ITO (E), NEW DELHI vs. MARUTI CENTER FOR EXCELLENCE, NEW DELHI

PER ANADI NATH MISHRA, ACCOUNTANT MEMBER :

“1. On the facts and in this circumstances of the case, the Ld. CIT (A) has wrongly held that the income of the assessee is exempt u/s 11, when the A.O. has held that activities of the assessee are for the benefit of founder i.e. Maruti Udyog Limited and in violation of section 13(1)(c) read with u/s 13 (3).

2. On the facts and in the circumstances of the case, the Ld. CIT (A) has wrongly held that Sh. Jagdish Khattar is the founder, whereas as per the MOA of the society, Sh. Jagdish Khattar is only representative of Maruti Udyog Limited and therefore, Maruti Udyog Limited is the founder as rightly held by the A.O.

3. On the facts and in the circumstances of the case, the Ld. CIT (A) has wrongly held that the assessee is entitled to exemption u/s 11 and that there is no violation of section 13(1)(c).

The assessee filed appeal before the ld. CIT (A) against the order of the AO. Vide order dated 31.12.2008, the ld. CIT (A) allowed the appeal of the assessee and upheld the claim of exemption of assessee under sections 11/12 of the Act. Revenue filed appeal against the order of the ld. CTI (A) in Income Tax Appellant Tribunal (for short ‘the Tribunal’) on the grounds of appeal stated in the foregoing paragraph no.1 of this order.

“Whether the Income Tax Appellate Tribunal was right in holding that the assessee is a charitable institution and has not violated the Section 13(1)(c)(ii) read with 13(3) of the Income Tax Act, 1961?”

3.1 Vide order dated 21.05.2012, Hon’ble Delhi High Court set aside the order passed by the Tribunal and restored the matter to the Tribunal to re-examine the factual matrix in the light of the legal position laid down by the Hon’ble High Court in the aforesaid order dated 21.05.2012. Relevant portion of order of Hon’ble High Court is reproduced below : " The order of the tribunal in the assessment year 2005-06 is devoid of reasoning and does not refer to factual matrix and details which have to be examined and considered while deciding the question whether or not Section 13 (1)(c)(ii) read with Section 13(3)is violated. The facts, figures mentioned in the income expenditure account and the activities undertaken etc. have not been mentioned or specifically examined, what was and whether any benefit or advantage was enjoyed by the person mentioned in Section 13 (3) has not been adverted to and considered. General observations have been made. The order of the tribunal is cryptic and cannot be categorized as a reasoned and speaking order which is mandated and required to be passed by the final fact finding authority." ………………………………………………………..

“ In view of the aforesaid position, we answer the aforesaid question of law in negative with the order of remit. Question of law is partly decided in favour of the appellant Revenue. The tribunal will examine the factual matrix and position in the light of legal position mentioned above. Before applying the ratio/law, they shall first record finding on facts relevant and which are to be examined."

3.2 It is necessary to take note of further facts in this connection.

The registration granted to the assessee society u/s 12A of Income Tax Act was cancelled by Ld. Director of Income-tax (Exemptions), since inception, vide order no.DIT(E)/2011-12/1467 dated 22.02.2011. The assessee filed an appeal before Income Tax Appellate Tribunal challenging the aforesaid order dated 22.02.2011. Vide order dated 17.02.2012, the Tribunal remitted the matter back to the file of Director of Income-tax (Exemptions) for re-adjudication. A fresh order was passed by Ld. Commissioner of Income-tax (Exemptions) on 26.02.2015 whereby once again registration granted to the assessee u/s 12A of I.T. Act was cancelled since inception of the assessee society. The assessee society has accepted the aforesaid order dated 26.02.2015 of Commissioner of Income-tax (Exemptions) and no appeal has been filed by the assessee society against it. Thus, cancelation of registration of appellant society u/s 12A of I.T. Act vide aforesaid order dated 26.02.2015 of Commissioner of Income-tax (Exemptions) has become final.

3.3. We are thus faced with an extraordinary situation. The appeal has come up before us for fresh adjudication as result of aforesaid order dated 21.5.2012 of Hon’ble High Court whereby the appeal is remitted to ITAT with the direction to examine the factual matrix and position. The order of Hon’ble High Court is based on the position that registration granted to assessee society u/s 12AA of I.T. Act has not been revoked. However, this position has completely changed because Revenue has cancelled registration vide aforesaid order dated 26.2.2015 which has become final as the assessee society has not filed appeal against aforesaid order dated 26.2.2015. Thus factual matrix and position has substantially changed.

3.3. At the time of hearing before us, in his preliminary remarks, at the outset, the ld. Counsel for the assessee submitted that grounds no.1, 2 & 3 of appeal are to be decided in favour of Revenue and against the assessee because assessee society has accepted order dated 26.02.2015 of ld. CIT (E) cancelling the registration granted to assessee society u/s 12A of the Act. He submitted that the only ground of appeal that the assessee society wanted to contest was ground no.4 of appeal filed by Revenue. In his preliminary submissions, ld. Counsel for the assessee society submitted that even after cancellation of registration granted to assessee u/s 12A of the Act vide aforesaid order dated 26.02.2015, the addition of Rs.5,25,00,000/- is unsustainable being capital

4. The Ld. DR appearing for Revenue submitted that at this stage, the assessee society cannot argue that the aforesaid amount of Rs.5,25,00,000/- was capital receipt. He drew attention to Rule 27 of Income Tax (Appellate Tribunal) Rules, 1963 and contended that the respondent cannot support the order of the ld. CIT (A) at a ground which has not been decided against the respondent. The ld. DR highlighted the facts that the order of ld. CIT (A) the appeal was decided in favour of the assessee, and that the assessee was neither in appeal before the Tribunal nor had the assessee even filed any cross objection. The Ld. DR contended that as no ground of appeal had been decided against the assessee by the ld. CIT (A), the window for intervention by assessee is firmly closed, the ld. DR contended, in view of Rule 27 of Income Tax (Appellate Tribunal) Rules, 1963. Thus, the ld. DR contended that the respondent has no locus standi to agitate before the Tribunal.

4.1. The ld. Counsel for the assessee contended that despite Rule 27 of Income Tax (Appellate Tribunal) Rules, 1963, the assessee was entitled to plead at this stage that powers of the Tribunal under section 254 of the Act. He drew our attention to section 254 (1) of the Act under which the Tribunal has been given wide powers to pass orders as it thinks fit. He argued that Rule 27 of Income Tax (Appellate Tribunal) Rules, 1963 does not debar the assessee from pleading at this stage that the aforesaid amount of Rs.5,25,00,000/- is not taxable being capital receipt in the hands of the assessee society and relied on case laws for this purpose.

Perusal of materials on record shows that this plea was not raised by the assessee in the earlier proceedings listed as under:-

(i) Assessment proceedings before the Assessing Officer resulting in assessment order dated 28.12.2007;

(ii) Appellate proceedings before the ld. CIT (A) resulting in order dated 31.12.2008 of ld. CIT (A);

(iii) Appellate proceedings before the Tribunal resulting in order dated 02.09.2009;

(iv) Proceedings before the ld. Director of Income-tax

(Exemption) resulting in order dated 22.02.2011 whereby registration of the assessee society under section 12A of the Act was cancelled since inception;

(v) Proceedings before the Tribunal leading to order dated

17.02.2012 whereby the matter regarding registration under section 12A was remitted to the file of Director of Income-tax (Exemption) for re-adjudication;

(vi) Proceedings before Commissioner of Income-tax

(Exemption) resulting in order dated 26.02.2015 whereby once again registration of the assessee society under section 12A of the Act was cancelled since inception; (vii) Appellate proceedings before the Hon’ble Delhi High

Court under section 260A of the Act resulting in order dated 21.05.2012 of Hon’ble High Court whereby the earlier order dated 02.09.2009 of the Tribunal was set aside and was remitted back to the Tribunal.

6.1. Since the assessee had not raised the plea regarding the aforesaid receipts amounting to Rs.5,25,00,000/- being in the nature of capital receipt, the lower authorities have not had an occasion to examine this plea having regard to facts and circumstances of this case. If the assessee society is allowed to raise this plea now for the first time, the matter will have to be referred to the Assessing Officer for examining this plea on merits taking the facts and circumstances of this case. The matter that arises for reconsideration, therefore, is whether the assessee should be allowed to raise this plea for the first time at this stage especially in view of Rule 27 of Income Tax (Appellate Tribunal)

Rules, 1963. As mentioned earlier, the ld. DR opposed this plea citing Rule 27 of Income Tax (Appellate Tribunal) Rules, 1963 and contending that window for intervention by assessee is firmly closed in view of provisions of Rule 27 of Income Tax (Appellate Tribunal) Rules, 1963. It is necessary in this context to take cognizance of the fact that assessment proceedings, appellate proceedings before the ld. CIT (A), appellate proceedings before the Tribunal (resulting in earlier order dated 02.09.2009) and appellate proceedings under section 260A of the Act before the Hon’ble Delhi High Court were based on the position that registration under section 12A of the Act granted to assessee society by Revenue was still in force and had not been invalidated by a subsequent order. In a situation when registration under section 12A of the Act is in force, which entitles the assessee to claim benefit under sections 11/12 of the Act, it was neither necessary nor contextual for the assessee to raise a plea that the aforesaid amount of Rs.5,25,00,000/- was capital receipt. It was sufficient for the assessee to plead that this amount was not taxable in view of benefits to which the assessee was eligible in view of sections 11, 12 and 12A of I.T. Act. By cancelling the registration of the assessee under section 12A of the Act vide order dated 22.02.2011 by ld. Director of Income-tax (Exemption) and once again vide order dated 26.02.2015 by Commissioner of Income-tax (Exemption), Revenue has caused a complete shift in paradigm.

Once the benefits under sections 11, 12 and 12A of the Act are denied to the assessee society by a subsequent action of Revenue, assessee society cannot be precluded from defending itself by raising such plea(s) which had not been raised earlier. When the rules of the game have been altered by Revenue, the assessee cannot be denied the opportunity to adjust its game in accordance with the changed rules of the game. When there is a complete paradigm shift, it will be fair and just to provide an opportunity for fresh examination of the issue at hand in the context of the new paradigm.

8.2 In short, orders of lower authorities are set aside for denovo assessment by AO.