Related provisions and judgments/ orders, issues and references and links:

Sections 11,12AA of the Income-tax Act, 1961 relating to Charitable Trusts.

Section 280A and circulars issued by CBDT about monetary limits for filing and withdrawals of appeals.

Question of fact – S. 254 (4), 256, and 260A -Tribunal is final fact finding authority and its order is final subject to some exceptions.

COMMISSIONER OF INCOME TAX VERSUS SHRI BALAJI SAMAJ VIKAS SAMITI 2018 (11) TMI 1071 - SUPREME COURT

COMMISSIONER OF INCOME TAX VERSUS SHRI BALAJI SAMAJ VIKAS SAMITI 2018 (2) TMI 769 - ALLAHABAD HIGH COURT

SHREE BALAJI SAMAJ VIKAS SAMITI VERSUS COMMISSIONER OF INCOME TAX, MEERUT  2013 (7) TMI 1100 - ITAT DELHI

Period of litigation:

The assesse had to file appeal against order of CIT dt. 23.11.2011 before the Tribunal. After Tribunal decided in favour of assesse the revenue preferred appeal before the High Court. The High Court affirmed order of Tribunal then revenue preferred appeal before the Supreme Court.  Now the honourable Supreme Court had, vide order dated 19 November 2018 directed as follows:

          “ Issue notice on the application for condonation of delay in filing the Special Leave Petition as well as in the Special Leave Petition.”

Therefore, now the Supreme Court will first hear the application for condonation of delay in filing the Special Leave Petition, then if delay is condoned, the Supreme Court   will hear the Special Leave Petition on merits.

We observe that from the date of order of CIT to the present order of the Supreme Court seven years have already lapsed. It will take more time in final decision of the Supreme Court in deciding the matter. It is likely that the petition for condonation may be dismissed.

SLP before the Supreme Court:

In case of SHREE BALAJI SAMAJ VIKAS SAMITI (supra.) the Revenue challenged orders of Allahabad High Court and the order of ITAT Delhi, directing the CIT( E) to grant registration to the assesse u/s 12AA. On reading of the substantial questions of law raised by the revenue, it appears that finding of Tribunal were not challenged as perverse or wrong or untenable. Therefore, so far finding of Tribunal are concerned they were final and un-challenged. The legal issue is wholly dependent of such fact, therefore, it cannot be said that there was any substantial question of law.

Order of the Tribunal:

Tribunal held that activities of assesse were eligible for registration u/s 12AA furthermore Tribunal also held that in case in future  volume of activities in nature of trade exceed prescribed limits (at that time Rs. ten lakh), the CIT(E)  can reconsider about Registration / continuation of registration of assesse u/s 12AA.  

Paragraph 8 and 9 of the order of Tribunal is reproduced below with highlights added by author for analysis and ease of understanding:

         “ 8. Learned CIT has also observed that from the profit & loss account of the assessee, the expenses incurred are on telephone charges, kitchen expenses, transportation expenses, office rent and salary, therefore, the expenses are in the nature of business and administration expenses only. It is clarified by the learned counsel that the only activity carried on by the assessee during the year under consideration was for preparation of mid-day meals and its supply to the primary schools in the villages as per the direction of the government. Therefore, the kitchen expenses and salary expenses were for the preparation of mid-day meals and transportation expenses were for supply of such mid-day meals to the various primary schools. The only other expenditure was telephone charges at ₹ 12,833/- and office rent at ₹ 14,400/- which are around ₹ 1,000/- per month which is necessary to supervise the activity of preparation and supply of mid-day meals. In view of the above, we are of the opinion that the activity of the assessee falls within the ambit of object of general public utility which is also accepted by the learned CIT himself in paragraph 4 of his order reproduced above by us. We, therefore, direct the CIT to register the society under Section 12AA of the Act. We may clarify that in future, if in any year the receipt of the assessee exceeds the limit prescribed in the second proviso, in that year, the Revenue would certainly be at liberty to refuse the exemption under Section 11 to the assessee-society.

9. In the result, the appeal of the assessee is allowed.”

Unquote:

From the above findings and order it is clear that there was finding of fact and the Tribunal also took care that in case in future receipts exceeds prescribed limits then revenue would certainly be at liberty to refuse exemption under S.11 to the assesse society.

It is also clear that the amount of income of assesse was miniscule and may not be taxable at all. Furthermore, it is well settled charitable institutes can also levy some charges so as to recover costs and to generate some surplus with a view to achieve objects of such institutes.

In such circumstances, first of all it was not proper for the CIT  to deny registration, and in any case registration was rejected by CIT and allowed by Tribunal, revenue should not have preferred appeal before the High Court particularly when facts remained un-challenged.

Order of High Court:

The relevant paragraph is reproduced below with highlights added:

              “Accordingly, we answer question nos. 1, 2 & 4 raised in this appeal thus: In view of the fact the assessee was engaged solely to implement the welfare scheme of the state government to provide mid-day-meals to students at its various village schools, it was rightly held to be engaged in an activity of general public utility. Alternatively, if it be assumed that in that process the assessee engaged in an activity in the nature of trade, commerce or business, etc, then, because the receipts from such activity were below ₹ 10,00,000/-, the assessee was still entitled to registration under Section 12AA(1)(b)(ii) of the Act.

Question no.3 as framed does not arise in this appeal.”

In view of the above aspects it was not proper for the revenue to indulge into litigation.

Charges and surpluses:

It is well settled that even if some charges are levied by charitable institutions to recover costs and to general some surplus, with a view to further achievement of its objects in future, such charges per say would not make the institution as a commercial institution not eligible for exemptions. Therefore, even in case of matter before the honourable Tribunal to The Supreme Court, such charges received by assesse from the government would not make it a non-charitable institution.

The institution was helping government and public in rural area by providing mid-day meals under scheme of government. This serves public purposes.  

Time of judges:

At each stage that is the Supreme Court, the High Court and the Tribunal matter was heard by division bench. Therefore, six learned judges had to spent time in last hearing and delivery of judgments. Besides, as usual, there are many hearings, interim directions etc. which also require lot of time of judges.    

Time of counsels

We find that for the Petitioner / revenue following four counsels appeared :

1. Mr. Tushar Mehta, S.G.
2. Mr. Ritesh Kumar, Adv.
3. Ms. Meenakshi Grover,
4. Mrs. Anil Katiyar, AOR

Counsels before the  High  Court:

For Appellant / revenue: 

1. Dhananjay Awasthi,S.S.C. I.T,
2. Shubham Agrawal

For Respondent:

1. Suyash Agarwal

Before Tribunal

For The Appellant : 1. Shri V.K.Goyal, Advocate.

For The Respondent : 1. Smt.Renuka Jain Gupta, Sr.DR.

Therefore, we find that in this matter at least nine learned persons have worked in capacity of counsels who appeared before Courts, and many other might have worked during the process from filing of appeal before Tribunal to hearing before the supreme Court.

Brain drain:

The question is whether it was proper to indulge into litigation by revenue  on such petty matter and particularly when the judgment was related to a particular case, in which Tribunal had also directed that in case of change in situation exemption can be withdrawn etc.

It is desirable to avoid such disputes which only causes loss of public money in litigation, though there is hardly any loss to revenue.

Such litigation also causes brain drain in un-productive work.

It is well known that major part of litigations are prompted by the government, causing lot of wastage of public money and harassment to the public. Due to such litigation, we find that the litigation management is most lucrative profession. It is un-fortunate that   litigation professionals are very highly remunerated in comparison to scientists, doctors and engineers who perform work which is more productive and useful for society at large.

If we want to develop a healthy society, there must be more emphasis and regard for productive activities.

A fit case for withdrawing appeal:

This is a fit case where revenue should withdraw appeal, to avoid un-necessary litigation. However, it seems that no one is interested in reducing litigation because litigation is best paid service and our system makes assignments of litigation management as long-term assignments.

We must think above our personal interest and work in a manner that more productive work is done and promoted instead of un-productive work like litigation and un-necessary litigation must be avoided.

It is also experienced that in situations where litigation is un-necessary it get more prolonged than in case of litigation which is impacting parties in reals and substantive manner.