THE HIGH COURT BAR ASSOCIATION,ALLAHABAD vs. CIT(EXEMPTION), LUCKNOW

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:

This appeal filed by the assessee has arisen from the order dated 04.03.2021 passed by Ld. Commissioner of Income Tax(Exemption), Lucknow(hereinafter called “the CIT(E)”) u/s 12AA(1)(b)(ii) of the Income-tax Act,

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad 1961 (hereinafter called “ the Act”) , vide DIN & Order No. ITBA/EXM/S / EXM1/2020-21/1031214587(1) , rejecting application filed by assessee for grant of registration u/s 12AA of the 1961 Act. We have heard both the parties through video conferencing mode through Virtual Court. 2. The main grievance of the assessee in this revolves around the rejection of the application filed by the assessee for seeking registration u/s 12AA of the 1961 Act , by ld. CIT(E) vide orders dated 04.03.2021. Heard both the parties through video conferencing mode. Before we proceed further, it is important to cull out brief facts as well background of the case , as it has important bearing on the decision which we are going to arrive in this appellate order. The assessee i.e. The High Court Bar Association, Allahabad has claimed itself to be a society registered on 07.02.1958 , wherein it is claimed that only Advocates having Certificate of Practice with Allahabad High Court are its members. It is claimed that the assessee is association of persons consisting of advocates who have mutually agreed to contribute funds for the common purposes of mutual benefits and there is no element of trade , but with an idea of rendering mutual help at the time of illness or demise. It is also averred during course of hearing that the assessee apart from receiving contribution from its members also received fee per Affidavit , which is as per approval/direction of Hon’ble Allahabad High Court. The assessee has placed its rules on record, and it is claimed that the assessee is working for the development of legal science and studies , assisting in development of progress of sound legislation and legal profession including safeguarding the rights, privileges and interests of Advocates on its rolls . The assessee has claimed that it is also maintaining a library of legal literature and other subjects likely to be useful to the Members of the Association. 2.2 The assessee has also claimed that by virtue of mutuality of benefit, it never filed its return of income with Department since its inception , although it has claimed that it was registered way back in 1958.

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad 2.3 So far so good, but the trigger came when the assessee was visited by a notice u/s 142(1) dated 15.03.2018 issued by Revenue for the assessment year(ay) 2017- 18 , whereby Revenue asked the assessee to file its return of Income for the ay: 2017-18. The reason and background for issuing the aforesaid notice u/s 142(1) by Revenue and directing the assessee to file its return of income for ay: 2017-18, was that during the demonetization period (09.11.2016 to 30.12.2016) ,the assessee has deposited substantial cash amount of Rs. 14,94,732/- in its bank account number 10277471639 in State Bank of India , Branch Allahabad High Court , Allahabad which had now come to the notice of Revenue , and on the other hand Revenue observed the assessee has not filed any return of income for ay 2017-18. The assessee did not file its return of income, in pursuance to the aforesaid notice dated 15.03.2018 issued by Revenue u/s 142(1) of the 1961 Act. The Revenue invoked provisions of Section 144 of the 1961 Act and fresh notice u/s 142(1) of the 1961 Act , dated 22.08.2019 was issued by Revenue, which was served to the assessee through Inspector of Income-tax as well registered post. The said notice also remain un-complied with by the assessee. Fresh notice u/s 142(1), dated 04.09.2019 was issued by Revenue , and it is claimed by Revenue to have been duly served on the assessee through registered post. At this stage, the then Honorary Secretary, High Court Bar Association , Allahabad Shri Jitendra Bahadur Singh submitted reply, dated 01.09.2019 before the relevant AO, which read as under: “ 1. The assessee is a society. The deed is enclosed. It is formed and run by the lawyers who are practicing in the Hon’ble Allahabad High Court. There are annual elections of the executive of the association. Hence, every year, if not re-contested and re- elected , the executive has new members managing the society till the next elections. 2. The society is deriving cash primarily from two sources-membership fee taken from the members and cash collection from the members and cash collection from affidavit centre. This duty was given to the bar association by the Hon’ble High Court

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad vide order dated 7.10.2015 in PIL no. 55060 of 2015 in terms of the order enclosed, Thus, the cash deposit related to these collections. 3. The deposit entries pertain to cash deposited and the payment entries pertain to the payments for mutual benefits of the members or administrative expenses. The bank book is being printed and submitted for demonetization period for the nature of the entries in the bank account. 4. The society is deriving cash from two sources-membership fee taken from the members and cash collection from the members and cash collection from the affidavit centre. This duty was given to the bar association by the Hon’ble vide order dated 7.10.2015 in PIL no. 55060 of 2015 in terms of the order enclosed as per para 2 of above, Thus, the cash deposit only related to these collections. 5. Cash is not deposited out of the personal savings of the society . The financial statements are all inclusive. 6. The Association has not filed the income tax return. 7. Partnership deep is not applicable. 8. The audit report along-with the financial statements is enclosed. 9. The balance sheet and Capital account for financial year 2015-16 and 2016-17 is being enclosed which carries the General Fund account.”

The AO observed from the income and expenditure statement and Balance Sheet submitted by the assessee, following receipts and expenditure incurred by the assessee: Receipts Expenditure Excess over Expenditure shown Rs. 4,73,55,978/- Rs. 3,97,31,556/- Rs. 76,24,422/- (including interest income Rs. 6,04,963/- & Rs. 75,42,717/-

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad and Rent Rs. 9,57,586/-

Thereafter, the assessee came forward and filed its return of income for ay: 2017-18 in pursuance to notice’s issued by Revenue u/s 142(1) of the 1961 Act, vide acknowledgement no. 276502040231219 dated 23.12.2019 , voluntarily declaring income of Rs. 88,17,990/- in the return of income filed with Revenue, the constituent of returned income being income from Rent to the tune of Rs. 6,70,310/- ( after claiming deduction of 30% under Section 24(a) ) and income from bank interest to the tune of Rs. 81,47,680/- which the assessee has earned on FDR maintained with Bank and interest earned on saving bank account. The assessee also paid self assessment tax to the tune of Rs. 35,47,400/- , while filing the aforesaid return of income for ay: 2017-18. There was also credit claimed by assessee of Income-tax deducted at source(TDS) to the tune of Rs. 4,20,913/- in the aforesaid return of income filed by assessee with the Revenue, on 23.12.2019. The Revenue accepted returned income of Rs. 88,17,990/- and the assessment was framed by the AO assessing income at Rs. 88,17,990/- , vide assessment order dated 24.12.2019 passed u/s 144 of the 1961 Act.

2.4 There was denial of credit of prepaid taxes by the AO while passing aforesaid assessment order u/s 144, dated 24.12.2019, which credit of prepaid taxes were later allowed by Revenue vide rectification orders passed u/s 154 of the 1961 Act.

2.5 The AO while passing aforesaid assessment order u/s 144 , dated 24.12.2019 , initiated penalty proceedings u/s 270A and 272A(1)(d) of the 1961 Act, which penalty proceedings were later dropped by the Revenue , vide separate orders both dated 17.01.2020, and said penalty proceedings attained finality with no prejudice finally being caused to the assessee on that account . 5

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad

2.6 The assessee on its part did not file any appeal with the ld. Commissioner of Income-tax(Appeals) (hereinafter called “the CIT(A)”) under the provisions of Section 246A of the 1961 Act , challenging the assessment order passed by the AO u/s 144 , dated 24.12.2019 for ay: 2017-18.

2.7 The assessee filed an application on 02.07.2020 with ld. CIT(E) seeking registration u/s 12AA of the 1961 Act . The said application was filed in Form No. 10A under Rule 17A of the Income-tax Rules, 1962. The said application is placed on record at page number 19-21. The ld. CIT(E) accorded opportunity of being heard to the assessee by issuing office letter F.No. ITBA/EXM/F/41/2020- 21/1028647226(1) , dated 18.11.2020 , which was sent by ld. CIT(E) to assessee’s address by speed post as well the same was posted at e-filing portal also, wherein specific queries , as many as 26 queries were raised by ld. CIT(E) in connection with the application for registration u/s 12A of the 1961 Act filed by the assessee on 02.07.2020. The said notice dated 18.11.2020 is placed on record in file in paper book filed by the assessee , at page 94-96. Reference is drawn to the provisions of Section 12AA which obligates/empowers ld. CIT(E) to make enquiries as to the genuineness of the activities and objects of the trust/institution seeking registration u/s 12A and the compliances of such requirements of any other law for the time being in force by the trust/institution as are material for achieving its objects and further the ld. CIT(E) is also empowered to make such inquiries as he deemed necessary in this behalf , which may requires verification of records, inquiries to be made as to genuineness of the activities of trust/institution and investigation of facts in connection therewith . The relevant provision of the statute to that effect are contained in Section 12AA(1)(a) of the 1961 Act.

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad 2.8 In the meantime, the assessee decided to invoke revisionary powers of ld. Commissioner of Income-tax, Allahabad, by filing revisionary petition u/s 264 of the 1961 Act, on 17.12.2020, which is filed against the assessment order dated 24.12.2019 passed by ld. Assessing Officer u/s 144 of the 1961 Act , for ay: 2017-18. In this revisionary petition filed by the assessee u/s 264 of the 1961 Act, the assessee prayed for relief before ld. CIT that the assessment framed by AO u/s 144 of the 1961 Act , vide assessment order dated 24.12.2019 for ay: 2017-18 , may kindly be set aside/annulled. It was further prayed in the said petition that the ad- hoc assessment of Rs. 88,17,990/- as per Computation of income and as per para2 of page 3 of the impugned Assessment order u/s 144 of the 1961 Act may kindly be deleted. There were also relief sought in this revisionary petition filed by assessee u/s 264 to drop the penalty proceedings u/s 270A and 272A(1)(d) of the 1961 Act, which penalty proceedings incidentally were already dropped by Revenue , vide separate orders both dated 17.01.2020. The assessee also prayed in this revisionary petition filed before ld. CIT u/s 264 that the prepaid taxes of Rs. 39,68,613/- paid by the assessee by way of self assessment tax as well TDS for ay: 2017-18, may kindly be refunded to the assessee. It is pertinent to mention at this stage that the assessee filed writ petition with Hon’ble Allahabad High Court bearing case number Writ Tax No. 352 of 2021 , in the month of June 2021with the prayers to quash the assessment order dated 24.12.2019 passed by the ITO-1(5) , Allahabad assessing the assessee to tax for the assessment year 2017-18 under the provisions of the Section 144 of the 1961 Act. The Hon’ble Jurisdictional High Court observed , inter- alia , in its order dated 09.09.2021 while dismissing writ petition filed by the assessee, that the writ petition appeared to have been filed with latches of more than one and half year. The said writ petition was dismissed by Hon’ble Allahabad High Court, vide orders dated 09.09.2021 as the assessee could not make out exceptional circumstances warranting interference by Hon’ble High Court in exercise of its powers in writ jurisdiction under Article 226 of the Constitution of 7

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad India. Hon’ble Jurisdictional High Court also observed while dismissing the aforesaid writ petition filed by the assessee that the assessee has already availed alternate remedy by filing revisionary petition u/s 264 with ld. CIT on 17.12.2020 . The Hon’ble Jurisdictional High Court also observed in its order dated 09.09.2021, as under: “ As to last submission of learned Senior Counsel that by virtue of proceedings under Section 270A of the Act having been dropped, the petitioner’s revision became infructuous , we may only observe that the submission is ill-conceived . The remedy of Revision is a statutory remedy. Once availed , it may never be adversely affected by the conduct of the respondent-authority, unless it has a beneficial impact on the assessee. Needless to clarify that the revision filed by the petitioner/assessee shall be dealt with and decided by the Revising Authority, as expeditiously as possible, preferably within a period of three months subject to the petitioner not seeking any undue adjournment. The said revision shall be decided on its own merits without being influenced by the fact that the penalty proceedings had been initiated and dropped by the Assessing Authority, behind the back of the petitioner. With the above observations, the writ petition is dismissed.” As could be seen that although the writ petition was dismissed by Hon’ble High Court but it was observed by Hon’ble High Court that the assessee has availed alternate statutory remedy u/s 264 of the 1961 Act seeking quashing of assessment order dated 24.12.2019 passed by AO u/s 144 for ay: 2017-18 , and directions were issued by Hon’ble High Court to ld. CIT to expeditiously dispose of the said revisionary petition filed by assessee u/s 264 of the 1961 Act. It is a different matter that finally revisionary petition filed by the assessee u/s 264 with ld.. CIT for ay: 2017-18 happened to be dismissed by ld. Pr. CIT , vide revisionary order dated 15.12.2021 , holding the said petition is not maintainable. While dismissing the petition filed by the assessee u/s 264 of the 1961 Act, the ld. Pr. CIT observed that even in case of mutual concerns , all the income are not exempt from taxability within the provisions of the 1961 Act . The ld. Pr. CIT observed that interest on fixed deposits in bank are not exempt from income-tax. Similarly , it was observed that income earned from non-members are not exempt from income-tax. The ld. Pr. CIT sighted several decisions of Hon’ble Supreme Court as well Hon’ble High Courts holding the said income(s) of mutual concern to be taxable under the provisions of the 1961 Act. We are not 8

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad presently concerned with outcome of the revisionary petition as disposed of by ld. Pr. CIT, but the right of the assessee to have invoked revisionary powers of ld. CIT u/s 264 as statutory alternate remedy was upheld by Hon’ble High Court in its orders dated 09.09.2021, while dismissing writ petition filed by the assessee. We are saying so because the assessee during the course of proceedings conducted for grant of registration u/s 12AA with which we are presently seized with in our appellate jurisdiction against order passed by ld. CIT(E) rejecting assessee’s application for grant of registration u/s 12AA, the assessee referred to invocation of revisionary powers of ld. Pr. CIT by filing petition u/s 264 of the 1961 Act, in its reply filed before ld. CIT(E) on 29.12.2020.

2.9 Coming back to the proceedings with which we are presently concerned viz. rejection by ld. CIT(E) of application dated 02.07.2020 filed by the assessee with ld. CIT(Exemptions) for grant of registration u/s 12AA of the 1961 Act vide orders dated 04.03.2021. The ld. CIT(Exemption) accorded opportunity of being heard to the assessee by issuing office letter F.No. ITBA/EXM/F/41/2020-21/1028647226(1) , dated 18.11.2020 , which was sent by ld. CIT(E) to assessee’s address by speed post as well the same was posted at e-filing portal also, wherein specific queries, as many as 26 queries were raised by ld. CIT(E) in connection with the application for registration u/s 12A of the 1961 Act filed by the assessee on 02.07.2020. The assessee filed its reply on 29.12.2020 before ld. CIT(E) in reply to aforesaid office letter dated 18.11.2020 , which is reproduced hereunder: “ Before Commissioner Income Tax Exemptions Lucknow. This is to bring to your kind notice that a petition under section 264 of the Income Tax Act, 1961 has been preferred before Hon’ble Commissioner of Income Tax Allahabad for the Assessment Year 2017-2018. As the High Court Bar Association is not a taxable entity as per the decision of Hon’ble Supreme Court of India in the matters of High Court Bar Counsil Maharashtra vs CIT 1981. The present application to accord approval under section 12AA of the Income Tax Act made by previous committee of HCBA Allahabad is not pressed by the present committee of HBCA till final decision on petition under section 264 which is pending before CIT Allahabad since 17 december 2020 Regards Amarender Singh President High Court Bar Association.”

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad Based on the above reply filed by the assessee before ld. CIT(E) , the ld. CIT(E) was pleased to reject the application filed by the assessee seeking registration u/s 12AA of the 1961 Act, vide orders dated 04.03.2021 passed by ld. CIT(E) u/s 12AA(1)(b)(ii) of the 1961 Act, by holding as under: “3. Accordingly, the registration sought by the applicant u/s 12AA of the Income-tax Act, 1961 is hereby rejected.” As could be seen from above , the ld. CIT(E) rejected the assessee application for registration u/s 12AA mainly on the grounds that the assessee has sought withdrawal of its application in view of revisionary petition filed by the assessee u/s 264 with ld. CIT. Thus, the ld. CIT(E) interpreted the aforesaid reply dated 29.12.2020 filed by the assessee as if it is a request made by the asssessee for withdrawal of the application dated 02.07.2020 filed for seeking registration u/s 12AA of the 1961 Act. If that be so and the interpretation placed by ld. CIT(E) is found to be correct, then the order dated 04.03.2021 passed by ld. CIT(E) cannot be faulted. The assessee being aggrieved by the aforesaid order dated 04.03.2021 passed by ld. CIT(E) has filed this appeal before the tribunal , of which we are presently concerned with. On careful perusal of the aforesaid reply dated 29.12.2020 filed by the assesse before ld. CIT(E) as extracted above, we found that this reply dated 29.12.2020 filed by assessee before ld. CIT(E) is not happily worded as it is prone to different interpretation and lacks in clarity, but one thing is clear that the assessee never stated in the aforesaid reply dated 29.12.2020 that it intends to withdraw its application dated 02.07.2020 filed before ld. CIT(E) for seeking registration u/s 12AA of the 1961 Act, as careful study of the said reply indicates that it merely stated conditional non pressing of its application filed for seeking registration u/s 12AA until its petition filed u/s 264 with ld. CIT is disposed off. Further, it is claimed in this reply dated 29.12.2020 itself that the ‘High Court Bar Association’ is not a taxable entity as per the decision of Hon’ble Supreme Court in the case of High Court Bar Council Maharashtra v. CIT 1981. As we have already seen that the assessee has availed alternate remedy by filing revisionary petition u/s 264 of the 1961 Act by invoking revisionary powers of ld. CIT, which was also recognized by Hon’ble High Court while dismissing writ petition filed by the assessee albeit the writ petition was dismissed later by Hon’ble High Court vide orders dated 09.09.2021, and directions were

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad issued by Hon’ble High Court to Revenue to expeditiously dispose of assessee’s revisionary petition filed u/s 264 of the 1961 Act, for ay: 2017-18. Thus, in our considered view the assessee vide its reply dated 29.12.2020 filed before ld. CIT(E) , merely required the ld. CIT(E) to hold the proceedings for grant of registration u/s 12AA in abeyance till the disposal of revisionary petition u/s 264 of the 1961 Act by ld. CIT. It is a different matter that the application for registration u/s 12AA is to be disposed of by ld. CIT(E) within the time provided under the statute and the request of the assessee to keep it in abeyance may not be acceded to keeping in view statutory limitation of time imposed by the 1961 Act. Thus, under these circumstances wherein the application filed by the assessee seeking registration u/s 12AA was disposed of by ld. CIT(E) in limine on the grounds that the assessee is seeking withdrawal of its application and without disposing of the said application on merits , we are of the considered view that the order dated 04.03.2021 passed by ld. CIT(E) rejecting the registration sought by the assessee u/s 12AA of the 1961 Act, be set aside and the application of the assessee seeking registration u/s 12AA be restored back to the file of the ld. CIT(E) for fresh decision on the application filed by the assessee for grant of registration u/s 12AA of the 1961 Act. In-fact it is the assessee, who by filing the aforesaid reply dated 29.12.2020 requesting to keep proceedings for grant of registration u/s 12AA in abeyance which was understood by ld. CIT(E) as an application for withdrawal of the application dated 02.07.2020 for seeking registration u/s 12AA, prevented ld. CIT(E) for proceeding further on its application and also that the assessee on its part also never supplied any reply to 26 queries raised by ld. CIT(E) in its office letter dated 18.11.2020. Reference is drawn to the provisions of Section 12AA which obligates/empowers ld. CIT(E) to make enquiries as to the genuineness of the objects and activities of the trust/institution seeking registration u/s 12A and the compliances of such requirements of any other law for the time being in force by the trust/institution as are material for achieving its objects and further the ld. CIT(E) is also empowered to make such inquiries as he deemed necessary in this behalf , which may requires verification of records, inquiries to be made as to genuineness of the activities of trust/institution and investigation of facts in connection

ITA No.24/ALLD/2021 Assessment Year: NA The High Court Bar Association, Allahabad therewith . The relevant provision of the statute to that effect are contained in Section 12AA(1)(a) of the 1961 Act. Now, in denovo proceedings as ordered by us , the assessee is directed to file all necessary replies before ld. CIT(E) to queries as were raised or as may be raised by ld. CIT(E) in connection with the application filed by the assessee seeking registration u/s 12AA of the 1961 Act. The ld. CIT(E) will admit all evidences/explanations filed by the assessee in its defense , and then decide on the application of the assessee for registration u/s 12AA on merits in accordance with law. The ld. CIT(E) will give proper and adequate opportunity of being heard to the assessee in accordance with law and principles of natural justice and the application of the assessee be expeditiously disposed of by ld. CIT(E) preferably within six months unless there is a statutory time limit laid down by statute. Needless to say that the assessee will not seek un-necessary adjournments. We would also like to clarify at this stage that we have not commented on merits of the issue in this appeal and all contentions are kept open. The ld. CIT(E) will pass order un-influenced by any observation which we might have made in this order. We order accordingly. 3. In the result, appeal filed by the assessee with tribunal in ITA No. 24/Alld./2021 for ay: NA is allowed for statistical purposes.

Order orally pronounced in the open Court in the presence of both the parties after the conclusion of hearing on 24/01/2022 through video conferencing , and reduced to writing and signed on 25.01.2022 Sd/- Sd/- [VIJAY PAL RAO] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25/01/2022