Bombay High Court
The Fine Arts Society vs The Deputy Director Of Income-Tax ... on 25 January, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
Digitally
2024:BHC-OS:1738-DB
signed by
MEERA
MEERA MAHESH
MAHESH JADHAV
JADHAV Date: 1/6 202-wp-2541-15.doc
2024.02.01
14:46:41 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
+0530
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.2541 OF 2015
The Fine Arts Society ....Petitioner
V/s.
The Deputy Director of Income Tax
(Exemptions) 1-2 & Ors. ....Respondents
----
Mr. Jitendra Singh i/b Mr. Balasaheb Yewale for Petitioner.
Mr. Suresh Kumar for Respondents.
----
CORAM : K. R. SHRIRAM &
Dr. NEELA GOKHALE, JJ.
DATED : 25th JANUARY 2024
P.C. :
1 Petitioner is a charitable institution registered under the Bombay
Public Trusts Act 1950. Petitioner is also registered under Section 12AA of
the Income Tax Act, 1961 (the Act) and enjoys exemption under Section 11
of the Act. The matter relates to AY-2007-08. Petitioner is challenging a
notice dated 28th March 2014 issued under Section 148 of the Act. The
reason for reopening states, (a) that on perusal of return of income, it is
noticed that petitioner is engaged in commercial activity having earned
income of Rs.1,83,99,069/- from commercial activities; (b) the receipt of
this sum indicates that petitioner's activities are commercial in nature and
cannot be considered under the head charitable activities of the trust, and
(c) in view of the decision of the Apex Court in M/s. Yogiraj Charity Trust
Vs. Commissioner of Income Tax, New Delhi 1, wherein it is held that
assessee trust being engaged in commercial activity was not eligible for
1 103 ITR 777
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exemption under Section 11 of the Act and the facts in the present case is
similar to the case of Yogiraj Charity Trust (Supra), therefore, the claim of
petitioner in respect of exemption under Section 11 of the Act amounting to
Rs.1,83,99,069/- has to be rejected. It is also recorded in the reasons that
sanction under Section 151(1)(2) of the Act is solicited since petitioner's
assessment has been finalized under Section 143(3) of the Act and the
period of four years have lapsed from the end of the relevant assessment
year.
2 According to petitioner, this notice is required to be set aside
primarily on the ground of non application of mind in the reasons recorded
for reopening. Petitioner brought to the notice of the AO that judgment in
which he has relied upon, was that of the Supreme Court of India and not
the Delhi High Court, which indicated non application of mind while
forming the reasons to believe. It was also submitted that no assessment
order under Section 143(3) of the Act has been passed and having stated in
the reasons that such an order has been passed, further indicates non
application of mind. It was also submitted that seeking sanction on the basis
of the assessment order having been passed under Section 143(3) of the Act
and the sanction being accorded relying on that statement, also indicates
non application of mind by the sanctioning authority as well. These points
also have been raised in the objections filed. It will be apposite to refer to
paragraph 13 of the judgment of this court in Jainam Investments Vs. ACIT
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& Ors.
13 It is also trite that the Assessing Officer cannot reopen an
assessment even within a period of four years merely on the basis of a
change of opinion. The Assessing Officer has no power to review an
assessment which has been concluded. Certainly where he has
tangible material to come to the conclusion that there is an
escapement of income from assessment, the power to reopen can be
exercised. What is tangible is something which is not illusory,
hypothetical or a matter of conjecture. In Export Credit Guarantee
Corporation of India Ltd. (Supra), the Court held that even a single
ground on the basis of which the assessment is sought to be reopened
is valid and within jurisdiction, the notice for reopening of the
assessment would have to be upheld. That is once a tangible basis has
been disclosed for reopening the assessment. But in the reasons to
believe in the present case apart from there being non application of
mind as submitted by Mr. Agrawal, with whom we concur, we find not
even a single ground is mentioned on the basis of which the
assessment is sought to be reopened with regard to the five entities.
There is no tangible basis that has been disclosed for reopening the
assessment. The Assessing Officer simply states as quoted above "in
addition to the above loans, there are certain other loans taken by
M/s. Jainam Investment from the concerns owned by Shri Rajesh Jain
and Shri Manish Jain (the sons of Shri Bhanwarlal Jain) which are
controlled directly or indirectly by Shri Bhanwarlal Jain". This was
always available with the Assessing Officer when the earlier
assessment order was passed. Infact as noted earlier, in response to
the annual returns, in reply to the notice issued under Sub-Section 1
of Section 142 of the Act, all details of the 58 entities including these
five have been provided. Even in the statement of the representative
of petitioner recorded on 18th October 2014 under Section 131 of the
Act, the representative has disclosed about the unsecured loans taken
by petitioner from Shri Rajesh Jain and Shri Manish Jain (the sons of
Shri Bhanwarlal Jain).
3 In the order disposing the objections passed on 12 th February 2015,
which is also impugned in this petition, the AO repeats the mistake that the
order in Yogiraj Charity Trust (supra) was passed by the Delhi High Court
and not the Apex Court. In the affidavit in reply, of course, it is stated that
Yogiraj Charity Trust (supra) relied upon, was passed by the Apex Court.
The AO also does not deal with the objections raised by petitioner on the
ground of no order having been passed under Section 143(3) of the Act.
2 2021 (323) CTR Bom-25
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The AO had come to the conclusion that in view of the commercial activities
of petitioner, petitioner was not entitled to exemption under Section 11 of
the Act. Mr. Singh submits that the matter was finally decided by the ITAT
by its order pronounced on 4 th July 2018 holding that petitioner was
entitled to the benefit of Section 11 for AY-2011-12.
3 We have heard the counsel and in our view, the reopening cannot be
sustained. This is because in the case of Yogiraj Charity Trust (supra) the
Apex Court held that if one of the objects of the trust deed is not of a
religious or charitable nature and the trust deed confers full discretion on
the trustees to spend the trust funds for an object other than of a religious
or charitable nature, the exemption under section 4(3)(i) of the 1922 Act is
not available to assessee. If the primary or dominant purpose of a trust is
charitable, another object which by itself may not be charitable but which is
merely ancillary or incidental to the primary or dominant purpose would
not prevent the trust from being a valid charity. The court also held that
where in a trust deed providing for many charitable objects, the trustees
were authorised to open and maintain commercial institutions where work
at living wages could be provided to the poor and to contribute to
commercial, technical or industrial concerns, institutions, associations or
bodies imparting any type of training or providing employment to persons;
and the deed gave uncontrolled discretion to the trustees to spend the
whole of the trust fund on any of the non-charitable objects of the trust,
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then income of the trust was not exempted from tax under the said Act.
There is not even an allegation that uncontrolled discretion or authority to
open or maintain commercial institution was in the object of petitioner.
There is not even a finding to that effect. Just because there are certain
receipts received by petitioner while conducting its charitable activities,
would not make those receipts whatever may be the quantum, to be income
from commercial activities.
4 Therefore, there has to be a tangible material to come to the
conclusion that there is an escapement of income from assessment to
exercise the power to reopen. But if the reasons to believe indicate non
application of mind as submitted by Mr. Singh, with whom we concur, the
reasons to believe itself cannot be sustained. The reasons to believe
proceeds on the basis that an assessment order under Section 143(3) of the
Act has been passed when the assessment has been processed only under
Section 143(1) of the Act, and also on the basis of judgment, which
according to the AO is of Delhi High court, when in reality is that of the
Apex Court. All these indicate that the reasons to believe has been formed
mechanically and without application of mind.
5 In the circumstances, the Rule granted on 27 th March 2015 has to be
made absolute. Petition disposed in terms of prayer (a), which reads as
under:
"(a) This Hon'ble Court may be pleased to issue a writ of certiorari or
a writ in the nature of certiorari or any other appropriate writ, order
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or direction under Article 226 of the Constitution of India calling for
the records of the petitioner's case and after examining the legality
and validity thereof quash and set aside the notice dated 28 th March
2014 issued by Respondent no.1 under Section 148 of the Act to
reopen the assessment for the assessment year 2007-2008 together
with the order dated 12th February 2015 passed by Respondent No.2
dealing with the petitioner's objections."
(Dr. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
Meera Jadhav
