ASHWINI SAHAKARI RUGNALAYA ANI SANSHODHAN KENDRA NIYAMIT vs. DY. COMMISSONER OF INCOME TAX (EXEMPTION) (HQ) PUNE AND ANR

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WP/1888/2019HC BombayHCBM01005341201904 April 2019Author: HON'BLE SHRI JUSTICE SARANG VIJAYKUMAR KOTWAL,HON'BLE SHRI JUSTICE AKIL KURESHI10 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the Assessing Officer committed a serious error by re-examining the issue of deemed registration under Section 12AA, which had already been decided by the ITAT. The Tribunal's order dated 30/11/2017 clearly stated that the petitioner enjoyed registration and the only question was the validity of the exemption claim under Sections 11 and 12. The scope of the AO's fresh order was confined to this inquiry. The AO exceeded his jurisdiction by challenging the ITAT's decision and even criticizing a Supreme Court judgment. The High Court found that the AO had breached judicial discipline. Consequently, the impugned orders of the Assessing Officer were set aside. The proceedings were remanded back to the Assessing Officer to pass a fresh order, specifically to examine the petitioner's claim for exemption under Sections 11 and 12 on merits, as originally directed by the ITAT.

What were the facts?

The petitioner, Ashwini Sahakari Rugnalaya Ani Sanshodhan Kendra Niyamit, a cooperative society running a hospital, had applied for registration under Section 12AA of the Income Tax Act, 1961. The Income Tax Appellate Tribunal (ITAT) had previously held that the petitioner was entitled to deemed registration. Subsequently, the Assessing Officer (AO) ignored this deemed registration and rejected the petitioner's claim for exemption of income for Assessment Year 2009-2010. The ITAT, by an order dated 30/11/2017, allowed the assessee's appeal, directing the AO to allow exemption under Sections 11 and 12. However, when the AO passed a consequential order, he re-examined the issue of deemed registration, citing various High Court and Supreme Court judgments, and withdrew the registration, assessing the assessee as an AOP and initiating penalty proceedings.

What were the issues?

1. Whether the Assessing Officer, while passing a consequential order pursuant to an ITAT direction to examine exemption claims under Sections 11 and 12, could re-examine the issue of deemed registration under Section 12AA, which had already been decided in favour of the assessee by the ITAT in a prior round. Assessee's Contention: The assessee argued that the AO's scope of inquiry was limited to verifying the exemption claim under Sections 11 and 12, as directed by the ITAT. The AO had no authority to revisit the issue of deemed registration, which was concluded. The assessee also relied on the ITAT's prior order granting deemed registration and allowing exemption. Revenue's Contention: The revenue, through the AO's order, contended that the ITAT's prior decision on deemed registration was not correct. The AO cited decisions of the Allahabad High Court (both Division Bench and Full Bench) and a Supreme Court judgment to argue that non-disposal of an application within six months does not result in deemed registration. The AO also noted that the registration granted earlier had been withdrawn by the CIT(E).

Which sections of the Income-tax Act were involved?

Section 12AA,Section 11,Section 12,Section 13(1)(c),Section 13(3),Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1                               10­WP 1885­19 @ Others.odt IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION  WRIT PETITION  NO.1885 OF 2019 ALONG WITH WRIT PETITION  NO.1887 OF 2019 ALONG WITH WRIT PETITION  NO.1888 OF 2019 ALONG WITH WRIT PETITION  NO.1889 OF 2019 ALONG WITH WRIT PETITION  NO.1890 OF 2019 ALONG WITH WRIT PETITION  NO.1891 OF 2019 Ashwini Sahakari Rugnalaya Ani ] Sanshodhan Kendra Niyamit. ] (Ashwini Sahakari Rugnalaya and ] Research Centre), Solapur. ] … Appellant Versus Deputy Commissioner  of Income Tax ] (Exemption) (HQ), Pune &  Anr. ] … Respondent Mr. Rohan  Deshpande a/w Ms. Alisha Pinto for Appellant. Mr. Sham Walve for Respondent.                 CORAM :­  AKIL KURESHI & SARANG V. KOTWAL, JJ.                                   DATE     :­  04 APRIL, 2019 URS 1 of 10                                                                     2                               10­WP 1885­19 @ Others.odt P. C. :­ 1. These Petitions arise in the common background.   They have been heard together and would be finally disposed of by this common order.   For convenience, we may record facts from Writ Petition No.1885 of 2019. 2. The Petitioner is a cooperative society and runs a hospital. The Petitioner had applied for registration under Section 12AA of the Income Tax Act, 1961 ('the Act', for  short) in which the question of deemed registration on the ground that the application, after its filing, was not decided for a period of six months, arose.  The Income Tax Appellate Tribunal ('ITAT', for  short), by an order dated 15/03/2017, held   that   the   Petitioner   was   entitled   to   a   declaration   of   deemed registration.  In that background, the question of the assessment of the Petitioner's return of income for the Assessment Year 2009­2010 came up for consideration.   The Assessing Officer ignored such deemed registration of the Petitioner and rejected the request for exemption of its income.   This issue reached the Tribunal.   The Tribunal, by an order   dated   30/11/2017,   allowed   the   Appeal   of   the   Assessee. URS 2 of 10                                                                     3                               10­WP 1885­19 @ Others.odt Relevant portion of the Tribunal's Judgment reads as under : “11. ........ in other words, the claim of the assessee of being registered under section 12AA of the  Act  has  been accepted and adopted for giving  relief to the assessee by way of exemption under section 11 and 12 of the Act.  The second aspect which is related to a Trust is its entitlement to claim recognition under section 80G of the Act.   The assessee had been granted the   said   recognition   under section   80G of the   Act   by the Commissioner vide its order   dated   30­03­2017,   copy   of   which   is   placed   on record.  In view of these subsequent events, we hold that the assessee after receiving the deemed registration under section 12AA of  the Act, is entitled to claim the exemption under section 11 and 12 of the Act.  The same cannot be denied to the  assessee on the aspect of the assessee having received   deemed registration or the assessee not being registered   under the Bombay Public Trust Act or any other issue in   this regard.   Accordingly, we direct the Assessing Officer  to allow the exemption under section 11 and  12  of  the Act  to  the  assessee in  the years  under appeal. 12. The   Ld.   Authorised   Representative   for   the assessee time and again stressed that the income should be assessed at Nil in the hands of the assessee as it was entitled for the exemption under section 11 and 12 of the Act since complete details were filed before the Assessing Officer, which were verified by him.  He also pointed out that the details have been looked into by the Assessing Officer at length and no discrepancy has been found in the said details.  However, in the interest of justice, we are of the view that the Assessing Officer has failed to consider the conditions of section 11 and 12 of the Act while  denying the said exemption to the assessee in   all   the   years.     So   for   the   limited   purpose   of verification,   we  restore  this   matter   to  the  file of Assessing Officer who shall verify the   expenditure URS 3 of 10                                                                     4                               10­WP 1885­19 @ Others.odt claimed by the assessee as to whether it falls within the   scope   of   section   11   and   12   of   the   Act   and recompute the balance income, if any, in the hands of the assessee, in the years under appeal.  The Assessing Officer     shall   afford   reasonable   opportunity   of hearing to the assessee.  Before  parting,  we may also point out that the courts have held that the Audit Report for claiming exemption can be filed   during the assessment proceedings also.   Since the assessee has so  filed  the same, there is no merit in stand of Assessing   Officer   and   the   same   is   reversed. Accordingly, all the grounds raised by the assessee are thus allowed.”     3. In   terms   of   this   Judgment   of   the   Tribunal   when   the Assessing Officer took up the proceedings for passing consequential order, his inquiries ought to have been limited to the examination of Assessee's claim of exemption of its income under Sections 11 and 12 of the Act.  The Assessing Officer, however, expanded the scope of the inquiry and once again went into the question of registration of the Petitioner under Section 12AA of the Act.  He passed the impugned order   dated   31/12/2018   in   which   he   made   the   following observations: “8. After having taken cognizance to the Hon'le Tribunal's decision, it is further stated that the issue of deemed registration has not reached its culmination since the Hon'ble Supreme Court while adjudicating the issue of deemed approval in the case of CIT Vs Society for the Promotion of Education, 382 ITR 6 (SC), relied upon by URS 4 of 10                                                                     5                               10­WP 1885­19 @ Others.odt the Hon'ble ITAT in its impugned order, has considered the decision of Division Bench of Allahabad High Court in the case of Society for the Promotion of Education Adventure Sport and Conservation of Environment Vs CIT, 261 CTR (All) 167 and not the decision of the Full  Bench of the Allahabad High Court  in the case of of CIT Vs Muzafar Nagar   Development   Authority,   372   ITR   (ALL)(FB) wherein the decision of the Division Bench of Allahabad was   reverted   and   the   Full   Bench   had   held   that   “non disposal   of   an   application   for   registration   before   the expiry of six months as provided u/s 12AA would not result in deemed grant of registration”.   8.1 Further, the Hon'ble High Court of Allahabad, Lucknow Bench, vide its decision dated 31.07.2017 in the case of CIT Faizabad Vs Harshit Foundation Sehmalpur Jalalpur   Janupur,   ITAD   No.24   2013,  has   allowed Revenue's appeal by stating and holding the following : “10. .........   However,   we   find   that   Supreme Court in the judgment dated 16.2.2016 has held that   all   other   questions   of   law   are   left   open, meaning thereby question of law raised in appeal by   C.I.T.   has   not   been   decided,   but   left   open, hence it cannot be said that   judgement of this Court     has   merged   with   the   judgement   of Supreme   Court   on   the   above   question   of   law, which was decided by this  Court in Society for the   Promotion   of   Education,   Allahabad (Supra). 11. In   view   of   full   Court   Judgment   in Commissioner   of     Income   Tax   vs.   Muzafar Nagar   Development   Authority,   Income   Tax Appeal No.348 of 2008, the question formulated above is answered against Assessee.” 8.2 It is further seen that the Hon'ble Tribunal in its said order dated 30.11.2017 has given the directions URS 5 of 10                                                                     6                               10­WP 1885­19 @ Others.odt for verification of expenditures claimed by the assessee and whether these claimed expenses fall within the ambit of Section 11 and 12 of the Act after granting the assessee deemed registration u/s 12AA of the Act to the assessee vide the said order.  However, in this context it is seen that the Hon'ble Allahabad High Court in its decision in the case of CIT Meerut Vs A. R. Trust, Meerut,  ITA No.112 of 2013 dated 04.09.2017, has held that, “the Tribunal has no jurisdiction in law to direct for registration of the Trust without   there     being   satisfaction   recorded   by   the Registering Authority as contemplated by Section 12AA of the  Act” and has set aside the Tribunal's order and sent the   matter   to   the   Registering   Authority   i.e.   CIT   for recording its satisfaction and to pass appropriate order in accordance with law thereunder.  The Hon'ble Court has relied     upon   the   following   decisions   and   held   that aforesaid decision : a) The Hon'ble Karnataka High Court in the case   of   Sanjeevamma   Hanumanthe   Gowda Charitable   Trust   Vs   DIT   (Exemptions)   (2006) 285 ITR 327 (Karnataka) b) The   Hon'ble   Allahabad   High   Court's decision in the case of Fifth Generation Education Society Vs CIT (1990) ITR 634 (Alld) c) The Hon'ble Kerala High Court's decision in the case of Sree Anjaneya Medical Trust Vs CIT (2016) 382 ITR 399 (Kerala) d)The   Hon'ble   Division   Bench   Allahabad   High Court's decision in the case of CIT (Exemption) Vs Yamuna   Expressway   Industrial   Development Authority and  others (2017) 395 ITR 18 (Alld) e) The   Hon'bl   Division   Bench   Allahabad High Court's decision in the case of CIT­II Vs R. S. Bajaj   Society   (2014)   222   Taxmann.com   111 (Alld)      The CIT­IV, Pune  in the assessee's case had rejected  the assessee's application for registration u/s 12A of the Act URS 6 of 10                                                                     7                               10­WP 1885­19 @ Others.odt vide order dated 25.07.2006 after verification of its case. However,   the   Hon'ble   Tribunal   had   allowed   deemed registration u/s 12A only on the ground that the CIT failed to dispose the application u/s 12A within the time limit prescribed u/s 12AA(2).   In view  of  the judicial precedents above, the stand of the Hon'ble Tribunal is not correct, since the Registering Authority i.e. the Ld. CIT­IV, Pune   had   recorded   his   satisfaction   for   rejecting   the assessee's application for registration u/s 12A of the Act. 8.3 Further, it is also seen that the Ld. CIT(E), Pune   vide   order     No.PN/CIT(E)/12AA(3)/ASR/2017­ 18/6734   dated   28.03.2018   has   withdrawn   the registration granted u/s 12AA of the I.T. Act which was granted to the assessee by the Ld. CIT­IV, Pune vide the

order No.PN/CITIV/12A/11/2007­08/2364   dated 14.12.2007 u/s 12AA(1)(b)(i) r.w.s. 254 of the I.T. Act, 1961   in   consequence   to   the   Tribunal's   order   dated 15.03.2007. The Ld. CIT(E), Pune has withdrawn the benefit of registration u/s 12AA in the assessee's case for the  period subsequent to 23.05.2008 which implies that the assessee is not entitled to the benefit u/s 11 for the year under consideration.

9.

In   view   of   above   discussed   facts   and circumstances, it is clear that assessee in spirit is not a charitable society and is working for the benefit of its members in clear violation of Section 13(1)(c) and not working   for   providing   the   medical   relief   to   the   needy patients at affordable costs.   Assessee thus exists for the purpose of profit, as discussed in various para 7.3 above. In light of above discussion and in light of the fact that assessee did not possess registration u/s 12AA during A.Y. 2009­10, assessee society therefore cannot be considered as a charitable society and benefit of sec 11 & 12 cannot be allowed to the assessee and hence, assessee is hereby assessed as an AOP. URS 7 of 10

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10.

In   view   of   the   above   facts   and   discussion, assessee   being   deemed   to   be   registered   u/s   12A   has violated the provisions of Section 13(1)(c) r.w.s. Section 13(3) of the Act for the A.Y. under consideration and therefore, it is not eligible for grant of exemption u/s 11 and 12 of the Act for A.Y. 2009­10. Penalty proceedings u/s 271(1)(c) of the I.T. Act, 1961 are hereby initiated separately   for   furnishing   inaccurate   particulars   of income.”

4.

In   our   opinion,   the   Assessing   Officer   has   committed serious error.    Firstly,  the question  of deemed registration of the Petitioner concluded in the earlier round of litigation.  In the present case, the Assessing Officer was passing a fresh order on assessment as directed   by   the   Tribunal.     The   Tribunal,   in   its   order   dated 30/11/2017, had made it clear that the Petitioner already enjoyed registration under Section 12AA of the Act.   Only question was, on facts, the Petitioner's claim of exemption under Sections 11 and 12 of the Act was valid.   Since the Assessing Officer had not applied his mind on this aspect of the matter, the Tribunal remanded proceedings before the Assessing Officer.   The scope of the fresh order that the Assessing Officer would pass, pursuant to this order of the Tribunal, was, therefore, confined to the inquiry in relation to the Petitioner's claim of exemption under Section 11 and 12 of the Act.  The issue of URS 8 of 10

9                               10­WP 1885­19 @ Others.odt the validity of the registration of the Petitioner under Section 12AA of the Act was not at large before him.

5.

Perusal   of   the   order   of   the   Assessing   Officer   and   in particular, the quoted portion thereof, would convince us that the Assessing Officer has travelled far beyond the scope of the inquiries before him and has breached all propriety of judicial discipline.  The Assessing   Officer   has   held   that   the   Tribunal   was   not   correct   in granting   deemed   registration   to   the   Petitioner.     He   has,   in   fact, criticized the Judgment of the Supreme Court on the ground that such Judgment notes a Division Bench Judgment of the High Court but not a larger Bench Judgment.

6.

For his own sake, we hope the concerned Assessing Officer does not indulge into such bravado in future.  Firstly, it was not within his scope to decide whether the decision of the Tribunal was correct or incorrect.  Far more serious is his conduct of criticizing the Supreme Court Judgment.   The entire hierarchy of judicial set up would be disturbed if a quasi­judicial authority or for that matter, any Court or subordinate Judicial Officer were allowed to disregard questioning the correctness of the decision of a higher authority, forum or Court. URS 9 of 10

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7.

In the result, the impugned orders are set aside.  Since the Assessing Officer has not carried out the directions of the Tribunal to examine the Petitioner's claim of exemption under Sections 11 and 12 of the Act on merits, we place back the proceedings before him for passing a fresh order.

8.

All the Petitions are disposed of accordingly. (SARANG V. KOTWAL, J.) (AKIL KURESHI, J.) URS 10 of 10

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