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Yogiraj Charity Trust Vs. Commissioner of Income-tax, Delhi (Central) - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax References Nos. 187 to 193 of 1972
Judge
Reported in[1984]149ITR7(Delhi)
ActsIncome Tax Act, 1961 - Sections 11, 12, 250(4), 256 and 258
AppellantYogiraj Charity Trust
RespondentCommissioner of Income-tax, Delhi (Central)
Excerpt:
.....of assessed had been nothing but to act as tool for sake of concerns controlled by founder of trust - funds of assessed continued to be used in those concerns - objects of trust both charitable and non-charitable - it was at the discretion of trustees to apply funds of trust for any purpose - in such circumstances assessed not entitled to get exemption under act. - - (iv) to open, found, conduct, maintain or contribute to the opening and maintaining of such institutions where work at living wages can be provided to poor and deserving people or which are conducive to the benefit of the poor and the development of industries. the yogiraj charity trust as well as two of its trustees were made defendants to the suit. in the plaint it was stated that the plaintiff had been desirous..........any of the assessment years in question. 4. at this stage we may give some of the clauses of the trust deed of the assessed trust which was executed unilaterally by seth dalmia on march 7, 1949, and with reference to which primarily the high court and the supreme court had negatived the claim of the assesses-trust to exemption. '5 (a)(i)...... (ii)....... (iii) to open, found, establish, equip, finance, assist, maintain or contribute to religious, technical, industrial or commercial concerns, institutions, associations or bodies imparting any type of training or providing employment to persons. (iv) to open, found, conduct, maintain or contribute to the opening and maintaining of such institutions where work at living wages can be provided to poor and deserving people or which are.....
Judgment:

H.C. Goel, J.

1. These are seven references at the instance of the assessed, M/s, Yogiraj Charity Trust, 10, Daryaganj, Delhi. A common statement of case was submitted by the Tribunal for the seven assessment years in question, i.e., for assessment years 1959-60 to 1965-66 respectively. The following two questions of law have been referred for the opinion of this court :

'(i) Whether, on the facts and in the circumstances of the case, the income of the trust is exempt from tax under section 4(3)(i) of the Indian Income-tax Act, 1922 and

'(ii) Whether, on the facts and in the circumstances of the case, the income of the trust is exempt from tax under sections 11 and 12 of the Income-tax Act, 1961 ?'

2. Both these questions are in fact to the same effect. The first question has been referred in the three references arising out of assessments for assessment years 1959-60 to 1961-62 as made under the old Act of 1922. The second question has been referred in the other four references relating to assessment years 1962-63 to 1965-66.

3. The assessed was a trust known as M/s. Yogiraj Charity Trust. This trust was created by Seth Ram Krishna Dalmia by a deed of trust dated March 7, 1949. The assessment years concerned are 1959-60 to 1965-66. The assessed claimed before the ITO that its income was exempt from tax by virtue of the provisions contained in s. 4(3)(i) of the Indian I.T. Act, 1922, for the years 1959-60 to 1961-1962. For the subsequent assessment years 1962-1963 to 1965-66 it claimed exemption of this income from tax under the corresponding provisions of ss. 11 and 12 of the I.T. Act, 1961 (hereinafter called as 'the Act'). The assessed's claim was that it was a public charitable trust and was entitled to exemption provided under the aforesaid provisions of the two Acts respectively. The ITO did not accept the assessed's claim. He noticed that the facts and circumstances which led to the denial of exemption claimed by the assessed in the earlier assessment years remained unchanged in the assessment years in question from that as they were in the prior years. It was further observed that the main activity of the assessed had been nothing but to act as a tool for the sake of the concerns controlled by Seth Ram Krishna Dalmia. The funds of the assessed continued to remain blocked in the various concerns controlled by Seth Dalmia, who was the founder of the trust, while it also continued to be used as a conduit for the transference of shares of one company of Seth Dalmia to another such company at his instance. It was further observed that the objects of the trust were both charitable and non-charitable in nature and that combined with the facts of unfettered discretion of the trustees to apply the funds of the trust to any of the objects, rendered the trust not entitled to exemption under the said provisions of the two Acts respectively. The ITO following his orders in the earlier years rejected the assessed's claim. He treated the assessed as an association of persons and taxed the income of the trust at the maximum rate. The AAC following the order of the Tribunal in the case of the assessed for the assessment year 1953-54 reversed the assessment order of the ITO. He held that the assessed was entitled to exemption under s. 4(3)(i) of the Act of 1922. The Department took the matter in appeal to the Tribunal. By the time the Tribunal came to consider the appeal of the Department, the decision of the Delhi High court in I.T. References Nos. 25, 37, 38, 40, 42 and 43 of 1965 had been made available. The High Court by its judgment dated May 25, 1970, reversed the said view of the Tribunal and held that the income of the trust was not entitled to exemption under the aforesaid provisions of two Acts respectively. The judgment of this court is CIT v. Jaipur Charitable Trust : [1971]81ITR1(Delhi) . By this judgment six income-tax references including the one relating to the present trust were disposed of. This judgment was later affirmed by the Supreme Court in Yogiraj Charity Trust v. CIT : [1976]103ITR777(SC) . The Tribunal, following the judgment of the High Court, accepted the appeal filed by the Department and reversed the orders of the AAC in the assessment years in question. It was held that the income of the trust was not entitled to exemption in any of the assessment years in question.

4. At this stage we may give some of the clauses of the trust deed of the assessed trust which was executed unilaterally by Seth Dalmia on March 7, 1949, and with reference to which primarily the High Court and the Supreme Court had negatived the claim of the assesses-trust to exemption.

'5 (a)(i)......

(ii).......

(iii) To open, found, establish, equip, finance, assist, maintain or contribute to religious, technical, industrial or commercial concerns, institutions, associations or bodies imparting any type of training or providing employment to persons.

(iv) To open, found, conduct, maintain or contribute to the opening and maintaining of such institutions where work at living wages can be provided to poor and deserving people or which are conducive to the benefit of the poor and the development of industries.......'

5. Again by clause 5(b) the trustees were empowered for the purpose of carrying out the objects set out in clause 5(a) to purchase or otherwise acquire, start, establish, equip or close any business, undertaking or industry, to purchase, acquire or undertake the whole or any part of property and liabilities of any person, firm or company and to train persons in any business or industry and grant them stipends, allowances, or bonuses as may be determined by the trustees from time to time. Clause 11 of the trust deed was in the following terms :

'The trustees shall have full power and discretion to acquire, hold, carry on and manage any trade or business or any part thereof and to employ the whole or any portion of the trust property or any funds of the trust in such trade or business or in running concerns or managing agencies, or in securities or shares and debentures of public or private limited companies or other investments, and realise or vary the same or any branch or portion thereof as they may deem proper from time to time, provided however, that the income, profits and gains thereof shall be utilized and applied only for and on behalf of the trust as provided herein.'

6. We have heard Shri G. C. Sharma, learned counsel for the assessed, and Shri Wazir Singh, learned standing counsel for the respondent. At the hearing of these references, Shri G. C. Sharma, learned counsel for the assessed, submitted that subsequent to the passing of the judgment by the Delhi High Court in the case of the assessed on May 26, 1970, the trust deed was rectified and amended by a decree of the civil court. A deed of declaration was also executed by the founder of the trust, Shri Dalmia, on June 2, 1972. Thereafter the case of the assessed for the subsequent assessment year 1966-67 along with the case of another similar trust came up in reference before a Division Bench of this court. In those cases reported as Jagdamba Charity Trust v. CIT and Yogiraj Charity Trust v. CIT : [1981]128ITR377(Delhi) , it was held that since the objectionable clauses were removed, the trust was a public charitable trust and was entitled to exemption from tax. However, in view of the fact that under the 1961 Act, the exemption depended not merely on the objects of the trust, but also on the actual application of its income to religious and charitable purposes and it may be that the trustees had acted in accordance with the original deed and might have embarked on non-charitable activities, it was held by the High Court that it was not possible to say as to what extent the trust was entitled to exemption in that year. That aspect of the matter was, thereforee, left to be decided by the Tribunal. Shri Sharma submitted that the full facts on which this court held the trust deed to have been retrospectively rectified from its inception are fully stated in the said judgment of this court itself. These facts are extracted below :

7. On January 11, 1972, the founder of the trust, Seth Ram Krishna Dalmia, filed a suit for rectification of the trust deed under s. 26 of the Specific Relief Act. The Yogiraj Charity Trust as well as two of its trustees were made defendants to the suit. In the plaint it was stated that the plaintiff had been desirous of creating a charitable trust for the amelioration of the public and that in order to satisfy his intention, will and understanding, the trust had been founded by the deed executed on March 7, 1949. It was stated that the intention and belief of the plaintiff since the creation of the trust was to maintain the trust as charitable trust for the well being of the public. However, the judgment of the High Court had held that due to the provisions contained in certain clauses of the deed, the same is non-charitable and that the defendant trust was not entitled to the exemption claimed under the I.T. Act. The plaintiff stated that from the very beginning he was under the honest belief that the object clause of the trust deed aimed only at public charity and that some bonafide mistake and differences in interpretation seemed to have occurred in the trust deed as reflected in the judgment of the High Court of Delhi. It was stated that since the decision of the High Court had created some doubts regarding the validity of some clauses of the trust deed, it had become expedient and necessary that the trust deed should be rectified by deletion of some clauses and words in some of its clauses and that some words and clauses should be added to remove any doubt of its objects. It is not necessary to set out at length the various rectifications sought to be carried out and it will be sufficient to mention that sub-cls. (iii) and (iv) of clause 5(a), the offending portion of clause 5(b) and clause 11 of the trust deed were sought to be deleted. Certain other rectifications were also sought for and it was prayed that it was expedient to allow the rectifications since the inception of the trust. The plaint in the suit was presented on January 11, 1972. The plaintiff as well as the defendants were represented by counsel and on March 24, 1972, the Sub Judge, Delhi, granted a decree as prayed for by the plaintiff. In other words, the trust deed was directed to be rectified as prayed for by the petitioner and it was also stated that the rectification would have effect from the very inception of the trust. Subsequently Ram Krishna Dalmia also executed a deed of declaration referring to the rectification and declaring that the trust deed dated March 7, 1949, as it stood amended after the order of the court, should be treated to be the original trust deed dated March 7, 1949. This declaration was executed on June 2, 1972.

8. Shri Sharma submitted that the aforesaid subsequent event, namely, that of the rectification of the trust deed retrospectively from its inception, goes to the very root of the matter and the position stands reversed in favor of the assessed so far as the two questions referred to by the Tribunal are concerned. It was contended that in these circumstances the court should decline to answer the reference and should remand the cases back to the Tribunal with the direction that the Tribunal should allow the evidence to be led before it regarding the aforesaid subsequent event and facts and to decide the cases afresh after taking into consideration the additional material that may be placed before it. Alternatively, the Tribunal may get a report from ITO who may be directed to allow the parties to lead evidence in the aforesaid regard and to submit his report in the matter to the Tribunal and the Tribunal should then decide the case. In support of his above contention that such a course is available to this court in these references, Shri Sharma cited a large number of decisions of various courts.

9. We may say at the very outset that, in our opinion, the course as suggested by Shri Sharma is not warranted by law. The Tribunal in arriving at its conclusions fully took note of the entire material that was placed by the parties on the record and in these references we have to see as to whether the conclusions of the Tribunal on the basis of the material before it are or are not correct in law. Obviously this is not a case in which the Tribunal could not reasonably and effectively decide the matters in controversy on the basis of the material that was placed by the parties on the record. In fact the material now sought to be placed before the Tribunal by the assessed is the one which was not in existence till the Tribunal passed its orders out of which these references have arisen and the event itself, namely, the rectification of the trust deed, took place subsequent to the passing of the orders by the Tribunal. These are also not cases in which any aspect of the matter in controversy was not noticed by the Tribunal or on which the Tribunal omitted to record its finding. Shri Sharma was unable to refer us to any provision in the I.T. Act or to any rule in the Income-tax Appellate Tribunal Rules, 1963, which entitles a party to assessment proceedings to bring on the record of the Tribunal evidence of an event that takes place subsequent to the passing of the appellate order by the Tribunal, even though that event may be relevant on the points at issue. A party may, in a fit case, be allowed to adduce additional evidence before the AAC or the Commissioner (Appeals) at the hearing of the appeal under the provisions of s. 250(4) of the I.T. Act, 1961. Rule 29 of the Appellate Tribunal Rules, 1963, also provides for production of additional evidence by the parties to the appeal before the Tribunal. However, it is settled law that the High Court while calling for a supplementary statement of the case under s. 258 of the Act in a fit case has no jurisdiction to direct the Appellate Tribunal to collect additional material and to make it a part of the supplementary statement. If that be so, the question of a direction to the Appellate Tribunal to collect evidence in regard to subsequent event does not arise. The decision of the Supreme Court in the case of Keshav Mills Co. Ltd. v. CIT : [1965]56ITR365(SC) , is the basic authority in this regard and that holds the field till now. The Supreme Court held as below (headnote) :

'The scheme of Income-tax Act indicates that evidence has to be led primarily before Income-tax Officer, though additional evidence may be led before the Appellate Assistant Commissioner or even before the Appellate Tribunal, subject to the provisions of section 31(2) of the Act and rule 29 of the Appellate Tribunal Rules, respectively, and that means that when the Tribunal has disposed of the matter and is preparing a statement of the case either under section 66(1) or under section 66(2), there is no scope for any further or additional evidence. When the matter goes to the High Court, it has to be dealt with on the evidence which has already been brought on the record. If the statement of the case dose not refer to the relevant and material facts which are already on the record, the High Court may call for a supplementary statement under section 66(4), but the power of the High Court can be exercised only in respect of material and evidence which has already been brought on the record.

In calling for a supplementary statement of the case under section 66(4) of the Indian Income-tax Act, 1922, the High Court can require the Tribunal to include in such supplementary statement only such material and evidence as may already be on the record but which has not been included in the statement of the case made initially under section 66(1) or section 66(2). It has no jurisdiction to direct the Appellate Tribunal to collect additional material and make it a part of the supplementary statement......

Proceedings taken for the recovery of tax under the provisions of the Income-tax Act are naturally intended to be over without unnecessary delay, and so it is the duty of the parties, both the Department and the assessed, to lead all their evidence at the stage when the matter is in charge of the Income-tax Officer. Opportunity is, however, given for adducing additional evidence by section 31(2) of the Act, and rule 29 of the Appellate Tribunal Rules; but if further evidence is allowed to be taken under the directions of the High Court under section 66(4) of the Act, it is likely that tax proceedings may be prolonged interminably, and that could not be the object of the Act.'

10. Respectfully following this authority we hold that the remand of the cases as suggested by the learned counsel for the assessed is not justified.

11. The first authority on which great reliance was placed by Shri Sharma is the decision of the Supreme Court in the case Sutlej Cotton Mills Ltd. v. CIT : [1979]116ITR1(SC) . In that case the assessed which had its head office at Calcutta had a cotton mill situated in West Pakistan where it manufactured and sold cotton fabrics during the assessment year 1954-55. The assessed-company made large profits in Indian currency which were converted at the then prevailing rate of exchange of 100 Pakistani rupees to 144 Indian rupees. On August 8, 1955, Pakistan devalued its rupee, restoring parity between the Indian rupees and the Pakistani rupee. Thereafter, during the accounting periods relevant to the assessment years 1957-58 and 1959-60, the appellant obtained permission of the Reserve Bank of Pakistan and remitted to India Rs. 25 lakhs and Rs. 12 1/2 lakhs, respectively. The assessed claimed that on remittance the appellant suffered losses of Rs. 11 lakhs and Rs. 5 1/2 lakhs. This claim was rejected by the Department and the Tribunal sustained the disallowance. The question for consideration was whether the loss due to exchange conversion was a capital loss or a revenue loss. On a reference, the High Court held that no loss was sustained by the appellant on remittances of the amounts from West Pakistan and that in any event the loss could not be said to be a business loss because it was not a loss arising in the course of business of the assessed, but was one caused by devaluation which was an act of State. In the appeal by special leave, the Supreme Court held that the assessed suffered a loss of Rs. 11 lakhs and of Rs. 5 1/2 lakhs in the process of conversion on account of alteration in the rate of exchange and that the question whether the loss suffered by the assessed was trading loss or capital loss could not be answered unless it was first determined whether the two amounts of Rs. 25 lakhs and Rs. 12 1/2 lakhs were held by the assessed-company on capital account or on revenue account. Both the parties agreed before the Supreme Court that as the revenue authorities or the Tribunal did not enquire into that, the matter may be sent back to the Tribunal to determine that matter after allowing the parties to adduce additional evidence. It was on this agreement of the parties that the case was sent back to the Tribunal to determine whether the amounts were held in West Pakistan as a capital asset or as a trading asset and then to determine whether the loss suffered by the appellant was a trading loss or the question as to whether the said sums were held in West Pakistan as capital assets or as trading assets. The Tribunal was directed to determine the question on the basis of the additional evidence. In the case, Raghunath Prasad Poddar v. CIT : [1973]90ITR140(SC) , it was held (headnote) :

'The assessed, a dealer in jute and jute goods, purchased puce delivery orders relating to gunny bags from various parties after paying the full price of the goods covered by the orders and transferred these orders to buyers after receiving the price fixed for the sale of those goods. The Tribunal held that since the goods covered by the delivery orders were not actually delivered to the buyers, the loss incurred in these transactions was speculative as contemplated by section 24(1) of the Indian Income-tax Act, 1922, and could not be set off against the assessed's profits in its non-speculative business. On appeal to the Supreme Court, it was held that to effect a valid transfer of any commodity it was not necessary that the transfer in question should be followed up by actual delivery of the goods to the transferee. Even if the goods were delivered to the transferee's transferee the first transfer would also be a valid transfer and would not be a speculative transaction. In these cases one had to see whether the ultimate purchaser of the puce delivery orders had taken actual delivery of the goods sold. The Tribunal and the High Court were wrong in holding that if any transfer of the puce delivery orders was not followed by actual delivery of the goods to immediate transferee that transaction had to be considered speculative for the purpose of section 24(1).

[Since the Appellate Tribunal had not enquired into the trade practice and decided whether actual delivery was taken by the ultimate purchaser, the Supreme Court remanded the case to Tribunal for a fresh enquiry after giving opportunity to the parties to adduce additional evidence].'

12. It is clear that in the case, Sutlej Cotton Mills Ltd. v. CIT : [1979]116ITR1(SC) , the Supreme Court directed the Tribunal to allow the parties to adduce additional evidence on the new aspect of the matter on the basis of the agreement arrived at between the parties before the Supreme Court. No finding was returned by the Supreme Court as to whether a party to a reference can be allowed to adduce additional evidence on remand of the case to the Tribunal. In the case of Raghunath Prasad Poddar [1973] 90 ITR 141 , an important aspect of the matter which was necessary for the decision of the case was not considered by the Tribunal and for deciding that aspect additional evidence had to be allowed to be adduced the parties. It was in these peculiar circumstances of these cases that their Lordships of the Supreme Court directed the Tribunal to allow the parties to adduce additional evidence on the aspect of the case which had not been considered originally.

13. There is no such thing in the cases before us. These are not the cases in which any aspect of the matter in controversy was not considered by the Tribunal. By remand of the cases the assessed wants additional evidence to be adduced regarding an event which was not even in existence till the Tribunal disposed of the cases and the evidence regarding which came into existence subsequent to the disposal of the cases by the Tribunal. Apart from the above, it is worth nothing that in neither of the above said cases the decision of the Supreme Court in the case of Keshav Mills Company Ltd. : [1965]56ITR365(SC) , was brought to their Lordships' notice. In any case, even if it be considered that there is a conflict of opinion in the decisions of the cases of Raghunath Prasad Poddar : [1973]90ITR140(SC) and of Keshav Mills Company Ltd. : [1965]56ITR365(SC) , the letter is a judgment of a Bench consisting of seven judges, whereas the other case as referred to above is a judgment of a Bench of two judges of the Supreme Court. It is settled law that in case of conflict between two judgments of the same court, the judgment of a larger Bench has to prevail over the other judgment.

14. In case of CIT v. George Henderson and Co. Ltd. : [1967]66ITR622(SC) , the Supreme Court found that the language used by the Appellate Tribunal recording its finding on the material point was obscure and its import could not be determined. It was under these circumstances that the Supreme Court remanded the cases to the Appellate Tribunal for a fresh hearing and for recording a clear finding on the point in question. The assessed was also allowed to furnish his Explanationn regarding the transactions in question before the Appellate Tribunal and to produce evidence in support of the same. It was held that the Tribunal would also be entitled to call for the elucidation of the Explanationn or the evidence. The Revenue was also allowed to give evidence in rebuttal. The case, CIT v. Greaves Cotton and Co. Ltd. : [1968]68ITR200(SC) , is one of simple remand of the case by the Supreme Court to the Appellate Tribunal for recording a clear finding on the point at issue. In this case, it was found that the finding of the Tribunal was defective in law as it was arrived at without taking into account all relevant material adduced by the parties. The case was, accordingly, remanded for disposal by the Appellate Tribunal after recording a clear finding on the question. The Tribunal had been allowed to rehear the appeal for deciding the appeal afresh.

15. As regards the case, CIT v. Straw Products Ltd. : [1966]60ITR156(SC) , the position was that the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, which was a relevant provision for making the computation of written down value of the depreciable assets for purposes of the income-tax was amended after the decision of the Supreme Court by the insertion of an Explanationn thereto. This amendment was retrospective in nature. The Supreme Court held that it was its duty to answer the reference in accordance with the amendment unless the question referred to by the Appellate Tribunal was not couched in terms of sufficient amplitude to cover an enquiry into the question in the light of the amendment. It is obvious that an amendment of statute stands altogether on a different footing from a change that may be effected by an assessed as regards the factual position about the terms of a trust. It is clear that none of the above authorities dealt with the question as to whether in a reference the order of the Appellate Tribunal can be set aside and the case remanded to the Tribunal on account of the happening of a subsequent event which has the effect of bringing a change in the relevant factual position retrospectively. The question that such a change may be brought about by a decree of civil court or by recognition of the same in a decree of a civil court, to our mind, does not make any difference and the same principle would apply in considering whether, in such a case, the High Court in a reference can or cannot remand the case to the Appellate Tribunal for allowing a party to a case to urge a subsequent event and to adduce evidence in support of the same. Shri G. C. Sharma cited some other judgment also. It will suffice to say that none of these cases is in point and none of them is of any help to the case of the assessed. Some of these cases simply dealt with the question as to whether certain purposes can be said to be charitable purposes.

16. In conclusion, we repel the said contention of the assessed's learned counsel and answer the questions in the negative, i.e., against the assessed and in favor of the Revenue.

17. In the circumstances of the cases, we leave the parties to bear their own costs.

18. Questions answered in the negative.


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