INDIAN MEDICAL TRUST vs. PRINCIPAL COMMISSIONER OF INCOME TAX ANDAN

Facts

The Indian Medical Trust (assessee) filed two writ petitions challenging an order of the Income Tax Settlement Commission (ITSC) dated June 30, 2017, and a subsequent rectification order dated February 8, 2018. The Revenue also filed a writ petition challenging the ITSC's order. The Trust, established in 2000, runs various educational institutions and provides medical aid. It was registered under the Rajasthan Public Trust Act, 1959, and sections 12A and 10(23C)(v) & (via) of the Income Tax Act, 1961. A search under section 132 of the Act was conducted on October 30, 2014. Subsequently, the Trust filed a settlement application under section 245C(1) for assessment years 2009-10 to 2015-16, which was admitted by the ITSC. The ITSC passed the impugned order on June 30, 2017. Both parties filed rectification applications. The Revenue also cancelled the Trust's registration under section 12A and approval under section 10(23C) retrospectively from April 1, 2006.

Held

The Tribunal held that the investment in a TV channel by the assessee Trust should be considered in consonance with its objectives of imparting education, as education cannot be confined to a single subject. This principle was applied to conclude that the Trust's investment in the TV channel was within the purview of its objects. Regarding the retrospective cancellation of the Trust's registration under Section 12A, the Tribunal found it to be arbitrary and contrary to the Income Tax Act, 1961. It reasoned that Section 12AA(3) does not provide for retrospective cancellation, and such an interpretation would be vindictive. The Tribunal noted that the Commissioner's order appeared vindictive, especially after the ITSC's order went against the department. The Tribunal allowed the writ petition of the assessee Trust, directing the modification of the ITSC's orders dated June 30, 2017, and February 8, 2018. The Trust is entitled to the benefit of Section 11(1)(a) of the Rajasthan Public Trust Act, 1959, carry forward of unabsorbed losses, benefit of expenditure on new educational buildings, benefit for acquisition of TV channels, and quashment of telescoped benefit of cash expenses. The total income is to be re-computed within two months. Consequently, the Revenue's writ petition was dismissed.

Key Issues

1. Whether the investment in a TV channel by the assessee Trust, whose primary object is education, is in consonance with its objectives and falls within the purview of its objects? (Question of law and fact, turning on the interpretation of the Trust's objects and Section 10(23C) of the Income Tax Act, 1961). Assessee's contention: The investment in a TV channel is for imparting education and is therefore in line with the Trust's objectives. The restrictive interpretation of education would go against its basic tenets. Revenue's contention: Not explicitly recorded, but implied by their challenge to the ITSC's order and their prayer to declare the disclosure as not "full" or "true" and to deny immunity. 2. Whether the retrospective cancellation of the assessee Trust's registration under section 12A of the Income Tax Act, 1961, by the Commissioner of Income Tax is arbitrary and contrary to the provisions of the Act? Assessee's contention: The cancellation is arbitrary and contrary to the Act, as Section 12AA(3) does not intend retrospective applicability. The order appears vindictive. Revenue's contention: Not explicitly recorded, but their action of cancelling the registration forms the basis of their challenge.