Judgment:
1. This appeal by the assesses is directed against the order of the CIT(A)-IX, New Delhi dated 17-2-1988 relating to the assessment year 1984-85. In the appeal of the assessee, the issue which primarily needs our attention was crystallized in the Court as under: Whether, on the facts and in the circumstances of the case, the assessee-trust is not saved by the proviso to Section 13(1)(d)(ii) of the Income-tax Act, 1961 2. Before we come to grips with this issue, it would be beneficial to keep in focus the factual canvas of the case, which is as under.
3. The assessee-trust is following calendar year as the previous year.
It is common ground that for the previous years ending on 31-12-1972 and 31-12-1973, the assessee-trust held the following investments made out of its corpus:Sl. No. Accounting year Corpus funds Investment/Loans/Advances out of corpus funds 1.
31-12-1972 Rs. 7,81,728 M/s Jay Engg. Works Ltd. Rs. 7,30,000 2.
31-12-1973 Rs. 11,27,801 M/s Jay Engg. Works Ltd. Rs. 10,55,000.
The assessing officer found that by the accounting year ending 31-12-1980, the deposits with M/s Jay Engg. Works Ltd. had gone up to Rs. 22,10,000.
4. In the accounting year ending on 31-12-1981 relevant to the assessment year 1982-83, the assessee-trust withdrew an amount of Rs. 13,75,000 out of the aforesaid deposits of Rs. 22,10,000 with M/s Jay Engg. Works Ltd. As a result of the above withdrawal, the corpus deposits with M/s Jay Engg. Works Ltd. as on 31-12-1981, stood reduced to Rs. 8,35,000. This entire amount with M/s Jay Engg. Works Ltd. during the year ending 31-12-1982 was withdrawn and out of it a sum of Rs. 8 lakhs was deposited with M/s DCM Ltd. Out of the amount of Rs. 8 lakhs deposited in the accounting year ending 31-12-1982, Rs. 6 lakhs continued to remain deposited with M/s DCM Ltd. as on 31-12-1983.
5. A claim was made before the ITO, on these facts, that the sum of Rs. 6 lakhs so deposited with M/s DCM Ltd. represented corpus funds of the Trust as on 1st June, 1973 and, therefore, proviso (z) to Clause (d) of Sub-section (1) of Section 13 was applicable thereto. The assessing officer, however, held that the deposit of Rs. 6 lakhs with M/s DCM Ltd. made in the accounting year ending 31-12-1982 had been acquired out of the conversion of corpus funds, i.e., corpus deposits with M/s Jay Engg. Works Ltd. He, therefore, concluded that the sum of Rs. 6 lakhs with M/s DCM Ltd. was hit by the provisions of Section 13(1)(d)(ii) of the Act, and the benefit of exemption of proviso (i) to Section 13(1)(d) was not available to the assessee because the deposit of Rs. 6 lakhs continued to remain deposited in M/s DCM Ltd. as on 31-12-1983".
6. The assessee being aggrieved with the above conclusions drawn by the assessing officer went up in appeal before the Id. CIT(A) and the Id.
CIT(A) agreed with the assessing officer that the assessee was not entitled to exemption on the facts of the case. Hence, the appeal.
7. Before us, the Id. counsel for the assessee, Shri G. C. Sharnm Sr.
Advocate, submitted that the issue in appeal is res Integra and needs our full and deep attention. He contended that Section 13(5)(6) of the Act, which is since deleted, prescribed permissible modes of investment. What was protected Under Section 13(5)(6), continued to be protected by the proviso to Section 13(1)(d) up to the assessment year 1983-84. It was emphasised by him that the mode of investment and quality of the assets is to be interpreted with reference to the mode.
It was submitted that in the case of the assessee, the funds were invested in accordance with law. Prior to 1-6-1973, the corpus investments were with M/s Jay Engg. Works Ltd. which were later shifted to DCM Ltd. but these continued to be in the same mode of investment as was approved earlier. The authorities below have not appreciated this position at all and have erroneously rejected the claim for exemption made by the assessee.
8. The Id. counsel for the assessee submitted that if a reference be made to Section 11(5) of the Act, it would be seen that emphasis there is also on mode of investment, if a depositee was covered by a particular mode of investment under the relevant provisions of law earlier, the change to a different depositee will not rob the trust of its exemption provided the mode remained the same. He emphasised that the assessee is covered by the proviso to Section 13(1)(d) and but for this proviso the assessee will be denied the exemption. The funds which were lying with M/s DCM Ltd., during the accounting period relevant to the assessment year under appeal, formed part of the corpus on 1st June, 1973. The change has hot made any difference because the conversion envisaged in the provisions of law is prior to 1-6-1973 and in this case there is no such conversion. According to the Id. counsel two stages of conversion are prohibited and thus, there is only one stage of conversion and that is, prior to 1-6-1973. In Section 13(1)(d), the words "such asset" refer to investment already made.
These are to be interpreted in the light of the mode of investment.
Since, in the case of the assessee, the asset is a 'book debt', the change from one company to another was not material. The Id. counsel emphasised that Section 13(5) exemptions are perpetuated by proviso to Section 13(1)(d) of the Act. The authorities below, therefore, grossly erred, according to him, in interpreting the law as they did to deny exemption to the assessee.
9. The Id. counsel further emphasised that if in the interpretation of the relevant provisions of the statute, the Court finds that there is a lacuna in law, it need not interpret the provision in favour of the revenue in view of the settled principles of law that when there are, in the interpretation of a fiscal statute, two reasonable views possible, the view that favours the subject should be adopted. In nut shell, he submitted that the assesses had wrongly been denied the exemption for the assessment year under appeal. The orders of authorities below may, therefore, be reversed and exemption be allowed.
10. He also submitted that issue contained in ground No. 4 regarding deduction under Section 80G of the Act for donations to different institutions is consequential to the above issue being decided in favour or against the assessee. He, however, emphasised that so far as this issue, on merits, is concerned, the certificates regarding these donations were produced before the authorities below and the assessee is entitled to deduction under Section 80G. He did not press, for our consideration, any other ground in appeal.
11. The Id DR, on the other hand, submitted that the amended provisions of law are applicable for the first asst. year 1984-85. The assessee's previous year is ending 31-12-1983 relevant to the assessment year 1984-85. The deposit with M/s DCM Ltd. was never an asset as on 1-6-1973. Hence, it is not covered by the proviso to Section 13(1)(d) because it was with M/s Jay Engineering Works Ltd. and had been changed to deposits with M/s DOM Ltd. It was submitted that proviso to Section 13(1)(d) applies to only corpus funds deposited in kind after 1-6-1973.
Since deposit with M/s Jay Engineering Works Ltd. was from cash donations to corpus prior to 1-6-1973, and these amounts were transferred to M/s DCM Ltd., the funds with M/s DCM Ltd. were in a converted form. Hence, not covered for purpose of exemption.
12. Meeting the arguments of the Id. counsel for the assessee that change of the depositee is not material insofar as the mode of deposit remains the same, the Id. DR submitted that deposits in different companies could not be called a single asset. Since, withdrawal was from one company and it was redeposited in a different company, i.e., M/s DCM Ltd., the funds with M/s DCM Ltd. is a new asset. The deposit was shifted to M/s DOM Ltd. in the accounting year ending 31-12-1982.
Hence, this is outside the modes prescribed by Section 11(5) of the Act. Hence, the deposits with M/s DCM Ltd. are not covered by the proviso to Section 13(1)(d). She emphasised that deposits with M/s DCM Ltd. did not form part of the corpus as on 1-6-1973. Since Section 13(1)(d) proviso was applicable to asst. year 1984-85 onwards, the question of its earlier application did not arise. It was clarified by the Id. DR that though there were amendments to the Act, in this regard, earlier, yet they were not given effect to till the year of assessment under appeal. It was contended that there is no case made out for an interference in the impugned order of the Id. CIT(A). The appeal may, therefore, be dismissed.
13. We have given careful consideration to the rival submissions. We have very carefully perused the orders of the authorities below to appreciate the decisions arrived at by them. Since, the issue is really res integra, we have also very carefully perused the relevant statutory provisions of law. Therefore, before proceeding further, we would like to appreciate the relevant statutory provisions contained in the Income-tax Act, 1961.
14. We find that Chapter III of the Act which contains a fasciculus of sections deals with incomes which do not form part of the total income.
The first section in this Chapter is numbered 10 wherein the Legislature has provided that in computing the total income of a previous year of any person, income falling within any of the clauses mentioned in that section, shall not be included in the total income subject to conditions mentioned therein. Thereafter, in Sections 11 and 12, the Legislature has provided exclusions from the total income of the previous year of the person in receipt of the income from, property held for charitable or religious purposes subject of course to the provisions of Sections 60 to 63 of the Act. Sub-section 11(1) in Clauses (a) and (b) not only deals with the application of income derived from property held under Trust for the above purposes but also provide for the accumulation or setting apart for application to such purpose in India of such income. Sub-section (2) of Section 11, therefore, provides that where 75 per cent of the income referred to in Clause (a) or (b) of Sub-section (1) read with Explanation to that sub-section is not applied or is not deemed to have been applied to charitable or religious purposes in India during the previous year but is accumulated or set apart either in whole or in part for application, to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income provided certain conditions are complied with. Clause (b) of sub-section (2) provides that the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) ibid. There have been changes in this Clause (b) but we are referring to the clause as is available for application to the facts of this case for the assessment year under, appeal. This clause was substituted by the Finance Act, 1983 w.e.f.
1-4-1983 for the clause as amended by Finance (No. 2) Act, 1977 w.e.f.
1-4-1978. We also find that Sub-section (5) was added to Section 11 by insertion by the Finance Act, 1983 w.e.f 1-4-1983 and, inter alia, provides the forms and modes of investing or depositing the money referred to in Clause (b) of Sub-section (2) of Section 11.
15. We have noted supra that whereas the Legislature provided for exclusions from the total income of certain types of income by insertion of Sections 11 and 12 the Legislature in its wisdom provides for exceptions to Sections 11 and 12 in Section 13 of the Act. In other words, Section 13 incorporates exceptions to the general rule of exclusions enunciated in Sections 11 and 12. Thus, in Section 13(1)(a) income applied for private religious purposes and in Section 13(1)(6) Trust or Institution for particular religious entity or caste are covered. It is in this context that Section 13(1)(d) appears on the statute book with a proviso that nothing in this clause shall apply in relation to -- (i) any assets held by the Trust or Institution where such assets form part of the corpus of the Trust or institution on the first day of June, 1973 and such assets were not purchased by the Trust or Institution or acquired by it by conversion of, on in exchange for, any other assets.
In other words, the exceptions provided under Section 13(1)(d)(n) have an exception in the proviso. To put it differently, proviso brings a case covered by it on par with the exclusions provided in Sections 11 and 12. We, therefore, are to see whether on the facts and in circumstances of this case, the proviso applied to the case of the assessee.
16. In this context, we have also to see the provisions contained in Sub-section (5) of Section 13 of the Act. This Sub-section (5) has, in fact, been omitted by the Finance Act, 1983 w.e.f. 1-4-1983. This Sub-section (5) of Section 13 had been inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977. However, it had been amended and before its omission it stood as under: (5) The forms and modes of investing or depositing funds referred to in Clause (d) of Sub-section (1) shall be-- (a) subject to the provisions of Clause (b), in a case where such funds represent the original corpus of the trust or institution or any contributions made to the trust or institution with a specific direction that they shall form part of the corpus Of the trust or institution-- (i) investment in savings certificates as defined in Clause (c) of Section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the small savings schemes of that Government; Explanation: "Immovable property' does not include any machinery or plant even though attached to, or permanently fastened to anything attached to, the earth; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a. co-operative land development bank) Explanation: In this sub-clause 'scheduled bank' shall have the same meaning as in the Explanation at the end of Clause (b) of Sub-section (2) of Section 11 ; (iv) investment in units in the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the Central Government or a State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; (vii) investment or deposit in any Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956) ; (i) the corpus of the trust or institution immediately before the 1st day of June, 1973 ; or (ii) the original corpus (being assets other than cash) of any trust or institution created or established on or after the 1st day of June, 1973 ; or (iii) any contribution (otherwise than in cash) made to any trust or institution on or after the 1st day of June, 1973, with a specific direction that they shall form part of the corpus of the trust or institution, any form or mode, other than investment in shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) in a company (not being a 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) ; (c) in any other case, the forms or modes referred to in Sub-clause (i), Sub-clause (ia), Sub-clause (ii), Sub-clause (iii) and Sub-clause (iv) of Clause (a) ; 17. The omitted sub-section contained provisions that the forms and modes of investment or depositing funds referred to in Clause (d) of Sub-section (1) of Section 13 in a case where such funds represented the corpus of the Trust or Institution immediately before the 1st day of June, 1973, etc., any form or mode other than Investment in shares in a company had the approval.
18. It is noticed also that Sub-section (5) to Section 11 was inserted by the Finance Act, 1983 w.e.f. 1-4-1983. We further find that Clause (d) of Sub-section (1) of Section 13 was originally inserted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1-4-1977. However, the Finance Act, 1982 w.e.f. 1-4-1982 amended it. This clause has been substituted by the Finance Act, 1983 w.e.f. 1-4-1983, and is now available for application to the facts of this case for the asst. year 1984-85. The facts of the case narrated supra about which there is no dispute indicate that as on first day of June,; 1973, the corpus funds of the assessee-trust were lying in deposit with M/s Jay Engg. Works Ltd. During the previous year ending 31-12-1982 amount of Rs. 8 lakhs was withdrawn from depbsits with M/s Jay Engg. Works Ltd. and placed in deposits with M/S DCM Ltd. The sum of Rs. 6 lakhs continue d to remain deposited with M/s DCM Ltd. as on 31-12-1983 which is last day of the previous year relevant to the assessment year under appeal. The claim of the assessee is that his transfer of deposit from M/s Jay Engg.
Works Ltd. in the manner narrated supra to M/s DCM Ltd. is not of the type that should debar the assessee from claiming the benefit of the proviso to Section 13(1)(d)(ii). The revenue, on the other hand, claims that since the deposit with DCM Ltd. which is from the corpus funds was not with DCM as on 1-6-1973 the assessee has lost the right of exemption and is not covered by the provisions contained in the proviso mentioned supra.
19. In our considered opinion, the change of the deposit is not material insofar as the deposit continued to belong to the forms ox modes which are approved for exemption. It is common ground that the exemption had been allowed to the assessee earlier. The assessee has now for the year under appeal got deposit with DCM Ltd. but on the facts mentioned supra these deposits can clearly be related back to the corpus funds invested with M/s Jay Engg. Works Ltd. Therefore, M/s Jay Engg. Works Ltd. and M/s DCM Ltd. being depositees of the same category, the assessee should continue to enjoy exemption provided the funds which are forming corpus of the trust continued to be invested in the manner as they were on 1-6-1973. We find that, in this case, the funds continued to be invested in the same mode with the same type of depositee as on 1-6-1973. Therefore, the assessee is in our opinion, entitled to exemption as claimed because it is covered by the proviso to Section 13(1)(d) of the Act. The issue is, therefore, decided in favour of the assessee and against the revenue.
20. The issue regarding the donations is not discussed because the main issue having been decided in favour of the assessee covers this issue also in favour of the assessee.