TMI Blog2020 (1) TMI 1356X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 148 of the Income Tax Act, 1961 (for short 'the Act, 1961') for reopening of the assessment year 200910 and assessment year 2010-11. Both these petitions were heard analogously and are being disposed of by this common judgment and order. 2. For sake of convenience, Special Civil Application No. 2321 of 2014 is treated as lead matter. 3. The petitioner has challenged the notice dated 08.01.2013 issued under Section 148 of the Act, 1961 by the respondent seeking to reopen the assessment for the A.Y. 201011 as well as assessment order dated 30.01.2013 passed by the respondent under Section 143 r/w. Section 147 of the Act, 1961, during the pendency of the petition before this Court. 4. The Coordinate Bench of this Court passed the common order dated 17.02.2014 in both the petitions, which read thus: 1. Heard, Mr. Mihir Joshi, learned Sr. Advocate with Mr. Tushar P. Hemani, learned Advocate for the appellant. 2. Learned Sr. Advocate moves a Draft Amendment, same is allowed. The amendment shall be carried out during the course of the day. 3. The learned Sr. Advocate invited the attention of this Court to the averments made in Paragraph2.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a legal error. Once the claim was examined, scrutiny assessment was framed and Assessing Officer came to the conclusion with or without recording reasons in the assessment order, such an assessment could not have been subjected to the process of reopening. This is not to suggest that the Revenue would be rendered without any remedy even in a case where the Assessing Officer committed a gross error in under assessing income chargeable to tax. 11. Section 263 of the Act, of course, when the requirements laid down in the provisions are satisfied, empowers the Commissioner to take such an order in revision. However, the succeeding Assessing Officer cannot doubt the legality of a conclusion recorded by the earlier Assessing Officer in his assessment order, which was framed after scrutiny. In same what similar circumstance, we had in our judgment dated 16.4.2013 passed in S.C.A. No. 357 of 2013 in case of Transwind Infrastructure Pvt. Lid. Vs. Income Tax Officer, made following observations : 10. From the above, it can be seen that the Assessing Officer was acutely conscious about the petitioner not having deducted tax on labour payment charges of ₹ 3.05 crores and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words reason to believe, Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. 12. If the Revenue was of the opinion that the Assessing Officer erroneously and to the prejudice of the interest of the Revenue allowed certain claim, in a given situation, it would have been open for the appropriate authority to exercise revisional powers. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 200708 13.81 crore during AY 2009-10. This indicates that the assessee-trust is in business of entertainment of public at large by arranging / hosting / managing cricket matches at national and international level and generate income out of such activity. 3. Secondly, the assessee-trust had also generated advertisement sales income of ₹ 1,58,13,475/during the one day match held on 25.12.2009 at Rajkot. The assessee has raised bills on various parties for sales of advertisement during the year. 4. The above activity of the assessee is very much clear that the assessee had been carrying out the activity in the nature of trade, commerce or business, the activity by the assessee was not to be treated as charitable purpose in view of amended provision of Section 2(15). 5. I have, therefore, reason to believe that in this case income claimed as exempt is requires to be taxed. Thus, there is under assessment of income for A.Y. 2010-11. Accordingly, this is a fit case for reopening of the assessment u/s. 147 of the I.T. Act. 6. It appears that the Assessing Officer has issued notice under Section 148 in view of the amended provision of Section 2(15) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance has been placed on behalf of the Revenue. 165. In the case of Truck Operators Association (supra), the assessee Truck Operators Association had filed an application in Form No.10A for registration of the Society under Section 12AA of the Act along with the certificate of registration granted by the Registrar of Societies and a copy of Memorandum and By-Laws of the Society. The Commissioner rejected the application holding that the Association was not formed for advancement of object of general public utility within the meaning of Section 2(15) of the Act. The Tribunal allowed the assessee's appeal and directed the Commissioner to grant the registration under Section12AA to the assessee-Society. The Revenue went in appeal before the High Court of Punjab Haryana. The High Court thought fit to allow the appeal, observing as under; 9. On examination of the objects and the purpose of the Association in the present case, it emerges that the respondent-Association is union of Truck Operators constituted for facilitating its members to carry on the trade of transportation and not to allow the outsider or non-member to undertake any business activity within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents and making huge profits from that business. Consequently, the assessee's application was rejected. The Tribunal, however, allowed the appeal of the assessee. The Revenue went in appeal before the High Court of Uttarakhand. The High Court, while allowing the appeal preferred by the Revenue, observed as under; 10. Section 12AA of the Act provides the procedure for registration. Clause (a) of sub Section (1) of Section 12AA empowers the CIT to call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or institution and may also make such inquiries, as he may deem necessary in this behalf. Said provision in Section 12AA makes it clear that CIT is not supposed to allow registration with blind eyes. In the present case, CIT has considered the relevant papers before him, which included the income and expenditure accounts of the previous years after the society got registered with the Assistant Registrar Firms, Societies and Chits. The CIT, after considering the record before him, has observed that the society (present respondent) is charging substantial fees f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet the requirements of the company law, although in point of fact the main object for which the assessee-company was established, was what was stated as an incidental or ancillary object against sl. no. 4 referred to above. It is pointed out that for the purpose of incorporating a company, the business which the company carries on has to be specified as the main object and all other objects have to be specified as incidental or ancillary objects, and this classification for the limited purpose of the Companies Act should not, according to the learned counsel, be confused with the real object for which the assessee-company was established. According to the learned counsel, the basic or dominant object for which the assessee was established, whether as a society prior to April, 1971, or as a company from April, 1971, was to encourage and promote the scientific breeding and training of horses and to impart instructions in and to diffuse useful and scientific knowledge of horse breeding and to encourage horse breeding in all its aspects which, according to the learned counsel, are objects of general public utility. The other objects specified, whether in the memorandum of association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are unable to appreciate the learned counsel's contention that notwithstanding the memorandum of association specifying the carrying on of the business of a race club as the main object for which the assessee-company was incorporated, we should hold that the main object for the purpose of the Companies Act is the carrying on of the business of a race club, and the main object for the purpose of the I.T. Act is the scientific breeding of horses. We must reject the contention that the main objects for which the assessee was established should be regarded differently for the purpose of the companies Act and the I.T. Act. The provision contained in the memorandum of association is unlearned counsel. We have, therefore, no difficulty in coming to the conclusion that the main object for which the assessee was established whether as a society or as a company, was to carry on the business of a race club and all other objects are either incidental or ancillary to the above main object. Thus, even invoking the doctrine of dominant or primary object, we must hold that the assessee was established with the dominant or primary object of carrying on the business of a race club by conducting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptions by lending money on interest and by such other means as the company deem fit . it refers to powers conferred on the appellant to raise money in aid of, and for the purpose of accomplishing, the objects mentioned in sub-clause (b) of clause 3 of the Memorandum. Upto June 6, 1965 subclause (b) read : To do the needful for the promotion of charity, education, industries, etc. and public good . Can all the purposes mentioned in subclause (b) be described as charitable purposes ? Section 2(15) of the Act defines the expression charitable purpose as including relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. Two objects in subclause (b) of clause (3) of the Memorandum need to be considered, industries and public good . As regards the latter, the decision on what should be the purposes of common good was left to the general meeting by Article 58 of the Articles of Association. Having regard to the context in which these words appear in the Memorandum and the Articles, they must evidently be referred to the residue general head in the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the provisions of the trust make possible or permit coupled with what had been actually done without any illegality in the ;Nay of profit making, in the case before us, under the cover of the provisions of the deed, which enable us to decipher the predominantly profit making character of the trust. In a subsequent case, Commissioner of Income-Tax, Kerala v. Cochin Chamber of Commerce and Industry, (1975) 101 ITR 796 (SC), this Court extended the test to income derived from activities carried on in aid of, and incidental to, the primary object of the trust. We may note that no attempt has been made by the appellant before us to cast doubt on the validity of the observations made in those two cases, and we proceed on the footing that they convey the true content of the law. It is, therefore, apparent that among the objects contained in the original unamended subclause (b) of clause (3) of the Memorandum are objects which, while referable to the residual general head in the definition of charitable purpose in section 2(15) of the Act, nonetheless do not satisfy the condition that they should not involve the carrying on of any activity for profit. The result is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust was not entitled to exemption under Section 11 read with Section 2(15) of the Act. The assessee, went in appeal before the Supreme Court. The Supreme Court, while dismissing the appeal of the assessee, observed as under; In addition to the power which the sole trustee had to collect donations and subscriptions for the trust. he had all the powers which the sole manager of a business may have in order to carry it on profitably. He had the power of transferring trust properties and funds if he thought it expedient in the interest of the objects of the Trust, to transfer the assests and liabilities of this Trust to any other Charitable Trust or institution conducted by such Trust which in the opinion of the original Trustee or the Board of Trustee has objects similar to the objects of this Trust and is capable of carrying out the objects and purposes of this Trust either fully or partially (Paragraph 17 of the Trust deed). Although, the original trustee was not to take any remuneration for discharging his duties as a trustee, yet, he was not precluded from being paid out of the Trust fund such remuneration as may be deemed propellor carrying out any work and dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en kept in view by the draftsman of the trust deed before us. And, we find that the power of diverting the assets and income of the Trust although couched in language which seems designed to counsel their real effect is decisive on the question whether the trust is either wholly or predominantly for a charitable purpose or not. The trustees is given the power of deciding what 485 purpose is allowed to or like an object covered by the trust and how it is to be served by a diversion of trust properties and funds. If the trustee is given the power to determine the proportion of such diversion, as he is given here, the trust could not be said to be wholly charitable. He could divert as much as to make the charitable part or aspect, if any, purely illusory. Indeed, this was the law even before the qualifying words introduced by the 1961 Act. [See: East India Industries (Madras) Pvt. Ltd. v. Commissioner of Income-tax, Madras, (1967) 65 ITR 611 (SC), Commissioner of Income-tax, Madras v. Andhra Chamber of Commerce, (1965) 55 ITR 722 (SC) and Md. Ibrahim Riza v. Commissioner of Income-tax, Nagpur, AIR 1930 PC 226. Such a trust would be of doubtful validity, but I refrain from further co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e found with respect to cases where provision is made for training in a game as a part of the education of youth. In those cases, the gift or bequest is regarded as charitable on the ground that it advances the cause of education. As instances of gifts or bequests for such purposes, I may refer to the case of In re, Mariette : Mariette v. Governing Body of Aldenham School, (1915) 2 Ch. 284, where a bequest was made to the Governing Body of a school for the purpose of building some squash racket courts and a further bequest was made to the Head Master for the time being upon trust to use the interest for providing a prize for some event in the school athletic sports every year. This bequest was upheld as charitable, because it was considered essential in a school of learning that there should be organised games as a part of the daily routine in order that the boys might not be left to themselves and that their bodily welfare might be promoted. Another instance is the case of Dupree's Deed Trusts, In re, Daley v. Lloyds Bank, Ltd., (1945) 114 LJ Ch L where a deed of gift, expressed to be for the encouragement of chess playing by holding an annual chess tournament limited to boys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deas have since changed and that cricket has grown so much in popularity and the general public have come to be associated so much with the game that the observations made so long ago are no longer valid. Any such contention must be overruled because even the recentmost cases have not expressed any dissent from the view taken in the Nottage case(1895-2 Ch. 649). It has often been cited and very recently it was cited in the case of Baddeley v. Inland Revenue Commissioners, (1953) 1 Ch 504 in the Court of Appeal and in the same case, Baddeley v. Inland Revenue Commra., (1955) AC 572 in the House of Lords. In re Nottage, 1895-2 Ch 649 was cited for the proposition observed Jenkins L. J. in the Court of Appeal. that the encouragement of mere sport is not a charitable purpose. With regard to this authority, I need only say that in my view, neither of the trust here in question is a trust for the encouragement of mere sport . It is noticeable that the learned Lord Justice did not dissent from the decision cited before him. A more elaborate reference to the case was made in the House of Lords and among the other Lords, Lord Reid made comments on it. Referring to the view take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held by authorities that are binding upon me that such a bequest is not charitable. He then proceeded to refer to the case of In re Nottage, 1895-2 Ch 649 as laying down the proposition to which he was giving effect. 13. I do not think I should multiply citations in order to illustrate the point that a gift or bequest merely for the promotion of a game has never been considered charitable : Clifford, In re : Mallam v. McFie, (1911) 81 LJ Ch 220 was a case of angling; Trustees of Warnher's Charitable Trust v. Commissioners of Inland Revenue, (1937) 21 Tax Cas 137, a case of playing fields. Scottish Flying Club, Ltd. v. Commissioners of Inland Revenue, (1936) 20 Tax. Cas 1, a case of an Aviation Club which held aerial pageants and charged fees for admission to the display and Inland Revenue Commissioners v. City of Glasgow Police Athletic Association, 1953 AC 380, a case of athletic sports of a police club. It is true that some of the decisions ultimately turned on the point that the beneficiary was not the public or a section of it, as understood in law, but incidentally observations were made in all of them as regards when promotion of a game can be a charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t I am unable to understand how fairness and honour can be inculcated by the game of cricket in any person other than those who actually take part in it. In the present case, we are not concerned with the players who play at the matches arranged by the Association, for they are members of the visiting teams or it might be local teams, but so far as the Association is concerned they are mostly outsiders. The Association is claiming to be advancing a charitable purpose only by providing an opportunity to the public to witness the games arranged by it. It can by no means be said that any spirit of fairness and honour is inculcated in the spectators of a game of cricket or perhaps any other game, played not by individuals but by teams. Indeed, there is a school of opinion, now growing in volume, which thinks that games played by rival teams drawn from different parts of the country or different countries and witnessed by multitudes do not serve any beneficial purpose, but, on the other hand cause a deterioration of the mind by fostering fanatical partisanships or generating mass hatreds. This, however, is a matter of opinion. Whether this extreme view is right or wrong, I find it impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of matches arranged by it. Thus, having regard to what has been referred to above, the High Court, ultimately, took the view that the Association was engaged in any charitable objects. The facts in the case on hand are altogether different. 177. In the case of N.N. Desai Charitable Trust (supra), this Court ruled that howsoever laudable the objects of the trust may be, and such objects may lead one to believe that the activities of the trust are charitable in nature, but for the purpose of seeking exemption under Section 11 of the Act, the actual activities are to be seen and not just the objects. There need not be any debate on this proposition of law. In the case on hand, after a detailed scrutiny of the various activities, the tribunal has recorded a finding of fact that the activities, in fact, are charitable in nature. 178. In such circumstances, referred to above, we are of the view that the Tribunal could be said to have taken a reasonable view of the matter, and having recorded a finding of fact based on the material on record, we should not disturb such finding of fact. 179. In the result, all the tax appeals fail and are hereby dismissed. The substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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