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income-tax Officer Vs. Educational Trust Fund. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Reported in(1986)17ITD974(Hyd.)
Appellantincome-tax Officer
RespondentEducational Trust Fund.
Excerpt:
.....allowed under section 80l. at the appellate stage it was argued before the aac that there was no mistake apparent from record because in law there is a controversy and difference of opinion on the status of trust as on aop for all purposes. under section 164, according to the assessee. a trust is to be treated an aop only for a limited purpose for applying the rate of tax. it is also argued that since the definition under section 2(31) of the act does not include a trust as an aop for all other purposes under the act the trust is to be treated an an individual. it is also brought to the notice of the aac that for wealth-tax purposes the bombay high court trust v. cit [1968] 70 itr 600 declared that a trust is assessable as an individual. it is further argued that the provisions of the.....
Judgment:
Per Shri T. V. Rajagopala Rao, Judicial Member - These are four appeals filed by the revenue and they relate to assessment years 1974-75 to 1977-78. The assessee is common. The point involved is also common and, hence, these appeals can be taken up together and disposed of by a common order.

2. Admittedly the assessee is a discretionary trust. For assessment year 1974-75, the assessment was completed under section 143(3) of the Income-tax Act, 1961 (the Act) on 30-3-1977. For the other three assessment years the assessments were completed under section 143(1).

For assessment year 1976-77 and 1977-78 they were completed on 27-3-1979. Admittedly, in those assessment deduction under section 80L of the Act was granted to the assessee-trust. After the completion of the assessments for these four years the ITO felt that he was wrong in allowing deduction under section 80L to the assessee whose status is admittedly stated to be of An AOP. Therefore, he issued a notice under section 154 of the Act to the assessee-trust to show cause as to why he should not withdraw the deduction wrongly granted under section 80L. On behalf of the assessee-trust a reply dated 25-3-1981 was filed before the ITO in which it is stated that the assessee has to be treated as an individual for the purpose of income-tax assessment since it is assessed as a discretionary trust under section 164 of the Act. It is also contended that the deduction under section 80L was rightly allowed and, hence, the assessment order need not be rectified under section 154. However, the ITO rejected the contentions of the assessee and withdrew the deduction previously allowed under section 80L and passed rectificatory orders for each of these four assessment years on 6-3-1981. Aggrieved against each of the rectificatory orders the assessee filed an appeal before the AAC, Visakhapatnam, questioning the correctness of the decision of the ITO in withdrawing the deduction previously allowed under section 80L. At the appellate stage it was argued before the AAC that there was no mistake apparent from record because in law there is a controversy and difference of opinion on the status of trust as on AOP for all purposes. Under section 164, according to the assessee. a trust is to be treated an AOP only for a limited purpose for applying the rate of tax. It is also argued that since the definition under section 2(31) of the Act does not include a trust as an AOP for all other purposes under the Act the trust is to be treated an an individual. It is also brought to the notice of the AAC that for wealth-tax purposes the Bombay High Court Trust v. CIT [1968] 70 ITR 600 declared that a trust is assessable as an individual. It is further argued that the provisions of the Wealth-tax. 1957 and the Income-tax Act are in pari materia and so the above ruling of the Bombay High Court equally applies to the case arising from income-tax also. The AAC held that the prima requisite to hold that two or more individuals form an AOP is volition on the part of the members of the association as held by the Honble Supreme Court in G. Murugesan & Bros.

v. CIT [1973] 88 ITR 432 at p. 437 and as this prima requisite is absent in the case of discretionary trust a trust cannot be treated as an AOP excepting for purpose of applying the rate of tax under section 164. It is also contended before the AAC that based on the decision of the Supreme Court in ITO v. Volkart Bros. [1971] 82 ITR 50 when there is possibility of more than one interpretation to be given to a provision of law and if one interpretation is adopted, it cannot be said that there is a mistake apparent from record then there is no mistake worthy to be rectified under section 154. This contention was also rejected by the AAC saying that the mistake apparent from record contemplated by the Supreme Court in that case was an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions. According to him, there is no mistake apparent from record and, therefore, he cancelled the rectifactory order passed under section 154 on the ground that the ITO cannot rectify a mistake of law which is capable of more than one interpretation. Hence, these appeals by the revenue.

3. It is contended in each of these appeals that the question of status adopted in the assessment orders is not the subject-matter of section 154. The provisions of section 154 are not applicable when there is no dispute about the status of an AOP adopted in the assessment orders. It is also contended that the learned AAC wrongly placed reliance on the decision of the Supreme Court in G. Murugesan & Bros. case (supra). it is contended by the learned departmental representative that when once the status of the assessee is accepted as an AOP it cannot be allowed to be changed. An AOP is not entitled to section 80L relief and it is an indisputable proposition. In support of his contention that when once the status is accepted as an AOP it cannot be allowed to change subsequently. Two decisions, viz. T. Manickavarsagam Chettiar v. CIT [1983] 143 ITR 269 (Mad) and P. K. Ramasamy Nadar v. Second ITO [1982] 2 ITD 624(Mad) were cited. In P. K. Ramasamy Nadars case (supra), the assessee-HUFs invested in public provident fund under a mistaken belief that the deductions thereon under section 80C of the Act are admissible to HUFs also. In fact the assessee-HUFs opened the accounts with the help of ITO and were also allowed deduction for more than one assessment year by the ITO. Later, the ITO noticed the mistake and rectified the assessment under section 154. The question is whether the action of the ITO rectifying the earlier orders is correct or not. It is held by the Tribunal as follows : "It is by now well settled that overlooking a mandatory provision to the taxing authority is a mistake apparent from record. The mistakes committed by the ITOs were palpable in this case and the mere fact that they helped the assessees to open the accounts at best made them parties to the mistakes which did not debar them from exercising jurisdiction under section 154. The issue was neither debatable nor one on which two views were possible; the principles of res judicata and estoppel would not also apply." One of us, the learned, Accountant Member, is a party to the above decision. In T. Manickavasagam Chettiars case (supra) it is held that if a provision of law which is inapplicable to the facts of a particular case has been applied, it amounts to a mistake apparent from record. On the other hand, Shri M. J. Swamy, the learned advocate for the assessee, contended that he had got strong grounds even on merits.

According to him, the contention that section 80L is not available to an AOP appears to be either wrong or highly debatable point of law.

Section 80L (1) (c) is as follows : (c) an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu." Now the question is whether the words 1consisting only of husband and wife, etc. etc. qualify the words body of individuals or qualify the words an association of persons also. According to the learned counsel for the assessee, they do not qualify the words an association of persons occurring in clause (c) of sub-section (1) of section 80L but they qualify words body of individuals only. In order to substantiate this contention he invited our attention to section 2(15) which defines the words charitable purpose as follows : "charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit.

The Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 held that the words under section 2(15) not involving the carrying on of any activity for profit qualify only the fourth head of the charitable purposes, viz. `any other object of general public utility, and not any of the first three heads. The interpretation put by the Supreme Court on these words equally apply to the case before us and would buttress the arguments of the assessee that the words consisting only of husband and wife, etc. qualify the words a body of individuals only and not the words an association of persons occurring in section 80L (1) (c). Therefore, according to this plausible interpretation, the premises on which the ITO proceeded, viz., that in the case of an AOP the deduction under section 80L is not admissible does not appear to be correct. Further, Shri Swamy also brought to our notice another Supreme Court decision in G. Murugesan & Bros case (supra in which it is held that for wealth-tax purposes an AOP should be treated as individual. As the provisions of the Wealth-tax Act as well as the Income-tax Act are in pari material the decision may be taken to be equally good and applicable even under the Act in which case also though the assessee is to be considered as an AOP the deduction under section 80L is still available to the assessee as it comes under the capacity of an individual. He submits that whether or not his arguments are acceptable to us they can be taken to be plausible interpretations put against the wordings of section 80L and as such it is a case where it can be said that there is no mistake of law or if there is one it can be derived only by a long-drawn process of reasoning on points on which there may be conceivably two opinion.

Therefore, he argued that the impugned order of the AAC is not liable to be disturbed at our end.

4. After hearing both sides we are inclined to agree with the contentions advanced by Shri Swamy, the learned counsel for the assessee. We hold on merits that there is no mistake of law apparent from record. We hold that the issue is highly debatable or on which there may be conceivably two opinions. Therefore, we hold it is not a fit case where the ITO can exercise powers under section 154 validly.

We, therefore, confirm the orders of the AAC and dismiss the appeals preferred by the revenue.


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