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Trustee of Saurashtra Trust Versus The Director of Income Tax (Exemption)

Non-payment of self assessment tax by assessee trust - Penalty levied on the assessee/Trust under Section 273(2)(a) and under Section 140A(3) - proof of charitable activities - filing NIL estimate of advance tax and nonpayment of the self assessment tax - Held that:- The quantum of its income is not the test to determine whether the Trust is created for a charitable purpose. What is relevant is the object and purpose of creation of the Trust. - The act of the assessee/Trust in not paying sel .....

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e excuse sought to be given by the assessee/Trust that it was swayed by the verdict of the Apex Court in the matter of Surat Art Silk Cloth Manufacturers Association (1979 (11) TMI 1 - SUPREME Court) appears to be a lame excuse in order to avoid the tax liability and depriving the Revenue its due share in the taxable income earned by the assessee/Trust - Despite past orders of several authorities that the income earned by the assessee/Trust is liable for tax at the hands of the Revenue, even .....

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ding of Apex Court erroneously and say it bonafidely believed that its income is exempted. As such, by no stretch of imagination it can be said that the assessee/Trust was acting bonafidely having belief that it is earning an exempt income, and therefore, the assessee/Trust is not liable either to pay advance tax or the self assessment tax.The history of this assessee/Trust with repeated noncompliance despite orders of the learned ITAT must weigh negatively on the assessee bonafides. The length .....

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Decided against assessee. - Income Tax Reference No. 66 of 2000 - Dated:- 4-8-2017 - S. V. Gangapurwala And A. M. Badar, JJ. Mr.Sunil Lala a/w. Mr.Atul K. Jasani, Advocate for the Applicant Mr.A.R.Malhotra, Advocate for the Respondent JUDGMENT ( Per A. M. Badar, J.) 1 On allowing appeals by the Revenue and / or rejection of Cross Objections filed by the assessee, the assessee moved an application seeking reference of following two questions of law for decision of this court : Question in R.A.No .....

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red by the Income Tax Appellate Tribunal (hereinafter ITAT), Mumbai, at the instance of the assessee. Brief facts leading to the reference of two questions of law are thus : (a) The assessee is a Trust founded in or about 1941 and it has been publishing newspapers and other periodicals since then. According to the assessee/Trust, it conducts activities for welfare of people of India in general and people from Kutch, Khatiawad and Gujarat, in particular. For educating the masses, it is publishing .....

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me to be defined in Section 2(15) which included relief of poor, education, medical relief and the advancement of any other object of general public utility not involving carrying on of activity of profit. (b) By following decision of the Hon'ble Supreme Court in the matter of Sole Trustee, Loka Shikshana Trust vs. CIT [1975] 101 ITR 234 (SC) and Indian Chamber of Commerce vs. CIT [1975] 101 ITR 796 (SC) the ITAT vide its order passed in the month of November 1976 denied exemption to the ass .....

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pra) and Indian Chamber of Commerce (supra). It is held therein that where the purpose of a Trust or Institution is relief of the poor, education or medical relief, the requirement of definition of Charitable Purposes would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the Trust or Institution. The learned ITAT, in view of the rulings of the Hon'ble Supreme Court in the matter of Surat Art Silk Cloth Manufa .....

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e / Trust at ₹ 84,65,270/. The assessment came to be revised under CIT's order under Section 264 dated 14th December 1987 and total income came to be determined at ₹ 6,26,52,031/. The Assessing Officer, on perusal of the estimate of income for the purpose of advance tax submitted by the assessee/Trust, found it to be untrue. On being satisfied that the assessee/Trust has reason to believe the same to be untrue, the Assessing Officer imposed penalty of ₹ 2,90,409/to the asse .....

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.Act to the assessee/Trust for the Assessment Year 1975-76 to Assessment Year 1978-79. The Revenue, as such, was assessing the income earned by the assessee /Trust by publishing newspapers and periodicals as taxable income. (f) Feeling aggrieved by the action of imposition of penalty under Section 273(2)(a) and under Section 140A(3) of the I.T.Act by the Assessing Officer, the assessee/Trust filed two separate appeals before the Commissioner of Income Tax (Appeals) (hereinafter CIT (Appeals)) ch .....

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of income filed for earlier years had not been decided by the Tribunal till June 1985. As such, there was no case for holding that the assessee/Trust should have declared the income in its return of income and should have filed the self assessment tax under Section 140A(1) of the I.T.Act. So far as penalty under Section 273(2)(a) is concerned, the learned CIT (Appeals) was pleased to hold that the assessee/Trust was relying on the decision of the Apex Court in the matter of Surat Art Silk Cloth .....

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mposed on the assessee/ Trust by filing two separate appeals bearing numbers Income Tax Appeal No.1233 and 1234 (Bom) of 1990 before the learned ITAT, Mumbai. Upon getting notice of these appeals, the assessee/Trust filed cross objection which came to be registered as Cross Objection No.537/Bom/95. The cross objection came to be filed with an averment that the CIT (Appeals) did not consider some of the pleas advanced by the assessee/Trust in the appeals challenging the penalty levied under Secti .....

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appeal, has held that the question is whether the assessee/Trust really had a reasonable cause or belief that its income was totally exempted from the tax. The assessee/Trust cannot take shelter for refusal to pay tax by taking shelter of the decision of the Hon'ble Apex Court. The intention of the assessee/Trust was to withhold payment of lakhs of rupees as tax for number of years. The assessee/Trust had no reasonable cause or belief in not paying self assessment tax under Section 140A(1) o .....

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further held that merely because the appeal has been filed before the Tribunal, the assessee/Trust cannot be said to hold a reasonable belief that its income is not chargeable to tax, and therefore, it is not liable to declare it in an estimate of the advance tax. (j) The assessee/Trust, thereafter, preferred an application under Section 256 of the I.T.Act for referring the two questions of law, as stated in foregoing paragraph of decision of this court. That reference application came to be al .....

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er any provision of this Act, the assessee shall be liable to pay such tax before furnishing the return and the return shall be accompanied by proof of payment of such tax. (2) After a regular assessment under section 143 or section 144 has been made, any amount paid under subsection (1) shall be deemed to have been paid towards such regular assessment. (3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of subsection (1), the IncomeTax Officer may dire .....

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ssment for the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year, is satisfied that any assessee ( a) has furnished under subsection (1) or subsection (2) or subsection (3) or subsection (5) of Section 209A, or under subsection (1) or subsection (2) of section 212, an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, or (aa) …........ (b) …........ (c) …........ he may direct that such pe .....

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ed on the assessee/Trust under Section 273(2)(a) and under Section 140A(3) of the I.T.Act. The learned advocate argued that, infact, the position of law is clear from the following judgments / orders : i) Commissioner of Income Tax vs. Nayan Builders and Developers [2015] 56 taxmann.com 335 (Bombay) ii) Order of this court dated 17th February 2017 in Income Tax Appeal No.1498 of 2014 in the matter of Commissioner of Income Tax - 21 vs. M/s.Advanta Estate Development Pvt. Ltd., iii) Order of this .....

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gineers Pvt. Ltd. with connected matters, vi) the judgment dated 10 th May 2017 of Hon'ble Rajasthan High Court in the matter of Pr.Commissioner of Income Tax vs. M/s.Modern Denim Ltd., vii) the judgment reported in [2017] 79 taxmann.com 344 of Karnataka High Court, in the matter of Commissioner of Income Tax vs. Ankita Electronic (P.) Ltd. 5 It is argued that when the levy of penalty was debatable in the light of the fact that previously no penalty was imposed on the assessee/Trust, the lea .....

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.T.Act, 1961. 6 It is further argued that the penalty under Section 140A(3) is different from the penalty under Section 273(2)(a) but the learned ITAT applied the same reasoning for confirming both these penalties. Bonafides of the assessee / trust were not appreciated by the learned ITAT. Similarly, the Tribunal, in past, despite judgments of the Hon'ble Apex Court in the matter of Surat Art Silk Cloth Manufacturers Association (supra) remanded the matter in respect of the earlier assessmen .....

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estimate of advance tax as untrue or that it was liable to pay self assessment tax. 7 The learned advocate appearing for the Revenue countered the submissions so advanced by contending that ratio of the judgment in the matter of Surat Art Silk Cloth Manufacturers Association (supra) is crystal clear and the same is not in respect of the activity of publishing newspaper and earnings therefor. It is in respect of promotion of commerce and trade in silk and as such, the question of debatable views .....

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court in Income Tax Appeal No.2753 of 2010 in the matter of The Commissioner of Income Tax - 10, Mumbai vs. M/s.Wander Pvt. Ltd. and the order passed by the ITAT, New Delhi, in Income Tax Appeal No.1395/DeL/2009 in the matter of Assistant Commissioner of Income Tax vs. M/s.Khanna & Annadhanam decided on 22nd July 2011 in order to buttress his contention that the entire exercise by the assessee / Trust in not paying the self assessment tax and in submitting NIL estimate of the advance tax is .....

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r and periodicals. It is undisputed that the assessee/Trust was earning income from its activities of publishing newspapers and periodicals and was claiming its income to be exempt since its formation. At this juncture, it is apposite to note that in the matter of Surat Art Silk Cloth Manufacturers Association (supra) the Hon'ble Apex Court had an occasion to examine the term Charitable purpose. It is relevant to quote the observations of the Hon'ble Apex Court in that regard which reads .....

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for, as has been observed, a profitable activity in working out the charitable purpose is not excluded. I am unable to agree, with respect, with all that has fallen from H. R. Khanna and A. C. Gupta, JJ. in Sole Trustee, Loka Shikshana Trust v. CIT, [1975] 101 ITR 234(SC) that the terms of the trust must impose restrictions on making profits, otherwise the purpose of the trust must be regarded as involving the carrying on of a profit making activity. On the contrary, 1 find myself in agreement .....

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Apex Court that the quantum of its income is not the test to determine whether the Trust is created for a charitable purpose. What is relevant is the object and purpose of creation of the Trust. 10 As per provisions of Section 273(2)(a) of the I.T.Act, 1961, a false estimate or failure to pay advance tax makes an assessee liable for penalty. However, such penalty is leviable after hearing the affected party and only when the Assessing Officer comes to the conclusion that the assessee knew or ha .....

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enalty as prescribed by subsection (3) of Section 140A(1) of the I.T.Act, 1961. In the case in hand, undisputedly, the assessee/Trust has not submitted any estimate of advance tax by declaring estimated taxable income and by paying advance tax as per estimate of the income offered for the tax for the assessment year 1983-84. Ultimately, in the original assessment it was found that the assessee/Trust had earned income of ₹ 84,65,270/which came to be revised under orders of the CIT (Appeals) .....

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purpose as found in Section 2(15) of the I.T.Act, 1961, the income earned by the assessee/Trust came to be assessed for the income tax. By enactment of the Income Tax Act of 1961, the term Charitable Purpose came to be defined under Section 2(15) of the said Act. It is, thus, clear that to the knowledge of the assessee / Trust, since last about 21 years, that is from Assessment year 1962-63 to Assessment year 1982-83, consistently, the Revenue is treating the income earned by the assessee / Tru .....

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70-71 rejecting the claim of the assessee / Trust for having earned income exempted from the liability of payment of income tax, on the presume that it being a charitable Trust. This claim of the assessee / Trust came to be negated by holding that the income from activities relating to printing, publishing newspapers is not exempted under Section 11 of the Income Tax Act, 1961. This makes it explicitly clear that the assessee / Trust was well aware of the fact that even the learned ITAT had give .....

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d taken due care and acted authentically or genuinely by keeping in its mind the verdict of the learned ITAT in respect of assessment years 1962-63 onwards, then it would not have acted in such a manner of declaring NIL estimate of the advance tax and nonpayment of the self assessment tax while returning its income for the assessment year 1983-84. The excuse sought to be given by the assessee/Trust that it was swayed by the verdict of the Apex Court in the matter of Surat Art Silk Cloth Manufact .....

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ociation (supra), it is earning exempt income and therefore not liable to pay the advance tax or the self assessment tax. The ITAT while deciding appeals of earlier period has never held that the assessee/Trust earns exempt income, it being a charitable Trust, and therefore, not liable to pay income tax. 11 After decision of the ITAT in November 1976 in respect of assessment year 1962-63 to 1970-71 for subsequent years, the assessee/Trust never paid advance or self assessment tax. It appears tha .....

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ssee/Trust ought not to have assumed for itself that it is not liable to pay tax on its income, particularly in the light of past verdicts of the authorities in its own matter. Reversal of order of penalty for the assessment year 1982-83 by the CIT (Appeals) vide its order dated 30th September 1987 is of no avail for the assessment year 1983-84 with which we are concerned. So also, non-levying penalty in the past years is no ground to conclude that the assessee/Trust was not having any reason to .....

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ut by making note in the statement of computation of income that the income is exempt under Section 11 of the I.T.Act, 1961. The assessee/Trust had given complete go bye to earlier decisions of the learned ITAT and other authorities in its own case which were available to the assessee/Trust from the assessment year 1962-63 onwards. 12 Section 140A(1) of the Income Tax Act, 1961, contemplates payment of tax on the basis of any return required to be furnished. The return contemplated under Section .....

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e/Trust was earning income and it was made subjected to payment of tax by the Revenue, the act of the assessee/Trust cannot be said to be genuine or bonafide act. Till the assessment year 198384, the claim of the assessee/Trust that in the light of verdict of the Apex Court in the matter of Surat Art Silk Cloth Manufacturers Association (supra), income earned by it is exempted from the liability of payment of the tax was never upheld by the authorities under the I.T.Act, 1961. The petitioner can .....

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n 140A(3) of the Income Tax Act 1961, the learned ITAT has thoroughly examined the matter and concluded that as for last forty years, income of the assessee/Trust was held to be taxable by several decisions rendered by the Tribunal which were not upset till then, there is no scope for holding that the assessee/Trust was prevented by a reasonable cause from filing its estimate of advance tax and in not paying the tax on the basis of self assessment. The learned ITAT further held that there is no .....

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axable limit. The learned ITAT held that the assessee/Trust is not covered by the provisions of Section 2(15) of the I.T.Act, 1961 and hence the return cannot be considered as one filed under Section 239 of the I.T.Act, 1961. We do not find any illegality or perversity in such finding. It cannot be said that the assessee/Trust was under bonafide belief that its activities were nontaxable and therefore there was no reason for it to believe that its estimate of advance tax was untrue or that it wa .....

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