In a significant challenge to revenue enforcement against publicly funded institutions, the Bombay High Court stepped in to examine whether tax authorities can insist on partial recovery without first assessing actual taxable income, after a state-funded educational trust questioned a demand raised on its gross receipts rather than its real earnings.
The controversy began when the tax appellate authority directed the educational trust to deposit 15% of the assessed demand as a precondition for staying recovery during the pendency of its statutory appeal. The trust moved the High Court contending that it was entirely funded by the State Government and claimed exemption under the Income Tax Act.
It further argued that even assuming the exemption was disputed, the tax authorities had fundamentally erred by taxing its gross receipts without accounting for expenditure, despite records showing that its expenses exceeded its declared income. The revenue authorities, on the other hand, relied on technical deficiencies in the return, including non-filing of a specific schedule and incorrect claims regarding registration status, to justify insisting on a partial deposit before granting stay.
Scrutinising the record, the High Court found that while the trust was admittedly not registered under Section 12A and had failed to fill the relevant exemption schedule, the authorities had overlooked a far more serious flaw. The Bench noted that the Assessing Officer had “brought gross receipts to tax and not the income of the Petitioner,” completely ignoring the expenditure disclosed in the return.
Emphasising that tax can only be levied on income and not turnover, the Court held that this lapse struck at the very foundation of the demand. Observing that the trust was a fully State-funded educational institution, the Court concluded that a complete stay was warranted and accordingly set aside the order requiring a 15% deposit, directing that “the entire demand against the Petitioner shall remain stayed” until the pending appeal is decided.
Case Title: Godavari Shikshan Prasarak Mandal Sindhi Vs. Commissioner of Income Tax (Exemption), Pune and Ors.
Case No.: Public Interest Litigation (PIL) No. - 1118 Of 2025
Coram: Justice B. P. Colabawalla, Justice Amit S. Jamsandekar
Advocate for Petitioner: Adv. Sanket Bora, Vidhi Punmiya, Amiya Das
Advocate for Respondent: Adv. A.K. Saxena
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