Dr. B.P Saraf, J.:— By this reference under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion:
“Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the assessee had not exercised the option within the time allowed under the Explanation to section 11(1) of the Income-tax Act, 1961?”
2. The assessee is a charitable trust to which the provisions of section 11 of the Income-tax Act, 1961 (for short “the Act”), are applicable. The due date for filing of its return of income for the assessment year 1972–73 was June 30, 1972. The return was, however, not filed within that date but it was filed later on October 14, 1974, under section 139(4)(a) of the Act and on the basis of the said return assessment was made by the Income-tax Officer under section 143(3) of the Act. In its return, the assessee claimed deduction of a sum of Rs. 90,000 which it had spent out of its income for the above assessment year within three months from the close of the relevant accounting year. A statement to that effect was filed along with a return of income filed on October 14, 1974. The Income-tax Officer, however, disallowed the claim of the assessee for deduction of the said amount of Rs. 90,000 on the ground that the assessee failed to exercise its option in writing as required by the Explanation to section 11(1) of the Income-tax Act before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal (“the Tribunal”). The Tribunal held that the assessee failed to exercise its option before the expiry date for filing of the return of its income required by the provisions in Explanation to section 11(1) of the Act. The Tribunal, in its order, observed as under:
“The assessee, in the present case, had not exercised any option before the due date of filing of the return of its income, i.e, on or before June 30, 1973, as required by the provisions enumerated in the Explanation to section 11(1) of the Act. According to the representative of the assessee, the time for filing the return was automatically extended to the date on which the return was filed under section 139(4). The option under the said section has to be exercised on or before the due date of filing the return of income, whether originally fixed or on extension. Here in the instant case the assessee had neither sought any extension of time for filing or late filing of the return of income nor was granted any extension of time for late filing of the return of income. As the option under the Explanation to section 11(1) of the Act was not exercised within due time, we are of the opinion that the lower authorities were fully justified in disallowing the assessee's claim of deduction of Rs. 90,000 claimed to have been incurred in connection with charities in the next three months following the end of the previous year relevant to the assessment year under appeal. The lower, authorities had not disputed about the validity of the return but what they had objected to was that the assessee who failed to exercise the option as required by the provisions in the Explanation to section 11(1) of the Act would not be entitled to claim deduction of Rs. 90,000 said to have been incurred in connection with the charities in the next three months of the year relevant to the assessment year under appeal. For exercising the option and claiming deduction for the expenditure incurred in the next three months following the end of the previous year, the assessee is required to exercise its option on or before the date of filing of the return of income whether originally fixed or on extension. As the assessee had admittedly not made any such option before the due date or had not sought for any extension of time for late filing of the return of income, the assessee cannot claim that it was entitled to deduction of Rs. 90,000 because it had made a claim in the statement accompanying the return of income filed on October 14, 1974. We fully realise that the present case is a very hard case as the assessee is a charitable trust but as the provisions in the Explanation to section 11(1) of the Act are mandatory, we are left with no other option but to reject the contention of the assessee and to uphold the order of the Appellate Assistant Commissioner.”
3. The assessee has come to this court by reference under section 256(1) of the Income-tax Act, 1961. The controversy before us is thus in a narrow compass. The answer depends upon the interpretation of the provisions of section 11(1) of the Act more particularly the Explanation thereto, in the light of the provisions of section 139 of the Act, particularly sub-sections (1), (2) and (4) thereof. These sections as they stood at the material time, to the extent relevant, read as follows:
“11. Income from property held for charitable or religious purposes.—(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property:
(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty-five per cent. of the income from such property;….
Explanation.—For the purposes of clauses (a) and (b),—
(1) in computing the twenty-five per cent. of the income which may be accumulated or set apart, any such voluntary contributions as. are referred to in section 12 shall be deemed to be part of the income:
(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent. of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount,—
(i) for the reason that the whole or any part of the income has not been received during that year, or
(ii) for any other reason,
(a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount; and
(b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount,
may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension for furnishing the return of income) be deemed to be income applied to such purposes, during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.”
(emphasis* supplied).
4. Section 139 of the Act, as it stood at the material time, so far as relevant, reads:
“139. Return of income.—(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed—
(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later;
(b) in the case of every other person, before the 30th day of June of the assessment year:
Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8)….
(2) In the case of any person who, in the Income-tax Officer's opinion, is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the Income-tax Officer may, before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed:
Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8).
(3) If any person who has not been served with a notice under sub-section (2), has sustained a loss in any previous year under the head ‘Profits and gains of business or profession’ or under the head ‘Capital gains’ and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72, or sub-section (2) of section 73, or sub section (1) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) or within such further time which, on, an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1).
(4). (a) Any person who has not furnished a return within the time allowed to him under sub-section (1) or sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in clause (b), and the provisions of sub-section (8) shall apply in every such case;
(b) the period referred to in clause (a) shall be—
(i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year:
(ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968, three years from the end of the assessment year;
(iii) where the return relates to a previous year relevant to any other assessment year, two years from the end of such assessment year.
(4A) Every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes, or of income being voluntary contributions referred to in sub-clause (iia) of clause 24 of section 2, shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).”
(emphasis supplied).
5. A conjoint reading of sections 11 and 139 makes it clear that a charitable or religious trust, whose income is exempt under section 11 or 12 is also required to submit a return of its income by virtue of subsection (4A). of section 139. All the provisions of the Act, so as far as may be, apply to such return as if it were a return required to be furnished under sub-section (1) of section 139. Sub-section (1) provides the time within which the return is required to be submitted voluntarily. sub-section (4) of section 139, however, permits an assessee, who has failed to furnish a return within the time allowed by sub-section (1) or in a notice under sub-section (2), to file the same at any time before the assessment is made. The question is whether a return though filed beyond the time specified in sub-section (1) but within the time specified in sub-section (4)(a) can said to be a. return filed within the time allowed under subsection (1) of section 139. In other words, whether sub-section (1) has to be read with sub-section (4). If the return filed within the time allowed under sub-section (4) is held to be a return filed within the time allowed under sub-section (1) of section 139, in the instant case, the option exercised by the assessee under the Explanation to section 11(1) of the Act along with the belated return, will have to be held to have been exercised “before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension for furnishing the return of income” as contemplated by the Explanation to section 11(1) of the Act.
6. On a careful reading of section 139 of the Act, we are of the clear opinion that sub-sections (1) and (4) of section 139 have to be read together and on such a reading, the inevitable conclusion is that a return made within the time specified in sub-section (4) has to be considered as having been made within the time prescribed in sub-section (1) or sub-section (2) of section 139 of the Act. In other words, if a return is filed within the time specified in sub-section (4) of section 139 of the Act and the option contemplated by the Explanation to section 11(1) is exercised in writing along with such return, the requirements of the Explanation to section 11(1) would stand satisfied.
7. A similar controversy came up before the Supreme Court in CIT v. Kulu Valley Transport Co. Ltd., [1970] 77 ITR 518. In that case, a dispute arose in regard to the right of an assessee to get the benefit of losses being set off and carried forward under section 24(2) of the Indian Income-tax Act, 1922, which provided that in order to get the benefit of section 24(2), the assessee must submit his loss return within the time specified by section 22(1) (corresponding to section 139(1) of the 1961 Act). Section 22(3) of the 1922 Act (corresponding to section 139(4) of the 1961 Act) enabled the assessee who had not furnished his return within the time allowed under sub-section (1) or sub-section (2) of section 22 to furnish it at any time before the assessment was made. The assessee submitted its return within the time specified in section 22(3). It was not accepted as a valid return for the purpose of section 22A to enable the assessee to carry forward the losses. The Supreme Court did not approve this interpretation and held that section 22(1) must be read with section 22(3) for the purpose of determining the time within which the return has to be submitted. It was observed that section 22(3) was merely a proviso to section 22(1). On the aforesaid reasoning, it was held that a return of income, profits or gains or of a loss must be considered as having been made within the time prescribed if it is made within the time specified in section 22(3). In other words, if section 22(3) is complied with section 22(1) also must be held to have been complied with. If compliance has been made with the latter provision, the requirements of section 22(2A) would stand satisfied.
8. The provisions of sections 22(1), 22(2) and 22(3) of the 1922 Act are identical with the provisions of sub-sections (1), (2) and (4) of section 139 of the 1961 Act. On a careful comparison of the two sets of provisions, it is evident that there is no difference between the two. The ratio of the decision of the Supreme Court in Kulu Valley's case, [1970] 77 ITR 518, therefore, squarely applies to the present case. Applying the ratio of the above decision, the option exercised by the assessee under the Explanation to section 11(1) of the Act before the time allowed under sub-section (4) of section 139 has to be held to have been exercised before the time allowed under sub-section (1) or sub-section (2) of section 139 of the Act and in that event, the assessee would be entitled to the benefit of deduction under section 11 of the Act. In the result, we answer the question referred to us in the negative, i.e, in favour of the assessee and against the Revenue.
9. Under the facts and circumstances of the case, there shall be no order as to costs.