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CASE NO.: Appeal (civil) 1662 1994         Appeal (civil)  1663    1994

PETITIONER: THE COMMISSIONER OF INCOME-TAX, VIDARBHA, NAGPUR.

       Vs.

RESPONDENT: THE NAGPUR HOTEL OWNERS ASSOCIATION NAGPUR.

DATE OF JUDGMENT:       13/12/2000

BENCH: Y.K.Sabharwal, S.P.Bharucha, N.S.Hegde

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J

     J U D G M E N T

     SANTOSH HEGDE, J.

     In  the  abovesaid appeals, though the respondent  was duly  served, is unrepresented, hence it is placed ex parte.@@       JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ The  assessee-respondent  is an association of hotel  owners which  is  registered under the Societies Registration  Act, 1860.   The object of the Association is to coordinate  with the  activities  of hotel owners and to help them  in  their business.   The  assessee  filed returns of income  for  the assessment years 1974- 75 and 1975-76 in February, 1977.  It claimed  exemption  under Section 11 of the Income-tax  Act, 1961  (for  short  the  Act) on  the  ground  that  income received  by  it is for charitable purpose.  The said  claim for  exemption was refused by the Income Tax Officer on  the ground that it was not duly registered with the Commissioner of  Income  Tax under Section 12(a) of the Act, and also  on the  ground  that  no notice of accumulation  of  income  as required under Section 11(2) of the Act was given.  When the matter  was taken up in appeal, the same was remanded to the Assessing  authority by the appellate authority holding that the  finding  of the assessing officer that the  association was  not duly registered as required under Section 12(a)  of the  Act, was incorrect.  On remand, the assessing authority held  that the object of the assessee was not charitable but was  to carry on the profit-making activities hence, it  was not  entitled to exemption under Section 11 of the Act.  The said  authority also held that the assessee had not  applied for  accumulation  of its income for charitable purposes  as required  under  Section  11(2) of the Act within  the  time specified in Rule 17 of the Income-tax Rules (for short the Rules),  hence,  he  assessed  the   total  income  of  the association  to tax under the Act.  In appeal, the appellate authority  confirmed the said order and when the matter  was taken  to  the tribunal in second appeal, the tribunal  held

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that  the  assessees  objects were  charitable,  hence  the relief  sought  for  by  the assessee could  not  have  been refused  on  that ground.  The tribunal also held  that  the time  limit  fixed  under  Rule 17 of the  Rules  cannot  be insisted  upon  by the assessing authority because the  said Rules  could  not  have  fixed a time limit  for  filing  an application under Section 11(2) of the Act.  Being aggrieved the  following  questions of law were referred to  the  High Court:   (1) Whether on the facts and circumstances of  the case,  the  Income  Tax  Appellate Tribunal  is  correct  in holding  that the application in form No.10 under rule 17 of the I.T.Rules, 1962 could be filed even after the assessment is completed ?

     (2)  Whether  on  the facts and circumstances  of  the case,  the  Income  Tax  Appellate Tribunal  is  correct  in holding  that  the I.T.I.Rules could not fix any time  limit for  submitting  an application in form 10 under rule 17  of the I.T.  Rules, 1962.

     That  the High Court as per its order dated 15.10.1992 held  that though Section 11(2)(a) of the Act contemplated a notice  in  writing  to  the   Income  Tax  Officer  in  the prescribed  manner,  the Rule concerned, namely, Rule 17  of the  Rules  did not prescribe any time limit and it is  only Form  No.10 which prescribed such a limitation of six months commencing  from  the end of each previous year for  issuing the  notice as required under Section 11(2) of the Act.   It also held that the Act had not provided for such Rule-making authority  to  fix such a period of limitation  which  meant that  the Legislature did not impose a limitation for giving a  written notice to the assessing authority, therefore,  it held  that the time fixed in para 2 of Form No.10  requiring the  said  intimation to be given within 6 months is  beyond the  delegated  authority,  hence the said  prescription  of limitation  was illegal.  In these appeals, the Revenue  has raised  same two questions referred to the High Court before us also.

     Mr.  M.L.  Verma, learned senior counsel appearing for the  Revenue  contends if the first question is answered  in favour  of  the revenue, there is no need to go to the  next question  referred.   According to Mr.  Verma, assuming  for arguments  sake  that  the fixation of limitation  in  Form No.10 is beyond the delegated power even then in view of the fact  that  the  substantive  Section   11(2)  has  made  it mandatory  for a party claiming the benefit of Section 11 of the Act to intimate in writing to the assessing authority in the  prescribed  form specifying the purposes for which  the income  is being accumulated or set apart it must be  deemed that  such intimation should be within a reasonable  period. He  pointed  out that in the instant case till the  date  of completion  of  assessment for the assessment years  1974-75 and  1975-76, the respondent Association did not furnish the required  information, hence the said requirement not having been  fulfilled  for  the assessment  years  concerned,  the Association  was  not  entitled to claim the  benefit  under Section  11(2)  of  the  Act   for  those  years.   We  find substantial  force in this argument.  Chapter III of the Act which  consists  of  Sections 10 to 13A  enumerates  various types  of income which do not form part of total income  for the purpose of levy of tax.  The relevant part of Section 11 in  the said Chapter reads thus :- 11.  (1) Subject to  the provisions  of sections 60 to 63, the following income shall not  be included in the total income of the previous year of

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the person in receipt of the income

     [(a)  income  derived from property held  under  trust wholly  for charitable or religious purposes, to the  extent to  which such income is applied to such purposes in  India; and,  where any such income is accumulated or set apart  for application  to  such  purposes in India, to the  extent  to which  the  income  so accumulated or set apart  is  not  in excess  of  twenty-five  per cent of the  income  from  such property;

     x x x x x

     [(2)  (a) such person specifies, by notice in  writing given  to the [Assessing] Officer in the prescribed  manner, the purpose for which the income is being accumulated or set apart  and  the  period  for  which  the  income  is  to  be accumulated  or set apart, which shall in no case exceed ten years;

     It   is   abundantly  clear   from  the  wordings   of sub-section  (2) of Section 11 that it is mandatory for  the person claiming the benefit of Section 11 to intimate to the assessing  authority the particulars required, under Rule 17 in  Form  No.10  of  the  Act.   If  during  the  assessment proceedings   the  Assessing  Officer   does  not  have  the necessary  information,  question of excluding  such  income from assessment does not arise at all.  As a matter of fact, this benefit of excluding this particular part of the income from  the  net  of taxation arises from Section  11  and  is subjected  to the conditions specified therein.   Therefore, it  is necessary that the assessing authority must have this information at the time he completes the assessment.  In the absence of any such information, it will not be possible for the  assessing authority to give the assessee the benefit of such  exclusion and once the assessment is so completed,  in our  opinion,  it  would be futile to find  fault  with  the assessing  authority for having included such income in  the assessable income of the assessee.  Therefore, even assuming that  there is no valid limitation prescribed under the  Act and the Rules even then, in our opinion, it is reasonable to presume that the intimation required under Section 11 has to be  furnished  before the assessing authority completes  the concerned  assessment because such requirement is  mandatory and  without  the particulars of this income  the  assessing authority  cannot entertain the claim of the assessee  under Section  11  of  the  Act,   therefore,  compliance  of  the requirement  of the Act will have to be any time before  the assessment  proceedings.  Further, any claim for giving  the benefit  of Section 11 on the basis of information  supplied subsequent  to the completion of assessment would mean  that the  assessment  order  will have to be  reopened.   In  our opinion,  the Act does not contemplate such reopening of the assessment.   In  the  case in hand it is evident  from  the records  of  the  case the respondent did  not  furnish  the required  information  till  after the assessments  for  the relevant  years were completed.  In the light of the  above, we are of the opinion that the stand of the Revenue that the High  Court erred in answering the first question in  favour of  the assessee is correct, and we reverse that finding and answer  the  said question in the negative and  against  the assessee.   In view of our answer to the first question,  we agree with Mr.  Verma that it is not necessary to answer the second  question on the facts of this case.  In view of  the above  findings  of ours, the second question referred  will

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not  arise for consideration.  Accordingly these appeals are allowed.