ORDER
Joginder Pall, A.M.
1. This is a bunch of six appeals out of which four have been filed by
the assessee against the consolidated order dated 21-5-2002 of Commissioner (Appeals),
Bhatinda, for the assessment years 1994-95, 1995-96, 1997-98 and 1998-99 and two appeals
have been filed by the revenue against the same order of Commissioner (Appeals). for the
assessment years 1995-96 and 1996-97. Since the issues involved in the appeals filed by the
assessee and by the revenue are inter-related and arise from the same consolidated order of
Commissioner (Appeals), all the appeals were heard together and are being disposed of by
this consolidated order for the sake of convenience.
2. At the time of hearing of the appeals, the learned Counsel
for the assessee submitted an application of the assessee dated 20-11-2005 requesting for
admission of the following additional ground of appeals for the assessment years
199495,1995-96,1997-98 and 1998-99:
That the order under appeal is void ab initio as legal
requirements for supplying copy of reasons recorded have not been supplied and the reasons
as mentioned by the learned Commissioner (Appeals) in his order does not show that any
income has escaped assessment. It only talks of the inapplicability of the provisions of section
10(22) of the Income Tax Act.
Neither the status of the assessee can be changed in proceeding under
section 148 nor any assessment can be framed without including income which is alleged to
have escaped assessment or underassessed.”
The learned Counsel for the assessee submitted that the above
additional ground is purely legal in nature for which relevant facts are already on record. He,
therefore, submitted that the same deserves to be admitted in view of the judgment of
Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT .
3. The learned departmental Representative, Sh. Achal
Sharma, conceded that the additional ground raised by the assessee for all the assessment
years was purely legal in nature and, therefore, there was no objection to the admission of
additional ground.
4. We have heard both the parties and carefully considered
the respective submissions, The additional ground raised by the assessee is purely legal in
nature for which relevant facts are already on record. Relying on the judgment of Hon’ble
Supreme Court in the case of National Thermal Power Co. Ltd. (supra), the additional
ground raised by the assessee for all the abovementioned assessment years is admitted.
5. In all the appeals filed by the assessee, the following
identical issues with variation in amounts have been raised:
“That the learned Commissioner (Appeals) has failed to appreciate the
facts and circumstances of the case and has thereby erred in holding donations of Rs. 2,40,051
for the assessment year 1994-95 (Rs. 1,76,000 for the assessment year 1995-96, Rs.88,500
for the assessment year 1997-98 and Rs.2,89,000 for the assessment year 1998-99) received
towards corpus fund from various donors duly reflected in the balance sheet as taxable.
Donations towards corpus fund are exempt under Section 11(1)(d) of the
Income Tax Act, 1961.
In view of the above stated facts and circumstances it is prayed that
the addition upheld by the Commissioner (Appeals) may kindly be deleted or such other relief
be granted as is deemed fit.”
6. In the appeals filed by the revenue for the assessment
years 1995-96 and 1996-97, the following identical grounds have been raised:
(i) The learned Commissioner (Appeals) has erred in allowing the status
of ‘Trust’ as against ‘AOP’ assigned by the assessing officer.
(ii) That the learned Commissioner (Appeals) has erred in deleting the
addition of Rs. 25 lakhs (Rs. 29 lakhs for the assessment year 1996-97) received by the
assessee as donations from the Tilok Tirath Vidyawati Chuttani Charitable Trust holding that
donations formed the corpus of the trust and the trust was not liable to tax.
(iii) That the learned Commissioner (Appeals) has erred in relying upon
the certificate which was not produced before any of the authorities during the assessment
proceedings and the applicant was not entitled to produce fresh evidence before the appellate
authority under Rule 46A of the IT Rules, 1962.
(iv) That the learned Commissioner (Appeals) has erred in not
appreciating the fact that the representatives of the assessee invested the funds in
companies in which they were substantially interested and the funds were not used for the
purposes for which the trust was created. Further, the assessee was not running any
educational institution for which it was eligible for exemption under Section 10(22) or under
sections 11 and 13 of the Income Tax Act, 1961.
(v) That it is prayed that the order of the learned Commissioner
(Appeals) be set aside and that of the assessing officer be restored.”
7. The facts of the case common to all the assessment years
are that the assessee filed the returns of income for the assessment years 1994-95, 1995-96,
1996-97, 1997-98 and 1998-99 on 1-7-1994, 30-6-1995, 28-6-1996, 27-6-1997 and 17-8-1998
respectively declaring therein nil income as the assessee had claimed exemption in respect of
its income under Section 10(22) of the IT, 1961 (in short the Act) on the plea that the
assessee was an educational institution . These returns were processed under section
143(1)(a)/143(1) of the Income Tax Act, 1961. Subsequently, it appears that the assessing
officer carried out enquiries with the prior permission of the CIT under Sub-section (6) of
section 133. Such enquiries revealed that assessee was not running any educational
institution/school/college/ vocational institute at village Sarai Naga or its surrounding areas.
There was only a sign board of its name, placed outside a room occupied by security guard of
Brar family. The. Assessing Officer observed that in the absence of any educational
institution/school or building for educational purposes, the assessee was not entitled to
exemption claimed under sub section (22) of Section 10 of the Act and the funds have not
been utilized for this object. The assessing officer, therefore, initiated action under section
147 by issue of notices under Section 148 on 2-3-2000. In response to said notices, the
returns declaring nil income were filed for all the assessment years. Thereafter, the case was
picked up for scrutiny. The assessing officer issued a detailed questionnaire and observed that
the assessee failed to furnish replies in respect of Q. Nos. 1, 2 and 4. Question Nos. 4 and 6
were not fully answered. The assessing officer observed that in the returns of income filed, the
assessee had mentioned Code No. 08 for AOP (trust). However, the assessee was a society
registered with registrar of societies. The assessing officer observed that the assessee had
claimed wrong status and it was repeatedly asked to clarify the, position by issue of several
notices/letters. But the same was not properly explained. The assessing officer, therefore,
adopted the status as an AOP with Code No. 07 for all the assessment years.
7.1 During the course of assessment proceedings, the
assessee was asked to explain how it had claimed exemption in respect of its income under
section. 10(22) of the Act whereas no expenditure was incurred and the income was utilised
for educational purposes. The assessee stated that the institution has been formed with the
sole object of setting up educational institute/college. However, the same could not be set up
due to non availability of sufficient funds. The assessee had claimed exemption under section
10(22) because it had reimbursed the school tuition fee. It was also explained that funds
collected had been invested in certain limited companies for the better returns and secured
investments. Thus, it was contended that it had not violated the provisions of Section 11 and
12 of the Act. The assessing officer examined such explanation and observed that the list of
students to whom tuition fee had been reimbursed were studying in premier schools/colleges
of Chandigarh, Panchkula & Mohali and the students belonged to the elite class who
could very well afford the study. Thus, the contention of the assessee that object was to help
needy students in backward area was factually incorrect. He also observed that students to
whom such fee was reimbursed belonged to the families who were closely connected with Brar
family or the persons who made donations to the society. He specifically mentioned such
names on p. 5 of the assessment order. He also observed that assessee reimbursed a meagre
sum of Rs. 1,41,305 by way of tuition fee to some students out of funds available of Rs.
79,41,734 collected by the assessee. He also observed though the society was registered with
the Registrar of Societies in 1993, the only action taken by the assessee was to purchase the
land for an amount of Rs. 15,41,250. The balance amount was invested in share application
money and also deposits in various companies of Brar family who were members of the
assessee society. He also observed that major chunk of donations amounting to Rs. 54,00,000
had been received from Tilok Tirath Vidyawati Chuttani Charitable Trust, of which Dr. Choutani
was a founder member and he had very close relations with Brar family. He also observed that
the assessee was not entitled to exemption under Section 10(22) of the Act because it was
not running any educational inslilute/school/college/vocationaI institute itself. He relied on the
judgments of Hon’ble Madras High Court in the cases of CIT v. Devi Educational Institution
and in the case of Addl. CIT v.
Aditanar Educational Institution upheld by the Hon’ble Supreme
Court in Aditanar Educational Institution Etc. v. Asstt. CIT where it was held that if the assessee was not running a school or
college itself, the assessee would not be entitled to exemption of its income under section
10(22) of the Act. He further relied on the judgment of Hon’ble Gujarat High Court in the case
of CIT v. Sorabji Nusserwanji Parekh, ,
where it was held that in the absence of any educational institution established for
educational purposes, it could not be said that the trust was carrying on educational activities.
He also relied on the decision of Tribunal, Pune Bench, in the case of Bhaskaracharya
Pratishthan v. Asst. CIT (1995) 52 ITD 28 (Pune) and decision of Tribunal, Bombay Bench
in the case of Shri Bhanbai Nenshi Mahila Vidyalaya v. ITO (1986) 26 TTJ (Bom) 79 :
(1986) 18 ITD 115 (Bom). He observed that in the present. case the assessee has not
been able to establish its own institution though it had been in existence for the last 8 years.
That apart it had not even undertaken any activity other than buying a land for setting up the
institution or even related to educational field. He also observed that sole purpose of setting
up the society was to act a conduit to route money received from other trusts and certain
individuals to the companies run by Brar family on purely commercial consideration. He
referred to the judgment of Honble Supreme Court in the case of McDowell & Co. Ltd.
v. CTO to come to conclusion that it
was merely a collusive device to evade tax. The assessing officer also observed that the major
portion of donations amounting to Rs. 54 lakhs had come from Tilok Tirath Vidyawati Chuttani
Charitable Trust, whose founder member was Dr. P.N. Choutani. Dr. P.N. Choutani was a close
family member of Brar family. The said trust namely, Tilok Tirath Vidyawati Chuttani Charitable
Trust had claimed exemption in respect of donations given to the assessee on the ground that
this institution was set up for educational purposes duly recognized and registered by CIT
under sections 80G and 12A of the Act. However, by referring to the results of enquiries made
in this case which revealed that assessee had not set up any educational institution, the
assessing officer having jurisdiction over the case of Tflok Tirath Vidyawati Chuttani Charitable
Trust, disallowed the exemption claimed in respect of donations given to the assessee. The
assessee filed an appeal before the Commissioner (Appeals) against the said order. The
assessing officer referred to the observations made by the Commissioner (Appeals) in the
order passed in the case of Tilok Tirath Vidyawati Chuttani Charitable Trust, where she had
observed that Sardarni Uttam Kaur Educational Society had not rendered any worthwhile
services in the field of nursery education and the funds received have been misutilised by the
trustees of the assessee trust. He also observed that if any trust to whom donations have
been given does not deploy/invest/utilise its funds in accordance with the objects and the
various modes and forms mentioned under section. 11(5) of the Act, such donations are liable
to forfeiture of exemption by virtue of Section 13(1)(d) of the Act. After drawing the support
from the said order of the Commissioner (Appeals), the assessing officer observed that the
donations received from Tilok Tirath Vidyawati Chuttani Charitable Trust, were invested in
share application money of the companies and also as deposits in the business concerns in
which the members of the Brar family were in full control. Thus, he held that the assessee had
violated the provisions of Section 13(1)(d) and was, therefore, not entitled to exemption of its
income under sections 10(22) and 11 of the Act. The assessing officer, therefore, completed
the assessments for the abovementioned years by disallowing exemptions both in respect of
its income and donations received from the various persons in the respective assessment
years.
8. Aggrieved with the order of the assessing officer, the
assessee filed appeals before the Commissioner (Appeals), where the action of the assessing
officer for initiating reassessment proceedings was inter alia challenged. It was
submitted before the Commissioner (Appeals) that the trust was established with a view to
open, run, continue an educational and vocational institution in healthy surroundings. The
returns for all the assessment years were filed in the status of trust which was also registered
by the CIT under Section 12A of the Act. The returns were processed under Section 143(1)(a).
It was submitted that the assessing officer misdirected himself by considering the claim for
exemption of its income under Section 10(22) of the Act instead of considering the same as
per provisions of sections 11 and 12 of the Act. However, while denying the exemption, the
assessing officer totally overlooked the nature of donations received i.e. whether the same
were towards corpus or for its application. It was submitted that the donations received from
Tilok Tirath Vidyawati Chuttani Charitable Trust, were towards the corpus of the trust. The
assessee also filed a photocopy of the certificate in confirmation of the donations given for
corpus by the said trust. It was also submitted that the assessee was not supplied a copy of
reasons recorded by the assessing officer for issuing notices under Section 148. Therefore, the
action of the assessing officer for reopening the assessments was void ab initio. This
fact was strongly disputed by the Jt. CIT, who contended that such reasons were supplied to
the Authorised Representative. The assessing officer also submitted before the Commissioner
(Appeals) that enquiries made during the course of assessment proceedings revealed that the
assessee had not established any educational institution/school/college/ vocational institute
and, therefore, the assessee was not entitled to exemption under Section 10(22) of the Act.
Further, the donations received were also diverted to business concerns of Brar family and
were not utilized for the objects for which the trust was set up. Members of Brar family were
the members of the assessee society. It was, therefore, submitted that the assessments had
been rightly reopened and claim for exemption in respect of its income under Section 10(22) of
the Act has also been rightly denied by the assessing officer. The issue regarding completion
of assessments in the status of an AOP with Code No.07 was contested and it was contended
that assessee was a trust and, therefore, the assessment was to be made in the status of a
trust with Code No. 8. The learned Commissioner (Appeals) considered these submissions and
held that since the trust was set up for running an educational institution/school/college or
vocational institute and the same was not found in existence when enquiries were made by
the department, the assessee was not entitled to exemption under Section 10(22) of the Act.
He, therefore, held that the assessing officer had rightly initiated reassessment proceedings
and the same were valid.
8.1 The learned Commissioner (Appeals) observed that the
donations of Rs. 54 lakhs were given by Tilok Tirath Vidyawati Chuttani Charitable Trust of
which Dr. P.N. Choutani was founder member. Dr. P.N. Choutani was very close with Brar
family. However, he observed that this fact itself could neither go against the assessee nor in
its favour more so when the learned Commissioner (Appeals), Chandigarh, has accepted the
claim of Tilok Tirath Vidyawati Chuttani Charitable Trust for exemption in respect of donations
given to the assessee trust on the ground that once the donations have been given to a trust
recognized/registered as charitable purpose, it had no power to withdraw the same even if the
said trust i.e. Assessee trust had misused the said donations under the Act. As regards the
claim of the assessee that it had filed returns in the status of a trust, the revenue had
contended that the assessee was a society and the same has been registered with registrar of
societies. Therefore, the status of the assessee was taken as an AOP with Code No.7.
Revenue has also stated that even during the course of assessment proceedings, the
assessee could not prove its status as that of a trust despite various opportunities allowed.
Revenue had also contended that during the course of assessment proceedings, the
assessee failed to furnish any evidence or even certificate that donations of Rs. 54,00,000
received from Tilok Tirath Vidyawati Chuttani Charitable Trust, were towards corpus of the
trust mentioned in clause (d) of Sub-section (1) of Section 11 of the Act. Relying on the
decision of Tribunal, Bombay Bench in the case of Prabodban Prakashan v. Asst. DIT
(1994) 50 ITD 135 (Bom), it was submitted that the certificate issued by the trustee of
the donor trust dated 2-5-2002 was merely an afterthought and should not be accepted. Thus,
it was submitted that the, assessee was not entitled to exemption under Section 11(1)(d) in
respect of voluntary donations received from the said trust. The learned Commissioner
(Appeals) considered these submissions and observed that apart from the fact that the
assessee was registered with the Registrar of Societies, Punjab, on 21-7-1993, the trust was
also registered under Section 12 by the CIT, Jalandhar vide order dated 21-9-1993. The
assessee was also granted exemption under Section 80G of the Act. By referring to the
certificate dated 2-5-2002 of Tilok Tirath Vidyawati Chuttani Charitable Trust that donations of
Rs. 25 lakhs and Rs. 29 lakhs received from the said trust in the assessment years 1995-96
and 1996-97 respectively were towards the corpus and not towards its income, the learned
Commissioner (Appeals) held that the same qualified for exemption under Section 11(1)(d) of
the Act for these two assessment years. However, he observed that the income arising from
the donations was not utilized for the objects for which it was set up and violated the
provisions of Section 11 and 13 of the Act, such income was not exempt. He further observed
that correct status of the assessee was a trust with Code No. 8 and not an AOP with Code No.
7. While holding the view that the assessee had contravened the provisions of section
13(1)(d) of the Act, the learned Commissioner (Appeals) took note of the fact that the funds
received or invested in the firms, companies and other entities where the trustees and their
family members had substantial interest were not eligible for exemption under Section 11 of
the Act. While taking such view the learned Commissioner (Appeals) held that other receipts
in the form of voluntary donations were not entitled to any exemption because the assessee
failed to furnish any evidence that those were given at the specific direction that these shall
form part of the corpus of the Trust Act. The assessee is aggrieved with the order of the
Commissioner (Appeals) for the aforesaid four assessment years and the revenue is also
aggrieved with the order of Commissioner (Appeals) for the assessment years 1995-96 and
1996-97 for allowing exemption in respect of donations of Rs. 25 lakhs and Rs. 29 lakhs
respectively. Hence, these appeals before us.
9. The learned Counsel for the assessee, Sh. B.M. Khanna filed
written submissions vide his letter dated 7-9-2006 and also reiterated the submissions which
were made before the authorities below. He submitted that all the returns filed for the
assessment years under consideration were processed under Section 143(1)(a). Thereafter,
reassessment proceedings were initiated under Section 147 by issue of notices under section
148 on 2-3-2000 for all the assessment years. However, the reasons recorded for initiating the
reassessment proceedings were not supplied to the assessee. Relying on the two judgments
of Honble Allahabad High Court in the cases of Herbs (India) (P) Ltd. v. Dy. CIT and Anand Kumar Sharma v. Asst. CIT and the decision of Tribunal, Bombay Bench in the case of Dy. CIT v.
Maharashtra State Corporation (a copy not supplied to the Bench), the learned Counsel
submitted that it was mandatory on the part of the assessing officer to communicate the
reasons recorded under Section 148 so as to enable the assessee to make its submissions on
the legal aspect of reopening the assessments. He further referred to the identical
stereotyped reasons recorded by the assessing officer which were supplied to the assessee as
per directions given by the Bench. The learned Counsel submitted that assessments had been
reopened on the ground that the assessee was not entitled to exemption in respect of its
income under Section 10(22) of the Act. However, the assessing officer had included all
receipts in the form of donations, subscriptions and interest income as the income which had
escaped assessment. The learned Counsel submitted that all the returns were accompanied by
audited accounts and balance sheet and loss of Rs. 5,208, Rs. 13,674 and Rs. 16,500 was
shown for the asst yrs. 1994-95, 1997-98 and 1998-99 respectively after adjusting the income
applied against the receipts. Only for the assessment year 1995-96., the assessee had shown
income of Rs. 12,097. The audited accounts indicated that donations were received towards
corpus. Thus, the inference drawn by the assessing officer that income of the amounts
mentioned in the reasons recorded were untenable in view of the fact that the assessee was a
trust registered with the CIT under Section 12A in the year 1993 and, therefore, the income of
the trust was to be considered only as per provisions of sections 11 and 12 of the Act
irrespective of the fact that the assessee had claimed exemption in respect of its income
under Section 10(22) of the Act. Thus, the learned Counsel submitted that reassessment
proceedings have been initiated on the basis of irrelevant facts for making fishing and roving
enquiry. He further submitted that the law casts a duty on the assessing authority to complete
an assessment on the same person to whom a notice under Section 148 has been issued and
change in status vitiates the order. However, he submitted that the learned Commissioner
(Appeals) has restored the status to the assessee as a charitable institution for all the
assessment years with Code No. 08. The department has challenged the findings for the
assessment years 1995-96 and 1996-97, but has accepted the findings of the learned
Commissioner (Appeals) for the assessment years 1994-95, 1997-98 and 1998-99. He relied on
the decision of Tribunal, Visakhapatnam Bench, in the case of Jashua Gootam v. Asst. CIT
(2003) 80 TTJ (Visakha) 658 : (2003) 85 ITD 727 (Visakha), where it was held that
without mentioning the status in notice itself i.e. oral trust, the assessment completed in
pursuance of such an illegal notice issued under Section 148 was invalid and, therefore, was to
be quashed. He submitted that in proposal sent to the Jt. CIT for initiating the reassessment
proceedings under Section 147, the status of AOP (society trust) has been written in hand
which shows interpolation at a later date. Relying on the judgment of Honble Allahabad High
Court in the case of CIT v. Ishwar Singh & Sons (All),
the learned Counsel submitted that issue of a valid notice under Section 148 is a
condition precedent and the same must be issued to a specific assessee. Thus, he submitted
that the assessment proceedings initiated for making roving and fishing enquiries were invalid
and bad in law. He submitted that it is clear from the order of the Commissioner (Appeals)
that the assessee had furnished a certificate from Tilok Tirath Vidyawati Chuttani Charitable
Trust to show that donations of Rs. 54 lakhs given to the assessee were with a specific
direction that they shall form part of the corpus of the trust. He submitted that the assertion
of the revenue that this evidence was furnished only before the Commissioner (Appeals) was
not correct. Thus it was submitted that the donations received towards corpus for setting up
nursery schools were exempt and not subject to tax as per Section 11(1)(d) of the Act. He also
relied on the judgment of Honble Punjab & Haryana High Court in the case of Vipan
Khanna v. CIT where it
was held that reassessment proceedings could be initiated only in respect of income escaping
assessment or in cases of underassessment and not for making roving and fishing enquiries.
He also stated that audited accounts indicated that even the remaining donations were for the
corpus of the trust and these were so included in the accounts of the assessee. He submitted
that Commissioner (Appeals) was not justified in confirming the additions in respect of other
donations. Thus, he submitted that the appeals of the assessee deserve to be allowed for the
reason that initiation of proceedings by the assessing officer under Section 147 was illegal and
bad in law and the assessee was entitled to exemption in respect of the income and voluntary
donations.
10. The learned departmental Representative, Sh. Achal
Sharma, filed written submissions vide his letter dated 21-4-2006. He submitted that the
contention of the assessee that assessment orders passed by the assessing officer were void
ab initio, was not correct because it was neither a case of absence of any reason nor
there was any lack of jurisdiction or any basic flaw in the assumption of jurisdiction. He
submitted that it is a fact that in all the returns filed for the assessment years under
consideration that the assessee had claimed exemption in respect of its income under section
10(22) of the Act. He also drew our attention to p. 2 of the assessment order and copy of
reasons recorded for all the assessment years which indicated that enquiries made with the
permission of CIT under Section 133(6) of the Act revealed that the assessee had not set up
any educational institution/school or college at village Sarai Naga and there was only sign
board of its name outside the room occupied by the security guard of Brar family of Sh. H.S.
Brar. Thus, he submitted that the claim of the assessee for exemption under Section 10(22) of
its income was not found to be valid. The assessing officer was, therefore, justified in forming
a reason to believe that income chargeable to tax had escaped assessment. He submitted
that for this purpose, the income not only included earnings of the assessee on the funds by
way of interest, but also included voluntary donations and subscriptions. These were duly
taken into account by the assessing officer while recording the reasons for initiating
reassessment proceedings. He further submitted that the contention of the assessee that the
Jt. CIT. had accorded his approval without due application of mind was factually incorrect
because such approval was granted only after due application of mind and on the basis of the
reasons recorded by the assessing officer. He also submitted a copy of letter dated 28-2-2002
where proposal submitted by the assessing officer under Section 147 was duly approved and
returned to the assessing officer. As regards the contention of the assessee that reasons
recorded under Section 148 were not communicated to the assessee, the learned departmental
Representative submitted that this was a non-issue. He submitted that records revealed that
there were some correspondence of the assessing officer with the counsel of the assessee
with Sh. Kapil Khanna. Vide his letter dated 9-1-2001, the assessing officer informed him since
Sh. Khanna was not authorised person as there was a change in counsel, the copy of the
reasons could not be given to him. He further submitted that assessing officer vide his letter
dated 29-1-2001 had informed the assessee that for obtaining the copy of reasons recorded,
the assessee was required to pay the prescribed copying fee which had not been paid. A copy
of this letter is placed at p. 3 of the paper book. Thereafter, the proceedings were attended by
Sh. Taran Chugh, accountant and Sh. R. K. Rathore, chartered accountant, who appeared
before the assessing officer upto the conclusion of the assessment proceedings. He enclosed
therewith copies of the notings in the order-sheets and submitted that no demand for supply
of reasons was raised by the authorized representative of the assessee, which only showed
that either reasons were supplied to the assessees representative or otherwise, this no longer
remained the issue with the assessee. He further submitted that the object of the requirement
of supply of reasons under Section 148 was only to ensure that there was no denial of
opportunity to the assessee. He drew our attention to the notings made in the order-sheet
during the period 8-2-2001 to 15-3-2002 which showed that ample opportunities were given to
the assessee during the course of assessment proceedings. He also referred to annex. 1, 2, 3
and 4 of the assessment orders which are copies of questionnaires issued by the assessing
officer under Section 142(1)/143(2) on 25-4-2001, 16-7-2001, 3-9-2001 and 5-3-2001 where
specific information was called for. He particularly drew our attention to question No.3 of
questionnaire dated 25-4-2001 (Annex.-l) where the assessee was specifically asked to furnish
details of expenses incurred and utilization of income as provided under sections 11 and 12 to
show that 75 per cent of its income had been expended or utilized for the objects for which
the society had been set up. The assessee was also asked to furnish details of the investment
and the difference between the corpus fund and investment fund in view of the submissions
that only corpus has been invested and no income was utilised. He then drew our attention to
pp. 2 and 3 of the assessment order where the assessee failed to furnish reply in respect of
question Nos.1, 2 and 4 and Q. No.3(iii) and 6 were either not specifically answered/fully
answered. He further referred to Q.No.5 of Annex.-H, where the assessee was asked to furnish
relationship of the members of the society with the companies mentioned therein, directors
and persons having substantial interest in respect of which the assessee had stated that
members of the society were also directors. However, this information was not furnished and
again vide letter dated 3-9-2001 (listed as Annexure A-III of the assessment order), the
assessee was asked to furnish- details of relationship of the members of the society with
those of directors/persons interested in the companies/firms/ business concerns having
substantial interest along with their names and addresses etc. Again such information was not
furnished. Thus, he submitted that the assessee has been avoiding furnishing of such
information even upto the date of the completion of the assessments. He further referred to p.
27 of the paper book filed by the assessee for the assessment year 1996-97 which is a copy of
letter dated 13-2-2001 of the assessee, which is unsigned and is not on the assessment
record of the assessee. He submitted that in this letter a reference has been made in para 2
of non-supply of the reasons recorded under Section 148. He submitted that the letter which is
on the file of the assessing officer does not contain any request for supply of the reasons
recorded under Section 148. He submitted that the assessee was fully aware of the reasons
recorded and had been given full opportunity during the course of assessment proceedings. As
regards the status of the assessee, the learned departmental Representative relied on the
judgment of Hon’ble Supreme Court in the case of Income Tax Officer v. Ch. Atchaiah
, where it was held that the assessing
officer must tax the right person and right person alone. It was also held that merely because
a wrong person is taxed with respect to particular income, the assessing officer is not
precluded from taxing the right person with respect to that income. He submitted that the
judgment of Hon’ble Supreme Court was also with reference to the assessment to be made in
the correct status by way of issue of notice under Section 148. He submitted that in this case,
the assessee was repeatedly asked to explain how the status was claimed in the return as
AOP (trust). However, the assessee evaded explaining this matter during the course of
assessment proceedings. Thus, he submitted that the assessment had been rightly made in
the status of AOP with Code No. 7.
10.1 The learned departmental Representative, further
submitted that in this case enquiries made by the assessing officer has confirmed that the
assessee had not at all set up any educational institution for which it was formed. Therefore,
the assessee was not entitled to exemption in respect of its income under Section 10(22) of
the Act as claimed in the returns of income filed for the various assessment years under
consideration. He submitted that it is also a fact that the assessee had diverted voluntary
donations received mainly from Tilok Tirath Vidyawati Chuttani Charitable Trust amounting to
Rs. 54 lakhs to the companies and business concerns of Brar family, who were members of the
society and thereby violated the provisions of Section 13(1)(c) of the Act. He submitted that
during the course of assessment proceedings, the assessee only furnished the list of persons
from whom donations have been received but evaded to indicate the relationship with
members of the assessee’s society though specifically asked for by the assessing officer. He
particularly referred to pp. 15 to 18 of the paper book filed for the assessment year 1995-96
which contains list of persons from whom donations were received. He further referred to the
provisions of Section 13(3) which mentions the persons covered under clause (c) of sub-section
(1) and Sub-section (2) of Section 13 of the Act and it is not disputed by the assessee that
these persons were not (sic) covered under these sections. He further referred to the
provisions of clause (h) of Sub-section (2) of Section 13 which provide 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,
the assessee would not be entitled to exemption under Section 11 of the Act. He further relied
on the judgment of Hon’ble Andhra Pradesh High Court in the case of T. Bapanaiah
Vidyadharma Trust v. CIT where the
funds referred to in clause (h) Sub-section (2) of Section 13 of the Act have been held to
include both corpus as well as the income derived from. Thus, he submitted that despite the
fact the learned Commissioner (Appeals) has upheld the finding of the assessing officer that
the assessee was not entitled to exemption in respect of its income under Section 10(22) and
section 11 of the Act as it had invested funds in the business concerns and companies of the
persons closely related to the members of the assessee society/trust, he was not justified in
holding that the amounts of voluntary donations amounting to Rs. 54 lakhs received by the
assessee during the assessment years 1995-96 and 1996-97 would be entitled to exemption
under Section 11(1)(d) of the Act. He further stated that while deciding the appeals for the
assessment years 1995-96 and 1996-97, the learned Commissioner (Appeals) has relied on a
certificate dated 2-5-2002 of Tilok Tirath Vidyawati Chuttani Charitable Trust that donations
were given to the assessee with a specific direction that these shall form part of the corpus.
He submitted that this certificate was not filed during the course of assessment proceedings.
The same was also not given at the time of making the donations. This was only an
afterthought and did not deserve to be accepted by the Commissioner (Appeals). However, the
learned Commissioner (Appeals) accepted a fresh evidence in the form of such certificate and
deleted the additions made for the assessment year 1995-96 and 1996-97 without complying
with the provisions of Rule 46A which inter alia required that such evidence should
not be accepted without recording reasons in writing and also without allowing sufficient
opportunity to the assessing officer to examine and furnish any contrary evidence. No such
opportunity was allowed to the assessing officer. He submitted that the order of the
Commissioner (Appeals) so far it relates to assessment years 1995-96 and 1996-97 is contrary
to the provisions of the Act and IT Rules.
10.2 The learned Authorised Representative submitted byway
of rejoinder that the certificate submitted before the Commissioner (Appeals) was not a fresh
evidence. It was all along the claim of the assessee that donations have been received
towards the corpus. He drew our attention to p. 12 of the paper book for the assessment year
199697 which is a copy of assessing officer’s letter dated 27-1-1999 asking the assessee to
furnish the details of corpus funds along with other information. He submitted that reply of
assessee is at p. 13 of the paper book, where it was mentioned that details of the funds for
the corpus of trust and mode of receipts were enclosed. He submitted a copy of letter dated
19-4-1999 placed at p. 14 of the paper book addressed to assessee which mentions about the
manner of utilization of the donations. The assessee’s letter dated 18-12-2000 is at p. 15
where it was mentioned that such information would be furnished only if the copy of reasons
recorded were supplied. Thus, he submitted that the information in regard to the donations
given to the corpus of the trust was supplied to the assessing officer during the course of
enquiries made.
11. We have heard both the parties at some length and given
our anxious consideration to the rival contentions, examined the facts, evidence and material
placed on record. We have also gone through the orders of the authorities below and referred
to the relevant pages of the paper book to which our attention has been drawn. We have also
referred to the relevant judgments cited at the bar. Now the first issue that requires to be
decided by this Bench is whether the assessing officer was justified in initiating the
reassessment proceedings on the basis of evidence and material placed on record. Before
recording our findings on this issue, we consider it appropriate to reproduce hereunder the
provisions of Section 147 of the Income Tax Act, 1961 read with Expln. 2(c) of Section 147,
which reads as under:
147. If the assessing officer has reason to believe that any
income chargeable to tax has escaped assessment for any assessment year, he may, subject
to the provisions of sections 148 to 153, assess or reassess such income and also any other
income chargeable to tax which has escaped assessment and which comes to his notice
subsequently in the course of proceedings under this section or recompute the loss or the
depreciation allowance or any other allowance, as the case may be, for the assessment year
concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant
assessment year)
Provided that where an assessment under Sub-section (3) of Section 143
or this section has been made for the relevant assessment year, no action shall be taken
under this section after the expiry of four years from the end of the relevant assessment year,
unless any income chargeable to tax has escaped assessment for such assessment year by
reason of the failure on the part of the assessee to make a return under Section 139 or in
response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose
fully and truly all material facts necessary for his assessment, for that assessment year.
Explanation 1 : ……………..
Explanation 2 : For the purpose of this section, the following shall also
be deemed to be cases where income chargeable to tax has, escaped assessment’,
namely:
(a) …………..
(b) …………..
(c) where an assessment has been made, but;
(i) income chargeable to tax has been underassessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under
this Act; or
(iv) excessive loss or depreciation allowance or any other allowance
under this Act has been computed.”
A bare reading of the above provisions of the Act shows that the
assessing officer can initiate reassessment proceedings, if he has, “reason to believe’ that any
income chargeable to tax has escaped assessment for any assessment year subject to the
provisions of sections 148 to 153 of the Act. In such a case the assessing officer is
empowered to assess or reassess such income. Such escapement of income could be due to
omission or failure on the part of the assessee to disclose fully and truly all material facts
necessary for the assessment. Such escapement of income could also be without any omission
or failure on the part of the assessee to disclose fully and truly all material facts. The proviso
to Section 147 provides that in case the assessment completed under Section 143(3) or
section 147 is to be reopened after the expiry of four years from the end of the relevant
assessment year, the assessing officer could take recourse to such action only if the
escapement of income chargeable to tax was on account of assessee’s failure to disclose fully
and truly all material facts necessary for assessment. In case such assessment completed
under Section 143(3) or Section 147 is to be reopened within a period of four years from the
end of the relevant, assessment year or the assessment was completed under section
143(l)(a) or Section 143(1), it is not necessary to establish the escapement of income due to
omission and failure on the part of the assessee to disclose fully and truly all material facts.
But the conditions precedent for initiating the reassessment proceedings must exist before
such action could be initiated by the assessing officer. Expln. 2(c) deals with deemed
escapement of income where assessment has been made, but income chargeable to tax has
been underassessed or such income has been assessed at too low a rate or such income has
been made the subject matter of excessive relief under this Act or excessive loss or
depreciation allowance or any other allowance under this Act has been allowed.11.1 The expression used in Section 147 is that if the
assessing officer has ‘reason to believe’ that any income chargeable to tax has escaped
assessment. The expression “reason to believe” used in Section 147 has special significance.
It does not mean ‘reason to suspect’. It is reasonable belief of a honest and reasonable
person based upon reasonable grounds. The expression used is not ‘satisfied’. The ‘reason to
believe’ requires higher level of evidence and material than the requirement of satisfaction’ of
the assessing officer which essentially means the material which comes to the notice of
assessing officer must be definite, specific and direct and not unspecific or vague. This issue
was considered by the Hon’ble Supreme Court in the case of Income Tax Officer v.
Lakhmani Mewal Das where the apex court
observed that “reason to believe” does not mean “reason to suspect”. The reasons for the
formation of the belief contemplated under s, 147 necessary for reopening of an assessment
must have a rational connection or relevant bearing on the formation of the belief. Rational
connection postulates that there must be a direct nexus or live link between the material
coming to the notice of the Income Tax Officer and the formation of his belief that there has
been escapement of income of the assessee. The apex court further observed that it was not
every material, howsoever vague and indefinite or distant, remote and far-fetched, which
would warrant the formation of the belief relating to the escapement of the income of the
assessee from assessment. Again this issue was considered by the Hon’ble Supreme Court in
the case of Ganga Saran & Sons (P) Ltd v. ITO (1981) 22 CTR (SC) 112 : (1981) 130
ITR (SC), where the apex court observed that expression “reason to believe” was stronger
than the words ‘satisfied’. The belief entertained by the assessing officer must not be arbitrary
or irrational. It must be reasonable or in other words, it must be based on reasons which are
relevant and material. If there is no rational and intelligible nexus between the reasons and
belief, the reopening of the assessment would be without jurisdiction and bad in law.
11.2 The basis for initiating the reassessment proceedings is
to be judged solely on the basis of reasons recorded by the assessing officer and the material
and information referred to by the assessing officer in the reasons for initiating such action. It
is settled law that assessing officer cannot initiate the reassessment proceedings merely on
the basis of suspicion or for the purpose of making roving and fishing enquiries. The assessing
officer cannot support the reopening of the assessment by collecting the material or by making
enquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of
the assessment is to be seen on the date when the assessing officer initiated action under
section 147. But at the same time the formation of the belief of the assessing officer is a
prima facie belief on the date when he initiated the reassessment proceedings. It is
not necessary that assessing officer must establish the factum of concealment/escapement of
income on the date of initiation of the reassessment proceedings itself. The assessment
reopened by the assessing officer is subject to normal procedure of assessment where the
assessing officer is required to examine the case by issue of notices under section
143(2)/142(l) and allow an opportunity to the assessee. Later, if it turns out that there is no
escapement of income, assessing officer can drop the proceedings initiated under Section 147
of the Act.
11.3 In the present case also, whether the assessing officer
was justified in initiating reassessment proceedings or not has to be decided on the basis of
material and evidence placed on record and the legal position discussed above. The
undisputed facts of the case are that the assessee had filed returns for the various
assessment years declaring therein nil income. All these returns were processed only under
section 143(l)(a). Thus, there was no requirement on the part of the assessing officer to
establish that the income had escaped assessments by reason of failure on the part of the
assessee to disclose fully and truly all material facts necessary for assessment. It is also a
fact that in all the returns, the assessee had claimed exemption in respect of its income under
section 10(22) of the Act Which is admissible in a case of an educational institution. The facts
brought on record further confirm that this is not a case where the assessing officer directly
initiated reassessment proceedings merely on the basis of returns filed by the assessee. It
appears that substantial portion of donations amounting to Rs. 54 lakhs had been received
from Tilok Tirath Vidyawati Chuttani Charitable Trust. Dr. P.N. Choutani was founder member
of the said trust. Enquiries were initiated to find out as to how the donations given to the
assessee-trust had been utilized by the assessee. Such enquiries were made after obtaining
approval of the CIT under Section 133(6) of the Act before initiating the reassessment
proceedings. The letter dated 27-1-1999 issued by the assessing officer to the assessee is at
p. 12 of the paper book filed for the assessment year 1996-97. A perusal of the same shows
that the assessee was asked to furnish information with regard to loans and advances given
to various parties, details of bank deposits, the details of advances taken by the assessee,
the details of creation of corpus fund etc. It was also mentioned by the assessing officer,
failure to furnish information will result in action under Section 147 of the Act. The assessee’s
reply dated 15-4-1999 is placed at p. 13 of the same paper book, where the assessee has
again reiterated its claim under Section 10(22) of the Act. The assessing officer issued another
letter dated 19-4-1999 (copy placed at p. 14 of the paper book) stating that requisite
information has not been furnished. The question of receipt of donations amounting to Rs. 25
lakhs and Rs. 29 lakhs from Tilok Tirath Vidyawati Chuttani Charitable Trust had been
specifically asked from the assessee and the details of utilization of the same were also called
for.
11.4 Thereafter, the proceedings under. Section 147 were
initiated for all the assessment years on 2-3-2000. The assessees letter dated 18-12-2000 to
the assessing officer stating therein that the reply/information as per questionnaire can be
furnished only after receipt of reasons recorded by the assessing officer clearly show that the
assessing officer tried to ascertain the position before initiating the reassessment proceedings
under Section 147 and somehow the assessee has not fully complied with such information. On
the contrary, the claim for exemption under Section 10(22) was reiterated. We have referred to
the reasons recorded by the assessing officer which are similar in nature for all the
assessment years. The same read as under for the assessment year 1994-95.
“Reasons for the belief that income has escaped assessment:
The assessee filed its return of income for the assessment year
1994-95 on 1-7-1994 declaring therein nil income processed under Section 143(1)(a) on
19-9-1994. The assessee in its return of income claimed the status of educational society by
mentioning the code as ’08’. The said return of income was accompanied by an audit report,
income and application account, balance sheet which is reproduced hereunder:
Income and Application Account for the period ending 31-3-1994
:
Application
Amount
Income
Amount
To reimbursement of school fee
4,090
By interest
446
To bank charges
234
By excess of application over income
5,208
To misc. exp.
80
To preliminary exp.
750
To audit fees
500
5,654
5,654
Balance sheet as on 31-3-1994
Liabilities
Assets
Donations
2,34,551
Fixed deposit
75,000
Subscription
5,550
2,40,051
Add: intt. accr.
446
75,446
Sundry creditors
1,250
bank bal.
1,420
Cash in hand
Excess in application over income
5,208
2,41,301
2,41,301
In the return of income the assessee claimed the income of the society
is exempt from income as per Section 10(22) of the Income Tax Act.
The assessee did not furnish the detail of donations received as well as
subscription received totalling Rs. 2,41,301. The assessee did not furnish the copy of
memorandum of rules and regulations as well as the objects of the society. From the copy of
memorandum of rules and regulations, obtained from other sources, it is seen that one of the
objects of the society is to open, run, continue an educational and vocational institution in
healthy surrounding. On enquiries, it has been found that the assessee is not running any
such educational institution/school/college or vocational institute etc. at village Sarai Naga or
its surrounding areas whereas only a sign board of this name has been placed outside a room
occupied by the security guard of Brar family of S. H.S. Brar, Ex. C.M. Punjab at village Sarai
Naga. Thus, in the absence of any educational institution/school or building for educational
purposes, the assessee is not entitled for exemption under Section 10(22) as the funds have
not been utilized for this object. Therefore, I have reasons to believe that income chargeable
to tax has escaped assessment within the meaning of Section 147 to the extent of Rs.
2,45,701 i.e. donations, subscription and interest (Rs. 2,34,551 + 5,550 + 5,654). To assess
the same approval to issue notice under Section 148 for the assessment year 1994-95 is
sought.”
A perusal of the reasons recorded show that the basis of the initiation
of such action was exemption claimed under Section 10(22) of the Act. The assessing officer
has referred to the results of enquiries made in this case which revealed that the assessee
was not running any such educational institution/school/college or vocational institute at the
given place and there was only a sign board of its name outside the room occupied by the
security guard of family of Sh. H.S. Brar. The assessing officer has mentioned that in the
absence of such educational institution, the assessee was not entitled to exemption under
section 10(22) of the Income Tax Act and, therefore, he had reason to believe that income
chargeable to tax in the form of donations, subscription and interest had escaped assessment.
The same are the reasons for the subsequent assessment years with variation in the amounts.
The results of enquiries incorporated by the assessing officer in the reasons recorded that
assessee was not running any institution/school/college at the given place have not been
controverted by the-assessee. Therefore, on the basis of.. such, information, the assessing
officer was justified in forming a reason to believe that income chargeable to tax had escaped
assessment more so when the assessee did not furnish the desired information before the
assessing officer during the course of enquiries made before initiation of reassessment
proceedings. We do not agree with the learned Authorised Representative that the
assessments have been reopened only for making roving and fishing enquiries. The claim of
the learned Counsel that the assessing officer should have seen the case in the light of
exemption under sections 11 and 12 of the Act because the trust was registered with the CIT
is without any merit. The assessing officer was required to confine himself to the claim made
in the returns which was again reiterated in subsequent letter submitted by the assessee
during the course of enquiries. Even the reliance of the learned Counsel on the judgment of
Hon’ble Punjab & Haryana High Court in the case of Vipan Kbanna v. CIT (supra)
is misplaced because in that case, the Hon’ble, High Court had upheld the reopening of the
assessment on the point of allowing excess deduction of depreciation. The Honble High Court
has clearly mentioned that what was required to be seen is whether the income chargeable to
tax had escaped assessment or not. In case, the income has escaped assessment, the
reopening of the assessment would be justified irrespective of the fact that the return was
processed under Section 143(1)(a). We also rely on the subsequent judgment of Hon’ble
Punjab & Haryana court in the case of Aditya & Company v. CIT , where the Honble High Court upheld the
initiation of the reassessment proceedings in a case where the original return was processed
under Section 143(1)(a). The Honble High Court held that processing of return is not a bar for
initiating reassessment proceedings provided the income chargeable to tax had escaped
assessment or under assessed. The plea of the assessee that as per returns filed, the net
result for most of the years was a loss and, therefore, there cannot be escapement of income
is again without any merit. This is a case of trust. While considering the case of a trust for
exemption of its income, the meaning is different . It does not mean income computed as per
provisions of the Act. It includes receipts in the form of voluntary donations also. If the
income/receipts are utilized for investment in capital assets like construction of school
building for the objects of the trust, the same would be considered application of income even
though the expenditure incurred relates to capital field. In case, the assessee has not utilized
the income or even the voluntary donations for objects of the trust and there are violations of
the provisions of sections 13(1)(c) and 13(1)(d) of the Act, even the voluntary donations would
not be entitled to exemption under Section 11 of the Act. In any case, at the time of recording
the reasons, the assessing officer is required to prima facie form a reason to believe
whether on the basis of evidence and material placed on record, there is escapement of
income chargeable to tax. He is not required to conclusively establish this fact at the time of
initiation of reassessment proceedings itself. Thus, the objection raised by the assessee on
this ground is untenable and hence rejected.
11.5. The next objection of the assessee relates to
non-communication of the reasons recorded under Section 148 to the assessee. We find that
initially when Sh. Kapil Khanna was representing this case before the assessing officer, such
request was made to the assessing officer. The correspondence placed on record further shows
that the assessing officer asked the assessee to pay the requisite copying charges so that
reasons recorded could be supplied. The assessee did not comply with the same. Later, there
was a change in the counsel. The assessing officer wrote to the earlier counsel that since he
was not an authorized person, the reasons recorded could not be supplied to him. We have
gone through the entries in the order-sheet supplied by the revenue. We find that later the
case was represented by another counsel, namely Sh. R.K. Rathore along with Sh. Taran
Chugh, accountant. No request for supply of reasons appears to have been made. It is also
significant to mention that unsigned letter of the earlier counsel dated 13-2-2001 placed at p.
No. 27 of the paper book does include a para for supply of reasons. However, a copy of the
same letter filed with the assessing officer does not contain such request for supply of
reasons. Be that as it may, it appears that the assessee was fully aware of the reasons
recorded by the assessing officer for initiating the reassessment proceedings. This is clear
from the enquiry letters sent to the assessee before initiating reassessment proceedings and
also subsequent enquiries made by the assessing officer during the course of reassessment
proceedings. In fact, the letters dated 19-4-2001, 16-7-2001 and 30-9-2001 of the assessing
officer to the assessee forming part of the assessment order and assessees reply dated
30-9-2001 at Annex.-I show that assessee was aware of the basis of action for initiating the
reassessment proceedings. Therefore, there does not appear to be any merit in the submission
of the assessee that reasons were not communicated to the assessee. However, we must add
it is mandatory on the part of the assessing officer to furnish the reasons recorded under
section 148 for initiating the reassessment proceedings so as to enable the assessee to put
across its objection on the legality of such action. In the case of GKIV Driveshafts (India)
Ltd v. Income Tax Officer & Anr. (2003) 179 CTR (SC) 11 : (2003) 259 ITR 19 (SC),
the Hon’ble Supreme Court has held that the assessing officer is bound to furnish reasons
recorded under Section 148 within a reasonable time. Since the matter arose in a writ petition,
the Hon’ble Supreme Court directed the assessing officer to consider this aspect while
completing the reassessment. The learned Counsel has also relied on two judgments of
Hon’ble Aliahabad High Court in the cases of Anand Kumar Sharma (supra) and
Herbs (India) (P). Ltd. (supra) where the grievance of the assessee was that
reassessments have been completed without furnishing reasons recorded under Section 148. In
both the cases, the matter was restored to the assessing officer for supply of reasons
recorded under Section 148. The assessments were not quashed for this reason. Now in this
case also, the matter can be restored to the file of the assessing officer for supply of reasons.
But the same would only prolong the litigation. Since the assessee has already been supplied
copies of reasons recorded and its objections have been considered while deciding these
appeals, this grievance no longer survives. As regards decision of Tribunal, Bombay Bench in
the case of Dy. ClT v. Maharashtra State Corporation (sic-Gay Silk Mills v. Income Tax
Officer) (2006) 101 TTJ (Mumbai) 1108 relied upon by the learned Authorised
Representative, a copy of the same has not been supplied. Therefore, we are unable to refer
to this decision. Thus, taking into account the fact that the assessee has already been
supplied copies of reasons and objections have been taken into account and the
reassessments have been completed after allowing opportunity to the assessee, we are of the
opinion that plea is also devoid of any merit. Hence, rejected.
11.6. The next aspect of the case relating to legality of
initiation of reassessment proceedings is that the assessing officer cannot change the status
while completing the reassessment. We find from the assessment orders that the assessing
officer completed the assessments in the status of AOP (society trust) with Code No. 07. The
assessee had filed the returns in the status of trust with Code No. 8. The assessee has
contended that law casts a duty on the assessing authority to complete an assessment on the
same person to whom notice under Section 148 has been issued. We have referred to the
proposal submitted by the assessing officer for initiating the reassessment proceedings, where
the status is mentioned as an AOP (society trust). The assessing officer has also completed
the assessments in the same status with Code No.07. It is only the Commissioner (Appeals)
who has held that correct status of the assessee was a trust with Code No.08. Therefore,
there is no illegality in the orders of the assessing officer because the notices under section
148 have also been issued to AOP (society trust) and the assessments have also been
completed in the same status. This issue was subject-matter of appeal before the
Commissioner (Appeals) who has held that the assessment should be completed in the status
of trust because the same was registered with the CIT, Jalandhar, under Section 12 of the Act
and was also granted exemption under Section 80G of the Act. The facts placed on record
further show that the assessee was allowed repeated opportunities to justify the status
claimed in the returns as trust. However, the assessee has given evasive reply and did not
furnish complete information. The fact that the learned Commissioner (Appeals) has treated
the status as a trust would not vitiate the reassessments completed by the assessing officer
because the assessing officer has examined the case both from point of view of Section 10(22)
of the Act and also under sections 11 to 13 of the Act relating to exemption of income of
charitable institution. In the reassessments completed, the assessing officer has applied his
mind to all the claims made by the assessee and has held that income is not exempt under
section 10(22) and 11(l)(d) of the Act. Therefore, this plea of the assessee is also
rejected.
11.7. Thus, in the light of detailed discussions in the
preceding paras and having regard to the facts and circumstances of the case, we are of the
considered opinion that additional ground raised by the assessee for an the assessment years
is devoid of any merit. The assessments completed are legal and valid more so when the
assessee has not even disputed the order of Commissioner (Appeals) for the assessment year
1996-97. Hence the same is rejected for all the assessment years.
12. The next grievance of the assessee projected through the
grounds of appeals relate to sustaining of the additions made by the assessing officer for the
above- mentioned assessment years. Briefly stated, the facts of the case are that while
completing assessments under Section 147 read with Section 143(3), the assessing officer held
that the assessee was not entitled to exemption in respect of its income under Section 10(22)
of the Act. The assessing officer further considered the case for exemption of its income under
sections 11 and 12 of the Act because the assessee was granted registration under section
12A of the Act. The assessing officer observed that enquiries made in the case revealed that
donations collected by the assessee trust were invested/deposited with the various
companies/business concerns of Brar family in the shape of share application money
amounting to Rs. 25 lakhs with M/s Dashmesh Haegens Agro Tech. Ltd, Rs. 25 lakhs in M/s
Dashmesh Feb. Yarns Ltd. as share application money, Rs. 25 lakhs as a deposit with M/s
Dashmesh Falcon T & M Enterprises (P). Ltd. Even the income was invested in the said
concerns. He also noted the relevant dates on which the amounts were invested with these
concerns. The assessing officer observed that assessee society came into being only with an
object of routing money received from other trusts and certain individuals to the companies
run by Brar family purely on commercial considerations. He observed that family members of
Brars were members of the assessee society. The assessing officer observed that by investing
these amounts in the business concerns of the Brar family of which the trustees/members of
the assessee trust had substantial interest, the assessee contravened the provisions of
section 13(1)(d) of the Act. He also observed that provisions of Section 13(l)(c) were also
attracted to this case because the property of the trust and the income of the institution had
been utilized for the benefit of persons mentioned in Sub-section (3) of Section 13 of the Act.
The assessee has not disputed the findings of the assessing officer for directing the funds of
assessee in the form of investments/deposits in the business concerns of Brar family covered
under, Sub-section (3) of Section 13 of the Act. However, assessee’s claim is that the
contributions made towards corpus are exempt under Section 11(l)(d) of the Act. The revenue’s
stand is that assessee has failed to furnish any evidence during the course of assessment
proceedings that the voluntary contributions made by the donors were with specific directions
that these were towards corpus. The learned CIT(A) accepted the contention of the assessee
that once the trust was registered under Section 12 and the income of the trust has not been
utilized for the objects of the trust the income accrued from the property of the trust could
alone be denied exemption and the amounts received by way of donations for the corpus
qualify for exemption under Section 11(1)(d) of the Act. During the course of appeal
proceedings, the assessee furnished a certificate dated 2-5-2002 from Tilok Tirath Vidyawati
Chuttani Charitable Trust, stating that the donations of Rs. 54 lakhs given by the said trust to
the assessee in the accounting years re evant to assessment years 1995-96 and 1996-97 were
for its corpus. Relying on the certificate, the learned Commissioner (Appeals) allowed
exemption in respect of amount of Rs. 25 lakhS and Rs. 29 lakhs received in the accounting
years relevant to assessment years 1995-96 and 1996-97 respectively, despite the fact that
he has accepted the findings of the assessing officer that funds have not been utilized for the
objects for which trust was set-up.
However, in regard to the remaining amounts received by way of
donations, the learned Commissioner (Appeals) observed that these were invested in the
business concerns of Brar family where trustees/members of the society had substantial
interest and, therefore, this contravened the provisions of Section 13(l)(d) of the Act. He also
rejected the submissions of the assessee that these donations were received towards corpus
on the ground that no evidence was furnished by the assessee. No evidence whatsoever has
also been produced before the Bench that these donations were given for the corpus. Further,
as per clause (h) of Sub-section (2) of Section 13, if any funds of the trust or the institution
continue to remain invested for any period during the previous year in any concern in which
any person referred to in sub-section(3) of the said section has substantial interest, the
assessee would not be entitled to exemption under Section 11(l)(d) in respect of such
voluntary donations. The judgment of Honble Andhra Pradesh High Court in the case of T.
Bapanaiah Vidyadbarma Trust (supra) relied upon by the learned departmental
Representative supports the case of the revenue that if any income or any property of trust or
institution is used or applied directly or indirectly for the benefit of any person referred to in
sub-section (3) of Section 13, the assessee shall not be entitled to exemption in respect of
voluntary contributions or income under Section 11(l)(d). Thus, we do not find any justification
to interfere with the findings of the Commissioner (Appeals) so far these relate to the appeals
filed by the assessee for all the above mentioned assessment years. Therefore, the orders of
the Commissioner (Appeals) are upheld and respective grounds of appeals of the assessee are
dismissed.
13. We now turn to grounds of appeals of the revenue for the
assessment year 1995-96 and 1996-97. The first grievance of the revenue is that the learned
Commissioner (Appeals) was not justified in allowing status of the ‘trust’ as against AOP
taken by the assessing officer. The facts relating to this ground and the respective
submissions of both the parties have already been discussed while dealing with the appeals
filed by the assessee.
14. Briefly stated the facts are that assessing
officer completed the assessments in the status of AOP because of assessees failure to
furnish information in support of its claim. However, the learned Commissioner (Appeals)
observed that the assessee was a society registered with registrar of societies, Punjab on
21-7-1993. But the trust was also registered under Section 12 of the Act by the CIT, Jalandhar,
vide order dated 21-9-1993 and the assessee was also granted exemption under Section 80G
of the Act. He, therefore, held that the status of the assessee was a trust. The grouse of the
revenue is that the assessee was repeatedly asked to furnish information in support of its
claim for filing the return in the status of trust.
15. We have considered the rival submissions of both the
parties and gone through the evidence and material placed on record. The fact that assessee
was registered with CIT under Section 12A is not in dispute. The assessee was also allowed
exemption under Section 80G of the Act. The very fact that registration has been allowed by
the CIT does not by itself entitle the assessee to claim exemption in respect of its income.
The registration with the CIT under Section 12A is only a first step for claiming exemption of
its income. But the exemption of its income under Section 11 is subject to assessee fulfilling
the other conditions. The assessee is required to fulfil the remaining conditions regarding
utilization of 75 per cent of its income for the objects for which it has been set up and
nondiverting of funds to the business concerns of the members/trustees etc. Even the
accumulation of 25 per cent of the remaining income is again subject to the conditions
mentioned therein. Moreover, the revenue has also accepted the decision of Commissioner
(Appeals) for the assessment years 1994-95, 1997-98 and 1998-99 for treating the status of
the assessee as a trust. Thus, keeping in view these facts of the case, we are of the
considered opinion that the learned Commissioner (Appeals) was justified in treating status as
trust with Code No. 08. We confirm his order and reject the respective grounds of appeal for
both the assessment years.
16. The next grievance of the revenue common to both the
assessment years is that the learned Commissioner (Appeals) was not justified in allowing
exemption in respect of donations of Rs. 25 lakhs and Rs. 29 lakhs received from Tilok Tirath
Vidyawati Chuttani Charitable Trust, during the accounting years relevant to assessment years
1995-96 and 1996-97 respectively which were liable to tax. Further grievance of the revenue is
that the assessee was not entitled to exemption in respect of such donations under,ss.
10(22), 11 and 13 of the Act. Connected with this is the ground of appeal of the revenue that
while taking such view, the learned Commissioner (Appeals) has admitted and relied on
additional evidence in violation of provisions of Rule 46A of IT Rules, 1962. The facts relating
to these grounds have also been discussed while dealing with the appeals filed by the
assessee. Briefly stated, the facts are that during the course of enquiries made before
initiation of reassessment proceedings and also during the course of reassessment
proceedings, the assessing officer repeatedly asked the assessee to furnish information in
respect of persons from whom it had received donations. The assessee furnished the
information which revealed that assessee had inter alia received donations of Rs. 25
lakhs and Rs. 29 lakhs from Tilok Tirath Vidyawati Chuttani Charitable Trust in the accounting
years relevant to assessment years 1995-96 and 1996-97 respectively. In, the accounts, these
amounts along with other donations were shown as forming part of corpus. However, no
evidence in support of the fact that these donations were given by Tilok Tirath Vidyawati
Chuttani Charitable Trust were with specific directions that they shall form part of the corpus
of the trust was produced before the assessing officer. Taking into account the fact that the
assessee had invested the amount of voluntary contributions received from various persons
including Tilok Tirath Vidyawati Chuttani Charitable Trust in the companies, business
concerns/firms of Brar family for commercial consideration where members of the assessee
society/trustees had substantial interest, the assessing officer observed that the assessee
had violated the provisions of sections 13(l)(c) and 13(l)(d) and, therefore, the assessee was
not entitled to exemption in respect of such donations. Accordingly, he disallowed the
exemption in respect of such voluntary donations.
17. When the assessee carried the matters in appeals before
the Commissioner (Appeals), the assessee filed a certificate dated 2-5-2002 from Tilok Tirath
Vidyawati Chuttani Charitable Trust stating that donations aggregating to Rs. 54 lakhs given
to the assessee were for its corpus. The certificate read as under
To whom it may concern
It is hereby confirmed that the donations of Rs. 54 lakhs: given by the
Tilok Tirath Vidyawati Chuttani Charitable Trust during the assessment years 1995-96 and
1996-97 were made to Sardarni Uttarn Kaur Education Society for its corpus.”
Relying on this certificate, the learned Commissioner (Appeals) held
that the donations given by the said trust towards corpus were exempt under Section 11(1)(d)
of the Act. The revenue is aggrieved with the order of the Commissioner (Appeals). Hence,
these appeals before us.
18. The submissions made by the learned departmental
Representative and learned Counsel have already been summarized while dealing with the
respective submissions of the assessee. Briefly stated, the contention of the learned
departmental Representative is that no such evidence was furnished before the assessing
officer during the course of reassessment proceedings. He further submitted that admission of
such evidence was subject to provisions of Rule 46A. However, the learned Commissioner
(Appeals) has neither recorded any reason for admission of such evidence nor has forwarded
this certificate to the assessing officer for enquiries and comments. Thus, he submitted that
the learned Commissioner (Appeals) has violated the provisions of Rule 46A for admitting the
fresh evidence. He further submitted that since the funds were diverted to business concerns
of the members of the society/trustees in violation of provisions of sections 13(l)(c) and
13(l)(d), the assessee was not entitled to exemption under Section 11(l)(d) of the Act. The
learned Authorised Representative, on the other hand, submitted that during the course of
assessment proceedings copies of receipts were furnished in respect of donations. Thus, it
was not a fresh evidence. He also stated that even the auditors had shown such receipts as
forming part of corpus. He further submitted that since donations were given towards corpus of
the trust, the same were eligible for exemption under Section 11(l)(d) of the Act.
19. We have heard both the parties and carefully considered
the rival submissions, examined the facts, evidence and material placed on record. Clause (d)
of Sub-section (1) of Section 11 of the Act provides exemption in respect of income in the form
of voluntary contributions made with a specific direction that they shall form a part of the
corpus of the trust or institution. A bare reading of the aforesaid section reveals that all
voluntary contributions other than given with specific direction that they shall form part of the
corpus of the trust be considered as income of the trust. But for the purpose of claiming
exemption under Section 11(l)(d) it is necessary that such voluntary contributions must have
been made with specific direction that these shall form part of the corpus. However, the onus
is entirely on the assessee that donations received were given with a direction that these
shall form part of corpus of the trust. We have referred to the relevant pages of the paper
book placed on record to which our attention has been drawn. We find that during the course
of assessment proceedings, the assessee has not furnished any evidence that these donations
were given with a direction that these shall form part of the corpus of the trust. The mere fact
in the audited accounts these were shown as part of the corpus does not mean that the
assessee had furnished requisite evidence during the course of assessment proceedings. The
intention of the donor is to be seen on the date when he made the donations and not
subsequently. The certificate dated 2nd May, 2002 was furnished before the Commissioner
(Appeals). The reassessment orders in all the cases were passed on 22-3-2002. This clearly
shows that the certificate is obtained after the completion of the assessments and constituted
a fresh evidence furnished before the Commissioner (Appeals). The admission of fresh
evidence is governed by provisions of Rule 46A of the IT Rules which read as under:
“46A(l) The appellant shall not be entitled to produce before the Dy.
Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence,
whether oral or documentary, other than the evidence produced by him during the course of
proceedings before the assessing officer except in the following circumstances, namely:
(a) where the assessing officer has refused to admit evidence which
ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from
producing the evidence which he was called upon to produce by the assessing officer; or
(c) where the appellant was prevented by sufficient cause from
producing before the assessing officer any evidence which is relevant to any ground of appeal;
or
(d) where the assessing officer has made the order appealed against
without giving sufficient opportunity to the appellant to adduce evidence relevant to any
ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the Dy.
Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) records in writing
the reasons for its admission.
(3) The Dy. Commissioner (Appeals) or, as the case may be, the CIT(A)
shall not take into account any evidence produced under sub-rule (1) unless the assessing
officer has been allowed a reasonable opportunity-
(a) to examine the evidence or document or to cross-examine the
witness produced by the appellant, or
(b) to produce any evidence or document or any witness in rebuttal of
the additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the Dy.
Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the
production of any document, or the examination of any witness, to enable him to dispose of
the appeal, or for any other substantial cause including the enhancement of the assessment or
penalty whether on his own motion or on the request of the assessing officer under clause (a)
of Sub-section (1) of Section 251 or the imposition of penalty under Section 271.” (Emphasis,
italicised in print, supplied is ours)
A bare reading of the aforesaid rule shows that the assessee is not
entitled to produce additional evidence until one of the conditions spelt out in clauses (a) to
(d) of sub-rule (1) of Rule 46A is satisfied. In case, such condition is satisfied, the learned
Commissioner (Appeals) is required to record reasons in writing for admission of such
additional evidence. We have gone through the order of the Commissioner (Appeals).
Nowhere, he has recorded the reasons as to why he considered it to be a fit case for admitting
additional evidence. Thus, the provisions of sub-Rules (1) and (2) of Rule 46A have not been
kept in view while admitting fresh evidence. Sub-Rule (3) of Rule 46A further mandates that
the learned Commissioner (Appeals) shall not take into account the additional evidence unless
the assessing officer had been allowed reasonable opportunity to examine the evidence or to
produce any evidence in rebuttal of the evidence produced by the assessee. Again this part of
rule has not been complied with by the learned Commissioner (Appeals) while admitting and
relying upon fresh evidence. The learned Commissioner (Appeals) not only admitted fresh
evidence but also deleted the additions without referring the same to the assessing officer
under sub-rule (3) of Rule 46A by relying on such evidence. Thus, the action of the learned
Commissioner (Appeals) is not in conformity with the provisions of the Act and also the Rules.
Moreover, there is no doubt about the fact that assessee had invested/deposited the amounts
of voluntary contributions received from various persons including Tilok Tirath Vidyawati
Chuttani Charitable Trust, in the companies, business concerns, firms by way of share
application money, deposits etc. In these business concerns, the members of Brar
family/trustees had substantial interest. Thus, the assessee contravened the provisions of
sections 13(l)(c), 13(l)(d) and 13(2)(h) of the Act. The learned Commissioner (Appeals) has
already accepted the findings of the assessing officer about violations of the provisions while
confirming other additions made by the assessing officer in the appeals filed by the assessee.
In the case of Chairman, Andhra Pradesh Welfare Fund v. CIT ,
the Hon’ble Andhra Pradesh High Court has held that even if small portion of the
voluntary contributions is used for noncharitable purposes, the entire contributions will lose
the benefit of being exempt from tax. In the case of T. Bapanaiah Vidyadharma Trust v.
CIT (supra), the Hon’ble Andhra Pradesh High Court has held that the term ‘fund’
mentioned in Section 13(2)(h) includes both the corpus as well as income derived therefrom.
In the case of Action for Welfare and Awakening in Rural Environment (AWARE) v.
Dy. CIT , the facts of the case were
that the funds in the form of fixed deposits the name of assessee-trust worth Rs. 16 lakhs
were pledged as security in the bank enabling one of the members of the assessee to avail
loan without adequate security and consideration and certain transaction of purchase of land
was routed through an AOP in which all members were directors and employees of assessee.
The Hon’ble Andhra Pradesh High Court observed that misutilisation was glaring and it could
not escape the clutches of law as it had violated the provisions of Section 13(1)(c)(ii) read
with Section 13(2)(b), It was held that it was not entitled for exemption. In this case also
there is a gross and blatant misutilisation of funds of the trust. The only charitable activity
the assessee has done is to finance the business concerns of Brar family where
members/trustees have substantial interest in utter disregard of the provisions of the Act.
Thus, the sum and substance of these judgments is that assessee shall not be entitled to
exemption of its income and voluntary contributions if the funds have been misutilised by the
assessee for non-charitable purpose and invested in the business concerns of members for
commercial considerations. The mere fact that these were given with the direction that these
shall form part of corpus was not enough in order to entitle the assessee to claim exemption
under Section 11(1)(d) of the Act.
20. Having regard to these facts and circumstances of the
case and the legal position discussed above, we are of the considered opinion that the learned
Commissioner (Appeals) was not justified in deleting the additions of Rs. 25 lakhs and Rs. 29
lakhs for the assessment years 1995-96 and 1996-97 by relying on fresh evidence without
complying with the provisions of Rule 46A and also without taking into account the
contravention of provisions of sections 13(1)(c) and 13(1)(d) of the Act. We, therefore, set
aside the orders of the Commissioner (Appeals) and restore the appeals to his file to be
decided de novo as per law and after complying with the provisions of Rule 46A and
also by taking into account the observations made hereinabove. Needless to say that while
redeciding the appeals, the learned Commissioner (Appeals) shall allow adequate opportunity
to both the parties. We order accordingly. These grounds of appeals of the revenue are treated
as allowed for the assessment years 1995-96 and 1996-97.
21. In the result, while the appeals of the assessee are
dismissed, the appeals filed by the revenue are allowed for statistical purposes.