COMMISSIONER OF INCOME-TAX VS THANTHI TRUST
2001 P T D 491
[239 I T R 510]
[Madras High Court (India)]
Before N. V. Balasubramanian and P. Thangavel, JJ
COMMISSIONER OF INCOME‑TAX
versus
THANTHI TRUST
Tax Cases Nos.224 to 228 of 1985 (References Nos. 116 to 120 of 1985), decided on 18/11/1997.
Income‑tax‑‑‑
‑‑‑‑Charitable purpose‑‑‑Charitable trust‑‑‑Exemption‑‑Credit entries in accounts of trust in favour of educational institutions‑‑‑Corresponding withdrawals by educational institution‑‑‑Amounts to application of income‑‑Trust entitled to exemption‑.‑‑Indian Income Tax Act, 1961, S.11.
During the previous years relevant to the assessment years 1965‑66 1966‑67 and 1967‑68, the assessee‑trust credited certain sums in its book towards the account of A, an educational institution, and claimed that there was an application of income within the meaning of section 11 of the Income Tax Act, 1961. The Income‑tax Officer, however, held that mere credit entries would not be sufficient and there was no application of income by the assessee. The Commissioner (Appeals) and the Tribunal held that the crediting to the institution A on the facts of the case would amount to an application of income, because there were actual withdrawals of the amount by the institution A during the relevant years and, therefore, the crediting of the amount in the accounts could be taken as the application of the income. On a reference:
Held, that although mere credit entries in favour of the educational institution in the assessee's books of account would not be sufficient, and would not amount to application of income, during the accounting years relevant to the assessment years 1965‑66 to 1967‑68, the amounts were not only credited in favour of A but the amounts were actually withdrawn by A. As a matter of fact during the assessment year 1966‑67 the amounts withdrawn was Rs.70,31,082 which was the amount credited in favour of the educational institution. Hence, it could not be said that it was a case of a mere credit entry in favour of the educational institution, but it was a case of withdrawal of the same by the educational institution. Moreover, the Income tax Officer .had at no point of time doubted the genuineness of the credit entries, nor was it the case that he called upon the assessee toproduce the account books of the educational institution and the assessee failed to produce the same. There was valid application of income by the assessee during the assessment years 1965‑66, 1966‑67 and 1967‑68 and the assessee was entitled to exemption under section 11 of the Act.
CIT v. Thanthi Trust (1999) 239.ITR 502 (SC) fol.
CIT v. Thanthi Trust (1982) 137 ITR 735 (Mad.) ref.
C.V. Rajan for the Commissioner.
R. Janakiraman for the Assessee.
JUDGMENT
N.V. BALASUBRAMANIAN, J.‑‑‑It is a consolidated statement of the case both at the instance of the assessee as well as by the Revenue for the assessment years 1965‑66 to 1967‑68 and the Tribunal has referred the following questions of law for the opinion of this Court:
"(1) Whether, on the facts and in the circumstances of the case, the reassessments were validly initiated and completed within the time
(2) If the answer to the first question is in the negative whether on the facts and circumstances the Income‑tax Officer could review the entire assessments and on the basis of only the material already on record, change his opinion and make additions to the total income?
(3) If the answer to the second question is in the affirmative, whether, on the facts and circumstances of the case, the crediting of the amounts of the Adithanar Educational Institution can be regarded as not sufficient compliance of the provisions of section 11 relating to the application of the income for charitable purposes and the assessee be denied the exemption thereunder as a consequence?"
The first question referred by the Tribunal is at the instance of the assessee and questions Nos.2 and 3 are at the instance of the Department. It is not necessary to burden the judgment with all the facts as we intend to agree with the Tribunal on the issue arising out of the third question of law. Daring the previous assessment years relevant to 1965‑66, 1966‑67 and 1967‑68, the assessee credited in its books towards the account of Adithanar Educational Institution and claimed that there was an application of income within the meaning of section 11 of the Income Tax Act, 1961. The Income -tax Officer, however, held that mere credit entry would not be sufficient and there was no application of income by the assessee. The Commissioner of Income‑tax (Appeals) held that there was an application of income and that the assessee was entitled to exemption under section 11 of the Act. The Revenue carried the matter in appeal before the Tribunal and the Tribunal following the earlier order of this Court rendered in the assessee's own case and reported in CIT v. Thanthi Trust (1982) 137 ITR 735, held that the crediting by the charitable institution on the facts of the case would amount to an application of income. As regards the verification of the figures, the Tribunal found that there was a thorough enquiry at the time of the original assessment, and in the absence of any information as to the actual mistake or omission on any particular amount being applied for charitable purposes, there can be no ground for reopening the assessment made by the Income‑tax Officer. The Tribunal also found that the Commissioner of Income‑tax (Appeals) also found that there were actual withdrawals of the amount by the charitable institution during the relevant years and, therefore, the crediting of the amount in the accounts can be taken as the application of the income. The Tribunal agreed with the views of the Commissioner (Appeals) and held that income was applied for charitable purposes and the additions cannot be sustained. The assessee has challenged the order of the Income‑tax Tribunal in so far as it upheld the validity of reassessment. The Tribunal though upheld the action under section 147(a) of the Act ultimately held that there was no escapement of income.
Mr. C.V. Rajan learned counsel for the Revenue, submitted that mere crediting of the amount in the assessee's books of account cannot be taken as an application of income: Mr. R.Janakiraman, learned counsel for the assessee, submitted that it is not a case of mere crediting of the amounts in favour of the educational institution in the assessee's books of account, but, it is a case where the educational institution was made aware of the credit entries and the educational institution has withdrawn money from and out of the credit entries made in their favour in the assessee's books of account. He made reference to the observation of this Court to a table noticed by this Court in CIT v. Thanthi Trust (1982) 137 ITR 735, and submitted that the amounts were withdrawn by the Aditayanar Educational Institution during the relevant years. We carefully considered the submissions of learned counsel. There can be no doubt that mere credit entries in favour of the educational institution in the assessee's books of account would not be sufficient, and would not amount to application of income. It is also the view taken by this Court in CIT v. Thanthi Trust (1982) 137 ITR 735. However, it is seen that this Court has noticed that during the accounting years relevant to the assessment years 1965‑66 to 1967‑68, the amounts were not only credited in favour of the Adithanar Educational Institution but the amounts were actually withdrawn by the Adithanar Educational Institution. As a matter of fact it is seen that during the assessment year 1966‑67 the amount withdrawn was Rs.17,307,082 which was the amount credited in favour of the educational institution. Hence, it cannot be said that it is a case of a mere credit entry in favour of the educational institution, but it is a case of withdrawal of same by the educational institution. This Court also in the earner tax case found that the Revenue has not taken up the plea that the assessee had not been divested of the ownership in the money credited in favour of the educational institution to retain any beneficial interest therein. The only plea that was raised by the Income‑tax Officer was that the mere credit entries in the assessee's books of account in favour of the educational institution would not be sufficient. But when the Revenue has not challenged the position that the monies were not utilised or that the assessee had utilised the amount credited for its own use, it cannot be assumed that the assessee had retained the beneficial interest in the money even after making the credit entries. It is significant to, note that reassessment proceedings were initiated by the Income‑tax Officer for the said assessment years. The Appellate Tribunal found that the Income‑tax Officer had made a thorough enquiry of the assessee's books of account at the time of original assessment and has not disputed about the genuineness of the credit entries. In the absence of any plea before the Income‑tax Tribunal that the amounts were not withdrawn by the Adithanar Educational Institution or in the absence of any plea that the assessee had retained the beneficial interest in the amounts credited in favour of the educational institution, we are of the opinion that the Tribunal has come to the correct conclusion in holding that there was an application of income. The view of the Tribunal is supported by the decision of this Court rendered in the assessee's own case in CIT v. Thanthi Trust (1982) 137 ITR 735. The above decision of this Court is confirmed by the Supreme Court in CIT v. Thanthi Trust (1999) 239 ITR 502 (Civil Appeals Nos. 1257 to 1262 of 1984 by judgment, dated March 14, 1996). The apex Court held that it is not the Revenue's case at any point of time that the credit entries made in the assessee's books of account were not genuine or true or that they were mere make believe or bogus, and it was not brought to the notice that the Income- tax Officer doubted the said entries and called upon the assessee to produce the accounts of the college and the assessee failed to produce the same. In the instant case also it is not brought to our notice that the Income‑tax Officer at any point of time doubted the genuineness of the credit entries and it was also not brought to the notice that the Income‑tax Officer called upon the assessee to produce the account books of the educational institution and the assessee failed to produce the same.
In view of the decision of this Court in CIT v. Thanthi Trust, (1982) 137 ITR 735, rendered in the assessee's own case which has been subsequently confirmed by the Supreme Court in CIT v. Thanthi Trust (1999) 230 ITR. 502, we are of the view that there is no infirmity in me order of the Appellate Tribunal in holding that there was valid application of income. We, reframe the third question of law referred to us as follows:
Whether, on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that there was valid application of income by the assessee during the assessment years 1965‑66. 1966‑67 and 1967‑68?"
We answer the question of law as refrained by us in the affirmative and against the Department. Since we confirm the order of the Appellate Tribunal on the merits of the case, we are of the view that it is not necessary to render any answer to the question of law referred by the assessee or the second question of law relating to the addition referred to us by the Department. Accordingly, we are not answering questions Nos.1 and 2. In the circumstances of the case there will be no order as to costs.
M. B.A./243/FC
Reference answered.