Skip to content


S.M. Haeems Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1985)13ITD94(Ahd.)
AppellantS.M. Haeems
Respondentincome-tax Officer
Excerpt:
.....english school' at khanpur and maninagar.similar documents were filed regarding the trust for the high schools.the ito arrived at his conclusion, inter alia, on the following grounds: 1. no books of account were maintained for the business of primary and pre-primary schools and none were submitted to the charity commissioner. 2. the assessee had shown income from the schools as his income in the original return for these years and also for the subsequent year 1977-78. in the bank account of the high school only an amount of rs. 501 was deposited at the start and thereafter another amount of rs. 150 and no transaction thereafter was made in that account. in spite of the fact that the assessee had applied for exemption under section 11, which was duly granted under section 12 of the act,.....
Judgment:
1. In both the above appeals, the facts and the grounds are materially the same. Therefore, they are dealt with by this common order.

2. There are a number of grounds but the most important one is regarding the addition of the income of certain schools to the income of the assessee. It is the assessee's case that the income of these schools belongs to certain trusts but the ITO regarded it as that of the assessee. The facts from which this controversy arises, are as follows: 3. The assessee filed two returns of income: one original and the other revised. In the original return, the assessee had disclosed the income from the business of running schools while in the revised return, by a note, the assessee denied any business of his own, thus, claiming that the income from the schools was not his own. The ITO has noticed that both the aforesaid returns were filed after the search and seizure were carried out at the assessee's schools and residential premises and that the revised return was filed only during the assessment proceedings and after enquiries. The ITO did not regard the revised return as valid under Section 139(5) of the Income-tax Act, 1961 ('the Act') and proceeded to decide the question on the basis of the contentions raised before him that the income from the schools did not belong to the assessee. There were two kinds of schools run by the assessee, one the primary and pre-primary and the other a high school. With regard to the former, a trust called 'Haeems Education Trust' was started on 28-4-1970 and registered soon thereafter with the Charity Commissioner and regarding the latter another trust called 'Nelson Education Trust' was started in 1966 and duly registered in that year. The assessee stated before the ITO that the former trust was created because the Ahmedabad municipal corporation made it compulsory that the primary schools be owned by a public charitable trust, if recognition from the school board was desired. He duly produced the following documents before the ITO: (b) Copy of the registration certificate under the Bombay Public Trusts Act.

(c) Copies of the two inspection reports of municipal school board wherein it is specifically mentioned the name of 'Haeems Education Trust' as an owner of the trust.

(d) Copy of the recognition certificate from the Ahmedabad municipal school board.

(e) During these years from 1-4-1970 and, therefore, (sic.) I was acting as a principal or as a managing trustee of the said trust.

(f) Separate bank accounts were also operated for both these primary schools known as 'Nelson's English School' at Khanpur and Maninagar.

Similar documents were filed regarding the trust for the high schools.

The ITO arrived at his conclusion, inter alia, on the following grounds: 1. No books of account were maintained for the business of primary and pre-primary schools and none were submitted to the Charity Commissioner.

2. The assessee had shown income from the schools as his income in the original return for these years and also for the subsequent year 1977-78. In the bank account of the high school only an amount of Rs. 501 was deposited at the start and thereafter another amount of Rs. 150 and no transaction thereafter was made in that account. In spite of the fact that the assessee had applied for exemption under Section 11, which was duly granted under Section 12 of the Act, the assessee had shown the income as his income.

3. Regarding the primary school, the assessee had not applied for any such exemption and had shown the income as his income.

4. No Income-tax at source was deducted for the salary paid to the assessee.

5. The assessee had made a categorical deposition before the authorised officer at the time of search that trust was not functioning because the landlord of the building where the school was housed, had objected to the transfer of the tenancy to the trust and a suit for ejectment was pending.

6. The assessee had purchased the fixed deposits in his own name from the funds of the primary schools.

It is unnecessary to enumerate all the reasons of the ITO. Suffice it to say that his conclusion is based on the fact that the assessee's conduct in the matter of filing of the returns was contradictory, his manner of dealing with the funds of the schools was as if they belonged to the assessee and the last and the most damaging of all is his deposition that the trusts were not operative, all leading to the ITO's conclusion that the trusts were not real. To put it in the words of the ITO at the end of para 11 of his order: These facts are discussed to show the manner of execution of the trust and to pierce the veil of unreality.

4. The AAC has confirmed the order of the ITO, relying upon the same grounds as those of the ITO. According to him, the assessee had not fulfilled the conditions prescribed in Section 12A(a) of the Act, because the original registration was not renewed as no account had been filed by the trust with the Charity Commissioner. He has further observed that the trustees of both the trusts are either family members or closely connected with the assessee.

5. Before us, the learned Counsel for the assessee relied upon a number of documents which were placed before the ITO. He also relied upon the audited accounts in respect of the trust for the high school, showing the grant therein for the year ended on 31-3-1974 and argued that the assessee had acted upon the trust. However, his most important argument was that the Charity Commissioner's certificate regarding the trust was a judgment in rem and the ITO could not go behind it. The implication was that if the trust duly recognised by the certificate of the Charity Commissioner was valid, the income from the schools is that of the trust and not that of the assessee. He relied upon the decision of the Gujarat High Court in the case of Ishwarlal Nanalal [Civil Revision Application No. 370 of 1960].

6. The learned departmental representative in reply argued at length but all these arguments are substantially the same as the reasoning of the ITO and of the AAC. However, his arguments were mostly confined to the income from the primary schools because in the high school there was a loss. Regarding the argument that the Charity Commissioner's certificate was a judgment in rem, he argued that the Act was not affected by the decision of the Charity Commissioner and the ITO had full powers to make a decision on his own. He also argued that even if the trust deed was valid, the question of applicability of Sections 11, 12 and 13 of the Act remained.

7. In this entire controversy, the only issue before us is whether the reality of the trust can be displaced by the conduct of the assessee as stated above. In this connection, the argument of the assessee's counsel that the decision of the Charity Commissioner is a judgment in rem, has to be considered. The effect of that argument is that the ITO cannot go behind the certificate issued by the Charity Commissioner and consider the existence or otherwise of the trust. The High Court in the aforesaid judgment was concerned with the jurisdiction of a civil court. In the course of the judgment, it has observed as follows: Reading, therefore, Sections 79 and 80 of the Bombay Public Trusts Act together, it is obvious that amongst others all questions regarding particular properties being the properties of a public trust are required to be determined by the Deputy or Assistant Charity Commissioner or the Charity Commissioner and the decisions of these authorities have been made final and conclusive, subject to the decision of the Court or the High Court and this being one of the matters in which the decision of these officers has been made final and conclusive the jurisdiction of the civil court will be barred. That seems to be the plain reading of these sections.

Section 50 of the Bombay Public Trusts Act does make provisions similar to Section 92 of the Code of Civil Procedure. But, on an examination of the other sections, such as Sections 18 to 22A, Sections 70 to 72 and Sections 79 and 80, it is clearly shown that the Legislature intended to make decisions given under this Act also to be final and conclusive and binding on all parties and to have the same effect as a judgment in rem.

These cases clearly indicate that the schemes framed under Section 92 precluded the assertion of any private rights. It is not necessary for me to decide, but on a prima facie view, it appears to me that schemes framed under Section 50 of the present Act should have the same effect. As I have pointed out above, the scheme of these other sections mentioned by me also appears to be to provide a complete machinery and to provide for exclusion of jurisdiction of civil court to decide these questions.

This last quotation shows that the High Court itself has stated that it was not necessary for it to decide the question whether the order of the Charity Commissioner was a judgment in rem or not. It rather chose to rest its decision on the fact that a complete machinery had been provided by the aforesaid sections under the Bombay Public Trusts Act and for the exclusion of jurisdiction of a civil court. On the other hand, we have to consider the decision of the Gujarat High Court in the case of CIT v. Thobhandas Jivanlal Gajjar [1977] 109 ITR 296. The High Court in that case has observed as follows: ...It cannot be disputed that the judgments of civil courts are always binding inter partes unless they are judgments in rem. The judgments inter partes would be final and binding in subsequent proceedings on the principles of res judicata. They may be binding as precedent as well. It is an established position of law, as stated by the Supreme Court in Chhatrasinhji Kesarisinhji Thakore v. CIT [1966] 59 ITR 562 that the Income-tax Officer is, within the limits assigned to him under the Act, a Tribunal of exclusive jurisdiction for purposes of assessment and he has, under the Act, to decide whether a particular receipt is 'income' and it is not necessary that he must make some person or body other than the assessee a party to the proceedings before he decides the question; and as between the State and the assessee it is his function alone to determine whether the receipt is income and is taxable. It is equally settled that the bar of res judicata dehors Section 11 of the Civil Procedure Code as a matter of general principle would apply when a matter or issue arises between the same parties in the subsequent proceedings, is finally determined by a competent court between the same parties. The decision of a civil court inter partes cannot, therefore, operate as res judicata in the proceedings where the parties are not the same, though some of them may be common. It is equally beyond doubt that a statutory authority is bound to hold statutory inquiry and perform statutory duties and such authorities could never be precluded from discharging statutory functions by invoking a rule of estoppel or a bar of res judicata for that matter....

This decision has been followed by the same High Court in the case of Keshavlal Punjaram v. CIT [1983] 141 ITR 466. The resulting position is that in the case of Ishwarlal Nanalal (supra), the High Court was concerned with the jurisdiction not of the ITO but of a civil court.

Further, its decision, as shown above, does not rest upon the proposition that the certificate of the Charity Commissioner is a judgment in rem but on the ouster of jurisdiction of a civil court by the Bombay Public Trusts Act. Moreover, in our view, we should be slow in drawing an inference that a certain order of a judicial authority is a judgment in rem because that would bind persons, who are not parties to the proceedings. At best, the legal position emerging from the judgments is that the doctrine of the judgment in rem would apply only to the civil courts and not to the ITO having statutory authority.

Section 41 of the Indian Evidence Act, 1872 enumerates these kinds of judgments. There is no basis for expanding the categories mentioned therein. In any case, in the aforesaid two judgments in the cases of Thobhandas Jivanlal Gajjar (supra) and Keshavlal Punjaram (supra), the High Court has stated that the statutory authority, i.e., the ITO, has exclusive jurisdiction for the purposes of assessment to decide the question even though once decided by a civil court. It is true that the Court was not concerned there with the decision of the Chanty Commissioner but then in the case of Ishwarlal Nanalal (supra), the Court was not concerned with the jurisdiction of the ITO. Under Section 80 of the Bombay Public Trusts Act, it is the civil court's jurisdiction which is ousted and not that of the ITO and we note that in the case of Thobhandas Jivanlal Gajjar (supra), the High Court has stated that the ITO has exclusive jurisdiction to decide the question of income. Therefore, we hold that in spite of the certificate of the Charity Commissioner, the ITO could consider the question of existence or otherwise of the trust. This, however, does not finally solve the problem before us. The fact of execution of the trust deed remains.

Section 6 of the Indian Trusts Act, provides: Creation of trust - Subject to the provisions of Section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts (a) an intention on his part to create thereby a trust, (b) the purpose of the trust, (c) the beneficiary, and (d) the trust-property, and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust-property to the trustee.

In this case all these requirements have been fulfilled. This was not denied by the revenue. What the revenues case, as indicated above, is that the co conduct of the assessee showed that in reality there were no trusts. In our view, the execution of the trust deed and the fulfilment of the aforesaid requirements would have their consequences, namely, coming into existence of the trusts. Once the trust has come into existence, it would be extinguished only as provided under Section 77 of the Indian Trust Act, which is as follows: (c) when the fulfilment of its purpose becomes impossible by destruction of the trust-property or otherwise; or Nowhere the revenue has attempted to show how these requirements were fulfilled and since they were not fulfilled, the position is that the trust existed. To put it clearly, the legal position is that the trust comes into existence as provided under Section 6 and ceases to exist as provided under Section 77. There is no scope for going behind this legal existence or lifting the veil as the ITO has attempted to do.

This doctrine of lifting the veil has very limited application and cannot be used every time that a certain legal form is to be questioned. In this connection, it is significant that under the 1961 Act, a special power has been given to consider the genuineness of the firm on the question of its registration but no such power is given regarding the trust. It may be true that the assessee might have committed many serious irregularities and taken incorrect or inconsistent stand. For those things, separate action under other laws may be taken but that will not displace the existence of the trust.

9. The learned AAC has stated that the assessee had not renewed registration with the Charity Commissioner but that has nothing to do with the existence of the trust which depends upon the fulfilment of Section 6. His view that the assessee has not fulfilled the conditions prescribed in Section 12A, also has no basis because that section does not require any renewal of registration but only registration. The AAC has also held that since the assessee had not proved spending of the income for charitable purpose, Sections 11 and 12 would have no application. That, however, does not mean that the income can be regarded as the income of the assessee. We, therefore, hold that the income of the trust cannot be regarded as the income of the assessee.

On this point, the appeal is allowed.

10 to 14. [These paras are not reproduced here as they involve minor issues.]


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //