Calcutta H.C : The petitioners are trustees, was a public charitable trust exempt from income-tax under the provisions of s. 11

High Court Of Calcutta

Lakshmi Niwas Birla & Ors. vs. Wealth Tax Officer & Ors.

Sections WT 5(1)(i), WT 17

Asst. Year 1973-74

Pinaki Chandra Ghose, J.

C.R. No. 2812 of 1978

23rd May, 2001

JUDGMENT

Pinaki Chandra Ghose, J. :

On 1st Dec., 1976, an order passed by the AAC for the asst. yrs. 1972-73 and 1973-74 holding that Health Resort Trust, of which the petitioners are trustees, was a public charitable trust exempt from income-tax under the provisions of s. 11 of the IT Act, 1961 (hereinafter referred to as the said Act), setting aside the order passed by the ITO for the said trust was formed for the benefit of the trustees and employees of Birla group of companies.

In spite of the said appellate order which was binding on the WTO who was also acting as the ITO issued a notice under s. 17 of the WT Act, 1957, on the ground that wealth-tax was leviable on the trust property since exemption under s. 5(1)(i) meant for public charitable trusts was not available because of user of the trust property by the trustees thereby attracting the provisions of s. 21A(i). Such notice was issued on 25th March, 1978.

2. On 15th May, 1980, an order was passed by the Tribunal upholding the order dt. 1st Dec., 1976, of the AAC for the asst. yrs. 1972-73 and 1973-74 allowing exemption as public charitable trust. No reference application against the said order of the Tribunal became final (sic). Subsequent thereto on 19th May, 1980, an order was passed by the Tribunal for the asst. yr. 1974-75 holding that trust was entitled to get an exemption under s. 11 of the said Act. The said order became final since the petitioner did not file any reference application against the said order. On or about 17th July, 1981, an order was passed by the Tribunal for the asst. yr. 1975-76, following its orders for the earlier years, holding that the trust is a public charitable trust and entitled to get an exemption and further that provision of the resort to the trustees against payment of the usual charges as were payable by the other members of the public did not disentitle it from the exemption. The said order is also final, since the Department did not take any step against the said order.

3. The writ petition has been filed by the petitioners challenging the said notice dt. 25th March, 1978, issued by the WTO under s. 17 of the WT Act, 1957 (hereinafter referred to as the 1957 Act), to the trustees of “Health Resort Trust” (hereinafter referred to as the said trust). The notice was issued on the ground that the WTO had reason to believe that net wealth chargeable to tax for the asst. yr. 1973-74 had escaped assessment and he proposed to assess the same. The case of the petitioners is that the said trust is a public charitable trust and it is exempted under the provision of s. 5(1)(i) of the 1957 Act and there was no application on the part of the said wealth-tax return and further there has been no escapement of any wealth chargeable to tax.

4. Affidavits have been filed in this writ application. It has been alleged in the affidavit-inopposition that the exemption under s. 5(1)(i) is not available to the petitioners in view of the provisions of s. 21A(i) of the said 1957 Act. The basis of the said reason is that the materials received in course of the income-tax assessment of the trust for the asst. yr. 1975-76 the trust property was made available for the use by the settlors/trustees against paymen of charges. Such use is stated to be in violation of the provisions. Sec. 13(1)(c) of the said Act r/w cls. (b) and (d) of s. 13(2) as a result of which exemption under the provisions of s. 11 and 12 of the said Act and s. 5(1)(i) of the 1957 Act did not apply. It is further stated that similar facts existed during the previous year relevant to the asst. yr. 1973-74 and as such the impugned notice was issued.

5. Mr. Khaitan appearing on behalf of the petitioners submitted that a trust which is exempted under the provision of s. 11 of the 1961 Act as a public charitable trust is also exempted from wealth-tax under the provision of s. 5(1)(i) of the 1957 Act. The provision of s. 13(1)(c) r/w cls. (b) and (d) of s. 13(2) of the 1961 Act find their equivalent in s. 21A(i) of the 1957 Act. According to the said provisions the exemption would not be available if any property or income of the trust is used or applied directly or indirectly for the benefit, of inter alia, settlors/trustees. If there is no violation of the aforesaid provisions of s. 13 of the 1961 Act then there would equally be no violation of the provisions of s. 21A of the 1957 Act and the trust would be entitled to the exemption both under s. 11 of the 1961 Act and s. 5(1)(i) of the 1957 Act.

6. The question, therefore, arose whether the trust is entitled to get an exemption under s. 11 of the 1961 Act in the asst. yrs. 1972-73 and 1973-74. In course of the said assessment proceedings, it appears that the settlors/trustees used the trust property against the payment to show charges as were payable by any other member of the public was duly disclosed before the ITO and the ITO took the view that the trust was formed for the benefit of the trustees and for the benefit of Birla Group of companies. On appeal, the said findings of the ITO for the asst. yrs. 1972-73 and 1973-74 was negatived by the AAC after considering the facts that the settlors/trustees used the said trust property from time to time on payment of charges and thereafter, held that the trust was a public charitable trust exempt under the provisions of s. 11 of the 1961 Act.

In these facts Mr. Khaitan further submitted that the impugned notice dt. 25th March, 1978, would not be issued by the WTO for the asst. yr. 1973-74 in view of the order passed by the AAC when the said order was binding upon the said WTO, who was also the ITO.

The Hon’ble Supreme Court has held in Union of India & Ors. vs. Kamlakshi Finance Corporation Ltd. AIR 1992 SC 711 that principles of judicial discipline required that the orders of the higher appellate authority should be followed unreservedly by the subordinate authorities and the adjudicating authority could not refuse to follow the order of the appellate authority even if it had any reservation on its correctness. Accordingly, Mr. Khaitan submitted that the impugned notice is liable to be set aside on this ground alone. Subsequent to the issue of the impugned notice dt. 25th March, 1978, the order passed by the AAC for the asst. yrs. 1972-73 and 1973-74 was upheld by an order dt. 15th May, 1980, by the Tribunal (hereinafter referred to as the Tribunal) and further by an order dt. 19th May, 1980, the Tribunal held that the trust was entitled to get an exemption under s. 11 of the 1961 Act for the asst. yr. 1974-75 and further on 17th July, 1981, the Tribunal, following its order for the earlier years held that the trust was a public charitable trust and is entitled to get an exemption under s. 11 of the 1961 Act, and further held that the use of the trust property by the settlors/trustees against the payment of the usual charges as were payable by the other members of the public did not disentitle it from the exemption. Therefore, Mr. Khaitan submitted that it cannot be contended by the Revenue that the trust property is not exempted under s. 5(1)(i) of the 1957 Act. He further contended that the income-tax proceedings for the asst. yr. 1972-73 to 1975-76 have since attained finality and the orders of the Tribunal holding that the trust is entitled to get an exemption under s. 11 of the 1961 Act have been accepted by the Revenue.

10. He further contended that no new material or information came in the possession of the WTO in course of the income-tax assessment of the trust for the asst. yr. 1975-76 on the basis of which he could have taken a view inconsistent with or contrary to the findings of the AAC. Accordingly, he submitted that since the trust property was exempted under s. 5(1)(i) of the 1957 Act, the trustees were not liable to file any return and that there was no escapement of wealth chargeable to tax. He further submitted that the impugned notice was issued without jurisdiction and without authority of law. He further contended that the question whether there was any wealth chargeable to tax was a jurisdictional fact and the WTO could not assume jurisdiction by deciding a jurisdictional fact wrongly. In support of such contention he relied upon a judgment Raza Textiles vs. ITO 1973 CTR (SC) 238 : (1973) 87 ITR 539 (SC) : TC 7R.119. He further contended that mere fact that no return was filed on the WTO to issue a notice under s. 17 inasmuch as there is nothing to show that any asset chargeable to wealth-tax escaped assessmnt. In support of such contention he relied upon a judgment Thanthi Trust vs. WTO (1989) 78 CTR (Mad) 54 : (1989) 178 ITR 1 (Mad) : TC 67R.553.

11. After hearing the submissions made on behalf of the petitioners I do not have any hesitation in respect of contention of Mr. Khaitan inasmuch as the order passed by the AAC concerning the said period held that the said trust is entitled to get benefit under the provisions of s. 5(1)(i) of the 1957 Act and further there was no obligation to file any wealth-tax return. It further appeared from the orders passed in the matter by the AAC and further by the Tribunal for the asst. yrs. 1972-73 and 1973-74 whereby the order passed by the AAC was upheld and the subsequent thereto the orders dt. 19th May, 1980, and 17th July, 1981, passed by the Tribunal following its earlier orders held that the trust was a public charitable trust and is entitled to get an exemption under s. 11 of the 1961

Act and further use of the trust properties by the settlors/trustees against the payment of the usual charges as were payable by other members of the public did not disclose its disentitlement of such exemption, and further the judgments cited before me by Mr. Khaitan reported in 1973 CTR (SC) 238 : (1973) 87 ITR 539 (supra) and (1989) 78 CTR (Mad) 54 : (1989) 178 ITR 1 (Mad) : TC 67R.553 (supra), have specifically dealt with the facts identical to this application and there is nothing to show that any asset chargeable to wealth-tax escapeassessment. Non-filing of return further cannot confer any jurisdiction on the WTO to issue a notice under s. 17 in view of the said fact.

For the reasons stated hereinabove, rule is made absolute.

[Citation : 252 ITR 598]

Malcare WordPress Security