(1.) ALL these appeals are by the department pertaining to the assessment years 1975-76 and 1976-77. In all the appeals the point in issue is whether the ITO was justified, or not, in reopening the assessments under Section 147(6) of the Income-tax Act, 1961 ('the Act').
(2.) The assessee-trusts are charitable trusts. The source of income of the assessee-trusts are, income from interest on securities, dividends, bank interest, interest on other deposits and voluntary contributions.
The assessee-trusts, for the years under consideration, have filed returns and along with the returns Enclosure 'B' is attached. It is as under :
The funds of the Trust are invested by way of fixed deposit with M/s. Karamchand Premchand (P.) Ltd.,
According to us, for the purpose of Section 13(2)(A) of the Act, Fixed Deposits are not investments as they are governed by Section 13(2)(a) and none of the companies referred to above, was a concern in which persons referred to in Section 13(3) had a substantial interest.
The ITO, after considering the material and contentions of the assessee-trusts, completed the assessments. In all the years he granted exemption under Section 11 of the Act. All the assessments under Section 143(3) of the Act, were completed in 1978.
(3.) SUBSEQUENTLY, the ITO on the basis of information in his possession, had reason to believe that in all these years exemption under Section 11 was wrongly granted and he was of the view that in all these years the provisions of Section 13(2)(h) and 13(3) read with the Explanation therein, were applicable. Accordingly, he issued a letter dated 25-9-1978 to the assessee to show cause as to why exemption granted to the assessee under Section 11, at initial stage, may not be withdrawn. The letter reads as under:
On verification of the return of income for the assessment year 1976-77 filed on 26-6-1976, it has been noticed that the trust has derived interest of Rs. 12,326, on the deposits made with Karamchand Premchand (P.) Ltd. Prima facie, it is seen that in the above concern, the author, settlor, contributor, trustees and/or their relatives, members of the Hindu family of late Shri Ambalal Sarabhai, etc., have substantial interest, as already verified and held in the assessment orders for assessment years 1972-73 and 1973-74, and, therefore, provisions of Section 13(2)(h) are applicable in respect of this interest income. Accordingly, it is clear that exemption under Section 11 may not be available in respect of the above interest income.
2. You are, therefore, requested to attend this office on 6-10-1978 and show cause as to why the exemption under Section 11 in respect of the above income should not be disallowed. In this regard, you are also requested to please furnish to this office the necessary documents, accounts and evidence, if any, along with the following details specifically :
(1) No. of shares of Karamchand Premchand (P.) Ltd. held by the author/settlor, trustees, contributors and/or their relatives, etc., as on 31-3-1976.
(2) Copy of income and expenditure account and balance sheet of the Estate of Ambalal Sarabhai for the year ending 31-3-1976.
(3) Whether all the persons as above, as referred to in Section 13(3) of the Income-tax Act, 1961, in aggregate, at any time during the previous year ended on 31-3-1976, were entitled to not less than twenty per cent of the profits of this concern individually and/or collectively.
(4) Whether all these persons, as referred to in Section 13(3) of the Income-tax Act, in aggregate, were holding beneficially the shares of the above company, carrying not less than twenty per cent of voting power at any time during the previous year individually and/or collectively.
3. For failure to comply with as above and by the time as in para 2, the case will be disposed of on merits.
Pursuant to the service of such notice the assessee-trusts filed a detailed reply on 18-10-1978. Inter alia, in reply, the assessee-trusts stated as under :
We are enclosing a statement giving the No. of shares of Karamchand Premchand (P.) Ltd. carrying voting power and owned beneficially by various categories of persons. According to this statement, persons referred to in Section 13(3) were holding beneficially, the shares of the company carrying more than 20 per cent of the voting power.
The ITO after considering the reply of the assessee-trusts recorded the reasons for reopening of the assessments under Section 147(6). The reasons recorded are as under :
The funds of the assessee-trusts are deposited/invested in Karamchand Premchand (P.) Ltd. and estates, as well as other concerns, of the Ambalal Sarabhai Group. For concerns other than Karamchand Premchand (P.) Ltd., it has been established in this group that profits earned from them are more than 20 per cent of their profits. Moreover, as admitted categorically in writing for the assessment year 1976-77, in the cases of charitable trusts of this group, i.e., Ambalal Sarabhai Group, various categories of persons referred to in Section 13(3) were holding beneficially the shares of the company, viz., Karamchand Premchand (P.) Ltd. [now Shahibaug Entrepreneurs (P.) Ltd.], carrying more than 20 per cent of the voting power. Moreover, for assessment years prior to the assessment year 1975-76 also, the ITO had applied these provisions of Section 13(3). Accordingly the provisions of Section 13(2)(h), 13(3) and Explanations thereunder were/are applied/applicable.
2. This constitutes valid information and reason to believe that the income chargeable to tax has escaped assessment and/or has been under-assessed. Moreover, for income-tax assessments for assessment years 1974-75 and 1975-76 and wealth-tax assessments for assessment years 1973-74 to 1975-76 the Revenue Audit Party has raised objection on this point and for assessment year 1976-77. I have already applied these provisions in the other cases of assessments. The view that this constitutes information and reason to believe that income chargeable to tax has escaped assessment/has been under-assessed is supported by the Supreme Court decision in the cases of Kasturbhai Lalbhai and Kalyanji Mavji.
3. Please issue notice under Section 148 for reopening the assessment under Section 147(6) of the Income-tax Act, 1961.;