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income-tax Officer Vs. Atma Ram Trust - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1986)18ITD158(Delhi)
Appellantincome-tax Officer
RespondentAtma Ram Trust
Excerpt:
.....the earlier order of the tribunal; even if noticed by the bench which has to decide the subsequent year's appeals, should be allowed to perpetuate. this, to my mind, only means that the bench deciding the subsequent year's appeal should not take a contrary view in a routine manner. it should apply its mind carefully and be very slow in departing from the view earlier taken. the ito proceeding on the assumption that the facts in the year are identical with those of the earlier year by itself is no bar to the powers of the tribunal to examine the facts for itself either on its own or at the instance of a party if the examination or investigation of facts is relevant for decision on the issue. the accountant member has noted the fact of adjustment of the donation of rs. 10,000 from atma ram.....
Judgment:
1. The revenue is aggrieved against the order of the Commissioner (Appeals) deleting the addition of Rs. 2.70 lakhs.

2. The assessee is a charitable trust registered with the Commissioner and derives income from properties held under legal obligation. The relevant accounting year ended on 30-6-1977. The assessee filed original return showing income from donations of Rs. 2.70 lakhs, rental income Rs. 45,326, income from car parking, scooter and cycle stand of Rs. 23,403. Thus, the assessee-trust declared income of Rs. 3,51,446 which as per its income and expenditure account was transferred to 'trust fund disbursement account' which showed expenditure of Rs. 88,025 and transfer to 'Atma Ram Sanatan Dharam College fund account' of Rs. 2,63,421. In the latter account after the aforesaid transfer credit balance of Rs. 4,19,595 was carried forward in the assessee trust's balance sheet. In the said original return the assessee declared its method of accounting as mercantile. The ITO observed that as per the original return and the assessee's audited accounts there was infringement of Section 13(1)(c)(ii), read with Section 13(3), of the Income-tax Act, 1961 ('the Act') as the income/property of the trust was used or applied for the benefit of 'excluded' persons.

3. The assessee filed a revised return before the ITO claiming to change its method of accounting from 'mercantile' to 'cash' but the ITO rejected this claim on the ground that the accounts for the previous year ending on 30-6-1977 had already been closed and adjusted and the assessee could not change the method of accounting by filing a revised return much after the close of the" accounting year. The ITO accordingly held that the entire income of the trust amounting to Rs. 3,51,446 was taxable. The assessee carried the matter to the Commissioner (Appeals) and stated that donations of Rs. 2.70 lakhs were 'receivable' from three companies as follows :(i) A.R. Chadha & Co. (India) (P.) Ltd. 2,50,000(ii) Atma Ram Construction (P.) Ltd. 10,000(iii) Kulvinder Distributors (P.) Ltd. 10,000 --------- It was claimed that no donations had been received from the aforesaid companies till the date of hearing by the Commissioner (Appeals) and that the assessee had no right to receive the donations because the donations are by their very nature voluntary payments and the donor is not under any legal obligation to pay the donations and merely because the appellant had credited the amounts in its account books and in the profit and loss account, the said donations do not become the assessee-trust's income because there was no real accrual of income.

Reliance was placed on CITv. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC) where it was held that where the income cannot be said to have resulted at all, there was neither accrual nor receipt of income even though an entry to that effect might have been made in the books of account. In that case the assessee-firm was managing agent of two shipping companies and for the period 1-4-1947 to 31-12-1947 managing agency commission had become due to the assessee-firm but in November 1947 the assessee-firm agreed to transfer the managing agency to two private companies and agreed to accept only a part of the managing agency commission and give up 75 per cent of its earnings. The Supreme Court held that the managing agency commission given up by the assessee-firm was not its income. The Commissioner (Appeals) accepted the assessee's contention that the donations of Rs. 2.70 lakhs were not the assessee's income as the same had not been received. The Commissioner (Appeals) did not decide the point whether the assessee was following cash system of accounting or mercantile system of accounting. He, however, observed that only system of accounting that could possibly be followed by a charitable trust was cash system.

4. The revenue is in appeal before us. The learned departmental representative pointed out that a perusal of the assessee's accounts clearly showed the receipt of donations of Rs. 2.70 lakhs which were credited to 'income and expenditure account' as 'donation received Rs. 2.70 lakhs'. Further the 'trust fund disbursement account' and 'Atma Ram Sanatan Dharam College account clearly showed that the donations had not only been received but also passed on to the said college. The learned departmental representative emphasized that the assessee-trust, the donors and the recipient 'Sanatan Dharam College fund account' all belong to the same group, namely, A.R. Chadha group. The donors had shown in their account donations to the assessee-trust while the recipient, namely Atma Ram Sanatan Dharam College' had been credited an amount of Rs. 3,63,421 and the trust had carried a credit balance of Rs. 4,19,595 of the said college in its account books on 30-6-1977 and in subsequent years the said amount had been passed on to the said college. It was, therefore, urged that the Commissioner (Appeals) was wrong in applying the ratio of Shoorji Vallabhdas & Co.'s case (supra) where the managing agency commission had been split between two parties. The said ratio had no relevance to the facts of the present case nor had the ratio of Ondal Investments Co. Ltd. v. CIT [1979] 116 ITR 143 (Cal.) or CIT v. Kalooram Govindram [1965] 57 ITR 630 (SC). In Ondal Investments Co. Ltd.'s case (supra) the amounts received as salami for sub-lease of mineral and mining rights of the lessee was treated by the lessee as 'current liabilities' and described as 'property sales suspense'. Thus, the lessee never treated the salami amount as its income while the assessee-trust had clearly credited the donation of Rs. 2.70 lakhs as its income. Similarly in Kalooram Govindram's case (supra) the Supreme Court clearly observed that the entries relating to interest payable to the two members of the association were posted merely for apportionment of the loss suffered by the association and did not represent the real income of the two members and the error committed by allowing amount of interest as a permissible outgoing in the assessment of their association, could not be permitted to be perpetuated by repeating similar mistake in the assessment of the members.

5. The learned counsel for the assessee relied on the Tribunal Delhi Bench 'E' order in IT Appeal No. 3957 (Delhi) of 1980 dated 3-7-1982 in the assessee's case for the assessment year 1977-78. Both of us were parties to the said order. In that year we had accepted the assessee's contentions that the donations having not been received did not form part of the assessee's real income and that in the case of the donors, the ITO had not allowed deductions for the promised donations Under Section 80G(2) of the Act, as under that Section only amounts paid were entitled to deduction.

6. We have considered the submissions of both the parties. We, however, feel that in view of the factual position brought out in the year under consideration (the assessment year 1978-79) we are unable to follow our order for the assessment year 1977-78 where the factual data available to us in the assessment year 1978-79 was not before us for deciding the said appeal for the assessment year 1977-78. We see force in the revenue's contention that the assessee-trust and the donors and the recipient of the donations (namely, Atma Ram Sanatan Dharam College) all belong to the same group and, therefore, the book entries debiting the donors and crediting Sanatan Dharam College are not mere empty book entries. We, however, feel that for having a complete picture, the accounts of the donors are also examined to find out how the donors have treated the said donations in their accounts. Further the accounts of the recipient Sanatan Dharam College should also be seen to find out whether the funds have flown to the college. In case the funds have flown to the college in subsequent years, then it would be a strong ground for holding that the donations were not paper entries. We, therefore, restore the matter to the file of the ITO to examine all the relevant accounts uptodate and then come to a finding whether the donations of Rs. 2.70 lakhs were received by the assessee-trust and were the income of the assessee-trust or not, we find that in case of Atma Ram Construction (P.) Ltd., the donation of Rs. 10,000 is covered by rent of Rs. 12,000 credited to the said party's account and, therefore, the donation in question has been realised. All this shows that the accounts need proper examination.

7. In the result, the matter is restored to the file of the ITO. The revenue's appeal is deemed to be allowed.

Since I do not agree with the reasoning and conclusion arrived at by my learned brother, the Accountant Member, in this case, I jot down hereunder my own reasoning and conclusions on the subject matter involved in the present appeal, by the revenue.

2. In paragraph 3 of assessment order dated 30-3-1981, made in the case of the assessee in relation to assessment year under appeal, the learned ITO has, inter alia, observed : ... There had been no change in the facts of the case, method of accounting and application of income from the preceding year.

Detailed facts and legal position had been lucidly expounded in the appellate order dated 3-9-1980 in Appeal No. 269 of 1980-81, for the assessment year 1977-78 passed Under Section 250 by the Commissioner (Appeals), Delhi in the case of the assessee itself and it is not considered necessary to reproduce the same discussion within this order. The assessee had made clear infringements of Section 13 and was not eligible to exemption Under Section 11 at all.

Since, according to the learned ITO there has been no change in the facts of the case, method of accounting and application of income vis-a-vis the preceding year and the assessment year under appeal and since the learned ITO has strongly relied on appellate order dated 3-9-1980 made in relation to the preceding assessment year by the Commissioner (Appeals), our order dated 3-7-1982 made in relation to the preceding assessment year, viz., 1977-78 in IT Appeal No. 3957 (Delhi) of 1980 holds good and takes care of the issue involved in the present appeal, more so, when both of us were a party to the said order dated 3-7-1982, on this short ground, I will reject the ground taken by the revenue and dismiss the appeal.

3. The above reasoning apart, the ground taken by the revenue in the present appeal, reads as under : On the facts and in the circumstances of the case, the learned Commissioner (Appeals) is not justified in deleting the addition of Rs. 2,70,000 on account of donations receivable and credited to the profit and loss account of the assessee.

The ground itself speaks of the fact that addition made by the learned ITO at Rs. 2,70,000 is on account of donations 'receivable' and in this view of the matter a 'receivable' donation cannot be taken as income i.e., the real income of the assessee. Since the assessee has not received donations and it is receivable, the treatment of the receivable donations in the books of account maintained by the assessee for the assessment year under appeal do not decide the issue. The entries in the books of account or else the treatment of the receivable donation in the account books of the assessee do not clinch the issue since what we have got to see is the substance of the matter and the substance remains the receivable donations which under no provisions of the Act or by any stretch of imagination can be treated as income and since the receivable donations cannot be taken as income, provisions of Section 13(3) do not come into play.

Section 2(24) of the Act defines the word 'income' and Sub-clause (iia) which is relevant for our purpose, reads as under : (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution.

Explanation : For the purposes of this sub-clause, 'trust' includes any other legal obligation ; From the above definition it follows that 'contributions received' by a trust has to be taken as income and not income 'receivable'. In this view of the matter also and on this reasoning, as the ground of the revenue taken before us stands,'donations receivable' cannot be treated as income qua the assessee for the purposes of its charge to income-tax under the provisions of the Act. On this reasoning also I will reject the ground taken by the revenue before us and dismiss the appeal.

4. Yet the above reasonings apart, Under Section 11(1) Explanation (2)(i) of the Act, any income which has not been received by a person, viz., the trust is not includible in the total income of the said person-the trust in relation to the previous year in which the said income has not been received and the said Explanation has specifically been made applicable in computing the percentage of income which may be accumulated or set apart, i.e., for the purposes of application of the income vis-a-vis applicability of Sections 11 and 12 of the Act. This provision clearly provides for a situation where, 'for the reason that the whole or any part of the income has not been received during that year,' for the purposes of computing the percentage of accumulation or setting apart of voluntary contributions or else application of such contributions for charitable or religious purposes, such contributions which have not been received shall not be taken into account.

Since in the case of the assessee the contributions are receivable and have not been received, these cannot be equivated with income, hence, Section 13(3) will not apply.

5. In the net result, the ground taken by the revenue before us as also the appeal, stands rejected.

1. Whether entries in the assessee-trust's account books debiting the donors with the amount of donations and crediting the amounts to the account of Atma Ram Sanatan Dharam College did not amount to receipt of donations, when the assessee was following mercantile system of accounting 2. Whether, on the facts and in the circumstances of the case, the Tribunal was bound to follow its own earlier order for the assessment year 1977-78 3. Whether, on the facts and in the circumstances of the case, Rs. 2.70 lakhs was assessable as income in the hands of the assessee-trust for assessment year under appeal On a difference of opinion between the learned Members who heard the appeal, originally, the following points of difference formulated by the Members were referred to me as the Third Member for decision Under Section 255(4) of the Act : 1. Whether entries in the assessee trust's account books debiting the donors with the amount of donations and crediting the amounts to the account of Atma Ram Sanatan Dharam College did not amount to receipt of donations, when assessee was following mercantile system of accounting 2. Whether, on the facts artd in the circumstances of the case, Tribunal was bound to follow its own earlier order for assessment year 1977-78 3. Whether, on the facts and in the circumstances of the case, Rs. 2.70 lakhs was assessable as income in the hands of the assessee-trust for assessment year under appeal 2. When the parties were heard on the earlier occasion, it was seen that the learned Accountant Member had only set aside the orders of the Commissioner (Appeals) and the ITO and restored the matter to the file of the ITO for further investigation and for decision thereafter according to law. It was felt that if the Third Member took the view that the entries in the books amounted to receipt of donations, and, consequently, the Tribunal need not follow its earlier order and that the amount of Rs. 2,70,000 was taxable as the assessee-trust's income, there will not be majority of view within the meaning of Section 255(4). In the circumstances, put to the parties whether by filing a miscellaneous application they would like to request the Members of the concerned Bench to reformulate the points of difference in such a way that the Third Member can agree with one or the other Member to form a majority view. On their agreeing to consider the said aspect, the hearing was adjourned.

3. Subsequently, a miscellaneous application was filed by the department. By its order dated 11-7-1984 in Misc. Application No. 171 (Delhi) of 1984 the learned Members have reformulated the point of difference as under : Whether, on the facts and in the circumstances of the case, the subject matter of appeal should be restored to the file of the Income-tax Officer for fresh decision as held by the Accountant Member or the appeal of the revenue be rejected on the reasoning contained in the 'note of dissent' appended by the Judicial Member 4. The parties have, once again, been heard on 7-8-1984. Shri S.D.Kapila, the senior departmental representative has, mainly, relied on the order of the learned Accountant Member. In particular, placing reliance on the decision of the Supreme Court in the case of CIT v.Brij Lal Lohia and Mahabir Prasad Khemka [1972] 84 ITR 273 he submitted that the order of the learned Accountant Member is a proper order both in law and on merits. The learned Accountant Member has been conscious of the fact that for the earlier year a Bench constituted of those very Members, had taken the same view as has been taken by the Commissioner (Appeals) for the year under appeal. According to Shri Kapila, the Accountant Member has not raised or decided any legal issue in his order. He has noted some facts which were not on records in the proceedings for the earlier year. Even then, being conscious of the Tribunal's order for the earlier year, the learned Accountant Member has only restored the matter to the file of the ITO for investigation and decision afresh according to law. It is pointed out that the Judicial Member has not found fault with the facts noted by the Accountant Member. Emphasis in this context is laid on the fact that" at least the donation of Rs. 10,000 from Atma Ram Construction (P.) Ltd., was certainly received constructively as to that extent the assessee had not to pay the rent payable by it to the said company. It is, thus, submitted that the order of the Judicial Member is not correct.

5. Shri J. Sen, the learned counsel for the assessee, has, on the other hand, relied on the order of the learned Judicial Member. Placing reliance on the decisions of the Bombay and Madras High Courts in the cases of H.A. Shah & Co. v. CIT [1956] 30 ITR 618 and V.N.R. Meenakshi Ammal v. Agrl. ITO [1971] 82 ITR 676, respectively, he submits that though the principle of res judicata as such is not applicable to income-tax proceedings, the Tribunal should be very slow in departing from its findings given in the earlier years. He has laid great emphasis on the observations of the ITO in the assessment order to the effect that the facts in the year were identical with those of the earlier year. According to him this fact has been admitted by the department before the Tribunal also as is seen from the department's grounds of appeal before the Tribunal. Further placing reliance on the decision of the Supreme Court in the case of Addl. CIT v.Gurjargravures (P.) Ltd. [1978] 111 ITR 1. Shri Sen has argued that the finding that facts for this year and the earlier year were identical having been admitted by the ITO and having not been challenged before the Commissioner (Appeals), it was not open to the department to challenge them before the Tribunal ; nor, was it proper for the Tribunal to entertain such a contention. The books of the assessee-trust and those of the three donors are produced before me to show that the donations have not been received at all and that mere book entries are made. However, on going through the entries in the books carefully, I have found that there is a constructive receipt of Rs. 10,000 from Atma Ram Construction (P.) Ltd. as this amount has been adjusted against the rent of Rs. 12,000 payable by the assessee-trust to the said company for this very year. In this context Shri Sen submitted that there being an opening credit balance of Rs. 6,050 in this account, the constructive receipt, if at all, will be of Rs. 5,950 only. In response to a query from the Bench it was categorically stated that relief Under Section 80G was either not claimed or not allowed to the three donors on this so-called amounts of donations. Inviting my attention to the income and expenditure account, Shri Sen has also pointed out that no part of the donations was or could be applied as none was received.

6. In reply, Shri Kapila has placed reliance on the decisions of the Supreme Court in the cases of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 and CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 and rules 11 and 29 of the Income-tax (Appellate Tribunal) Rules, 1963, for the purpose of showing that the Tribunal is justified in examining the material facts even though the ITO had proceeded on the assumption that the facts in the two years were identical. According to him, unless the books of account of Atma Ram Sanatan Dharam College in whose favour credit entries have been made in the assessee's books are seen it is not possible to come to the conclusion that the donations have not been actually received. That is why, the Accountant Member decided to restore the matter to the file of the ITO for investigation. For this purpose, reliance has been placed on the decisions of the Delhi High Court in the cases of Indian Glass Agency v. CIT [1982] 137 ITR 245 and Prominent Motors (India) v. CIT [1983] 140 ITR 326 to indicate the effect of the book entries. It is stated that for the purpose of issue of notices Under Sections 11 and 13 receipts during the year are material and, therefore, the opening credit balance of Rs. 6,050 in favour of Atma Ram Construction (P.) Ltd., is of no consequence.

7. Having considered the rival contentions carefully, I am of the view that it can now be taken as, more or less, a settled law that even though the principle of res judicata as such, is not applicable to tax proceedings, the Tribunal should not, ordinarily, depart from its findings given in an earlier year without cogent reasons. In appropriate cases, the matter might as well be referred to a larger Bench for decision in case a Division Bench feels that the order passed by the earlier Bench requires reconsideration. This, however, does not mean that the mistake, if any, occurred in the appreciation of facts or law in the earlier order of the Tribunal; even if noticed by the Bench which has to decide the subsequent year's appeals, should be allowed to perpetuate. This, to my mind, only means that the Bench deciding the subsequent year's appeal should not take a contrary view in a routine manner. It should apply its mind carefully and be very slow in departing from the view earlier taken. The ITO proceeding on the assumption that the facts in the year are identical with those of the earlier year by itself is no bar to the powers of the Tribunal to examine the facts for itself either on its own or at the instance of a party if the examination or investigation of facts is relevant for decision on the issue. The Accountant Member has noted the fact of adjustment of the donation of Rs. 10,000 from Atma Ram Construction (P.) Ltd. against the rent of Rs. 12,000 receivable for the year.

Admittedly, this fact has not been noticed by the ITO and the Commissioner (Appeals) in their impugned orders. Assuming that a similar adjustment was made in respect of the donation from this company in the earlier year but that fact was not noted, the fact noted this year will have to be treated as a fresh material on record justifying a contrary decision if otherwise justified. Moreover, the learned Accountant Member has not even done so. Taking, inter alia, a clue from this transaction, he has only restored the matter to the file of the ITO for a thorough investigation. On the other hand, the learned Judicial Member has not said a word about this material in his order.

In the circumstances, I do not consider it necessary to examine the legal issue raised in the order of the learned Judicial Member. The issue, according to me is very simple. A material fact was noticed this year by the learned Accountant Member which either did not exist in the earlier year or was not brought on record. The Tribunal, in my view, is not only justified in taking cognizance of this fresh fact but is also obliged to do so. It is a different thing that having regard to the fact that for the purpose of considering whether the income of a trust has been applied or not what is necessary is whether any amount has been received during the year in the absence of which it will be impossible to apply, it was not really necessary to investigate as to what happened to the alleged donations in subsequent years. More so, as I am satisfied on going through the accounts and the entries shown to me on behalf of the assessee that donations to the extent of Rs. 2,60,000 were not, in fact, received during the previous year. The net result is, thus, likely to be that the taxable income of the assessee for the year will have to be increased by Rs. 10,000. For this purpose, I have duly taken note of the fact that the three donors have either not claimed and were not allowed relief Under Section 80G(2).

8. I am conscious of the legal position that the jurisdiction of a Third Member Under Section 255(4) is very much limited. The Third Member has to agree with one of the two Members so that the appeal can be decided according to majority view. Placed in the circumstances as I am, I am inclined to agree with the learned Accountant Member that the matter should be restored to the ITO for reframing the assessment.

9. The order will not go to the Bench for decision according to majority view.


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