TMI Blog1963 (10) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners pray for the issue of a writ of prohibition restraining the Income-tax Officer, Special Investigation A Circle, from proceeding with further enquiries in pursuance of notices issued under section 22(2) of the Income-tax Act in relation to the assessment years 1961-62, 1959-60 and 1960-61 respectively. The facts are briefly as follows: Dina Thanthi is a daily newspaper in Tamil having a very wide circulation. It is a business which was started by one S.B. Adityan in the year 1942. He was the sole proprietor of this business of carrying on a daily newspaper. He constituted a trust called the Thanthi Trust under a registered instrument dated March 1, 1954. The petitioners style themselves as the trustees of this trust. The deed recites the purposes of the trust to be: (a) to establish the Dina Thanthi or Daily Thanthi as an organ of educated public opinion for the Tamil reading public; (b) to disseminate news and to ventilate opinion upon all matters of public interest through the said newspaper; and (c) to maintain the said newspaper and its press in an efficient condition devoting the surplus income of the said newspaper and its press, after defraying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he director to let him know if the income derived from the newspaper business was applied wholly for the purpose of the institution. By his letter dated April 25, 1957, the director asserted that the income was applied solely for purposes of the trust and claimed to have a declaration that the income was exempt from taxation under section 4(3)(i) of the Act. The officer then called for the trust accounts for three years ending 30th June, 1956, and also directed the production of the profit and loss statements and balance-sheets for the said period. This request was complied with on May 21, 1957. A few days thereafter, the director of the trust again pressed the Income-tax Officer to recognise the eligibility of the trust for exemption. This request was repeated by the trustee on November 7, 1957. The Income-tax Officer called for the first issue of the Dina Thanthi and for the subsequent editions of the daily issued on the occasion of anniversaries. The director filed two sets of photostat copies of the leading articles from the issue dated December 31, 1942, and from other anniversary issues. The first issue of the paper was on November 1, 1942, but the trustee averred that a copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is challenged in the petition for the issue of a writ of certiorari. It is quite plain that the Income-tax Officer passed the above order having regard to the opinion tendered by the Board which is the Central Board of Revenue, New Delhi. We directed the department to produce the letter of the Central Board to the Income-tax Officer. It has been placed before us. The letter of the Board is dated October 20, 1961, and it runs as follows: From The Secretary, Central Board of Revenue. To The Commissioner of Income-tax, Madras. Sir, Sub.: ... I am directed to refer to the correspondence resting with your letter C. No. 212(6)/57 dated the 23rd August, 1961, on the above subject. The matter has been carefully considered in the light of the reports furnished by you in this behalf. These reports as also the standing counsel's opinion show that the real object of the trust is different from its declared object and, secondly, the income derived from the paper is not applied wholly for religious or charitable purposes. Having regard to these facts, the Board is of the view that the claim for exemption should be refused. It appears that the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance of these principles in instances where they are overlooked or flouted. The learned Advocate-General, appearing for the department, did not seek to support the order and quite frankly submitted that he was not anxious to sustain it in its present form at the present stage. He, however, very properly drew our attention to the fact that the petitioners themselves really invited the trouble and urged that the Income-tax Officer is not to be blamed. We have no doubt that the petitioners wanted to short-circuit the machinery of assessment and, therefore, approached the highest governmental quarters in New Delhi so that the Income-tax Officer can be overawed and forced to give a decision in their favour. We are not suggesting that the petitioners were guilty of any impropriety in the matter. They were not hopeful of making the Income-tax Officer see reason and to perceive the true legal position and, therefore, desired to have the matter dealt with at the highest level possible. This accounts for their correspondence with the Finance Minister or the Central Board of Revenue. However misguided an assessee may be, in his efforts to avoid tax, the Income-tax Officer should not becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not refer to the Central Board. It is not possible to equate the Director of Inspection to the Board as he is only a subordinate to the Board. Even the enumerated authorities mentioned in section 5, sub-section (7B), may only issue instructions for the guidance of Income-tax Officers in the matter of any assessment. They cannot get substituted for the Income-tax Officer and constitute themselves into the assessing authority. The nature of the jurisdiction contemplated under section 5, sub-section (7B), is only of an advisory character. Whatever may be the true position of the Board, as the top-most administrative authority, it cannot, in our opinion, tell the assessing authority, the Income-tax Officer, what to do and what not to do in regard to a particular assessment. It would not follow from section 5, sub-section (8), that except the Appellate Assistant Commissioner the other authorities would be subject to the control of the Board in the matter of any assessment. The Board with all the plenitude of its power cannot direct any Income-tax Officer to tax A or not to tax B . Such a power if assumed to exist in the Board would be calculated to deprive the assessing officer of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch would eventually have a bearing on the question whether the income is really assessable to tax or not. It cannot therefore be said that the officer has transgressed his jurisdictional limits either in the matter of his having issued notices under section 34 or in his attempt to hold an enquiry as regards the true character of the income of the petitioners, viz., whether the income is outside the purview of the Act. The scope of a writ of prohibition is fairly clear. A writ of prohibition is an instrument of judicial control to prevent an excess or abuse of jurisdiction by inferior tribunals. Where a tribunal assumes or threatens to assume a jurisdiction which it does not possess prohibition may issue so long as the proceedings are not complete. Prohibition also lies for a departure from rules of natural justice. If the presiding officer of the inferior tribunal is interested in the lis or is otherwise biassed he can be restrained by prohibition from acting further in the matter. It is, however, well-settled that prohibition will not lie to correct an error of law, or a mere irregularity of procedure, or a wrong decision on the merits of proceedings unless there is an excess o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ambit of section 4(3)(i) of the Act the Income-tax Officer would have jurisdiction to conduct the assessment proceedings. It must not also be forgotten that it is part of the jurisdiction of the officer himself to decide the question of exemption claimed by the petitioners. Mr. Rajah Ayyar did not dispute this position, but, he however, submitted that there is no necessity for any enquiry in this behalf as the terms of the trust deed, read in the light of section 4(3)(i) of the Act, clearly establish that the income ought not to be taxed. In our opinion the question of applicability of section 4(3)(i) of the Act, cannot be determined by a bare perusal of the terms of the written instrument of trust. We shall now examine section 4(3)(i) of the Act to see whether the contention of the petitioners can be sustained. A claim for exemption should satisfy four essential conditions: (1) The property from which the income is derived should be held under trust or other legal obligation. (2) It should be so held for religious or charitable purposes. ( Charitable purposes is defined to include relief of the poor, education, medical relief and advancement of any other object of genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re can be no extrinsic evidence to determine this. But the true purpose of the trust cannot be concluded by the deed of trust. A declaration of a religious or charitable purpose will not, by itself, be sufficient to fulfil the requirements of the exempting provision. The property must be held under a trust or other legal obligation for a religious or charitable purpose. Whether it is so held or not would depend upon the recitals in the document and conduct of the assessee. Mr. K. Rajah Ayyar contended that the department has not attacked the deed as mere sham to defeat tax, and that, therefore, no scrutiny is called for to determine whether or not the trust is of a kind falling within the section. He further contended that a deviation, if any, by the assessee from the declared purpose would amount to breach of trust but would not detract from the declaration and that if such a declaration is within the ambit of the section, the assessee would be entitled to the benefit of its saving without adducing proof aliunde to the deed. We are unable to accept this as the correct position in law. In our opinion, the department is not precluded from ascertaining the true purpose of the trust, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax? Mr. K. Rajah Ayyar relied upon the following passage in the judgment of Lord Wright at page 487 [1944] 12 I.T.R. 482 It is not really questioned that the practice has been to use the surplus income for the purposes of the Association and that the business has been carried on in pursuance of the primary purpose in addition mainly by beneficiaries of the Association. The practice however is not enough. The purpose is to be ascertained from the constitution. In their Lordships' judgment its provisions already quoted show a trust or binding obligation so to carry it on. The constitution is a written instrument, the terms of which bind not only the trustees and council, but the members who by their application for membership accept its rules. Any departure either by the trustees or council or members from the rules would be a breach of trust or legal obligation which the court could restrain. It was found as a fact in that case that the real underlying object of the Association was to benefit the poor agriculturists in the villages, specifically at the time of the year when they had no work as agricultural labourers. The following passage indicates tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Supreme Court dealt with the case which arose under the Bombay Public Trusts Act. The subject-matter of the trust was a printing press. The prime object of the trust was stated to be the fulfilment of the basic purpose which animated the activities of the late Lokamanya Tilak and which he sought to accomplish through the newspapers, Kesari and Mahratta, after he took charge of them. The will had directed the continuance of the two newspapers with their policy entirely unchanged. The trust deed stated that the object the Lokamanya sought to achieve through the said two newspapers was that of spreading political education through the newspapers and thereby making people alive to their multifarious public activities conducive to the national ideal. It was held that the political purpose in the sense of a propaganda for the achievement of a political objective was not a charitable purpose as being one for the advancement of any other object of general public utility within section 9(4) of the Act and hence the trust was not required to be registered under section 18 of that Act. We do not find it necessary for the purpose of disposing of these writs to refer to these cases i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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