1978 (2) TMI 7 - HC - Income Tax

Court rules in favor of assessee, upholds reassessment validity & tax exemption under section 11.

Commissioner Of Income-Tax, AP -I Versus Trustee Of H. EH The Nizam´s Supplemental Religious Endowment Trust

The court ruled in favor of the assessee on all issues. The reassessment under section 147 was deemed valid, income as per the trust's books was ... Charitable Trust, Notice Issues Involved:1. Validity of reassessment under section 147 of the Income-tax Act, 1961, for the assessment year 1966-67.2. Consideration of income as per the books of the trust for the purposes of section 11 of the Income-tax Act, 1961, for the assessment years 1966-67, 1967-68, and 1968-69.3. Compliance with conditions stipulated in section 11(2) of the Income-tax Act, 1961, for the assessment years 1966-67, 1967-68, and 1968-69.4. Taxability of income assessed by the Income-tax Officer due to non-fulfilment of conditions in section 11(2) of the Income-tax Act, 1961, for the assessment years 1966-67 and 1968-69.Detailed Analysis:Issue 1: Validity of Reassessment under Section 147The assessee did not press this issue, so it was answered against the assessee. The reopening of the assessment by the Income-tax Officer (ITO) based on new information was deemed valid.Issue 2: Consideration of Income as per the Books of the TrustThe court held that for the purpose of section 11(1)(a) of the Income-tax Act, the income and expenditure as per the books of the trust should be taken into account. The court emphasized that the income of the trust should be determined based on the accounts of the trust and not as per the ITO's assessment. The court referred to the Central Board of Direct Taxes Circular No. 5 of 1968 and the decision in CIT v. Gangadhar Banerjee and Co. (P.) Ltd. [1965] 57 ITR 176 (SC) to support this view. The payments made on account of income-tax and wealth-tax were considered outgoings and thus excluded from the income of the trust.Issue 3: Compliance with Conditions Stipulated in Section 11(2)The court examined whether the conditions under section 11(2) were met for the relevant assessment years. It was noted that for the year 1966-67, no notice was given as required by section 11(2)(a). However, for the years 1967-68 and 1968-69, notices were given on August 25, 1970, which were considered valid as no time-limit was prescribed under Rule 17 before its amendment in 1971. The court also found that the investment condition under section 11(2)(b) was met for the year 1967-68 but not for 1968-69 due to the inclusion of income-tax and wealth-tax payments in the income of that year. For 1966-67, the surplus income was below Rs. 10,000, so no investment in Government securities was required.Issue 4: Taxability Due to Non-fulfilment of ConditionsThe court held that there was no non-fulfilment of the conditions under section 11(2) for the years 1966-67 and 1968-69. Consequently, no portion of the income assessed by the ITO was liable to be taxed in the hands of the assessee for these years.Conclusion:- Issue 1: Answered against the assessee.- Issue 2: The income as per the books of the trust is to be considered for section 11 purposes.- Issue 3: Compliance with section 11(2)(a) was met for 1967-68 and 1968-69; compliance with section 11(2)(b) was met for 1967-68, and not required for 1966-67 and 1968-69.- Issue 4: No portion of the income was liable to be taxed for 1966-67 and 1968-69 due to compliance with section 11(2).The reference was answered in favor of the assessee, with costs awarded to the assessee and an advocate's fee of Rs. 250.