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Thursday, January 10, 2013

violation of provisions of section 13(2) (d) (h) and as such exemption u/s 11 and 12 cannot be allowed to the assessee and the assessment will be made in the status of AOP. =The respondent-assessee is a trust, who was treated as an AOP by the Assessing Officer for the assessment year 2002-2003 by an order dated 24th May, 2005 and exemption under Sections 11 & 12 of the Income Tax Act [hereinafter referred to as “the Act”] had not been continued. =many of the trustees of the assessee trust were related to the directors of M/s Apollo Tyres Ltd. and so as to give undue advantage under the provisions of Section 80G of the Act, the cheque had been accepted before 31st March, 2002 although the cheque was dated 22nd April, 2002. Thus, by accepting a post dated cheque and by giving receipt in the earlier accounting year, the assessee trust had done undue favour and, therefore, the Assessing Officer observed as under in para 8 of the Assessment Order : “…This has been primarily done with the sole objective of giving advantage to the donor company M/s Apollo Tyre Ltd. in which the main trustees and their relatives were substantially interested as per provisions of section 13 (3) of the I.T. Act, 1961. This is clearly in violation of provisions of section 13(2) (d) (h) and as such exemption u/s 11 and 12 cannot be allowed to the assessee and the assessment will be made in the status of AOP. With these remarks the income is computed as under…”= none of the cheques has been dishonoured on presentation and payment cannot, therefore, be said to have been defeated by the happening of the condition subsequent, namely dishonour by non-payment and that being so there can be no question, therefore, that the assessee did not receive payment by the receipt of the cheques. The position, therefore, is that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view, even if the cheques were taken conditionally, the cheques not having been dishonoured but having been cashed, the payment related back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques.” 15) Looking into the aforestated undisputed facts, and the view expressed by this court in the case of M/s Ogale Glass Works Ltd. (supra), we are of the view that no irregularity had been committed by the assessee trust and there was no violation of the provisions of Sections 13(2)(b) or 13(2)(h) of the Act. The fact that most of the trustees of the assessee trust and the directors of M/s Apollo Tyres Ltd. are related is absolutely irrelevant. 16) Upon careful perusal of the order passed by the Tribunal, we do not find any error therein. We are, therefore, in agreement with the view expressed by the Tribunal as well as the High Court and, therefore, the appeal is dismissed with no order as to costs.


                                                              NON-REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION


                    1 CIVIL APPEAL NO.   90       OF 2013

                (ARISING OUT OF S.L.P. (C) NO.31546 OF 2008)



DIRECTOR OF INCOME TAX


(EXEMPTION), NEW DELHI                .....APPELLANT.


                                VERSUS

RAUNAQ EDUCATION FOUNDATION    ....RESPONDENT



                              1 J U D G M E N T




1 ANIL R. DAVE, J.



         1) Delay condoned.
         2) Leave granted.
         3) Being aggrieved by an order passed in ITA No.150 of 2008 by the
            High Court of Delhi at New Delhi, the Revenue  has  filed  this
            appeal.
         4) The facts giving rise to the present appeal in a  nutshell  are
            as under:
         5) The respondent-assessee is a trust, who was treated as  an  AOP by the Assessing Officer for the assessment year  2002-2003  by an order dated 24th May, 2005 and exemption under Sections 11 & 12 of the Income Tax Act [hereinafter referred to as “the Act”] had not been continued.  
Being aggrieved by the said  order  of
            the Assessing Officer, the respondent-assessee had preferred an
            appeal before the Income  Tax  Commissioner.   The  Income  Tax
            Commissioner was pleased to dismiss  the  appeal  by  an  order
            dated 29th May, 2005.  Being aggrieved by  the  said  order  of
            dismissal, the respondent-assessee had filed an  appeal  before
            the Income Tax Appellate  Tribunal,  Delhi  Bench  “F”  at  New
            Delhi.   The  said  appeal,  being  ITA  No.2657/DEL/2006,  was
            allowed by an order dated 09th March, 2007.  Being aggrieved by
            the said order, the Revenue had filed ITA No.150 of 2008 before
            the High Court of Delhi at New Delhi which had been  dismissed.
            Being aggrieved by the dismissal of the said appeal by an order
            dated 04th March, 2008,  the  Revenue  has  filed  the  present
            appeal.
         6) The facts of the case pertain to the assessment year  2002-2003 of the respondent assessee.   
During  the  relevant  account year i.e. 2001-2002, the respondent-assessee  had,  by  way  of  donation, received two cheques for a sum of Rs.40 lac each from M/s Apollo Tyres Ltd.  One of the cheques was dated 22nd April,  2002 and yet it was given in  accounting  year  2001-2002  i.e.  before 31st March, 2002.  The  said  cheque  for  donation  was  received by the respondent-assessee before 31st March, 2002 but   was honoured after 1st April, 2002 i.e. in accounting year 2002-2003.

         7) In the assessment proceedings, the Assessing  Officer  came  to
            the conclusion that with an intention to do undue favour to M/s
            Apollo Tyres Ltd., the cheque dated 22nd April, 2002, given  by
            way of donation for a sum of Rs.40 lac had been accepted by the
            respondent-assessee and receipt for the said  amount  was  also
            issued before 31st March, 2002 i.e. in the accounting year 2001-
            2002.
According to the Assessing Officer, many of the trustees
            of the assessee trust were related  to  the  directors  of  M/s
            Apollo Tyres Ltd. and so as to give undue advantage  under  the
            provisions of Section 80G of  the  Act,  the  cheque  had  been
            accepted before 31st March, 2002 although the cheque was  dated
            22nd April, 2002.
Thus, by accepting a post dated  cheque  and
            by giving receipt in the earlier accounting year, the  assessee
            trust had done  undue  favour  and,  therefore,  the  Assessing
            Officer observed as under in para 8 of the Assessment Order :

        “…This has been primarily done with the sole  objective  of  giving
        advantage to the donor company M/s Apollo Tyre Ltd.  in  which  the
        main trustees and their relatives were substantially interested  as
        per provisions of section 13 (3) of the I.T. Act,  1961.   This  is
        clearly in violation of provisions of section 13(2) (d) (h) and  as
        such exemption u/s 11 and 12 cannot be allowed to the assessee  and
        the assessment will be made in  the  status  of  AOP.   With  these
        remarks the income is computed as under…”

         8) As stated hereinabove, the appeal which was filed  against  the
            assessment order had been dismissed and the second appeal filed
            before the Income Tax Appellate  Tribunal  by  the  respondent-
            assessee had been allowed by an order dated 09th March, 2007.

         9) The Tribunal, after hearing the concerned  advocates,  came  to
            the conclusion that there was no violation of the provisions of
            Sections 13 (2)(b) & 13(2)(h) of the Act and the assessee trust
            had not acted in improper and  illegal  manner.   The  Tribunal
            noted the fact that the  amount  of  donation  i.e.  Rs.40  lac
            received by way of a cheque dated 22nd April, 2002 was  treated
            as donation receivable and accordingly accounting treatment was
            given to the said amount.  The said amount was not included  in
            the  accounting  year  2001-2002  as  donation  but  was  shown
            separately in the balance sheet as amount receivable by way  of
            donation.  Moreover, M/s Apollo Tyres Ltd. had also not availed
            benefit of the said amount under Section 80G of the Act  during
            the accounting year 2001-2002 but had availed the benefit  only
            in the accounting year 2002-2003, the period during  which  the
            cheque had been honoured and the amount of donation was paid to
            the assessee trust.  For the  aforestated  reason,  the  appeal
            filed by the assessee was allowed.

        10) Being aggrieved by the aforesaid order passed  in  the  appeal,
            the Revenue had filed Income Tax Appeal No.150 of 2008  in  the
            High Court of Delhi.  The said appeal has been  dismissed  and,
            therefore, the present appeal has been filed by the Revenue.

        11) The learned counsel appearing for the  Revenue  submitted  that
            the High Court committed an error  by  dismissing  the  appeal.
            According to him there  was  breach  of  Section  13(2)(b)  and
            13(2)(h) and he further submitted that though  the  cheque  was
            dated 22nd April, 2002 it was given by way of donation  in  the
            earlier accounting year for which the assessee trust had issued
            a receipt and  as  the  trustees  of  the  assessee  trust  and
            directors of M/s Apollo Tyres Ltd.  were  closely  related,  an
            effort was made by the assessee trust to do undue favour to M/s
            Apollo Tyres Ltd.

        12) On the other  hand,  the  learned  counsel  appearing  for  the
            assessee  submitted  that  no  illegality  or  irregularity  of
            whatsoever type was committed by the assessee trust and he  had
            relied upon the reasons recorded by the  Income  Tax  Appellate
            Tribunal so to substantiate his  case.   He  further  submitted
            that the post dated cheque for Rs.40 lac was given before  31st
            March, 2002 i.e. during the accounting year 2001-2002  and  the
            cheque was duly honoured in April, 2002 when it  was  presented
            before the collecting bank.  As the cheque  had  been  honoured
            and the amount was paid to the  assessee  trust,  the  date  of
            payment of cheque should be treated as the date  on  which  the
            cheque was given.  Had  the  cheque  been  dishonoured,  things
            would have been different but  as  the  cheque  had  been  duly
            honoured, as laid down  by  this  court  in  the  case  of  The
            Commissioner of Income-Tax, Bombay South, Bombay  vs.   Messrs.
            Ogale Glass Works Ltd., Ogale Wadi (1955 (1), SCR page 185), it
            will have to be presumed that the amount was paid on  the  date
            on which the cheque was given to the respondent  assessee  and,
            therefore, it cannot be said that any undue favour was done  by
            the respondent-assessee to M/s Apollo Tyres Ltd.

        13) Upon hearing the learned  counsel  for  the  parties,  we  find
            certain undisputed facts.  It is not in dispute that though the
            assessee trust had issued receipt when it received  the  cheque
            dated 22nd April, 2002 for Rs.40 lac in  March,  2002,  it  was
            clearly stated in its record that the amount  of  donation  was
            receivable in future and accordingly, the said amount was  also
            shown as donation receivable in the balance sheet  prepared  by
            the assessee trust as on 31st March, 2002.  It is also  not  in
            dispute that M/s Apollo Tyres Ltd. did not avail any  advantage
            of the said donation  during  the  accounting  year  2001-2002.
            Upon perusal of the Assessment Order of M/s Apollo  Tyres  Ltd.
            for the assessment year 2002-2003, it is clearly revealed  that
            the cheque dated 22nd April, 2002 was not  taken  into  account
            for giving benefit under Section 80G of the  Act  as  the  said
            amount was paid in April, 2002, when the cheque  was  honoured.
            The assessment order showing the above fact is a  part  of  the
            record, which we have carefully perused.

        14) The submission made on behalf  of  the  respondent-assessee  is
            supported by this court in the case of M/s  Ogale  Glass  Works
            Ltd. (supra).   Relying  upon  other  authorities,  this  court
            observed as under in the aforesaid case :

        “…When it is said that a payment  by  negotiable  instrument  is  a
        conditional payment what is meant is that such payment  is  subject
        to a condition subsequent that  if  the  negotiable  instrument  is
        dishonoured on presentation the creditor may consider it  as  waste
        paper and resort to his original demand : Stedman v. Gooch (1793) 1
        Esp.5.  It is said in Benjamin on Sale, 8th Edition, page 788 :-


           “The payment takes effect from the delivery of the bill, but  is
        defeated by the happening of the condition,  i.e.,  non-payment  at
        maturity.”


           In Byles on Bills,  20th  Edition,  page  23,  the  position  is
        summarised pithily as follows :


           “A cheque, unless dishonoured, is payment.”


           To the same effect are the passages  to  be  found  in  Hart  on
        Banking, 4th Edition, Volume I, page 342.  In Felix Hadley & Co. v.
        Hadley (L.R. (1898) 2 Ch.D.680, Byrne J. expressed the same idea in
        the following passage in his judgment at page 682 :


           “In this case I think what took place amounted to a  conditional
        payment of the debt; the condition being that the  cheque  or  bill
        should be duly met or honoured at the proper date.  If that be  the
        true view, then I think the position is exactly as if an  agreement
        had been expressly made that the bill or cheque should  operate  as
        payment unless defeated by dishonour or by not  being  met;  and  I
        think that that agreement is implied from  giving  and  taking  the
        cheques and bills in question.”


            The  following  observations  of  Lord   Maugham   in   Rhokana
        Corporation v. Inland Reveue Commissioners (L.R. [1938] AC  380  at
        p.399) are also apposite:


           “Apart from the express terms of section 33,  sub-section  1,  a
        similar conclusion might be founded on the well  known  common  law
        rules as to the effect of the sending of a cheque in payment  of  a
        debt, and in the fact that though the payment  is  subject  to  the
        condition subsequent that the cheque must be met  on  presentation,
        the date of payment, if the cheque is duly met, is  the  date  when
        the cheque was posted.”


           In the case before us
none of the cheques has  been  dishonoured
        on presentation and payment cannot, therefore, be said to have been
        defeated by the  happening  of  the  condition  subsequent,  namely
        dishonour by  non-payment  and  that  being  so  there  can  be  no
        question, therefore, that the assessee did not receive  payment  by
        the receipt of the cheques.  
The position, therefore,  is  that  in
        one view of the matter there was,  in  the  circumstances  of  this
        case, an implied agreement under which the  cheques  were  accepted unconditionally as payment and on another view, even if the cheques were taken conditionally, the cheques not having  been  dishonoured
 but having been cashed, the payment related back to  the  dates  of  the receipt of the cheques and in law the dates  of  payments  were the dates of the delivery of the cheques.”

        15) Looking into the aforestated undisputed  facts,  and  the  view
            expressed by this court in the case of M/s  Ogale  Glass  Works
            Ltd. (supra), we are of the view that no irregularity had  been
            committed by the assessee trust and there was no  violation  of
       the provisions of Sections 13(2)(b) or  13(2)(h)  of  the  Act.
            The fact that most of the trustees of the  assessee  trust  and
            the  directors  of  M/s  Apollo  Tyres  Ltd.  are  related   is
            absolutely irrelevant.

        16) Upon careful perusal of the order passed by the Tribunal, we do
            not find any error therein.  We are,  therefore,  in  agreement
            with the view expressed by the Tribunal as  well  as  the  High
            Court and, therefore, the appeal is dismissed with no order  as
            to costs.


                       ..............................J.
                                                   (R.M. LODHA)



                                       ..............................J.
                                                   (ANIL R. DAVE)

New Delhi
January 07, 2013


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