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Modi Charitable Fund Society and anr. Vs. Income-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberCivil Miscellaneous Writ Petition No. 366 of 1978
Judge
Reported in(1983)36CTR(All)81; [1983]142ITR818(All)
ActsIncome Tax Act, 1961 - Sections 11, 139, 139(1), 139(4A), 147 and 148; indian Income Tax Act, 1922 - Sections 4(3) and 22(1); Constitution of India - Article 226
AppellantModi Charitable Fund Society and anr.
Respondentincome-tax Officer and ors.
Appellant AdvocateDevi Pal, ;R.K. Gulati and ;S.C. Agarwal, Advs.
Respondent AdvocateMarkandey Katju, Adv.
Excerpt:
.....the omission or failure on the part of the assessee to make a return under section 139 or to disclose fully and truly all material facts necessary for his assessment for that year. this clause would not apply to the present case because the assessee being under no statutory obligation to file a return for the assessment year under consideration, it cannot be said that income chargeable to tax has escaped assessment by reason of its omission or failure to file the return. thus, there could be no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for this year......the insertion of this provision for the first time the assessee filed a voluntary return for the assessment year 1971-72, and continued to do so up to the assessment year 1977-78. for the assessment year 1971-72, the ito, additional a-ward, meerut, made the assessment order on 24th february, 1974, assessing the income at nil. he accepted the asses-see's contention that the society was formed for charitable purposes and its income was exempt from tax. similarly for the assessment year 1972-73 the ito, additional a-ward, meerut, made the assessment on december 4, 1974, and determined the taxable income at nil. for the assessment year 1973-74, the assessment was completed by the ito, special ward, circle i, meerut, on 21st september, 1976. he took a different view and held that the.....
Judgment:

Rastogi, J.

1. By this petition under Article 226 of the Constitution the petitioners, M/s. Modi Charitable Fund Society, Modinagar, U.P. (hereafter' the petitioner society '), and Sri Ashok Vashisht, one of the members of the society, seek the quashing of the notice dated 25th March, 1977, issued under Section 148 of the I.T. Act, 1961 (hereafter ' the Act '), and another notice issued on 25th July, 1978, calling upon the assessee to produce certain records. The brief facts are these : The petitioner-society was established on July 5, 1940, and was duly registered with the Registrar of Societies and Firms, Lucknow, the certificate having been granted on 20th July, 1940. The aims and objects for which the society was established, inter alia, were to promote commerce, art and science; to establish and maintain or to give aid to institution or institutions for giving training in commerce, trades, industries, etc., and for imparting moral and physical education to the children of all castes and creeds ; to establish and maintain or to give aid to dharamshala, widow home cr any other such charitable institution ; to establish and maintain any dispensary or hospital for the benefit of the public, to acquire by purchase or otherwise any movable or immovable property for the proper carrying out of the objects of the society, to sell, mortgage, lease or otherwise dispose of any movable or immovable property for the better management of the society, to advance by way of loan for proper investment thereof the trust funds and to acquire financial assistance from Government and other bodies with a view to efficiently carry out the objects of the society. Another object was to work and establish agencies and depots for the purchase and sale of goods of all description, borrow money and to get insurance agencies of different companies and to do insurance work for the purpose of applying the income therefrom on the objects mentioned above.

2. The Controller of Insurance by his order dated January 7, 1958, granted a licence to the society to carry on the business of insurance. Apart from donations, the society had income from following sources ; Dividends, rent from house properties, contribution of tuition fee received from hostel and commission from insurance agency business. The petitioner approached the ITO some time in 1958 for the issue of a certificate of exemption of its income under Section 4(3)(i) of the Indian I.T. Act, 1922. The ITO, A-Ward, Meerut, issued such a certificate to the society on February 17, 1958. The society was thus held to be a charitable institution and its income was exempt from tax under Section 4(3)(i) of the 1922 Act as also under the relevant provisions of the 1961 Act. Thus the assessee was under no obligation to file any return of its income under Section 22(1)/Section 139(1). With effect from April 1, 1971, Sub-section (4A) was inserted in Section 139 of the 1961 Act. This provision reads as under :

' Every person in respect of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes, or in part only for such purposes, or of income being voluntary contributiuns referred to in Sub-clause (ii-a) of Clause (24) of Section 2, shall, if the total income in respect of which he is assessable as a representative asses-see (the total income for this purpose being computed under this Act without giving effect to the provisions of Sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in The prescribed manner and setting forth such other particulars as may be prescribad and all the provisions of this Act shall, so far as may be, apply as if it were a return requiied to be furnished under Sub-section (1). '

3. After the insertion of this provision for the first time the assessee filed a voluntary return for the assessment year 1971-72, and continued to do so up to the assessment year 1977-78. For the assessment year 1971-72, the ITO, Additional A-Ward, Meerut, made the assessment order on 24th February, 1974, assessing the income at nil. He accepted the asses-see's contention that the society was formed for charitable purposes and its income was exempt from tax. Similarly for the assessment year 1972-73 the ITO, Additional A-Ward, Meerut, made the assessment on December 4, 1974, and determined the taxable income at nil. For the assessment year 1973-74, the assessment was completed by the ITO, Special Ward, Circle I, Meerut, on 21st September, 1976. He took a different view and held that the assessee was engaged in the activity of profit and thus was not entitled to exemption of its income from tax. As for the insurance agency, the view taken was that it was not a property which could be held in trust. Accordingly, the total income was computed at Rs. 1,43,130. For the assessment year 1974-75, the assessment was made by the ITO, Central Circle V, New Delhi, on July 21, 1977, and the net income was determined at Rs. 1,39,829. During the pendency of the proceedings for this year, this ITO issued a notice under ?. 148 of the 1961 Act to the assessee after obtaining prior approval from the CBDT, on March 25, 1977, for reopening the assessment for 1960-61. This notice was served on the assessee on March 30, 1977. The assessee requested the ITO by its letter dated May 25, 1977, to supply the reasons. The society made another similar request on September 17, 1977, and on November 19, 1977, and then filed a return for the assessment year under consideration under protest declaring its taxable income at nil. The ITO then issued a notice on July 25, 1978, requiring the society to produce the documents and the books of account in support of its return. Thereafter, on September 13, 1978, the petitioners filed the present writ petition for quashing these notices. They have also prayed for declaring ultra vires the constitutional amendments made by the 42nd Amendment in Article 226of the Constitution curtailing and limiting the exercise of judicial power of the High Courts.

4. Counter and rejoinder--affidavits have been exchanged.

5. Two preliminary objections were raised before us by the learned counsel for the Department, Sri Markandey Katju: Firstly, that the notice under Section 148 of the 1961 Act was issued on March 25, 1977, whereas the writ petition challenging this notice was filed on September 13, 1978, thus, it was highly belated and the petitioners being guilty of laches, no relief can be allowed to them in this petition. The second objection is that the notice under Section 148 having been issued by the ITO, Delhi, the cause of action arose within the jurisdiction of the Delhi High Court and not of this court and for this reason also this court cannot grant any relief to the petitioners.

6. After hearing learned counsel for the parties, we are not inclined to agree with either of these submissions. It is correct that the petition is belated, but after the lapse of so much time and because of the view which we propose to take on the merits of the case, we are not inclined to relegate the petitioners to the remedy provided under the Act. As far as the other preliminary objection, a part of the cause of action did arise within the jurisdiction of this court. The petitioner society is situated within the territorial jurisdiction of this court. The notice was served on the petitioner-society at this place. It has been called upon to produced books and documents in support of its return. Thus, it cannot be said that no part of cause of action has arisen within the territorial jurisdiction of this court. The case in Purtabpore Co, Ltd, v. Cane Commissioner, Bihar : AIR1969All105 , on which reliance was placed by Sri Katju, was on different facts. In that case the Cane Commissioner, Bihar at Patna, passed two orders an November 14, 1967. By his first order he superseded his earlier order dated December 30, 1966, passed under Clause 6(1)(a) of the Sugarcane (Control) Order, 1966, in favour of the petitioner's sugar factory situated in U.P. and also reduced the number of villages (all situate in Bihar) constituting the reserved area of the factory for the purpose of sugarcane. This order was communicated to the petitioner's factory in U.P. By his order of the same date, which was not communicated to the petitioner, he directed that the villages excluded from the petitioner's reserved area should be allotted to R, another sugar factory in Bihar. The petitioner filed a writ petition in the Allahabad High Court for quashing these two orders dated November 14, 1967. It was held that as no part of the cause of action for the reliefs claimed arose within the territories of U.P., the High Court could not entertain the petition. Oae of the main reasons which influenced the court to take that view was that even assuming that the communication of the order to the petitioner in U.P. gave rise to a part of cause of actionfor setting aside that order no cause of action in relation to the order passed in favour of R could arise in U.P. Even if the order superseding the earlier one is set aside the other order in favour of R would remain operative. That by itself would constitute modification of the earlier order passed on December 30, 1966. Without setting aside the order passed in favour of R, no effective relief could be granted to the petitioner,

7. In the present case no such situation obtains, Effective relief can be granted to the petitioner in these proceedings by this court.

8. Coming to the merits of the case, the undisputed facts are that the society was granted a certificate of exemption under Section 4(3) of the 1922 Act by the ITO, A Ward, Meerut, on February 17, 1958. Thus, it was under no obligation to file a voluntary return under Section 22(1} of that Act or Section 139(1) of the 1961 Act when the latter Act came into force. After the insertion of Sub-section (4A) in Section 139 of this Act from April 1, 1971, the assessee was under a statutory obligation to file a voluntary return of its income. In compliance with that provision the assessee did file voluntary return for the first time for the assessment year 1971-72. It claimed that its income was exempt from tax and that contention was accepted for 1971-72 and 1972-73. The assessee continued to file voluntary returns up to the assessment year 1977-78. For the assessment years 1973-74 and 1974-75, the ITO assessing the assessee took a different view and held that the income of the assessee was not exempt from tax. Against those assessment orders the assessee filed appeals before the A AC. The A AC accepted the assessee's contention and held that its income was exempt from tax under Section 11 of the 1961 Act. The ITO then took up the matter in appeals before the Tribunal. These appeals have been decided by the Delhi Bench B, Delhi, by its consolidated order dated April 7, 1982. The Tribunal has confirmed the view taken by the AAC and in doing so has rightly relied upon the decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) . It would be seen that there could be escapement of assessment under Clause (a) of Section 147 by reason of the omission or failure on the part of the assessee to make a return under Section 139 or to disclose fully and truly all material facts necessary for his assessment for that year. This clause would not apply to the present case because the assessee being under no statutory obligation to file a return for the assessment year under consideration, it cannot be said that income chargeable to tax has escaped assessment by reason of its omission or failure to file the return. The same is the case with regard to the other condition because the assessee had been granted a certificate of exemption. Thus, there could be no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for this year.

9. Now, coming to Clause (b) of this section, the ITO should have, in consequence of information in his possession, reason to believe that income has escaped assessment. This clause also would not be applicable because for the assessment years 1973-74 and 1974-75, the assessments made by the ITO were quashed by the AAC and the same view was taken on further appeal by the Tribunal. The view taken by the Tribunal was based on a Supreme Court decision. The ITO, therefore, could not have reason to believe that income had escaped assessment for the year under consideration ' in consequence of information in his possession '. The assumption of jurisdiction by the ITO to reopen the assessment for the year under consideration, therefore, was not valid in law.

10. Accordingly, the petition is allowed and the impugned notice under Section 148 of the I.T. Act, 1961, dated March 25, 1977, and the notice issued during the course of these proceedings on July 25, 1978, upon the petitioner-society to produce the documents and books of account in support of the return are quashed. In the circumstances, parties are directed to bear their own costs.


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