Y W C A OF INDIA Vs. INSPECTING ASSISTANT COMMISSIONER
LAWS(IT)-1989-3-5
INCOME TAX APPELLATE TRIBUNAL
Decided on March 13,1989

Appellant
VERSUS
Respondents

JUDGEMENT

G. Krishnamurthy, President - (1.)IN this appeal filed by the assessee for the assessment year 1984-85 against the order of the Commissioner (A), broadly two questions arise, both of them converging on the ground of exemption from levy of tax under Section 11 of the INcome-tax Act, 1961.
(2.)The first point was as to whether the requirements of Section 12A(5) were satisfied in this case. It is an undisputed fact that the assessee was a charitable institution and was being granted exemption from levy of tax in the previous years. But this year the said exemption was declined on the ground that the requirements of Section 12A were not satisfied. While Section 11 of the Income-tax Act granted exemption on income derived from property held for charitable or religious purposes subject to certain conditions laid down therein, yet that exemption was not absolute and it was made subject to the further conditions imposed under Section 12A of the Income-tax Act. The conditions prescribed under Section 12A are, to quote from its own language:
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later:

Provided that the Commissioner may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid;

(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds twenty-five thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

Under Clause (b) the requirement is that if the income exceeds Rs. 25,000, the accounts of the trust have to be audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the trust should furnish along with the return of income the report of the Auditor in the prescribed form duly signed and verified by such accountant. The controversy in this case centred round the meaning to be ascribed to the expression "such accountant". The accounts in this case were audited by a firm of Chartered Accountants known as Lovelock & Lewis but in the certificate required under Clause (b) above was given by another firm of Chartered Accountants called M/s Khare Associates. Since the firm of M/s Lovelock and Lewis audited the accounts of the trust, laying stress upon the expression "such accountant", the Inspecting Asstt. Commissioner (Asst.) held that the same firm of Auditors should also give the required certificate under Clause (b) and it was not open to any other Chartered Accountant to give such a certificate. According to him the expression "such accountant" meant the same accountant, who audited the accounts of the trust. On the basis of this interpretation, he held that the certificate given by M/s Khare Associates was not a valid audit report under Section 12A(b) and denied the exemption under Section 11 of the Income-tax Act. There was another reason given for the denial of exemption but we will deal with it a little later.

On this issue the Commissioner (A), before whom the first appeal was filed, agreed with the Inspecting Asstt. Commissioner. By referring to the provisions of Section 12A(b), which we have extracted above and the form No. 10B, which was prescribed under this section, the Commissioner (A) reinforced his view with the following observations:

Therefore, both the audit report in form No. 10B and the 'prescribed particulars' are to be supplied only by the accountant who has made statutory audit of the trust/institution. In this case, as it has already been noticed, M/s Khare Associates had not made the statutory audit of the accounts of the appellant association. In their report dt. 20-9-1984 under cover of which the prescribed particulars were furnished, M/s Khare Associates admitted to have relied on the audit report of M/s Lovelock & Lewis. This being the position I must observe that the appellant association in obtaining the prescribed particulars being annexures to form No. 10B from an Accountant who had not audited their accounts failed to satisfy the requirements of Section 12A of the Act. I have, therefore, no hesitation in confirming the action of the IAC (Asst.) in denying to the appellant association the benefit of Section 11.

(3.)AGAINST this view of the department, Shri Khare appearing for the assessee submitted that the view expressed by the department is not borne out by the language of Section 12A(b) or form No. 10B. The requirement of Clause (5) of Section 12A is only that the accounts of the trust must be audited by a Chartered Accountant and that the return should be accompanied by a certificate given-by him in the prescribed form containing the prescribed particulars. There is no condition that the statutory auditor alone should conduct the audit also for the purposes of Clause (b) of Section 12A. If the audit for the purpose of Clause (b) is conducted by a Chartered Accountant, who furnishes a report in the prescribed form containing the prescribed particulars, then the condition is satisfied. It was in fact this was being done in all the earlier years also and no objection was taken to it.


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