Kerala High Court
Sree Narayana Chandrika Trust vs Commissioner Of Income-Tax (No. 2) on 23 September, 1996
Equivalent citations: [1997]224ITR464(KER)
JUDGMENT V.V. Kamat, J.
1. At the instance of the assessee, the following three questions expect our answer :
" 1. Was the Appellate Tribunal justified in holding that Sections 13(2)(h) and 13(3) of the Act are applicable to the instant case ? Is not the decision of this hon'ble Tribunal in I. T. A. No. 2(Coch)/1980 in the case of Sree Narayana Chandrika Trust, Irinjalakuda, in favour of the assessee ? Is not the reasoning of the Appellate Tribunal to hold so illegal and unjustified ?
2. Was the Appellate Tribunal justified in holding that the assessee-appellant is not entitled to the exemption under Section 11 of the Income-tax Act, 1961, in the instant case ?
3. Was the Appellate Tribunal right in holding that in the case of the assessee a partner in the firm there is investment of funds by the assessee in a concern within the meaning of Section 13(2)(h) and Section 13(3) of the Income-tax Act, 1961 ?"
2. In fact, the main question is whether reopening under Section 147(a) of the Income-tax Act is justified on the facts and circumstances of the case ?
3. The assessee--Sree Narayana Chandrika Trust, Irinjalakuda--got constituted as a charitable trust in pursuance of the trust deed dated March 15, 1972. The assessment year is 1973-74. The original assessment in regard thereto had been completed under Section 143(3) and therein certain amount of income was excluded from the total income, in view of the application of Section 11(2) of the Income-tax Act, 1961.
4. It was thereafter found out that the exemption granted by resorting to Sections 11 and 12 of the Income-tax Act, 1961, was not proper as there was violation of the provisions of Sections 13(1)(c)(ii) and 13(2)(h) read with Section 13(3) of the Income-tax Act, 1961.
5. Recording such a conclusion as a ground for belief, the Income-tax Officer found escapement of assessment. This was on account of the omission or failure on the part of the assessee in not disclosing certain primary facts. The assessment was reopened.
6. The Income-tax Officer recorded the conclusion that this is a case where exemption granted under Sections 11 and 12 of the Act has to be withdrawn. He also found that the provisions of Sections 15(1)(c)(ii) and 13(2)(h) had been violated.
7. This view was confirmed in appeal by the Appellate Assistant Commissioner and also thereafter by the Appellate Tribunal.
8. On facts, the Tribunal has taken into consideration the close relationship of the partners of the firm of the managing trustees. The Tribunal has also further found that this closeness of relationship should have been disclosed at the inception itself during the original assessment proceedings. There was, therefore, justification to resort to Section 147(a) of the Act.
9. It was contended on behalf of the assessee that this was within the knowledge of the Income-tax Officer during the original assessment proceeding itself. Factually, the assessee-trust had contributed Rs. 5,000 towards the capital of the firm, Beena Enterprises. The said firm had a total investment of Rs. 30,000. Therefore, the contribution was more than 16 per cent. of the total investment.
10. The Tribunal further found that along with the return from the document (annexure "H" thereto) the assessee had stated that with reference thereto that "list will be furnished". Such a list was not submitted. The Tribunal found that if only a list had been furnished, the Income-tax Officer would have come to know about the relationship of the partners to the managing trustees and that would have given him an occasion to know whether any of the provisions of Section 15 were infringed. The Tribunal has also particularised the contents of annexure "H", which are as follows :
" Name(s) of relative(s), author(s), founder(s), trustee(s), manager(s) and substantial contributor(s) and where any such author, founder, trustee, manager or substantial contributor is a Hindu undivided family, also the names of the members of the family and their relatives."
11. It is on the basis of the above factual situation, the Tribunal recorded that the assessee had no justification to withhold the information, viz., the relationship of the partners to the managing trustees. It is in this situation, the Tribunal justified resort to Section 147(a) of the Income-tax Act, 1961. Before the Tribunal, the assessee had contended that in the matter of the sister trust in the name and style Chandrika Educational Trust at Irinjalakuda with regard to the contribution of Rs. 100 in a firm far less than 5 per cent. of the total capital, a letter dated November 4, 1970, was addressed to the Commissioner of Income-tax sending his opinion whether the said contribution of share capital would amount to "investment" and also in reply thereto dated December 22, 1970, of the Commissioner of Income-tax that it would not be so. The Tribunal, in this context, emphasised the factual peculiarity that the contribution towards the Chandrika Educational Trust (Rs. 100) was far below 5 per cent. of the total capital contribution. The contribution of Rs. 5,000 by the assessee-trust in the firm of Beena Enterprises exceeded the required five percentage as the said contribution was more than 16 per cent.
12. Thus, on the factual matrix, the reasoning of the Tribunal will have to be justified under the above situation.
13. Apart therefrom, in I. T. R. Nos. 31 of 1990 and 145 of 1994, decided on July 4, 1996 (Chandrika Educational Trust v. CIT, [1997] 224 ITR 453) this court (of which one of us--myself--was a partner dictating the judgment), with regard to the situation in the matter of the said Chandrika Educational Trust, Irinjalakuda, for the very same assessment year 1973- 74, had an occasion to consider the similar situation. In the said judgment, this court had an occasion to rely on its still earlier decision in I. T. R. No. 161 of 1991 decided on May 29, 1996 (CIT v. Chandrika Educational Trust, [1997] 224 ITR 449), also with regard to the assessee--Chandrika Educational Trust--with reference to the subsequent assessment year 1974- 75, dealing with the situation of reopening and consequent reassessment. We find from the said judgment that still for the assessment years 1975-76 and 1976-77, this court also did not extend the benefit of exemption under Section 11 of the Act to the assessee because the contribution of the trust in question exceeded 5 per cent. in relation to the capital of the firm where the money was allowed to remain.
14. The provisions of Section 11(1A) of the Act as also of Section 13(1)(c)(ii) together with Sections 13(2) and 13(3) of the Act have been considered. Pinpointedly, Section 13(2)(h) is brought into focus with reference to the situation that if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year in any concern in which any person referred to in Sub-section (3) has a substantial interest. This provision is considered with reference to the question of grant of benefit under Section 11 of the Act to rule that it will not be available in the context of the relationship brought on record.
15. In our judgment, the legal position that is discussed by this court in I. T. R. Nos. 31 of 1990 and 145 of 1994 (Chandrika Educational Trust v. CIT, [1997] 224 ITR 453), which is also identical in character in subsequent assessment years such as 1974-75, 1975-76 and 1976-77 in the matter of Chandrika Educational Trust is not at all different. It is to be emphasised that Sree Narayana Chandrika Trust, Irinjalakuda, is also of a cognate nature with Chandrika Educational Trust. In fact, it is seen from the judgment referred to above that the Tribunal had considered the position of law even with reference to the present assessee-trust with regard to the same situation. In our judgment, apart from the factual position discussed hereinbefore, the question is also covered by the above decision of this court.
16. For all the above reasons, all the above three questions are answered in the affirmative, in favour of the Revenue and against the assessee.
17. A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.