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2016 (11) TMI 71 - GUJARAT HIGH COURT

2016 (11) TMI 71 - GUJARAT HIGH COURT - TMI - Validity of reopening of assessment - mere registration of a Board under Section 12AA of the Act does not automatically give status of trust and therefore, the exemption which is meant for trust under Section 11(1)(a) of the Act is not available to the petitioner - Held that:- Since this is a case of original non-scrutiny assessment, the concept of change of opinion cannot be applied. - Since the return of the assessee is accepted under Section 1 .....

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are the matters of examination and for that purpose, if the authority looking to the activity of the petitioner Board has come to the conclusion that reopening is necessary, we may deem it proper not to interject the said process. We reiterate that the reasons which are recorded are since forming the belief about escapement of income, we deem it proper not to intercept the process. - The aforesaid situation which is prevailing on the record of the case on hand, we deem it proper to refer to .....

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HI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR RK PATEL, ADVOCATE FOR THE RESPONDENT : MR SUDHIR M MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE A.J. SHASTRI) 1. The petitioner, by way of this petition, is challenging the legality and validity of action of respondent authority in issuing notice under Section 148 of the Income-Tax Act,1961 (for short the Act ) on 25.5.2010 as also the validity of the order dated 29.11.2010. 2. Brief facts are as under : 2.1 The petitioner is a .....

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that even under the said amended provisions, the petitioner Board was having an exemption till Assessment Year 2002-03. It has also been stated by the petitioner that the assesseee has got jurisdiction under Section 12AA of the Act w.e.f. 1.4.1999. However, on account of this change in the statute, all trusts who claimed exemption under Section 10(23C) of the Act from Assessment Year 2003-04 were compulsorily excepted to submit their return of income under Section 139(1) of the Act and in respon .....

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r section 147/148 of the Act. 2004-05 Assessed u/s. 143(3) Exemption granted in scrutiny assessment under section 143(3). Reopening under section 147/148. Thereafter, reopening dropped by the office who granted exemption in scrutiny assessment under section 143(3) for subsequent A.Y.2005-06. 2005-06 Assessed u/s. 143(3) Exemption granted in scrutiny assessment under section 143(3) of the Act by specific observation of nature of business of the petitioner 'to provide quality textbook at reaso .....

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er challenge in this petition) 2006-07 Assessed u/s. 143(3) Addition made under section 11(4) of the Act by rejecting claim of total exemption in the scrutiny assessment under section 143(3) of the Act. Petitioner filed appeal to CIT (Appeals) which is partly allowed and petitioner's appeal before ITAT is pending. 2007-08 Processed u/s. 143(1) No scrutiny assessment under Section 143(3) of the Act. Same officer who framed scrutiny assessment on same facts and law and evidence on record right .....

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received. 2.2 So far as the present petition is concerned, the same is related to Assessment Year 2007-08 in which no scrutiny assessment has taken place under Section 143(3) of the Act and the same officer, who framed the scrutiny assessment in the earlier assessment, is inclined to reopen the assessment by issuing notice under Section 148 of the Act on 25.5.2010 on the premise that income of the petitioner Board has escaped the assessment within the meaning of Section 147 of the Act for the A .....

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reated as return of income filed in response to the notice in question. On 2.8.2010, under this communication received by the petitioner on 5.8.2010, the reasons which have been recorded are supplied which read as under : It is seen that the institution is registered u/s.12AA of the Income-tax Act,1961. Registration u/s 12AA of the IT Act, does not assign an organization or institution the status of a 'Trust' because registration can be granted to any institution whose objects are charit .....

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1(1)(a) of the Act. 2. It is further seen that the assessee trust is carrying on activities of publishing, printing and distribution / sale of Gujarat State School text books and other educational activities as per its objects. The Trust distributes all text books and publications directly to the public or through wholesale dealers and also supplies to the State Government agencies. Thus the Trust is holding a business undertaking which is engaged in publication, printing and distribution of sch .....

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is against this action on the part of respondent authority, the petitioner has invoked extraordinary jurisdiction of this Court. 3. Before dealing with the submissions of both the sides, we deem it proper to reproduce the gist of the reasons which reflects that the authority has formed a belief that mere registration of a Board under Section 12AA of the Act does not automatically give status of trust and therefore, the exemption which is meant for trust under Section 11(1)(a) of the Act is not .....

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1 of the Act and further, the activities of the petitioner Board are business activity and therefore, not amenable for exemption. On the basis of this premise, the authority has chosen to reopen the assessment for Assessment Year 2007-08. 4. In this context, learned counsel, Mr.R.K.Patel for the petitioner has submitted and contended that the action of reopening of assessment impugned in the petition is patently bad in law which results in undue hardships and harassment. It is also contended by .....

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t was also submitted that in earlier years, even the scrutiny assessment has taken place under Section 143(3) of the Act and thereafter, there is no substantial change which would permit the authority to take a different view and therefore, contended that the action of respondent authority would be based upon change of opinion which is impermissible. Learned counsel further submitted that Section 11(4) of the Act has been incorporated with a contrary intent and not to snatch away the benefit whi .....

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uthority cannot reopen the assessment and therefore, the entire exercise sought to be undertaken is based upon mis-interpretation of the statutory provision. Learned counsel further contended that the petitioner has got a registration under Section 12AA of the Act which had been granted by the Commissioner of Income-tax, who being the higher authority, the Assessing Officer cannot take recourse to Section 148 or Section 147 of the Act being subordinate, as it has got a direct effect of an issue .....

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ed object, the authority ought not to have reopened the assessment. Learned counsel further submitted that before taking such recourse, there must be some tangible material available with the authority, otherwise no reopening can be permitted in view of the proposition of law laid down in case of Radhasoami Satsang V/s. Commissioner of Income-Tax, reported in 193 ITR 321 and therefore, with this background, learned counsel has submitted that no reopening be permitted. Learned counsel, in further .....

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ned counsel submitted that the action on the part of respondent authority is patently bad. 5. Learned counsel has further specifically submitted that though this impugned action is within a period of 4 years from the end of relevant assessment year, the earlier years scrutiny has also opined that exemption is amenable to the petitioner Board and therefore, even if no res-judicata in strict sense is applicable, the said opinion of the authority is not to be altered and therefore, learned counsel .....

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the Court may not entertain the plea of petitioner in extraordinary jurisdiction of this Court. Learned counsel further submitted that in the present case return of the assessee was accepted under Section 143(1) of the Act and no scrutiny assessment was done and therefore,, the question of change of opinion does not arise and therefore, it is not open for the petitioner to intercept the process of reassessment which has already been initiated. Learned counsel further submitted that the reasons .....

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ays open for scrutiny on all successive years and therefore, learned counsel submitted that in view of settled position of law that issue of res-judicata is not attracted, it is open for the authority to examine whether the criteria laid down under the relevant statutory provisions are continued to be fulfilled or not and therefore, it is not open for the petitioner to object simply on the ground that on earlier some years, the issue was examined and therefore, learned counsel has strongly oppos .....

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pugned action is a tentative belief which can be clarified by the petitioner by cooperating in the assessment proceedings and therefore, at this stage of the proceeding, when yet the examination of this issue is to take place, it is not open for the petitioner to interject by way of bringing the petition before this Court. This being the position, learned counsel has resisted the stand taken in the petition and thereby, contended to dismiss the petition by granting no relief. 7. Having heard the .....

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cally follow that in the present year also, claim must be allowed with examination of statutory requirement. (iii) It is also emerging from the record that since the return of income accepted under Section 143(1) of the Act, the concept of change of opinion does not arise and the authority has to look into the central issue concerned in the petition in the context of compliance of provisions contained in Section 11 read with Section 12 of the Act as well. 8. From the above position prevailing on .....

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the examination is required whether the petitioner - assessee fulfilled the conditions engrafted under Section 11 read with Section 12 of the Act for the year under consideration. Had there been scrutiny assessment taken place for this very year under consideration, possibly this judgment relied upon might have assisted the petitioner. But since the original proceedings never went beyond the stage of Section 143 (1) of the Act, this ratio is not applicable to the petitioner. 10. We further feel .....

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s purposes. 11. (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 accu .....

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income from such property; (c) income [derived] from property held under trust- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Boar .....

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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 [eighty-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, then- (a) in the case referred to in sub-c .....

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e income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) [* * *] of section 139[* * *] 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 subclause (i), during the previous year in which th .....

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gone into only during assessment or reassessment. 12. From the aforesaid circumstance prevailing on record, since the return of the assessee is accepted under Section 143(1) of the Act, we feel that there is no question of change of opinion while accepting the return and therefore, in the absence of any formation of opinion, the protest raised by the petitioner is devoid of merits and therefore, cannot be accepted. While coming to this conclusion, we may refer to a decision of the Supreme Court .....

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Court. A contention was taken by the appellant- Department to the effect that since the assessee s return was accepted under Section 143(1) of the Income Tax Act, there was no question of change of opinion inasmuch as while accepting the return under the aforesaid provision no opinion was formed and therefore, on this basis, the notice issued was valid. 3. We find that this aspect is squarely covered by the judgment of this Court in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Br .....

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rement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the legislature i.e. to minimise the departmental work to scrutinise each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D.K. Jain, J.) in Apogee International Ltd. v. Union of India. 16. It may be noted above that under the first pr .....

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n under Section 143(1)(a) was deemed to be a notice of demand under Section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under Section 143(1)(a), the question of change of opinion, as contended, does not arise. 4. The offshoot of the aforesaid discus .....

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if a claim is dependent upon satisfaction of statutory requirements every year, each year will be separate proceeding and would require separate examination. No doubt, the Supreme Court in the said decision has propounded the policy of law of finality. But, here is a case wherein, the question is whether the petitioner is observing the statutory conditions in present year. 14. Learned counsel for the petitioner has further tried to contend by citing a decision of this Court in case of Cliantha R .....

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sessment proceedings would be hit by the principle of change of opinion. But, here in the case on hand, the question of formation of opinion has not arisen as the return of income is processed merely under Section 143(1) of the Act where no question of opinion being formulated has arisen and therefore, since the scrutiny assessment has not been done for year under consideration, the ratio of above-referred decision is not applicable. 15. Yet in another case which is tried to be pressed into serv .....

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a High Court was dealing with an issue in which it had been observed that sub-section (4) was intended to uncover tax evasion by manipulation of account books and it was not intended to apply to application or expenditure of income by a business undertaking and therefore, the said decision delivered by the Calcutta High Court in a different set of circumstance quite contrary to the case on hand and therefore, we are of the opinion that the same is not directly applicable. 16. Referring to a deci .....

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