Madras High Court
Commissioner Of Income Tax vs Young Women'S Christian ... on 18 February, 2021
T.C.A.No.784 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE: 18.02.2021
CORAM:
THE HON'BLE MR. JUSTICE M.DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI
T.C.A.No.784 of 2010
Commissioner of Income Tax,
Salem ... Appellant
Vs.
Young Women's Christian Association,
No.76-A, Cherry Road,
Hasthampatty,
Salem – 636 007. ... Respondent
Appeal preferred under Section 260A of the Income Tax Act,
1961, against the order of the Income Tax Appellate Tribunal, Madras,
"B" Bench, dated 11.02.2010 in I.T.A.No.1879/Mds/2009.
For Appellant : Mr.J.Narayanasamy,
Senior Standing Counsel
For Respondent : Mr.G.Baskar
JUDGMENT
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T.C.A.No.784 of 2010
(Judgment was delivered by M.DURAISWAMY, J.)
Challenging the order passed by the Income Tax Appellate
Tribunal, Madras "B" Bench in I.T.A.No.1879/Mds/2009, the Revenue
has filed the above appeal.
2.The assessee - Society filed an application under Section 10 on
19.01.2007 for registration under Section 12AA of the Income Tax Act
with a delay of 5 years and 10 months without any supporting evidence
and instrument of formation of the Society and bye-laws. There was no
response to the letters issued to the Society for production of the
instrument of creation for the Society. The Society also did not file the
instrument of creation of Society reflecting the bye-laws. A letter dated
05.04.2007 was sent to the assessee seeking the above details and the
activities of Trust, donations, donors, etc. Since there was no response
inspite of opportunity, the order dated 24.07.2007 was passed rejecting
the application for registration based on the materials available on record
as the Deed/Bye-laws did not have the necessary Clauses as enumerated
in Page – 1 of the CIT order, which are mandatory for granting
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T.C.A.No.784 of 2010
registration under Section 12AA. The said Clauses need to be in writing
and cannot be left open to assumptions for the purpose of compliance
under the Act governing the Trusts. On appeal by the assessee, the
Tribunal by order dated 12.09.2012, remitted the case back to the CIT for
re-consideration of the application of registration. On remittance, the CIT
gave another opportunity to the assessee and the assessee filed an
instrument of amendment containing amended bye-laws with effect from
14.06.2009. On the assessee's appeal, the assessee sought for registration
with retrospective effect being the original date of creation of the
assessee - Society by condoning the delay and the Tribunal had granted
the same. Aggrieved over the same, the Revenue has filed the above
appeal.
3.At the time of admission, the following substantial questions of
law arose for consideration:
“1.Whether on the facts and in the circumstances of
the case, the Income Tax Appellate Tribunal was right in
directing the Commissioner of Income Tax to condone the
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T.C.A.No.784 of 2010
delay in filing of the application and to grant registration to
the assessee Society with retrospective effect from the date
from which it was sought?
2.Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal was right in
holding that rectification / amendments made to the bye-laws
for the Society would operate retrospectively while granting
registration under Section 12AA of the Income Tax Act?
3.Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal was right in
holding that the mode of application of income, and funds
and the mode of investment for the Society could be locked
into only for assessment purposes and not at the time of
considering the application for registration, overlooking the
clear mandate provided in Section 12AA of the Income Tax
Act?”
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T.C.A.No.784 of 2010
4.Mr.J.Narayanasamy, learned Senior Standing Counsel appearing
for the appellant – Revenue submitted that the Hon'ble Supreme Court in
the judgment reported in (1996) 84 Taxman 248 (SC) [Commissioner
of Income-Tax Vs. Kamla Town Trust] held that the amendments to
the Bye-laws/Deed will have only prospective effect and cannot have
retrospective application for the purpose of any proceedings, including
granting registration. Further, the learned Senior Standing Counsel
submitted that the Tribunal grossly erred in holding that the said decision
does not apply to the Society and the same is not right in law. The
learned Standing Counsel further submitted that granting registration
under Section 12AA with effect from 12.09.2012 can only be prospective
and shall not operate retrospectively as sought for by the assessee.
5.Mr.G.Baskar, learned counsel appearing for the respondent –
assessee submitted that the amendment made by the Society shall not
alternate the objects of the Society, therefore, the order passed by the
Tribunal is proper. In support of his contention, the learned counsel
relied upon an un-reported judgment dated 24.02.2020 made in
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T.C.A.No.784 of 2010
T.C.A.No.957 of 2010 [Commissioner of Income Tax, Salem Vs.
M/s.Vasavi Manikandan Hospital Trust, No.48, Iyappa Hospital,
Andal Street, Shevapet, Salem 636 002] wherein the Division Bench
of this Court held as follows:
“...
6.We have heard the learned counsels and we are of
the opinion that the learned Tribunal, in these circumstances,
ought to have remanded the case back to the learned
Commissioner of Income Tax, so that the requisite
informations/documents furnished by the Assessee Trust
could be examined and verified by the learned
Commissioner of Income Tax, who was to consider the said
application on merits. However, the fact remains that the
Trust stands registered for the last ten years in pursuance of
the impugned order of the learned Income Tax Appellate
Tribunal. It was also open for the Revenue Authorities to
take steps for cancellation of the registration, if there was
any material against the Assessee Trust or they have violated
the conditions of registration or the provisions of the Act in
any manner. That course is even now open to the Revenue
Authorities. We do not find any useful purpose to be served
by now remanding the case back to the learned
Commissioner of Income Tax to consider the said
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application under Section 12A of the Act afresh at this stage,
as the said registration already stands granted about ten years
back and therefore, we dispose of the present appeal filed by
the Revenue only by making an observation that if any
breach or violation on the part of the Respondent/Assessee
Trust is found, they will be free to proceed against the
Assessee/Trust in accordance with law.”
6.On a careful consideration of the materials available on record
and the submissions made by the learned counsel on either side, it could
be seen that the Tribunal, while allowing the appeal filed by the assessee,
held that the ratio laid down by the Hon'ble Supreme Court of India in
the judgment reported in (1996) 84 Taxman 248 (SC) [Commissioner
of Income-Tax Vs. Kamla Town Trust] is not applicable to the case on
hand for the reason that the said case pertains to a Trust and the present
case pertains to a Society. The Hon'ble Supreme Court in the judgment
reported in(1996) 84 Taxman 248 (SC) [Commissioner of Income-Tax
Vs. Kamla Town Trust] held as follows:
“...
The order of rectification of an instrument of trust by
a civil court would not be a judgment in rem. it would be a
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judgment in personam binding on the parties to the rectified
instrument, namely, the settlor on the one hand and the
trustees on the other, as well as on the ultimate beneficiaries.
But a trust deed rectified pursuant to the order of the court
would make the rectification order relevant under the
provisions of section 11 of the Indian Evidence Act, as the
fact in issue in an enquiry before the Income-tax Officer
would be whether on the basis of the rectified trust
instrument the assessee-trust is entitled to get its income
exempted from tax under the relevant provisions of the
Income-tax Act. In such proceedings, therefore, the order
granting rectification of such instrument of trust would
remain relevant. The Income-tax Officer will have to take
the instrument as it exists in its amended form when it is
pressed in service for framing the assessment concerning the
relevant assessment year in which such rectified instrument
holds the field.
The assessee was a trust created by a trust deed dated
October 27, 1941, executed by a company which had its
registered office at Kanpur. The objects of the trust deed
were to construct a settlement or colony for their workmen
together with amenities in the shape of hospitals, schools,
temples, mosques, recreation places and for such other works
directly concerning the amenities of workmen. On
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T.C.A.No.784 of 2010
application by the company to the Town Improvement Trust
two plots had been demised to the company at concessional
rates for the welfare of its workmen by two deeds of
indenture in 1936 and 1938. The company transferred both
the plots by the trust deed of October 27, 1941, to the
trustees for effectuating its object of settling these plots upon
the charitable trust thereinafter mentioned in the deed. In
1945, the company filed a suit for rectification of the trust
deed, and the deed was rectified. Clause 2(b)(i) of the deed
as rectified laid down that the object of the trust was to
construct “residential quarters, chawls or buildings for the
workmen in general and in particular for the workmen, staff
and other employees of the company or other allied concerns
under the management of or in which the directors of the
company may for the time being be interested”. The High
Court while interpreting the deed in another case [(1971) 81
ITR 557] held that the objects of the trust deed as rectified in
1945 did not create a public charitable trust. There was a
further rectification of the trust deed in 1955, Clause (b)(i) of
the deed rectified in 1955 provided for construction of
residential quarters, chawls or buildings for the workmen in
the town of Kanpur and the surrounding areas and
extensions, and for their respective families and dependents.
Clause 2(b)(iv) empowered the trustees to erect such other
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T.C.A.No.784 of 2010
works, building and installations as the trustees may in their
discretion think fit to provide for the advancement of any
other similar object of general public utility. The Income-tax
Officer issued notices to the assessee under section 34 of the
Indian Income-tax Act, 1922, and section 148 of the Income-
tax Act, 1961, for the assessment years 1949-50 to 1965-66.
The assessments were completed. On appeal, the Tribunal
dismissed the assessee's appeals for the assessment years
1949-50 to 1955-56 but allowed those for the assessment
years 1956-57 to 1965-66 subject to the rider that the income
derived from the trust property by the assessee would be
exempt only within the limit permissible under Section
11(1)(a) of the Income-tax Act, 1961. On a reference of the
questions, inter alia, whether the assessee was not a public
charitable trust and its income was not exempt under section
4(3)(i) of the Indian Income-tax Act, 1922, for the
assessment years 1949-50 to 1955-56; whether the second
rectification decree dated May 10, 1955, operated
prospectively from the assessment years 1956-57 and did not
have effect of rectifying the deed of trust dated October 27,
1942, as from the date of its execution and whether the
objects and activities of the trust fell within the first limb of
the definition of charitable purpose in section 2(15) of the
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T.C.A.No.784 of 2010
1961 Act and the residuary clause thereof was not attracted
for the assessment years 1962-63 to 1965-66 and whether the
Income-tax Officer was entitled to adjudge the validity of the
rectification, the High Court answered all the referred
questions in favour of the assessee and against the Revenue.
On appeal to the Supreme Court:
Held, (i) upon a concession by the assessee, that the
rectification brought about by the order of the civil court in
1955, namely, the second rectification, had no retrospective
effect and would operate prospectively from the date on
which such rectification was effected and would cover
assessment years 1956-57 onwards up to the assessment
years 1965-66 and would not have effect for the assessment
years 1949-50 to 1955-56.”
7.The CIT, after remand, after taking into consideration the case of
both sides, rejected the case of the assessee following the judgment of the
Hon'ble Supreme Court of India in the case of Commissioner of
Income-Tax Vs. Kamla Town Trust reported in (1996) 84 Taxman
248 (SC) and held that the rectification shall not have retrospective effect
and would operate prospectively from the date when the rectification saw
the light of the day. However, the Tribunal erroneously allowed the
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T.C.A.No.784 of 2010
appeal observing that the order passed by the Hon'ble Supreme Court
pertains to a Trust and the same is not applicable to the assessee's case
which is a Society. The finding of the Tribunal cannot be sustained for
the reason that the Tribunal should have only followed the principle laid
down by the Hon'ble Supreme Court to the effect that the rectification
shall not have retrospective effect and would operate prospectively from
the date on which such rectification saw the light of the day.
8.The ratio laid down by the Hon'ble Supreme Court squarely
applies to the facts and circumstances of the present case. The
rectification/amendments made to the bye-laws of the Society would only
operate prospectively while granting registration under Section 12AA of
the Income Tax Act.
9.Following the ratio laid down by the Hon'ble Supreme Court in
the judgment reported in (1996) 84 Taxman 248 (SC) [Commissioner
of Income-Tax Vs. Kamla Town Trust], cited supra, the order passed
by the Income Tax Appellate Tribunal is liable to be set aside and the
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questions of law 1 and 2 are decided in favour of the Revenue –
appellant. The appeal is allowed. No costs.
[M.D., J.] [T.V.T.S., J.]
18.02.2021
Index : Yes/No
Internet : Yes
va
To
The Income Tax Appellate Tribunal, Chennai, "B" Bench
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T.C.A.No.784 of 2010
M.DURAISWAMY, J.
and
T.V.THAMILSELVI, J.
va
T.C.A.No.784 of 2010
18.02.2021
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