TMI Blog2019 (6) TMI 996X X X X Extracts X X X X X X X X Extracts X X X X ..... lement application before the Income Tax Settlement Commission, for it disclosed its undisclosed income in the said application and the same was allowed by the Commission, so also accepted u/s 245D (1), while declaring the said application as not invalid and maintainable u/s 245D (1). The Income Tax Settlement Commission should not have relied upon the arbitrary and illegal order dated 16th Jan, 2018, made by the respondent-department, while considering the rectification applications that were filed regarding the order dated 30th June, 2017. The Commission should have kept in mind, the petitioner Trust s status at the time when the original order dated 30th June, 2017 was made and not the status subsequent to the order dated 16th Jan, 2018, made by the respondent-department. Thus, at the time of the passing of the original order, the petitioner Trust was a registered entity u/s 12A and withdrawal of the approval accorded u/s 10 (23C) (v) 10 (23A) (via), as a consequence of cancellation or withdrawal of the same; cannot have retrospective effect as has been discussed earlier. It is therefore, evident from the factual matrix of the case at hand, that the petitioner Trust, is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement Commission to the extent: a) to grant of benefit of Section 11 (1) (a) of the Rajasthan Public Trust Act, 1959, b) to bring and carry forward the unabsorbed losses, c) to grant benefit of amount spent on construction of new educational buildings, d) to grant benefit of amount incurred towards news channel; and e) for quashment of telescoping the benefit of cash expenses. The prayer clause of the first writ application, reads thus: (a) By an appropriate writ, order or direction, the orders dated 30.06.2017 08.02.2018 passed by the Settlement Commission to the extent of (a) grant of benefit of section 11(1) (a) of the Act, (b) brought forward and carry forward of unabsorbed losses, (c) amount spent on construction of new educational buildings, (d) amount incurred towards news channel and (e) telescoping benefit of cash expenses be quashed, modified, set aside; (b) By an appropriate writ, order or direction, the respondents be directed to re-compute the total income after giving the benefit of (a) grant of benefit of section 11(1)(a) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort, Act of 1961), by the Commissioner of Income Tax, Jaipur, vide registration no. 253/34 with effect from 24th March, 2000. The petitioner trust was later on granted approval under section 10 (23C) (v) and 10 (23C) (via) of the Act of 1961, by the Commissioner of Income Tax, Jaipur vide notification dated 20th March, 2006. The petitioner trust filed its returns of income year to year which were duly scrutinized in detail by the Income Tax department and the same were accepted as complete returns of income without any additions thereon. The officials of the Income tax department carried out a search and survey under section 132 of the Act of 1961 on 30th October, 2014, on 9 premises of the petitioner Trust. On the basis of the search, the respondent-department issued notices to the petitioner under section 153A of the assessment year 2009-10 to 2014-15 on 06th August, 2015. The petitioner filed the returns of income for the assessment year 2014-15 on 30th September, 2015. Thereafter, on 14th December 2015, a settlement application under section 245C (1) of the Income Tax Act, 1961, was filed by the petitioner before the Income Tax Settlement Commission for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 vide registration no. 253/34 on 24th March, 2000. And it was further granted approval under section 10 (23C) (v) 10 (23C) (via) of the Act of 1961 by the Commissioner of Income Tax, Jaipur, vide notification dated 20th March, 2006, for Assessment Year 2004-05 to 2006-07 and thereafter vide notification dated 29th April, 2008 for Assessment Year 2007-08 and so on thereafter. The petitioner Trust filed its returns of income every year including for the assessment year 2001-02 to 2012-13 and the same were scrutinized in detail by the Income Tax Department regularly, without any addition to the returns of income submitted. 5. Learned counsel further stated that a search and survey was conducted by the officials of the Income Tax Department on 30th October, 2014, under section 132 of the Income Tax Act, 1961, on the premises of the petitioner. The petitioner filed a Settlement Application under section 245C (1) of the Act of 1961, before the Income Tax Settlement Commission on 14th December 2015, for the period of assessment years 2009-10 to 2015-16. The petitioner offered additional undisclosed income of ₹ 1,70,00,000/- (Rupees One crore seventy lacs), for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the findings arrived at being contrary to the provisions of the Act of 1961, and therefore, the petitioner filed a rectification application dated 19th Sep, 2017, before the Commission. The respondent-department also filed rectification application. The points raised in the rectification application by the petitioner, which were to be rectified by the Income Tax Settlement Commission, reads thus: 1.The corpus donations of the petitioner trust were treated as income of the trust while they were entitled to get the benefit under section 11 (1) (a) of the Act, and the said donations were not to be treated as income of the trust. 2.The benefit of carry forward of losses or deficit for the period of assessment year 2010-11 to 2012-13 as under section 11 (1) (a) of the Act, was not given to the petitioner trust. 3.The investment made by the petitioner trust, in the TV Channel was considered to be done so for deriving profits whereas the acquiring of the TV Channel was done in lieu with the objectives of the petitioner trust i.e. for educational purpose. 4.The depreciation in respect to the expenditure made in lieu of construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order dated 16th Jan, 2018 made by the respondents vide its order dated 20th December, 2018. 11. It is urged that the Income Tax Settlement Commission, summarily disposed of the rectification application filed by the petitioner vide order dated 8th February, 2018. The Income Tax Settlement Commission totally failed to take note of the fact that the respondent-department in order to frustrate the efforts of a settlement by the petitioner, arbitrarily withdrew the registration granted under section 12A and approval accorded under section 10 (23C) (v) and 10 (23A) (via) of the Act of 1961, with retrospective effect; and further made the observation that since the registration and approval of the petitioner had been withdrawn with retrospective effect, hence, no benefit under section 11 (1) (a) of the Act of 1961, shall be admissible to the petitioner for it is not a charitable trust in view of the order dated 16th Jan, 2018, of the respondents. 12. According to learned counsel the rectification application that was filed by the petitioner before the Income Tax Settlement Commission, was for rectification of the order dated 30th Oct, 2017, which ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished any evidence in that behalf. Whereas, the petitioner acquired the TV Channel for educational purposes only and was conducting courses of both graduation and post-graduation in 'Mass Media' and 'Journalism', which is in accordance and in consonance with the objective of the Trust and evidence in this regard was also submitted during the course hearings on the settlement application before the Income Tax Settlement Commission. Thus, the petitioner was entitled to benefit under section 11 (1) (a) of the Act of 1961, as application of fund and depreciation on amounts spent in construction of buildings and new buildings for education and acquisition of the TV Channel as well, which was not accorded contrary to the provisions of law. In order to fortify his stand learned counsel for the petitioner has relied upon the following opinions: Assistant Commissioner of Income Tax Vs. Agra Development Authority (2018) 90 Taxman 288 Industrial Infrastructure Development Corporation M.P. Ltd. Vs. Commissioner of Income Tax (2018) 4 SCC 494 State of Uttar Pradesh Vs. Vam Organic Chemicals Ltd. (2010) 6 SCC 222 Oxfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner also failed to establish the fact that the capitation fee was ever used for any charitable purpose of the petitioner Trust; thus, it implied that the said capitation fee was charged in contravention to the by-laws and objectives of the petitioner Trust. In this regard notices were issued to the petitioner under section 153A of the Act of 1961, on 30th Oct, 2014 for the assessment year 2009-10 to 2014-15. Returns of income of assessment year 2014-15 was filed on 30th Sep, 2015. Notice for the assessment year 2015-16 was issued under section 142 (1) of the Act of 1961. Before the assessment could have been completed the petitioner filed a settlement application before the Income Tax Settlement Commission under section 245C (1) of the Act of 1961, offering an amount of taxable income of ₹ 1,70,00,000/- ((Rupees One crore seventy lacs), for the assessment years 2009-10 to 2015- 16. The aforesaid settlement application was admitted by the Income Tax Settlement Commission vide order dated 23rd Dec, 2015. The settlement application of the petitioner was allowed to proceed further under section 245A (4) of the Act of 1961. Report under Rule 9 was submitted be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot recorded in the normal books of accounts. The year statics analysis of the diary, which was seized during the search and seizure process, revealed an average amount of capitation fee for a particular subject of MBBS, as per particular financial year, which is as follows: FY 2008-09 - ₹ 20,00,000 (Rupees Twenty lacs) FY 2009-10 -₹ 10,00,000 (Rupees ten lacs) FY 2010-11 -₹ 10,00,000 (Rupees Ten lacs) FY 2011-12 -₹ 24,00,000 (Rupees Twenty four lacs) FY 2012-13 -₹ 27,00,000 (Rupees Twenty seven lacs) FY 2013-14 -₹ 40,00,000 (Rupees Forty lacs ) FY 2014-15 -₹ 40,00,000 (Rupees Forty lacs) 21. Furthermore, unexplained cash, jewelry, undisclosed investments, foreign travel and tours made out of the petitioner Trust money, were detected during the search conducted by the respondent-department and that was also tendered in evidence before the Income Tax Settlement Commission, but, the Commission failed to take note of this vital evidence. 22. Learned counsel for respondents further asserted that the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, which was clearly meant that the record of books of accounts, maintained by the petitioner Trust, was false, fabricated and untrue. Further, the cash recovered from the premises of various employees of the petitioner Trust, was arbitrarily considered belonging to them in individual capacity by the Income Tax Settlement Commission, whereas the said employees had no other means of their own to have accumulated such huge amount of cash. The petitioner s disclosure of ₹ 1,70,00,000/- (Rupees one crore seventy lacs), before the Income Tax Settlement Commission through settlement application, was in fact not anywhere near the real amount that the petitioner had accumulated through the means of involuntary donations and capitation fee and charges, which were estimated by the respondent department to be about ₹ 79,19,00,000/- (Rupees seventy nine crore nineteen lacs). 25. Learned counsel vehemently asserted that considering the above stated facts and materials available on record, it was evident before the Income Tax Settlement Commission that the disclosure made by the petitioner Trust was neither full nor true. The claim, as stated was reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration under section 12 A of the Act of 1961, of a Trust, with retrospective effect? V. Whether the disclosure made before the Settlement Commission by the petitioner Trust is full and true? 28. Indisputably, the order dated 16th Jan, 2018, made by the Commissioner of Income Tax thereby canceling the registration granted under section 12A and withdrawing the approval given under section 10 (23C) (v) 10 (23A) (via) of the Act of 1961, to the petitioner Trust with retrospective effect from the date of 01st April, 2006, was arbitrary in the face of the provisions of the Act of 1961; and therefore, cannot be deemed to be in consonance with any possible interpretation to be valid or legal. This court is of the opinion that the provisions of section 12AA (3) of the Act of 1961, empowers the Commissioner of Income Tax to initiate steps for cancellation of the registration of a Trust, but, the legislation had no intention of giving the said provision, a retrospective effect. For in such a situation, the same would have been clearly specified in the said provision. Interpretation of the said provision has to be harmonious rather than being prejudicial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Assistant Commissioner of Income Tax Vs. Agra Development Authority: (2018) 90 Taxman 288, it was observed thus: 50. In the context of the IT Act, 1961 it is undisputed that the grant of registration is a one time affair. The assessee is required to apply for registration under s. 12A of the Act. Once the assessee has been registered under s. 12A of the Act, by a specific order passed by the CIT, it stands established for the purpose of the Act that the activity being pursued by that assessee is for a charitable purpose , under s. 2(15) of the Act. 51. Then, there is nothing in the language of s. 12AA(3) of the Act that may suggest registration of the assessee may be cancelled with retrospective effect. The use of the words 'or have obtained registration at any time under s. 12A of the Act' added by amendment w.e.f. 1st June, 2010, only indicate that the CIT was vested with the power to cancel a registration that may have been granted to an assessee at any time prior to the aforesaid amendment itself. However, it does not indicate that thereby the CIT had been empowered to cancel the registration of the assessee with retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l preferred directly in this court is any different than what it would be if the assessee had first approached the High Court under Article 226 and then come up in appeal to this court under Article 136. A party does not and cannot gain any advantage by approaching this Court directly under Article 136, instead of approaching the High Court under Article 226. This is not a limitation inherent in Article 136; it is a limitation which this court imposes on itself having regard to the nature of the function performed by the Commission and keeping in view the principles of judicial review. May be, there is also some force in what Dr. Gauri Shankar says viz., that the order of commission is in the nature of a package deal and that it may not be possible, ordinarily speaking, to dissect its order and that the assessee should not be permitted to accept what is favourable to him and reject what is not. According to learned Counsel, the Commission is not even required or obligated to pass a reasoned order. Be that as it may, the fact remains that it is open to the Commission to accept an amount of tax by way of settlement and to prescribe the manner in which the said amount shall be paid. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - though it is true, some contentions of law are also raised. The commission has interpreted the trust deeds in a particular manner, Even if the interpretation placed by the commission the said deeds is not correct, it would not be a ground for interference in these appeals, since a wrong interpretation of a deed of trust cannot be said to be a violation of the provisions of the Income Tax Act. It is equally clear that the interpretation placed upon the said deeds by the Commission does not bind the authorities under the Act in proceedings relating to other assessment years. 31. In the Case of The Commissioner of Income Tax Vs. Settlement Commission and Another: (2014) 369 ITR 606; it was observed thus: 10. On a consideration of the facts and circumstances of the case, as also the submissions made across the bar, I am of the view that the following issues arise for consideration in this case, namely; (1) Whether this court, in exercise of its jurisdiction under Article 226 of the Constitution of India, will interfere with orders passed by the Settlement Commission under Section 245D of the Income Tax Act, 1961 and if so, to what ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aults and lapses on the part of the assessee and may waive interest, penalties or prosecution, where it thinks appropriate. Indeed, it would be difficult to predicate the reasons and considerations which induce the Commission to make a particular order, unless the Commission itself chooses to give reasons for its order. Even if it gives reasons in a given case, the scope of enquiry in the appeal remains the same as indicated above, viz., whether it is contrary to any of the provisions of the Act. In this context, it is relevant to note that the principle of natural justice (audi alteram partem) has been incorporated in section 245D itself. The sole overall limitation upon the Commission, thus, appears to be that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by the High Court under article 226 or by this Court under article 136, is also the same - whether the order of the Commission is contrary to any of the provisions of the Act and if so, apart from ground of bias, fraud and malice which, of course, constitute a separate and independent category, has it prejudiced the petitioner/appellant.. The Karnataka H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts or on an interpretation of the documents available before the Court. It follows, therefore, that in the instant case, the enquiry by this Court can only be with regard to whether or not the Settlement Commission exercised a jurisdiction that it did not have or, alternatively, if it did have the jurisdiction, whether it erred in the exercise of that jurisdiction. In the latter event, this court would also have to bear in mind the nature of the jurisdiction exercised by the Settlement Commission, which is akin to a statutory arbitration. Issues 2 and 3: It is the case of the department in the writ petitions that the offer of additional amounts by the assessees, over and above the amounts initially disclosed by it as undisclosed income in their applications before the settlement commission, and pursuant to the suggestions of the settlement commission in the course of the proceedings before it, rendered the original disclosure made by them as one that was not a full and true disclosure of the income that was not disclosed by it before the assessing officer or the manner in which such income was derived. The petitioner relies heavil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said report to the Settlement Commission within a period of ninety days. The settlement commission then proceeds to pass final orders in the matter, after perusing the report of the Commissioner, if any, and after giving the assessee and the Commissioner an opportunity of being heard. The settlement commission can also pass orders granting immunity to the applicant from penalty and prosecution under the I.T. Act. Such orders can be passed on the Settlement Commission being satisfied that the applicant has co-operated with the Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived. The orders passed by the Settlement Commission, are to be conclusive as to matters stated therein, in terms of Section 245-I of the I.T. Act, and will be rendered void only if it is subsequently found by the Settlement Commission that the orders were obtained by fraud or misrepresentation. 12. It is apparent from a perusal of the scheme of Chapter XIX-A of the I.T. Act that the jurisdictional fact that confers the settlement commission with the jurisdiction to proceed with an application is the fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to pass any order on the matter covered by the application. 31. .................. It is plain from the language of sub-section (4) of section 245D of the Act that the jurisdiction of the Settlement Commission to pass such orders as it may think fit is confined to the matters covered by the application and it can extend only to such matters which are referred to in the report of the Commissioner under sub-section (1) or subsection (3) of the said section. A full and true disclosure of income, which had not been previously disclosed by the assessee, being a pre-condition for a valid application under section 245(1) of the Act, the scheme of Chapter XIX-A does not contemplate revision of the income so disclosed in the application against item No. 11 of the Form. Moreover, if an assessee is permitted to revise his disclosure, in essence, he would be making a fresh application in relation to the same case by withdrawing the earlier application. In this regard, section 245(3) of the Act which prohibits the withdrawal of an application once made under sub-section (1) of the said section is instructive inasmuch as it manifests that an assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ender meaningless the scheme of settlement that is envisaged under the I.T. Act. One cannot discount the possibility of the Settlement Commission finding the disclosure of income made by an assessee as being full and true and yet requiring minor adjustments to include even those amounts, which though disputed by the assessee, would nevertheless be offered by the assessee in the interests of putting an end to litigation and in the spirit of settlement. These could be amounts, in respect of which, neither the department nor the assessee have sufficient material to substantiate their contentions, but the assessee is nevertheless willing to give up his claim in the interests of finality to litigation. The consent by an assessee to forgo such amounts, at the suggestion of the Settlement Commission, cannot have the effect of rendering his original disclosure dubious for the purposes of settlement under the Act. In my opinion, it is only in those cases where an assessee resiles from his original declaration of undisclosed income, by suo motu effecting revisions thereto, that he renders his application invalid for the purposes of settlement. In cases where additional amounts are offered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have kept in mind, the petitioner Trust s status at the time when the original order dated 30th June, 2018 was made and not the status subsequent to the order dated 16th Jan, 2018, made by the respondent-department. Thus, at the time of the passing of the original order, the petitioner Trust was a registered entity under section 12A and withdrawal of the approval accorded under section 10 (23C) (v) 10 (23A) (via) of the Act of 1961, as a consequence of cancellation or withdrawal of the same; cannot have retrospective effect as has been discussed earlier. It is therefore, evident from the factual matrix of the case at hand, that the petitioner Trust, is entitled to all the benefits under section 11 (1) (a) of the Act of 1959, including set off or carry forward of losses to the subsequent year(s) and depreciation, in respect to expenses incurred for construction of educational buildings in terms and tune with the objects of the Trust. The view aforesaid finds support from the opinion in the case of CIT V. Institute of Banking Personnel Selection (IBPS) (2003) 131 Taxman 386 (Bombay) , holding thus: Whether depreciation could be denied to the assessee, as expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that the said donation has to be treated as corpus donation. On the other hand, the Tribunal has held that the said amount since it has come from third parties the same would have to be treated as income. However, if the said amount is utilised or extended for charitable purpose, then the said amount would be eligible for exemption under Section 11(1)(d) of the Act, The Tribunal rightly rejected the claim of the Assessee to treat the said amount as corpus donation and has correctly in our view granted the relief under Section 11(1)(d) on this aspect of the matter also. 35. In the case of Commissioner of Income Tax Vs. Shri Plot Swetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 , para 9 reads thus: 9. In view of the two decisions of this court above referred to, it is the well-settled position that income derived from the trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against income earned by the trust in the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. We do not find any merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in the Section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under Section 11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal MANU/GJ/0259/1993 : [1995] 211 ITR 293. Accordingly, we answer question No. 3 in the affirmative, i.e., in favour of the assessee and against the Department. 9. It is clear from the above that as many as five High Courts have interpreted the provision in an identical and similar manner. Learned Counsel for the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. 39. The exclusion of the investment made by the petitioner Trust in the TV Channel appears to be one such perversity. On a glance of the facts and materials available on record of the case at hand, it is evident that the said TV Channel was acquired by the petitioner Trust for educational training in 'Journalism' and 'Mass Communication', as it was offering courses for graduation and post-graduation in 'Mass Communication' and 'Journalism'. The Apex Court of the land in the case of Maharishi Mahesh Yogi Vedic Vishwavidyalaya Vs. State of Madhya Pradesh and Others (2013) 15 SCC 677 , held thus: 77. Having considered the various submissions and the analysis made based on detailed circumstances leading to the intricacies of Vedas, the field it covers, as noted by the Division Bench, as well as the concept of education, which has been explained by very many learned and prominent persons to whom we have made detailed references to in the earlier part of our judgment, we are of the considered view that education is the base for every other subject to be taught in the process of learning. Therefore, establishment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st under section 12A of the Act of 1961, with retrospective effect; is arbitrary and contrary to the provisions of the Act of 1961. The Commissioner of Income Tax has been empowered to initiate the steps for cancellation of the registration of a Trust in terms of text of section 12AA (3) of the Act of 1961, but the legislation had no intention of its applicability with retrospective effect otherwise that would have been clearly specified in the said provision. The interpretation of the said provision has to be harmonious rather than being vindictive or instigating or creating fear in the assessees qua the Income Tax Department. Be thus as it may, in the matter at hand, the order dated 16th Jan, 2018, passed by the Commissioner of Income Tax, appears to be more vindictive, as the order dated 30th June, 2017, of the Income Tax Settlement Commission went against them. Cancellation was required to be made according to the due process of law. 44. In the case of U.P. Distillers Association Vs. Commissioner of Income Tax: (2017 399 ITR 143, the contention that the search was conducted in respect of his own premises and not that of the assessee/association; was repelled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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