1987 (7) TMI 149 - AT - Income Tax

Tax Tribunal overturns Income Tax Commissioner's decisions on assessment orders for 1980-81 and 1981-82

The Tribunal held that the Commissioner of Income Tax was not justified in setting aside the assessment orders for the years 1980-81 and 1981-82 under the ... A Firm, Accounting Year, Assessment Year, Charitable Or Religious Trust, Income From Property Issues Involved:1. Exemption under Section 11 of the Income Tax Act, 1961.2. Application of Section 13(1)(c) read with Sections 13(2)(a), 13(2)(b), and 13(2)(h).3. Satisfaction of conditions under Section 11(2)(b).4. Denial of adjournment and reasonable opportunity to be heard.Issue-wise Detailed Analysis:1. Exemption under Section 11 of the Income Tax Act, 1961:The assessee was granted exemption under Section 11 by the Income Tax Officer (ITO). However, the Commissioner of Income Tax (CIT) found the assessment order erroneous and prejudicial to the interests of revenue, thus initiating action under Section 263. The CIT observed that trustees of the assessee-trust had substantial interest in M/s. Muthoottu Mini Chitty Fund (MMCF) and that the trust's funds remained invested in MMCF, violating Section 13(1)(c) read with Section 13(2)(b). The Tribunal, however, found that since the amounts were received by the trust only on 25-4-1984, long after the end of the relevant accounting years, they could not be considered as invested by the trust in MMCF. Thus, the application of Section 13(1)(c) read with Section 13(2)(h) was ruled out.2. Application of Section 13(1)(c) read with Sections 13(2)(a), 13(2)(b), and 13(2)(h):The CIT contended that the trust's income was used by MMCF without adequate compensation, violating Sections 13(1)(c) read with 13(2)(a), 13(2)(b), and 13(3)(b). The Tribunal, however, held that there was no evidence of the trust lending money to MMCF or MMCF accepting it as a loan. Thus, the relationship of borrower and lender did not exist, ruling out the application of Section 13(2)(a). Similarly, there was no evidence of any immovable property of the trust being made available to MMCF without adequate rent, ruling out Section 13(2)(b). The Tribunal also found that MMCF did not make a substantial contribution to the trust, thus ruling out Section 13(3)(b).3. Satisfaction of conditions under Section 11(2)(b):The CIT argued that the trust did not invest accumulated income in specified investments or securities as required under Section 11(2)(b). The Tribunal noted that the amounts in question were shown as 'contribution receivable' and were not physically available to the trust as of 31-3-1980 and 31-3-1981. Since the amounts were paid to the trust only on 25-4-1984, the question of non-investment in approved modes did not arise. Hence, the conditions under Section 11(2)(b) were deemed satisfied.4. Denial of adjournment and reasonable opportunity to be heard:The assessee argued that the CIT did not provide sufficient opportunity to present its case, refusing an adjournment request. The CIT justified the refusal citing the time limit prescribed under Section 263(2). The Tribunal, however, found that the CIT's refusal to grant an adjournment did not amount to denial of reasonable opportunity to be heard, referencing the case of Nawab & Bros. v. CIT [1980] 124 ITR 307 (MP).Conclusion:The Tribunal concluded that the CIT was not justified in setting aside the assessment orders for the years 1980-81 and 1981-82 and directing the ITO to pass fresh orders. The appeals were allowed, and the orders of the CIT were set aside.