1975 (3) TMI 18 - HC - Income Tax

Court Invalidates Time Limits on Form No. 10, Emphasizes Statutory Authority

Second Income-Tax Officer, City Circle VI, Madras And Others Versus M. CT Trust And Others

The court upheld the lower court's judgment, declaring paragraphs 2 and 4 of Form No. 10 ultra vires as the rule-making authority had exceeded its limits ... Estate Duty Issues Involved:1. Validity of paragraphs 2 and 4 in Form No. 10 prescribed under Rule 17 of the Income-tax Rules.2. Compliance with Section 11(2) of the Income-tax Act, 1961.3. Rule-making authority under Section 295 of the Income-tax Act, 1961.4. Interpretation of 'in the prescribed manner' under Section 11(2).Issue-wise Detailed Analysis:1. Validity of paragraphs 2 and 4 in Form No. 10:The court examined the validity of paragraphs 2 and 4 in Form No. 10 prescribed under Rule 17 of the Income-tax Rules. Paragraph 2 required the investment of accumulated income in Government securities within four months from the end of the relevant previous year. Paragraph 4 sought exemption under Section 11(2) based on compliance with the conditions laid down in paragraph 2. The court held that these paragraphs were ultra vires as the rule-making authority exceeded its limits by including the time element, which was not authorized by the statute.2. Compliance with Section 11(2) of the Income-tax Act, 1961:Section 11(2) of the Income-tax Act, 1961, provides conditions for exemption of income accumulated for charitable purposes. The conditions include giving notice in writing to the Income-tax Officer specifying the purpose and period of accumulation, and investing the accumulated money in Government securities. The court found that the assessee had given the requisite notice in time but had initially invested the money in fixed deposits with M.I.I.C., which were not Government securities. The assessee subsequently corrected this by investing in Government securities after receiving clarification from the Commissioner of Income-tax.3. Rule-making authority under Section 295 of the Income-tax Act, 1961:The court analyzed the scope of the rule-making authority under Section 295 of the Income-tax Act, 1961. Section 295(1) allows the Board to make rules for carrying out the purposes of the Act. However, the court emphasized that the power to make rules is not unlimited and must be within the scope of the statutory provision it is designed to effectuate. The court referred to several precedents, including decisions from the Supreme Court and other High Courts, to establish that the rule-making authority cannot prescribe time limits unless explicitly authorized by the statute.4. Interpretation of 'in the prescribed manner' under Section 11(2):The phrase 'in the prescribed manner' in Section 11(2) was interpreted by the court in light of the Supreme Court's decision in Sales Tax Officer, Ponkunnam v. K. I. Abraham. The court held that 'in the prescribed manner' refers to the particulars to be mentioned in the prescribed form but does not include the authority to prescribe a time limit. The court concluded that the inclusion of a time limit in Form No. 10 was invalid as it was beyond the scope of the rule-making authority.Conclusion:The court upheld the judgment of the lower court, declaring paragraphs 2 and 4 of Form No. 10 ultra vires. The appeals were dismissed, and the court emphasized that the rule-making authority under Section 295 does not have the power to prescribe time limits unless explicitly stated by the statute. The decision reinforced the principle that substantive rights, such as exemptions under Section 11, cannot be curtailed by subordinate legislation unless clearly authorized by the legislature.