Skip to content


Commissioner of Income-tax Vs. Nopany Education Trust - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 311 of 1975
Judge
Reported in(1985)49CTR(Cal)236,[1986]159ITR367(Cal)
ActsIncome Tax Act, 1961 - Sections 11, 12(2) and 256(2)
AppellantCommissioner of Income-tax
RespondentNopany Education Trust
Appellant AdvocateA.C. Maitra, Adv.
Respondent AdvocateR.N. Bajoria and ;Bagaria, Advs.
Excerpt:
- .....of the act as it stood prior to the amendment effected from april 1, 1973, reads as follows :' 12. income of trusts or institutions from voluntary contributions.-- (1) any income of a trust for charitable or religious purposes or of a charitable or religious institution derived from voluntary contributions and applicable solely to charitable or religious purposes shall not be included in the total income of the trustees or the institution, as the case may be. (2) notwithstanding anything contained in sub-section (1), where any such contributions as are referred to in sub-section (1) are made to a trust or a charitable or religious institution by a trust or a charitable or religious institution to which the provisions of section 11 apply, such contributions shall, in the hands of the.....
Judgment:

Ajit K. Sengupta, J.

1. The assessee is a trust to which the provisions of Section 11 of the Income-tax Act, 1961, applied. The assessee received Rs. 59,411 in the assessment year 1967-68 and Rs. 56,590 in the assessment year 1968-69 as voluntary contribution from two other trusts, namely, Rawatmull Nopany Family Trust and Shri Rameshwarlal Nopany Family Trust. The Income-tax Officer held that these donations were hit by the provisions of Section 12(2) of the said Act and so he included them in the income of the property held by the assessee-trust and applying the provisions of Section 11 of the Act taxed the accumulation in excess of the permitted 25 per cent. On appeal, it was contended before the Appellate Assistant Commissioner that the two paying trusts were family trusts whose incomes were not exempt under Section 11 of the said Act and so their donations to the assessee did not come within the ambit of Section 12(2). Again, even assuming that they did, the accumulations were less than the permitted percentage. The Appellate Assistant Commissioner agreed with the assessee on both the counts and reversed the finding of the Income-tax Officer. The Department went in appeal against the said order of the Appellate Assistant Commissioner. The departmental representative pointed out that the Appellate Assistant Commissioner was not correct in saying that the two paying trusts were subject to Section 11 and at the same time in holding that their donations did not come under the provisions of Section 12 of the Act. The learned advocate for the assessee, on the other hand, pointed out that the remark of the Appellate Assistant Commissioner was a clear mistake as was apparent from the reasoning and decision of the order of the Appellate Assistant Commissioner. He produced copies of the deeds of settlement relating to the two paying trusts and submitted that the finding of the Appellate Assistant Commissioner was quite in order.

2. The Tribunal held that the two donor trusts were family trusts whose incomes were not exempt under Section 11 of the said Act and, hence, they are trusts to which the provisions of Section 11 do not apply. Consequently, they do not come under Section 12(2) of the Act. However, the Tribunal held that the observation of the Appellate Assistant Commissioner that ' the family trusts were assessed on the entire income as Section 11 had been applied ' is obviously a mistake. As the trusts were assessed, Section 11 did not apply to them. The Tribunal, therefore, held that the Income-tax Officer was not correct in invoking Section 12(2) of the said Act.

3. The Tribunal proceeded on the footing that the paying trusts are trusts to which the provisions of Section 11 did not apply. The Department filed a miscellaneous application and submitted that the finding of the Tribunal that the two donor trusts were family trusts, whose incomes were not exempt under Section 11, is not based on facts. From the assessment orders of the two donor trusts, it would be evident that both the donor trusts were exempt from assessment to the extent permissible under Section 11 of the Act. Since the income of the two donor trusts were exempt under Section 11, Section 12(2) of the Act will apply to the assessment of the assessee-trust. Accordingly, the Revenue filed the said miscellaneous application wherein the Revenue asked that the order of the Tribunal be cancelled or suitably modified in the light of the facts gathered from the assessment orders of the donor trusts. At the time of hearing of the miscellaneous application before the Tribunal, it was argued that the Appellate Assistant Commissioner decided the issue on an erroneous assumption of facts which the Tribunal confirmed. Since the correct facts have been brought on record, the Tribunal should rehear the appeal. The Tribunal, however, dismissed the said miscellaneous application, inter alia, on the following grounds:

' We have carefully considered the submissions made by both the sides and are in agreement with the submission made by the learned counsel for the assessee. May be that the Appellate Assistant Commissioner proceeded on an erroneous basis in so far as he thought that the two donor trusts had been assessed on their income and were not exempted under Section 11 of the Act, but then, the Department should have brought this fact to the notice of the Tribunal at the time of hearing of the departmental appeal. We have reproduced relevant extracts of the Tribunal's order. We do not find that the attention of the Tribunal was drawn either to the records of the two donor trusts or to the fact that 70% of their income was exempted under Section 11 of the Act in their assessments. In the miscellaneous application on behalf of the Department, we also do not find any assertion that the departmental representative brought to the notice of the Tribunal the facts which are now stated in the miscellaneous application. Therefore, we can confidently say that the facts mentioned in the miscellaneous application did not form part of the materials on record before the Tribunal at the time of the hearing of the appeal, and the miscellaneous application is not entertainable in view of the decision of the Calcutta High Court relied upon on behalf of the assessee. What the Department, in effect, was asking for, was a review of the Tribunal's order which, in the stated circumstances, the Tribunal has no power to do. The right of review in the circumstances as claimed by the departmental representative cannot be assumed unless expressly given by the statute or by the rules having the force of statute. The power which the departmental representative wants us to exercise is not ancillary or incidental to the powers of hearing of the appeal and actually represents the right of review which has not been given to the Tribunal as stated above.'

4. On the aforesaid facts, a reference application was filed by the Department suggesting the following three questions of law :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal had no evidence or had relied on irrelevant materials to hold that the incomes of the two trusts, viz., Rawatmull Nopany Family Trust and Rameshwarlal Nopany Family Trust, had not been exempted from tax under Section 11 of the Income-tax Act, 1961, and had been assessed on the contributions made by them to the assessee-trust and whether such finding was otherwise unreasonable or perverse ?

2. Without prejudice to question No. (1), whether, on the facts and in the circustances of the case and on a correct interpretation of the deeds of settlement in respect of Rawatmull Nopany Family Trust and Rameshwarlal Nopany Family Trust, the Tribunal erred in law in holding that the provisions of Section 11 of the Income-tax Act, 1961, did not apply to the said trusts ?

3. Without prejudice to the above, whether, on the facts and in the circumstances of the case and on a correct interpretation of the deeds of settlement in respect of Rawatmull Nopany Family Trust and Rameshwarlal Nopany Family Trust, and in particular the direction to the trustees of the trusts that they should apply and hand over seventy per cent. of the net income of the trust properties every year to the trustees of the assessees' trust and/or Manav Vikash Vidyalaya Trust, the Tribunal was correct and justified in holding that the contributions of the two family trusts received by the assessee-trust would be exempt in its hands without being subject to the conditions of Section 11?'

5. The Tribunal, however, dealing with the said reference application, stated as follows:

' In our opinion, one question of law does arise though not as framed by the Department out of the aforesaid order of the Tribunal and we hereby draw up a statement of the case and refer the same to the High Court at Calcutta for its decision. '

6. The Tribunal referred the following question:

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Income-tax Officer was not correct in invoking the provisions of Section 12(2) for the assessment years 1967-68 and 1968-69?'

7. It may be mentioned that, in the statement of case, the Tribunal annexed the copy of the Tribunal's order passed in the miscellaneous application. The Tribunal, in paragraph 8 of the statement of the case, has observed thus:

' The above decision of the Tribunal is primarily based on the Appellate Assistant Commissioner's finding towards the end of para 3 of his order to the effect that the family trusts were assessed on the entire income. This fact was not controverted before the Tribunal at the time of hearing and, therefore, it would not be proper to introduce new issues into the statement of the case by accepting the departmental representative's plea that the observations of the Appellate Assistant Commissioner needed correction or were not in accordance with reality,'

8. The question before the Tribunal was whether the Appellate Assistant Commissioner was justified in holding that the voluntary donations received by the assessee from two other trusts were not hit by the provisions of Section 12(2) of the Act and accordingly were entitled to the benefits of Section 11 of the Act. Section 12 of the Act as it stood prior to the amendment effected from April 1, 1973, reads as follows :

' 12. Income of trusts or institutions from voluntary contributions.-- (1) Any income of a trust for charitable or religious purposes or of a charitable or religious institution derived from voluntary contributions and applicable solely to charitable or religious purposes shall not be included in the total income of the trustees or the institution, as the case may be. (2) Notwithstanding anything contained in Sub-section (1), where any such contributions as are referred to in Sub-section (1) are made to a trust or a charitable or religious institution by a trust or a charitable or religious institution to which the provisions of Section 11 apply, such contributions shall, in the hands of the trust or institution receiving the contributions, be deemed to be income derived from property for the purposes of that Section and the provisions of that Section shall apply accordingly.'

9. Section 12(1) as it stood at the material time granted exemption which was unconditional and independent of Section 11, to the income of a trust derived from voluntary contributions and applicable solely to charitable or religious purposes. Therefore, the general rule was that in respect of such voluntary contributions, the trust had not to fulfil the conditions of Section 11 as regards accumulation. Section 12(2) provided an exception to the above rule in respect of voluntary contributions of an income nature received from any charitable or religious trust. Section 12(2) of the Act specifically provides that contributions made to a charitable trust by another trust, to which the provision of Section 11 applies, should, in the hands of the trustee, be deemed to be income derived from property for the purposes of Section 11. Such contribution should, of course, be included in the total income of the receiving trust for the purpose of applying the limit of 25% under Section 11(1) of the Act. Whether the receiving trust would be entitled to the benefit of exemption, as provided in Section 12(2), would depend on whether the paying trusts obtained the benefit of Section 11 of the Act regarding the accumulation of income.

10. It is contended by Mr. A. C. Maitra, learned advocate appearing for the Commissioner of Income-tax, that the Tribunal had no evidence to hold that the provisions of Section 12(2) would not apply to the facts of this case. According to Mr. Maitra, the conclusion of the Tribunal cannot be sustained as the Tribunal arrived at its decision on irrelevant materials.

11. Mr. R. N. Bajoria, learned advocate for the assessee, on the other hand, has submitted that the specific question challenging the finding of the Tribunal had been rejected by the Tribunal and, therefore, the question referred to this court has to be answered on the facts found by the Tribunal. It is his contention that the Revenue cannot dispute the fact that Section 11 of the Act did not apply to donor trusts. He, therefore, submits that the question in this reference has to be answered in favour of the assessee.

12. If the question referred to us is answered on the basis of the facts incorporated by the Tribunal in the statement of case, in that event, the contention of Mr. Bajoria has to be upheld and the question in the reference has to be answered in favour of the assessee. But a more fundamental question is involved in this reference. The Appellate Assistant Commissioner, in his order, observed as follows :

' Being family trusts, they were not having any property held for charitable or religious purpose. The family trusts were assessed on the entire income as Section 11 had been applied.'

13. The assessment orders of the donor trusts were not produced before the Appellate Assistant Commissioner. Only the deeds of settlement were produced by the assessee. Before the Tribunal, the Revenue contended that the aforesaid finding of the Appellate Assistant Commissioner that the donor trusts were assessed on the entire income was not correct. It was contended by the learned advocate for the Revenue before the Tribunal that the said finding of the Appellate Assistant Commissioner was a clear mistake. The deeds of settlement were produced by the assessee. The assessment orders of the donor trusts were not produced either by the Department or by the assessee. When a specific contention was raised by the Revenue that the finding of the Appellate Assistant Commissioner was not correct, it was the duty of the Tribunal to call for the records to ascertain the correct facts before coming to its conclusion. Although the assessment orders of the paying trusts were not directed to be produced before the Tribunal when the appeal was heard, but when the miscellaneous application was filed, the assessment orders of the said two paying trusts were brought on record. The Tribunal should not have brushed aside the said assessment orders on the ground that the rehearing of the appeal after cancellation of the order would amount to a review which power the Tribunal did not possess. It is no doubt true that the remedy of review is a creature of statute and if the statute does not contain powers for review, then the power cannot be exercised. But the Tribunal has inherent power to rectify a wrong committed by itself. The Tribunal based its decision on incorrect facts. In deciding the issue as regards the applicability of Section 12(2) of the Act, it was the duty of the Tribunal to satisfy itself whether Section 11 applied to the donor trusts or not particularly when the Revenue contended that the finding of the Appellate Assistant Commissioner was not correct and he proceeded on an assumption of facts not apparent from the records. The primary facts were not found by the Tribunal. The Tribunal, in this case, as would appear from the facts narrated hereinbefore, took a dogmatic approach to the whole question. The Tribunal ought to have given an opportunity to the Revenue to produce the records or called for the records when the correctness of the primary facts were at issue. It is not a case where even after granting an opportunity to the Revenue, the Revenue failed to produce the records and the Tribunal had to proceed on the materials on record. The Tribunal has nowhere said that the Revenue failed to produce the records even after opportunity was given. If the assessment orders of the donor trusts were disputed, the Tribunal would have been justified in rejecting the plea of the Revenue but where there was no dispute as regards the assessment orders of the donor trusts showing how the donor trust has been assessed and where the conclusion of the Tribunal on a question of law entirely depended on the correctness of the basic and primary facts and when it was pointed out to the Tribunal that the basic or the primary fact on which the conclusion was based is contrary to the evidence on record, the Tribunal should have entertained the plea of the Revenue raised in the miscellaneous application and reheard the appeal.

14. It is well settled by now that it is for the Tribunal to find facts and it is for the High Court to lay down the law applicable to the facts found. The High Court cannot go behind the statement of the case made by the Tribunal. The jurisdiction of the High Court on a reference is only an advisory jurisdiction. The High Court can only pronounce its opinion on the question referred to it. It cannot sit as an appellate court from the decision of the Tribunal, But where the correctness of the finding had been challenged on the ground that the same is not supported by any evidence on record or is based on irrelevant material or unreasonable or perverse, the court can interfere with the finding. It is the contention of Mr. Bajoria that since the specific question challenging the correctness of the findings has been rejected by the Tribunal, this court cannot go into the question whether the findings of the Tribunal are correct or not and the reference must be answered on the facts incorporated in the statement of the case. The court should not look into the miscellaneous application or the documents annexed thereto. We have not been able to persuade ourselves to accept the contention of Mr. Bajoria on the facts of this case. The Tribunal has not specifically rejected any of the three questions suggested by the Revenue in the reference application. The Tribunal has referred a question, which according to the Tribunal, covers the controversy raised by the Revenue. Had it not been so, the Tribunal would not have referred the question framed by them, as the answer to the question would be self-evident on the facts incorporated in the statement of the case. The controversy before the Tribunal centered round the correctness of the findings of the Appellate Assistant Commissioner. In the miscellaneous application, the Revenue brought on record the assessment orders of the two paying trusts where-from the basic facts relevant for the purpose of determination of the question as regards the applicability of Section 12(2) could only be found. The Tribunal, in this statement of case, has annexed the order of the Tribunal on the miscellaneous application. The Tribunal, in paragraph 8 of the statement of the case, said that the decision of the Tribunal was primarily based on the Appellate Assistant Commissioner's finding. But if that finding is incorrect, then the decision of the Tribunal cannot stand. If the foundation of a structure is removed, the superstructure cannot stand and must collapse. The Tribunal in dismissing the miscellaneous application did not say that the facts stated in the miscellaneous application were not correct nor did the assessee raise any such contention. Unless the Tribunal holds that a question of law does not arise out of its appellate order or holds that the question suggested is not a question of law and rejects such question suggested by the Revenue or the assessee specifically, it cannot be said that such question has been rejected. Otherwise, the aggrieved party is deprived of the right to move the High Court under Section 256(2) of the Act. When the Tribunal frames a question of its own not specifically raised in the reference application without rejecting the question or questions suggested in the reference application, it must be held that the Tribunal as a matter of fact did not reject any such question or questions but referred the question which according to the Tribunal embraces all the facets and/or issues involved in the different questions as suggested in the reference application. As indicated earlier, the Revenue in the first question has challenged the correctness of the finding of the Tribunal. The question whether the Income-tax Officer was correct in invoking the provisions of Section 12(2) entirely depended on whether the two paying trusts were exempt under Section 11 or not. This factual aspect of the matter was entirely ignored by the Tribunal in arriving at its conclusion. The Tribunal did not find the basic and primary fact for deciding the controversy in issue, but proceeded on a patently wrong finding of fact incidental to the question. We cannot give a wrong answer to the question referred to us on such a wrong finding of fact.

15. Since the Tribunal has not brought on record the facts necessary for determining the question referred to us, we are unable to answer the question. We, therefore, decline to answer the question. We remand the matter to the Tribunal. The Tribunal will ascertain the facts regarding the assessment of the donor trusts and whether Section 11 of the Act applied to such trusts and thereafter decide whether the provision of Section 12(2) of the Act was rightly invoked by the Income-tax Officer or not.

16. There will be no order as to costs.

P.N. Pyne, J.

17. I agree.


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