The Director of Income-tax Vs. Garden City Educational Trust - Court Judgment

Excerpt:
- sections 8 & 14: [k.n. keshavanarayana, j] suit for partition - one s died intestate leaving behind him his wife and five sons - he had got the suit schedule property as his share in a partition between him and his brothers - wife (widow) made a will in respect of entire property in favour of great grandson, as an absolute owner - she died pending suit for partition -trial court held the property was separate property of s and on his death his wife became the absolute owner and that the will executed in favour of d-5 (great grandson) is valid and dismissed the suit - first appellate court reversed the finding of the trial court and held that all the five sons are entitled to 1/5 share each and that deceased d-1 (widow) was not the absolute owner - second appeal held, since the plaint schedule properties were the separate and exclusive properties of deceased s upon, his intestate death, his properties are inherited by all his class-i heirs as per section 8 of the hindu succession act. even if the original defendant no.1 has enjoyed the plaint schedule properties along with her husband after the partition, she did not acquire any exclusive right over the properties. at best she was entitled to enjoy the same till her lifetime. to a case of this nature, as rightly held by the lower appellate court, section 14 of the hindu succession act has no application. no doubt, as per sub-section (1) of section 14 of the hindu succession act, any property possessed by a female hindu, acquired either before or after commencement of the act, should be held by her as full owner thereof and not as a limited owner, explanation to sub-section explains the term property. according to this section, property includes moveable and immovable properties acquired by a female hindu by inheritance, or devise, or at a partition, or in lieu of maintenance or arrears of maintenance, or by gift from any person. whether a relative or not, before, at or after her marriage, or by her own skill or exertion, or by purchase or by prescription, or in any other manner whatsoever, and also any such property held by her as streedhana immediately before the commencement of this act. as noticed above, the plaint schedule properties were not inherited by defendant no. 1 nor it was transferred to her by any modes known to law. admittedly, it was allotted to the share of her husband at a partition and her husband died intestate. soon after the death of her husband, the estate left behind by him will have to be shared equally by his class-i heirs as directed by section 8. therefore, the trial court is in error in applying the provisions of section 14 of the hindu succession act to the present case. under these circumstances, the lower appellate court is justified in reversing the judgment of the trial court in this regard. merely because the 5th defendant (great grant son) has successfully established the execution and attestation of the will, it does not ipso-facto establish that he was succeeded to all the properties. the testatrix should have right over the properties bequeathed so that the beneficiary under the will succeeds to the properties. having regard to the fact that the original defendant no.1was not the absolute owner of the properties mentioned under the will, she could not have bequeathed the entire extent of the properties in favour of the 5th defendant under the will. there is no dispute that upon the death of s, defendant no.1 being the widow was entitled to succeed to the properties of her husband along with her sons and daughter. therefore, she succeeded to 1/6th share in the properties left behind by her husband. the question is as to whether she could bequeath her undivided 1/6th share in the plaint schedule properties under a will? section 30 of the hindu succession act, no doubt, empowers an hindu to dispose of the properties by will or other testamentary disposition of any property, which is capable of being so disposed of by him or by her in accordance with the provisions of the indian succession act, 1925. explanation to section 30 explains as to what is the interest of a hindu which can be disposed of by will or other testamentary disposition. according to this explanation, only the interest of a hindu in a mitakshara co-parenary property which can be disposed of by him or her by way of will or other testamentary dispositions. in the case on hand, in the case on hand, it is clear that the plaint schedule properties were not mitakshara coparcenary properties, as according to the contentions of the contesting parities, the plaint schedule properties were the exclusive and separate properties of s having been allotted to him towards his share, under the partition. therefore, section 30 of the hindu succession act has no application to the facts of the case. upon the death of s, original defendant no.1 became entitled to 1/6th share in the plaint schedule properties and each of her children were entitled to similar shares. thus, she became the co-owner along with her children in respect of the plaint schedule properties. her share was definite and only the division by meets and bounds had been postponed. under these circumstances, the submission of the learned counsel for the appellant that the original defendant no.1 could dispose of her undivided 1/6th share in plaint schedule properties by way of a will as provided in section 59 of the indian succession act has great force and deserves to be accepted. therefore, there is no difficulty in holding that the 1st defendant had right to dispose of her undivided 1/6th share in the plaint schedule properties by way of a will. the will of d-1 to the extent of 1/6th share is valid and the four sons and lrs of one son who was deceased will get 1/6th share each. as regards the alienation made by one of the son (plaintiff-4) while effecting partition by metes and bounds to the extent possible the share of plaintiff-4 to be identified in item-b (which he has sold). indian succession act (39 of 1925), section 59:will a testator who is having an undivided interest can dispose of her share by way of a will. section 30 of hindu succession act has no application. section 63: will interpretation testatrix claiming to be the absolute owner of entire property bequeathing in favour of her great grandson finding of the court that she is entitled to 1/6th share held, the will is valid to the extent of her 1/6th share. d.v. shylendra kumar, j.1. this appeal under section 260a of the income tax act by the revenue is directed against the order dated 25.08.2003 passed by the income tax appellate tribunal in income tax appeal no. 1659/bang/2002, a copy of which has been produced as annexure-a to the memorandum of appeal.2. the substantial questions indicated in the memorandum of appeal for examination of which the appeal has been admitted are as under:9. whether the tribunal was correct in holding that the assessee is entitled to registration in accordance with section 12a of the act as it is carrying on activity of charitable purpose in terms of section 2(15) of the act without examining the various materials relied on toy the director (exemption) who had arrived at a categorical conclusion that a business activity was carried on by the trustees for their family benefit and consequently recorded a perverse finding.10. whether the tribunal was correct in proceeding to allow the appeal filed by the assessee without appreciating the issue regarding delay in sling the application seeking exemption in the proper perspective.3. the respondent, a trust which had been registered under the general provisions and brought into existence in terms of a trust deed dated 27.02.1992 and had been registered at the office of the sub-registrar on 28.02.1992 and it appears had undergone several changes with the trust deed being altered frequently.4. it appears one of the objects of the trust was imparting education and in the light of the trust running educational institutions and imparting education, was availing the facility of exemption in terms of sub-section (22) of section 10 of the income tax act up to the assessment year 1998-99.5. in view of the amendment brought about by the finance act, 1999 deleting the provisions of sub-section (22) of section 10, the assessee-trust could not claim exemption under the specific provision. but otherwise an organisation which had for its object education as one of its purpose could become an organisation which has a charitable purpose within the meaning of sub-section (15) of section 2 of the act and could have availed the benefits of exemption in terms of sections 11 and 12 of the act.6. however, for claiming the exemption benefits in terms of sections 11 and 12 of the act, an organisation so claiming exemption is required to make an application tinder section 12a of the act which was a provision in vogue since the year 1972 and which has also undergone changes and the commissioner of income tax could examine such an application and grant registration either prospectively or retrospectively from the date of coming into existence of the organisation, if the commissioner was so satisfied that the delay in seeking for grant of registration in terms of section 12a was properly explained and justified.7. it appears the assessee-trust had filed an application for grant of registration under section 12a by following the procedure in terms of section 12a a i.e., applying in the requisite form etc. as per application dated 26.04.2002. the assessee it appears also had claimed the exemption from the date of the inception of the trust viz., from 27.02.1992.8. this application was processed by the commissioner and in terms of his order dated 30.10.2002, copy produced as annexure-b to the memorandum of appeal, the application was rejected by the commissioner who noticed the following grounds for rejecting the application viz., (i) that amongst its object the trust also had activities which were commercial in. nature such as starting of industries in rural areas (ii) the trust also had the object of carrying on business in import and export (iii) the trust deed permitted the trustees to draw remuneration for services rendered and the trust was also charging fee or collecting fee both as tuition fee and otherwise from the students who were being admitted to the educational institutions run by the trust.9. in view of such finding, the commissioner thought that the trust was not really having a charitable purpose as its object and accordingly rejected the application.10. the aggrieved applicant-assessee appealed to the income tax appellate tribunal in terms of section 253(1)(c) of the act. the appellate tribunal in terms of the impugned order opined that notwithstanding the various discrepancies and misapplication of the funds of the trust as noticed by the commissioner, the trust nevertheless having the object of running educational institutions, would qualify as a trust having a charitable purpose as one of its objects and after referring to the various authorities on the subject, following the decision of allahabad high court in the case of commissioner of income tax v. red rose school reported in : (2007) 212 ctr (all) 394 and which in turn had followed several other like decisions of other high courts, allowed the appeal being of the view that the scrutiny as to the application of funds is an exercise required to be undertaken by the assessing officer and not necessarily by the commissioner while granting registration under section 12a in an application filed under section 12a and accordingly allowed the appeal, while reserving liberty to the assessing officer to examine the manner of application of funds as indicated in the returns filed by the assessee.11. aggrieved by this order, the present appeal. sri seshachala, learned standing counsel for the appellant-commissioner would very vehemently urge that the tribunal has committed an error in merely allowing the appeal without examining the actual reasons assigned by the commissioner for rejecting the application. that the commissioner had elaborately dealt with and had scrutinised the activities of the trust and had dealt with them in detail. that the observations of the commissioner indicated that the trust was not carrying on the activity of education with any charitable purpose, but it was carrying on the activity only for the remaining activities and even by imparting education that it did not qualify to be characterised as a charitable purpose and therefore, the tribunal is in error in simply allowing the appeal and directing grant of registration.12. learned standing counsel would also submit that as it appeared, the order of the tribunal had not indicated as to the date of grant of registration and not showing awareness to this aspect was again an error which had been committed by the tribunal and therefore, the second substantial question of law has also been raised.13. on the contrary, submission of sri parthasarathy, learned counsel for the respondent-assessee is that the tribunal is fully justified in allowing the appeal for the simple reason that it is by now well settled on authority of law that in an application under section 12a , the commissioner is only required to examine as to the nature and object of the trust as to whether the trust has any charitable purpose as its object and as to whether the trust is one carrying on that activity or totally otherwise.14. learned counsel for the assessee would also support the view taken by the tribunal with farther authorities other than those referred to by the tribunal and particularly, the judgment of our court in the case of sanjeevamma hanumanthe gowda charitable trust v. director of income tax (exemptions) reported in : (2006) 285 itr 327. relying on this judgment, submission of sri parthasarathy is that the commissioner is not required to examine the manner in which the funds are generated by the trust, as to whether it is from a charitable activity or business activity or the manner in which the funds are generated. but the question which is required to be addressed by the commissioner is only the manner in which the hinds are applied. whether it is applied for charitable purpose for which it is created and if not to examine the manner in which it is applied or otherwise. that question is not the one required to be examined by the commissioner. therefore, the tribunal is justified in allowing the appeal as the tribunal also noticed and as it is not in dispute that the assessee-trust had education as one of its objects and in fact it was carrying on the activity of imparting education and running an educational institution.15. it is also the submission of sri parthasarathy that the mariner of acquiring of funds is a matter which is necessarily to be examined at the stage of assessment by the assessing officer and that could not have weighed before the commissioner for refusing registration.16. we are of the view that the applicant before the commissioner did impart education in terms of section 12a , as it is not in dispute that one of the objects or even the main object of the trust is imparting education. it is also not in dispute that the trust is imparting education and it is not as though some other activity which is not in the nature of education is sought to be passed oil' in the name of education. so long as the trust has education as one of its objects which is one of the enumerated heads which qualify and come within the scope of charitable purpose as enumerated in sub-section (15) of section 2, it has to be accepted that the trust is having a charitable purpose as its object and may qualify for claiming exemptions in terms of sections 11 and 12 subject to fulfilling conditions enumerated therein and if so, grant of registration so long as the procedural requirements are complied is inevitable.17. it is not the finding of the commissioner that the applicant-assessee had not complied with any of the procedural requirements. the tribunal is fully justified in observing that the manner of application of funds and as to whether the applicant-assessee can claim the benefit of exemption in terms of sections 11 and 12 is a question which has to be examined by the assessing officer at the stage when it is urged and not by the commissioner when such question is not before the commissioner. it is hereby clarified and emphasized that while registration in accordance with the provisions of section 12a of the act is a condition precedent for claiming the benefits under sections 11 and 12 of the act a registration as per section 12a by itself, will not automatically confer the benefits of sections 11 and 12 on a trust, but the trust will get the benefit only on complying with the requirements of sections 11 and 12 of the act, which compliance can be examined by the assessing authority, while processing the return filed by the trust therefore, this appeal has to be dismissed.18. however, with regard to the other question sought to be agitated viz., the second question, we find it is academic, as it is submitted this question does not actually arise from the order of the tribunal which is impugned in this appeal.19. it is also submitted by sri parthasarathy, learned counsel for the assessee that the tribunal had independently examined this question and passed orders through a subsequent orders on an application filed by the assessee under section 252(4) of the act be that as it may, neither that order is under appeal nor the question is before us and as the question posed is not one arising out of the present order in appeal, it is not necessary for us to examine this question, as it is purely academic in this appeal.20. however, we make it clear that it is open to the revenue to agitate that question as and when it arises and if and when the matter is pursued by the revenue. without prejudice this appeal is dismissed.