TMI Blog1994 (10) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... etained a lien over the property in question as and by way of security for the unpaid purchase consideration of Rs. 1,85,000. 4. Two other undisputed facts need to be noticed here. First, the vendee, A. Vellayan, is the son of one Arunachalam and the grandson of the settlor, the said Arunachalam being one of the four trustees of the trust. Secondly, the vendee, it is a matter of record, paid interest at the rate of 9% per annum on the unpaid purchase consideration. 5. In the course of the assessment proceedings for the assessment year 1985-86, the Assessing Officer found that the said purchaser, namely, Vellayan, being the son of one of the trustees, is a person coming within the purview of section 13(3)(a) read with Explanation No. 1(iv) to sections 11, 12, 12A and section 13 of the I.T. Act, 1961. 6. Thereafter, he directed his attention to the question whether the sale consideration of Rs. 3,85,000 was adequate. The assessee's case was that the sale consideration was adequate. In this regard it relied on the certificate (dated 3-10-1985) given by C.N. Srinivasan, an approved valuer, who had valued the property at Rs. 3,85,000 roundly. On his part, the Assessing Officer f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(1) of the Act. He found that the assessee had lent some money to one Children Benefit Trust, charging interest at the rate of 10% per annum only. According to him, interest at 15% per annum was the adequate rate of interest. He, therefore, brought to charge a sum of Rs. 325 (representing the differential rate of interest of 5%) in the hands of the assessee. He also held that such lending of money attracted the provisions of section 13(1)(d) read with section 11(5) of the Act. 11. The assessee had claimed that it had applied for charitable purposes an aggregate sum of Rs. 24,351, the break-up of which is as follows : Rs. Donation 10,881 Expenses 8,673 Plan for Coimbatore house 3,196 Expenses relating to Coimbatore house 1,601 As for the expenses of Rs. 8,673, the Assessing Officer held that only Rs. 94 was revenue deductible. As for the donation of Rs. 10,881 the Assessing Officer held that the assessee was entitled to deduction under section 80G of the Act in respect of an aggregate sum of Rs. 6,101 only. He, therefore, disallowed the balance of amount. As for the expenses on Coimbatore house, he held that they had been incurred on capital account and not on rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 13(1) nor section 13(2) of the Act contemplates any addition to be made to the total income of the trust. Taken together, they indicate the circumstances, actual and deemed, in which the total income of a charitable trust would not be eligible for exemption under section 11. If the circumstances detailed in sections 13(1) and 13(2) of the Act are noticed in a particular case, then the only effect is that the trust in question is deprived of the benefit of exemption under section 11 of the Act. We are unable to find anything in these sections even remotely suggesting that any addition could be made to the total income of the trust. To hold that the existence of any one or more of the circumstances detailed in those sections, besides depriving the trust of the benefit of exemption under section 11, would also warrant certain additions to the total income of the trust, is to read into those sections something that is not there in those sections. Particularly, in relation to the deeming provisions of section 13(2) of the Act, to do so would be to add to the section a further deeming provision which is not there. 20. The provisions of section 10(2A) of the Income-tax Act, 1922, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for that particular year. (iii) Section 10(2A) did not go further and provide that, in a case where the business was discontinued before the commencement of the previous year, i.e., the year of remission or cessation, it should be deemed to have continued during that year notwithstanding its discontinuance. Thus, the Gujarat High Court did not permit the department to introduce into section 10(2A) of the old Act a fiction that Parliament had not incorporated into that section. 22. In the case of Ramanlal Amarnath (Agency) Ltd v. CIT [1973] 91 ITR 250, the Bombay High Court followed the aforesaid Gujarat case. 23. The Income-tax Act, 1961 has got over the aforesaid decisions by adding the words " whether the business or profession in respect of which the allowance or deduction has been made in existence in that year or not " in the corresponding provision of the Act of 1961, namely, section 41(1). 24. The point that we are here making is that it is not open to the Assessing Officer to incorporate into the provisions of a particular section fictions which had not been incorporated by Parliament. And, as already pointed out, the impugned addition of Rs. 37,423 could be susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the said Vellayappan was obligated to pay by 4-2-1988. The security was in the shape of a lien over the property in question retained by the vendor--trust. Elaborating his arguments in support of the contention that the sale consideration received by the assessee-trust was adequate, Shri Philip George drew our attention to the fact that for the purposes of registering the sale deed the Sub-Registrar had valued the entire property at Rs. 3,85,464 as detailed below : Land value at the guideline value of Rs. 41,800 per ground (41,800 X 4.58 grounds) : Rs. 1,91,444 Valuation of the building : Rs. 1,94,020 Stamp duty was also paid on that basis. Against the backdrop of the fact that the Sub-Registrar had valued the property at Rs. 3,85,464, the sale consideration of Rs. 3,85,000 could not be regarded as inadequate. Secondly, as per the assessee's books of account the cost of the building is Rs. 1,93,424, while the value placed by the Sub-Registrar on the building was marginally higher at Rs. 1,94,020. Thirdly, the approved valuer has also valued the property at Rs. 3,85,078. In that regard, while he had valued the building at Rs. 1,56,078, he had valued the land at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale consideration received and the other the valuation placed by experts on the property a man of ordinary prudence must be able to say : " Yes, the sale consideration is less than adequate ". In the case before us we are unable to give such a response. 32. In view of the foregoing therefore we hold that the lower authorities were not justified in concluding that the assessee was not entitled to the benefit of exemption under section 11 on the ground that the sale consideration was less than adequate. 33. Issue No. 2 : (a) Whether the lower authorities were justified in denying the assessee the benefit of exemption under section 11 of the Act on the ground that the interest charged by the assessee (at 9% per annum) on the balance of sale consideration payable by the said Vellayan was less than adequate ? (b) Whether the lower authorities were justified in treating the differential interest amount of Rs. 1,717 as the assessee's income ? (Ground Nos. 10 to 13). As pointed out earlier, the indenture of sale deed dated February 4, 1985 stipulated that the consideration of Rs. 3,85,000 was payable as follows : (i) Rs. 2 lakhs on execution of the indenture of sale ; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the addition of Rs. 1,717 made by the Income-tax Officer to the income returned by the assessee. For the reasons given while disposing of the departmental appeal, we delete this addition. Issue No. 3 : (a) Whether the lower authorities were justified in denying the assessee the benefit of exemption under section 11 of the Act on the ground that the interest charged by the assessee (at 10% per annum) in respect of the loan given by it to Children's Benefit Trust was inadequate ? (b) Whether the lower authorities were justified in treating the differential interest amount of Rs. 325 as the assessee's income ? (Ground Nos. 14 to 16). On the first aspect of the matter, at the time of the hearing, the learned counsel for the assessee drew our attention to the fact that, in the assessment for the assessment year 1984-85 also, the same issue had come up for consideration ; and that in the appeal filed by the assessee on this issue the Tribunal had allowed the assessee's claim. He particularly highlighted the fact that the Tribunal had held not only that the interest rate of 10% could not be considered to be inadequate, but also that the advance was not without adequate security - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere incurred to earn income. The issue here is whether the sums paid out by the assessee could be regarded as application of its income for charitable purposes. 44. Be that as it may, we find that out of the aggregate sum of Rs. 4,797, which was disallowed by the Assessing Officer, an aggregate sum of Rs. 1,650 represented scholarship awarded by the assessee to certain students, the rest being donations to R.R. Sabha (Rs. 1,000), Rotary Club Meenambakkam (Rs. 500), Kasturba Gandhi School Building Reconstruction (Rs. 1,000), Guild of Service (Rs. 101) and the Lions Club, Central Madras (Rs. 630). Barring perhaps the donation of Rs. 1,000 to R.R. Sabha, which is a music Sabha, the rest of the donations were clearly for charitable purposes or were made to institutions which are interested in the promotion of the common weal. As respects R.R. Sabha no evidence is forthcoming to show that the donation made to it was eligible for exemption under section 80G. For a fact, the learned counsel for the assessee could not indicate the circumstances in which the said donation came to be made. 45. In view of the foregoing, therefore, we hold that barring the sum of Rs. 1,000 donated to R.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the proposed new building, " the amount as is available at the end of each year may be accumulated for a period of ten years and that necessary approvals from the income-tax authorities may also be obtained ". (see page 75 of the paperbook filed by the assessee). 50. The learned counsel also drew our attention to the fact that in relation to the assessee's assessment for the assessment year 1983-84 the assessee filed Form No. 10 (pages 71 to 73 of the paperbook) bringing to the Assessing Officer's notice its intention to accumulate sufficient funds for the purposes of demolition of the " old building at door No. 442, Raja Street, Coimbatore, which is in a dilapidated condition and to erect a new building thereon ". While the said notice in Form No. 10 specifically referred to the previous year relevant to the assessment year 1983-84, it did not specify the number of subsequent previous years, the income relating to which was proposed to be accumulated for the said purpose. But, according to the learned counsel for the assessee, this inadvertent omission did not matter, because the resolution passed by the Board of trustees on 22-7-1983 (a copy of which was enclosed to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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