1991 (4) TMI 85 - HC - Income Tax

High Court rules in favor of charitable trust in tax exemption case, directs Tribunal to consider legal arguments

The High Court held in favor of the petitioner, a public charitable trust, in a tax exemption case. The Court found that questions of law arose regarding ... Charitable Trust, Question Of Law Issues:1. Exemption from income tax under section 11(1)(a) and (b) for a public charitable trust.2. Violation of section 13(1) and (2) of the Income-tax Act by investing funds in two firms.3. Interpretation of evidence regarding the application of income and statutory provisions.4. Applicability of a judgment of the Mysore High Court to the case.5. Entitlement to exemption from taxation if sections 13(1)(c) and 13(2)(h) are violated.6. Tribunal's refusal to allow the petitioner to raise certain arguments.Analysis:The judgment pertains to a petition under section 256(2) of the Income-tax Act, 1961, where the Commissioner of Income-tax sought a reference to the High Court regarding questions of law arising from the order of the Income-tax Appellate Tribunal. The respondent, a public charitable trust, was denied exemption from income tax by the Income-tax Officer due to non-compliance with section 11(1)(a) and (b) and exceeding investment limits in two firms as per section 13(1) and (2) of the Act. The Appellate Assistant Commissioner upheld the denial of exemption but disagreed on the violation of section 13(1) and (2). The Tribunal ruled in favor of the respondent on section 11 compliance but did not allow the petitioner to argue the violation of section 13, leading to the present petition.The Tribunal's rejection of the petitioner's application for reference under section 256(1) was based on the belief that no referable question arose from its order. However, the High Court found that questions of law did indeed arise, particularly concerning the interpretation of evidence on income application, statutory provisions like section 11, and the applicability of a previous High Court judgment. The issue of entitlement to exemption if sections 13(1)(c) and 13(2)(h) are breached was also deemed a question of law, despite the Tribunal's refusal to allow the petitioner to raise this argument.The High Court held that the Tribunal erred in not permitting the petitioner to argue the violation of sections 13(1)(c) and 13(2)(h) and subsequently deciding on it without proper consideration. Citing precedent, the Court emphasized that a question of law is considered raised if presented before the Tribunal, even if not decided by it. As the petitioner did raise the issue, the Tribunal's failure to address it meant the question remained unresolved. Consequently, the High Court directed the Tribunal to refer specific questions to the High Court for consideration, ultimately allowing the petition and highlighting the importance of addressing all legal arguments raised by parties in such matters.