B.P. Saraf, C.J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961 ('the Act'), at the instance of the Revenue, the Income-tax Appellate Tribunal. Amritsar Bench, Amritsar ('the Tribunal'), has referred the following common question of law, arising out of the consolidated order of the Tribunal dated May 4, 1988, in appeals of two different trusts, to this court for opinion :
'Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that assessee-trust, which failed to exercise the option under Clause (2) of Section 11(2) within the stipulated period, is entitled to the benefit under Section 11(1) in respect of unutilised portion of income ?'
2. The two trusts arc Ziarat Mir Syed Ali Hamdani, Srinagar. and Ziarat Syed Hassan Mantaqi, Srinagar. Both these trusts are Muslim religious trusts formed prior to 1947.
3. The material facts of the case of Ziarat Mir Syed Ali Hamdani Trust are as follows. This trust filed its return of income for the assessment year 1979-80 along with the returns for the assessment years 1978-79. 1980-81 and 1981-82 on March 17, 1983. In the income and expenditure account for the previous year relevant to the assessment year 1979-80, with which we are concerned in this reference, the assessee-trust claimed deduction of Rs. 23,100 in respect of unutilised portion of its income under Sub-clause (ii) of Clause 2 of the Explanation to Section 11(1) of the Act. The option contemplated by the Explanation to Section 11(1) was exercised by the assessee in writing along with the return on March 17, 1983. The Income-tax Officer held that the option under Clause (2) of the Explanation to Section 11(1), which was required to be exercised in writing before the expiry of the time allowed under Sub-section (1) or Sub-section (2) of Section 139, whether fixed originally or on extension, having not been exercised within that period, it was not a valid exercise of option. He observed that the last date for submission of the return for the assessment year 1979-80 under Section 139(1) of the Act was July 1, 1979. He further observed that neither any notice under Section 139(2) had been issued nor any extension of time for submission of the return had been granted. He held that the option exercised on March 17, 1983, after the expiry of the specified date, i.e., July 1, 1979, was of no avail. He, therefore, rejected the claim of the assessee for the benefit of Clause (2) of the Explanation to Section 11(1) of the Act. The appeal of the assessee-trust against the above order of the Income-tax Officer was dismissed by the Appellate Assistant Commissioner. The assessee appealed to the Tribunal. The Tribunal allowed the appeal of the assessee. The Tribunal relied upon the circular of the Central Board of Direct Taxes (Board) No. 273, dated June 3, 1980 (see : [1980]126ITR27(Bom) ), whereby the Board had authorised the Commissioners to admit belated applications under Section 11(2) read with rule 17 of the Income-tax Rules, 1962 (the Rules). Aggrieved by the order of the Tribunal, the Revenue is before us with this reference.
4. The material facts of the case of the next trust, namely, Ziarat Syed Hassan Mantaqi, are also more or less identical. This assessee-trust did not file any return for the assessment year 1978-79 under Section 139(1) of the Act. The Department also did not issue any notice under Section 139(2). However, on the basis of information received by the Assessing Officer that the assessee had income above the taxable limit, a notice under Section 148 of the Act was issued to the assessee on March 28, 1982. In response to that notice, the assessee filed its return on June 28, 1982, declaring nil income. In the abstract of taxable income filed along with the return, the assesseeclaimed deduction of Rs. 78,088 in respect of unutilised portion of income under Clause (2) of the Explanation to Section 11(1). The option to utilise the income in the immediate following previous year was exercised by giving notice to that effect in writing on June 28, 1983, along with the return. The income-tax Officer rejected the assessee's claim for exemption on the ground that the option required to be exercised under Clause (2) of the Explanation to Section 11(1) had not been exercised within the stipulated time. The assessee appealed to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner agreed with the Income-tax Officer and dismissed the appeal of the assessee. He held that since the assessee-trust failed to exercise the option under Clause (2) of the Explanation to Section 11(1) of the Act within the prescribed time, it could not claim benefit under that Clause . The assessee-trust appealed to the Income-tax Appellate Tribunal. The Tribunal, as in the earlier case, condoned the delay and held that the assessee-trust was entitled to the benefit conferred by Clause (2) of the Explanation to Section 11(1) of the Act even though it did not exercise the option within the time specified thereunder. As in the earlier case, the Tribunal relied on the circular of the Board No. 273, dated June 3, 1980 (see : [1980]126ITR27(Bom) ), in arriving at the above conclusion. Aggrieved by the order of the Tribunal, the Revenue applied for reference of the question of law arising out of the order of the Tribunal, which the Tribunal allowed. Hence, this reference.
5. We have heard learned counsel for the Revenue and perused the order of the Tribunal. The real controversy in this case is whether the requirement of exercising option under Clause (2) of the Explanation to Section 11(1) of the Act before the expiry of the time allowed under Sub-section (1) or Sub-section (2) of Section 139, whether fixed originally or on extension, for furnishing the return of income, is mandatory or directory. The Income-tax Officer did not take cognisance of the option because it was not exercised within the stipulated time. The Appellate Assistant Commissioner agreed with the Income-tax Officer and upheld his order. From the order of the Appellate Assistant Commissioner, it is, however, evident that he appreciated the real controversy and noted and understood the facts of the case correctly. In his appellate order, he noted that the amount in question was not utilised by the assessee in the relevant previous year but utilised in the following previous year and that the option in that behalf had been furnished by the assessee along with the return, which was furnished on June 28, 1983. The Appellate Assistant Commissioner rejected the claim of the assessee for the benefit of Clause (2) of the Explanation to Section 11(1) only on the ground that the option had not been exercised by the assessee before the expiry of the time allowed for submission of the return under Sub-section (1) or Sub-section (2) of section 139. He rightly observed that the assessee did not claim exemption under Section 11(2) ofthe Act. The Appellate Assistant Commissioner rejected the claim of the assessee on the ground that the option under Clause (2) of the Explanation to Section 11(1) had not been exercised within the stipulated time, which requirement according to him was mandatory. When the assessee went in appeal to the Tribunal, it appears that though the Tribunal noted the facts of the case and the contention of the assessee correctly, it proceeded erroneously to decide the case as if the controversy was not about the claim under Clause (2) of the Explanation to Section 11(1) but under Section 11(2) and on that erroneous assumption referred to Section 11(2) of the Act and Form No. 10 which is required to be filed within the prescribed time under rule 17 of the Rules in order to avail of the benefit of Section 11(2) of the Act and relying upon the circular of the Board in regard to the condonation of delay in filing Form No. 10, under rule 17 condoned the delay in filing Form No. 10, whereas it was never the case of the assessee that it was claiming' the benefit of Section 11(2) or that it had filed Form No. 10. The uncontroverted factual position is that the case of the assessee does not fall under Section 11(2) of the Act, nor the assessee at any point of lime made such a claim. The contention of the assessee right from the beginning was that its case was covered by Clause (2) of the Explanation to Section 11(1) of the Act because the income was utilised in the year immediately following the previous year in which it was derived. This claim was rejected both by the Income-tax Officer and the Appellate Assistant Commissioner on the sole ground that the option required to be exercised in writing in that regard was not exercised before the time allowed for furnishing the return under Sub-section (1) or Sub-section (2) of Section 139. Obviously, the Tribunal committed a patent error in condoning the delay in filing Form No. 10, which, in fact, had never been filed and in allowing deduction to the assessee in respect of the amount in question under Section 11(2), which neither the assessees were entitled to nor they claimed. The question referred to this court also arises out of the above erroneous finding of the Tribunal, which has no bearing in the present case.
6. In such a situation, in the normal course, we would have returned the reference to the Tribunal unanswered. But we do not propose to do so in view of the fact that the controversy in this case is more than two decades old and the two assessees are charitable trusts. We, therefore, propose to reframe the question to bring out the real controversy and answer the same on the basis of the undisputed facts of the case to bring an end to the more than two decades old litigation. We, accordingly, reframe the question as follows :
'Whether on the facts and in the circumstances of the case, it can be said that the assessee-trust did not exercise the option under Clause (2) of the Explanation to Section 11(1) within the time allowed under the Explanation to Section 11(1) of the Act.'
7. We have heard learned counsel for the Revenue, Mr. Anil Bhan, and perused the relevant provisions of the Act. Sub-section (1) of Section 11 of the Act. at the material time, read as follows :
'11. Income from property held for charitable or religious purposes.-
(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India ; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent, of the income from such property ;
(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India ; and where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty-five per cent, of the income from such property ;
Explanation.--for the purposes of Clauses (a) and (b),--
(1) in computing the twenty-five per cent, of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in Section 12 shall be deemed to be part of the income ;
(2) if, in the previous year, the income. applied to charitable or religious purposes in India falls short of seventy-five per cent, of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount-
(i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then-
(a) in the case referred to in Sub-clause (i), so much of the income applied to such purposes in India during' the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount ; and
(b) in the case referred to in Sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount,
may, at the option of the person in receipt of the income [such option to be exercised in writing before the expiry of the time allowed under Subsection (1) or Sub-section (2) of Section 139, whether fixed originally or onextension, for furnishing the return of income), be deemed to be income applied to such purposes during the previous year, in which the income was derived ; and the income so deemed to have been applied shall not be. taken into account in calculating the amount of income applied to such purposes, hi the case referred 10 in Sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in Sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.'
(emphasis ' supplied)
8. It is clear from a plain reading of Clause (2) of the Explanation to Section 11(1) of the Income-tax Act, 1961, that the Legislature was conscious of the fact that the requirement that at least 75 per cent, of the income of the trust should be applied for the specified purposes during the previous year was likely to work hardship in practice and with a view to mitigating' the same, provided, inter alia, that it would be sufficient compliance of the requirement of Section 11(1) if the assessee applies the income for the specified purposes in the previous year following the year of accrual. This relaxation is, however, subject to the assessee exercising in writing the option before the expiry of the time for furnishing the return of income under Sub-section (1) or Sub-section (2) of Section 139. Section 139, which is relevant for the purpose of understanding the true import of the expression 'before the expiry of the time allowed under Sub-section (1) or subsection (2) of Section 139' appearing in Clause (2) of the Explanation to Section 11(1), at the material time, stood as follows :
'139. Return of income.--(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed-
(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later ;
(b) in the case of every other person, before the 30th day of June of the assessment year :
Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnish-ing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of Sub-section (8)...
(2) In the case of any person who, in the Income-tax Officer's opinion, is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the Income-tax Officer may before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :
Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of Sub-section (8).
(3) If any person who has not been served with a notice under Subsection (2), has sustained a loss in any previous year under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and claims that the loss or any part thereof should be carried forward under Sub-section (1) of Section 72 or Sub-section (2) of Section 73, or Subsection (1) of Section 74 or Sub-section (3) of Section 74A, he may furnish, within the time allowed under Sub-section (1) or within such further time which, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under Sub-section (1).
(4) (a) Any person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in Clause (b), and the provisions of Sub-section (8) shall apply in every such case ;
(b) the period referred to in Clause (a) shall be-
(i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year ;
(ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968, three years from the end of the assessment year ;
(iii) where the return relates to a previous year relevant to anyother assessment year, two years from the end of such assessment year.
(4A) Every person in receipt of income derived from property heldunder trust or other legal obligation wholly for charitable or religiouspurposes or in part only for such purposes, or of income being voluntary contributions referred to in Sub-clause (iia) of Clause (24) of Section 2, shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under Sub-section (1).'
9. From a careful reading of Section 139 of the Act, it is clear that a trust for charitable or religious purposes is also required to file a return of its income under that section. Different time limits have been specified for submission of a return in different Sub-sections. Sub-section (4) permits an assessee, who has failed to furnish the return within the time allowed by Sub-section (1) or in a notice under Sub-section (2), to file the same at any time before the assessment is made. The question that arises for consideration is whether a return filed beyond the time specified in Sub-section (1) but within the time specified in Sub-section (4) can be treated as a return filed within the time allowed under Sub-section (1). In other words, whether Sub-section (1) has to be read with Sub-section (4) and a return filed within the time allowed under Sub-section (4) can be regarded as a return filed within the time allowed under Sub-section (1) of Section 139. On a conjoint reading of the various Sub-sections of Section 139, we are of the clear opinion that Sub-section (1) and Sub-section (4) of Section 139 have to be read together and, on such a reading, the inevitable conclusion is that a return made within the time specified in Sub-section (4) has to be considered as having been made within the time prescribed in Sub-section (1) or Sub-section (2) of Section 139 of the Act. In view of the above opinion of ours, in the instant case, the option exercised by the assessee under Clause (2) of the Explanation to Section 11(1) along with the return submitted under Sub-section (4) has to be regarded as a valid exercise of option within the time fixed for furnishing the return under Sub-section (1) of Section 139 of the Act.
10. We are supported in our above conclusion by the decision of the Bombay High Court in Tulsidas Gopalji Charitable and Chaleshwar Temple Trust v. CIT : [1994]207ITR368(Bom) . In that case, dealing with an identical controversy, it was held that if a return is filed within the time specified in Sub-section (4) of Section 139 of the Act and the option contemplated by the Explanation to Section 11(1) is exercised in writing along with such return, the requirements of the Explanation to Section 11(1) would stand satisfied. In coming to this conclusion, the High Court relied upon the ratio of the decision of the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. : [1970]77ITR518(SC) .
11. The controversy in this case can also be looked into from another angle. Though there can be no dispute about the fact that the requirement of exercising the option in writing under Clause (2) of the Explanation to Section 11(1) of the Act is mandatory, a question may arise whether the further requirement to exercise it before the expiry of time allowed under Sub-section (1) or Sub-section (2) for furnishing of the return is also mandatory. In other words, the controversy is whether the requirement to exercise the option within the specified time is mandatory or directory and whether the assessing authority has a discretion to condone the delay in exercising the same.
12. We have given our careful consideration to this aspect of the controversy. Clause (2) of the Explanation to Section 11(1) was enacted with a view to mitigate the hardship that might be caused to charitable or religious trusts if its income could not be spent in the previous year of accrual itself. It expands the scope of the earlier provision and provides that it would be sufficient in a case falling under Sub-clause (b) of Clause (2) of the Explanation, if the assessee applies the amount for specified purposes in the previous year following the year of accrual. In other words, the asses-see is given one full year following the year of accrual of the income for applying the same for religious or charitable purposes. This relaxation is, however, subject to the assessee exercising the option in writing before the expiry of the time for submission of the return of income of the assessment year relevant to the previous year of accrual. As indicated earlier, the time-limit of one year for applying the income of the trust for the specified purposes is mandatory. If it is not spent within that time, the benefit of exemption under Section 11(1) would not be available. But the question for consideration is whether the requirement of exercising the option within the specified time is also mandatory. We have given serious consideration to this aspect of the controversy. On a careful reading of Section 11(1), in particular Clause (2) of the Explanation thereto, in the light of the scheme and object of this provision, we are of the clear opinion that the requirement of exercising the option within the specified time is directory and the assessing authority has the power to condone the delay in exercise of the option, if he is satisfied about the sufficiency of the cause shown for the delay.
13. We are supported in our above conclusion by the ratio of the decisions of the Bombay High Court in CIT v. Shivanand Electronics : [1994]209ITR63(Bom) and CIT v. I. A. and I. C. Pvt. Ltd. . In CIT v. Shivanand Electronics : [1994]209ITR63(Bom) , the controversy was whether the requirement of filing the audit report along with the return of income under Sub-section (6A) of Section 80J of the Act was mandatory or directory. The High Court held (page 68) :
'Sub-section (6A) lays down two conditions which should be fulfilled in order to get the benefit of deduction under Section 80J. The first condition is that the accounts should be audited by art accountant. This condition, as stated earlier, is mandatory. So far as the second condition which requires the assessee to furnish the report along with the return to the Income-tax Officer is concerned, we feel that for the purpose of determining whether it is mandatory or directory, it can be further Sub-divided into two : (i) The assessee should furnish to the Income-tax Officer a report of the accountant who had audited the accounts in the prescribed form, duly signed and verified by such accountant ; (ii) such report should be filed along with the return of income. The first requirement of filing of the report again appears to be mandatory. Failure to file the same is fatal. But that is not so in so far as the requirement of filing it along with the return is concerned. If, in a given case, an assessee fails to file such report along with the return and files it subsequently but before completion of the assessment, it would not be fatal to the claim of the assessee and the Income-tax Officer will have the power to accept the same if he is satisfied that the delay in filing the same was for good and sufficienl reasons. This, however, does not mean that an assessee, as a matter of right, can submit such report at any time before the completion of assessment and if it is so submitted, the Income-tax Officer is bound to accept the same. Such an interpretation, in our opinion, will amount to 'substituting the words 'along with the return' in Sub-section (6A) by the words 'at any time before the completion of the assessment' which is not a permissible mode of interpretation of statutes. We are, therefore, of the opinion that the requirement of filmy of the audit report 'along with the return' is not mandatory in the strict sense of the term. It is directory in the sense that even if it is not submitted along with the return but subsequently before the completion of assessment, the Income-tax Officer will have the power to accept the same if he is satisfied with the explanation of the assessee for non-filing of the same along with the return.'
(emphasis' supplied)
14. In CIT v. I. A. and I. C. Pvt. Ltd. , the controversy was, whether the requirement contained in Section 32A(2B)(ii) of furnishing the certificate along with the return was mandatory or directory. The Bombay High Court held (page 7) :
'. . . we hold that the requirement of filing the report along with the return' is directory and if the assessee submits such report even after filing of the return but before completion of the assessment, the Income-tax Officer may accept the same if he is satisfied that there was sufficient cause for non-filing of the same along with the return.'
15. In the instant case, the admitted factual position is that the Tribunal was satisfied that there was sufficient cause for the delay in exercising theoption by the assessec. In that view of the matter, we answer the question refrained by us in the affirmative, i.e., in favour of the assessee and against the Revenue.
16. Reference is disposed of accordingly with no order as to costs.