JUDGMENT
N.M. Kasliwal, J.
1. Both the above reference applications are disposed of by one single order as they relate to two different assessment years 1971-72 and 1975-76, but common question of law is involved in both these applications.
2. The Commissioner of Income-tax, Jaipur, has filed these applications
under Section 256(2) of the Income-tax Act, 1961 (for short “the Act”,
hereinafter), for giving direction to the Income-tax Appellate Tribunal,
Jaipur, to state the case and refer the following question of law for the
opinion of this court: ,
“Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in holding that no error, much less an error which is prejudicial to the interests of the Revenue, has been established by the Revenue and, therefore, the Commissioner of Income-tax was not justified in having exercised jurisdiction under Section 263 of the Income-tax Act ?”
3. Brief facts of the case are that the Commissioner of Income-tax passed an order under Section 263 of the Act on April 2, 1979, and another on September 15, 1979. for the two assessment years, namely, 1971-72 and 1975-76, respectively. The settlor of Anupam Charitable Trust (hereinafter referred to as “the Trust”) acquired sole selling agency from M/s. Godawari Sugar Mills Ltd. and deposited security to the tune of Rs. 50,000. The settlors were to receive commission on the sale of suga.. at 1.1/8%. The settlors then created a trust on November 3, 1964, by executing a trust deed and the right to receive the commission from the sole selling agency and the security of Rs. 50,000 was created for charitable purpose within the meaning of Section 2(15) of the Act. No return was filed under Section 139(1) of the Act for the assessment year 1971-72 by the assessee-trust as it thought that the entire income accruing to it was exempt under Section 11 of the Act. The Income-tax Officer then served a notice under Section 148 of the Act on the assessee. In response to the above notice, the assessee filed its return of income on February 25, 1974. The assessment was thereafter made by the Income-tax Officer on April 7, 1977, under Section 143(3) of the Act. The Income-tax Officer treated the assessee as a charitable trust within the meaning of Section 2(15) read with Section 11 of the Act and granted exemption. The Income-tax Officer similarly granted exemption to the assessee for the assessment year 1975-76. The intervening assessments were not made at all till then. The Commissioner of Income-tax initiated proceedings under Section 263 of the Act taking the view that the assessments made by the Income-tax Officer were erroneous as they were prejudicial to the interests of the Revenue. The Commissioner of Income-tax held that the assessment orders passed by the Income-tax Officer were erroneous, as by these orders, the income which was assessable to tax had been declared to be exempt and it has resulted in loss of lawful revenue to the State. The Commissioner of Income-tax, as such, set aside the orders passed by the Income-tax Officer and gave direction to take proceedings for assessment de novo.
4. The assessee-trust, aggrieved against the orders of the Commissioner of Income-tax, filed two appeals before the Income-tax Appellate Tribunal in respect of both the assessment years. The Tribunal held that there was no error, much less any error which might be prejudicial to the interests of the Revenue, on the facts and in the circumstances of the cases. The Tribunal further held that the Commissioner of Income-tax was not justified in having exercised jurisdiction under Section 263 of the Act. The Tribunal, as such, by order dated August 30, 1980, allowed both the appeals and set aside the orders passed by the Commissioner of Income-tax. The Commissioner of Income-tax filed two applications for making references to this Hon’ble court on the question of law referred to above, but these applications were also dismissed by the Tribunal by order dated August 31, 1981. In these circumstances, these reference applications have been filed by the Commissioner of Income-tax under Section 256(2) of the Act before this court.
5. Shri R. N. Surolia, learned counsel for the Revenue, submitted that the learned Tribunal committed an error in holding that the assessee-trust derived income in accordance with the objects of the trust. It is submitted that the objects of the trust forbid the trustee from indulging in profit-earning activities. It was further submitted that the Tribunal committed an error in assuming without there being any evidence on record, that the assessee-trust received income by way of agency commission on sale of sugar manufactured by M/s. Godawari Sugar Mills Ltd. in specified area. It was further argued by Shri Surolia that the learned Tribunal committed an error of law in holding that the activities of the assessee-trust in diverting back income received by it and then granting it by way of loans to the donees fulfilled any charitable object of the trust. It was further submitted that the Commissioner of Income-tax had rightly held that the Income-tax Officer did not make any inquiry as to whether the sole selling agency had been renewed by M/s. Godawari Sugar Mills Ltd. in favour of the trust after April 30, 1966. The sole selling agency came to be terminated on May 1, 1969, and, as such, the same was not available to the assessee in the previous years. It was thus submitted that the income received by the assessee, having been derived from selling agency, could not be said to be property held in trust as settled by the authors of the trust. The Commissioner of Income-tax, in these circumstances, was right in giving directions to the Income-tax Officer to make inquiry and pass orders of assessment de novo before holding that the income of the assessee was exempt under Section 11 of the Act,
6. Shri Surolia further argued that the Commissioner of Income-tax had rightly placed reliance on a decision of the Supreme Court in Dharmaposhanam Co. v. CIT [1978] 114 ITR 463. The Commissioner of Income-tax had rightly held that the authors of the trust have clearly reserved for themselves unfettered powers of utilising the income of the trust in their absolute discretion for any of the four objects mentioned in clause 5 read with clause 2 of the trust deed and such objects include the advancement of “any other object of general public utility” : whether or not they have actually exercised its powers is immaterial. Thus, the assessee-trust having also engaged itself in the advancement of any object of general public utility and involved itself in any activity for profit, the income of the trust forfeits exemption as provided in the Act. It was proved that the objects of the trust included the advancement of general public utility and it has extensively engaged in activities for profit, and, therefore, the income of the assessee is not exempt under Section 11 read with Section 2(15) of the Act.
7. On the other hand, Shri S.P. Mehta, learned counsel for the assessee-trust, submitted that the view taken by their Lordships of the Supreme Court in Dharmaposhanam Company’s case [1978] 114 ITR 463, has been overruled by a later decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1. It is submitted that the entire basis of the order of the learned Commissioner of Income-tax was Dharmaposhanam Company’s case [1978] 114 ITR 463 (SC), but when the Supreme Court itself in Surat Art Silk Cloth Manufacturers Association’s case [1980] 121 ITR 1, has held the same to be no longer good law, the entire order, of the Commissioner of Income-tax falls to the ground and no question of law survives for the opinion of this court. It was pointed out by Shri Mehta that it was nowhere the case of the Department that the income derived by the assessee-trust has been utilised for any purpose other than charitable objects. There was a clear case of the assessee that after 1969, the assessee-trust has become the sole selling agent and continued to receive the commission income and there was no fundamental change in the character of commission income so far as the applicability of Section 11 of the Act is concerned.
8. Shri Mehta further contended that it was nobody’s case that the assessee showed income which did not belong to it. In no case, can it be said that the commission income that was declared by the assessee in the returns was not income of the trust. It has already been held in Surat Art Silk Cloth Manufacturers Association’s case [1980] 121 ITR 1 (SC), that if the profit-making activity is subservient to the charitable objects of general public utility, then the exemption has to be allowed under Section 11 of the Act. There is no dispute in the present cases about the application of the income. The profit-making activity was meant for achieving the charitable object of general public utility and such profit-making activity was not an end but only a means to achieve the charitable object of general public utility. It was thus contended that the Tribunal committed no error of law and no question of law arises from the order of the Income-tax Appellate Tribunal, dated August 30, 1980.
9. We have given our thoughtful consideration to the arguments advanced by learned counsel for the parties. The Tribunal considered the question whether there was any error in the order of the Income-tax Officer within the meaning of Section 263 of the Act and whether such error caused any prejudice to the interests of the Revenue. In order to assume jurisdiction under Section 263 of the Act, two things have to be established, (i) that there is an error in the orders of the Income-tax Officer, and (ii) that the error is prejudicial to the interests of the Revenue.
10. The Commissioner of Income-tax in respect of the assessment year 1971-72 pointed out an error in the order of the Income-tax Officer that the sole selling agency commission could have continued at the most up to the year 1969 and thereafter the trust could not have received any income by way of commission from the sole selling agency. The Commissioner of Income-tax pointed out that no investigation was made by the Income-tax Officer, whether the sole selling agency continued after the year 1969 and without inquiring into this vital aspect, the Income-tax Officer granted exemption under Section 11 of the Act. Another mistake pointed out by the Commissioner of Income-tax was that the assessee declared an income of Rs. 4,96,790, being sugar rate difference from M/s. Bhandari Sugar Depot, Poona. In this regard, the Commissioner of Income-tax observed that the Income-tax Officer did not even make any inquiry as to whether the profits shown by the assessee resulted by purchase and sale of sugar by way of actual delivery or otherwise and not to talk of the verification of the profit declared before accepting the same. The Commissioner of Income-tax took the view that the name, “sugar rate difference”, indicated that it was an income from a speculative business.
11. The Tribunal, in this regard, held as under:
“We are unable to understand as to how he says that commission income was not available to the assessee after May, 1969. No material has been pointed out on the record by the Commissioner of Income-tax to show that the assessee-trust could not have received and did not receive any commission income from the principal after May, 1969. Simply because in the agreement deed dated September 3, 1964, it was stipulated that the sole selling agency agreement will not be renewed for more than five years, the Commissioner of Income-tax was not justified in concluding that the assessee could not have received any commission income thereafter and that the property that was settled by the settlors with the trust had extinguished during the years under appeal. The right to receive the commission income is purely a matter of agreement. In a given agreement, which prohibited anything may be modified at any subsequent stage by agreement of the parties (sic). In short, any agreement can be modified and revised by a subsequent agreement. Simply because there was a provision for not continuing the sole selling agency for more than five years in the agreement deed dated September 3, 1964, the Commissioner of Income-tax was not right in concluding that the question of receiving the commission income during the years under appeal would not have arisen in terms of the agreement deed dated September 3, 1964. There would have been an error had the Commissioner of Income-tax brought any material on record that after May, 1969, no agreement was made with the principal for the continuance of commission income. In the absence of any material showing the contrary, the Commissioner of Income-tax concluded simply from the agreement deed dated September 3, 1964, that no commission income was received by the assessee-trust after May, 1969, and, therefore, the error arose in the orders of the Income-tax Officer. This conclusion is wholly unwarranted. The clear case of the assessee is that after 1969, the trust became the selling agent in contradiction to the sole selling agency and continued to receive the commission income and there was no fundamental change in the character of commission income so far as exempting provisions of Section 11 is concerned.”
12. As regards the other mistake pointed out by the Commissioner of Income-tax, the Tribunal held that from a meticulous perusal of the observations of the Commissioner of Income-tax, it is obvious that he himself could not categorically say that the income of Rs. 4,96,790 represented income from speculative business. The Commissioner of Income-tax simply observed that the expression “sugar rate difference” occurring in the return of the assessee relating to the assessment year 1971-72 indicated that it was income from speculative business. The Tribunal held that a given expression may indicate something which may not be conclusive proof of anything. The error envisaged by Section 263 was not one which depended on possibility or guesswork but it should be actually an error either of fact or of law. Unless the Commissioner of Income-tax categorically says that there was some income from speculative business which could not qualify for deduction, much less exemption under Section 11, it cannot be said that there was any error in the order of the Income-tax Officer relating to the assessment year 1971-72. This error was not relevant to the assessment year 1975-76.
13. In our view, the above findings recorded by the Tribunal are purely findings of fact based on material on record and no question of law arises in the matter of such findings.
14. Now, so far as the question of profit-making activities in order to advance any object of general public utility is concerned, the matter is now set at rest by the pronouncement of their Lordships of the Supreme Court in Surat Art Silk Cloth Manufacturers Association’s case [1980] 121 ITR 1. The Commissioner of Income-tax had placed reliance on an earlier decision of the Supreme Court in Dharmaposhanam Company’s case [1978] 114 ITR 463, which is admittedly no longer good law. Had the case of Dharmaposhanam Company [1978] 114 ITR 463 (SC), been not overruled by the Supreme Court in Surat Art Silk Cloth Manujacturers Association’s case [1980] 121 ITR 1, there would have been valid ground for a question of law arising in the present case but the said decision having been overruled, there remains no res integra for being considered by this court.
15. In the result, we find no force in these reference applications and the same are dismissed without any order as to costs.