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TMI Blog1984 (10) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... l return the assessee declared its method of accounting as mercantile. The ITO observed that as per the original return and the assessee's audited accounts there was infringement of section 13(1) (c) (ii), read with section 13(3), of the Income-tax Act, 1961 ('the Act') as the income/property of the trust was used or applied for the benefit of 'excluded' persons. 3. The assessee filed a revised return before the ITO claiming to change its method of accounting from 'mercantile' to 'cash' but the ITO rejected this claim on the ground that the accounts for the previous year ending on 30-6-1977 had already been closed and adjusted and the assessee could not change the method of accounting by filing a revised return much after the close of the accounting year. The ITO accordingly held that the entire income of the trust amounting to Rs. 3,51,446 was taxable. The assessee carried the matter to the Commissioner (Appeals) and stated that donations of Rs. 2.70 lakhs were 'receivable' from three companies as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of income even though an entry to that effect might have been made in the books of account. In that case the assessee-firm was managing agent of two shipping companies and for the period 1-4-1947 to 31-12-1947 managing agency commission had become due to the assessee-firm but in November 1947 the assessee-firm agreed to transfer the managing agency to two private companies and agreed to accept only a part of the managing agency commission and give up 75 per cent of its earnings. The Supreme Court held that the managing agency commission given up by the assessee-firm was not its income. The Commissioner (Appeals) accepted the assessee's contention that the donations of Rs. 2.70 lakhs were not the assessee's income as the same had not been received. The Commissioner (Appeals) did not decide the point whether the assessee was following cash system of accounting or mercantile system of accounting. He, however, observed that only system of accounting that could possibly be followed by a charitable trust was cash system. 4. The revenue is in appeal before us. The learned departmental representative pointed out that a perusal of the assessee's accounts clearly showed the receipt of do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had accepted the assessee's contentions that the donations having not been received did not form part of the assessee's real income and that in the case of the donors, the ITO had not allowed deductions for the promised donations under section 80G (2) of the Act, as under that section only amounts paid were entitled to deduction. 6. we have considered the submissions of both the parties. We, however, feel that in view of the factual position brought out in the year under consideration (the assessment year 1978-79) we a re unable to follow our order for the assessment year 1977-78 where the factual data available to us in the assessment year 1978-79 was not before us for deciding the said appeal for the assessment year 1977-78. we see force in the revenue's contention that the assessee-trust and the donors and the recipient of the donations (namely,AtmaRamSanatanDharamCollege) all belong to the same group and, therefore, the book entries debiting the donors and creditingSanatanDharamCollegeare not mere empty book entries. We, however, feel that for having a complete picture, the accounts of the donors are also examined to find out how the donors have treated the said donations in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the preceding assessment year, viz., 1977-78 in IT Appeal No. 3957 (Delhi) of 1980 holds good and takes care of the issue involved in the present appeal, more so, when both of us were partly to the said order dated 3-7-1982, on this short ground, I will reject the ground taken by the revenue and dismiss the appeal. 3. The above reasoning apart, the ground taken by the revenue in the present appeal, reads as under : "On the facts and in the circumstances of the case, the learned Commissioner (Appeals) is not justified in deleting the addition of Rs. 2,70,000 on account of donations receivable and credited to the profit and loss account of the assessee." The ground itself speaks of the fact that addition made by the learned ITO at Rs. 2,70,000 is on account of donations 'receivable' and in the view of the matter a 'receivable' donation cannot be taken as income i.e., the real income of the assessee. since the assessee has not received donations and it is receivable, the treatment of the receivable donations in the books of account maintained by the assessee for the assessment year under appeal do not decide the issue. The entries in the books of account or else the treatmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been received shall not be taken into account. Since in the case of the assessee the contribution are receivable and have not been received, these cannot be equivated with income, hence, section 13(3) will not apply. 5. In the net result, the ground taken by the revenue before us as also the appeal, stands rejected. POINTS DIFFERENCE FOR REFERENCE TO THIRD MEMBER. 1. Whether entries in the assessee-trust's account books debiting the donors with the amount of donations and crediting the amounts to the account toAtmaRamSanatanDharamCollegedid not amount to receipt of donations, when the assessee was following mercantile system of accounting ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was bound to follow its own earlier order for the assessment year 1977-78 ? 3. Whether, on the facts and in the circumstances of the case, Rs. 2.70 lakhs was assessable as income in the hands of the assessee-trust for assessment year under appeal ? THIRD MEMBER ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per Shri T. D. Sugla, President - On a difference of opinion between the learned Members who heard the appeal, originally, the following points of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the learned Accountant Member. In particular, placing reliance on the decision of the Supreme Court in the case of CIT v. Brij Lal Lodha and Mahabir Prasad [1972] 84 ITR 273 Khemka he submitted that the order of the learned Accountant Member is a proper order both in law and on merits. The learned Accountant Member has been conscious of the fact that for the earlier year a Bench constituted of those very Members, had taken the same view as has been taken by the Commissioner (Appeals) for the year under appeal. According to Shri Kapila, the Accountant Member has not raised or decided any legal issue in his order. He has noted some facts which were not on records in the proceedings for the earlier year. Even then, being conscious of the Tribunal's order for the earlier year, the learned Accountant Member has only restored the matter to the file of the ITO for investigation and decision afresh according to law. It is pointed out that the Judicial Member has not found fault with the facts noted by the Accountant Member. Emphasis in this context is laid on the fact that at least the donation of Rs. 10,000 from Atma Ram Construction (P.) Ltd., was certainly received construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount, Shri Sen has also pointed out that no part of the donations was or could be applied as none was received. 6. In reply, Shri Kapila has placed reliance on the decisions of the Supreme Court in the cases of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 and CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 and rules 11 and 29 of the Income-tax (Appellate Tribunal) Rules, 1963, for the purpose of showing that the Tribunal is justified in examining the material facts even though the ITO has proceeded on the assumption that the facts in the two years were identical. According to him, unless the books of account of Atma Ram Sanatan Dharam College in whose favour credit entries have been made in the assessee's books are seen it is not possible to come to the conclusion that the donations have not been actually received. That is why, the Accountant Member decided to restore the matter to the file of the ITO for investigation. For this purpose, reliance has been placed on the decisions of the Delhi High Court in the cases of Indian Glass Agency v. CIT [1982] 137 ITR 245 and Prominent Motors (India) v. CIT [1983] 140 ITR 326 to indicate the effect of the book entries. It is st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in his order. In the circumstances, I do not consider it necessary to examine the legal issue raised in the order of the learned Judicial Member. The issue, according to me is very simple. A material fact was noticed this year by the learned Accountant Member which either did not exist in the earlier year or was not brought on record. The Tribunal, in my view, is not only justified in taking cognizance of this fresh fact but is also obliged to do so. It is a different thing that having regard to the fact that for the purpose of considering whether the income of a trust has been applied or not what is necessary is whether any amount has been received during the year in the absence of which it will be impossible to apply, it was not really necessary to investigate as to what happened to the alleged donations in subsequent years. More so, as I am satisfied on going through the accounts and the entries shown to me on behalf of the assessee that donations to the extent of Rs. 2,60,000 were not, in fact, received during the previous year. The net result is, thus, likely to be that the taxable income of the assessee for the year will have to be increased by Rs. 10,000. For this purpose, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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