TMI Blog1975 (3) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1922. The assessment year with which we are now concerned in this appeal is 1964-65. The relevant accounting year is the calendar year 1963. In that year the assessee derived income from interest and dividends of Rs. 4,94,575. After deducting the expenses of Rs. 3,711, the balance of the net income would come to Rs. 4,90,864. Under section 4(3) of the Indian Income-tax Act, 1922, any income falling within the clauses described therein is not to be included in the total income of the person receiving them. One of them was the income derived from property held in trust wholly for religious or charitable purposes in so far as such income was applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories. Under the Act as then in force income could be either applied or accumulated for application on a later date. In the Act of 1961 the corresponding provision is section 11, under which if the income was applied to charitable purposes in India, then the income derived from the property held under the trust wholly for charitable purposes would be exempt. Where any income was accumulated for application to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the deposit in the M.I.I.C. not being in a security contemplated by section 11(2)(b) of the Act. On March 28, 1963, the trustees wrote to the Commissioner of Income-tax placing before him all the facts including the fact of investment in M.I.I.C. On May 4, 1963, the Commissioner of Income-tax sent a reply saying that the fixed deposit with M.I.I.C. had not been approved by the Government of India as a security for the purpose of section 11of the Income-tax Act and that, as such, the investment in the said fixed deposit would not entitle the assessee-trust to the exemption under section 11of the Income-tax Act. The trustees thereupon informed the M.I.I.C. about the Commissioner's reply. The M.I.I.C. intimated that it had decided to take up the matter with the Government for inclusion of the investment in it as an approved security. The fixed deposit continued with M.I.I.C. pending the matter being taken up with the Government. Failing in its efforts to get the investment in it as approved securities, M.I.I.C. returned the deposits to the trustees on August 28, 1964. The trustees thereafter arranged to purchase immediately Government securities from the market. The purchases were c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed), that out of the income of the trust for the previous year relevant to the assessment year 1962-63 and subsequent 9 previous years, 100% of the income of the trust should be accumulated or set apart till the previous year ending 1971-72 in order to enable the trustees to accumulate sufficient funds for carrying out the following purposes of the trusts :....... 2. Before the expiry of four months from the end of each relevant previous year the amount so accumulated or set apart will be invested in any Government security as defined in clause (2) of section 2 of the Public Debt Act, 1944, or in any other security approved by the Central Government in this behalf....... 4. It is requested that in view of our complying with the conditions laid down in section 11(2) of the Income-tax Act, 1961, the benefit of that section may be given in the assessment of the trust in respect of the income accumulated or set apart is mentioned above." As mentioned already, the above form is prescribed under rule 17. Rule 17 itself owes its origin to section 11(2) read with section 295. That provision runs as follows: " 11. (2) Where the persons in receipt of the income have complied wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y created and issued by the Government. "Government " is defined in section 2(1A) as meaning the Central Government or the State Government issuing the security. In the present case the requisite notice had been given by the assessee in time. But the money had been invested in the deposit with M.I.I.C., the principal and interest of which are guaranteed by the State Government. Obviously, the deposit is not an investment in Government security and the assessee invested the trust monies in such deposit bona fide proceeding on the basis that such deposits would come within the scope of section 11(2)(b) of the Act. The bona fides of the assessee in this behalf are not challenged, and would also be clear from the circumstance that the assessee immediately after it came to know from its auditors that the investment contemplated by section 11(2)(b) is the investment in Government security, wrote to the Commissioner of Income-tax to find out whether the deposits in M.I.I.C. would come within the scope of section 11(2)(b) of the Act. When it learnt that the deposits would not come within the scope of section 11(2)(b) of the Act, it took up the matter with M.I.I.C., who seemed to have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of tax was either at the appropriate State rate or at the rate of 7% as specified in that provision. Section 8(4) provided that section 8(1) of that Act would not apply to any sale in the course of inter-State sale or commerce unless the dealer selling the goods furnished to the prescribed authority in the prescribed manner a declaration contemplated by it. If such a declaration was not filed, then the concessional rate of tax, as provided in section 8(1), would not apply. Section 13 contemplated rules being framed by the Central Government as well as by the State Government. In the case of rules framed by the State Government, to carry out the purposes of the Act, section 13(3) provided that the rules were not to be inconsistent with the provisions of the Act and the rules made by the Central Government. In accordance with section 13(3), rule 6 of the Central Sales Tax (Kerala) Rules, 1957, was framed. That rule contemplated the declaration reaching the assessing authority on or before 20th of each month showing the turnover for the preceding month. The form which had to reach within the time mentioned is known as the "C" Form. As the form had not reached the assessing aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e v. Cure Deeley Ltd. Section 33(1) of the Finance Act of 1940 of the United Kingdom enacted that the Commissioners might make regulations providing for any matter for which provision appeared to them to be necessary for the purpose of giving effect to the provisions of this Part of the Act and of enabling them to discharge their functions. Regulation 12 of the Purchase Tax Regulations, 1945, stated that if any person failed to furnish a return as required by these regulations or furnished an incomplete return, then the Commissioners could determine the amount of tax appearing to them to be due from such person, and demand payment thereof. The amount was to be deemed to be the proper tax due from such person and had to be paid within seven days of the demand. There was no provision for any appeal or for the aggrieved assessee taking up the matter to any court of law. The validity of this regulation came to be examined in that case. At page 820, Sachs J. observed as follows: "To my mind a court is bound before reaching a decision on the question whether a regulation is intra vires to examine the nature, objects, and scheme of the piece of legislation as a whole, and in the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to decide whether the situation requires an immediate step, whether some delay may be allowed for further investigation and perhaps negotiation. All those matters are placed by Parliament in the hands of the Minister in the belief that the Minister will exercise his powers properly, and in the knowledge that, if he does not do so, he is liable to the criticism of Parliament. One thing is certain, and that is, that those matters are not within the competence of this court. It is the competent authority that is selected by Parliament to come to the decision, and, if that decision is come to in good faith, this court has no power to interfere, provided, of course, that the action is one which is within the four corners of the authority delegated to the Minister." The contention is that, so long as the present power comes within the four corners of section 295(1), then it is not for this court to examine whether the prescribed form in that particular manner was necessary or not. The width of the power canvassed for the rule-making authority before us is not countenanced by the decisions especially in regard to prescription of time. In Solar Works v. Employees' State Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocedure of the court, a specific power was given to it by article 145(1)(b) to prescribe limitation for entertaining appeals before it. It is, therefore, apparent that the legislature does not part with the power to prescribe limitation which it jealously retains to itself unless it intends to do so in clear and unambiguous terms or by necessary intendment." (underlining ours). The view of the Madras High Court, it was stated, was in consonance with the view of the Supreme Court. The Supreme Court did not go into the question of the legislative practice referred to in the Madras decision in support of this conclusion. This decision clearly supports the assessee's stand. We may also in this connection refer to another Bench decision of this court in Haji J. A. Kareem Sait v. Deputy Commercial Tax Officer, Mettupalayam. That was a case which arose under the Central Sales Tax Act. Rule 3(7) of the Central Sales Tax (Madras) Rules provided for limitation and determination of the escaped turnover by best judgment. The validity of this rule was questioned. After referring to the decision in Solar Works v. Employees' State Insurance Corporation, Madras, and referring to section 13( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned rule is merely an attempt to deny the dealers the refund to which they are entitled under the law or at any rate to make the enforcement of that right unduly difficult." Hence, the reasonableness of the rules can, in appropriate cases, be considered by the court. It is true that the reasonableness is not to be determined on any subjective standard, but the rule, to be valid, has to withstand any objective test. In the present case, there must be some basis or reason for fixing this four month limit, if that limit is to be accepted as valid. No such basis or reason is available. In the Income-tax Act itself generally time limits are provided by the statutory provisions. See sections 139, 249, 253 and 256. Section 200 provides for the rule-making authority prescribing the time within which any person deducting tax had to pay it to the credit of the Central Government. Therefore, it is not as if the legislature has left the entire question of prescriptions of time to subordinate legislation. If the legislature was so minded as to think it necessary to leave the question of providing any time limit in regard to section 11 of the Act to the rule-making authority, then it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act provided that the Central Government should cause every rule made under the Act to be laid as soon as possible before each House of Parliament for a period of thirty days and that the House had power to modify the rules. The submission was that when once the rules had been so made, then they could not be called in question. The Supreme Court has pointed out in Hukam Chand v. Union of India as follows: " The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with section 40 of the Act (Displaced Persons (Compensation and Rehabilitation) Act)." That was also a case where rules could be made to carry out the purposes of that Act. It was further added that the Act of the Central Government in laying the rules before each House of Parliament would not, however, prevent the courts from scrutinising the validity of the rules and holding them to be ultra vires if on such scrutiny the rules are found to be beyond the rule-making power of the Central Government. Thus, section 296 does not add any greater force to the rules than what they ordinarily have as pieces of subord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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