TMI Blog1987 (5) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... nation to section 13(1) and section 13(2)(a) and section 13(3) of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that any part of the income or property of the appellant-trust was during the previous years relevant to the assessment years 1972-73, 1973-74 and 1974-75 used or applied directly or indirectly for the benefit of any person referred to in section 13(3)of the Income-tax Act, 1961 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the firm of Sobhagmal Gokulchand, Jaipur, and/or its partners were persons referred to in sub-section (3) of section 13 of the Income-tax Act, 1961 ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that any part of the income or property of the appellant-trust was lent to any person referred to in sub-section (3) of section 13 of the Income-tax Act, 1961, for any period during the relevant previous years without either adequate security or adequate interest or both within the meaning of clause (a) of sub-section (2) of section 13 and section 13(1) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and no adequate security has been taken and in view of the provisions of section 13(2)(a) of the Act, the assessee-trust could not enjoy exemption under section 11 or section 12. On appeal, the Appellate Assistant Commissioner of Income-tax, Central Range, Jaipur, by his order (annexure " G ") dated September 2, 1977, upheld the orders of the Income-tax Officer on the view that the provisions of section 13(2)(a) were applicable and the assessee was not entitled to exemption under section 11 or section 12. The Tribunal, on further appeal, by its order (annexure " H ") dated April 29, 1978, upheld the order of the Appellate Assistant Commissioner and held that the assessee cannot be granted exemption under section 11 or section 12 for the assessment years under consideration. Thereupon, this reference has been made by the Tribunal at the instance of the assessee. Originally, these references were registered as one reference case, but since the references relate to three assessment years, by order of this court dated February 3, 1987, the references have been ordered to be registered as three separate references, being References Nos. 98, 98A and 98B of 1979. Before we deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the provisions of section 13(2)(a) are attracted to the case of the assessee and in view of the aforesaid provisions, the assessee is not entitled to exemption under section 11 or 12 in view of clause (a) of sub section (1) of section 13 of the Act. Shri Jain, learned counsel for the assessee, has contended that the provisions of section 13(2)(a) cannot be applied to the present case inasmuch as the money of the assessee which is lying in deposit with Sobhagmal Gokulchand was neither lent without adequate security nor without adequate interest. The aforesaid submission of Shri Jain is in respect of all the three assessment years in question. As regards the assessment year 1972-73, Shri Jain has raised a further contention that the provisions of section 13(1)(c) and 113(2)(a) are not applicable for the reason that none of the partners of Sobhagmal Gokulchand could be regarded as a person mentioned in sub-section (3) of section 13 during that assessment year. We will first deal with the general contention urged by Shri Jain in relation to all the three assessment years, namely, that the provisions of section 13(2)(a) are not applicable because the money of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that the security that was furnished by the partners of Sobhagmal Gokulchand in respect of the monies of the assessee deposited with the said firm was an adequate security. In the present case, the Tribunal has held that the security referred to above was not adequate for the reason that the share of undivided family in the immovable property is not defined and there is no partition of the Hindu undivided family in respect of the secured property and that so long as the property is not divided, it would be difficult to know the share of the respective members of the Hindu undivided family in the said property. The Tribunal has also observed that before the authorities below or before the Tribunal, the actual document by which the immovable property was given as security was never filed and in the absence of such document or its copy, it would be difficult to accept that really the immovable property was given as security for the deposit made to the said firm by the assessee. We, however, find that a letter (annexure "A") dated October 29, 1976, was addressed by the trustees of the assessee to the Income-tax Officer wherein it was stated that the partners of Sobhagmal Gokulc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kulchand had lodged, by way of security, the title deeds of the immovable property situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, which was having a market value of Rs. 1, 50,000 at that time, as security for the monies of the assessee lying with the said firm. The said property was owned by the joint Hindu family consisting of three partners of Sobhagmal Gokulchand and the title deeds of the property had been lodged with the consent of all the members of the said Hindu undivided family. We are unable to appreciate the other reason given by the Tribunal for holding that the security was not adequate, namely, the share of the Hindu undivided family in the immovable property was not defined and there was no partition of the Hindu undivided family in respect of the secured property and so long as the property is not divided, it would be difficult to know the shares of respective members of the Hindu undivided family in the said property. As noticed earlier in the letter dated June 25, 1970, it has been mentioned that the property is owned by the joint Hindu family consisting of three members who were also partners of Sobhagmal Gokulchand and who had addressed the said letter date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jain has also urged that the question regarding adequacy of interest under section 13(2)(a) has to be judged from t common man's angle and it cannot be said that the rate of interest of 6 per cent. paid by Sobhagmal Gokulchand was not adequate rate of interest. Shri Jain has also urged that in any event it was for the, Department to produce evidence to show that interest paid by Sobhagmal Gokulchand was not adequate and that in the present case, there is no material on the record whatsoever to show that the said rate was not adequate. We find considerable force in the aforesaid submissions of Shri Jain. The Act does not lay down any criterion as regards determination of the adequacy of the interest paid on money lent by the trust. The rate of interest is dependent on various factors. The rate of interest is less where loan is with security and more where it is without security. The rate of interest for the purpose of deposit differs from the rate for the purpose of borrowing. For the purpose of judging the adequacy of the rate of interest in the present case, what is relevant to be considered is the rate prevalent in the market for the purpose of depositing money and the rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the said firm on the said money was not adequate and for that reason, the provisions of section 13(2)(a) are not attracted, we do not consider it necessary to deal with the other contention urged by Shri Jain in relation to the assessment year 1972-73, that none of the partners of the firm, Sobhagmal Gokulchand, could be regarded as person mentioned in subsection (3) of section 13 during the said assessment year. In these circumstances, we do not consider it necessary to deal with questions Nos. 2, 3 and 4 and the said questions are returned unanswered. Questions Nos. 1 and 5 are answered as under : Question No. 1 : On the facts and in the circumstances of the case, the Tribunal was not justified in holding that the trust could not be granted exemption under section 11/12 for the assessment years 1972-73, 1973-74 and 1974-75. Question No 5 : On the facts and in the circumstances of the case, the Tribunal was not justified in holding that any part of the income or property of the appellant-trust was lent to any person referred to in sub-section (3) of section 13 for any period during the relevant previous years without either adequate security or adequate interest or bot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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