutory functions of an authority and that the superior authority could not revise an order passed in pursuance to the directions of another identical superior authority. The Act clearly prescribes for revision of orders passed by an Assessing Officer by the Commissioner who is his superior and does not permit revision of an order of a Commissioner by another Commissioner.
However, it is necessary to observe that the Rajasthan High Court in H.H. Rahdadi Smt. Badan Kanwar Medical Trust v. CWT [1995] 214 ITR 130 had held that the merely because in the order the Assessing Officer states that he had obtained the instructions of the Commissioner, it does not preclude the Commissioner from revising such an order because, the Commissioner is not expected to give any direction in the framing of an assessment. This decision is with a view to keep guard of unscrupulous assessments framed by stating that it has been so framed pursuant to the directions while the fact may that no such direction was ever issued. This decision however, does not apply to a situation similar to the those in Kiran & Co.'s case (supra) and in Virendra Kumar Jhamb's case (supra) where the assessments were framed pursuant to the settlements reached with the Commissioner.
7. The contention of the assessee was that the order was framed on the direction given by DDIT under Section 144A of the Act and to that extent the Assessing Officer could not be said to have applied his mind and therefore, that portion of the order based on the direction of DDIT under Section 144A of the Act, could not be revised under Section 263. According to the counsel the amendment to Section 263 of the Act which permits revision of orders that are made in pursuance to the directions under Section 144A of the Act is intended to cover all those cases and to that part of the order of assessment which is not guided by the directions under Section 144A of the Act. The support of the argument was with reference to the earlier decisions which have held that the order could not be erroneous when he follows his superior orders. The Supreme Court decision in CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd [1960] 40 ITR 142 was referred to for the proposition that fiction created by the section should not be carried beyond the purpose for which it was intended which was reiterated by the Supreme Court in CIT v. Moon Mills Ltd. [1966] 59 ITR 574, in CIT v. Ajax Products Ltd. [1965] 55 ITR 741, in CIT v. Amarchand N Shroff [1963] 48 ITR 59. It was submitted that the Calcutta High Court in CIT v. Justice R.M. Datta [1989] 180 ITR 86 had held that the words of the statute are precise and unambiguous, they must be accepted as declaring the express intention of the legislation. .
The departmental representative contended that the amendment including the revision of an order of assessment framed on the directions under Section 144A of the Act has to be construed in its true perspective and should not be broken up as suggested by the learned Counsels for the assessee. In support of the above arguments, reliance was placed on the Bombay High Court decision in CIT v. MM Virwani [1994] 207 ITR 225. In support of the argument that the Assessing Officer when applies wrong law it gives raise to an error and could be revised by the Commissioner, reliance was placed on and on the Rajasthan High Court decision in CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843. It was pointed out that the order did not deal with the provisions of Section 11 (4A) of the Act and therefore, error did creep in the order of Assessing Officer.
The contention of the learned Counsel for the assessee that the amendment to Section 263 of the Act permitting revision of orders has to be limited to that portion of the order not covered by the direction under Section 144A of the Act, in our considered opinion deserves to be rejected. Sections 144A and 144B of the Act were introduced with a view to contain litigation by making the immediately superior authority to the Assessing Officer to have concurrent jurisdiction in the framing of the assessment and this jurisdiction so exercised by that superior authority is not merely as a superior but as an Assessing Officer as well. To ensure that the assessments framed after obtaining the directions under Section 144A do not go unchecked the Legislature in their wisdom had amended the Section 263 to include such an order as within the ambit of revision provided of course it could be said that the order is erroneous so as to make it prejudicial to the interests of the revenue. Considering the volume and the tax involved, the CBDT from time to time had issued such notifications to the effect that Inspecting Assistant Commissioners of Income-tax, Deputy Commissioners of Income-tax would also act as Assessing Officer singly or shall have concurrent jurisdiction. The order of assessment passed by Assessing Officer or Assessing Officer under directions of Inspecting Assistant Commissioner (IAC) or by IAC all are performing the functions of an Assessing Officer. This is clearly brought out in the Notes on Clauses to the Taxation Laws Amendment Bill, 1984 by which the Explanation to Section 263 was introduced covering the orders framed as per the directions received under Section 144A of the Act. This is reproduced below for the sake of facility :
Sub-Clause (a) seeks to insert an Explanation to Sub-section (1) of Section 263. Under the existing provisions, the Commissioner is empowered to revise any order passed by the Income-tax Officer under the Income-tax Act if he considers that such an order is erroneous insofar as prejudicial to the interests of the revenue. The Explanation seeks to clarify that, for the purposes of this section, an order of assessment passed by the Income-tax Officer, on the basis of the directions issued by the Inspecting Assistant Commissioner under Section 144A or Section 144B or an order passed by the Inspecting Assistant Commissioner in exercise of the powers or in performance of the functions of an Income-tax Officer conferred on or assigned to him under Clause (a) of Sub-section (1) of Section 125 or under Sub-section (1) of Section 125A shall be regarded as an order passed by the Income-tax Officer.
In the case before us the assessment was selected for scrutiny and the DDIT was closely following every stage of the assessment and in the course of such function had issued his directions under Section 144A of the Act and was performing the identical functions of the Assessing Officer and the order finally passed according to the directions remain to be an order made by Assessing Officer jointly with DDIT acting as an Assessing Officer. Therefore, there is absolutely no merit in the argument advanced by the learned Counsel of the appellant-trust that to the extent of the directions received under Section 144A and applied by the Assessing Officer it could not be revised and hence is rejected.
8. For consideration of the merits the counsel had placed on our record the resolution passed by Housing & Special Assistance Department dated 22-2-1987 which refers to a circular issued by the Govt. of Maharashtra dated 4-7-1983 and a resolution dated 4-7-1983 with reference to Urban Land Ceiling Act, 1976 and the proposal of construction of houses on the surplus land and selling them to collect funds and the guidelines to be followed in sanctioning such proposals. Another resolution on the same subject of Govt. of Maharashtra dated 19-8-1988 allowing Public Charitable Trusts to use their surplus vacant land in the construction of houses and selling them to the public for augmenting resources of providing of houses to the poorer sections of the community was also placed on our record. The copy of the resolution dated 26-3-1985 for the composite scheme of lease & development of the Gibbs Road Plot (land No. 434 of Malabar Hill & Camballa Hill Division), construction of flats thereupon, to utilize the proceeds in the construction of flats on the land at Godrej Baug to house the poor sections of the community. This resolution has the approval of the learned legal luminary Mr. N.A. Palkhiwala. The approval of the Municipal Commissioner for occupation of the property at Gibbs Road floor by floor is also placed on our record. The application dated 22-6-1988 to the Charity Commissioner of Maharashtra State made under Section 36(1)(a) of the Bombay Public Trusts Act, 1950 referring to a resolution passed on 3-1 -1984 for the construction on Gibbs Road Plot, lease of the land to a co-op, society at an annual lease of Rs. 75,000, price fixed for the sale of flats. The said authority vide order dated 17-11-1990 accorded sanction to the lease of the land at an annual lease rent of Rs. 75,000 for fifty years to Spenta Co-op. Housing Society Ltd.
8.1 The assessee contended the same submissions as were made before the Assessing Officer, DDIT and DIT and had placed on our record all of such submissions at pages 3 to 69 of the paper book. It has also placed at pages 80 to 87 the copy of the resolutions of utilization of the surplus from sale of Spenta flats. The counsel submitted that conversion of an existing capital asset into another for acquisition of another capital asset for the objective of the trust could not be construed as a business activity. He supported his contention by relying on the decision of the Delhi High Court in CIT v. Lola Dewan Chand Trust [1991] 190 ITR 451. He contended that in that case the assessee had demolished its old building, constructed a rnulti-storeyed building and sold flats and the surplus realized therefrom was utilized for public charitable purposes. The Tribunal's finding that there was no profit motive involved in the demolition, construction and the sale which was found to be a finding of fact. He pleaded that sale of machinery & plant never used in business, was realization of its assets and not for furtherance of its business and hence, such asale gives raise to capital income, was so held by the Supreme Court in Liquidators of Pursa Ltd. v. CIT[1954] 25 ITR 265.
8.2 The departmental representative however contended that the activity of lease, development, construction of flats and sale realizing a surplus of Rs. 7 crores was a business activity and the subsequent utilization of the surplus for housing the poor would not change its present character of profit from business. The Section 11(4A) of the Act does not permit the construction & sale of property to meet the ends of charity and therefore, the surplus from the activity is clearly taxable.
8.3 The rival submissions and the various materials as placed on our record have been very carefully considered. The assessee in its submissions to the authorities had categorically stated that the entire process of lease development of land, construction of flats thereupon and their sale to title richer families of Parsi community was achieving the objective of providing housing for the poor based on which consideration that the Charity Commissioner of Maharashtra State had granted his approval. The Maharashtra State in the course of implementing the Urban Land Ceilings Act, 1976 finding that public charitable trusts had large chunk of land and with a view to find houses for the poor evolved a scheme by which they were permitted to sell or construct on those lands flats and sell them to rich and use the surplus therefrom in the construction of housing for the poor. The Government of Maharashtra realized that the public charitable trust would require huge funds to implement the housing for the poor and therefore, observed that it would be the best proposition to allow the construction and sale of flats to people and utilize the funds so collected in providing housing for the poor.
The resolutions of the trust are in line with the scheme floated by the State Government and they had carried their intentions by leasing the land to a co-op, society of Parsis for fifty years, constructed thereupon flats, indicated the price at which it was proposed to be sold to the Charity Commissioner while seeking his approval for the lease. The Charity Commissioner was to ensure that surplus land owned by public charitable trust would be allowed to be retained by the trust only if it constructed flats to house the poor and for achievement of this objective it could sell, or lease land and construct houses thereupon and sell them at the market price because there was no other way to augment resources by such trusts. The Charity Commissioner had granted his approval of the low lease rent, permitted the sale of flats and realize the proceeds and utilize the proceeds for construction of flats for housing the poor Parsis.
The fact that sixty flats were constructed on the leased land to Spent Coop. Housing Society which were sold to the richer sections of Parsi community realizing over Rs. 7 crores, out of which surplus little less than Rs. 5 crores was utilized in the construction of 350 flats which were let to the poor Parsis at a very nominal rent is not disputed by the revenue. It is not in dispute by the revenue that the 350 flats constructed which house the poor was possible because of the generation of funds from the construction and sale of 60 flats to the richer class. It is not the case of the revenue that the trust had liquid funds available of the magnitude of Rs. 7 crores.
In our considered opinion therefore, since the lease, development of land, construction of land thereupon and their sale realizing a surplus of Rs. 7 crores was a means to achieve the objective of housing the poor which is in line with the scheme evolved by the Maharashtra State and it was the only manner by which the land owned by the trust could also be retained by it, all clearly indicate that the conversion of a capital asset into another was for maintaining the charitable object of the trust. The action of the trust in realizing the surplus of Rs. 7 crores in these circumstances could not be construed as a business activity because, the nature of every activity is to be governed by the intention behind such an activity which in the instant case is governed by the desire to hold on to the property owned by the trust, to fulfil the objectives of the trust of housing the poor and in the course of achieving this purpose flats were sold by means of which the surplus of Rs. 7 crores was realized and it was so utilized for housing the poorer section of the community. We accordingly are of the opinion that the lease, development of land, construction of flats and their sale resulting in a surplus of Rs. 7 crores is not a business activity. In view of the activity not being a business activity the provisions of Section 11 (4A) are not attracted.
In the result, the appeal is allowed in part as above.