AGRAWAL, J. - (1.) IN these references relating to the asst. yrs. 1972-73, 1973-74 and 1974-75, the INcome-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as "the Tribunal"), has referred the following questions for the opinion of this Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the appellant- trust could not be granted exemption under s. 11/12 of the IT Act, 1961, for the asst. yrs. 1972-73, 1973-74 and 1974-75 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the claims of the appellant-trust in respect of exemption under s. 11/12 of the IT Act, 1961, for the asst. yrs. 1972-73 and 1973-74 were forfeited by virtue of the provisions of s. 13(1)(c) r/w the Expln. to s. 13(1) and s. 13(2)(a) and s. 13(3) of the IT Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that any part of the income or property of the appellant-trust was during the previous years relevant to the asst. yrs. 1972-73, 1973-74 and 1974-75 used or applied directly or indirectly for the benefit of any person referred to in s. 13(3) of the IT Act, 1961 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the firm of Sobhagmal Gokulchand, Jaipur, and/or its partners were persons referred to in sub-s. (3) of s. 13 of the IT Act, 1961 ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that any part of the income or property of the appellant-trust was lent to any person referred to in sub-s. (3) of s. 13 of the IT Act, 1961, for any period during the relevant previous years without either adequate security or adequate interest or both within the meaning of cl. (a) of sub-s. (2) of s. 13 and s. 13(1) and deemed to have been used or applied for the benefit of any such person ?"
(2.) SHRI Poongalia Jain Swetamber Mandir, Station Road, Jaipur (hereinafter referred to as "the assessee") is a religious trust. It is registered as a trust under s. 12A of the IT Act, 1961. It has a Jain temple situated at Station Road, Jaipur. The said temple was built some time in the year 1901 by late SHRI Gokulchand and SHRI Bhairoolalji. The temple is being managed by five trustees, namely, Rikhab Chand Poongalia, Gopi Chand Poongalia, Shikhar Chand Poongalia, Vimal Chand Poongalia and Deep Chand Chajed. Two of these trustees, namely, Rikhab Chand Poongalia and Shikhar Chand Poongalia, are grandsons of SHRI Gokulchand, one of the founders of the trust. The property of the temple, particularly the shops facing the Station Road, are let out since long and nominal rent is being received. Besides rental income, the assessee also derives income from interest on a current account with Sobhagmal Gokulchand, a partnership firm, and also from general collections received from the worshippers in the temple. There are three partners in the firm, Sobhagmal Gokulchand. Two of the partners are Rikhab Chand Poongalia and Shikhar Chand Poongalia, who are trustees of the assessee, and the third partner in the said firm is Smt. Madan Sunder, the mother of Rikhab Chand Poongalia and Shikhar Chand Poongalia. In the previous years relevant to the assessment years in question, the firm, Sobhagmal Gokulchand, had been paying interest at the rate of 6 per cent per annum on the amount lying to the credit of the assessee with them. The partners of Sobhagmal Gokulchand had lodged on 25th June, 1970, with the trustees of the assessee the title deeds of the immovable property belonging to the HUF of the three partners, situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, by way of equitable mortgage as security. The ITO, District Central Circle-VI, Jaipur, by his orders (Annexures B, B-1 and B-2) disallowed the claim of the assessee for exemption under s. 11 or 12 of the Act in respect of the income of the assessee on the ground that the interest income was from deposits made with Sobhagmal Gokulchand which is a partnership firm in which the two trustees are also partners and the rate of interest charged was not adequate and no adequate security has been taken and in view of the provisions of s. 13(2)(a) of the Act, the assessee-trust could not enjoy exemption under s. 11 or s.12. On appeal, the AAC, Central Range, Jaipur, by his order (Annexure "G") dt. 2nd Sept., 1977, upheld the orders of the ITO on the view that the provisions of s. 13(2)(a) were applicable and the assessee was not entitled to exemption under s. 11 or s. 12. The Tribunal, on further appeal, by its order (Annexure "H") dt. 29th April, 1978, upheld the order of the AAC and held that the assessee cannot be granted exemption under s. 11 or s. 12 for the assessment years under consideration. Thereupon, this reference has been made by the Tribunal at the instance of the assessee. Originally, these references were registered as one reference case, but since the references relate to three assessment years, by order of this Court dt. 3rd Feb., 1987, the references have been ordered to be registered as three separate references, being Ref. Nos. 98, 98A and 98B of 1979. Before we deal with the contentions that were urged by Shri T.C. Jain, learned counsel for the assessee, and Shri R.N. Surolia learned counsel for the Revenue, we may briefly refer to the relevant provisions of the Act. Under ss. 11 and 12 of the Act, income from property held for charitable or religious purposes and income of trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes has been granted exemption from tax. Sec. 13 withdraws the exemption granted under ss. 11 and 12 in respect of matters covered by the said section. Clause (c) of sub-s.(1) of s. 13 relates to trust for charitable or religious purposes or a charitable or religious institution and sub-cl. (ii) of cl. (c) provides that if any part of the income of such trust for charitable or religious purposes or charitable or religious institution or any property of the institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in sub-s. (3) of s. 13, then the income of the said trust or institution would not be entitled to the exemption under s. 11 or 12. In sub-s. (2) of s. 13, it is provided that for the purpose of cl. (c) of sub-s. (1) of s. 13, the income or the property of the trust of institution or any part of such income or property shall be deemed to have been used or applied for the benefit of a person referred to in sub-s. (3) if it is used or applied in the manner prescribed in cls. (a) to (h) of sub-s. (2) of s. 13. Clause (a) of sub-s. (2) of s. 13 provides for such a consequence if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-s. (3), for any period during the previous year without either adequate security or adequate interest or both. In sub-s. (3) of s. 13, the persons referred to in cl. (c) of sub-s. (1) and sub-s. (2) of s. 13 are specified. Sub-s. (3) of s. 13 was amended by the Finance Act, 1972, w.e.f. 1st April, 1973, and as a result of the said amendment, cl. (cc) was inserted and in cl. (d) the words "member, trustee or manager" were substituted for the words "or member". In the present case, the question which needs to be considered is as to whether the provisions of s. 13(2)(a) are attracted to the case of the assessee and in view of the aforesaid provisions, the assessee is not entitled to exemption under s. 11 or 12 in view of cl. (a) of sub-s. (1) of s. 13 of the Act. Shri Jain, learned counsel for the assessee, has contended that the provisions of s. 13(2)(a) cannot be applied to the present case, inasmuch as, the money of the assessee which is lying in deposit with Sobhagmal Gokulchand was neither lent without adequate security nor without adequate interest. The aforesaid submission of Shri Jain is in respect of all the three assessment years in question. As regards the asst. yr. 1972-73, Shri Jain has raised a further contention that the provisions of s. 13(1)(c) and 13(2)(a) are not applicable for the reason that none of the partners of Sobhagmal Gokulchand could be regarded as a person mentioned in sub-s. (3) of s. 13 during that assessment year. We will first deal with the general contention urged by Shri Jain in relation to all the three assessment years, namely, that the provisions of s. 13(2)(a) are not applicable because the money of the assessee which was lying in deposit with Sobhagmal Gokulchand could not be said to be lent without adequate security or without adequate interest. As regards adequacy of the security, Shri Jain has placed reliance on the letter (Annexure "E-1")dt. 25th June, 1970, addressed by the three partners of Sobhagmal Gokulchand to the trustees of the assessee whereby they lodged with the trustees the title deeds of the immovable property situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, and having a market value of Rs. 1,50,000 towards the security for the monies of the assessee lying with the said firm. In the said letter, it has also been stated that the property is owned by the joint Hindu family consisting of three members who were also partners of Sobhagmal Gokulchand and that the title deeds of the property were being lodged with the consent of the members of the said HUF. The partners have also stated that the title deeds of the immovable property so lodged may be treated as creation of an equitable mortgage in favour of the trustees and that the partners of the firm individually also guaranteed and stood as surety for the repayment of the monies of the Mandir as and when demanded from the firm. It may be stated that at the beginning of the previous year relevant to the asst. yr. 1972-73, the amount belonging to the assessee which was lying with Sobhagmal Gokulchand was Rs. 96,298.51 and at the end of the said year the said amount was Rs. 99,996.87. At the end of the previous year relevant to the asst. yr. 1973-74, the amount lying in deposit with Sobhagmal Gokulchand was Rs. 1,05,425.36. At the end of the previous year relevant to the asst. yr. 1974-75, the said amount was Rs. 1,08,788.50. Shri Jain has also invited our attention to pages 394 and 395 of Mulla's Transfer of Property Act, 6th Edition, to show that the provisions of s. 58(f) of the Transfer of Property Act, 1882, relating to mortgage by deposit of title deeds, have been made applicable to the City of Jaipur and that it is permissible to create a mortgage by deposit of title deeds in Jaipur City. Shri Jain has also brought to our notice the decision of the Tribunal dt. 14th Feb., 1984, in ITO vs. Poongalia Jain Swetamber Mandir [ITA Nos. 487 and 488 (Jp.) of 1983], relating to the asst. yrs. 1977-78 and 1978-79, wherein the Tribunal has found that the security that was furnished by the partners of Sobhagmal Gokulchand in respect of the monies of the assessee deposited with the said firm was an adequate security.
(3.) IN the present case, the Tribunal has held that the security referred to above was not adequate for the reason that the share of undivided family in the immovable property is not defined and there is no partition of the HUF in respect of the secured property and that so long as the property is not divided, it would be difficult to know the share of the respective members of the HUF in the said property. The Tribunal has also observed that before the authorities below or before the Tribunal, the actual document by which the immovable property was given as security was never filed and in the absence of such document or its copy, it would be difficult to accept that really the immovable property was given as security for the deposit made to the said firm by the assessee. We, however, find that a letter (Annexure "A") dt. 29th Oct., 1976, was addressed by the trustees of the assessee to the ITO wherein it was stated that the partners of Sobhagmal Gokulchand had long before lodged the title deeds of immovable property belonging to them of the market value of more than Rs. 1,50,000 as security for the advances and that in the opinion of the trustees, the equitable mortgage so created was adequate enough for the money so lent. Before, the AAC an affidavit (Annexure "F") of all the five trustees dt. 19th Aug., 1977, was filed. IN the said affidavit, it has been stated that the three partners of Sobhagmal Gokulchand had on 25th June, 1970, lodged with the trustees the title deeds of the immovable property belonging to the HUF of the said three partners and situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, whose market value was more than Rs. 1,50,000, by way of equitable mortgage as security for the monies belonging to the assessee which were lying in current account with the firm, Sobhagmal Gokulchand. IN the said affidavit, it was also stated that the said title deeds of immovable property were duly received by the trustees from Sobhagmal Gokulchand along with their letter dt. 25th June, 1970, and the said title deeds along with the aforesaid letter have all along been in their possession since then, in their capacity as trustees of the Mandir. IN the affidavit, the trustees have also stated that in their opinion, the equitable mortgage as created was adequate security for the monies of the said Mandir so lying in a current account with the firm of Sobhagmal Gokulchand. We find that the letter dt. 25th June, 1970, to which reference has been made in the aforesaid affidavit is part of the record as Annexure "F-1" which shows that the said letter had also been placed before the authorities. IN these circumstances, we are unable to agree with the Tribunal that before the authorities below or before the Tribunal, the actual document by which the immovable property was given as security was not filed and in the absence of such document or copy thereof, it was difficult to accept that really the immovable property was given as security for the deposit made with the said firm by the assessee. On the basis of the letter dt. 25th June, 1970, addressed by the three partners of Sobhagmal Gokulchand to the trustees of the assessee and the affidavit dt. 19th Aug., 1977, of all the five trustees of the assessee, we are of the view that all the three partners of Sobhagmal Gokulchand had lodged, by way of security, the title deeds of the immovable property situated at Motisingh Bhomiyan-ka-Rasta, Jaipur, which was having a market value of Rs. 1,50,000 at that time, as security for the monies of the assessee lying with the said firm. The said property was owned by the joint Hindu Family consisting of three partners of Sobhagmal Gokulchand and the title deeds of the property had been lodged with the consent of all the members of the said HUF. We are unable to appreciate the other reason given by the Tribunal for holding that the security was not adequate, namely, the share of the HUF in the immovable property was not defined and there was no partition of the HUF in respect of the secured property and so long as the property is not divided, it would be difficult to know the shares of respective members of the HUF in the said property. As noticed earlier in the letter dt. 25th June, 1970, it has been mentioned that the property is owned by the joint Hindu family consisting of three members who were also partners of Sobhagmal Gokulchand and who had addressed the said letter dt. 25th June, 1970. It means that all the members of the HUF had created the mortgage by the deposit of title deeds in respect of the entire property and since the market value of the said property was said to be more than Rs. 1,50,000 and the monies of the assessee lying with Sobhagmal Gokulchand during the previous years relevant to the assessment years in question were near about Rs. 1,00,000, it cannot be said that the said security was not adequate security. In our opinion, therefore, the Tribunal was not justified in holding that the security given by the partners of the firm, Sobhagmal Gokulchand, for the monies of the assessee lying with the said firm was not an adequate security. We may now deal with the question as to whether the interest of 6 per cent per annum which was being paid by Sobhagmal Gokulchand to the assessee on the monies lying with the said firm was adequate or not. In this connection, Shri Jain has urged that 6 per cent per annum was the rate of interest prevailing at that time and the firm, Sobhagmal Gokulchand, paid the assessee, the same interest as to its other depositors. Shri Jain has also referred to the certificate (Annexure "F") dt. 15th Sept., 1976, issued by the Bank of Baroda, Johari Bazar Branch, Jaipur, with regard to the rates applicable on various deposits for a period of 12 months during the years 1971 to 1976. According to that letter, the rate of interest on fixed deposits for a period of 12 months during the period from 1st April, 1970 to 10th Jan., 1971, was 5-1/2 per cent and it was 6 per cent during the period from 11th Jan., 1971, to 31st March, 1974. In support of his submission that the rate of interest paid by the Sobhagmal Gokulchand cannot be regarded as inadequate, Shri Jain has invited our attention to the provisions of s. 80 of the Negotiable Instruments Act, 1881, s. 34 of the Land Acquisition Act, 1894, and s. 13(3) of the Rajasthan Premises (Control of Rent and Eviction) Act, 1950, whereunder the rate of interest prescribed is 6 per cent. Shri Jain has also submitted that under the notification dt. 1st Oct., 1965, issued under s. 29 of the Rajasthan Money-Lenders Act, 1963, the maximum rate of interest payable on secured loans has been fixed as 9 per cent and on unsecured loans, the said rate has been fixed as 12 per cent. In this connection, Shri Jain has also urged that the question regarding adequacy of interest under s. 13 (2)(a) has to be judged from a common man's angle and it cannot be said that the rate of interest of 6 per cent paid by Sobhagmal Gokulchand was not adequate rate of interest. Shri Jain has also urged that in any event it was for the Department to produce evidence to show that interest paid by Sobhagmal Gokulchand was not adequate and that in the present case, there is no material on the record whatsoever to show that the said rate was not adequate. ;