CASE LAWS
2017-TIOL-1813-CESTAT-DEL + Story
PVR LTD Vs CST: DELHI CESTAT (Dated: April 10, 2017)
ST - ‘Pouring fees' received by the appellant cannot be considered as a discount for sale transaction or as non-compete fee - it is more in the nature of fee received for promotion of Pepsi products - correctly held as taxable under BAS by adjudicating authority - appellants did not disclose the receipt of consideration as ‘pouring fees' in any of their returns, therefore, extended period of limitation correctly invoked - penalties also upheld - impugned order correct and legal - appeal dismissed: CESTAT [para 5, 6]
Appeal dismissed
2017-TIOL-1034-HC-ALL-IT
CIT Vs YAMUNA EXPRESSWAY INDUSTRIAL DEVELOPMENT AUTHORITY: ALLAHABAD HIGH COURT (Dated: April 21, 2017)
Income tax - Sections 2(15), 11, 12A(1), 12AA
Keywords - ancilliary activities - registration benefit - industrial township - charitable activity
During the subject year, U.P. State legislature enacted UPIAD Act, 1976 containing provisions for constitution of authority for the development of certain areas in State of U.P., into Industrial and Urban Township and for matters connected therewith. Section 3 of UPIAD Act, 1976 provides that State Government by notification may constitute, for the purposes of said Act, an authority to be called ‘Industrial Development Authority’. Section 9 imposes restrictions on erection or occupation of any building in the ‘IDA’ in contravention of any building regulation made u/s 9(2). Section 10 confers power upon ‘IDA’ with regard to making provisions requiring persons concerned for maintenance of site or building. In pursuence of the same, NOIDA was constituted as the first authority under Act, 1976 as ‘IDA’ for area of New Okhla. Similarly, GNIDA was constituted by a Notification issued u/s 3 and YEIDA was constituted by Notification dated 24.04.2001. NOIDA and GNIDA were declared "Industrial Township" by Notification dated 24.12.2001. YEIDA was declared "Industrial Township" by Notification dated 18.12.2015. All the three IDAs filed applications for registration as "Charitable Institution" u/s 12A(a) in the office of CIT(E). These applications were filed separately in Form-10A, which is duly prescribed under Rule 17-A of Income Tax Rules. After considering all the details furnished by the GNIDA, the CIT(E) Lucknow passed orders rejecting the application for registration observing that material showing charitable purpose or Trust had not been made available by applicant. Further, assessee applicant were primarily engaged in business activity and not charitable activity therefore not eligible for registration u/s 12AA(1) (b) (ii) of Act, 1961.
On appeal, the HC held that,
Whether mere rendering of ancilliary activities performed by a statutory body, would not render such institution as 'non charitable' - YES: HC
Whether CIT(Exemptions) at the stage of registration, can inquire into the conduct of charitable or other activities to be performed by a trust or institution which has submitted application for registration u/s 12A - NO: HC
++ it is seen that Section 11 of Act, 1961 grants exemption to income derived from property held for "charitable purpose". What is "charitable purpose", to examine it, one has to go to Section 2 (15) of Act, 1961, which is an inclusive definition. The definition of "charitable purpose" has undergone amendments from time to time. Charitable purpose primarily shows that predominant object must be to promote welfare of general public. Ancillary activity, if any, than that general one performed by the said institution would not render such institution "non-charitable". GNIDA, YEIDA and NOIDA perform functions as detailed under Section 6 of UPIAD Act, 1976. They, being statutory bodies, cannot travel beyond statuaries functions, prescribed. The primary purpose and predominant object of these ‘IDAs’ is to conduct sovereign and statutory functions assigned to them. They perform charitable activities during their life time. This Court is told that the proviso to Section 2(15) has been read down by certain Courts i.e. Delhi High Court in India Trade Promotion Organization Versus Director General of Income Tax (Exemption) and others - 2015-TIOL-227-HC-DEL-IT and Punjab and Haryana in the Tribute Trust Versus Commissioner of Income Tax, Chandigarh. For the purpose of registration, Commissioner has to examine whether application has been submitted in accordance with requirement of statute. Commissioner cannot examine whether the income derived by the person concerned is from the activities which are charitable in nature or not. All the three IDAs have been conferred status of "industrial township" as contemplated under Article 243 (Q) proviso of Constitution. It shows that the bodies are to perform municipal functions in their respective jurisdictions and therefore they enjoy to some extent, status of a local authority also. Reverting back to pivotal issue, we find that CIT (E), at the stage of registration, is not supposed to inquire into the conduct of charitable or other activities to be performed by a trust or institution which has submitted application for registration. That is an investigation to be gone subsequently at the time of assessment by AO. The real dispute is whether the authorities would satisfy term ‘charitable purpose’ as defined u/s 2(15) of Act, 1961 so as to entitle them for registration u/s 12A(1) of Act, 1961. Under the definition of ‘charitable purpose’ parties are ad idem that all three IDA’s at the best, would have to be covered by the words "advancement of any other object of general public utility". It is also admitted that if fail, they are not entitled for registration. Endeavour on the part of Revenue, is that proviso inserted in Section 2(15) by Finance Act, 2008 with effect from 01.04.2009 excluding activities in the nature of trade, commerce or business or any service rendered in relation to trade, commerce or business for a cess or fee or any other consideration, excludes all the aforesaid three ‘IDAs’ from the purview of definition of ‘charitable purpose’ u/s 2(15) of Act, 1961;
++ explaining amended provision defining "charitable purpose", CBDT has issued Circular No.134/34/2008-TPL (Circular No.11/2008) dated 19th December, 2008. It is clarified therein that proviso to Section 2(15) will not apply to first 3 limbs, namely, relief of the poor, education or medical relief. It will apply only to entities whose purpose is "advancement of any other object of general public utility" i.e. 4th limb of definition of ‘charitable purpose". Entities which carry on commercial activities will not be eligible for exemption u/s 11 or 10(23C) of Act, 1961. Whether an entity is carrying on activities in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of activities. It is said that an Assessee, if engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is "charitable purpose". In such a case, object of general public utility will be only a mask or a device to hide the true purpose, which is trade, commerce or business, or rendering of any service in relation to trade, commerce or business. In our view, each case would depend on its own facts and nogeneralization is possible. The four heads are to be read in ejusdem generis so as to give relief to public. Simultaneously, they should be given their natural meaning as it can be in common parlance but in a manner so as to keep objects, public in nature. Whether a particular object is of general public utility or not is to be tested by the principles applicable to such case in a Court of Law and by finding out whether Court should record a trust or charity and would undertake its administration and control. In CIT Versus Andhra Pradesh State Road Transport Corporation - 2002-TIOL-742-SC-IT, Court considered the question, whether Road Transport Corporation established by Government for providing road transport facilities to general public, and a statutory enactment obliged the Corporation to handover to the Government all income left over after meeting expenses which was to be invested by Government for road development, its activities do not involve carrying on of an activity for profit and its income would be exempted as that of an institution meant for advancement of an object of general public utility. In the context of Krishi Utpadan Mandi Samiti, a similar question came up for consideration before this Court in CIT Versus Krishi Utpadan Mandi Samitee, wherein it was held that charging of cess/fee is for the purpose of carrying out object of Act i.e. Krishi Utpadan Mandi Samiti Adhiniyam, 1964. This judgment of High Court has been confirmed by Supreme Court in Appeal preferred by Revenue in CIT Versus Krishi Utpadan Mandi Samitee - 2012-TIOL-89-SC-IT;
Whether when entire amount received by 'IDAs' as tax, rent, fee or sale consideration has been used in discharge of objectives and functions provided under UPIAD Act for the benefit of general public, registration benefit u/s 12A cannot be denied to those IDAs - YES: HC
++ upon examination of functions of aforesaid ‘IDAs’ visa- vis nature of funds they collect in different forms, it is found that all three ‘IDAs’ are statutory bodies. They cannot function beyond authority conferred by UPIAD Act, 1976. Section 6 provides object of IDA which includes acquisition of land; preparation of a plan for development of industrial development area; demarcation and development of sites for industrial, commerce and residential purposes according to plan; providing infrastructure for industrial, commercial and residential purposes; to provide amenities; allocate transfer either by sale or lease or otherwise plots of land for industrial, commercial and residential purposes; regulate erection of buildings and setting up of industries and laying down plans for which a particular site or plot of land shall be used i.e. for industrial, commercial or residential purposes; and, to regulate industrial, commercial, residential or any other specified purpose. Therefore basic object is to develop and regulate of an area notifying as industrial development area. Funds collected by ‘IDAs’ constituted under UPIAD Act, 1976 include taxes u/s 11 which can be levied for the purpose of providing, maintaining or continuing amenities in industrial development area. However, maximum quantum of tax provided u/s 11 is that it shall not exceed 25% of annual value of such site or building and such tax cannot be imposed by IDA without previous approval of State Government. Section 20(2) says that funds shall be applied by IDA towards meeting expenses incurred in administration of UPIAD Act, 1976 and for no other purposes. Therefore, there is a complete bar that the funds of authorities can be used only for the purpose of UPIAD Act,1976 and not otherwise. As we have already said, they are for general public utility and not for an individual or any individual group or otherwise. State Government after due approval by Legislature by law, grant advances etc. to ‘IDA’ for performance of functions under UPIAD Act, 1976. One of the queries made by CIT (E) was evidence regarding ownership of land, building in the name of ‘IDAs’, audit report of preceding three years with income and expenditure receipt and payment account and also whether any fund has been set apart/accumulated during last three years for any specified object or trust. We have already noted that the statute i.e. UPIAD Act, 1976, itself takes care of funds stating that ‘IDAs’ shall use entire fund, whatever is available from various resources, for the purpose of UPIAD Act, 1976 and in performance of their objectives and duties under the said Act. If any surplus arises or remains with ‘IDAs’, it has to be consumed/utilized for meeting expenses incurred by ‘IDAs’ in administration of UPIAD Act, 1976 and not for any other purpose. Thus, whatever amount is received by ‘IDAs’ under different heads, whether tax, rent, fee, sale consideration etc., it has to be used in discharge of objectives and functions provided under UPIAD Act, 1976, for the benefit of general public;
Whether the factum that 'Industrial development authorities' would be covered or not u/s 10(20), would make any difference if these authorities has satisfied the requirement of Section 12A(1) - NO: HC
++ it was urged that CIT(E) gave utmost opportunity to these authorities to show that they do not come within the ambit of activities constituting trade, business or commerce activities, but these authorities failed to place relevant material before CIT (E). The authorities could not produce required details, books of accounts or any other evidence to show that it is involved in any charitable activity as such. Having said so, CIT(E) observed "on perusal of material available on record it is seen that applicant assessee is a profit making body and it is not carrying out any charitable activities". Due to nonproduction of books of accounts and vouchers, CIT (E) said that it could not verify genuineness of activities. Before registration is made, competent authority i.e. CIT (E) has to see object of charitable purposes and genuineness of activities. Authorities failed to prove the same. CIT(E) also observed that authorities have got property development income which comprises of sale and development of land and sale of constructed property. It has also got income under the head "urban services", which comprises of lease rent, loan interest, fee, penalties, duties and taxes. Similarly, under head of administration ‘IDAs’ have got income form interest, forfeiture of property and miscellaneous income. Besides, interest bearing funds have been given interest free loan and grants. All these activities will show that authorities are primarily engaged in business of development and sale of properties for earning profit and if there is any charitable activity, it is coincidence or incidental to its business. Authorities are running business purely on commercial line without any intention of any sort of charitable purposes. Attempt of ‘IDAs’ is to seek parity with LDA or Haridwar Development Authority in view of judgments rendered in respect of those bodies, directing grant of registration to CIT(E), was failed by distinguishing and observing that those development authorities were constituted under UPUD Act, 1973 and UPIAD Act, 1976 and provisions of two Acts are significantly different in all respects. Interestingly, CIT(E) while admitting that after dissolution of these ‘IDAs’, assets and properties shall vest in Government, it has taken it as a negative factor and relevant to exclude ‘IDAs’ from ambit of "charitable purposes" by observing that there is no restriction that the left over property shall be used for "charitable purposes" but would vest in State Government. CIT(E) then tried to involve itself with Section 10(20A) and Section 10(20) of Act, 1961 observing that Section 10(20A) has been deleted/omitted with effect from 01.04.2003 and Section 10(20) applies to "local authorities" only and ‘IDAs’ are not "local authorities" as stated in explanation to Section 10(20) of Act, 1961;
Whether Industrial Development Authorities can be equated with private builders, for purposes of deciding their entitlement to registration u/s 12A - NO: HC
Whether ITAT has the authority to direct CIT(Exemptions) to grant registration to a trust/charitable institution u/s 12A(1) - YES: HC
++ it is true that ‘IDAs’ being not very clear about provisions under which they are exempted, made attempts to refer and rely one or other provisions but a mistake of law in pleading status or claiming a particular advantage under a provision is neither an admission nor will attract principle of estoppel or acquiescence. When law requires something and provides a particular status with particular description, it is to be treated accordingly. A mistaken claim will not make any difference, either for affirmence or denial. When CIT(E) was required to consider application for registration, it should have concentrated only to the requirement of Section 12A and 12AA, as the case may be, and not other provisions like Section 10(20) or 10(20A) etc. The factum that ‘IDAs’ would be covered or not, u/s 10(20), would make no difference for the reason, if these authorities satisfy requirement of Section 12A(1), then are entitled for registration after following procedure laid down u/s 12AA. A mere wrong claim on the part of these authorities will not be of any disadvantage to them. The consideration on the part of CIT(E), it appears, is more influenced by concept of first three heads of charitable trusts. Apparently, it has lost objectivity in looking into thrust, ambit and spirit of 4th head i.e. advancement of any other object of "general public utility". This is a sheer ignoring scope and ambit of statutory provisions of UPID Act, 1976 beyond which authorities cannot function, being statutory bodies constituted under said Act. They have to function within the provisions of said Act. CIT (E) has attempted to equate these ‘IDAs’ with private builders and developers. This endeavour is thoroughly misconceived and shows immature approach and misapplication to the issue in question. Observations made in para-11 of the order passed by CIT (E), in our view, are nothing but an irrational, illogical and misconceived approach so as to exclude respondents-authorities from the ambit of definition of "charitable purposes". In our view, Tribunal has rightly set at naught aforesaid illegality by setting-aside said order. Entire discussion can be placed in a small arena of judicial analysis, that is, a body or institution which is functioning for advancement of objects of general public utility and its activities are not in the nature of trade, business or commerce and also not a sheer profit making, such institution is entitled to claim itself to be constituted for "charitable purposes" and seek registration u/s 12A(1) of Act, 1961. One objection, which has been advanced seriously, is that Tribunal should not have directed to grant registration since competent authority is Commissioner, therefore, Tribunal should have directed Commissioner to consider registration. In our view, this submission also sans merit. Tribunal exercises coextensive appellate power against the order of Commissioner. It is the last Court of fact. There is no restriction on the power of Tribunal. Section 254 of Act, 1961 empowers Tribunal to pass such orders as it deems fit.
Revenue's appeal dismissed
2017-TIOL-1033-HC-DEL-IT
GANPATI FINCAP SERVICES PVT LTD Vs CIT: DELHI HIGH COURT (Dated: May 25, 2017)
Income tax - Sections 132, 133A, 153C, 264
Keywords - accomodation entries - fictitious entity - unexplained expenses - satisfaction note - searched person
During the subject year, a search and seizure operation along with a survey were undertaken at various residential and business premises of Aseem Kumar Gupta and his associated Group including Raj Kumar Chawla and Anju Chawla. There were two search parties. Several documents and account books were seized from the premises of Aseem Kumar Gupta, Raj Kumar Chawla and Anju Chawla. The case of Ganpati was with the AO of Ward 12(1). However, jurisdiction was transferred to the AO of Central Circle (CC)-16 who first issued a notice to Ganpati u/s 153C. In return, the Ganpati requested that the return originally filed for AYs 2004-05 to 2009-10 u/s 139(1) be treated as the return filed pursuant to the notice u/s 153C for the said AYs. Subsequently, the jurisdiction in respect of Ganpati was again transferred from CC-16 to CC-9 under the orders of the CIT (C)-II. Consequent thereto, separate assessment orders were passed by the AO for the AYs 2004-05 to 2009-10 creating demands by making additions to the returned income of Ganpati in the cases of each of the Assessees. The return originally filled by Ganpati had been processed u/s 143(3) r/w/s 153C. Thereafter, a show cause notice was issued to Ganpati stating that there was no real business activity and there was no supporting infrastructure such as fixed assets. In those circumstances, Ganpati was asked to explain why the company should not be treated as a fictitious entity existing only on paper and as to why the corporate veil should not be pierced. Ganpati was asked to show cause as to why the expenses debited should not be disallowed since it had failed to provide justification to establish the business purposes of the expenses debited in the P&L Account and also did not give any evidence to establish these expenses. With Ganpati not filing any reply, the AO proceeded to add the unexplained expenses to its income. The AO held that Ganpati was just a conduit used by Aseem Kumar Gupta for providing accommodation entries which does not require elaborate infrastructure and such amounts of expenditure to be incurred. Since Ganpati had failed to furnish the necessary evidence in support of its claim of expenditure, addition of the equivalent amount was directed to be made to its taxable income.
Aggrieved by the above assessment orders, Ganpati preferred separate revision applications u/s 264 of the Act before the CIT, Central-2, one for each AY. Inter alia it was contended by Ganpati that the assumption of jurisdiction by the AO u/s 153C was illegal and therefore the entire proceedings were void ab initio. In their revision application the assessee inter alia pointed out that "on the inspection of assessment record of Aseem Kumar Gupta it is also found that no satisfaction in case of Aseem Kumar Gupta was recorded by AO that those documents relates to the assessee company which was the precondition for requisition of the information in case of assessee company for initiation of proceedings u/s 153C. By the impugned order, the CIT disposed of the petitions of Ganpati holding that since in the present case the AO recorded his satisfaction regarding the documents seized before initiating the proceedings u/s 153C, there was no infirmity. As regards the other grounds, the CIT held that the AO had violated the principles of natural justice by finalising the assessment before the expiry of time limit for compliance given in the final SCN. Accordingly, the matter was restored to the AO by setting aside the assessment orders for AYs 2004- 05 to 2009-10.
On appeal, the HC held that,
Whether the recording by the AO of the searched person that some documents seized during the search 'belong to' the other person is mandatory, in order to assume jurisdiction qua the other person u/s 153C - YES: HC
Whether there have to be two separate satisfaction notes prepared by the AO of the searched person even where he is also the AO of the other person - NO: HC
++ it must be noted that Section 153C has undergone a change with effect from 1st June 2015. That change is prospective. But in the present cases, with the search having taken place on 26th March 2010 it is Section 153C as it stood prior to 1st June 2015 which would apply. What the settled legal position as explained in several cases, is that the recording by the AO of the searched person that some documents seized during the search 'belong to' the other person is mandatory in order to assume jurisdiction qua the other person u/s 153C. This is mandatory even where the AO of the searched person and the other person is the same. This is also what the CBDT Circular now clarifies. In a particular case, given the nature of the document, it may become necessary for the AO to indicate the basis of his satisfaction that the document belongs only to B and not to A. But then that is dictated by the nature of the document. What he has to be sure about, and the note should reflect this, is that it does belong to B. Once the note says that then the requirement of Section 153C is fulfilled. Therefore, the Court does not agree with Assessee's counsel that there have to be two separate satisfaction notes prepared by the AO of the searched person even where he is also the AO of the other person. In such event, the AO need make only one satisfaction note. That satisfaction note is qua the other person. Further it is sufficient that such satisfaction note is placed in the file of the other person by the AO in his capacity as the AO of such other person. Where the AO of the searched person is different from the AO of the other person the AO will, simultaneous with transmitting the documents along with his satisfaction note to the AO of the other person, make a note in the file of the searched person that he has done so. But this is for administrative convenience. The failure by the AO of the searched person, after preparing and despatching the satisfaction note and documents to the AO of the other person, to make a noting in the file of the searched person will not vitiate the entire proceedings u/s 153C against the other person;
Whether failure by AO of the searched person, after preparing and despatching the satisfaction note and documents to the AO of the other person, to make a noting in the file of the searched person, would vitiate the entire proceedings u/s 153C against the other person - NO: HC
++ it is seen that the Madhya Pradesh High Court in CIT v. Mechmen 11-C, reiterated that the recording of satisfaction by the AO of the searched person that the documents belong to the other person is a sine qua non for commencing the proceedings against the other person u/s 153C. This is more or less what the CBDT Circular now acknowledges. There is no requirement in terms thereof for the AO of the searched person, while recording that the documents belong to the other person, to also record that they do not belong to the searched person. In Commissioner of Income-tax-7 v. RRJ Securities Ltd., the Court came to a conclusion on the facts of that case that the documents which were in the hard disc and contained working papers for the preparation of the Assessee's balance sheet, income tax computation and details of income tax filing did not in fact constitute incriminating material. In fact the clear finding was that the hard disc did not belong to the Assessee. The said decision too therefore did not hold that the failure by the AO of the searched person to record that the documents belonging to the other person do not belong to the searched person would vitiate the proceedings u/s 153C against the other person. The Madhya Pradesh High Court in Commissioner of Income-tax v. Mechmen, reiterated the settled position that it is mandatory for the AO of the searched person to record a satisfaction note in respect of the other person. That preposition is in fact too well settled. The CBDT Circular now puts it beyond the pale of doubt. It categorically states that even where the AO of the searched person and the other person is same, such AO is not relieved of its statutory obligation to record a satisfaction note in respect of the other person. In the Ganpati cases, the satisfaction note clearly records the view that the documents listed therein belong to the other person. The satisfaction note is of the AO of the searched person who also happens to be the AO of the other person i.e. Ganpati. Merely because the note also does not categorically state that the documents mentioned therein do not belong to the searched person (Aseem Kumar Gupta Group) will not invalidate the assumption of jurisdiction u/s 153C qua Ganpati. The view taken by the CIT in the impugned order does not call for interference. The remand to the AO for giving Ganpati a further opportunity regarding the nature of the documents and the validity of the additions made as a result thereof also calls for no interference;
++ as far as Shushre is concerned, arising from the same search and seizure and survey operation undertaken on 26th March 2010, a satisfaction note was recorded by the AO CC-9. The AO passed assessment orders in the cases of Shushre and Shrey on 22nd and 23rd December 2011 respectively, making additions to the taxable income. These were challenged by Shushre and Shrey by filing applications u/s 264 of the Act on 16th April and 13th April 2012 respectively. The CIT respectively rejected both applications. Unlike the case of Ganpati, the CIT declined to remand the cases to the AO for determining if the additions made could be sustained. Assessee's counsel sought to contend that in the cases of both Shushre and Shrey the documents said to belong to each of them were not incriminating so as to warrant any additions during the reassessment. According to him, documents like financial statements can hardly be said to be incriminating. He took the Court through some of the documents. The Court notes that in the impugned orders dismissing the revision petitions of Shushre and Shrey, the CIT has noted that despite several opportunities being granted to the ARs of the Assessees, they did not appear and "no submissions on merits of the case" were made by the two Assessees during present proceedings. In the circumstances, no fault can be found with the CIT for declining to interfere on merits with the additions made by the AO. Even otherwise, it is difficult for the Court to examine the documents seized and determine if in fact they could be said to be incriminating qua each of the said Assessees. There could be instances where the very nature of the document for e.g., a balance sheet or P&L account of the Assessee, which already stood disclosed during the original assessment proceedings, can be said to be non-incriminating. That again will depend on the facts and circumstances. However, the documents listed out in both the above satisfaction notes qua Shushre and Shrey are not such that can be said to be non-incriminating on a bare perusal. There was sufficient opportunity for both Assessees to demonstrate how they were not. But they did not avail of the opportunity. In the writ jurisdiction, this Court has to be satisfied that the CIT's impugned orders are not unfair, unjust or irrational and are consistent with the basic procedural requirements. On none of these counts do the impugned orders of the CIT in the present case warrant interference. Consequently, the petitions of Shushre and Shrey also are held to be without merit.
Assessee's petition dismissed
2017-TIOL-1032-HC-ALL-IT
CIT Vs MORADABAD DEVELOPMENT AUTHORITY: ALLAHABAD HIGH COURT (Dated: May 3, 2017)
Income Tax - Section 12AA
Keywords - Charitable purpose - Exemption - commercial activity.
The assessee is a development authority. Revenue contends that ITAT was not justified in upholding the order of the CIT(A) and ignoring the fact that the activities of the authority are hit by Section 2(15) of Income Tax Act, 1961 and therefore the applicant is not entitled to get benefit of section 12AA of the Income Tax Act, 1961. The Applicant primarily is not carrying out any activity for advancement of any objective of general public utility, as such. The Applicant was purely involved in commercial activities for the purpose of making profit and charity, if any, was just incidental to its business. The Authority was acquiring land from farmers and others at a low price, which was developed and sold at a premium to the perspective buyers. Apparently, on dissolution of the authority, all assets shall be transferred to the Government and there was no restriction on the use of these assets by the Government. Therefore the objects pursued by the applicant cannot be termed as charitable in view of the fact that the applicant, was a commercial organization (with no restriction as to the application of assets on dissolution or winding up) Therefore the applicant cannot be termed as charitable organization.
After hearing the parties, the High Court held that,
Whether assessee being a development authority would be entitled to the benefit u/s 12AA as a charitable organization when the same already stood decided in favour of assessee in a similar case - YES : HC
++ similar substantial questions of law have been considered and decided in Commissioner of Income Tax (Exemption), Lucknow Vs. M/S Yamuna Expressway Industrial Development Authority and these questions have been answered against Revenue.
Revenue's appeal dismissed
2017-TIOL-1031-HC-DEL-IT
SOUTH ASIAN ENTERPRISES LTD Vs CIT: DELHI HIGH COURT (Dated: May 25, 2017)
Income Tax - Writ - Sections 147, 148, 158BA, 158BB & 158BC
Keywords - Block assessment - pendency - reassessment - Income Tax Settlement Commission - search & seizure - special audit.
The Company VLS has been carrying the business of financing, leasing, investments etc. as non-banking finance company. SAEL has been carrying the business of running amusement parks and leasing etc. VLS had been carrying on the business of leasing since its inception and claiming depreciation on the leased assets u/s 32 of the Act. Search and seizure operations were carried out u/s 132 (1) in the premises of both companies and their respective directors. Thereafter notices u/s 158BC(a) were issued proposing block assessment. Pursuant to the above notices assessee's filed their block returns. Thereafter, notices u/s 142 (2A) proposing special audit of assessee's were issued. This was challenged by them by filing writ petition in this Court. In the said petition challenge was also laid to the block assessment proceedings. By an interim order, the Court stayed the operation of the notice directing a special audit. On a perusal of the order u/s 142 (2A), it appeared that the Department had received an appraisal report from the Investigation Wing according to which depreciation was wrongly allowed on cinematographic films. While the block assessment proceedings were pending, the AO issued the impugned notices u/s 148 seeking to reopen the assessments for the AYs' 1994-95, 1995-96 and 1996-97. Although the reasons for the reopening were not immediately furnished to the assessee's, it was submitted that no action u/s 147 could lie on the basis of the same material for which even block assessment proceedings could not be legally taken. It was pointed out that for the aforesaid AYs, in the case assessee's, the original assessments were completed u/s 143 (3) of the Act and depreciation was allowed in respect of the cinematographic films. Therefore, there was no question of escapement of any income. Under protest assessee's filed their respective returns pursuant to the notices issued u/s 148 of the Act. Aggrieved by the judgment of this Court as regards the block assessment proceedings, the assessee's filed an SLP in the Apex Court in which leave was granted and the appeal was registered as Civil Appeal but subsequently was answered in favour of the Revenue and against the Assessee. That Assessee's had approached the Income Tax Settlement Commission ('ITSC') u/s 245D(1). The ITSC, after perusing the order of the PCIT came to the conclusion that the Assessee's had satisfactorily explained the manner of deriving the undisclosed income offered in the settlement application. There was no clinching and direct evidence placed on record till then to enable the ITSC to come to the conclusion that the Assessee's had not made true and full disclosure of its income in the settlement application. It was also pointed out that the issues raised by the Pr. CIT in his report required further verification/inquiry which could be taken in the later proceedings. Accordingly, the settlement application could not be held to be 'invalid'. Both assessee's were allowed to be proceeded with further within the meaning of Section 245D (2C) of the Act. It appears that the Department has accepted the above order passed by the ITSC.
After hearing the parties, the High Court held that,
Whether AO can issue a notice u/s 147 for reopening assessment on similar grounds when Revenue has resorted to block assessment in terms of Section 158BA to 158BC after search & seizure operation carried out - NO: HC
++ the reasons for reopening of the assessment u/s 147 of the Act are more or less on the same grounds viz., the claim of depreciation on cinematographic films and income from lease rentals etc. In Ramballah Gupta v. ACIT, it was held by the Madhya Pradesh High Court, that once a search was undertaken and a notice u/s 153A issued, then the question of issuing notice thereafter u/s 148 on the strength of the same material collected during the search did not arise. In Cargo Clearing Agency (Gujarat) v. JCIT, the Gujarat High Court examined the issue in detail and concluded that "one cannot envisage escapement of undisclosed income once a search has taken place and material recovered, on processing of which undisclosed income is brought to tax." Reliance was placed on Smt. Mira Ananta Naik v. DCIT in which the Bombay High Court had also held that once the Department has resorted to Section 158BA to 158BC undertaken for the block assessment it could not be said that the income had escaped assessment merely because the block assessment was not upheld by the Tribunal. The attempt by the Department to reopen the assessment u/s 147 of the Act was held to be impermissible.
Whether issuing a notice u/s 147 for reopening assessment, with no proper justification, during the pendency of block assessment would give rise to parallel proceedings - YES : HC
++ in the facts and circumstances of the present case, the Court was satisfied that reopening of the assessment for AYs 1994-95 to 1996-97 by the impugned notices u/s 148 during the pendency of the block assessment proceeding was impermissible in law. Having initiated the proceeding u/s 158BC for the block assessment, there was no justification to issue the notice u/s 147 of the Act as that would undoubtedly result in parallel proceedings. They are based on the same materials which form subject matter of the block assessment. However, Court clarified that the it has not expressed any view on any aspect of the block assessment proceeding or the materials gathered for that purpose and which form the subject matter of the proceedings before the ITSC. By virtue of all the applications filed by the Assessee's having been allowed to be proceeded with by the order 3rd August 2016 of the ITSC, it will be open to the ITSC to examine these aspects in the proceedings pending before it. However, it is also clarified that neither ITSC nor any of the parties to the pending proceedings refer to any part of the notices u/s 147 of the Act or the reasons for such reopening as such notices have been quashed by the present judgment of this Court.
Assessee's writ petition disposed of
2017-TIOL-1030-HC-DEL-IT
STRATEGIC CREDIT CAPITAL PVT LTD Vs RATNAKAR BANK LTD: DELHI HIGH COURT (Dated: May 29, 2017)
Income Tax - Writ Petition - Section 132
Keywords - freeze - provisional attachment - beneficial owner - shareholder - director - interim order - bank account.
The averments in this petition are that survey proceedings were carried out in respect of 3 companies – Lionforge Logistics Pvt. Ltd., Halcyon Asia Business Development Pvt. Ltd.and Halcyon Asia Management Strategies Pvt. Ltd. as well as Mr. Mukkar. The 8 Petitioners state that the they were not named in the survey. It was averred that "the said entities have no relation to Mr. Mohnish Mohan Mukkar in his personal capacity, and Mr.Mukkar is neither a shareholder nor a Director in the said companies". It was then averred that Mr. Mukkar was subjected to a search pursuant to which a restraint order u/s 132(3) of the Act was issued directing RBL to not release the bank accounts of 16 persons including the 8 Petitioner companies. It was submitted that "no action could have been initiated under Section 132(3) without there being any action initiated under Section 132." It was averred that no liability has been established against the Petitioners with there being no tax demand upon them and that even a SCN has not been issued. It was alleged that the Petitioners came to know through messages from the Bank (RBL) that their accounts had been debited by Rs.37,66,842.50 as per income tax notice and net balance was Re.0. There was another message debiting Rs.7,93,478. Further demand drafts ('DDs') in favour of the Department were prepared. It was pointed out that, the Petitioners through their counsel wrote to RBL requesting it not to honour the DDs. It was stated that the Petitioners owe monies to other entities in respect of the loans availed by the Petitioners and that it was not open to the Department to have debited their accounts. It was averred that the said monies were "proceeds of the loans taken from other entities". It was alleged that the action of the Department is arbitrary, illegal and unconstitutional. It was further stated that no opportunity of hearing was granted to the Petitioners and the impugned actions were "in violation of the principles of natural justice". Accordingly, the main prayers in the writ petiton were to quash and set aside the impugned actions of the Department and for a direction to RBL to cancel the DDs and re-credit the funds in the accounts of the Petitioners and to direct RBL to not honour the DDs. Interim orders directing RBL not to honour the DDs were prayed for. When this writ petition came up for hearing an interim order was passed restraining the Department from encashing the DDs until the next date of hearing to the extent of the amounts having been appropriated from the Petitioners' accounts.
The other writ petition was filed by Ms. Veena Singh who is working in the professional capacity with Emppel Fortitus Private Limited. She too states that a search and seizure operation u/s 132(1) was carried out at her residential premises with the warrant of search in the case of Mr. Mukkar. She states that there was no warrant issued in her name. She states that the search operations continued for more than 48 hours at a stretch leaving the almirah under seal and restraint. She, too, refers to the restraint order passed u/s 132(3) and that one of the bank accounts mentioned therein was her savings account with the Karol Bagh Branch of RBL. It is further stated by revocation order issued by the ADIT that restraint from 10 out of the 16 bank accounts was lifted with a direction to RBL to make DDs for the balance available in the Petitioner's accounts in favour of the Department. Pursuant thereto, RBL debited the accounts of the 9 companies and prepared the DDs amounting to Rs. 23.14 crores. The information of debit of account of the 9 companies was received through SMS by the companies. It was urged that the actions of the Revenue are arbitrary, perverse, malafide, unreasonable and also in violation of Article 300A of the Constitution of India. It was stated that restraint was placed on the Petitioner's account when the object of the search was the undisclosed income of Mr. Mukkar. The prayer in the writ petition was that the Court should quash and set aside the actions of the Department, countermand the DDs and re-credit the funds in the account of the Petitioner. Interim orders were prayed for in this writ petition as well. While listing the petition the Court restrained the Department from encashing the DDs till the next date of hearing to the extent of the amount that had been appropriated from the Petitioner's account. The Petitioner was permitted to operate the account subject to the above orders. This petition was heard along with along with the above petition and since then the interim orders have continued.
Having heard the parties, the High Court held that,
Suppression of material facts by the Petitioners
Whether it is necessary that a separate search warrant is issued in the names of persons for searching and seizing their bank accounts if Revenue is satisfied that undisclosed income belonging to some other person, in whose name a search warrant already exists, has been parked in those bank accounts - NO: HC
++ The first issue that the Court proceeds to address is whether there has been any suppression of material facts by the 8 Petitioners and Ms. Veena Singh. It was observed that both, the 8 Petitioners companies as well as Ms. Veena Singh approached this Court claiming an identical relief viz., the restraint placed by the Department on their respective bank accounts should be lifted. Section 132(1) envisages that a person could be in possession of undisclosed income not only in his or her own bank account but in the bank account of someone else. Therefore, it could be parked in somebody else's account. The legislature has deliberately prefaced the words 'safe', 'locker', 'place', 'books of account' etc. with the word 'any' and not 'his' or 'her' or 'its'. Section 132(1) requires the satisfaction note in the case of Mr. Mukkar to reflect the Department's "reason to believe" that Mr. Mukkar's undisclosed income is in the bank accounts of the Petitioner companies and of Ms Veena Singh. In such event, it is not necessary that there must be a separate search warrant in the names of the Petitioner companies and Ms. Veena Singh for there to be search and seizure of their respective bank accounts. There is no challenge in either of the petitions to the validity of the search on the ground of absence of the satisfaction note qua Mr. Mukkar or that such satisfaction note does not meet the requirement of the law.
Whether the assertion, that since a party is neither a shareholder nor a director of the assessee company therefore there is no personal relations between them, is justified when such party is the beneficial owner in assessee company's bank accounts - NO: HC
++ As far as the 8 Petitioner companies are concerned, they asserted in the writ petition that "the said entities have no relation to Mr. Mohnish Mohan Mukkar in his personal capacity, and Mr. Mukkar is neither a shareholder nor a Director in the said companies". These disclaimers were made with a view to mislead the Court into believing that the Petitioner had nothing to do with Mr. Mukkar is apparent in light of the details provided by RBL to the Department which show that in the nine accounts maintained with RBL of these 8 companies, Mr. Mukkar is Beneficial Owner No.1 in eight of them and his mother in the ninth account. Even after the Department pointed this out and set out the details in a Table, the Petitioners glibly maintained in their rejoinder that the table "merely depicts the cash balance and is in fact misleading as it portrays Mr. Mohnish Mohan Mukkar as the beneficial owner and which is factually incorrect in terms of Rule 9-A(l) of the Prevention of Money Laundering (Maintenance of Record etc.) Rules, 2005." The Petitioners have not denied that the information available with RBL does in fact show Mr. Mukkar to be Beneficial Owner No.1 of 8 of the bank accounts and his mother in the ninth account (where he is Beneficial Owner No.2).
++ also, the Petitioners have not filed any rejoinder to deny the assertion by RBL in its separate counter-affidavit that: "the Petitioner in the writ petition has averred that Mr. Mohnish Mukkar has no concern with the said accounts, which statement/averment is false to the knowledge of the Petitioner. It is submitted that at the time of opening of accounts, the Petitioner had given a categorical declaration that Mr. Mohnish Mukkar is the beneficial owner of the accounts of the Petitioner and now, for the reasons best known to the Petitioner, the Petitioner has made the false averment. Thus, the present writ petition is liable to be dismissed for concealment of material facts." On the contrary, in their written submissions tendered to the Court, the Petitioners have confirmed the following statement in RBL's counter affidavit: "It is further submitted that on 15.05.2017, the Answering Respondent has received a request from the Petitioner Companies to update the status of Beneficial Owner so as to record the name of Master Jeh Mohnish Mukkar." Considering the above the fact that he may neither be a shareholder nor a Director in any of them is of little significance when in fact he is Beneficial Owner No.1 in their bank accounts. Their mere dismissal of the details available in the records of RBL as being 'incorrect' is without basis and cannot enable them to escape the consequences of making false and misleading statements on affidavit on more than one occasion in these proceedings.
++ The case of Ms. Veena Singh, is equally inexcusable. In her petition as originally filed, she is silent about her being authorised signatory No.1 of the 9 bank accounts maintained by the 8 Petitioner companies, Beneficial Owner No.1 of eight of them being Mr. Mukkar. She has no convincing explanation for suppressing this material fact which had a direct bearing on the action of the Department in attaching her bank account. Ms. Singh admits to being associated with at least one of the companies in her professional capacity. She should be aware of the consequences of suppressing the fact that she is authorized signatory No.1 of the bank accounts of all 8 companies with RBL. And in these bank accounts, Mr. Mukkar is Beneficial Owner No.1. The suppression of these material facts, which were within her knowledge, in her petition is, therefore, not excusable.
++ The suppression of material facts by both Petitioners cannot but be viewed as deliberate. The Court is satisfied that the Petitioners have not come to Court with clean hands and do not deserve to be granted any of the reliefs prayed for by them.
Validity of the impugned orders
Whether Revenue is authorized to cause a bank, in which the account that is subject to search is located, to freeze it if it is not possible to take physical possession immediately of a valuable article or thing lying therein and remove it to a safe place - YES: HC
++ The main argument on merits by both Petitioners is that without a search warrant in their respective names, and without there being a demand raised and finalised, there is no power u/s 132 r/w 132B to require RBL to issue a DD favouring the Department for the balance sum lying in the account that has been frozen. There is a fallacy as to the presumption of the Petitioners in both the writ petitions that monies lying in their bank accounts cannot possibly belong to Mr. Mukkar in whose name the search authorization had been issued. Prima facie there appears to be a strong case made by the Department that the money in the said bank accounts is, in fact, the undisclosed income of Mr. Mukkar. There appears to be sufficient justification at this stage for the Department to proceed to attach the bank accounts. In the context of the present petitions, therefore, when pursuant to the search warrant, the Department proceeded to search and seize not only valuable things etc. found in the premises of Mr. Mukkar but also those in the accounts of the 8 Petitioner companies as well as that of Ms. Veena Singh, they could do so as long as they were satisfied that what constitutes Mr. Mukkar's undisclosed income was in the accounts of the 8 companies and Ms. Veena Singh. The second proviso to Section 132(1) read with Section 132(3) permits the Department to require the bank in which the account that is subject to search is located to freeze it since it may not be possible "to take physical possession" immediately of such "valuable article or thing and remove it to a safe place." Section 132B deals with the powers of the authorised officer to deal with the valuable thing which has been so seized and the conditions on which the restraint placed may be lifted.
Whether the money contained in the bank account which has been frozen by the Revenue would be kept in a suspense account to await final orders in assessment proceedings and does not necessarily mean that the such amount has been taken over by the Revenue - YES: HC
++ The assertion by both sets of Petitioners that this is 'realization' of the debt owed by the bank to the Petitioners and that the amount therein cannot be transferred to the Department is based on an incorrect understanding of the legal position under Section 281B of the Act. The said provision states that in order to protect the interests of the Revenue, it may be necessary to go in for a provisional attachment. Therefore, the direction issued to RBL by the Department does not mean that the money is finally taken over by the Revenue. It will undoubtedly be kept in a suspense account like a PD Account to await the final orders in the assessment proceedings and the issues raised as a consequence thereof. For this purpose, as already observed, the argument that this does not constitute 'assets' or 'money' within the meaning of Section 132(1) read with Section 133 of the Act has not merit.
Assessee's writ petition dismissed
