2. The assessee is an individual. The original assessment for the assessment year 1978-79 was made on 19-9-1981 and was reopened under Section 147 of the IT Act, 1961 to consider certain items of income which had escaped assessment. The reassessment proceedings were started to rope in the annuity income of Rs. 25,000 not disclosed in the original return. In the reassessment proceedings, the Income-tax Officer withdrew the investment allowance on the fishing boats. The fishing boat named Ragam was purchased and put to use in the previous year ending on 30-9-1977 relevant to the assessment year 1978-79. It was sold on 30-9-1981 that is within a period of eight years from the date of installation. As the Income-tax Officer was in seisin of the assessment in the year 1986 he withdrew the investment allowance originally granted on Ragam, as the same had been sold within a period of eight years. The CIT(Appeals) held that if an asset on which investment allowance was granted was subsequently sold within a period of eight years, the proper procedure would be to first allow the investment allowance in the year in which it is claimed and then withdraw the same by having resort to the provisions of Section 155 of the Income-tax Act, 1961. That cannot be done by having recourse to the proceedings under Section 147 in respect of the very same year. In other words, he felt that the withdrawal of the investment allowance should be made only in a proceeding under Section 155 and not otherwise. In this view of the matter, he drew support from the decision of the Gujarat High Court in Bharat Petroleums v. CIT [1979] 116 ITR 75. The revenue is aggrieved.
3. We have heard rival submissions. The provisions of Section 155(4A) is to the effect that in a case where the machinery is sold or otherwise transferred before the expiry of eight years from the end of the previous year in which such machinery was acquired or was installed, investment allowance originally allowed shall be deemed to have been wrongly allowed and the Income-tax Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment, and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the end of the previous year in which the sale or other transfer took place. The time limit for withdrawing the investment allowance is to be reckoned from the end of the previous year in which the sale or transfer took place.
In the case of the assessee the sale of Ragam boat took place on 30-9-1981. Therefore, recourse to Section 155 read with Section 154 can be had by the Income-tax Officer only on or before 30-9-1986 to withdraw the investment allowance originally granted on Ragam in the assessment year 1978-79. The time limit having expired, the Income-tax Officer in law cannot withdraw the investment allowance granted on Ragam in the reassessment order dated 25-11-1986. It is argued before us by the revenue that the provisions of Section 155 or 154 are inter-changeable with the provisions of Section 147 and, therefore, in a 147 proceeding such mistakes can be corrected. We are unable to accept this argument. A special provision always excludes the general provision. Section 147 proceedings were taken only with reference to the assessment year 1978-79 and so far as that year is concerned there was nothing wrong in having allowed the investment allowance on Ragam.
The disqualification entailing the withdrawal of investment allowance the assessee was suffered only on 30-9-1981 and not in the previous year relevant to the assessment year 1978-79. Therefore, even if the provisions of Section 154 or 155 are inter-changeable with the provisions of Section 147 in certain areas, it cannot be held in the facts of the case before us that there was any escapement of income by the grant of investment allowance on the fishing boat named Ragam in the previous year relevant to the assessment year 1978-79. Thus looked at from any angle, the provisions of Section 147 cannot be invoked, to with draw the investment allowance originally granted in the assessment year 1978-79 as the time limit for such withdrawal having expired in terms of the provisions of Section 155 read with Section 154. In this view of the matter, we uphold the order of the the CIT (Appeals).
4. The next point is about the withdrawal of investment allowance granted in the original assessment on the fishing boat Jyothi. Apart from the reasons stated in the preceding paragraph in respect of the withdrawal of investment allowance on the fishing boat by name Ragam, we uphold the order of the CIT (Appeals) in the case of Jyothi also for the reason that the fishing boat Jyothi was not sold or otherwise transferred and, therefore, the conditions envisaged in Section 155(4A) of the Income-tax Act, 1961 do not apply in the case of Jyothi. Jyothi was lost in the high seas but not sold or otherwise transferred. Thus, we uphold the order of the CIT (Appeals).
5. In ITA No. 142(Coch.)/1987 the revenue is aggrieved against the cancellation of the order under Section 154 passed by the Income-tax Officer consequent on the Tribunal's order in ITA No. 366(Coch.)/l983, dated 6-8-1985 directing the Income-tax Officer to disallow the contribution by the assessee to the trust in excess of the actual expenditure incurred. The assessee had paid a sum of Rs. 1,40,000 to Vijayalakshmi Employees Welfare Trust set up by the assessee on 27-9-1973 and the entire contribution was claimed as business expenditure in the computation of income. This was disallowed by the Income-tax Officer as well as by the first appellate authority. On second appeal, the Tribunal rejected the claim of the assessee to the full extent of the contribution but, however, held that in line with their decision for the earlier two years in the case of the same assessee, the assessee should be allowed a deduction of the actual expenditure incurred by the trust in the promotion of the welfare activities of the employees and the Income-tax Officer was required to verify that expenditure and allow the deduction. In the consequential proceedings the Income-tax Officer held that only a sum of Rs. 20,230 can be allowed as deduction. It was his view that the payment of periodical advances to the employees which are recoverable cannot be treated as expenditure incurred by the trust and, therefore, by the assessee. Thus he allowed only Rs. 20,230 out of Rs. 1,40,000 claimed by the assessee. On appeal, the CIT (Appeals) went through the trust deed and found that the objects are advancement of education and medical relief and promotion of the welfare of the employees who numbered more than 10,000. The trust undertook to provide assistance in the repair or reconstruction of houses and in that connection recoverable advances at cheap rate or no interest were made and that was well within the objects of the trust. Such advances are to be considered as expenditure on the welfare of the employees in the year of advance. In this view of the matter, on an appraisal of the accounts he held that a sum of Rs. 1,29,422 was the expenditure incurred by the trust and in terms of Tribunal's direction the same was to be allowed.
The revenue is aggrieved.
6. We have heard rival submissions. The main objects of the trust are as follows:- (i) to provide relief of distress among the employees of the founder including assistance in the case of loss of salary on account of prolonged absence due to ill health.
(ii) to provide for the advancement of education among the said employees and their children etc.
(iii) to provide for the amelioration of the living conditions of the employees; provide creches, render expert medical aid and give assistance for repairs or reconstruction of houses.
(iv) to render assistance for any other purpose beneficial to the said employees or their dependents.
Rendering assistance to the employees for any beneficial purpose is also one of the objects of the trust. It is not disputed that the trust has been making advances to the employees numbering more than 10,000, to enable them to repair or reconstruct their houses. Certainly this activity will fall under Clauses (iii) and (iv) of the trust deed. The CIT (Appeals) has held that such advances should be treated as an expenditure incurred by the assessee for the promotion of its objects.
This would mean that as and when advances are recovered the same would constitute the income of the trust. This concept is not unknown. In Circular No. 100/F.No. 195/1/1972-IT(AI) dated 24-1-1973 the Board has clarified that- Section 11 requires 100 per cent of the income of the charitable and religious trust to be applied for religious and charitable purpose to be entitled to the exemption under the said section. Two questions have been considered regarding the application of income : 1. Where a trust incurs a debt for the purposes of the trust, whether the repayment of the debt would amount to an application of the income for the purposes of the trust and 2. Whether loans advanced by an educational trust to students for higher studies would be treated as application of income for charitable purposes.
The Board has decided that repayment of the loan originally taken to fulfil one of the objects of the trust will amount to an application of the income for charitable and religious purposes. As regards the loans advanced for higher studies, if the only object of the trust is to give interest bearing loans for higher studies, it will amount to carrying on of money-lending business, if however, the object of the trust is advancement of education and granting of scholarship loans is only one of the activities carried on for the fulfilment of the objectives of the trusts, granting of loans, even if interest bearing will amount to the application of income for charitable purposes. As and when the loan is returned to the trust, it will be treated as income of that year.
We take aid of this Circular of the Board of Direct Taxes though it was in the context of Section 11 of the Income-tax Act, 1961 only for the limited purposes of the treatment to be accorded to the loans and advances when given and the recovery of the same when received. Thus we do not find any infirmity in the approach of the CIT (Appeals).
However, on a scrutiny of the account copy of the trust we notice that the expenditure relatable on the contribution of Rs. 1,40,000 can be only in a sum of Rs. 91,788 which is. worked out as follows :(i) Contribution by the assessee Rs. 1,40,000Less : Recoveries from the members and contributions from other trusts Rs. 48,212 Rs. 91,788 Therefore, we hold that the assessee is entitled to a deduction of Rs. 91,788. To this extent the order of the CIT(Appeals) is modified.
7. In the result, ITA No. 141 (Coch.)/1987 is dismissed and ITA No. 142 (Coch.)/1987 is partly allowed.