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Petitioner: THANTHI TRUST VS Respondent: WEALTH TAX OFFICER
Court Name: Madras High Court Judge(s): S. Mohan, Venkataswa mi Title: THANTHI TRUST vs WEALTH TAX OFFICER Case No.: Appeals Nos.652 and 653 of 1987 Date of Judgment:1989-04-20 Reported As: 1990 PTD 206 Result: Appeals allowed
JUDGMENT
JUDGMENT S. MOHAN, OFFG. C.J.--These two writ appeals arise out of the judgment of our learned brother, Justice Nainar Sundaram. Except that the years of assessment involved are different, the point involved is one and the same. The appellant is a trust known as "Thanthi Trust". This was created under an instrument of declaration of trust dated March 1, 1954. The purpose of the trust was to found a Tamil daily newspaper called "Daily Thanthi" as an organ of educated public opinion for the Tamil-reading public. This was to facilitate the dissemination of views and ventilation of opinion on all matters of public interest through the said newspaper. The appellant is an assessee on the file of the respondent. The trust was claiming exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, from 1955-56 onwards in respect of its income. Though there were several proceedings, ultimately, the claim for exemption came to be granted. After the coming into force of the Income-tax Act, 1961, exemption was again claimed under section 11 of the said Act. There were several protracted proceedings which led to the filing of numerous writ petitions. To the deed of declaration of trust dated March 1, 1954, a supplementary deed was executed by the donor on June 28, 1961, directing that the surplus income of the trust should be utilised only for educational purposes. The appellant thereupon filed C.S. No. 90 of 1961, by way of originating summons in the High Court. It was held by the High Court that the trustees were bound by the supplementary deed and, therefore, the entire income had to be spent for the purposes mentioned in the supplementary decd.
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There were proposals for the reopening of assessments. For the years 1968-69 and 1969-70, the Income-tax Officer rejected the assessee's claim for exemption under section 11(1) of the Income- tax Act. Aggrieved by such assessm ents, the appellant preferred I.TA. Nos. 21 and 41 of 1972-73. During the pendency of the appeals, the appellant had questioned the validity of the reopening of assessm ents in Writ Petitions Nos. 611, 1557 to 1559 and 3352 to 3357 of 1969 and succeeded. It was held by this Court that there was no possibility of the subsequent Income-tax Officers considering the nature of the trust and the application of its funds for the purpose of determining the question regarding the genuineness and validity of the trust. The said judgment was reported in Thanthi Trust v. I.T.O. (1973) 91 ITR 261 (Mad.). The Revenue filed S.C.P. Nos. 213 to 221 of 1972 and 27 and 66 to 69 of 1974 praying for leave of this Court to appeal to the Supreme Court against the judgment in Writ Petitions Nos. 1557 to 1559 of 1969 and 3352 to 3357 of 1969. This Court refused leave. Thereupon, the Revenue filed S.L.P. Nos. (Civil) 2959 to 2997 of 1975 in the Supreme Court and the Supreme Court by its order dated January 29, 1976, dismissed the same. While the matter stood thus, the appeal filed against the assessments stated above came to be allowed. The Revenue preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal, by orders dated April 22, 1978, and September 25, 1978, held that by reason of the judgment and decree in C.S. No. 90 of 1961, the objects of the trust are only those that are set out in the schedule to the decree and that they are charitable objects. The petitioner-appellant would be entitled to exemption in respect of such income derived from business as was shown to have actually parted with by it and actually spent on such charitable objects during the relevant previous years. Aggrieved by the Tribunal's order, the appellant as well as the Revenue sought reference of this Court. By judgment dated January 29, 1981, the reference was answered in favour of the appellant. It was held that the appellant-trust was a public charitable trust and could claim exemption under section 11 of the Income-- tax Act. Against the said judgment, the Revenue preferred S.L.P. (Civil) Nos. 10007 to 10012 of 1981 before the Supreme Court. By order dated February 24, 1984 [(1984) 146 ITR (St.) 1871, the Supreme Court dismissed (sic) the same. Thus, it is now beyond dispute that the appellant is a public charitable trust. As far as wealth-tax is concerned, for the assessment years 1977-78, 1978-79 and 1980-81, it was held that the appellant was not liable to assessment under the Wealth-tax Act in view of section 5(1) of the said Act. However, for the assessment year 1982-83, the respondent issued a notice dated October 7, 1982, calling upon the appellant-trust to file a return under section 14(2) of the Wealth --tax Act. Similarly, for the assessment year 1983-84 also, another notice dated September 13, 1983, was issued under section 14(2) of the Act calling upon the appellant to file a return under the Act. The appellant-trust sent its replies on November 16, 1982, and January 10, 1983, respectively, contending that the appellant was not liable to pay wealth --tax since there is a final adjudication to the effect that the appellant is a public charitable trust. Notwithstanding the same, the appellant filed a "nil" return for these years. Thereafter, no action was taken and the appellant was expecting, as a matter of course, a "nil" assessment order as in the previous years. But, to its shock and surprise, the respondent issued notices on January 22, 1987, calling upon the appellant to attend an enquiry with regard to the assessm ent of wealth --tax for the years 1974-75 and 1975-76. The appellant was also called upon to produce the balance-sheet and other records. It is under these circumstances that a writ of mandamus was filed restraining the respondent from proceeding further with the wealth-tax assessm ent. The grounds raised are: (i) The appellant is a public charitable trust and is, therefore, not liable to assessment in respect of its assets under section 5(1) of the Wealth-tax Act.
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(ii) In so far 'as by orders dated November 30, 1982, and March 15, 1985, the respondent himself had held that the appellant is not assessable to wealth-tax, the Revenue is now estopped from proceeding to assess. (iii) In view of the decision of this Court which has become final between the parties as to the nature of the trust, it is no longer possible for the Revenue to take any decision otherwise than holding the appellant as a public charitable trust. (iv) In view of the mandatory provisions of section 5(1) of the Wealth-tax Act, the respondent has no power and jurisdiction to make any assessment on the assets of the appellant. Hence, the proceedings initiated are null and void. Thus, two writ petitions, Writ Petitions Nos. 2288 and 2289 of 1987, one for the year 1974-75 and the other for the year 1975-76, came to be filed. They were dismissed in limine by our learned brother, Justice Nainar Sundaram, by order dated March 10, 1987. He was of the view that the appellant can put forth all its contentions before the assessing authority who would consider the same with due care and caution without giving room for any grievance to the appellant. Thus, Writ Appeals Nos. 652 and 653 of 1987 came to be filed. Each assessm ent year is a separate and self-contained one. Therefore, the question of estoppel or res judicata will not arise. Merely because for the assessment years 1977-78, 1078-79 and 1980-81 one view was taken, it does not estop the respondent from taking proceedings for the assessment years in question, namely, 1974-75 and 1975-76. For the assessm ent year 1974-75, proceedings under section 17 of the Wealth-tax Act were initiated on March 17, 1983, on the ground that the respondent had reason to believe that by reason of the omission on the part of the assessee-trust to furnish a return of wealth under section 14(1) of the Wealth-tax Act, wealth chargeable to tax has escaped assessment. In response to the said notice, the appellant has filed a "nil" return of wealth on April 16, 1983. In that it claimed exemption. Therefore, it became necessary to issue a notice under section 16(2) of the Act for the production of certain records. It becomes necessary to find out the applicability of section 21A of the Wealth-tax Act which involves consideration of the user or application of the properties and income of the assessee- trust during the relevant year of assessment, namely, 1974-75. Should the appellant satisfy that section 21A is not attracted to it, then, exemption must be granted to it. Such a factual enquiry cannot be gone into within the narrow scope of writ jurisdiction. Similarly, for the assessm ent year 1975-76, proceedings under section 17 of the Wealth-tax Act were taken on March 24, 1984, on the ground that the assessee would be liable to wealth-tax. The appellant did not file any return under section 14(1). On April 7, 1984, the appellant filed a "Nil" return for the assessm ent year 1975-76 claiming exemption. A notice under section 16(2) of the Wealth- tax Act, was issued on February 24, 1987, requiring the production of certain documents. As submitted above, since the applicability of section 21A to the appellant-trust has to be determined, it is open to the appellant to raise all the points before the assessing authority. Hence, the writ petitions are not maintainable. A detailed reply affidavit has been filed stating that notice under section 17 of the Wealth-tax Act can be issued and jurisdiction assumed by the Wealth --tax Officer only if the conditions precedent for the assumption of jurisdiction under section 17 of the Wealth-tax Act are satisfied. The conditions precedent for the assumption of jurisdiction do not exist in this case. Therefore, the appellant is entitled to invoke Article 226 of the Constitution. Therefore, the question of invoking the alternative remedy available under the Wealth-tax Act does not arise. For the assessm ent year 1975-76, the notice under section 17(1) is invalid and inoperative because it has been addressed to "Thanthi Trust" and not to the proper person. The said notice has also not
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been served in accordance with section 41 of the Wealth-tax Act. The trust is not an assessee liable to assessm ent. When the Wealth-tax Officer himself had granted exemption under sections 5(1) of the Act and has dropped proceedings for the earlier years, the not wealth cannot be said to have escaped assessm ent by reason of the trust not having filed any return of not wealth for the relevant assessm ent year; nor can the not wealth of the trust be said to have escaped assessment by reason of any omission or failure on the part of the trust to disclose fully and truly all material facts. Dr. Debi P.I, learned counsel for the appellant, after taking us through the relevant provisions of the Wealth-tax Act as well as the Income-tax Act, submits that under section 21A of the Wealth-tax Act, the trustee or the manager of the trust alone is liable where the trusts are of public charitable nature. It is not the case of the other side that there is any change in the constitution of the appellant-trust. As a matter of fact, the records in this case clearly disclose that the return for the year 1974-75 has been filed. It was in that connection that the particulars for the assessment year 1974-75 were required. Even if reasons had been recorded, whether they have a reasonable nexus is a matter which can certainly be gone into by this Court. In this case, it is not even stated by the Wealth-tax Officer that section 21A of the Act is applicable to the facts and circumstances of the case. He would have it in the counter affidavit that the applicability of the provisions of section 21A has to be considered. This certainly does not fall within the scope of section 17 of the Act. Citing the decision in Sheo Nath Singh v. AAC of IT (1971) 82 ITR 147 (SC), it is submitted that there must be reason to believe that income has escaped assessment. So long is that is lacking in this case, the issue of notice cannot be supported. Regarding the assessm ent year 1974-75, returns have been filed as' of fact. That cannot be gainsaid. It is somewhat surprising that for the assessment year 1976-77, the trust has received a "nil" demand notice on December 4, 1981: This is squarely based on the judgment in CIT v. Thanthi Trust (1982) 137 ITR 735. For the subsequent years also, it was a case of "nil" demand though section 21A was there. All that the appellant would endeavour to contend is that there is no finding or reasonable belief that section 21A is applicable. It has been held in Writ Petition No. 540 of 1981, etc., batch, as well as in Hari Babu v. CIT (1974) 96 ITR 118 (All.), that the -mere non-filing of a return will not enable action to be taken under section 34 of the Indian Income-tax Act. (i) The officer must have reason to believe that not wealth has escaped assessment; and (ii) The escapement is due to the non-filing of return or omission or failure to disclose in the return all material facts. The same view has been taken in several cases, namely, I.T.O. v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Ganga Saran and Sons P. Ltd. v. I.T.O. (1981) 130 ITR 1 (SC); Indian Oil Corporation v. I.T.O. (1986) 159 ITR 956 (SC) and I.T.O. v. Madnani Engineering Works Ltd. (1979) 118 ITR 1(SC). If a return has been filed, unless there is an assessment, no question of escapement would ever arise. This submission is supported by the rulings in CIT v. Ranchhoddas Karsondas (1959) 36 ITR 569 (SC) and CIT v. M.K.K.R. Muthukaruppan Chettiar (1970) 78 ITR fig (SC). Though an attempt was made to urge that the reopening of assessment is time-barred and that the notices are time-barred, that has not been persisted with. The next submission of learned counsel for the appellant is that assuming without admitting that section 21A applies to this case, no notice can be issued to the trust as the trust is not liable but it is only the manager or the trustee who is liable. This proposition is beyond dispute since in C.W.T. v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555 (SC), the Supreme Court has categorically laid down the same. The same view is also found expressed in CIT v.
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Thayaballi Mulla Jeevaji Kapasi (1967) 66 ITR 147 (SC). Then the question would be that, if the notice is invalid, what happens. Section 41 of the Wealth-tax Act speaks of service of notice. Section 3 of the Wealth-tax Act is the charging section. When that section says that not wealth is chargeable, one has to obviously refer to section 2(m) which defines "not wealth". Such not wealth must belong to the assessee. In the case of a trust, the assets belong to the trustee. Hence, the trust cannot be made liable. In other words, a trust is not an assessable unit. A careful reading of section 17 of the Wealth-tax Act postulates an obligation to file a return under section 14 of the said Act. In other words, only if the not wealth is exigible to tax, there is an obligation to file a return. Therefore, section 5(1)(i) does not impose a statutory obligation on the appellant-trust which is a public charitable trust to file a return. For this proposition, reliance is placed on the decision in CIT v. Thanthi Trust (1982) 137 ITR 735. As a matter of fact, this position has been made still clearer in Modi Charitable Fund Society v. I.T.O. (1983) 142 ITR 818 (All.), wherein the Allahabad High Court has held that if there is no statutory obligation to file a return, it could not be said that income chargeable to tax has escaped assessment. In that case, it has been pointed out that under section 139(4A) of the Income-tax Act, even if the trust is exempt, the Income-tax return will have to be filed. As far as the Wealth-tax Act is concerned, there is no such provision. Section 21A of the Wealth-tax Act merely enables assessment if there is a diversion of the income by the trustees. In the case on hand, the stand of the appellant-trust is that it is exempt. If that be so, there is no statutory obligation on it to file a return under section 14(1) of the Wealth-tax Act. Mrs. Nalini Chidambaram, learned counsel appearing for the respondent, would submit that this is not a case, first and foremost, where it could be said that the officer has no reason to believe. The officer has recorded his reasons on a perusal of the Income-tax returns. As of fact, no return was filed for the year 1974-75. For the year 1975-76, reasons had been recorded and, therefore, the department is placing the records before this Court to establish that there were justifications for invocation of section 17 of the Wealth-tax Act. The next submission is that there is an obligation on the part of every trust to file a return after introduction of section 21A in the Wealth-tax Act. In Managing Shebaits of Bhukailash Debutter Estate v. WTO (1977) 106 ITR 904 (Cal.), a lacuna was pointed out in the then existing Wealth-tax Act and only to remove that lacuna, section 21A was enacted. Therefore, to say that merely because the trust considers itself to be exempt and consequently no return need be filed is untenable. As far as the assessm ent year 1974-75 is concerned, if, in fact, no return was filed, that would be clearly applicable. The delay in f1ling the writ petition would establish acquiescence by filing a return. It is not correct on the part of the assessee to contend that for the years anterior and posterior to the years in question, exemption has been granted and, therefore, for the years in question the appellant-trust should be exempt. Such an argument ignores the fact that each assessm ent year is an independent unit. The contention that the notice to the trust is invalid cannot be accepted. The decision in Thiagesar Dharma Vanikam v. CIT (1963) 50 ITR 798 (Mad.), puts the matter clearly beyond doubt. Furthermore, such a point was raised only in the reply affidavit. 1n any event, having regard to the terms of section 42C of the Wealth-tax Act, the defect in the impugned notice is curable. The decision in Coimbatore Club v. WTO (1985) 153 1TR 172 (Mad.), is a clear authority for the proposition. Again, in the case of a club which is a society registered under the Societies Registration Act, it was held to be an individual unit as could be seen from the decision in 1. Devarajan v. Tamil Nadu Farmers Service Co-operative Federation (1981) 131 ITR 506 (Mad.). Thus, it is urged that there are no valid grounds for the assessee to come by way of a writ petition and claim exemption. On the question whether the notice is valid, the contention that the defect in the notice is a curable defect is totally wrong. Section 2(31) of the Income-tax Act defines "person" which term includes a plurality of individuals. Such a case came to be dealt with in Thiagesar Dharma Vanikam v. CIT
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(1963) 501TR 798 (Mad). But, here, certainly, it cannot be contended that the trust is juristic person or a corporate person. The decision in Trustees of Gordhandas Govindram Family Charity Trust v. CIT (1973) 88 ITR 47 (SC), is a clear authority on this proposition. This will also be clear because section 21(1) of the Wealth-tax Act says that Wealth-tax shall be lived upon and recoverable from the manager or the trustee. Section 21(2) of the said Act gives an option to the Wealth-tax Officer to levy either on the trustee or on the beneficiary. These two sections are not applicable to public charitable trusts since the beneficiary is indefinite. That is why section 21A of the Act specifically provides for the assessm ent to be made on the trustee since the beneficiary is indefinite. Section 41 of the Wealth-tax Act contemplates service of notice on a "person" since a trust is not a "person". The contention that service of notice is a mere procedural requirement has been rejected in CIT v. Thayaballi Mulla Jeevaji Kapasi (1967) 66 ITR 147 (SC). 1n the case on hand, notice was not served either on the manager or on the trustee but was merely addressed to "Thanthi Trust". It is the service of notice, which must be at reasonable hours that gives jurisdiction as seen from the- above decision, namely, CIT v. Thayaballi Mulla Jeevaji Kapasi (1967) 66 ITR 147 (SC). Section 42C of the Wealth-tax Act cannot come to the aid of the Department. That talks merely of procedural defects. The decision cited in this behalf is P.N. Sasikumar v. CIT (1988) 170 ITR 80 (Ker). Likewise, in Sewlal Daga v. CIT (1905) 55 ITR 406 (Cal), where there was an improper service of notice, the notice was held to be invalid. The points that arise for determination in this case are as follows: (i) Whether there is scope for invoking section 17(1) of the Wealth-tax Act in this case for the assessm ent years in question? (ii) Whether there is scope for invoking section 21A of the Wealth-tax Act in this case? (iii) Whether the notice issued is valid? We will set out now the facts as briefly as possible. On November 23, 1976, for the assessment year 1976-77, a notice under section 14(2) of the Wealth-- tax Act (hereinafter called the "Act") was issued. On September 11, 1978, for the assessment year 1973-74, the Wealth-tax Officer asked the appellant to give the details of location of the land, the extent of the land and the total value of the land. It was specifically stated in the letter of the Wealth-tax Officer that the said information was asked for several assessm ent years including the assessment year 1974-75. On September 19, 1978, the appellant-trust requested the Wealth-tax Officer to disclose the reasons. On September 20, 1978, the Wealth-tax Officer again wrote to the appellant to furnish the particulars referred to in the letter dated September 11, 1978. It was pointed out by the Wealth-tax Officer that as the assessments for the said assessm ent years including the assessment year 1974-75 were getting time-barred, no further extension of time would be granted. On October 21, 1978 and October 27, 1978, the appellant-trust received notices from the District Valuation Officer to the effect that the valuation of the property belonging to the trust has been referred under section 16A(1) of the Act by the appropriate Wealth-tax Officer. On October 23, 1978 a similar notice was received from the Valuation Officer, Valuation Cell, Coimbatore. On November 3, 1978, the trust wrote to the Valuation Officer stating that the trust claims exemption under section 5(l) of the Act and, as such, the proceedings under section 16A of the Act should be dropped. On December 19, 1978, the Valuation Officer stated that, on a reference of the matter to the Wealth-tax Officer, Central Circle XII, Madras, the Wealth-tax Officer had reiterated his request for valuation of the property. Therefore, it was not possible to stay the valuation proceedings. On December 20, 1978, the Valuation Officer sent two notices to the appellant-trust pointing out that the Valuation Officer would be visiting the Madurai Office on January 5, 1979, and the Madras office on January 2, 1979: On December 29 1978, the Valuation Officer cancelled the proposed visit for some official reasons. Thereafter, no proceedings were continued in relation to the assessment
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year 1973-74. On March 31, 1979, the Wealth-tax Officer wrote to the trust stating that the wealth-tax proceedings for the assessm ent years 1965-66, 1966-67, 1967-68 and 1909-70 were dropped. It requires to be stated at this stage that no proceedings were initiated for the assessment of the not wealth of the trust in respect of the assessment years 1970-71, 1971-72, and 1972-73. While the matter stood thus, on January 29,1981, this Court held, as could be seen from the decision in CIT v. Thanihi Trust (1982) 137 ITR 735 (Mad.), that the property held by the Thanthi Trust was entitled to exemption under section 11 of the Income-tax Act, 1901. As the trust is for public charitable purposes, as referred to earlier, special leave to appeal against the said decision on that question was refused (sic) by the Supreme Court. On December 4, 1981, the trust received a "nil" demand notice for the assessm ent year 1976-77. On March 7, 1985, for the assessme nt year 1977-78, the trust filed a "nil" return under protest because it was visited with a notice under section 14(2) of the Act on September 3, 1977. On March 13, 1985, the trust received a "nil" demand notice for the assessment year 1980-81. For the assessm ent year 1979-80, no proceedings were initiated. As regards the assessm ent year 1981-82, no notice under section 14(2) of the Act was served simply because the proceedings were barred by limitation. This gives a complete gist of the case. Section 3 of the Act is the…
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