MADHYA PRADESH RICE MILLS ASSOCIATION VS COMMISSIONER OF INCOME-TAX, 2000 PTD-MADHYA-PRADESH-HIGH-COURT-INDIA 786 (1996)

Income-tax

----Reassessment---Gross receipts exceeding Rs.50,000---Initiation of proceedings under S.148 upheld by Tribunal for some years---Question of fact---Reopening of assessments justified---Indian Income Tax Act, 1961, Ss. 148 & 256.

The assessee was an association of rice millers with the object of promoting the common interests of the members of the association. The Assessing Officer found that it indulged in various activities, realised fees and donations and the activities were not confined to its legitimate functions. It also was found to have made donations to political parties. Hence, the -Assessing Officer found that the income would be taxable and it would not be entitled to exemption under section 11 of the Income Tax Act, 1961. On that basis some of the earlier assessments were reopened. The Tribunal upheld that action as the gross receipts exceeded Rs. 50,000. On a reference:

Held, that the finding of the Tribunal was a question of fact and, therefore, the initiation of proceedings under section 148 was justified.

B. L. Nema for the Assessee.

Abhay Sapre for the Commissioner

JUDGMENT

A. K. MATHUR, C. J. ---This is an income-tax reference under section 256(1) of the Income Tax Act, 1961, at the instance of the assessee and the following question of law has been referred by the Tribunal for answer of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that initiation of proceedings under section 148 of the Income-tax Act, 961, was justified?"

The brief facts giving rise to this reference are thus: The assessee is an association of rice millers. The objects of the association are advancement of common interests of the members of the association in accordance with the Government, policies formulated from time to time. The objects do not mention carrying on any activity for profit. According to the assessee, the object of the association was advancement of charitable purposes as defined in section 2(15) of the Act. The Assessing Officer, however, found that the association indulged in various activities whereby it had not only realised fees regularly from its members but also realised large amounts by way of donations, etc. He further found that the recoveries of fees and donations were made from the members in order to obtain for them licence for export of rice outside the State of Madhya Pradesh. According to the Assessing Officer, the receipts and outgoings of the association were not confined to its carrying on legitimate functions as provided in the articles of association. He found that the association had made donations to political parties and financed election expenses of the candidates of the political parties. The Income-tax Officer found that for the accounting period relevant to the assessment year 1972-73, it received fees of Rs.1,63,253 and donations amounting to Rs.47,456. Out of this, a donation of Rs.1,21,508 was made to the District Congress Committee and Rs.21,400 was utilised for purchasing a Fiat car. He also found that for the calendar year 1973, the assessee realised Rs.55,864, Rs.3,820 and Rs.63,306 by way of donations and recoveries. Such receipts were utilised for making a donation of Rs.20,000 to the District Congress Committee and by incurring an expenditure of Rs.43,800 for unknown purposes. The Assessing Officer, therefore, came to the conclusion-that the assessee was carrying on activities not in conformity with its objects but was using the amounts so received for political purposes. Therefore, he found that the amount was taxable under the Income-tax Act, and it would not be entitled to exemption under section 11 read with section 2(15) of the Act. He held that under the provisions of section 28(iii), the income of the association would be assessable for various assessment years. For the assessment year 1963-64, the books of account were not made available to the Income-tax Officer and the Income-tax Officer observed that enquiries were made about the activities of the association and it was gathered that the, same has been active ever since the calendar year 1961 and was participating in the activities as discussed-above. On the basis of the enquiries made and for reasons recorded in the earlier year and for the assessment year 1978-79, the total income of the assessee for various years was assessed as below after allowing the expenditure:

Thereafter an appeal was preferred by the assessee and it was contended that the association was not in existence at all for the assessment years 1962-63 and 1963-64 . It came into existence with effect from July 22, 1962, and the first set of accounts was closed on August 14, 1963, relevant to the assessment year 1964-65. The name of the association was changed later can The Income-tax Officer passed a consolidated order on March 24. 1986. The First Appellate Authority found that during the assessment year 1962-63, the society was not in existence; therefore, he cancelled the assessment order for the assessment year' 1964-65, as total gross receipts were Rs.8,960 for that year. According to him, there was no evidence on record to prove that the assessee had any assessable income in that year. Accordingly, he cancelled the assessment under section 147 for that year as well. For the assessment years 1965-66,- 1967-68, 1968-69, 1971-72, 1975-76 and 1976-77, the assessments were set aside on quantum and it was held that the proceedings under section 147 were legal. Therefore, he set aside the assessments on the ground that the Assessing Officer had not given any basis for the estimate of income and had not looked into the aspects regarding mutuality. The assessment for 1966-67 was also completed and set aside in appeal. It was contended that the sanction of the higher authorities for initiation of proceedings under section 148 of the Act was taken and every year had to be judged separately. It was contended that the assessment made was not in accordance with the circulars. However, the Tribunal found that for the assessment year 1965-66, - there was no material on record to prove that the gross receipts of the assessee were above Rs.50,000. From the books available, the receipts were shown at Rs.10,033 only. Therefore, the assessment for the same year cannot be upheld as? there was no material before the Board to, come to the conclusion that the escapement of income amounted to a figure of more than Rs.50,000. Hence, the assessment for. the assessment year 1965-66 was cancelled. It was held by the Tribunal that for the assessment years 1967-68 and 1968-69 the gross receipts exceeded Rs.50,000. Therefore, the reopening of the two years was upheld under section 148 read with section 149(1)(a). For the assessment years 1971-72 to 1976-77, the gross receipts were found by the Tribunal to be above the taxable limit. The initiation of proceedings under section 148 of the Income?tax Act, was upheld for those years. Accordingly against the order of the Tribunal, an application was moved by the assessee for making a reference to this Court for answer and, accordingly, the aforesaid question of law has been referred by the Tribunal for answer of this Court.

We have gone through the record and we are of the opinion that it is purely a question of fact and not a question of law. Therefore, we hold that the initiation of proceedings under section 148 of the Income-tax Act is wholly justified. Hence, we answer the aforesaid question in favour of the Revenue and against the assessee.

M.B.A./3234/FC???????????????????????????????????????????????????????????????????????????????? Reference answered.