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From: Kapil Goel <advocatekapilgoel@gmail.com>
To: CA.KAPIL GOEL <kapilnkgoelandco@gmail.com>
Sent: Sunday, 4 August 2013 11:10 AM
Subject: [Gzb_CA Group -CA. VINAY MITTAL] Fwd: Allahabad high court on U Turn and inconsistency in tax assessments against certainty; Missed claim in regular assessment can be rectified u/s 154; 10(23C) educational institution having other objects which are not undertaken : no ground for denying registration by CCIT; section 13 related party benefit onus on revenue
From: Kapil Goel <advocatekapilgoel@gmail.com>
To: CA.KAPIL GOEL <kapilnkgoelandco@gmail.com>
Sent: Sunday, 4 August 2013 11:10 AM
Subject: [Gzb_CA Group -CA. VINAY MITTAL] Fwd: Allahabad high court on U Turn and inconsistency in tax assessments against certainty; Missed claim in regular assessment can be rectified u/s 154; 10(23C) educational institution having other objects which are not undertaken : no ground for denying registration by CCIT; section 13 related party benefit onus on revenue
Included in this update (Allahabad high court orders)
i) Consistency and U turn in income tax assessments; Res judicata and Estoppel
ii) Rectification u/s 154 for allowance of claim missed in regular assessment on basis of material on record: Ok
iii) Charitable society: educational society having other objects not undertaken (not taken off)
iv) Charitable society: alleged benefit to related party u/s 13 Huge onus on revenue
Court No. - 21
Case :- INCOME TAX APPEAL No. - 22 of 2009
(Assessment Year 2000-2001)
Petitioner :- Commissioner Of Income Tax -I
Respondent :- M/S Northern Electronics System (P) Ltd. Sahu Hazratganj
Petitioner Counsel :- D.D.Chopra
Respondent Counsel :- Rahul Shukla, S.K.Garg
Case :- INCOME TAX APPEAL No. - 22 of 2009
(Assessment Year 2000-2001)
Petitioner :- Commissioner Of Income Tax -I
Respondent :- M/S Northern Electronics System (P) Ltd. Sahu Hazratganj
Petitioner Counsel :- D.D.Chopra
Respondent Counsel :- Rahul Shukla, S.K.Garg
We agree with the submissions made by the learned Counsel for the appellant that the principle of res-judicata or estoppal is not applicable in the income tax proceedings, as each assessment year is an independent assessment year. But fact remains that where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year, as per the ratio laid down in the case of Radha Swami Satsang v. CIT; 193 ITR 321 SC. Similar views were expressed in the case of Sardar Kehar Singh v. CIT; 195 ITR 769 Rajasthan. In other words, the principle of res-judicata is not strictly applicable in income tax matters. The finding in earlier years on the same facts are relevant for the subsequent assessment year as per the ratio laid down in the case of Taraben Ram Bhai Patel v. ITO; 215 ITR 323 Gujrat as well as in the case of Dhansiram Agarwal v. CIT; 217 ITR 4 Guwahati The Hon'ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. Income-Tax Officer, Circle 1, Ward A, Rajkot, 106 ITR 1 at page 10 stated that:
"At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity."
Assessments are certainly quasi-judicial and these observations equally apply.
We are aware of the fact that strictly speaking resjudicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
In view of above, it is evident that the facts of the earlier years are relevant for the assessment year under consideration
"At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity."
Assessments are certainly quasi-judicial and these observations equally apply.
We are aware of the fact that strictly speaking resjudicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
In view of above, it is evident that the facts of the earlier years are relevant for the assessment year under consideration
Case :- INCOME TAX APPEAL No. - 53 of 2004
Assessment Year 1990-91
Appellant :- Commissioner Of Income Tax (Central), Kanpur
Respondent :- M/S Sahara India Savings & Investment Corp. Ltd.
Counsel for Appellant :- P. Agrawal
Counsel for Respondent :- Amit Shukla,Pradeep Kumar,Wasiuqddin Ahmad
Assessment Year 1990-91
Appellant :- Commissioner Of Income Tax (Central), Kanpur
Respondent :- M/S Sahara India Savings & Investment Corp. Ltd.
Counsel for Appellant :- P. Agrawal
Counsel for Respondent :- Amit Shukla,Pradeep Kumar,Wasiuqddin Ahmad
(a) Whether the Income Tax Appellate Tribunal has erred in law in directing the assessing officer to allow the deduction under sec. 80M on the dividend income of Rs.62,10,000/- on units of UTI which was not originally claimed in the return of income but was claimed subsequently through application under sec.154 for the first time after the completion of the assessment.
(b) Whether the Income Tax Appellate Tribunal has erred in law in directing to allow deduction under sec.80M without considering the provisions of Section 80A(2) of the I.T.Act, 1961 which provide that the maximum limit of deduction under the Chapter VI-A shall not, in any case, exceed the gross total income.
In the instant case, it appears that the assessee has received dividend income from United Trust of India and made a claim that a sum of Rs.8,39,174/- may be allowed, as appears from the original return. But, the AO has rejected the claim. However, AO, while passing order under Section 154 of the Act, has allowed the same. Thus, the claim is allowable. The assessee has restricted his claim not exceeding gross income at Rs.25,07,554/-, but the AO has allowed only the claim made in the original return, while passing the order under section 154 of the Act. Thus, it appears that the claim of the assessee under Section 80M is allowable. It was for the AO either to reject the entire claim or allowed the claim, but it was allowed partly. In the rectification application, the assessee has asked to restrict deduction as per law.
We are not in agreement with the submission made by the learned counsel for the Department that under Section 154 of the Act, the claim is not allowable, for the reason that the AO has already allowed some claim under Section 80M of the Act. The A.O. might have not allowed the friction of the claim. When the claim is allowable then why it should not be allowed as per law. Genuineness of the claim is not doubtful. Therefore, the restricted claim under Section 80M of the Act is allowable as the same is not new one for Rs.25,07,554/- i.e. not to exceed the gross income. Out of which, the AO has already allowed a sum of Rs.8,39,174/-. Hence, the balance of Rs.16,68,380/- will have to be allowed as per law The answer to the substantial questions of law is in favour of the assessee and against the revenue.
In the result, the appeal filed by the Department is hereby dismissed.
We are not in agreement with the submission made by the learned counsel for the Department that under Section 154 of the Act, the claim is not allowable, for the reason that the AO has already allowed some claim under Section 80M of the Act. The A.O. might have not allowed the friction of the claim. When the claim is allowable then why it should not be allowed as per law. Genuineness of the claim is not doubtful. Therefore, the restricted claim under Section 80M of the Act is allowable as the same is not new one for Rs.25,07,554/- i.e. not to exceed the gross income. Out of which, the AO has already allowed a sum of Rs.8,39,174/-. Hence, the balance of Rs.16,68,380/- will have to be allowed as per law The answer to the substantial questions of law is in favour of the assessee and against the revenue.
In the result, the appeal filed by the Department is hereby dismissed.
Case :- WRIT TAX No. - 1714 of 2010
Petitioner :- Neeraj Janhitkari Gramin Sewa Sansthan
Respondent :- Chief Commissioner Of Income Tax And Others
Counsel for Petitioner :- S.K. Garg, A. Bansal
Counsel for Respondent :- C.S.C., Bharat Agrawal, S.Chopra. 12. The next question which now arises for consideration is whether an application can be rejected on the ground that the memorandum of association of the society provides for various other objects apart from educational activities. In this regard, the argument of learned counsel for the petitioner is that even though under the unamended bye-laws of the society, various other aims and objects were mentioned but according to application for approval and the material on record, the society is only carrying on educational activities. In this regard, specific assertion has been made in paragraph 2 of the application for approval. In paragraph 7 of the application, there is a specific assertion that the only source of income of the society is the nominal fees being charged from students and it has no other source of income. Learned counsel for the petitioner has placed strong reliance on the judgement of this court in the case of C.P. Vidya Niketan Inter College Shikshan Society (supra). We find that there the petitioner was a society which had made an application for approval u/s.10(23C)(vi) and its application for approval was rejected on the ground that benefit of section 10(23C)(vi) is available only to an educational institution existing solely for the purpose of imparting education, while the application has been made by a society having many activities that appear to be other than educational such as to make appropriate efforts for upliftment of public in social and cultural field etc. Therein, this court had held that even though the aims and objects of the society may contain several objects but if it has been proved by material on record that the society is not perusing any other activity apart from eduction then in such case, the society will qualify for grant of approval u/s. 10(23C)(vi) of the Act
Petitioner :- Neeraj Janhitkari Gramin Sewa Sansthan
Respondent :- Chief Commissioner Of Income Tax And Others
Counsel for Petitioner :- S.K. Garg, A. Bansal
Counsel for Respondent :- C.S.C., Bharat Agrawal, S.Chopra. 12. The next question which now arises for consideration is whether an application can be rejected on the ground that the memorandum of association of the society provides for various other objects apart from educational activities. In this regard, the argument of learned counsel for the petitioner is that even though under the unamended bye-laws of the society, various other aims and objects were mentioned but according to application for approval and the material on record, the society is only carrying on educational activities. In this regard, specific assertion has been made in paragraph 2 of the application for approval. In paragraph 7 of the application, there is a specific assertion that the only source of income of the society is the nominal fees being charged from students and it has no other source of income. Learned counsel for the petitioner has placed strong reliance on the judgement of this court in the case of C.P. Vidya Niketan Inter College Shikshan Society (supra). We find that there the petitioner was a society which had made an application for approval u/s.10(23C)(vi) and its application for approval was rejected on the ground that benefit of section 10(23C)(vi) is available only to an educational institution existing solely for the purpose of imparting education, while the application has been made by a society having many activities that appear to be other than educational such as to make appropriate efforts for upliftment of public in social and cultural field etc. Therein, this court had held that even though the aims and objects of the society may contain several objects but if it has been proved by material on record that the society is not perusing any other activity apart from eduction then in such case, the society will qualify for grant of approval u/s. 10(23C)(vi) of the Act
13. Perusal of the impugned order shows that the pleading in this regard have not been taken into consideration. Further, in the impugned orders, although, there is a finding that the society is having many objects other than educational, but there is no application of mind to the assertion made by the society that it is only pursuing the educational activity and no other. In view of the Division Bench decision of this Court in case of C.P. Vidya Niketan Inter College Shikshan Society (supra), in case, the society is pursuing only educational objects and no other activity then the application by such a society for grant of approval u/s. 10(23C) (vi) cannot be rejected on the ground that its aims and objects contain several other objects apart from educational and application by such a society is perfectly maintainable
Case :- INCOME TAX APPEAL No. - 138 of 2008
[Assessment Year - 1994-95]
Appellant :- Commissioner Of Income Tax-I, Lucknow
Respondent :- M/S Bharat Sewa Sansthan, Lucknow
Counsel for Appellant :- D.D. Chopra
Counsel for Respondent :- Amit Shukla,Ashish Bansal,Rakesh Srivastava,S.K. Garg
On the other hand, Sri S.K. Garg, learned counsel for the assessee Sansthan justified the impugned order passed by the Tribunal. He submits that the AO has not specifically made out a case as to under which section, case is covered. The conditions mentioned in Section 13(1)(c) are that income of the trust should have been used or applied directly or indirectly for the benefit of any person falling in prohibited category mentioned in Section 13(3) of the Act.
In the instant case, benefit would mean that some exgratia expenditure or money in cash or kind has passed to them without any contribution made by them to the society or its cause. He further submits that in Blacks Law Dictionary 8th Edition, the meaning of the word "benefit" is provided as under:-
1) Advantage; Privilege;
2) Profit or gain; specially the consideration that moves to the promisee.
If the persons in the prohibited category have rendered services then there is no benefit given as such but the expenditure incurred on them would be a compensation for such services. In other words, a benefit would said to have been given to the persons of prohibited category, if they did not, in return, do any thing but only enjoy the infrastructure of the trust or the society. But in the instant case, the concerning persons are providing the services and getting some remuneration, salary, allowances, perquisites which are permissible under the law. He also submits that the requirements of Section 11(2) is that if the assessee sets apart certain funds for charitable objects, then it will be treated as application of funds for charitable purposes and, therefore, it will be covered within the limit of 75% set out in Section 11 required to be applied by the assessee for charitable purposes. For this purpose, he has relied on the ratio laid down in the case of CIT vs. Hotel and Restaurant Association, 2003 261 ITR 190 (Del.). But in the facts and circumstances of the case, there is no basis for assuming it for the reasons that the amounts passed on to other organizations were in nature of donations/grants to organizations carrying on charitable activities of which the members of the Governing Council of the Sansthan would not be beneficiaries. The establishment expenditure incurred at the Head Office was only a fraction of the total of such expenditure, a major portion of which had been incurred on the units carrying on charitable activities. The conclusion of the AO that the bulk of the expenditure was on non-charitable activities is, therefore, by no means sustainable.
Further, the beneficiaries i.e. the President and the Treasurer, who got the accommodation were also the office bearer of the Motilal Memorial Society. Thus, if at all there is a case of providing benefit to the persons of prohibited category, then it should be invoked in the case Motilal Memorial Society and certainly not in the case of the assessee.
Needless to mention that the Hon'ble Allahabad High Court in the case of CIT vs. Kamla Town Trust, (2005) 279 ITR 89 has held that it has to be shown by the Department that trust has provided land and building or other property of the trust for use of the persons of prohibited category for any period during the previous year without charging adequate rent or other compensation. Therefore, in our considered view, the term "benefit" would cover a case of one way flow of privilege and advantages to the persons of prohibited category, out of the funds, property or income of the trust.
In the instant case, it has not been mentioned that the funds were misappropriated and were not utilized for the purpose according to the objects of the society, so the registration cannot be cancelled.
[Assessment Year - 1994-95]
Appellant :- Commissioner Of Income Tax-I, Lucknow
Respondent :- M/S Bharat Sewa Sansthan, Lucknow
Counsel for Appellant :- D.D. Chopra
Counsel for Respondent :- Amit Shukla,Ashish Bansal,Rakesh Srivastava,S.K. Garg
On the other hand, Sri S.K. Garg, learned counsel for the assessee Sansthan justified the impugned order passed by the Tribunal. He submits that the AO has not specifically made out a case as to under which section, case is covered. The conditions mentioned in Section 13(1)(c) are that income of the trust should have been used or applied directly or indirectly for the benefit of any person falling in prohibited category mentioned in Section 13(3) of the Act.
In the instant case, benefit would mean that some exgratia expenditure or money in cash or kind has passed to them without any contribution made by them to the society or its cause. He further submits that in Blacks Law Dictionary 8th Edition, the meaning of the word "benefit" is provided as under:-
1) Advantage; Privilege;
2) Profit or gain; specially the consideration that moves to the promisee.
If the persons in the prohibited category have rendered services then there is no benefit given as such but the expenditure incurred on them would be a compensation for such services. In other words, a benefit would said to have been given to the persons of prohibited category, if they did not, in return, do any thing but only enjoy the infrastructure of the trust or the society. But in the instant case, the concerning persons are providing the services and getting some remuneration, salary, allowances, perquisites which are permissible under the law. He also submits that the requirements of Section 11(2) is that if the assessee sets apart certain funds for charitable objects, then it will be treated as application of funds for charitable purposes and, therefore, it will be covered within the limit of 75% set out in Section 11 required to be applied by the assessee for charitable purposes. For this purpose, he has relied on the ratio laid down in the case of CIT vs. Hotel and Restaurant Association, 2003 261 ITR 190 (Del.). But in the facts and circumstances of the case, there is no basis for assuming it for the reasons that the amounts passed on to other organizations were in nature of donations/grants to organizations carrying on charitable activities of which the members of the Governing Council of the Sansthan would not be beneficiaries. The establishment expenditure incurred at the Head Office was only a fraction of the total of such expenditure, a major portion of which had been incurred on the units carrying on charitable activities. The conclusion of the AO that the bulk of the expenditure was on non-charitable activities is, therefore, by no means sustainable.
Further, the beneficiaries i.e. the President and the Treasurer, who got the accommodation were also the office bearer of the Motilal Memorial Society. Thus, if at all there is a case of providing benefit to the persons of prohibited category, then it should be invoked in the case Motilal Memorial Society and certainly not in the case of the assessee.
Needless to mention that the Hon'ble Allahabad High Court in the case of CIT vs. Kamla Town Trust, (2005) 279 ITR 89 has held that it has to be shown by the Department that trust has provided land and building or other property of the trust for use of the persons of prohibited category for any period during the previous year without charging adequate rent or other compensation. Therefore, in our considered view, the term "benefit" would cover a case of one way flow of privilege and advantages to the persons of prohibited category, out of the funds, property or income of the trust.
In the instant case, it has not been mentioned that the funds were misappropriated and were not utilized for the purpose according to the objects of the society, so the registration cannot be cancelled.
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