Trustees Of Saurashtra Trust vs The Director Of Income Tax
2017 Latest Caselaw 5557 Bom

                                                                     ITR-66-2000.doc


           IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                 ORDINARY ORIGINAL CIVIL JURISDICTION

                  INCOME TAX REFERENCE NO.66 OF 2000

 TRUSTEE OF SAURASHTRA TRUST                            )...APPELLANT

          V/s.

 THE DIRECTOR OF INCOME-TAX                             )
 (EXEMPTION)                                            )...RESPONDENT


 Mr.Sunil Lala a/w. Mr.Atul K. Jasani, Advocate for the Applicant.

 Mr.A.R.Malhotra, Advocate for the Respondent.


                           CORAM : S.V.GANGAPURWALA &
                                      A. M. BADAR, JJ.

DATE : Reserved on : 6th July 2017 Pronouned on : 4th August 2017

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 :

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                      Question in R.A.No.293/Mum/97

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the appeal of the Revenue and confirming penalty of Rs.2,90,409/- u/s.273(2)(a) ?

Question in R.A.No.292/Mum/97 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the appeal of the Revenue and confirming penalty of Rs.26,34,216/- u/s.140A(3) ?

2 By this reference, decision of this court is sought on

these two questions of law referred 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

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and Gujarat, in particular. For educating the masses, it is

publishing newspapers and periodicals in Mumbai as well as

Gujarat. It is case of the assessee/Trust that the income earned by

it is exempt from the liability of payment of income tax. From

Assessment Year 1941-42 till Assessment Year 1961-62 the income

of the assessee/Trust was exempted under Section 4(3)(i) of the

Income Tax Act, 1922, (hereinafter I.T.Act) as publishing of

newspapers falls under the definition of General Public Utility.

Subsequently, in the I.T.Act, 1961, the term "Charitable Purpose"

came 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 assessee /

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Trust under Section 11 of the I.T.Act, 1961, by holding that the

assessee/Trust had earned profit from the activity of distribution

of newspaper, and therefore, it is not liable for exemption under

Section 11 of the I.T.Act, 1961.

(c) The Hon'ble Supreme Court in the matter of Additional

Commissioner of Income Tax, Gujarat, vs. Surat Art Silk Cloth

Manufacturers Association reported in (1980) 121 ITR 1 (S.C.)

disapproved the majority view of the Sole Trustee, Loka

Shikshana Trust (supra) 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

Manufacturers Association (supra), instead of denying the

exemption under Section 11 of the I.T.Act, 1961, for the

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Assessment Year 1975-76 to Assessment Year 1978-79 remanded

the matter to the Assessing Officer to re-examine the issue.

(d) On 5th June 1982, for the assessment year 1983-84, the

assessee/Trust filed an estimate of income by estimating its

income as Nil. The regular assessment was completed under

Section 143(3) of the I.T.Act, 1961, on 17 th October 1986

assessing the income of the assessee / Trust at Rs.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 Rs.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 Rs.2,90,409/-

to the assessee /Trust by invoking provisions of Section 273(2)(a)

of the I.T.Act, 1961. Similarly, for the said assessment year, the

Assessing Officer further found that the assessee/Trust did not pay

the self assessment tax as was payable under Section 140A(1) of

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the I.T.Act, the Assessing Officer imposed penalty of

Rs.26,34,216/- on the assessee/Trust by invoking provisions of

Section 140A(3) of the I.T.Act, 1961.

(e) In June 1985, the learned ITAT denied exemption claimed

under Section 11 of the I.T.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)) challenging these orders. Both those

appeals came to be allowed by the CIT (Appeals) and penalty

levied by the Assessing Officer under Section 273(2)(a) and under

Section 140A(3) came to be cancelled.

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 (g)      The learned CIT (Appeals) was pleased to hold that there 

was no liability for payment of self assessment tax on the basis of

the return of income filed by the assessee/Trust. It is further held

that no penalty had been imposed in the past years under Section

140A(3) of the I.T.Act and the return 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 Manufacturers Association (supra) for

contending that its income was exempted from payment of the

tax, and therefore, it was not liable to pay any advance tax. There

was no malafide intention on the part of the assessee/Trust in

filing NIL estimate of the advance tax and no penalty was levied in

past assessment years on the assessee/Trust under Section 273(2)

(a) of the Income Tax Act.

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 (h)      The Revenue carried both the orders passed in appeals by 

the learned CIT (Appeals) cancelling the penalty imposed 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 Section 143A(3) of the

I.T.Act, 1961. After hearing the parties on 22 nd January 1997, the

learned ITAT allowed both the appeals filed by the Revenue and

restored penalty imposed on the assessee/Trust under Section

273(2)(a) and under Section 140A(3) of the I.T.Act, 1961.

Hence, cross objection filed by the assessee/Trust came to be

dismissed.

(i) In its common judgment and order the learned ITAT, so far

as penalty under Section 140A(3) is concerned, while confirming

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the said penalty and allowing the 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) of the I.T.Act, 1961. While upholding the penalty

imposed under Section 273(2)(a) of the I.T.Act, 1961, the learned

ITAT was pleased to hold that while filing the estimate of its

advance tax, the assessee/Trust did not have a bonafide belief that

its entire income is exempt from payment of tax, in view of the

fact that for forty years it was being held liable for payment of the

tax as the assessee/Trust was not falling in the category of the

"Charitable Trust" in order to claim exempt income. It is 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

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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 allowed by the learned ITAT

vide order dated 29th November 1999.

3 Before adverting to the arguments advanced by the

learned advocates appearing for the parties, it would be apposite

to quote the relevant provisions of law for better understanding

the controversy. Section 140A of the I.T.Act, 1961, reads thus :

"140A. (1) Where any tax is payable on the basis of any return required to be furnished under section 139 or section 148 after taking into account the amount of tax, if any, already paid under 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 sub-section (1) shall be deemed to have been paid

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towards such regular assessment.

(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub- section (1), the Income-Tax Officer may direct that a sum equal to two per cent of such tax or part thereof, as the case may be, shall be recovered from him by way of penalty for every month during which the default continues :

Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard."

Relevant portion of Section 273(2)(a) of the I.T.Act, 1961 reads thus :

"273.(1) ....................

(2) If the Income Tax Officer, in the course of any proceedings in connection with the regular assessment 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 sub-section (1) or sub-

section (2) or sub-section (3) or sub-section (5) of Section 209A, or under sub-section (1) or sub-section (2) of section 212, an estimate of the advance tax payable by him which he knew or had reason to

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believe to be untrue, or (aa) ...........

(b) ...........

(c) ...........

he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty a sum ........."

4 We have heard the learned advocate appearing for the

assessee/Trust. By taking us through the order of reference as

well as order of the learned CIT (Appeals) as well as the learned

ITAT, the learned advocate submitted that imposition of the

penalty is not a routine matter. The learned ITAT had taken

incorrect view in allowing the appeal of the Revenue and

upholding the penalty levied 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

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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 court dated 2nd December 2015 in Income Tax Appeal No.851 of 2014, in the matter of Commissioner of Income Tax - 8 vs. M/s.Aditya Birla Power Co. Ltd.,

iv) Order of Hon'ble Delhi High Court dated 5th October 2010 in Income Tax Appeal No.240 of 2009, Commissioner of Income Tax vs. Liquid Investment & Trading Co.,

th

v) Judgment dated 11

January 2017 of Hon'ble Madhya Pradesh High Court in Income Tax Appeal No.89 of 2016, Pr.Commissioner of Income Tax vs. R.K.Gupta Contractors & Engineers Pvt. Ltd. with connected matters,

th

vi) the judgment dated 10

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.

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 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 learned ITAT was not justified

in confirming the penalty imposed by the Assessing Officer. The

issue was debatable and as such it cannot be said that the assessee

/Trust had reason to believe that its estimate of advance tax or

return of income showing exemption was untrue. It cannot be

said that the assessee/Trust failed to pay the self assessment tax

making it liable to pay penalty. Infact, there was no liability to

pay self assessed tax as the assessee claimed exemption under

Section 11 of the I.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

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Surat Art Silk Cloth Manufacturers Association (supra)

remanded the matter in respect of the earlier assessment years

and as such, the assessee / Trust was under bonafide belief that

income earned by it is not liable to tax. There was difference of

opinion between the Hon'ble Judges of the Supreme Court and

subsequently in the matter of Surat Art Silk Cloth Manufacturers

Association (supra), judgments in the matter of Sole Trustee,

Loka Shikshana Trust (supra) and Indian Chamber of

Commerce (supra) came to be overruled. As such, it cannot be

said that, the assessee / Trust had reason to believe its 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

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trade in silk and as such, the question of debatable views in the

matter of income earned by the assessee / Trust does not arise. It

cannot be said that the assessee / Trust was under bonafide belief

that its income would not be chargeable to the tax. The liability

to pay tax on its income ought not to have been decided by the

assessee / Trust itself and there was no reasonable basis for

declaring its income as exempt by the assessee / Trust. The

learned advocate for the Revenue relied on order dated 21 st

August 2012 passed by the Division Bench of this 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 an

attempt to evade the tax liability.

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 8                We have carefully considered the rival submissions and 

also gone through the record made available as well as written

submissions placed on record by both parties. We have also gone

through the case laws relied by both parties.

9 At the outset, it needs to be noted that the facts

involved in the instant reference are not in dispute. Undisputedly,

the assessee/Trust came to be formed in the year 1941 and it is

involved in activities of publishing newspaper 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 thus :

"At this stage, it will be appropriate to point out that the question whether a trust is created or an institution is established for a charitable purpose

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falls to be determined by reference to the real purpose of the trust or the institution and not by the circumstance that the income derived can be measured by standards usually applicable to a commercial activity. The quantum of income is no test in itself. It may be the result of an activity permissible under a truly charitable purpose 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 with Beg, J. to the extent that he says, in the same case, that it is the genuineness of the purpose, that it is truly charitable, which determines the issue. It seems necessary to me that a distinction must constantly be maintained between what is merely a definition of "charitable purpose" and the powers conferred for working out or fulfilling that purpose. While the purpose

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and the powers must correlate, they cannot be identified with each other."

It is, thus, held by the Hon'ble 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 had reason to

believe that the estimate of advance tax submitted by the assessee

is untrue. Similarly, Section 140A(1) enjoins a assessee to submit

the returns of income after assessing the tax and after paying the

tax prior to furnishing the return of income. The return of income

of the assessee is required to be accompanied by proof of payment

of self assessed tax. If the assessee fails to pay such self assessed

tax, then after hearing the assessee, the Income Tax Officer can

direct him to pay penalty as prescribed by sub-section (3) of

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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 Rs.84,65,270/- which came to be revised under orders

of the CIT (Appeals) under Section 264 of the Income Tax Act,

1961, to Rs.62,65,203/-. The assessee/Trust claimed that income

earned by it by the activity of publishing newspaper and

periodicals is an exempt income, it being a Trust meant for

"Charitable purpose." However, the record reveals that since

beginning the Revenue was treating the income earned by the

assessee/Trust as taxable. It is worthwhile to mention that from

the assessment year 1962-63 onwards, in view of specific

definition of the term "Charitable 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

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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 / Trust as taxable income by holding

that the income earned by the assessee / Trust by publishing

newspaper and periodicals is not the income exempt from

payment of the income tax. Attempt of the assessee / Trust to

show that its income is exempt from the liability of payment of

income tax, taken from the year 1962-63 onwards, consistently

failed. It is borne from the record that in November 1976 the

learned ITAT decided appeals of the assessee / Trust in respect of the

assessment years 1962-63 to 1970-71 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

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learned ITAT had given the verdict that the income earned by the

assessee/Trust cannot be exempted from the liability of payment

of income tax. This verdict of the learned ITAT for the assessment

years 1962-63 to 1970-71 was very much available to the

assessee/Trust in November 1976 itself. In the wake of this factual

backdrop, the act of the assessee/Trust in not paying self

assessment tax by returning its income and filing "NIL" estimate of

the advance tax cannot be said or termed as bonafide act. If the

assessee had 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 non-payment 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

Manufacturers Association (supra) 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.

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                                                               th 

The verdict in the said matter was pronounced long back on 19

November 1979. Till the Assessment Year 1983-84 the

assessee/Trust could not demonstrate before the authorities of the

Income Tax Department that in view of the ratio and judgment of

the Apex Court in the matter of Surat Art Silk Cloth

Manufacturers Association (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 that despite this fact the Revenue had not imposed any

penalty on it. This resulted in continuation of non-payment of the

income tax by the assessee/Trust on the pretext that its income is

exempt. The act on the part of the assessee/Trust gives an

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indication that as the Revenue was not imposing any penalty on

its income held to be taxable in past years, a modus was adopted

to submit "NIL" estimate of the advance tax and non-payment of

the self assessment tax, while filing return of its income. The

assessee/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 believe that

the estimate of advance tax payable by it is untrue or that it had

bonafide belief that income earned by it is an exempt income not

liable to be taxed at the hands of the Revenue. At this juncture, it

is apposite to note that 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 in the assessment year 1983-84

return of income came to be filed by the assessee/Trust without

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paying self assessed tax but 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 140A is

true and faithful return. This means that the return must contain

declaration regarding the income offered for the tax. Though the

assessee/Trust was knowing from its past experience that its

income was liable for tax, despite filing the return under Section

139 of the I.T.Act, 1961, the same was not accompanied by proof

of payment of the tax. Rather, no tax was paid prior to filing of the

return of self assessment and only exempt came to be claimed. In

view of the fact that the assessee/Trust was earning income and it

was made subjected to payment of tax by the Revenue, the act of

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the assessee/Trust cannot be said to be genuine or bonafide act.

Till the assessment year 1983-84, 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 cannot interpret the finding 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.

13 It is relevant to note that while confirming the penalty

levied on the assessee/Trust under Section 273(2)(a) as well as

under Section 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

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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

provision in law to conclude that the penalty under Section

140A(3) cannot be imposed if the proceedings were not initiated

during the course of original assessment or that the return came

to be filed under Section 239 of the I.T.Act, 1961. The learned

ITAT further held that even if the claim is for an exemption being a

charitable society, the society is bound to file its return under

section 139(4)(a), if its income without taking into account the

provisions of Sections 11 and 12 is above the taxable 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

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tax was untrue or that it was under bonafide and reasonable belief

that its income is exempt. To our mind, that which an ordinary

person of average intelligence and sound mind would believe is a

reasonable belief. Existence of reasonable basis to believe is sine-

qua-non for ascertaining whether a person had reasonable belief.

However, in the case in hand, as held by the learned ITAT, for

more than forty years, income of the assessee/Trust was being

held as a taxable income by the authorities and it could not get

benefit of the judgment of the Apex Court in Surat Art Silk Cloth

Manufacturers Association (supra) till the assessment year

1983-84 upon consideration of its case on factual premises. As

such, it cannot be held that the assessee/Trust had compelling

reason to consider its income as exempt from the tax liability. The

history of this assessee/Trust with repeated non-compliance

despite orders of the learned ITAT must weigh negatively on the

assessee bonafides. The length of period during which the

assessee/Trust was denied benefit of exemption does not allow us

to hold that the assessee/Trust had reasonable belief to consider

its income entitled for exemption, resulting in consequential

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actions of filing "NIL" estimate of advance tax and non-payment of

the self assessment tax.

14 In the light of foregoing discussion, we hold that the

ITAT was justified in allowing the appeals of the Revenue and

confirming penalty levied on the assessee/Trust under Section

273(2)(a) and under Section 140A(3) of the I.T.Act, 1961.

15 In this view of the matter, the reference is answered in

Affirmative.

          (A. M. BADAR, J.)                  (S.V.GANGAPURWALA), J.)




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