AMUL RESEARCH & DEVELOPMENT ASSOCIATION vs. INCOME TAX OFFICER

Present petition arises in the following factual background :

1 The petitioner is a registered trust under Section   12A   of   the   Income   Tax   Act,   1961 (hereinafter referred to as 'the Act').

2 It is engaged  in  the activity of research for   the   improvement   and   preservation   of environment,   including   watersheds,   forests, etc.   more   particularly   working   for   cows   and buffaloes and for improvement of their life, fertility   and   yield   of   milk.   The   petitioner also enjoyed exemption under Section 11 of the Act   for   a   long   period.   However,   in   the assessment year 2010­11, such exemption under Section 11 of the Act has been denied to the petitioner   by   the   respondent   vide   its assessment order dated March 13, 2013, on the ground that the object of the trust was not charitable as defined under Section 2(15) of the Act.

3 A   notice   of   demand   dated   March   13,   2013 under Section 156 of the Act along with notice under Section 274 read with Section 271 of the Act came to be issued which was received by the petitioner   on   March   20,   2013. The   period   of seven days was granted to the petitioner for payment   of   total   sum   of   Rs.1,41,07,755/­ (Rupees One Crore Forty One Lac Seven Thousand Seven   Hundred   Fifty   Five   only)   instead   of statutory period of 30 days from the date of service of notice as prescribed under Section 220 of the Act.

4 The   petitioner   preferred   an   appeal   along with a stay application before the Commissioner of   Income   Tax   (Appeals)   against   such   order passed   by   the   respondent.   However,   in   the meantime,   the   respondent   recovered   a   sum   of Rs.1,39,70,275/­ from the bank account of the petitioner on March 28, 2013. The notice under Section   226(3)   of   the   Act   and   the   letter substantiating such payment by the bank to the respondent is brought on record.

5 Aggrieved by such act of reduction of time period from 30 days to seven days and recovery of huge sum of Rs.1,39,00,000/­ (rounded off), present   petition   under   Section   226   of   the Constitution of India is preferred seeking the following reliefs : “7­a quash   and   set   aside   the   impugned notice dated 13.03.2013 at 'Annexure­A' to this petition; b. pending the admission, hearing and final disposal of this petition, to direct the   respondent   to   refund   the   total   amount recovered in respect of the impugned demand notice for Rs.1,41,07,755/­; c. Provide for cost of this petition; d. Pass any other order(s) as this Hon'ble Court   may   deem   to   be   fit   and   more appropriate in order to grant interim relief to the Petitioner.”

The   learned   Senior   Advocate   Shri   Deepak   Shah appearing with the learned advocate Shri Tej Shah for   the   petitioner   vehemently   made   submissions assailing the order impugned of reduction of time period. He urged that the Assessing Officer has power to reduce the statutory period of 30 days, if he has a reason to believe that it would be detrimental to Revenue if the entire period of 30 days is permitted to be availed by the assessee. Moreover,   prior   permission   of   the   Joint Commissioner   is   a   condition   precedent   for reduction of any period under Section 220(1) of the Act. He further urged that the petitioner is a   public   charitable   trust   rendering   yeoman service   in  the   field   of   research   work   for   the benefit   of   farmers,   agriculturists   and   cattle. The petitioner also filed returns of income on regular basis and no occasion has arisen in the past for the officer to hold such a belief. He fervently   submitted   that   such   notice   of   demand has   been   issued   on   March   13,   2013   and   the assessment   has   been   framed   on   March   13,   2013 itself without any valid factual basis. Moreover, the approval of the Joint Commissioner was also granted subsequent to issuance of such a letter, on March 18, 2013 and, therefore, on none of the counts,   such   a   notice   is   sustainable.   He   has relied upon the decision of the Delhi High Court in the case of  Sony India Ltd. v. Commissioner of Income­tax and another, reported in 276 ITR 278 and two decisions of the Bombay High Court in the   case   of  Firoz   Tin   Factory   v.   Assistant Commissioner  of Income­tax,  reported  in [2012] 24 taxmann.com 125 (Bom.) as well as in the case of Rajasthani Sammelan Sarvoday Balika Vidyalaya v. Assistant Director of Income­tax (Exemption)­ I(1),   reported   in   [2012]   21   taxmann.com   238 (Bom.). Reliance is also placed on the decision of the Division Bench of this Court in the case of  Gujarat   State   Energy   Generation   Ltd.   v. Assistant   Commissioner   of   Income   Tax,  rendered in Special Civil Application No.3600 of 2013  and allied   matters,   decided   on   May   06,   2013,   on merits in respect of registration under Section 12A of the Act. Also he urged that the decision of the Apex Court in the case of  ACIT v. Surat City   Gymkhana,   reported   in   300   ITR   214, which approved the decision of this Court in the case of Hiralal Bhagwati v. CIT, reported in 246 ITR 188, favours the petitioner.

Per   contra,   the   learned   advocate   Shri   Parikh appearing for the Revenue has urged that it is the discretion of the Assessing Officer to reduce the period prescribed under the Act. He has urged that   the   petitioner   has   already   preferred   an appeal   against   the   demand   notice   issued   under Section 156 of the Act and, therefore, when an effective   alternative   remedy   has   already   been resorted   to,   the   writ   jurisdiction   may   not   be invoked.   It   is   further   urged   that   for   the assessment year 2010­11 all issues raised by the petitioner had been aptly dealt with and while framing   the   assessment,   Assessing   Officer determined   and   computed   total   income   of   the petitioner   to   the   tune   of   Rs.3,36,06,368/­,   as the exemption under Section 11(1)(a) of the Act was   not   granted   since   the   petitioner   has   not carried   any   research   activity.   Against   such order,   the   petitioner   preferred  Special  Civil Application   No.9237   of   2012,   which   is   pending before this Court. It is further argued on the line   of  affidavit­in­reply filed   by   the respondent Assessing Officer that the statutory discretion  in   accordance   with   law  has   been exercised for reduction of period to protect the interest of the Revenue, for which the proviso to Section 220(1) of the Act has come into being. It is   further   urged   that   as   per   Note   (3)   of   the impugned demand notice dated March 13, 2013, the assessee   could   have   approached   the   Assessing Officer but as he is not serious to pursue such remedy, his resort to writ jurisdiction may not be entertained at all. He requested the Court to dismiss the petition in limine.

Before adverting to the facts, at the outset the law on the subject deserves to be considered.

Section   156   of   the   Act   contemplates   notice   of demand in respect of any tax, interest, penalty, fine or any other sum which reads as under : “156. When   any   tax,   interest,   penalty, fine or any other sum is payable in shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable :

Section 220 of the Act prescribes that any amount other than the advance tax if is to be paid as per the notice of demand made under Section 156 of   the   Act,   the   period   prescribed   for   such payment is 30 days from the date of service of notice.   Proviso   to   such   provision   gives discretion to the Assessing Officer, where he has reason to believe that giving full period of 30 days it would be detrimental to the Revenue, with a   previous   approval   of   the   Joint   Commissioner, such   period   can   be   curtailed   by  him.   The   said provision requires to be reproduced profitably as under : “220.(1)  Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice :

Under this provision, not only the discretion is given   to   the   Assessing   Officer   to   reduce   the statutory   period   of   30   days   by   specifying   the said   period   in   the   notice   of   demand   itself, however, on an application made by the assessee, the Assessing Officer also has a discretion to extend the time for payment or allow the payment by   instalment   in   the   given   facts   and circumstances. And, only on the occasion of non­ payment   of   such   demand   within   the   period prescribed in demand notice under sub­section (1) or   as   extended   under   sub­section   (3)   of   this provision   (Section   220)   that   the   assessee   is considered in default.

Section 222 of the Act prescribes for certificate to be issued by the Tax Recovery Officer if the assessee is in default or deemed to be in default in   making   payment   of   tax.   The   Tax   Recovery Officer   would   draw   a   certificate   under   his signature   which   could   be   a   statement   in   the prescribed format specifying the amount due from the assessee.

Section 226 of the Act prescribes that where no certificate has been drawn up under Section 222 of the Act, the Assessing Officer may recover the tax by any one or more of the modes provided in this   Section.   Section   226(3)(ii)   of   the   Act contemplates a notice under this Section to any person   who   holds   or   may   subsequently   hold   any money for or on account of the assessee jointly with   any   other   person   and   for   the   purposes   of this sub­section, a copy of the notice has to be forwarded to the assessee as per the provision under Section 226(3)(iii) of the Act on the last address   known   to   the   Assessing   Officer   or   Tax Recovery

The Bombay High Court in the case of  Firoz Tin Factory (supra) was dealing with a case where the Assessing   Officer   directed   the   assessee   to   pay the amount within seven days of the assessment order. An application was filed by the assessee inter alia contending that such shortening of the period was unnecessary as there was no detriment to   the   interest   of   the   Revenue   as   the Commissioner   had   already   levied   a   provisional attachment under the provisions of Section 281B of the Act. Such application was rejected by the Commissioner.   In   such   circumstances,   the   Court held in favour of the assessee in the following manner : “5   Under the provisions of Section 220(1) it has been stipulated that any amount other than   by   way   of   advance   tax   specified   as payable in a notice of demand under Section 156 shall be paid within thirty days of the service   of   a   notice.   The   proviso   to Subsection   (1)   stipulates   that   where   the Assessing Officer has any reason to believe that   it   would   be   detrimental   to   the interests of the Revenue if the full period of 30 days is allowed, he may direct, with the   previous   approval   of   the   Joint Commissioner, that the sums specified in the notice   of   demand   shall   be   paid   within   a period of less than 30 days. The proviso to Subsection   (1)   of   Section   220   is   in   the nature   of   an   exception   to   the   general requirement under the substantive part that an amount which is required to be paid in pursuance of a notice of demand has to be paid   within   30   days   of   the   service   of notice. The exception which has been carved out   by   Parliament   comes   into   operation   if the Assessing Officer has reason to believe that   it   would   be   detrimental   to   the interests of the Revenue if a full period of 30 days is allowed. This exception has been structured by a further requirement of the previous approval of the Joint Commissioner. The   exercise   of   the   power   to   reduce   the period under the proviso to  Subsection (1) cannot be exercised casually and without due application   of   mind.   The   question   as   to whether   it   would   be   detrimental   to   the interests of the Revenue to allow the full period of 30 days has to be addressed. The Assessing   Officer   must,   in   the   first instance,   have   reason   to   believe   that   the interests   of   the   Revenue   would   be detrimentally affected by allowing a period of 30 days as stipulated in the statute. The Joint Commissioner whose approval is sought before   the   Assessing   Officer   reduces   the period must similarly apply his mind to the issue   of   detriment   to   the   Revenue.   While granting his approval the Joint Commissioner must record reasons. Those reasons as well as the approval which has been granted by the   Joint   Commissioner   must   be   made available to the Assessee where a copy of the   reasons   is   sought   from   the   Assessing Officer. 6 In the present case, as noted earlier, a   provisional   attachment   has   already   been levied on 7 October 2011 under Section 281B by which the amount which was invested by the Assessee in mutual funds of SBI Mutual Funds   was   attached.   The   attachment   was   to the   extent   of   Rs.36.54   Crores.   That   being the position evidently there would have been no   basis   for   forming   a   reason   to  believe that   if   the   period   of   30   days   was   to   be observed under Section 220(1), that would be detrimental to the Revenue. Merely  because the end of the financial year is approaching that   cannot   constitute   a   detriment   to   the Revenue. The detriment to the Revenue must be akin to a situation where the demand of the Revenue is liable to be defeated by an abuse of process by the Assessee. This is of course illustrative, for what is detrimental to the Revenue has to be determined on the facts   of   each   case   and   an   exhaustive catalogue   of   circumstances   cannot   be   laid down.   Consequently,   we   find   that   there   is absolutely   no   justification   for   the Assessing   Officer   for   making   an   order   of demand directing the Assessee to deposit the entire demand by 16 March 2012. The action is highhanded and contrary to law.”

Yet another decision of the Bombay High Court in the case of Rajasthani Sammelan Sarvoday Balika Vidyalaya   (supra)  has   been   relied   upon   by   the petitioner,   where   the   assessee   was   deemed   in default.   The   assessee,   an   exempt   public charitable   trust,   was   running   educational institutions.   On   the   ground   that   donations received by it were not voluntary, the assessment order was passed. The appeal was preferred before the   Commissioner   (Appeals)   and   the   application for stay of demand was moved before the Assessing Officer. The Assessing Officer while disposing of the   stay   application   directed   the   assessee   to make payment within three days without giving any reasons.   Considering   the   fact   that   there   were serious   issues   already   contended   before   the Commissioner (Appeals) with regard to continuity of exemption, the Court held that the Director of Income­tax ought to have granted complete stay of demand.

The Division Bench of this Court in the case of Gujarat State Energy Generation Ltd. (supra) was considering   the   case   where   a   notice   was challenged on the ground that in terms of Section 220(1)   of   the   Act   though   the   assessee   was entitled   to   a   period   of   30   days,   the   notice granted period of fortnight. In absence of any recorded reasons to believe that granting of full period   of   30   days   would   be   detrimental   to   the Revenue and in absence of previous approval of the   Joint   Commissioner   for   curtailing   such   a period,   the   petition   was   allowed.   On   both   the grounds   i.e.   (i)   absence   of   any   sufficient reasons to believe that granting full period of 30 days was detrimental to Revenue and (ii) as no prior   approval   of   the   Joint   Commissioner   in writing was obtained, the essential requirements were not found to have been fully complied with. The Division Bench while upholding the petition held thus : “In   the   present   case,   we   have   serious doubt   if   the   reasons   recorded   by   the Assessing   Officer,   though   not   referred to in the affidavit in reply, could be stated to be sufficient to enable him to believe that it was detrimental to the revenue  if   the  full   period   of  30   days was   allowed.   Further,   admittedly,   no prior approval of the Joint Commissioner in writing was obtained. Mere discussion in a meeting of several high ranking tax officers   chalking   out   certain   action plan for timely recoveries would not, in our opinion, satisfy such a requirement which must be observed individually. By very   nature   of   things,   curtailing   the period of 30 days and reducing the same for   tax   recovery   by   a   shorter   period would   cause   considerable   inconvenience to the assessee. The Act does recognize the power of the Assessing Officer to do so.   Exercise   of   such   power   would   be dependent on the reason to believe that it will be detrimental to the Revenue if the full period is allowed and further that he obtained prior approval of the Joint   Commissioner.   Approval   of   the Joint Commissioner, thus is an important safeguard and the manner in which it is stated   to   have   been   observed   in   the present   case,  is   simply   not   sufficient compliance with such a requirement.

In a matter before Delhi High Court in the case of  Sony   India   Ltd.   (supra),   the   Assessing Officer had reduced the period of payment of tax demand. When it was challenged before the Delhi High Court, it was of the opinion that the belief of the Assessing Officer must have a direct nexus to the conclusion that payment of tax would be detrimental to the Revenue and any suspicion in that   respect   is   not   the   reason   to   believe.   In absence   of   any   material   before   the   Assessing Officer to believe that the demand would become irrecoverable or that it would be detrimental to the Revenue to allow the full period of 30 days, the order of reduction of period for payment of tax demand was set aside. It would be profitable to   quote   the   relevant   part   of   the   decision   as under : “After   passing   an   order   of   assessment  in accordance with  the provisions of the Act, the Assessing Officer is obliged to raise a demand   in   terms   of   section   156   of   the Income­tax Act, 1961. Normally, the assessee would be granted a period of thirty days to discharge his liability of tax. The proviso to section 220(1) vests a special power in the Assessing Officer to reduce such period. The   proviso   to   section   220(1)   is   an exception to the rule and is not a rule in itself. No canon of statutory  construction is   more   firmly   established   than   that   the statute must be read as a whole. The section must be read with its exception. To validly enforce   his   statutory     discretion,   the Assessing Officer must have (a) relevant and valid reasons for forming a belief, and (b) the belief must have a direct nexus to the

Thus, it can be deduced from the above discussion that sub­section (1) of Section 220 of the Act provides that any amount otherwise then advance tax   as   payable   in   the   notice   of   demand   to   be issued under Section 156 of the Act, needs to be paid within 30 days of the service of the notice. However, the proviso to Section 220(1) of the Act gives   discretionary   powers   to   the   Assessing Officer to reduce such period. Two conditions are required   to   be   fulfilled   before   the   Assessing Officer   resorts   to   this   exception   of   statutory period of 30 days. Firstly, he must have a reason to believe that the grant of full period of 30 days to the assessee for payment of tax would be detrimental to the interest of the Revenue and secondly,   prior   permission   of   the   Joint Commissioner requires to be obtained before such reduction   in   the   period   is   made.  Corollary   to this issue is that the formation of the belief must be based on sufficient cause and grounds and the same must have connection with the conclusion that   such   availment   of   full   period   would   be deleterious to the interest of the Revenue. The words   “reason   to   believe”   must   have   the   same flavour as one finds in the case of exercise of powers by a reasonable man acting in good faith, with objectivity and neutrality based on material on record or exhibited in the order itself.

Coming   to   the   facts   of   the   instant   case,   the question would be whether both the conditions are duly   satisfied   in   the   case   of   the   petitioner­ assessee   when   the   Assessing   Officer   chose   to exercise   its   discretion   in   curtailing   the   full period of 30 days.

The first and the foremost is the formation of belief on the part of the Assessing Officer. As could be noticed from the record, in the letter addressed to the Joint Commissioner of Income­tax dated   March   11,   2013,   prior   to   the   framing   of assessment   following   are   the   reasons   given   for proposal   of   reduction   of   period   of  30   days   as provided under proviso to Section 220(1) of the Act :

The   very   reasonings   are   contrary   to   the   very object   of   introducing   proviso   for   giving discretion to the Assessing Officer. They clearly and   unequivocally   indicate   that   the   Assessing Officer has completely misread the provision and his belief is neither of a reasonable man nor at all   based   on   the   rational   connection   with   the

Prior to such communication of March 18, 2013 by the Joint Commissioner, the Assessing Officer had already communicated the period of reduction on March 13, 2013 itself by way of impugned notice. It is although a condition precedent to obtain the   permission   of   the   Joint   Commissioner. Admittedly, such permission has come subsequent to the communication of period of reduction in payment of tax, no reason comes forth as to what was such a great haste under which the Assessing Officer   has   acted   and   conveyed   such   reduction without waiting for receipt of the approval of the higher officer.

As could be noted, the very object of obtaining permission of the superior officer is to ensure that the powers are not exercised arbitrarily and there is a safeguard of higher officer applying its mind independently to the issue in question when such belief is communicated by the Assessing Officer. The curtailment of the statutory period of 30 days would surely cause inconvenience to the assessee which also restricts the period of challenge   of   assessee   before   exercise   of   such powers   by   the   Assessing   Officer,   the   previous approval of the Joint Commissioner has been made mandatory   by   law.   This   being   “an   important safeguard”, as held in the case of Gujarat State Energy   Generation   Ltd.   (supra),   we   are  of  the firm   opinion   that   the   reasons   recorded   by   the Assessing Officer cannot be  held to be with due application   of   mind,   much   less   reasonably sufficient for the curtailment of the full period so as to constitute the ground 'detrimental to the Revenue'. By no stretch of imagination, it can   be   said   that   non­meeting   of   the   budgetary deficit could be a reason for holding reasonable belief that permitting the full period of 30 days for payment of tax would be detrimental to the cause of the Revenue. It is not such a situation where   interest   of   Revenue   is   likely   to   be affected on account of any act of assessee. We are also in broad agreement with the decision of Bombay   High   Court   that   what   would   amount   to detrimental to the Revenue is a matter of facts and would vary from case to case, however, such a situation   must   be   apprehended   on   account   of misuse of process that  can be attributed to the assessee.   If   the   demand   is   not   likely   to   be defeated   by   any   “abuse   of   process   by   the assessee”,   belief   cannot   be   sustained   on   the ground   that   availing   the   full   period   would   be detrimental to the interest of Revenue.

As could be pointed out from the record by the petitioner, the past performance all through out of   the   petitioner­assessee   was   not   such   which would give rise to any apprehension in the mind of   the   Revenue   so   as   not   to   allow   the   entire period. On the contrary, the very letter of the Assessing Officer is self­evident that the “rich cash flow enjoyed by the assessee” would help him meeting the target of budget deficit and thus it can be concluded that the belief had neither any relevant or valid reasons and it also does not have   any   direct   nexus   to   the   conclusion   of reduction   of   period.   Both   the   authorities   have acted without truly grasping the essence of use of   this   provision.   Resultantly,   the   action   of invocation   of   the   discretionary   powers   under Section 220(1) of the Act shall have to fail.

Almost   immediately   after   the   Amendment   Act   was passed on March 13, 2013, notice under Section 156   of   the   Act   was   issued   by   the   respondent demanding   sum   of   Rs.1,41,00,000   (rounded   off) reducing normal period of 30 days for payment and immediately on completion of seven days' period, exercising powers under Section 226 of the Act, the respondent

Some   of   the   vital   issues   raised   while   arguing this petition needs to be briefly dealt with. It was emphasised all along by the respondent that Note (3) of the notice of demand under Section 156 of the Act can permit the assessee to seek extension   of   time   for   payment   of   the   amount, which  in  this  case    has  not  been  done  by  the assessee. Secondly, he has already approached the Commissioner (Appeals) against such action and, therefore,   eventually   if   the   Commissioner (Appeals)   holds   in   his   favour,   he   would definitely get back the entire amount, which has been withdrawn from the bank. It is also denied that the notice issued under Section 226 of the Act   to   the   assessee   was   after   the   sum   of Rs.1,39,70,275/­ had been withdrawn from the bank on exercise of powers under Section 226 of the Act.

As   noted   above   while   discussing   the   legal aspects, while issuing notice to the bank under Section 226(3) of the Act for making payment, a notice has also to be given to the assessee which in this case is on the very day when the notice was issued to the bank. No opportunity had been given   to   the   assessee   for   meeting   with   such   a notice issued to the Bank. The sizeable amount of Rs.1,39,00,000/­ (rounded off) has been withdrawn and deposited in the account of Revenue on the very same day. Notice was  an illusory and empty formality. This arbitrary exercise of withdrawal of amount from bank also requires interference. Moreover, when the very action of the Assessing Officer is held to be contrary to the provisions of the law, petitioner's not resorting to Note (3) of the demand notice under Section 156 of the Act   or   his   having   resorted   to   an   alternative remedy, is no bar to the Court exercising writ jurisdiction. Therefore, on none of these counts, the   Revenue   can   be   permitted   to   sustain   the action of the Assessing Officer of reduction of period of 30 days.

Resultantly,   this   petition   is   allowed   quashing and setting aside the impugned notice dated March 13, 2013, with a formal direction to the Revenue to refund the amount of Rs.1,39,70,275/­ (Rupees One Crore Thirty Nine Lac Seventy Thousand Two Hundred Seventy Five only) by way of a cheque to be issued in favour of the assessee within two weeks on receipt of the present order.