ITO(E), WD-1(4),KOLKATA, KOLKATA vs. MAMATA SHANKAR BALLET TROUPE, KOLKATA

4. For this purpose, “tax effect” means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as ‘disputed issues’). However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.

8. Adverse judgements relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect: (a) Where the Constitutional Validity of the provisions of an Act or Rule are under challenge, or (b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or (c) Where Revenue Audit Objection in the case has been accepted by the Department, or (d) Where the addition relates to undisclosed foreign assets / bank accounts.

We find that the Circular makes it very clear that the revised monetary limits shall apply retrospectively to pending appeals also. We find that the Circular is binding on the tax authorities. This position has been confirmed by the Hon’ble Apex Court in the case of Commissioner of Customs vs Indian Oil Corporation Ltd reported in 267 ITR 272 (SC) wherein their Lordships examined the earlier decisions of the Apex Court with regard to binding nature of the Circulars and laid down that when a Circular issued by the Board remains in operation then the revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the statute. Hence we hold that the appeal(s) of the revenue deserve to be dismissed in terms of low tax effect vide Circular No.21 / 2015 dated 10.12.2015. Accordingly, this being a low tax effect case, we dismiss the appeal of the revenue in limine , as unadmitted, without going into the merits of the case.

2.1. The appeal preferred by the revenue in for the Asst Year 1998-99 is dismissed.

4.1. Since the beginning , the assessee was claiming exemption of its income u/s 10(22) of the Act proclaiming it to be an educational institution not existing for the purpose of profit upto Asst Year 1998-99. This claim of exemption u/s 10(22) of the Act was upheld by the order of this tribunal in to 1731/Cal/1999 & ITA Nos. 519 to 522/Cal/1999 dated 11.7.2002 for Asst Years 1986-87 to 1993-94 respectively. Against this order of tribunal, the revenue preferred an appeal before the Hon’ble Calcutta High Court which dismissed the same by holding that no substantial question of law was involved in these appeals vide its order in ITA No. 23 of 2003 dated 14.8.2006.

4.2. Meanwhile this tribunal for the Asst Years 1999-2000 and 2000-01 in & 1807/Kol/2002 dated 11.5.2004 had negatived the contention of the assessee that it is an educational institution and brought the surplus to tax. Against this order, the assessee had preferred an appeal before the Hon’ble Calcutta High Court and the same was admitted and pending.

4.3. The ld AO for the impugned asst years i.e ( AYs 02-03 , 03-04, 07-08 , 10-11 , 11- 12 & 12-13) had observed that the assessee is not an educational institution and not existing solely for educational purpose and not for the purpose of profit and accordingly denied the exemption u/s 10(23C)(iiiad) of the Act. He also observed that the fees structure has been made in such a manner that the institution earns excess of income over expenditure year after year. Hence it is run with a profit motive. It is fully a commercial exploitation of the institute which cannot be education. Based on these observations, he concluded the assessment by bringing the surplus to tax after treating the development fees and 50% of performance fees as revenue receipts (which were not routed through the income and expenditure account by the assessee).

4.4. The ld CITA granted relief to the assessee by observing as under:- “This order: A Y 1997-98 and 1998-99 concerning section 10(22) treated as covered by Hon’ble High Court order in assessee’s case in Income Tax Act, 1961 No. 23/2003- in assessee’s favour; remaining other A Ys concerning section 10(23C)(iiiad) treated as allowed for statistical purposes. Thus, as stated earlier and as briefed in preceding Para above, as the issue(s) had already been deliberated and adjudicated by the higher appellate forums- by the Hon’ble ITAT (though conflicting decision for different AYs); and by the Hon’ble High Court in AYs 1999-00 and 2000-01 is pending before the Hon’ble High Court, as are also appeals for other AYs in between pending before the ITAT. I therefore: A. As regards AYs 1997-98 and 1998-99 concerning the then extant section 10(22), I treat the appeals as covered in appellant’s favour by Hon’ble High Court order in assessee’s case in ITA No. 23/2003. B. As regards the other AYs 2002-03, 2003-04, 2007-08, 2010-11, 2011-12 and 2012-13, as the section 10(23C)(iiiad) w.e.f. 01.04.1999 is in essence and substance the erstwhile section 10(22), I treat the appeals as allowed for statistical purposes. The eventual outcome will be consequential when the Hon’ble High Court disposes the of 2009.”

5. Aggrieved, the revenue is in appeal before us for the Asst Years 2002-03 , 2003-04 , 2007-08 , 2010-11 , 2011-12 and 2012-13.

In hearing an appeal the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal the Tribunal is not restricted to the leave of the Tribunal (Head Note). Further, in NTPC case (supra), Hon'ble Supreme Court observed as under:

The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law.

……….. There is no reason to restrict the power of the Tribunal u/s 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax(Appeals). Both the assessee as well as the Department have a right to file an appeal/ cross objections before the Tribunal. The Tribunal should not be prevented from considering question of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal.

Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on records in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

7.1. We find that the ground raised by the assessee at the time of hearing is purely legal being impinging upon the Assessing Officer’s jurisdiction while issuing intimation and, therefore, in view of the decision of the Hon'ble Supreme Court(supra), we entertain the same.

6. Respectfully following the same, we admit this legal argument of the Ld. Counsel of the assessee”.

6.1. Respectfully following the same, we accept the arguments of the ld AR since the final decision of the ld CITA creates some ambiguity as it states that the ‘appeals are allowed for statistical purposes’. We find that this tribunal had treated the assessee society as an educational institution existing solely for educational purposes and not for purposes of profit in to 1731/Cal/1999 & ITA Nos. 519 to 522/Cal/1999 dated 11.7.2002 for Asst Years 1986-87 to 1993-94 respectively. It was further held that all other points regarding receipt of salary etc are not important and in any way, they do not prove that the society for those reasons can be termed as a business organization of either Smt Mamata Shankar Ghosh or Sri Chandradoy Ghosh. It further held that they have merely worked as Teacher and Choreographer and as signatory to the Memorandum of Association and they are running the organization. It was held that they ofcourse received salary and obtained certain benefits but that is because that they have worked for the society. Accordingly it was held that the assessee society could not be considered as a business organization. We find that against this order , the revenue had preferred further appeal before the Hon’ble Calcutta High Court which was dismissed vide order in ITA No. 23 of 2003 dated 14.8.2006 on the ground that no substantial question of law was involved in the said appeals. It is already well settled that eventhough the Hon’ble Calcutta High Court had held that no substantial question of law was involved in these appeals, it tantamounts to exercise of the appellate powers by the Hon’ble High Court and the tribunal order stands confirmed and the order of the lower authorities gets merged with the order of the Hon’ble High Court. We would like to place reliance in this regard on the decision of the Hon’ble Gujarat High Court in the case of Nirma Industries Ltd vs DCIT reported in (2006) 283 ITR 402 (Guj) wherein it was held that :-

EFFECT OF DISMISSAL OF A TAX APPEAL BY HIGH COURT HOLDING THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. While hearing an appeal, even for deciding whether a substantial question of law arises or not from the order of the Tribunal, the High Court does not exercise either original jurisdiction or the jurisdiction to issue writs. On a plain reading of section 260A, inclusive of sub-sections of the said section, the only jurisdiction and powers that the High Court can exercise are to hear an appeal. The High Court does not have any powers under the statute to grant any leave as such for filing an appeal. An aggrieved person has the right, statutorily provided, of filing an appeal. The rules framed by the Court describe such an appeal as a ‘tax appeal’ to distinguish the same from other appeals, like first appeal and second appeal. In fact, an appeal gets filed with the registry of the High Court as a matter of fact and the person filing the appeal is not required to seek any leave from any authority, much less the High Court, prior to filing of the appeal. The provisions of the Act, with special reference to section 260A, do not require any such prior permission. Therefore, the only jurisdiction that the High Court exercises under section 260A is the appellate jurisdiction. Merely because the High Court decided in the first instance, whether or not, a substantial question of law arose from the order of the Tribunal, it cannot be stated that the High Court does not exercise the appellate powers or that no appeal lies, or that there is no decision on appeal, when the High Court dismisses an appeal holding that no substantial question of law arises from the order of the Tribunal. Therefore, it is not possible to bifurcate the jurisdiction or powers available to the High Court while dealing with an appeal under section 260A. The view expressed by the Tribunal that there was no decision on appeal, when the High Court held that no substantial question of law arose from the order of the Tribunal when the High Court dismissal on appeal, was not a correct reading of law. [Paras 11 and 12]

The contention that the powers exercised by the High Court at the stage of admission of appeal are akin to powers exercised by the Apex Court under article 136 deserved to be rejected. As far as the provisions of section 260A are concerned, there is no such dichotomy of powers. Nor does the Court have any powers which can be equated with the powers exercised by the Supreme Court under article 136. The only jurisdiction that the High Court has, while hearing the appeal, filed under section 260A is the appellate jurisdiction, it has no discretionary jurisdiction which would permit the High Court to prevent a party from filing an appeal. There is no provision which requires seeking of leave to file an appeal, nor is there any provision or rule whereby the High Court can grant or refuse leave to file an appeal. As a matter of fact that the appeals are filed with the registry, and after completion of the necessary formalities, including compliance with the rules of the High Court, the appeal is numbered as such and is placed for hearing only as an appeal, whereas before the Apex Court what is placed at the initial stage is a special leave petition seeking permission to file appeal. In absence of any such powers being available to the High Court under section 260A, the High Court cannot prevent any party from filing of appeal and has to hear the appeal itself when the same is notified for hearing [Paras 14 and 15]

In case where an order of a subordinate forum is carried in appeal, the appellate court may - (i) reverse the order under appeal, (ii) modify the order under appeal, (iii) merely dismiss the appeal and, thus, confirm the order under appeal without any modification. The Apex Court has laid down that in all the three eventualities it is the appellate decision alone which subsists and is operative and capable of enforcement. That there is no difference in principle and it is not possible to draw any distinction between the first two kinds of orders made by the appellate authority and the third kind of order made by the appellate authority. In law the terms ‘affirm’ and ‘confirm’ are synonymous. Both the terms denote notification of a judgment. Therefore, the view expressed by the Tribunal in the impugned order that when the High Court dismisses the appeal by holding that no substantial question of law arises, the High Court does not render any decision is an incorrect proposition and could not be accepted. [Paras 16 and 17]

When on talks of merger of a judgment, order or a decision of a subordinate court or forum into the judgment, order or decision of a superior court or forum the merger may be of the entire order, i.e., the reasons and the conclusion, or only a part, viz., only the conclusion by a different process of reasoning. In that event what merges is the operative part after the confirmation, reversal or modification, but in any event, the order of the lower court or the forum does not have any independent existence thereafter. This would be a merger in a case where the reasoning of the subordinate forum is either expressly not approved, or a different reasoning is given by the Supreme Court or forum. However, in a case where the superior court either adopts or reiterates the reasoning, or records an express approval of the reasoning, the merger is in relation to both the operative part and the reasons. [Para 18]

The net effect is that the order of the subordinate court or the forum merges with the order of the superior Court or forum and has no independent existence in relation to the issue which was carried before the appellate court or forum. If the merger is issue specific, there is fusion of the orders only to that limited extent. That is the reason why principle of merger is stated to be neither rigid nor of universal application. Therefore, it cannot be successfully contended that in the latter situation, i.e., where the appellate court or the forum merely accords approval to the reasoning of the lower court or forum, there is no decision of the appellate court or forum. [Para 19]

The doctrine of merger is founded on principle of propriety in the hierarchy of justice delivery system, the underlying logic being that there cannot be more than one operative order governing same subject-matter at a given point of time. The only caveat to the doctrine of the merger is that the content or the subject-matter of challenge before the superior forum has to be borne in mind. [Para 20]

In a case where the appeal is dismissed on account of - (i) being barred by limitation, (ii) being defective in nature, (iii) the appellant having no locus standi to prefer appeal, it cannot be stated that there is merger of the order of the subordinate forum in the order of the superior forum. The reason is: there is no ‘order’ made by the superior forum, i.e., on merits, the controversy between the parties has not been gone into by the appellate forum. But, in a case where the High Court comes to the conclusion that no substantial question of law arises on a particular issue, it cannot be stated that when the appeal is dismissed by the High Court, the subject-matter of the controversy between the parties has not been dealt with by the High Court. [Para 22]

In the light of above and more particularly on application of the doctrine of merger, the submission that unless a substantial question of law is formulated there can be no decision of the High Court under section 260A is an incorrect proposition. [Para 24]

The effect of dismissal of tax appeal by the High Court holding that no substantial question of law arises is that the order of the Tribunal on the issue which was agitated by the assessee before the High Court stands merged in the order of the High Court, and for all intents and purposes it is the decision of the High Court which is operative and which is capable of being given effect to. It was not open to any person to contend that there was no decision of the High Court and the subordinate forum was entitled to take a contrary view than the one adopted in the earlier proceedings which have been affirmed by the High Court by a process of dismissal of the appeal simpliciter. [Para 26] 6.2. We find that the activities of the assessee society during the years under appeal before us at present were one and the same as that of those decided by this tribunal in the aforesaid years, which has been later confirmed by the Hon’ble Calcutta High Court . Hence respectfully following the co-ordinate bench decision of this tribunal in assessee’s own case for the Asst Years 1986-87 to 1993-94 dated 11.7.2002 , which has been confirmed by the Hon’ble Jurisdictional High Court, and in view of the fact that there is no change in the facts and circumstances of the case during the years under appeal, we hold that the assessee society is an educational institution existing solely for educational purposes and not for purposes of profit entitled for exemption u/s 10(23C)(iiiad) of the Act as the aggregate annual receipts in each of the years under appeal were less than Rs 1 crore. Accordingly, the grounds raised by the revenue for the Asst Years 2002-03 , 2003-04 , 2007-08 , 2010-11 , 2011-12 & 2012-13 , are dismissed.

7. Now let us come to the assessee appeal for the Asst Year 2006-07 in ITA No. 1300/Kol/2010. For the Asst Year 2006-07, the ld AO, though placed the fact that the earlier years decision for the Asst Years 1986-87 to 1993-94 were decided in favour of the assessee, observed that for the Asst Year 1999-2000, the tribunal had decided the issue against the assessee. He also observed in his order that the appeal preferred by the assessee against the said tribunal order for Asst Year 1999-2000 was pending in Hon’ble Calcutta High Court. Accordingly, he held that the assessee is an educational institution existing for profit and accordingly brought the surplus to taxation. This action of the ld AO was approved by the ld CITA. Aggrieved, the assessee is in appeal before us. We find that this issue had already been settled in favour of the assessee vide preceding paragraphs for the other assessment years and the decision rendered thereon would apply with equal force for the Asst Year 2006-07 also as there is no change in facts and circumstances of the case. Accordingly the grounds raised for the Asst Year 2006-07 are allowed.