Income-tax---

----Reassessment---Charitable trust---Exemption---Assessment originally made granting exemption---Subsequent information that (1) trust was partner of firm, (2) managing trustee was closely related to partners, (3) trust contributed capital to firm in excess of permissible limit---Reassessment justified---Letter of Commissioner that contribution of capital to firm not "investment" for purposes of S.13---Not binding---Indian Income Tax Act, 1961, Ss. 11, 13 & 147(b).

The assessee, a charitable trust', was originally assessed for the assessment year 1974-75, and was granted exemption under section 11 of the Income Tax Act, 1961 Pursuant to findings in the course of the assessment proceedings for the assessment year 1976-77 indicating that the assessee-trust was a partner in a firm, whose partners were close relatives of the managing trustee of the assessee-trust, and that the assessee trust had made a contribution to the capital of the firm in excess of 5 per cent. of the firm's capital, the Assessing Officer reopened the assessment for the assessment year 1974-75, and applying the provisions of subsections (1)(c)(ii), (2)(h) and (3) of section 13 of the Act, withdrew the exemption granted and brought the income of the assessee-trust to tax. The Tribunal sustained the reopening of the assessment. On a reference at the instance of the assessee, in which the assessee relied on a letter written to it by the Commissioner stating that contribution of capital to a firm was not "investment" for purposes of section Held that the concession by the Commissioner on a position of law could not be binding. The payment of money towards the contribution of share capital could not possibly be understood in any other manner than as investment. The position that by virtue of the provisions of section 13(1) (c)(ii) and section 13(2)(h) read with section 13(3) of the Act, the exemption granted already would be unjustifiable, not having been disputed in any manner before any of the Authorities, together with the position that section 13(4) provided in no uncertain terms that the trust as a consequence would lose all benefits of exemption under section 11 of the Act, the Tribunal was justified in holding the reopening under section 147(b) legally sustainable.

C. Kochunni Nair for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

JUDGMENT

V.V. KAMAT, J. ---In this reference although three questions are formulated by the Tribunal, leaned counsel for the assessee made submission with regard to only one of them which is as follows:

"(1)Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reopening of the assessment under section 147 was legally sustainable?"

Learned counsel, in his characteristic fairness, with regard to questions Nos.2 and 3 expressed his inability with regard to the consistent findings in regard thereto, and it is true that these questions wholly depend on such consistent findings, making it unnecessary to deal with them within the jacket of this reference proceeding.

The assessment year in question is 1974-75 in regard to which the previous, year ended on March 31, 1974. Undisputedly, the original assessment for the year in question was completed on July 31, 1975, whereby the total income of the assessee which is a private charitable trust was fixed at Rs.10,910. The exemption under section 11 of the Income Tax Act, 1961, was also granted.

This was reopened on the ground that this exemption under section 11 was wrongly given and to regard thereto the provisions of section 13(1)(c)(ii) and section 13(2)(h) read with section 13(3) are not considered and, if made applicable, exemption could be said to have wrongly given under the provisions of section 11 of the Act. By the order, dated March 15, 1980, the Income-tax Officer, B-Ward, Trichur, withdrawing the exemption assessed the income at Rs.1,24,160. Relying on the provisions of section 13 stated above, it was held that the exemption under section 11 that was granted for the previous year was wrong. Factually, it is held that this came to light during the course of the assessment proceedings for the subsequent year 1976-77. The officer found that the income chargeable during the assessment year 1974-75 in question escaped assessment. Further observation is made that the audit report filed in Form No. 10-B does not contain the correct information as required therein. The Income-tax Officer emphasised the fact that close relationship of the trustees and the partners of the firm in question are not found revealed in the audit report, in which case the Department would have been more than slow in resorting to the provision relating to exemption under section 11 of the Act. It is further exphasised that the grant of exemption under section 11 emerged only through (he strength of the audit report.

Factually, it is observed in the order of the Income-tax Officer that the trust itself is a partner is Beena Enterprises and the capital investment by the assessee trust of Rs.5,000, more than 5 per cent. of the total capital investment of Rs.30,000, is also floating on the record. Specifically, it is pointed out that one Sri C.R. Kesavan Vaidyar, the assessee's managing trustee would be a close relative of the remaining partners of the firm Beena Enterprises. It is further emphasised, on a perusal of the assessee's current account with the firm, that the assessee allowed continuance of the fund to remain invested with the firm for some time in the previous year relevant for the purpose of assessment. The officer, therefore, took the view that there is clear-cut violation of the above-referred statutory provisions of section 13. since the investment exceeds 5 per cent. of the total capital of the firm. In reaching this conclusion, section 13(4) of the act is referred to as showing` in no uncertain terms that in the event of the application of the provisions of section 13, the concerned assessee loses the benefit of exemption under section 11 in respect of its income. In the process of reasoning the officer has observed that by any stretch of imagination payment towards the capital contribution in the nature of share capital, it could not be said, is not in the nature of investment.

.The assessee's statutory appeal before the Commissioner of Income-tax (Appeals), Kerala, appears to have been allowed, leaving the Department to approach the Tribunal for the reopening of the assessment.

The Tribunal has found that the reopening in the circumstances was under section 147(b) of the Income Tax Act, 1961. Proceeding further, especially with regard to the submissions before us as rebutted by learned counsel, in paragraph 4.7, the Tribunal has dealt with the submission based on the letter, dated December 22, 1970 (Annexure "C" at page 26), of the then Commissioner of the Income-tax, Kerala, informing the assessee that the Contribution of the share capital in the firm by the trust would not amount to "investment" for the purpose of section 13 of the Act, and it is to this effect that such an opinion could not be treated as the legal position, because the Income-tax Officer himself can form his own opinion in the matter after applying his mind. .

Learned counsel was more than strenuous in contending that the Department itself, on the basis of Annexure "C", dated December 22, 1970, being of the view that the contribution of the share capital would not be "investment" could not be legitimately and/or legally understood to take a different view of the situation. It is more than obvious that concession on a position of law can never be understood to bind a party. The position that contribution to the share capital of any firm would be "investment" need not detain us any longer. It is as clear as day light that payment of money towards the contribution of share capital could not be possibly understood in any other manner than as investment. At any rate, this position need not detain us as again it is not disputed as is characteristic of learned counsel before us.

It is with reference to this position learned counsel objected to the observations of the Income-tax Officer which are to the following effect:

"By any stretch of imagination it cannot be said that the capital contribution is not in the nature of investment."

Learned counsel will have to be appreciated as quarrelling with the above observation straight in view of the opinion (Annexure "C") at least having its adequate weight on the Income-tax Officer as being the opinion of the then Commissioner of Income-tax on record, a material that should have prevented the officer from using the phrase "by any stretch of imagination".

Be that as it may, the position that under section 147(b) of the Act the proceeding can be reopened, the position that by virtue of the provisions of section 13(1)(c)(ii) and section 13(2)(h) read with section 13(3) of the Act, the exemption granted already would be unjustifiable, not having been disputed in any manner before any of the Authorities, together with the position that section 13(4) providing in no uncertain terms that the trust as a consequence would lose all benefit of exemption under section 11 of the Act, it is not possible to consider otherwise.

For the above reasons, the question posed is answered in the affirmative, in favour of the Revenue and against the assessee.

A copy of this judgment under the seal of the Court and the Signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.

M.B.A./1430/FCReference answered.