TMI Blog2000 (11) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... trusts. formed prior to 1947. The material facts of the case of Ziarat Mir Syed All Hamdani Trust are as follows. This trust filed its return of income for the assessment year 1979-80 along with the returns for the assessment years 1978-79, 1980-81 and 1981-82 on March 17, 1983. In the income and expenditure account for the previous year relevant to the assessment year 1979-80, with which we are concerned in this reference, the assessee-trust claimed deduction of Rs. 23,100 in respect of unutilised portion of its income under sub-clause (ii) of clause 2 of the Explanation to section 11(1) of the Act. The option contemplated by the Explanation to section 11(1) was exercised by the assessee in writing along with the return on March 17, 1983. The Income tax Officer held that the option under clause (2) of the Explanation to section 11(1), which was required to be exercised in writing before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension, having not been exercised within that period, it was not a valid exercise of option. He observed that the last date for submission of the return for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer and dismissed the appeal of the assessee. He held that since the assessee-trust failed to exercise the option under clause (2) of the Explanation to section 11(1) of the Act within the prescribed time, it could hot claim benefit under that clause. The assessee-trust appealed to the Income-tax Appellate Tribunal. The Tribunal, as in the earlier case, condoned the delay and held that the assessee-trust was entitled to the benefit conferred by clause(2) of the Explanation to section 11(1) of the Act even though it did not exercise the option within the time specified thereunder. As in the earlier case, the Tribunal relied on the circular of the Board No. 273, dated June 3, 1980, in arriving at the above conclusion. Aggrieved by the order of the Tribunal, the Revenue applied for reference of the question of law arising out of the order of the Tribunal, which the Tribunal allowed. Hence, this reference. We have heard learned counsel for the Revenue and perused the order of the Tribunal. The real controversy in this case is whether the requirement of exercising option under clause (2) of the Explanation to section 11(1) of the Act before the expiry of the time allowed un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted factual position is that the case of the assessee does not fall under section 11(2) of the Act, nor the assessee at any point of time made such a claim. The contention of the assessee right from the beginning was that its case was covered by clause (2) of the Explanation to section 11(1) of the Act because the income was utilised in the year immediately following the previous year in which it was derived. This claim was rejected both by the Income-tax Officer and the Appellate Assistant Commissioner on the sole ground that the option required to be exercised in writing in that regard was not exercised before the time allowed for furnishing the return under sub-section (1) or sub-section (2) of section 139. Obviously, the Tribunal committed a patent error in condoning the delay in filing Form No. 10, which, in fact, had never been filed and in allowing deduction to the assessee in respect of the amount in question under section 11(2), which neither the assessees were entitled to nor they claimed. The question referred to this court also arises out of the above erroneous finding of the Tribunal, which has no bearing in the present case. In such a situation, in the normal cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falls short of seventy-five per cent. of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount --- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then --- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount ; and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income [such option to be exercised in writing before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income], be deemed to be income applied to such purposes during the previous year, in which the income was derived ; and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later ; (b) in the case of every other person, before the 30th day of June of the assessment year : Provided that, on an application made in the Prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8) ... (2) In the case of any person who, in the Income-tax Officer's opinion, is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the Income-tax Officer may, before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed : Provided that, on an application made in the prescribed manner, the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der this Act without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1)." From a careful reading of section 139 of the Act, it is clear that a trust for charitable or religious purposes is also required to file a return of its income under that section. Different time limits have been specified for submission of a return in different subsections. Sub-section (4) permits an assessee, who has failed to furnish the return within the time allowed by sub-section (1) or in a notice under sub-section (2), to file the same at any time before the assessment is made. The question that arises for consideration is whether a return filed beyond the time, specified in sub-section (1) but within the time specified in sub-section (4) can be treated as a return filed within the time allowed under sub-section (1). In other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration to this aspect of the controversy. Clause (2) of the Explanation to section 11(1) was enacted with a view to mitigate the hardship that might be caused to charitable or religious trusts if its income could not be spent in the previous year of accrual itself. It expands the scope of the earlier provision and provides that it would be sufficient in a case falling under sub-clause (b) of clause (2) of the Explanation, if the assessee applies the amount for specified purposes in the previous year following the year of accrual. In other words, the assessee is given one full year following the year of accrual of the income for applying the same for religious or charitable purposes. This relaxation is, however, subject to the assessee exercising the option in writing before the expiry of the time for submission of the return of income of the assessment year relevant to the previous year of accrual. As indicated earlier, the time-limit of one year for applying the income of the trust for the specified purposes is mandatory. If it is not spent within that time, the benefit of exemption under section 11(1) would not be available. But the question for consideration is whether the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean that an assessee, as a, matter of right, can submit such report at, any time before the completion of assessment and if it is so submitted, the Income-tax Officer is bound to accept -the same. Such an Interpretation, in our opinion, will amount to substituting the words 'along with the return' in sub-section (6A) by the words 'at any time before the completion of the assessment' which is, not a permissible mode of interpretation of statutes. We are, therefore, of the opinion that the requirement of filing of the audit report 'along with the return' is not mandatory in the strict sense of the term. It is directory in the sense that even if it is not submitted along with the return but subsequently before the completion of assessment, the Income-tax Officer will have the power to accept the same if he is satisfied with the explanation of the assessee for non-filing of the same along with the return." In CIT v. I A. and I.C. Pvt. Ltd. [1999] 239 ITR 1 (Bom), the controversy was, whether the requirement contained in section 32A(2B)(ii) of furnishing the certificate along with the return was mandatory or directory. The Bombay High Court held : " . . . we hold that the requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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