The Delhi High Court, comprising Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela, has upheld reassessment proceedings against Environics Trust for the alleged wrongful application of foreign contributions. The Court observed that the Assessing Officer (AO) based the decision on concrete information from the trust deed and the statement of the managing trustee. The Court highlighted the principle that the application of foreign contribution should be in accordance with the objective of the trust.
Brief Facts of the Case:
Environics Trust, a registered trust engaged in research and development on environmental issues and human behaviour, challenged the order dated 19.04.2023 issued by the Department Commissioner of Income Tax. The impugned order was issued under Section 148A(d) of the Income Tax Act, 1961, following a show cause notice dated 29.03.2023 under Section 148A(b) (the "Impugned SCN"). The reassessment notice dated 19.04.2023 (the "Impugned Notice") was collectively referred to as the "Impugned Proceedings." The trust contested the alleged wrongful claim regarding foreign contributions under Section 11 of the IT Act, arguing against the validity of the reassessment.
Environics Trust, through its counsel Ms. Suruchi Aggarwal, asserted that it was a trust registered under relevant laws, focusing on research and development of environmental issues. The trust had received registration under the Foreign Contribution (Regulations) Act 1976 (FCRA) on 05.10.2023, specifying its objective as of "social nature." The dispute arose when, after a survey conducted by the Income Tax Department on 07.09.2022, the trust received the Impugned SCN after six years, challenging an alleged escaped assessment of income.
Contentions of the Petitioner:
Ms. Suruchi Aggarwal, representing Environics Trust, argued that the reassessment period was limited under the amended Section 149(1) of the IT Act. She contended that the extended period of 10 years applied only to income exceeding INR 50,00,000, represented as an asset, expenditure linked to a transaction, or an entry in the books. The counsel emphasized that this amendment was effective from 01.04.2022, post-dating the relevant assessment year of '16-17, and therefore, the extended period should not apply.
Additionally, the petitioner challenged the initiation of reassessment proceedings, asserting that the Assessing Officer (AO) must have had prior information suggesting tax escapement before issuing the notice under Section 148A. The petitioner vehemently denied the allegations made in the Impugned SCN, arguing that the trust's activities were consistent with its objectives.
Contentions of the Respondent:
Representing the Department Commissioner of Income Tax, Mr. Tushar Mehta, Solicitor General of India, argued that the Impugned Proceedings were based on the premise that certain foreign income had escaped assessment. He emphasized the narrow scope of judicial review and urged the Court not to delve into the sufficiency or correctness of reasons behind the AO's decision. Mr. Mehta highlighted the concrete information provided by the AO, including the trust deed and statements of the trust's managing trustee, pointing to activities inconsistent with the trust's objectives.
The respondent contended that the trust, funded through OXFAM India, engaged in activities against the coal sector, which did not align with its declared "social nature" objective. Additionally, he pointed out the discrepancy between the trust's object disclosures under FCRA and IT Act returns.
Lastly, Mr. Mehta raised concerns about the petitioner suppressing facts regarding the cancellation of its registration under Sections 12A, 12AA, and 12AB of the IT Act. He argued that the Court should not entertain the petition due to the petitioner's alleged suppression of material facts.
Observations by the Court:
The Delhi High Court addressed two primary issues: whether the Assessing Officer (AO) could initiate reassessment proceedings and whether the AO had sufficient material for the subjective satisfaction of income escapement.
The petitioner argued against the extended reassessment period of 10 years, asserting that the amendment to Section 149(1) of the IT Act applied from 01.04.2022 onwards and could not be retroactively extended to the relevant Assessment Year '16-17. The Court, however, rejected this contention, emphasizing that the concrete information in possession of the AO, such as books of accounts showing voluntary deposits exceeding INR 50,00,000, warranted the extended limitation period. Referring to Acorus Unitech Wireless Pvt. Ltd v. ACIT, (2014) 362 ITR 417, the Court held that its role in judicial review was limited, focusing on whether the AO's opinion was based on tangible, concrete, and new information supporting the conclusion of income escapement.
Addressing the second issue, the Court acknowledged the trust's argument that the AO must have had prior information suggesting tax escapement before issuing the notice under Section 148A. The Court, however, found that the AO, relying on the trust deed and statements of the managing trustee, reasonably concluded that certain foreign contributions were utilized for purposes inconsistent with the trust's declared objectives. The court highlighted that the wrongful application of exemptions under Section 11 or Section 12 of the IT Act led to the AO's subjective satisfaction that income from foreign contributions had escaped assessment.
Despite acknowledging the trust's suppression of material facts regarding the cancellation of its registration under Sections 12A, 12AA, and 12AB of the IT Act, the Court, in the interest of justice, proceeded to address the core issues. However, the Court expressed concern over the petitioner's lack of bona fides in suppressing crucial information, citing the principle that a writ court will bear in mind the conduct of the party invoking such jurisdiction.
Decision of the Court:
In conclusion, the Court held that the petitioner failed to establish a case warranting interference under Article 226 of the Constitution of India.
Case Title: Enviornics Trust vs. The Dept. Commissioner Of Income Tax
Coram: Hon’ble Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela
Case No.: W.P.(C) 14191/2023 & CM APPL. 56145-46/2023
Advocates of the Petitioner: Suruchi Aggarwal, Vineet Gar, Ashish Garg and Gurmeet Singh
Advocates of the Respondent: Tushar Mehta, Balbir Singh, Zoheb Hossain, Vipul Agrawal, Sanjeev Menon, Vivek Gurnani, Girbran Naushad and Sakshi Shairwal
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