Commissioner Of Income-Tax vs A.R. Chadha And Co. India (P.) Ltd.
2000 Latest Caselaw 997 Del

JUDGMENT

Arijit Pasayat, C. J.

1. At the instance of the Revenue, the following question has been referred under Section 256(1) of the Income-tax Act, 1961 (for short the "Act"), by the Income-tax Appellate Tribunal, Delhi Bench "C" (in short the "Tribunal"), for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in deleting from the income of company for the assessment year 1970-71, the property income of Rs. 60,185 in respect of the property situated at No. 8/57, Kirti Nagar, New Delhi, and in holding that the said property income belonged to Atma Ram Sanatan Dharam College, New Delhi ?"

2. The factual position is almost undisputed. The assessee acquired Plot No. 8/37 Kirti Nagar, New Delhi, as per deed of conveyance, dated May 29, 1967. A factory was built thereon as sanctioned by the Municipal Corporation of Delhi's order dated January 31, 1967. The property was let out to Liberty Shirts, Bombay (Delhi Clothing Co.) at a monthly rent of Rs. 7,380. Sanatan Dharam Sabha, Rawalpindi, registered at Delhi had been running and financing a college under the name and style of Sanatan Dharma College al Dhaula Kuan, New Delhi. Till the beginning of 1967 Sanatan Dharma Sabha had spent approximately Rs. 10 lakhs out of its own funds or from public donations towards the purchase of land, the erection of the college building, equipment, etc., and had also been meeting a part of the maintenance expenses of the college. As the Sabha was finding it difficult to meet the recurring expenditure of the college and also pay some outstanding bills towards construction of the college building, it approached the assessee through its chairman, Shri A. R. Chadha, for financial assistance. Considering the said request, the board of directors of the company in its meeting held on May 2, 1968, authorised the chairman of the company to settle the income of the company from its property at Kirti Nagar for the benefit of the college, if he considered it advisable. With the authority of the board of directors, the chairman of the assessee-company offered certain suggestions in his letter dated May 18, 1968, to the secretary of the sabha for its consideration. One of the suggestions, inter alia, was to make the income of Kirti Nagar property permanently available for the needs of the college, subject to the college authorities undertaking the responsibility of paying the taxes in respect of the property and maintaining the building properly. The chairman proposed in the said letter to have an appropriate resolution adopted by the board of directors to give effect to such suggestions and send a copy thereof to the sabha. An extraordinary general meeting of the shareholders of the company was held and on June 25, 1968, certain resolutions were adopted. Subsequently, on June 29, 1968, another such meeting was held and the earlier resolution was supplemented. In the first resolution, it was resolved to settle the rental income of the property irrevocably in favour of the college in terms of the arrangement of Shri A. R. Chadha vide his letter dated May 18, 1968. The transfer of rental income was confirmed. By the second resolution it was adopted that in addition to settlement of the rental income, the property shall constitute the endowment fund of the college as required by the University of Delhi and the property will be held under trust named as Atma Ram Chadha Sanatan Dharam College Endowment Fund Trust wholly for charitable purposes with effect from July I, 1968. The Income-tax Officer, for the assessment year 1970-71, assessed the rental income in the hands of the assessee, treating it to be the real owner of the property. Accordingly, the Appellate Assistant Commissioner (in short the "AAC"). held that the income in question was not to be included in the assessee's total income. The Revenue preferred an appeal before the Tribunal. On consideration of the background facts, the Tribunal confirmed the conclusions of the Appellate Assistant Commissioner.

3. On being moved, reference has been made as aforesaid.

4. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessee in spite of notice.

5. Learned counsel for the Revenue submitted that a distinction has to be made between settlement of income and the divesting of property. We find that in the case of the assessee, the intention was to divest both the property as well as income therefrom as is borne out from the material on record. Therefore, the conclusions of the Tribunal cannot be faulted. We accordingly answer the question referred in the affirmative, in favour of assessee and against the Revenue.

6. The reference is accordingly disposed of.