S.H. Kapadia, J.
The above group of appeals raise common questions of law. Hence, they are disposed of by this common judgment. For the sake of convenience, facts in Income Tax Appeal No. 81 of 1999 are taken into consideration.
2. Two questions of law arise in this appeal under section 260A of the Income Tax Act.
(1) Whether the assessee-trust was assessable as an individual and consequently entitled to deduction under section 80L of the Act ?
(2) Whether the assessee-trust violated section 13(1)(d) of the Act in the assessment year 1993-94 by not disinvesting the shares of non-government companies by 31-3-1993
Facts
3. The assessee-trust came into existence after 1-6-1973. The assessee-trust was the holder of equity shares of Mafatlal Industries upto 31-3-1993. The same were not disinvested or disposed of by 31-3-1993. The assessee claims that it was entitled to hold the said shares upto 31-3-1993; that, they were required to disinvest on and after 1-4-1993. In this appeal, we are concerned with the accounting year 1992-93 relevant to the assessment year 1993-94. The previous year ended on 31-3-1993. The department contended that the assessee was required to dispose of the above shares by 31-3-1993 and since they failed to do so, the exemption granted to the trust stood withdrawn for breach of section 11(5) of the Act. In this group of appeals, we are not concerned with the question as to whether the maximum marginal rate of tax is leviable on the entire income of the trust. This part of the question calls for consideration in the next group of appeals with which we are not concerned at this stage.
Arguments on question No. 2
4. Mr. Desai, learned senior counsel for the department, contended that the assessee was a public charitable trust; that section 11(5) of the Act deals with various modes of investing or depositing the money referred to in section 11(2)(b). He submitted that under section 13(1)(d), exemption provided to a charitable trust or institution shall stand forfeited if any funds of the trust are invested or deposited after 28-2-1983, otherwise than in any one or more of the forms or modes specified in section 11(5) of the Act. The specified forms or modes of investment generally are government securities, units of UTI, bonds issued by certain financial corporations, deposits in post office, savings bank or in any scheduled bank, etc. He contended that so far as the assets which do not conform to the provisions of section 11(5), the proviso to section 13(1)(d) provided that only such essence would not make the trust lose tax exemption if such assets were disposed of or covered into permissible investments within one year from the end of the financial year in which such assets were received or 31-3-1992, whichever was later. He contended that initially, under the Finance Act of 1991, the trusts were required to dispose of or convert the assets by 31-3-1992. However, several trusts made representations to the government pursuant to which, the date was extended to 31-3-1993. He accordingly contended that by legislation an outer limit was given to the trusts to dispose of or convert impermissible investments to permissible investments by 31-3-1993, failing which exemption from income-tax provided to a charitable trust would stand forfeited under section 13(1)(d) of the Act. In this connection, Mr. Desai relied upon the circulars issued by the Board bearing No. 636 dated 31-8-1992 (1992) 198 ITR 11, Circular No. 621 dated 19-12-1991 (1992) 195 ITR 154.
5. Mr. Andhyarujina, learned counsel appearing on behalf of the assessee-trust, on the other hand, contended that looking to the scheme of section 13(1)(d)(iia), it is clear that the trust was entitled to hold the shares in Mafatlal Industries upto the end of the accounting year 31-3-1993. It is not in dispute that the shares were acquired much earlier. He contended that as per section 13(1)(d), the assessee could not have held the shares in non-government company after 30-11-1983. However, in view of the proviso (iia) to section 13(1)(d), the legislature laid down that there would not be any contravention if such shares were disposed of or converted after 31-3-1993. In other words, he contended that the assessee was entitled to hold on to the shares upto 31-3-1993, whereas according to the department, the shares were required to be disposed of by 31-3-1993, and before 1-4-1993. He contended that clause (iia) fell within the proviso to section 13(1)(d). He contended that under the said proviso, the legislature has clearly laid down the period upto which a trust is allowed to hold on to impermissible investments. He contended that the said proviso does not contemplate disposal or disinvestment of such investments. He contended that a reading of the said proviso shows that the trust was required to dispose of the asset only after 31-3-1993, and, therefore, the department erred in coming to the conclusion that the assessee-trust had violated section 11(5) by not disposing of the shares by 31-3-1993. He urged that under the proviso, the assessee was required to dispose of the asset in the accounting year commencing from 1-4-1993. They were not required to dispose of the assets by 31-3-1993. Hence, he contended that the said proviso permitted the assessee to hold on to the impermissible investments upto 31-3-1993, in this case. He further contended that if a trust received shares or acquired shares in January, 1993, then it had a right to hold on to the shares upto 31-3-1994, which is indicative of the fact that the said proviso expressly contemplated the date upto which the trust was entitled to hold on to impermissible investments. He accordingly contended that the said proviso nowhere contemplates disposal or disinvestment. He contended that the circulars issued by the Board are only explanatory. They cannot overwrite the provisions of the Act. He accordingly contended that the said circulars should be ignored, as they are not beneficial to the assessees. He also relied upon the judgment of the Calcutta High Court in the case of CIT v. Deoria Public Charitable Trust : [1992]196ITR110(Cal) .
Findings on question No. 2
6. The assessee-trust came into existence after 1-6-1973. Impermissible investments were made after 30-11-1983. The assessing officer came to the conclusion that as per section 13(1)(d) an assessee could not have held the shares in a non-government company after 30-11-1983, but in view of the proviso (iia), there was no contravention if it ceased by 31-3-1993. The assessee, on the other hand, contended that the assessee was entitled to hold the shares upto 31-3-1993 and, therefore, there was no contravention in the assessment year 1993-94. The matter was carried in appeal to Commissioner (Appeals). The appeal was dismissed. The matter was carried, thereafter, in appeal to Tribunal by the assessee. The appeal was allowed. Hence, the department has filed this appeal under section 260A of the Act.
7. Since the scope of section 13(1)(d) read with proviso (iia) is in issue, it would be convenient to quote section 13(1)(d) as also proviso (iia).
'13(1) Nothing contained in section 11 (or section 12) shall operate so as to exclude from the total income of the previous year of the person in receipt thereof :
(a)....................
(b)....................
(c)....................
(d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year :
(i) any funds of the trust or institution are invested or deposited after the 28-2-1983, otherwise than in any one or more of the forms of modes specified in sub-section (5) of section 11; or
(ii) any funds of the trust or institution invested or deposited before the first day or March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983 ; or
(iii) any shares in an company (not being government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act) are held by the trust or institution after the 30th day of November, 1983;
Proviso
(iia) any asset, not being an investment or deposit in any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub-section (5) of section11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31-3-1993, whichever is later;'
8. Reading section 13(1)(d) of the Act, it is clear that the said section refers to various circumstances under which exemption provided to charitable trust or institution is forfeited viz. if the funds of the trust are invested after 28-2-1983, otherwise than in any one or more of the forms or modes specified in section 11(5) of the Act. Similarly, if any funds of the trust invested or deposited before 1-3-1983, otherwise than in any one or more of the forms or modes specified in section 11(5) of the Act, and if such impermissible investment or deposit continue to remain so invested or deposited after 30-11-1983, then the exemption stood forfeited. Similarly, exemption is forfeited if the trust holds or continues to hold shares in non-government companies after 30-11-1983. In this case, we are concerned with holding of shares in non-government companies after 30-11-1983. Proviso (iia), as quoted above, is negatively worded. It lays down that holding of any asset, which did not conform to the provisions of section 11(5), would not make the trust or institution lose tax exemption where such impermissible asset is not held after the cut-off date i.e., expiry of one year from the end of the previous year in which such asset is acquired, or 31-3-1992, whichever is later. This negatively worded proviso indicates that in a case of the present type an asset shall not be held beyond a cut-off date. It is for this reason that the legislature has used the words in a negative form. It follows that the assessee had to dispose of the assets by the cut-off date. It clearly militates against the argument of the assessee that they were entitled to hold on to the asset till the cut-off date. Initially, under the Finance Act, 1991, the cut-off date in cases of the present kind was 31-3-1992. However, certain hardship arose out of the requirements of the aforestated investment pattern which was brought to the notice of the government. With a view to remove the hardship, the Finance Act, 1992, amended clause (iia) in the proviso to section 13(1)(d) to provide that an asset, other than an investment or deposit mentioned in section 11(5), is held by the trust or institution which cannot be disinvested by 31-3-1992, can now be disinvested by 31-3-1993, The above amendment by Finance Act, 1992 came into effect from 1-4-1992. The object of section 13(1)(d) was to forfeit the exemption for contravention if the assessee-trust made impermissible investments. These assets were required to be disposed of within a prescribed time frame. However, if such assets were converted from impermissible investments to permissible investments by the cut-off date then the trust would not lose the exemption. Keeping in mind the above purpose of the proviso to section 13(1)(d) we do not find any merit in the contention advanced on behalf of the assessee that it was entitled to hold on to such impermissible investments upto 31-3-1993. If this underlined object is kept in mind, it is clear that the assessee-trust ought to have disinvested the shares by 31-3-1993. In fact the amendment to proviso (iia) by Finance Act, 1992, is expressly made applicable from 1-4-1992. The reason is obvious viz. to give opportunity to public trusts to disinvest on/or before 31-3-1993. If the contention of the assessee is accepted, it would defeat the legislative purpose behind the amendment to the said proviso by Finance Act of 1992. In fact, the very object for enacting Finance Act, 1992 was to extend the time-limit from 31-3-1992 up to 31-3-1993 so that the assessees could disinvest by that date. Reading of the proviso makes it very clear that it deals with disposals/disinvestments of the assets. We do not find any merit in the contention of the assessee that the said proviso does not contemplate disinvestment and that it refers only to mode of acquisition. Since the assessee did not dispose of impermissible assets nor did the assessee convert the impermissible investment into permissible investment by the cut-off date 31-3-1993 the assessing officer was right in coming to the conclusion that there was contravention in the assessment year 1993-94. In the present matter, although the exact date of acquisition is not mentioned, the records show that the assessee acquired the shares in non-government company after 30-11-1983, and they were not disposed of by 31-3-1993. We, accordingly, hold that proviso (iia) to section 13(1)(d) contemplates a cut-off date by which date the assessee-trust was duty bound to dispose of impermissible investments. They were duty bound to convert such investments into permissible investments by 31-3-1993. They failed to do so. Hence, the assessing officer was right in holding that in view of section 13(1)(d) exemption from income-tax provided to the trust stood forfeited on account of contravention in the assessment year in question. Our above interpretation is also supported by Circular No. 621, dated 19-12-1991, issued by the Board. As per the said circular, clause (iia) has been inserted in the proviso, inter alia, to give an opportunity to the trust to dispose of or convert the assets not conforming to the requirement of section 11(5) into permissible investments within one year from the end of the financial year in which such assets are received or 31-3-1992 (subsequently made 31-3-1993), whichever is later. To the same effect is the circular of the Board No. 636, dated 31-8-1992. We do not find any merit in the argument advanced on behalf of the assessees that the said circulars are not general circulars and that they should be ignored. They are in consonance with the Act. In CIT v. Deoria Public Charitable Trust (supra), the facts were as follows. Clause (d) of sub-section (1) of section 13 was substituted by Finance Act, 1983 with effect from 1-4-1983. The provisions of the new sub-clause were to be applicable from the assessment year 1983-84 onwards. However, under sub-clause (ii) of the said section, religious, charitable trusts and institutions having investments otherwise than in one or more of the forms or modes specified in section 11(5) of the Act, which had been made before 1-3-1983, were allowed to change their pattern of investment to that specified in section 11(5) before 30-11-1983. The assessee-trust and so also many other trusts changed their investment pattern between 1-4-1983 and 30-11-1983. They were denied the benefit of exemption for the assessment year 1983-84 in view of section 13(1)(d). The court considered the issue and decided that the provisions of section 13(1)(d) would be applicable from the assessment year 1984-85 and not from the assessment year 1983-84. This was also in consonance with the circular issued by the Board. Hence, the judgment of the Calcutta High Court in the case of CIT v. Deoria Public Charitable Trust (supra) has no application to the facts of the present case. Moreover, in the said judgment, the question of interpretation of proviso (iia) did not arise for consideration. Hence, the said judgment has no application to the present case.
9. Accordingly, question No. 2 is answered in the affirmative i.e., in favour of the department and against the assessees.
Facts on question No. 1 referred to above
10. The assessee-trust is a public charitable trust. It come into existence after 1-6-1973. The assessee filed its return of income on 31-10-1993. The return was filed as association of persons under protest. The assessing officer, accordingly, assessed the assessee as association of persons and not as an individual. Being aggrieved, the assessee carried the matter in appeal. The appellate authority rejected the contention of the assessee that the trust should have been assessed as an individual and not as an association of persons. The assessee had claimed deduction under section 80L. This was rejected by the assessing officer and the first appellate authority on the ground that the assessee was an association of persons and, as an association of persons, the assessee was not entitled to claim deduction under section 80L. The matter was carried in appeal to the Tribunal which followed the judgment of the Division Bench of this court in the case of CIT v. Marsons Beneficiary Trust & Ors. : [1991]188ITR224(Bom) . Following the said judgment, the Tribunal held that the assessee was assessable as an individual and not as an association of persons. That, the assessee was entitled to deduction under section 80L. Being aggrieved by the decision of the Tribunal, the department has come in appeal under section 260A of the Income Tax Act.
Arguments on question No. 1
11. Mr. Desai, learned senior counsel for the department contended that the assessee-trust should be assessed as an association of persons and not as an individual. He relied upon section 2(31) of the Act. He contended that section 2(31) defines a person to include an individual, an HUF, a company, a firm, an association of persons or a body of individual whether incorporated or not. He contended that section 80L did not apply to an association of persons. It applied only to individuals. He contended that a public trust cannot come under the category of individual under section 2(31) because section 2(31) refers to only an individual as a natural person. He contended that trust is not a natural person. Therefore, he contended that a trust cannot be an individual. He contended that provisions of section 160 to section 162 have no application to this case. He contended that the word 'individual' has not been defined in the Act. He contended that the assessee-trust had admitted in the form of its return that it is an association of persons. In the circumstances, the Tribunal erred in coming to the conclusion that the assessee was assessable as an individual. He contended that the judgment of the Division Bench of this court in CIT v. Marsons Beneficiary Trust & Ors. (supra) has no application to the facts of this case. He contended that the said judgment was under section 161 and section 164 of the Act. He contended that the said two sections cannot apply to a public trust. He contended that section 80L applied to individuals. That, the said section did not apply to association of persons. Hence, the assessee was not entitled to claim deduction under section 80L. He contended that under identical circumstances, in the case of CIT v. G.B.J Seth and C. O. J. Seth : [1987]166ITR604(MP) the Madhya Pradesh High Court has held that since the assessee, in that matter, had never disputed their status as an association of persons, the Tribunal was right in assessing the assessees as an association of persons. He contended that, in this matter also, the assessees filed their return as association of persons. Therefore, they were estopped from claiming status of individual under the Act. Mr. F.B. Andhyarujina, on the other hand, contended that trustees of the public charitable trusts have to be assessed in the capacity of an individual. He contended that an association of persons is an association of persons who have come together for a common purpose of earning income. He contended that in the present case the beneficiaries have not come together with such common purpose. They have not set up the trust. They have not authorised the trustees to carry on business. The trustees derive their authority from the settlor and not from the beneficiaries. That, all kinds of income of et trust have to be assessed under section 161(1) of the Act. That, whenever assessment is made on the trustees under section 161(1), the tax is levied upon and recoverable from a trustee in a like manner and to the same extent as it would be leviable and recoverable from the person represented by him. In other words, income which comes to the share of a beneficiary has to be assessed as if it was the income of the beneficiary and tax has to be levied accordingly. He contended that the plain reading of sections 160 to 162 of the Act which shows that a representative assessee has either to be an individual or artificial juridical person who is equated with an individual. Under section 160(1)(iv), it is the trustee who is the representative assessee. The trustee, therefore, has to be an individual or a group of individuals. He relied upon the judgment of this court in CIT v. Marsons Beneficiary Trust (supra). He also relied upon the judgment of the Madras High Court in the case of CIT v. Venu Suresh Sanjay Trust & Ors. : [1996]221ITR649(Mad) . He also relied upon the judgment of the Supreme Court in the case of CIT v. Sodra Devi : [1957]32ITR615(SC) .
Findings on question No. 1
12. In the case of CIT v. Ramesh Mahesh Sanjay Trust & Ors. : [1998]231ITR752(Mad) , the facts were as follows. The assessee was a private trust. It was a discretionary trust, The shares of the beneficiaries were not ascertainable. The issue that arose for consideration was, whether the assessee was eligible for relief under section 80L of the Act. The assessing officer was of the view that the assessee was an association of persons because there was more than one beneficiaries whose share in the trust was not definite. He denied the benefit of section 80L. He relied upon section 164. On appeal, the first appellate authority accepted the plea of an assessee. On appeal, the Tribunal found that section 164 was not an independent section. That, section 164 did not determine the status of an assessee. That, it merely imposed a liability at the same rate of tax as an association of persons. Therefore, the Tribunal found that the assessee was the representative assessee and that such representative assessee has to be an individual or an artificial juridical person equated with an individual. The trustee acts for each individual beneficiary. He is responsible for the tax liability of such an individual. Therefore, the assessment is to be made on the trustee as an individual in his representative capacity. The fact that beneficiaries are a group of individuals does not mean that the liability of the assessee is of association of persons. This judgment of the Tribunal was upheld by the Madras High Court in the above judgment. The Madras High Court held that the determination of the total income depended on various provisions of the Income Tax Act which took into consideration deductions to be provided under section 80L of the Act. That, the charge of tax comes into play after the income has been determined in the manner stated above. The court found that the trustee was an individual and from his individual income, he was entitled to deduction under section 80L of the Act. On the income so computed, the tax has to be charged. Therefore, the assessee was entitled to deduction under section 80L of the Act. Accordingly, it was held that the Tribunal was right in granting the relief under section 80L of the Act. In the case of CIT v. Venu Suresh Sanjay Trust & Ors. (supra), the Madras High Court has held that a discretionary trust is not an HUF or an association of persons. Such a trust would be entitled to deduction under section 80L as it is an individual. The term individual does not mean a single living human being. It can include a body of individuals constituting a unit for the purposes of the Act. Even though the assessment of income is in the hands of the trust, it has to be made in the same manner and to the same extent as it would have been made in the hands of the beneficiaries. Therefore, it was held that the representative-assessee in the case of a discretionary trust must be regarded as an individual and it would be entitled to the benefit of deductions under section 80L of the Act. In that matter also, the assessee was a public trust. It was a discretionary trust as the shares of the beneficiaries were not ascertainable. In the case of CIT v. Sodra Devi (supra), the Supreme Court was considering the scope of section 16(3) of the Income Tax Act, 1922. In the said judgment, the Supreme Court has held that the word 'assessee' was wide enough to cover not only an individual but also an HUF, company, local authority, firm and an association of persons or the partners of the firm or the members of the association of individual. That, the word 'individual' has not been defined in the Act. That the word 'individual' did not mean only a human being but it included a group of persons forming a unit. In the case of CIT v. Marsons Beneficiary Trust (supra), the Division Bench of this court has held that all kinds of income of a trust have to be assessed under section 161(1). That, the trustees are authorised to carry on business under a deed of trust. They do not derive their authority from the beneficiaries. They derive their authority from the settlor under the deed of trust. The beneficiaries are merely recipients of the income earned by the trust. They have not come together for a common purpose to earn income. Therefore, they cannot be considered as association of persons or a body of individuals. In the said judgment, the Division Bench of this court rejected the contention of department that the beneficiaries constituted association of persons. The trustees did not carry on business on behalf of the beneficiaries just as the receivers. The beneficiaries are merely recipients of the income earned by the trust. Accordingly, it was held that the trustees were not assessable as association of persons. In view of the above judgments, the Tribunal-was right in coming to the conclusion that that assessee-trust ought to have been assessed in the status of an individual. The judgment of the Madhya Pradesh High Court in the case of CIT v. G.B.J Seth and C. O. J. Seth (supra) has no application to the facts of this case. In that matter, the assessees were executors of the will. They were assessed in respect of the income of the estate of the deceased in the status of an association of persons. Relief under section 80L was denied. The above contentions were not advanced. It was contended on behalf of the assessees that the assessees could not have been assessed as an association of persons. However, that question was not referred to the High Court. The High Court, therefore, did not go into that question. The question did not arise for determination. Hence, the judgment has no application.
13. Accordingly question No. 1 is answered in the affirmative i.e. in favour of the assessees and against the department.
14. Accordingly the above appeals are disposed of with no order as to costs.