2004 (12) TMI 48 - HC - Income Tax

Trust entitled to section 11(2) benefits despite late Form 10 submission as rule 17 time-limit held invalid

Gujarat HC upheld the Tribunal's decision granting benefits under section 11(2) to the trust. The court found no infirmity in the Tribunal's ruling that ... Benefit under section 11 - specific time-limit prescribed - charitable trust – donation for the purpose of purchasing land and constructing an orphanage - funds received by way of donations had been kept apart in fixed deposit receipts of nationalised banks - donations treated as 'income' within the meaning of section 2(24)(iia) - Whether, in the absence of any specific time-limit prescribed under section 11(2) of the Act, whether the time-limit prescribed in rule 17 for submission of Form No. 10 by the rule-making authority is valid - Held that:- The proceedings before the Tribunal are meant to correctly assess the tax liability of an assessee. If this be so, it follows that the assessment proceeding cannot be said to be complete and is pending till the appeal is heard and disposed of by the Tribunal and the order of the Tribunal is given effect to by the assessing authority by computing the correct tax liability of an assessee. In other words, whether an assessee is required to pay tax or becomes entitled to a refund, would be ascertained by the assessing authority after giving effect to the order of the Tribunal. The Tribunal was well within its jurisdiction to entertain the new ground by which the assessee claimed the benefit under section 11(2) of the Act and adjudicate the tax liability of the assessee. As already noticed hereinbefore, the Tribunal has categorically found that 'the additional ground involves the question relating to interpretation of section 11(2) and the facts on the basis of which such a decision is to be given regarding interpretation of section 11(2) are not at all in dispute'. In the circumstances, there is no infirmity in the order of the Tribunal, holding that the assessee is entitled to benefits allowable under section 11(2) of the Act. The core legal questions considered by the court revolve around the interpretation and application of section 11(2) of the Income-tax Act, 1961, specifically:1. Whether, in the absence of any specific time-limit prescribed under section 11(2) for submission of the notice in the prescribed manner to the assessing authority, the time-limit prescribed under rule 17 for submission of Form No. 10 by the rule-making authority is valid or invalid.2. Whether the assessee-trust complied with the conditions prescribed under section 11(2) of the Act and is entitled to the benefits allowable under that provision despite delay in submission of Form No. 10.3. The legal effect of submitting the particulars required under section 11(2) after the completion of the assessment proceedings, and whether the assessment proceedings can be considered pending during the pendency of appeals before the Income-tax Appellate Tribunal.Issue-wise Detailed Analysis:Issue 1: Validity of the time-limit prescribed under rule 17 for submission of Form No. 10Legal framework and precedents: Section 11(2) mandates that a person claiming exemption under section 11 must intimate the assessing authority in the prescribed manner, but does not specify any time-limit for such intimation. Rule 17 of the Income-tax Rules prescribes submission of Form No. 10, which includes a time-limit for such submission. The question is whether the rule-making authority has the power to impose such a time-limit when the statute itself is silent.The Bombay High Court and subsequently the Supreme Court in the Nagpur Hotel Owners' Association case considered whether Form No. 10 could be filed after completion of assessment and whether the rules could impose a time-limit. The apex court held that the requirement to furnish particulars under section 11(2) is mandatory and must be complied with before completion of assessment proceedings. The court reasoned that without such information, the assessing officer cannot exclude income from assessment, and reopening assessment after completion is not contemplated under the Act.Court's interpretation and reasoning: The court acknowledged the apex court's ruling but analyzed the meaning of 'completion' of assessment. It referred to the principle that a proceeding is 'pending' as long as the court or authority can make an order on the matter. The court held that assessment proceedings cannot be equated merely with the issuance of the assessment order. Since appeals before the Income-tax Appellate Tribunal are part of the assessment process, the assessment proceedings remain pending until the Tribunal disposes of the appeal and the assessing authority gives effect to the Tribunal's order.Application of law to facts: Since the assessee submitted Form No. 10 during the pendency of the appeal before the Tribunal, the court held that the submission was made while the assessment proceedings were still pending. Therefore, the time-limit prescribed under rule 17 was invalid because the statute did not expressly or impliedly delegate power to impose such a limit, and the submission was timely within the meaning of section 11(2).Treatment of competing arguments: The Revenue argued that the benefit under section 11 cannot be granted unless the particulars are submitted before completion of assessment and that reopening assessment is not permissible. The court rejected this, clarifying that the assessment is not complete until the appeal process is exhausted and the assessing authority acts on the Tribunal's order.Conclusion: The time-limit prescribed under rule 17 for submission of Form No. 10 is invalid, and the assessee's submission during pendency of appeal is valid for claiming exemption under section 11(2).Issue 2: Compliance with section 11(2) conditions and entitlement to exemptionLegal framework and precedents: Section 11(2) requires that income of a charitable trust be accumulated or set apart for application to charitable purposes, with intimation to the assessing officer. The court emphasized the object of section 11 to advance genuine charitable causes and that provisions should be interpreted liberally to avoid deprivation of relief on technical grounds.Court's interpretation and reasoning: The Tribunal found that the assessee-trust was genuine, had set apart the donations for the purpose of purchasing land and constructing an orphanage, had invested the funds in prescribed securities, and the trustees had not benefited from any delay or failure in notice submission. The court agreed with the Tribunal's approach that the provisions of section 11(2) must be construed to advance charitable objectives and that the assessee complied with all statutory requirements.Key evidence and findings: The assessee submitted confirmation letters from donors, trustees' resolution setting apart funds for a specific charitable purpose, and evidence of investment in fixed deposits. The Tribunal found these facts undisputed and relevant to compliance.Application of law to facts: Given the genuineness of the trust and the proper setting apart and investment of funds, the assessee fulfilled the conditions under section 11(2), entitling it to exemption.Treatment of competing arguments: The Revenue's rejection of the assessee's application for condonation of delay was based on a technical imposition of time-limits not supported by the statute. The court sided with the Tribunal's view that such technicalities should not defeat the statutory relief.Conclusion: The assessee complied with section 11(2) conditions and is entitled to exemption on the accumulated income.Issue 3: Nature of assessment proceedings and timing of submission of particularsLegal framework and precedents: The apex court's ruling in Nagpur Hotel Owners' Association emphasized that particulars under section 11(2) must be furnished before completion of assessment proceedings. The court examined the meaning of 'pending' and 'completion' of assessment in light of precedents including Rambhai Jethabhai Patel v. CIT and Asgarali Nazarali v. State of Bombay.Court's interpretation and reasoning: The court held that assessment proceedings are 'pending' as long as the assessing authority or appellate authority can make orders affecting tax liability. Since appeals before the Tribunal are integral to the assessment process, the assessment is not complete until the Tribunal disposes of the appeal and the assessing officer gives effect to that order.Application of law to facts: The assessee submitted Form No. 10 during the pendency of the appeal before the Tribunal, which means the assessment proceedings were pending. Therefore, the submission was timely and valid.Treatment of competing arguments: The Revenue's argument that assessment is complete upon issuance of assessment order was rejected as a fallacious premise. The court emphasized the purpose of assessment proceedings to correctly assess tax liability, which includes tribunal appeals and consequential actions.Conclusion: The assessment proceedings remain pending during appeal, and submission of particulars during this period is valid for claiming exemption under section 11(2).Significant Holdings:'It is abundantly clear from the wording of sub-section (2) of section 11 that it is mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required, under rule 17 in Form No. 10 of the Rules. If during the assessment proceedings, the Assessing Officer does not have the necessary information, the question of excluding such income from assessment does not arise at all.''A legal proceeding is 'pending' as soon as commenced and until it is concluded, i.e., so long as the court having original cognisance of it can make an order on the matters in issue, or to be dealt with, therein.''The assessment proceeding cannot be said to be complete and is pending till the appeal is heard and disposed of by the Tribunal and the order of the Tribunal is given effect to by the assessing authority by computing the correct tax liability of an assessee.''The provisions of section 11 have to be interpreted in a manner that would advance a genuine cause of charity and should not deprive an assessee of the statutory benefit on the basis of mere technicalities.'Final determinations:- The time-limit prescribed under rule 17 for submission of Form No. 10 is invalid as the statute does not confer power to impose such a limit.- Submission of Form No. 10 during the pendency of appeal before the Tribunal is valid and satisfies the requirement of section 11(2).- The assessee-trust complied with all statutory conditions under section 11(2) and is entitled to exemption on the accumulated income.- Assessment proceedings remain pending during appeal, and the assessing authority must have the particulars before giving exemption under section 11.