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Raja Baldeodas Birla Santati Kosh and ors. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference Application No. 202 of 1979
Judge
Reported in[1987]164ITR551(Raj)
ActsIncome Tax Act, 1961 - Sections 256(1) and 256(2); Indian Trusts Act, 1882 - Sections 11
AppellantRaja Baldeodas Birla Santati Kosh and ors.
RespondentCommissioner of Income-tax
Appellant Advocate D. Paul and; L.L. Sharma, Advs.
Respondent Advocate R.N. Surolia, Adv.
Excerpt:
- - the appellate authority held that the transfer of the said shares was not void, but was perfectly valid and, as such, the dividend income from the shares was deleted from the assessment of the assessee, santati kosh......ltd. by the santati kosh.3. on march 13, 1964, birla jankalyan trust was created and the santati kosh trust transferred all the shares of jiyajeerao cotton mills ltd. to the jankalyan trust for utilisation for the objects and purposes of that trust. a resolution was passed to this effect on march 23, 1964, by the board of trustees of the santati kosh. the trustees also wrote a letter to the ujjain company seeking their confirmation in respect of the decision of santati kosh trust to make a donation of the shares of jiyajeerao cotton mills ltd. to the jankalyan trust for the utilisation thereof for the objects and purposes of the latter trust. a letter was also addressed by the trustees to the settlor of the santati kosh, shri jugal kishore birla, seeking his confirmation to the.....
Judgment:

Dwarka Prasad, J.

1. This is an application under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as ' the Act'), by Raja Baldeodas Birla Santati Kosh, Pilani, through, its trustees (hereinafter referred to as ' the Santati Kosh ') in the matter of its assessment relating to the assessment year 1970-71 relatable to the previous year ending on March 31, 1970.

2. Shri Jugal Kishore Birla, son of Raja Baldeodas Birla, created a private trust known as Raja Baldeodas Birla Santati Kosh, Pilani, by a registered trust deed dated May 20, 1943, and settled a sum of Rs. 10,000 and some shares for making provision for the upkeep and maintenance of the properties belonging to and maintained by the male descendants of Raja Baldeodas Birla at Pilani and for the benefit of the male descendants in the male line of Raja Baldeodas Birla, their wives, widows anddaughters. Shri Rameshwardas Birla, Shri Brajmohan Birla and Shri Laxmi Niwas Birla were made the trustees of the Santati Kosh. Some time in May, 1943, M/s. Ujjain General Trading Society Ltd. (hereinafter referred to as ' the Ujjain Company ') donated 25,000 shares of Jiyajeerao Cotton Mills Ltd. to the Santati Kosh. The said shares were subsequently divided into 3,75,000 shares and some shares of other companies were also received by way of dividends from Jiyajeerao Cotton Mills Ltd. by the Santati Kosh.

3. On March 13, 1964, Birla Jankalyan Trust was created and the Santati Kosh Trust transferred all the shares of Jiyajeerao Cotton Mills Ltd. to the Jankalyan Trust for utilisation for the objects and purposes of that trust. A resolution was passed to this effect on March 23, 1964, by the board of trustees of the Santati Kosh. The trustees also wrote a letter to the Ujjain Company seeking their confirmation in respect of the decision of Santati Kosh Trust to make a donation of the shares of Jiyajeerao Cotton Mills Ltd. to the Jankalyan Trust for the utilisation thereof for the objects and purposes of the latter trust. A letter was also addressed by the trustees to the settlor of the Santati Kosh, Shri Jugal Kishore Birla, seeking his confirmation to the proposal regarding the transfer of the aforesaid shares to the Jankalyan Trust. The Ujjain Company consented to the transfer of shares in Jiyajeerao Cotton Mills Ltd. by the Santati Kosh Trust to the Jankalyan Trust and intimated its approval to the trustees of the Santati Kosh. Similarly, Shri Jugal Kishore Birla also addressed a letter to the trustees of the Santati Kosh giving his consent to the transfer of the aforesaid shares by the Santati Kosh Trust to the Jankalyan Trust for utilisation thereof for public charitable purposes. On March 30, 1964, the trustees of the Santati Kosh transferred the shares in Jiyajeerao Cotton Mills Ltd. to the Jankalyan Trust in pursuance of their resolution dated March 23, 1964, after receiving the consent of the settlor and the Ujjain Company and a deed of confirmation was also executed by the trustees of the Santati Kosh affirming the transfer of the shares in Jiyajeerao Cotton Mills Ltd. held by the Santati Kosh to the Jankalyan Trust.

4. During the course of the assessment proceedings for the assessment year 1970-71, the Income-tax Officer discovered that the trustees of the Santati Kosh had gifted the aforesaid shares to the Jankalyan Trust on March 30, 1964. He asked the assessee, Santati Kosh, to show as to why the transfer of shares effected on March 30, 1964, to the Jankalyan Trust may not be held void ab initio, as he was of the view that the transfer of the shares made by the Santati Kosh Trust in favour of Jankalyan Trust was in contravention of the provisions of Section 11 of the Indian Trusts Act, 1882, and that the trustees did not have any power to gift or alienate any portionof the property of the trust in terms of the settlement deed dated May 20, 1943. The Income-tax Officer held that the assessee, Santati Kosh, had no power to make the gift in favour of Jankalyan Trust and he came to the conclusion that the assessee, Santati Kosh, continued to be the owner of the said shares of Jiyajeerao Cotton Mills Ltd. and dividends received in respect of the said shares and further that the income received from the said shares was taxable in the hands of the assessee, Santati Kosh. The Income-tax Officer also disallowed some of the expenses claimed by the assessee, Santati Kosh, on the ground that such expenses were not incurred in connection with the realisation of the income of the assessee, Santati Kosh, by his order of assessment dated March 29, 1973.

5. An appeal was preferred by the assessee, Santati Kosh, before the Appellate Assistant Commissioner of Income-tax, which was partly allowed and it was held that the assessee, Santati Kosh, was entitled to transfer a portion of the trust corpus and income by making a gift of the same to the Jankalyan Trust and that the transfer of the shares of Jiyajeerao Cotton Mills Ltd. by the assessee, Santati Kosh, to the Jankalyan Trust was valid. The appellate authority held that the transfer of the said shares was not void, but was perfectly valid and, as such, the dividend income from the shares was deleted from the assessment of the assessee, Santati Kosh. As regards the expenses, the Appellate Assistant Commissioner agreed with the Income-tax Officer that the entire expenditure was not incurred by the assessee wholly and exclusively for the purpose of earning the income of the assessee, Santati Kosh, and that part of the expenditure had already been allowed by the Income-tax Officer, which constitute a reasonable allocation under the provisions of Section 57(iii) of the Act. As such, the assessee, Santati Kosh's claim for further allowance of some expenses was not accepted by his order dated October 31, 1973.

6. The Income-tax Officer, A-Ward, Jhunjhunu, who was the assessing authority, filed an appeal before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, and cross-objections were also filed by the assessee, Santati Kosh, before the Tribunal. The Tribunal allowed the appeal and dismissed the cross-objections by an elaborate order dated September 23, 1976. The Appellate Tribunal held that it was not established that the assessee, Santati Kosh, was created for the purpose of utilisation of its income for useful purposes and objects. It was also held that the transfer of the shares by the assessee, Santati Kosh, to the Jankalyan Trust was ab initio void for more than one reason. It was held that the consent of all the major beneficiaries of the assessee, Santati Kosh, was not obtained before making the transfer of the said shares by the Santati Kosh Trust to the Jankalyan Trust and that the consent of the settlor was of no consequence. It was also held that the consent of the civil court should have been obtained on behalf of the minor beneficiaries of the assessee, Santati Kosh, in respect of the transfer of the said shares by the trustees of the assessed, Santati Kosh, to the Jankalyan Trust. The Tribunal thus came to the conclusion that the transfer of the shares was contrary to law and was void ab initio and thus the said shares continued to belong to the assessee, Santati Kosh, and the dividend income received from the aforesaid shares was assessable in the hands of the assessee, Santati Kosh. On the question of expenses, the finding arrived at by the Appellate Assistant Commissioner was approved.

7. An application was thereafter submitted by the assessee, Santati Kosh, before the Income-tax Appellate Tribunal for rectification of the order of the Tribunal. The application was allowed by the Tribunal by its order dated March 31, 1978. The assessee, Santati Kosh, thereafter filed an application under Section 256(1) of the Act before the Appellate Tribunal praying that the Appellate Tribunal may state the case and refer the questions of law arising out of its order dated September 23, 1976, to this court. The Tribunal stated the case and has referred the following four questions arising out of its order dated September 23, 1976, to this court:

' 1. Whether, on the facts and in the circumstances of the case and on a proper construction of the deed of settlement dated May 20, 1943, the trustees of Raja Baldeodas Birla Santati Kosh could make donation of 3,75,000 ordinary shares in Jiyajeerao Cotton Mills Ltd. and other shares on March 30, 1964, to Birla Jankalyan Trust, a public charitable trust for its objects ?

2. Whether, on the facts and in the circumstances of the case and on a proper interpretation of the deed of settlement dated May 20, 1943, the Tribunal was right in holding that the consent of the minor beneficiaries and/or competent civil court on their behalf was necessary for making donation of the shares in Jiyajeerao Cotton Mills Ltd. and other shares to the trustees of Birla Jankalyan Trust ?

3. Whether, on the facts and in the circumstances of the case and on a proper construction of the deed of settlement dated May 20, 1943, the transfer of the aforesaid shares by the trustees of Raja Baldeodas Birla Santati Kosh is valid or void or voidable ?

4. Whether, on the facts and in the circumstances of the case, even assuming that the transfer of the said shares was void the income from the said shares, which was in fact not received by the assessee but by Birla Jankalyan Trust, was assessable in its hands '

As regards the other questions sought to be referred by the assessee,the Appellate Tribunal declined to make a reference on the ground thatthey raise questions of fact.

8. In the present application under Section 256(2) of the Act, the assessee desires us to direct the Appellate Tribunal to state the case and refer the following eight questions arising out of its order dated September 23, 1976. to this court:

' 1. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the basis and directions or purposes, namely, for useful objects for which the 25,000 ordinary shares in Jiyajeerao Cotton Mills Ltd., subsequently Sub-divided into 3,75,000 shares, were entrusted by the Ujjain General Trading Society Ltd. to the trustees of Raja Baldeodas Birla Santati Kosh in May, 1943, was not proved is perverse and/or was arrived at by ignoring relevant evidence and/or materials on record ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the shares in Jiyajeerao Cotton Mills Ltd. entrusted by the said Ujjain General Trading Society Ltd. to the Trustees of Raja Baldeodas Birla Santati Kosh in May, 1943, formed part of the corpus of Raja Baldeodas Birla Santati Kosh and did not form or constitute a separate trust fund to be used for useful objects ?

3. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that there was no consent of the major beneficiaries of Raja Baldeodas Birla Santati Kosh to the donation of the said shares made by the trustees thereof to the trustees of Birla Jankalyan Trust was perverse and/or was arrived at by ignoring relevant evidence and/or materials on record ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the donation of the shares in Jiyajeerao Cotton Mills Ltd. and other shares by the trustees of Raja Baldeodas Birla Santati Kosh to the trustees of Birla Jankalyan Trust on March 30, 1964, was for any unlawful objects or consideration forbidden by law ?

5. Whether, on the facts and in the circumstances of the case and on a proper interpretation of the deed of settlement dated May 20, 1943, and the provisions of the Indian Trusts Act, 1882, the Tribunal was right in holding that the donation of the shares in question to the trustees of Birla Jankalyan Trust was void notwithstanding that the said donation was consented to and/or acquiesced in by the concerned beneficiaries ?

6. Whether, on the facts and in the circumstances of the case, the Tribunal applied the correct principles while interpreting the deed ofsettlement dated May 20, 1943, the provision of the Indian Trusts Act, 1882, the Indian Contract Act, 1872 and the Transfer of Property Act, 1882 ?

7. Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that there was nothing to establish that in earlier years all the facts were brought to the notice of the Department and that no enquiry was made by the Department regarding the genuineness of the transfers of the said shares are perverse and/or were arrived at by ignoring materials and evidence on record ?

8. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that no material was brought on record to show that the finding of the Appellate Assistant Commissioner in not allowing the entire claim of expenses was incorrect, perverse and/or arrived at by ignoring materials and/or evidences on record '

Questions Nos. 1 and 2 relate to the same matter regarding the basis and directions or purposes for which the shares of Jiyajeerao Cotton Mills Ltd. were transferred by the Ujjain Company to the assessee, Santati Kosh. The Appellate Tribunal observed as under in this respect:

' Under which basis and directions those shares were transferred originally to the assessee-trust has not been proved. At least no contemporaneous evidence of May, 1943, was brought on record by the assessee either before the authorities below or before us. So there is no evidence on record to show that in May, 1943, M/s. Ujjain General Trading Society Ltd. transferred the shares with the direction that they shall be used for public and charitable purposes. '

The argument of learned counsel for the assessee, Santati Kosh, was that although admittedly there was no contemporaneous evidence of May, 1943, to show the basis or direction or the purpose for which the shares of M/s. Jiyajeerao Cotton Mills Ltd. were transferred by the Ujjain Company to the assessee, Santati Kosh, yet from the documents placed on record relating to the subsequent conduct of the Ujjain Company and the assessee, Santati Kosh, the Appellate Tribunal should have come to the conclusion that the said shares were transferred by the Ujjain Company to the assessee, Santati Kosh, for utilisation thereof for useful purposes and objects. Learned counsel contended that the resolution of the assessee, Santati Kosh, and the correspondence which passed between the Ujjain Company and the assessee, Santati Kosh, in the year 1964 seeking the permission and giving the consent by the Ujjain Company to the donation of the said shares by the assessee, Santati Kosh, to the Jankalyan Trust was relevant material and ought to have been taken into consideration by the Appellate Tribunal for coming to the conclusion that the saidshares were transferred by the Ujjain Company for the purpose that theyshall be used for public and charitable purposes. Learned counsel appearing for the Revenue submitted that when it was admitted on behalf of the assessee, Santati Kosh, that there was no contemporaneous evidence of May, 1943, or soon thereafter regarding the directions or the purposes for which the shares in question were transferred by the Ujjain Company to the assessee, Santati Kosh, the Appellate Tribunal was justified in coming to the conclusion that there was no evidence on record to show that the transfer of the said shares was made by the Ujjain Company with the direction that they shall be used for public and charitable purposes. However, it is not denied that the resolution of the assessee, Santati Kosh, dated March 23, 1964, and the correspondence between the Ujjain Company and the assessee, Santati Kosh, thereafter, was placed on the record of the assessee and the same has not been considered by the Appellate Tribunal before arriving at the aforesaid conclusion regarding the absence of purpose or direction for which the said shares were transferred by the Ujjain Company to the assessee, Santati Kosh. We are, therefore, of the opinion that the Appellate Tribunal should be directed to submit an additional statement of the case referring a question in this regard, which we shall indicate later on, to this court for its opinion.

9. As regards the third question suggested by learned counsel for the assessee, Santati Kosh, it was argued by him that no question was ever raised before any of the Income-tax Authorities or even before the Appellate Tribunal that the consent of all the major beneficiaries of the assessee, Santati Kosh, was not obtained before making donation of the said shares by the trustees of the assessee, Santati Kosh, to the Jankalyan Trust. Reference was made in this connection to the relevant portion of the order of the Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal and it was argued that the only contention which was raised on behalf of the Department was that the trustees of the assessee, Santati Kosh, lacked the power of transferring the said shares to the Jankalyan Trust without obtaining the consent of all the beneficiaries, as no attempt was made to obtain permission from the competent court on behalf of the minor beneficiaries before making the gift of the said shares of the assessee, Santati Kosh, to the Jankalyan Trust.

10. We do not intend to go into a detailed discussion on this question, but we are of the view that a question of law does arise as to whether the finding of the Tribunal that the consent of all the major beneficiaries or other members of the Birla family was not obtained before the transfer of the shares of the assessee, Santati Kosh, to the Jankalyan Trust, has been arrived at after a proper consideration of the relevant evidence or material on record.

11. So far as question No. 4, mentioned above is concerned, it refers to the validity of the transfer of shares in Jiyajeerao Cotton Mills Ltd. by the assessee, Santati Kosh, to the Jankalyan Trust and is based on an observation made by the Tribunal that the said transfer was made for unlawful considerations and on considerations forbidden by law. It was pointed out by us that the question of the validity of the transfer of the said shares by the assessee, Santati Kosh, to the Jankalyan Trust is already covered by question No. 3 which has been referred by the Tribunal to this court by its order dated June 22, 1979. Whether such transfer of shares was valid or void or voidable shall fall within the ambit of question No. 3 and the reasons or grounds on which the transfer is decided to be invalid or void may be more than one, but they would all be considered while dealing with question No. 3 already referred to this court by the Tribunal. Thus, in our view, question No. 4, which is sought to be referred, is covered by question No. 3 which has already been referred and, as such, the Tribunal cannot be directed to refer a new question in this respect.

12. Questions Nos. 5 and 6 have not been pressed by learned counsel for the assessee and, as such, we need not consider those questions.

13. As regards question No. 7, it may be observed that principles of res judicata are not relevant to the assessment during the subsequent years and, as such, the finding of the Tribunal in respect of earlier years or subsequent years regarding the validity or genuineness of the transfer of the said shares will be of no avail to either party in respect of the assessment during the relevant assessment year. As such, whether all the facts were brought to the notice of the Department and that no enquiry was made by the Department regarding the genuineness of the transfer of the said shares are not relevant to the enquiry so far as it relates to the assessment of the assessee, Santati Kosh.

14. Lastly, it was argued by learned counsel for the assessee that the finding arrived at by the Tribunal on the question of not allowing the entire claim of expenses was without considering the evidence on the record. Learned counsel for the assessee referred to us the fact that in the original order passed by the Tribunal on September 23, 1976, it was observed that learned counsel for the assessee has not advanced any argument before the Tribunal on the question of non-allowance of the entire claim of expenses. It was pointed out by learned counsel that subsequently when a rectification application was made, the Tribunal by its order dated March 31, 1978, deleted the following sentence from its order dated September 23, 1976 :

' The learned counsel for the assessee advanced no arguments before us in this behalf. '

In place of this, the following sentence was substituted:

' The learned counsel for the assessee contended that the matter may be remanded to the learned Appellate Assistant Commissioner for deciding the point regarding allowance of expenses. In our opinion, it is not necessary to remand the case to authorities below. '

It was argued by learned counsel for the assessee that the Tribunal did not give any finding on the question of not allowing the expenses as claimed by the assessee.

15. We have looked into the order passed by the Appellate Tribunal and it appears that the Tribunal not only held that there was no case for remand on the point regarding allowing of expenses to the lower authorities, but had affirmed the view taken by the Appellate Assistant Commissioner of Income-tax on the question of expenses. The Tribunal has recorded the following finding in para. 68 of its order dated September 23, 1976 :

' Before us no further material was brought on record to show that the finding of the learned Appellate Assistant Commissioner was incorrect. In view of the aforesaid facts and circumstances of the case, in our opinion, there is nothing on record which may go to show that the claim of expenses in question was in the interest of the business and it was wholly and exclusively incurred for the purposes of the business. Thus, in our opinion, the finding of the learned Appellate Assistant Commissioner on this point is quite correct. '

Thus, there is a positive finding on the question relating to the claim of the assessee for allowing expenses and the Tribunal came to the conclusion that it was not proved by the assessee that the entire expenditure was incurred wholly and exclusively for the purpose of realising the income of the assessee, Santati Kosh. In our view, the aforesaid finding of the Tribunal on this question of expenses constitutes a finding of fact and no question of law arises. It cannot be said that the said finding had been arrived at by the Tribunal ignoring the evidence on record or is otherwise perverse or incorrect in law. We, therefore, decline to refer question No. 8 mentioned above.

16. In the result, we allow the application under Section 256(2) of the Income-tax Act, 1961, in part and direct the Income-tax Appellate Tribunal to state the case and refer the following two questions of law arising out of its order dated September 23, 1976, for our opinion :

' 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was not justified in holding that the basis and directions and purposes for which 25,000 ordinary shares in JiyajeeraoCotton Mills Ltd. were transferred by the Ujjain General Trading Society Ltd. to the trustees of Raja Baldeodas Birla Santati Kosh in May, 1943, has not been proved and that the said finding was arrived at by the Appellate Tribunal ignoring relevant evidence and/or material on record ?

2. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the consent of all the major beneficiaries of Raja Baldeodas Birla Santati Kosh was not obtained in respect of the donation of the aforesaid shares by the trustees of the Santati Kosh to the Birla Jankalyan Trust, was arrived at by ignoring relevant evidence and/ or material on record '

17. As the Income-tax Appellate Tribunal has already stated the case and has referred four questions arising out of its order dated September 23, 1976, to this court by its order dated June 22, 1979, it would suffice if the Appellate Tribunal makes a supplementary statement of the case, as may be necessary, and refers the aforesaid two questions also to this court. The parties are left to bear their own costs.


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