1. ' V.V. KAMAT, J.---For the assessm ent years 1973-74, 1974-75 and 1975-76 in regard to which proceedings under section 147(b) were initiated by the Income-tax Officer in pursuance of the notice under section 148 of the Act, the following question expects our answer: "Whether, on the facts and in the circumstances of the case, and the question of exemption under section 11 having achieved finality in the original assessment proceedings, the Tribunal is right in law and within its jurisdiction in directing the Appellate Assistant Commissioner to consider the question afresh in appeals arising from reassessment proceedings initiated to bring to tax entrance fee and subscriptions that have escaped assessment in the original assessment?"
2. ' We have heard learned senior tax counsel as well as learned counsel for the assessee rather much more in extenso. This was because a situation of oscillation as regards the law declared by the Constitution Bench of the apex Court in CIT (Addl.) v. Surat Art Silk Cloth Mfrs. Association (1980)
3. 121 ITR 1, on the one hand and the other decision of the apex Court in CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297, categorically bringing out the statutory limits of the provisions of section 147 of the Income Tax Act, 1961. Factually also all reported cases were at the stage of assessment proceedings claiming benefit of section 11 of the Income Tax Act, 1961.
4. ' In the context of a very limited factual matrix, the proceedings display an interaction of the principle of mutuality in the matter of a company known as section 25 company, at the first and, the principle of the statutory limits of the proceedings under section 147 of the Act at the other end and alongwith it the position that in the matter of income-tax proceedings, each assessment year is a separate unit of consideration with regard to the assessment and determination of taxability in regard thereto. As stated at the outset, hearing counsel, our task is to resort to a process of blending the three aspects for the purpose of application to the very limited factual matrix in regard thereto.
5. ' Accordingly, we spread over the limited factual matrix and then consider as to how the question referred is to be answered.
6. ' The assessee is a company registered under section 25 of the Companies Act. Broadly stated, the provisions of section 25 of the Companies Act relate to the power of dispensing with "limited" in regard to , charitable or other companies covered thereby. There are certain advantages and, therefore, the provisions are frequently used by bodies which pursue charitable, educational or other purposes of general utility. Such an association becomes a body corporate with perpetual succession by adopting a suitable name. Therefore, certain situation known with reference to the activity covered thereby, as related to a process of continuation, although it enjoys all the privileges of a company, in fact there is no business activity and, therefore, all ancillaries in regard thereto.
7. ' The standard Treatise-Palmer's Company Law, 23rd edition, deals with the aspect of the importance of this exemption from the requirement of "limited". Such a company enjoys all the privileges of a private company and except the use of the word "limited" is understood as a company itself; and generally only "Pvt. Co. Ltd. By guarantee" can obtain such exemption from the requirement of limited. In other words, a section 25 company is not a trading company and, therefore, is in the nature of a mutual association. Its members contribute and the affairs of the company are carried on through such contributions. Undisputedly the assessee is such a company carrying out functions of what is commonly known as a Chamber of Commerce.
8. ' There is no dispute that the assessment for the three years was completed and in regard thereto, the Assessing Officer refused the claim for exemption under section 11 of the Income-tax Act. To be precise, with regard to the assessme nt year 1973-74, it was completed on November 14, 1974, fixing the total income at Rs,27,670. This was also confirmed by the Income-tax Appellate Tribunal in I.T.A.
9. No,165 of 1975-76 by order, dated June 24, 1976.
10. ' Similarly with regard to the assessm ent year 1974-75 also it was finalised in the same manner by the order, dated January 25, 1975. With regard to the assessment year 1975-76, the position is not otherwise.
11. ' In other words, as far as the original assessment proceedings are concerned with regard to the years in question, a situation of finality had reached by reason of orders in regard thereto.
12. ' It is thereafter, proceedings under section 147(b) of the Income Tax Act, 1961, with regard to two items relating to the assessee's income for the above years, relating to subscription and entrance fees having been found escaped assessment, the assessment was reopened in regard thereto obviously by issuance of notices under section 148 of the Act.
13. ' The Income-tax Officer has emphasised the element of finality in the following words: "The assessee's claim of exemption has been negatived by all the authorities up to the Supreme Court."
14. ' It is further observed that these items-subscription and entrance fees--are assessable to tax.
15. Although reliance was placed on one decision of the Madras High Court in CIT v. Madras Stock Exchange Ltd. (1976) 105 ITR 546 and two decisions of the Gujarat High Court in CIT v. Shree Jari Merchants Association (1977) 106 ITR 542 and Addl. CIT v. Ahmedabad Millowners' Association (1977)
16. 106 ITR 725, there is no dispute that the position was then covered by the declaration of law by the apex Court in Indian Chamber of Commerce v. CIT (1975) 101 ITR 796 to the effect that these two items and others in regard to section 25 companies are taxable.
17. ' The further travel of the proceedings to the Appellate Assistant Commissioner of Income-tax, Trivandrum, confirmed the decision of the Income-tax Officer.
18. ' It is held that the incorporation does not in any way affect the principle of mutuality. Viewed from any angle whichever, the tax liability cannot be accepted. However, in spite of these submissions, the first appellate authority relied upon its earlier orders with regard to other assessment years and held that there is no escapement whatsoever because the assessee would be entitled to get protection of section 11 of the Act.
19. ' The Revenue had to take up the matter to the Income-tax Appellate Tribunal.
20. ' It was urged before the Tribunal that the Income-tax Officer resorted to the provisions of section 147(b) of the Act, following his order with regard to the assessment year 1972-73, which held to the effect that there is nothing like a mutual association as far as the assessee is concerned and, therefore, voluntary contributions are held to be included in the total income. The Revenue also submitted that with regard to the assessment year 1976-77 the situation was the same and the income came to be included in the total income.
21. ' It would be seen that the first two authorities considered the situation by applying one way or the other decisions governing the other assessment years.
22. ' It is in this background the decision of the Constitution Bench of the apex Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 was taken up for consideration by the Tribunal. The said decision overruled its earlier decision, in Indian Chamber of Commerce v. CIT (1975) 101 ITR 796 and it is specifically said so by the Constitution Bench at page 81 of the report.
23. ' A perusal of the judgment of the Constitution Bench would show that it was required to consider the question, since there was a conflict of opinion among different High Courts as to the interpretation of the words not involving the carrying on of any activity for profit" occurring at the end of the definition of -charitable purpose" in clause (15) of section 2 of the Income-tax Act. The Constitution Bench appreciated the great importance of the question involved and the serious repercussions as a result of adverse decisions on a large number of public trusts in the country.
24. ' In the process of reasoning the apex Court also considered the objects of section 25 companies and after considering a number of decided cases, the language of section 2 (15) of the Income Tax Act, 1961, and the intended advantages of section 25 companies, ruled that for a purpose to fall under the head of charitable purpose, it must constitute the advancement of an object of general public utility in which the activity of advancement must not involve a profit-making activity. An activity is involved in the advancement of an object when it is enwrapped or involved in the activities of advancement, so that the resulting activity has a dual nature or is twin faced it is observed that when applying section 11, it is open to the tax authorities in an appropriate case to pierce the veil of what is proclaimed on the surface by the document constituting the trust or establishing the institution by a memorandum of association and enter into an ascertainment of the true purpose of the trust or institution. This is to' find out the true purpose, to be genuinely and essentially a charitable purpose.
25. ' It must be stated that the apex Court considered the situations relating to the proceedings at the assessm ent stage.
26. ' To carry forward the progress of the proceedings, the Income-tax Appellate Tribunal, from the basis that the Constitution Bench of the apex Court in the case reported in Addl. CIT v. Surat Art Silk Cloth. Manufacturers Association (1980) 121 ITR 1 has overruled the earlier decision in Indian Chamber of Commerce v. CIT (1975) 101 ITR 796, felt that the Appellate Assistant Commissioner hag to consider whether the assessee is or is not entitled to the exemption under section 11 of the Income Tax Act, 1961. With regard to the assessment years--the subject-matter of the present reference, there is no dispute that the proceedings were governed by the statutory limitations of section 147 of the Income Tax Act, 1961.
27. ' Learned senior tax counsel contended that the question of exemption under section 11 would have to be stated to have achieved finality for all times in the original assessment proceedings and at least as far as the present proceedings covering the assessment years 1973-74, 1974-75 and 1975- 76 are concerned, the situation is of a closed door' in regard thereto. Learned counsel fortified his submission by an undisputed position that assessment proceedings were completed and, therefore, as far as the question of exemption under section 11 of the Income Tax Act, 1961 is concerned, he contended that it is impossible of any kind of reopening in regard thereto.
28. ' Learned counsel firstly relied on the statutory limitations, scope and nature of proceedings under section 147 of the Act. He took us through the text of the said statutory provision. Learned counsel submitted as is relevant for the proceedings, under section 147(b) of the Act, that reason to believe that income chargeable to tax has escaped assessment on the part of the concerned Income-tax Officer is the statutory requirement and if the Income-tax Officer is satisfied, the said Income-tax Officer in regard to a situation referable to such eventuality, can assess or reassess in regard to such escapement.
29. ' Learned counsel brought to our attention the statutory provisions of Explanation 1, submitting that the provisions are "deeming" in legislative character. He submitted that the fourfold statutory deeming situations relate to an underassessment, assessment at too low a rate, grant of excessive relief and excessive loss are illustrative in the process of understanding the statutory spirit of an action under section 147 of the Income Tax Act, 1961.
30. ' Learned counsel submitted in the first instance that the statutory Provision under consideration (section 147) is the power of the Income-tax Officer and as a necessary corollary in regard thereto, learned counsel submitted that the statutory provision gives no legal right to the assessee in regard. Thereto. In other words submits learned counsel that the assessee will have to be understood in terms of a situation of finality as far as the assessment proceedings are concerned.
31. Directly with regard to the aspect under consideration, learned counsel submitted that the assessm ent proceedings were completed and a situation of finality is established in regard thereto. He submitted that in regard to the assessment years in question, his contention is that with regard to the claim for protection of section 11, it also achieved finality because it was on the basis of a conclusion finalised that the assessee was denied protection of section 11 of the Act in regard to the assessm ent years in question. Learned counsel posed a question for himself. Can it be said that in such a situation the assessee could be heard to take up the same contention and claim protection of section 11 of the Act now in the present proceedings? Learned counsel urges that the proceedings governed by section 147 of the Act would have to be understood only as a logical consequence or a result of what has achieved finality in the process of assessment proceedings.
32. Learned counsel sought fortification of his submissions by placing reliance on another decision of the apex Court in CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297. Drawing vigorous strength from the said decision, learned counsel submitted that in the proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to the item or items which led to the issuance of a notice under section 148 and where a situation of escapement of tax floats on the surface, the Income-tax Officer's jurisdiction is confined only to such income which has escaped tax or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting to reagitate questions which had been decided in the original assessment proceedings. Learned senior tax counsel relied on the observations of the apex Court to the effect that it is not permissible to permit the assessee to reagitate questions which had been decided in the original assessm ent proceedings. Learned counsel emphasised that under the statutory provisions under consideration, the Income-tax Officer, cannot make an order of reassessment or assessment thereunder which would be inconsistent with the original order of assessment, and at any rate, in respect of matters which are not the subject-matter of proceedings under section 147 of the Act.
33. ' Learned counsel emphasised the observations to the effect that an assessee cannot resist reassessm ent proceedings validly initiated under this section merely by showing that other- income which had been assessed originally was at too high a figure except in cases under section 152(2) of the Act. He emphasised that it is in the situation of escapement of assessment alone that makes the Income-tax Officer's jurisdiction relevant in the context and equally well gets confined and circumscribed in regard thereto. Learned counsel submitted that just as the Income-tax Officer does not get power of reconsideration of situation generally concluded by the assessment proceedings, the statutory provision being the legislative provision to be used by the Revenue alone, the assessee could not be understood to contend anything which is closed by the situation of finality as far as the assessm ent proceedings are concerned. Relying on the decision learned counsel also contended that a matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless there is a relatable situation to the amount or income that has escaped assessment and only to that extent. Learned counsel submitted that just as the decision of the apex Court, restricts the Income-tax Officer's jurisdiction, as a situation of corollary it puts an iron curtain with regard to the situation of finality as regards the assessment proceedings.
34. ' Relying on the said decision of the apex Court learned senior tax counsel contended that section 147 proceedings, being a weapon of the Revenue with the limited use in regard to the situation of escapement of assessm ent, any contemplation of the assessee invoking opening of any gate even for a peeping view therefrom is impermissible in law. Learned counsel submitted that with regard to the assessm ent years in question, the situation that the assessee is not entitled to protection of section 11 of the Act is a closed door situation and, therefore, the assessee cannot legitimately and legally be heard to agitate the same in the present section 147 proceedings on the basis of the declaration of law by the Supreme Court in the context as above. Learned counsel submitted that even with regard to the two items of subscription and contribution, once his claim for protection under section 11 of the Act and its negation has received a situation of finality, the assessee cannot even contend anything in regard, thereto. It is submitted that the Income-tax Appellate Tribunal has not noticed this special feature of the present proceedings being under section 147 of the Act.
35. ' In our judgment, as stated at the outset this inter-play of' three aspects--the principle of mutuality, the principle of finality and a situation of statutory limits of section 147-would offer a special kind of blending to deal with the factual matrix specified hereinbefore. In our judgment, although the Constitution Bench, overruling the earlier decision of the apex Court in Indian Chamber of Commerce v. CIT (1975) 101 ITR 796 peculiarities specified hereinbefore relating to the statutory limits of section 147 of the Income Tax Act, 1961, as circumscribed by yet another decision of the apex Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 are such that the order of the Income-tax Appellate Tribunal, following the declaration of law by the Constitution Bench, at the same time ignoring, the statutory limits of section 147 of the Income Tax Act, 1961, presents a clear situation of illegality. In our judgment whatever may be the situation with regard to the other assessm ent years, because in regard to the said years the proceedings could be at the assessm ent stage, there is no doubt that the proceedings in the references before us are at the stage of section 147 proceedings in regard to which it cannot even be disputed that at one end, they are circumscribed by the limits of finality and at the other end they are controlled by the statutory limits of section 147. This being the situation, we find it difficult to follow the normal course of the Tribunal, now laid down by the Constitution Bench with regard to the factual matrix, presenting no difficulty for us whatsoever.
36. ' For the above reasons, we answer the question in the negative, against the assessee and in favour of the Revenue.
37. ' A copy of this judgment under the seal of this Court and the signature of the Registrar shall be forwarded to the Income-tax. Appellate Tribunal Cochin Bench, as required by law.