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2000 DIGILAW 196 (MAD)

Commissioner of Income Tax v. Sakthi Charities

2000-02-17

N.V.BALASUBRAMANIAN, R.JAYASIMHA BABU

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Judgment :- N.V. BALASUBRAMANIAN, J. This is a reference at the instance of the Revenue challenging the order of the Tribunal cancelling the order passed by the CIT in exercise of his revisional power under s. 263 of the IT Act, 1961 (hereinafter to be referred to as "the Act"). 2. The facts leading to the present reference are that the assessee is a public charitable trust and during the course of its assessment proceedings for the asst. yr. 1975-76, it claimed exemption under s. 11 of the Act. The ITO accepted the claim of the assessee and in reaching the above conclusion, he departed from his earlier view arrived at by him for the earlier asst. yr. 1974-75 wherein he has held that the entire business income was liable to be taxed. The reason for his departure from his finding rendered for the earlier assessment year was that he was of the view that the ratio of the decision of the Supreme Court in the case of CIT vs. Dharmodayam Co. would apply to the facts of the case and completed the assessment granting the exemption as claimed by the assessee. It is relevant to mention here that the ITO found that the dominant purpose of the assessee-trust was charitable in nature and the assessee applied its income for charitable and religious purposes. 3. The CIT, on perusal of the records of the assessee, was prima facie of the view that the finding of the ITO granting exemption of the entire income from the business representing fertilizer commission was erroneous and prejudicial to the interests of the Revenue on the score that the income from fertilizer commission could not be said to be held by the assessee for carrying out the primary objects of the trust. The CIT, after hearing the assessee, held that the ITO did not notice the fact that the business of distributorship of fertilizer was donated in favour of the assessee with a specific direction to utilise the income for the purpose of carrying out the primary objects of the trust and the assessee had not brought to the notice of the ITO how it came into possession of the distributorship of fertilizer business. He, therefore, held that it is not a case where the assessee-trust acquired certain funds and started a business out of such funds, but it is a case where the assessee-trust possessed a running business which was claimed to be its property held by the trust for charitable purposes. He, therefore, held that the ITO did not have necessary materials when he accepted the claim of the assessee for exemption under the Act. Hence, the CIT set aside the order of assessment with a direction to redo the same in accordance with law. 4. The assessee appealed to the Tribunal. The Tribunal found that the ITO had considered all relevant materials on record and held that the case of the assessee would fall within the ratio of the decision of the Supreme Court in the case of CIT vs. Dharmodayam Co. (supra) and the assessee would be entitled to exemption. The Tribunal also held that the fact that the ITO had departed from his earlier year's finding showed that he had applied his mind to the grant of exemption at the time of completion of assessment and that he did not act mechanically. The Tribunal also held that the CIT had not made out any prima facie case for his view that the ITO would have come to a different conclusion than the one reached by him at the time of finalisation of the earlier assessment. The Tribunal, therefore, held that the CIT lacked jurisdiction to revise the assessment and set aside the order of the CIT and allowed the appeal preferred by the assessee. 5. On an application by the Revenue, the Tribunal has stated a case and referred the following question of law for our consideration, "Whether on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the CIT under s. 263 of the IT Act 1961, and thereby restoring the assessment order passed by the ITO for 1975-76 ?" 6. We are of the view that there is no infirmity in the order of the Tribunal. The facts clearly show that the ITO had applied his mind to all the relevant materials produced before him at the time of completion of assessment proceedings and then came to the conclusion that the income of the assessee was exempt under the provisions of s. 11 of the Act. The facts clearly show that the ITO had applied his mind to all the relevant materials produced before him at the time of completion of assessment proceedings and then came to the conclusion that the income of the assessee was exempt under the provisions of s. 11 of the Act. According to the ITO, the decision of the Supreme Court in the case of CIT vs. Dharmodayam Co. (supra) would apply to the facts of the case. The fact that he had departed from his view arrived at in the earlier year shows that he had not acted in a mechanical manner and has applied his mind to the question of grant of exemption and considered the matter before granting exemption under the Act. The CIT set aside the order of the ITO on the score that the ITO was not aware of the fact that the business of distributorship in fertilizer was donated in favour of the assessee and the ITO was not right in not considering the effect of the donation of the distributorship business in favour of the assessee. However, the CIT has not examined the question further that, even assuming that such a material was placed before the ITO, the position regarding the grant of exemption of the assessee's income would be different, had the ITO noticed that there was a donation of the distributorship business. It is not disputed by the learned counsel for the Revenue that the business of distributorship was an asset in the assessee's business and it was held under a trust. The ITO had found that the income from such distributorship business was applied for charitable purposes only. The CIT has nowhere recorded how the final conclusion of the ITO would vary, had the ITO taken into consideration the position that the business of distributorship was donated in favour of the assessee. 7. Learned counsel for the Revenue relied upon the decision of this Court in the case of K. A. Ramaswamy Chettiar vs. CIT wherein this Court held that if the ITO did not make an enquiry as expected of him that would be a sufficient ground for the CIT to revise the order under s. 263 of the Act. 7. Learned counsel for the Revenue relied upon the decision of this Court in the case of K. A. Ramaswamy Chettiar vs. CIT wherein this Court held that if the ITO did not make an enquiry as expected of him that would be a sufficient ground for the CIT to revise the order under s. 263 of the Act. But, this decision has no application to the facts of the instant case, as here, the ITO had followed the decision of the apex Court and held that the assessee was entitled to exemption. Further, it is not indicated by the CIT in his order that the enquiry undertaken by the ITO fell short of the requirement that is expected of him in the consideration of the question of grant of exemption. We are of the view that where the material relied upon by the CIT which, according to him, was omitted to be noticed by the ITO would not have altered or varied the final conclusion arrived at by the ITO, the CIT would lack the jurisdiction to revise the order of assessment and the decision of this Court in K. R. Ramaswamy Chettiar's case would have no application to the facts of the case. 8. We are also of the opinion that it is futile on the part of the CIT to set aside the order of the ITO by directing him to consider the fact of donation of the distributorship business in favour of the assessee-trust when after considering the said fact, the conclusion that may be reached by the ITO would not be different. We, therefore, hold that the CIT had no jurisdiction to set aside the order of assessment merely to conduct another purposeless and fruitless enquiry to reach the same result which was arrived at earlier and if any fresh enquiry is held, it will be an empty formality as by going through the motion of making a further enquiry and reaching the same conclusion no useful purpose would be achieved. Though it is not expected of the CIT to record his final conclusion in the order passed in revision, he must at least indicate in his order how the order of the ITO is erroneous and prejudicial to the interests of the Revenue. Though it is not expected of the CIT to record his final conclusion in the order passed in revision, he must at least indicate in his order how the order of the ITO is erroneous and prejudicial to the interests of the Revenue. We therefore, hold that the power of revision cannot be exercised as a matter of course, but it must be exercised to correct some error in the orders passed by the AO. The revisional power is not meant to be exercised to correct every error of fact, but the error must be of such a nature that it is erroneous and prejudicial to the interests of the Revenue. We are of the view that the CIT would have no jurisdiction to revise an order of assessment, if the final conclusion arrived at by the ITO would not be different even after considering the particular fact which the CIT has directed the ITO to consider the same. Further, the power of revision is not meant to be exercised for the purpose of directing the ITO to hold another investigation when the order of the AO was not found to be erroneous. 9. The CIT in the instant case, in our opinion, has merely set aside the order of the ITO directing the officer to hold further investigation without recording any finding that the order passed by the ITO was in anyway erroneous or prejudicial to the interests of the Revenue. We hold that the Tribunal was quite justified in holding that the order did not call for any interference in the revision done by the CIT. Accordingly, we answer the question of law referred to us in the affirmative and against the Revenue. The assessee will be entitled to costs of a sum of Rs. 750.