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Income Tax Appellate Tribunal - Chandigarh

Dcit, C-2 (E), Chandigarh vs M/S Amaltash Residents Welfare ... on 25 February, 2019

Page 1 of 12 Concurring order in ITA 1244/CHD/2017 (DCIT Vs M/s Amaltash Residents Welfare Association, Gurgaon) Diva Singh, Judicial Member

1. One may well ask who are orders / judgments are written for. Is it for the litigating parties and their counsels who may be interested only in the ultimate outcome of their litigation, or are they written also for the critical student of law, academician, Superior Courts or the world at large which may focus on the grounds for the decision, consider the correctness of the decision when challenged or the precedent value of the decision for citing etc. respectively, Conscious of the diverse category of the reading public the concurring order has been written. The need and necessity to write this separate yet concurring order arises in peculiar facts and circumstances after my Learned sister who has written the main order expressed her disinclination to fully clarify as would become evident from the detailed facts, that the reasons for confirming the order was only on the grounds of consistency in peculiar facts of the case and not on any other grounds, conscious that a wrong precedent may not be understood. The separate concurring order is also made to addressing the anguish of the Ld. Sr.DR who though relied upon the assessment order was helpless in assailing the impugned order in the face of the 12AA Registration holding the activities of the assessee aimed solely towards the apartment's owners as a charitable activity and where her appeal stood compromised by various acts of omission and commission by the past position taken by the tax administration over the years. The travesty of justice in the peculiar facts and circumstances of the case which so shakes the judicial conscience striking at the legitimate expectation of what justice entails also compels me to write a separate yet concurring order.

2. It would be appropriate to state at the outset that while it is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges, it is settled law that Tax planning may be legitimate provided it is within the framework of law and colourable devices cannot be part of tax planning. It is for the Courts to take stock to determine the true nature of the new and sophisticated legal devices to avoid tax and consider whetherto expose the devices for what they really are and to refuse to give judicial benediction as held by Hon'ble Mr.JusticeChinappa Reddy , in his separate detailed but concurring Judgement in respect of "Excise duty" being leviable on the manufacture of liquor,passed by the Constitution Bench of the Hon'ble Supreme Court comprising of Hon'ble Chief Justice Mr. Y. V. ChandrachudHon' ble Mr. Justice O. Chinnappa Reddy Hon'ble Mr. Justice RangnathMisraHon'ble Mr. Justice D. A. Desai Hon'ble Mr. JusticeE. S. Venkataramiah.in M/s. Mc Dowell and Company Limited Vs Commercial Tax Officer(AIR 1986 SC 649 ; 1985 (1) SCALE 788 ; (1985 ) 3 SCC 230 ; [1985] 3 SCR 791). Hon' ble Mr. Justice O. Chinnappa Reddy proposed separate and detailed opinion. At this present point of time it would be most appropriate to revisit the concerns and with this purpose and aim I quote the relevant extract as under:-

"CHINNAPPA REDDY, J.

1. While I entirely agree with my brother RangnathMisra, J. in the judgment proposed to be delivered by him, I wish to add a few paragraphs, particularly to supplement what he has said on the fashionable topic of tax avoidance. My excuse for inflicting this extra opinion is that the ingenious attempts to rationalise and legitimise tax avoidance have always fascinated and amused me and made me wonder how ready the minds are to adapt themselves and discover excuses to dip into the treasury.

2. The shortest definition of tax avoidance that I have come across is "the art of dodging tax without breaking the law." Much legal sophistry and judicial exposition have gone into the attempt to differentiate the concepts of tax evasion and tax avoidance and to discover the invisible line supposed to exist which distinguishes one from the other. Tax avoidance, it seems, is legal: tax evasion is illegal.

3. Though initially the law was, and I suppose the law still is, "there is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied", during the period between the two world wars, the theory came to be propounded and developed that it was perfectly open for persons to evade (avoid) income tax if they could do so legally. For some time it looked as if tax avoidance was even viewed with affection. Lord Sumner in Inland Revenue Commissioners v. Fishers Executors([1926] A.C. 395.) said: "My Lords the highest authorities have always recognised that the subject is entitled so to arrange his affairs as not to attract taxes imposed by the Crown so far as he can do so within the law, and that he may legitimately claim the advantage of any expressed term or of any emotions that he can find in his favour in taxing Acts. In so doing he neither comes under liability nor incurs blame."

4. Lord Tomlin echoing what Lord Sumner had said observed in Inland Revenue Commissioners v . Duke of West Minister ([1936] A.C, 1, ) follows type filing the prevalent attitude towards tax avoidance at that time: "Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than if otherwise would be. If he succeeds in ordering them so as to secure this result, then, however, unappreciative the Commissioners of Inland Revenue or his fellow tax payers may be of his ingenuity. he cannot be compelled to pay on increased tax."

5. Then came World War II and in its wake huge profiteering and racketeering, something which persists till today, but on a much larger scale. The attitude of the Courts towards avoidance of tax perceptibly changed and hardened and in Lord Howard De Waldan v. Inland Revenue Commissioners([1942] I, KB 389.) Greene, M.R., dealing with the construction of an anti-avoidance section said: "For years a battle of manoeuvre has been waged between the legislature and those who are minded to throw the burden of taxation off their own shoulders on to those Of their fellow subjects. In that battle the legislature has been worsted by the skill, determination and resourcefulness of its opponents of whom the present appellant has not been the least successful. It would not shock us in the least to find that the legislature has determined to put an and to the struggle by imposing the severest penalities. It scarcely lies in the mouth of the tax payer who plays with fire to complain of burnt fingers."

6. Expressing the same sentiment and dissertating on the moral aspects of tax avoidance Lord Simon in Latilla v. Inland Revenue Commissioners([1943] A.C. 377.) said, "My Lords, of recent years much ingenuity has been expended in certain quarters in attempting to devise methods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residents in this country while receiving the equivalent of such income without sharing in the appropriate burden of British taxation. Judicial dicta may be cited which point out that, however, elaborate and artificial such methods may be, those who adopt them are 'entitled' to do 50. There is, of course, no doubt that they are within their legal rights but that is no reason why their efforts, or those of the professional gentlemen who assist them in the matter, should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship. On the contrary, one result of such methods, if they succeed, is of course to increase protanto the load of tax on the shoulders of the great body of good citizens who do not desire or do not know how, to adopt these manoeuvres."

7. In several cases, Griffith v. JP Harrizan Ltd.([1963] A.C. 1.), Morgan v. Inland Revenue Commissioners'([1963] Chancery 438.) Public Trustee v. Inland Revenue Commissioners([1965] Chancery 286.), Lord Denning repeatedly referred to tax avoidance schemes and described them as magic performance by lawyer-turned- magicians. Lord Harman, almost in the same words as Lord Denning described a tax avoidance scheme as one 'which smells a little of the lamp" and said ' it is a splendid scheme-it is almost too good to be true. In law quite too good to be true. It won't do." (Campbell v. Inland Revenue Commissioners([1967] Chancery, 651.), Stamp J. In re Western's Settlements observed"...There must be some limit to the devices which Page 3 of 12 this Court ought to countenance in order to defeat the fiscal intentions of the legislature. In my judgment these proposals overstep that limit ...I am not pursuaded with this application represents more than a cheap exercise in tax avoidance which r ought not to sanction as distinct from a legitimate avoidance of liability to taxation.

8. In Greenberg v. Inland Revenue Commissioners(1971(3) All ER. 135.), Lord Reid dealing with a scheme for tax avoidance by forward dividend stripping observed, " .... We seem to have travelled a long way from the general and salutary rule that the subject is not be taxed except by plain words. But I must recognise that plain words are seldom adequate to anticipate and forestall the multiplicity of ingenious schemes which are constantly being devised to evade taxation. Parliament is very properly determined to prevent this kind of tax evasion and, if the courts find it impossible to give very wide meanings to general phrases, the only alternative may be for Parliament to do as some other countries have done and introduce legislation of a more sweeping character which will put the ordinary well-intentioned person at much greater risk than is created by a wide interpretation of such provisions as those which we are now considering.""I am inclined to think that the real explanation of these verbal difficulties may be that, in legislation of such extreme complexity as we have here, it is not humanly possible for a draftsman to preserve that consistency in the use of language which we generally look for. Indeed, l sometimes suspect that our normal meticulous methods of statutory construction tend to lead us astray by concentrating too much 1 on verbal niceties and paying too little attention to the provisions read as a whole."

9. The march of the law against tax avoidance schemes continued and came a significant departure from t he West- minister and the Fisher Executor. principle. In W.I.. Ramsay v. Inland Revenue Commissioners([1982] AB 300.), the House of Lords had to consider a scheme of tax avoidance which consisted of a series or a combination of transactions each of which was individually genuine but the result of all of which was an avoidance of tax. Lord Wilberforce, with great force, observed, "Given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance. This is the well-known principle of Inland Revenue Commissioners v. Duke of West minister. This is a cardinal principle but it must not be overstated or overextended. While obliging the court to accept documents or transactions, found to be genuine, as such, it does not compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded: to do so is not to prefer form to sub stance, or substance to form. It is the task of the court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and i f that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded. For this there is authority in the law relating to income tax and capital gains tax: See Chinn v. Hochstrasser [1981] A.C. 533 and Inland Revenue Com missioners v. Plummer [1980] A.C. 896." "For the commissioners considering a particular case it is wrong and an un necessary self limitation, to regard themselves as precluded by their own finding that documents or transactions are not "shams", from considering what, as evidenced by the documents themselves or by the manifested intentions of the parties, the relevant transaction is. They are not, under the West minister doctrine or any other authority, bound to consider individually each separate step in a composite transaction intended to be carried through as a whole."

Later again he observed, ".....For the taxpayers it was said that to accept the revenue's wide contention involved a rejection of accepted and established canons and that, if so general an attack upon schemes for tax avoidance as the revenue suggest is to be validated, that is a matter for Parliament. The function of the courts is to apply strictly and correctly the legislation which Parliament has enacted: if the taxpayer escapes the charge, it is for Parliament, if it disapproves of the result, to close the gap. General principles against tax avoidance are, it was claimed, for Parliament to lay down. We were referred, at our request, in this connection to the various enactments by which Parliament has from time to time tried to counter tax avoidance by some general prescription. The most extensive of these is Income and Corporation Taxes Act 1970, sections 460 et seq. We were referred also to well known sections in Australia and New Zealand (Australia, Income Tax Assessment Act 1936 -51, section 260, New Zealand, Income Tax Act 1976, section 99, replacing earlier legislation). Further it was pointed out that the capital gains tax legislation (starting with the Finance Act 1965) does not contain any provision corresponding to section 460. The intention should be deduced therefore, it was said, to leave capital gains tax to be dealt with by "hole and plug" methods: that such schemes as the present could be so dealt with has been confirmed by later legislation as to "value shifting": Capital Gains Tax Act 1979, section 25 et seq. These arguments merit serious consideration. In substance Page 4 of 12 they appealed to Barwick C.J. in the recent case of Federal Commissioner of Taxation v. Westraders Pty. Ltd. [1980] 30 A.L.R. 353, 354-35 5, "

"I have a full respect for the principles which have been stated but I do not consider that they should exclude the approach for which the Crown contends. That does not introduce a new principle: it would be to apply to new and sophisticated legal devices the undoubted power and duty of the courts to determine their nature in law and to relate them to existing legislation. While the techniques of tax avoidance progress and are technically improved, the courts are not obliged to stand still. Such immobility must result either in loss of tax, to the prejudice of other taxpayers or to Parliamentary congestion or (most likely) to both. To force the courts to adopt, in relation to closely integrated situations, a step by step, dissecting, approach which the parties themselves may have negated, would be a denial rather than an affirmation of the true judicial process. In each case the facts must be established, and a legal analysis made: legislation cannot be required or even be desirable to enable the courts to arrive at a conclusion which corresponds with the parties' own intentions."

"The capital gains tax was created to operate in the real world, not that of make- belief. The significance of Ramsay as a turning point in the interpretation of tax laws in England and the departure from the strings of West minister were explained in Inland Revenue Commissioners v. Burmah Oil Company Ltd., ([1982] S.T.C. 30) where Lord Diplock said, "It would be disingenuous to suggest, and dangerous on the part of those who advise on elaborate tax- avoidance schemes to assume, that Ramsay's case did not mark a significant change in the approach adopted by this House in its judicial role to a pre-ordained series of transactions (whether or not they include the achievement of a legitimate commercial end) into which there are inserted steps that have no commercial purpose apart from the avoidance of a liability to tax which in the absence of those particular steps would have been payable. The difference is in approach. It does not necessitate the overruling of any earlier decisions of this House; hut it does involve recognising that Lord Hamlin's oft- quoted dictum in IRC v. Duke of West minister([1936] AC. 1(@)19=[1935] All ER. Rep. 259 (at) 267.) "Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less then it otherwise would be", tell us little or nothing as to what methods of ordering one's affairs will be recognised by the courts as effective to lesson the tax what would attach to them if business transactions were conducted in a straight-forward way."

Lord Scarman said, "First, it is of the utmost importance that the business community (and others, including their advisers) should appreciate, as my noble and learned friend Lord Diplock has emphasised, that Ramsay's case marks "a significant change in the approach adopted by this House in its judicial role" towards tax avoidance schemes. Secondly, it is now crucial when considering any such scheme to take the analysis far enough to determine where the profit, gain or loss is really to be found, "

10. The winds of change continued to blow and in Furniss v. Dawson([1984] 1 All E.R. 530, ) Ramsay was reiterated. Lord Brightman observed, "The fact that the court accepted that each step in a transaction was a genuine step producing its intended legal results did not confine the court to considering each step in h. isolation for the purpose of assessing the fiscal results."

He further said, "My Lords, in my opinion the rationale of the new approach is this. In a pre-planned tax saving scheme, no distinction is to be drawn for fiscal purposes, because none exists in reality, between (i) a series of steps which are followed through by virtue of an arrangement which falls short of a binding contract, and (ii) a like series of steps which and followed through because the participants are contractually bound to take each step seriatim. In a contractual case the fiscal consequences will naturally fall to be assessed in the light of the contractually agreed results."

In the same case Lord Fraser explained the principle of Ramsay a s follows:". . . The true principle of decision in Ramsay was that the fiscal consequences of a preordained series of transactions, intended to operate as such, are generally to be asertained by considering the result of the series as a whin, and not by dissecting the scheme and considering each individual transaction separately." Lord Scarman in his characteristic style observed, "The law will develop from case to case. Lord Wilberforce in W.T. Ramsay Ltd. v. IRC [1981] 1 All ER 865 at 872, [1982] AC 300 at 324 referred to 'the emerging principle' of the law. What has been established with certainty by the House in Ramsay's case is that the determination of what does, and what does not, constitute unacceptable tax evasion is a subject suited to development by judicial process. The best chart that we have for the way forward appears to me, with great respect to all engaged on the map-making process, to be the words of Lord Diplock in IRC v. Burmah Oil Co. Ltd. [1982] STC 30 at 32 which my noble and learned friend Lord Brightman quotes in his speech.

These words have space in the law for the principle enunciated by Lord Tomlin in IRC v. Duke of West minister [1936] AC I at 19, [1935] All ER Rep. 259 at 267 that every man is entitled if he can to order his affairs so as to diminish the burden of tax. The limits within which this principle is to operate remain to be probed and determined judicially. Difficult though the task may be for judges, it is one which is beyond the power of the blunt instrument of legislation. Whatever a statute may provide, it has to be interpreted and applied by the courts; and ultimately it will prove to be this area of judge-made law that our elusive journey's end will be a found. "

Lord Roskill put it even more forcefully: "The error, if I may venture to use that word, into which the courts below have fallen is that they have looked back to 1936 and not forward from 1982. They do not appear to have appreciated the true significance of the passages in the speeches in Ramsay's case [1981] 1 All ER 865 at 872-873, 881, [1982] AC 300 at 325, 337 of Lord Wilberforce and Lord Fraser, and, even more important, of the warnings in the Burmah Oil Case [1982] STC 30 at 32, 39 given by Lord Diplock and Lord Scarman in the passages to which my noble and learned friend Lord Brightman refers and which I will not repeat. It is perhaps worth recalling the warning given, albeit in another content by Lord Atkin, who himself dissented in the Duke of West minister's case, in United Australia Ltd. v. Barclays Bank Ltd.([1940] 4 All E.R. 20 @ 37=[1941] A.C. I @ 29.) ' When these ghosts o f the past stand in the path of justice, clanking their mediaeval chains, the proper course for the judge is to pass through them undeterred.' 1936, a bare half century ago, cannot be described as part of the Middle Ages but the ghost of the Duke of West minister and of his transaction, be it noted a single and not a composite transaction, with his gardener and with other members of his staff has haunted the administration of this branch o f the law for too long. I confess that I had hoped that ghost might have found quietude with the decisions in Ramsay and in Burmah. Unhappily it has not. Perhaps the decision of this House in these appeals , will now suffice as exorcism."

Thus the ghost of West minister (in the words of Lord Roskill) has been exercised in England. Should it be allowed to rear its head in India?

11. I have referred to the English cases at some length, only to show that in the very country of its birth, the principle of West minister has been given a decent burial and in that very country where the phrase 'tax avoidance' originated the judicial attitude towards tax avoidance has changed and the smile, cynical or even affectionate though it might have been at one time, has now frozen into a deep C frown. The courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it. Some years ago, a diverting attempt was made by a Correspondent to the London 'Times' to de fend tax avoidance. He said, "The taxpayer is morally bound to obey the law, but is not bound beyond the law, for apart from the law taxation would be blackmail or racketeering. There is not behind taxing laws, as there is behind laws against crime, an in dependent moral obligation. When therefore the tax-payer has obeyed the law, he had done all that morality requires"

He had further said, "It is said that by avoiding a tax he throws a load on to some other taxpayer. But this is not quite accurate, for - the deficiency might be met by reducing expenditure.. is it not a good thing that there should be this last lawful remedy against oppressive taxation by a majority, that human ingenuity can always find a way by which the minority can escape from tyrannical imposts."

12. The correspondent was answered by another's correspondent who described the former's defence of tax avoidance as 'an amusing attempt to raise the art of tax avoidance to the moral level of political martyrdom and to make Hampdens of our modern tax dodgers'. Nor, may we say, are our tax dodgers Gandhiji is on the Dandi March to protest against the Salt Tax.In Commissioner of Income tax, Gujarat v. A. Raman &Co., ([1968]1 S.C.R 10.) JC Shah, JJ. speaking for himself and Sikri and Ramaswami, JJ repeating almost verbatim the observations in Westminister and Fishers Executors observed: "Avoidance of tax liability by 80 arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the Legislative injunction in taking statutes may not, except on period of penalty, be violated, but it may lawfully be cumvented."

13. The same Judge, speaking for himself, Ramaswami and Grover JJ in Commissioner of income tax, Gujarat v. Kharwar(72 ITR 603.) expressly followed West minister and observed:

"The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it Is open to the taking authorities to unravel the device and to determine the true character of relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction".

14. We think that time has come for us to depart from the West minister principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a welfare state like ours . Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of blackmoney, directly causing inflation. Then there is "the large hidden loss" to the community (as pointed out by Master Sheatcraft in 18 Modern Law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skilful, advisers on the other side. Then again there is the 'sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it'. Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless good citizens from those of the 'artful dodgers'. It may, indeed, be difficult for lesser mort als to attain the state of mind of Mr. Justice Holmes, who said, "Taxes are what we pay for civilized society. I like to pay taxes. With them I buy civilization." But, surely, it is high time for the judiciary in India too to part its ways from the principle of West minister and the alluring logic of tax avoidance. We now live In a welfare state whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that It stands on no less moral plane than honest payment of taxation. In our view, the proper way to const rue a taking statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally, or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgment of Desai, J. in Wood Polymer Ltd. v. Bengal Hotels Limited(40 Company Cases, 597.) where the learned judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax.It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is upto the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the a id of 'emerging' techniques of interpretation as was done in Ramsay, Burma Oil and Dawson, to expose the devices for what they really are and to refuse to give judicial benediction.

15. We agree with RanganathMisra, J. that the appeal should be dismissed."

3. Keeping in view the above and concurring with the conclusion arrived at in para 13 of the proposed draft order I now propose to address certain material facts and relevant issues which to my mind ought not to have been be left unaddressed by me. First and foremost I would deem it appropriate to highlight that the present decision is not a precedent that Societies of Residential Welfare Associations etc. which are constituted by the apartment owners of the society and aim their welfare development activities also solely for the benefit of its own members are entitled to Registration as 12AA as the said issue is not under consideration in the present proceedings. It is well understood that the decisions and orders are passed on the grounds raised or the issue before the Court or the Tribunal. The decision so rendered considering the facts and arguments advanced cannot be read out of context. In the facts of the present case the aims and objects addressed by my sister in para 7 of the proposed draft order are charitable or not is not open for consideration hence the travesty of justice pointed out by the Revenue in Ground no. 2 is not open for consideration. The specific Ground no. 2 reads as under:

"ii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in holding that income of the assessee as charitable in nature whereas the assessee society is engaged in serving only few members and not public and accordingly cannot be covered as charitable activity as per section 2(15) of the Act. "

3.1 For the sake of completeness these are again referred to hereunder by me:

"(a) to be and to act as the Association of Apartment Owners of the Building called the Laburnum at Sector 28, Gurgaon, Haryana (hereinafter called 'the said building') who have filed their respective declarations submitting their Apartments to the provisions of the act;

    (b)     To invest or deposit moneys;
    (c)     To provide for the maintenance, repair and replacement of the common areas

and facilities by contribution received from the apartment owners, and if necessary by raising loans, for that purpose;

(d) To retain and rent or license, if possible, suitable portions of the common areas to outsiders and to use the funds for meeting objectives of the Association;

(e) To provide for and do all or any of the matters provided in Section (2); of Section 16;

(f) To advance with the consent of the Apartment Owners, any short term loans to any Apartment Owner in case of any emergent necessity and to provide for the repayment thereof in lumpsum or in installments;

(g) To establish and carry on, on its own account or jointly with individuals or institutions, education, physical, social and recreative activities for the benefit of the Apartment Owners;

(h) To frame rules with the approval of the general meeting of the Association and after consulting the competent authority and may establish a provident fund and gratuity fund if necessary for the benefit of the employees of the Association;

(i) To do all things necessary and/or otherwise provide for their welfare expedient for the attainment of the objects specified in these Bye-Laws."

4. It is a matter of record that the ld. AR was required to go through the above stated aims and objects and state which aim or object could be said to governed by Section 2(15) of the Income Tax Act. The ld. AR has argued that Show Cause Notice was issued for withdrawing the exemption by CIT (E) Chandigarh, however it was ultimately dropped. Thus it is necessary to clarify that the decision given to uphold the impugned order is based solely on the principles of consistency and consistency alone. To revert back to the facts noticed, it is seen that the AO in the year under consideration, by his order dated 30.11.2016 highlights the fact that the society is engaged in maintenance and upkeep of a Resident Housing Society. The AO puts the assessee to notice of the fact that "From the objects it is clear that society is engaged in serving only few who are residents of a particular housing society. There is no benefit accruing to public at large and no terms of a public charitable trust are evident." In para 3.1 of his order, he again makes very speaking observations; " I have considered the reply of assessee. The facts are on record. The assessee society was formed in 24.07.2002 by the members residents who continue to live in a particular building. No outsider was the member and cannot become member of the society. The society is accumulating the member's participation share every month and depositing it in Bank for maintenance of the society. Interest income on large deposits is being earned......." On utilization of these receipts, the AO again makes the following observations ; "In case of assessee the utilization of receipts has been shown towards sports coaching expenses, maintenance of lifts, housekeeping expenses, land development etc. There are huge payments towards consultancy charges of Rs.20,53,984/-and accounting charge of Page 8 of 12 Rs.5,07,000/-. The legal expenses have been shown at Rs.5,16,080/-. All these payments have been made which are in no way considered to be towards any charitable activity. The assessee has tried to legitimize these payments through TDS but the payment of TDS is no proof of the expenses being towards any activity related to charity. The assessee has shown income mainly from interest on F.D.R on bank. A total of Rs. 70,60,330/- has been shown as interest. The amount of F.D.Rs as on 31.03.2014 have been shown at Rs. 8,58,97,944/-. It is clear that earning of interest is not a charitable activity and its utilization for maintaining the society for related form is also not a charitable activity".

5. It is also a fact on record that in order to address this flagrant mockery of the provisions as I understand, we were are informed by the ld. AR who has also placed in all fairness a copy of the SCN issued by the CIT (E) Chandigarh on similar reasons with the statement that attempt was made by the department to withdraw the 12AA Registration granted for the purposes of exemption of tax, however, ultimately it was also given up. The relevant SCN F.No. CIT(Exemptions)CHD/2015-16/2720 dated 17.07.2015 issued to the assessee is extracted hereunder for ready reference :

5. Govt. of India Income Tax Department Office of the Commissioner of Income Tax (Exemptions) C.R. Building, 4h Floor, Sector 17-E, Chandigarh F.No.CIT(Exemptions)/CHD/2015-16/2720 Dated: 17/7/2018 To M/s Amaltash Resident's Welfare Association, The Laburnum, Sector 28, Gurgaon Sub: Show Cause Notice for cancellation of registration u/s 12AA .of the Income Tax Act, 1961 -

regarding-

Registration u/s 12AA of the. Income Tax Act, 1961 was granted by the then Commissioner of Income Tax, Faridabad vide F.No.CIT/FBD/Tech/03-04/26/48 dated 25.3.2004.

2. During the course of assessment proceedings for the assessment year2012-13 in the office of DCIT, Circle-2 (Exemptions),Chandigarh, it has cometo the notice that you are not carrying out any charitable activity. Theassociation had been founded by the apartment owners of the buildingcomplex called the LABURNUM, Sector-28, Gurgaon and the main activityof the association was to provide for maintenance, repair & replacement ofthe facilities for common usage and in the common areas of the buildingcomplex. Therefore, the association is working as per the principle ofmutuality.

3. The concept of charity and mutuality are opposite to each other as altruism the essence of charity i.e. the object of the charity is to benefit others rather than one's itself, whereas in mutuality there is complete identity between the contributors and the participants i.e. there is benefit to self.

4. In your case, the members of a building complex have come togetherand created an association for their own benefits, rather than for the benefitof the others. Therefore, the aims and objects of the association are not at allcharitable purpose and the same does not fall within the ambit of Section2(15) of the Income Tax Act/1961.

5. You are required to show cause as to why registration granted u/s 12AA of the Income Tax Act vide F.No.CIT/FBD/Tech/03-04/26/48 dated25.3.2004 by the then Commissioner of Income Tax, Faridabad may not becancelled. Your reply should reach this office on or before 31.7.2015. You canfile your written submissions by post or through your authorized representative.

Sd/-

(B. S. Sandhu) Page 9 of 12 Commissioner of Income Tax (E), Chandigarh

6. The Ld. AR has made a statement at bar stating that no order till date cancelling the Registration has been passed and infact the proceedings have been dropped.

7. It is a matter of record that in the aims and objects of the assessee since its inception, there is no change. It is also a fact on record that in A.Y 2004-05,2006-07 & 2007-08 the AO consistently noting the aberration has passed the assessment order granting exemption respecting the order of his superiors but duly recorded his helplessness on the aberration noticed wherein mocking the statutory provisions stood as a shield in front of the assessee. The order was passed noting the constraints by recording "However, in view of grant of registration u/s 12AA and following the ratio of the decision of the Apex Court in the case of Gestetner Duplicators P. Ltd. vs. Commissioner of Income Tax. West Bengal [117 ITR 1 (SC)] the returned income is accepted." The AO in each of the above assessment years makes the following noting "The assessee society is registered u/s 12 AA of the Income Tax Act. 1961 vide order-dated 25.03.2004. It is claiming its income to be exempt u/s 11. Computation of income and its application has been submitted and found to be in order to the extent of exemption u/s 11.

8. We were informed that for the first time in 2012 - 13 assessment year the above position was deviated from by the assessing officer and an order holding the activities devoid of any charity was passed which was reversed in appeal by the CIT(A) and the said order was not challenged before the ITAT. In the present proceedings, the CIT(A) has followed the said order. The decision has been rendered in the present proceedings on the principles of consistency and is not a precedent as to whether the society is entitled for grant of Registration under section 12AA.

9. By the present concurring note, it is my endeavor that the tax department sits down to introspect and enunciate a cohesive policy of tax administration. The acts of consistently ignoring the anguish of the Assessing Officers over the years right from 2004-05 A.Y. and the half hearted attempt to redress the situation by the act of issuance of SCN to withdraw 12AA Registration granted and then ultimately dropping it compounded by the need for the Assessing Officer for filing an appeal before the ITAT shows that there is something seriously wrong in the tax administration. The blatant and irresponsible contempt of the statutory provisions is writ large on the canvass in the facts of the present case. The repeated attempts of the Assessing Officer who is weighed down in the peculiar facts over the years and can only highlight the lack of charitable aims or purpose allegedly noticed by CIT Faridabad while granting Registration vide order dated 25.03.2004 speaks volumes and is sought to be brought to our notice vide Ground no. 2 raised by him. The fact that the said issue does not arise for consideration in the present proceedings necessitates the writing of the separate concurring note penned with the hope that the obdurate apathy which seems to have enveloped the tax administration, is shaken and efforts are made to put their Page 10 of 12 house in order. The observation on the concept of mutuality also raises a red Flag as the receipt of interest incomes on FDR's as per settled legal position becomes exigible to tax as income from other sources. The conclusion has been arrived at in the face of the above patently self speaking facts where the decision is given in the context of the judicial precedent that registration once having been given under Section 12AA to the assessee society by CIT Faridabad which till date has not been withdrawn the assessing officer is not justified in sitting over the decision of the CIT Faridabad in revisiting the said decision. The CIT(A) rightly observes that it is a matter beyond his jurisdiction at this stage. The Assessing Officer I note at best can only highlight the issue as has been done in the present proceedings it is for the tax administration to address the self created hole in which its case has been bogged down where the registration under Section 12AA till date has not been withdrawn. The fact that efforts were made to do so vide show cause notice dated 15/07/2015 and then given up and the proceedings dropped further compounds the issue against the revenue. Thus, in the separate note, I seek to clarify that the correctness of the grant of 12AA Registration has not been examined by us. The assessing officer's ground no. 2 addresses the blatant mockery of the statutory provision highlighted in the said ground is an area which the tax administration needs to address at their end. Remedy lies with them and not the judicial Forum like the ITAT in the present proceedings. The correctness of the order dated 25/03/2004 CIT(E) never came up for examination. The present forum is not the correct forum to address the tax administrations acts of omission and commission in the peculiar facts. The ITAT like any judicial forum only decides the ground raised in the context of the facts, argument and the past history on same set of fact. The present order is passed recognizing the principle laid down by the Apex Court in the case of ACIT versus Surat City Gymkhana which rightly recognizes and holds that grant of Registration under section 12A is not an empty formality wherein the grant of exemption from tax is to be exercised by CIT/Pr.CIT . The Court's decisions are in the context of the hierarchy of decision making under the Statute and in the constraints of the principles of consistency as considered in the case of Radhasoami Satsang vs CIT 193 ITR 321 (SC) and others should not be read out of context as a seal of approval by the ITAT that activities of the society are charitable. To my mind the tax authorities need to formulate a coherent policy whether to give up the issue or carry it to a logical conclusion. In the facts as they stand, interference with the order is not warranted. The grounds have to be rejected. The rejection is not on the basis of the merits of the appeal but is purely on account of consistency and hence the probable stamp of approval at the stage of ITAT is neither here nor there as the disposal is purely on the grounds of the limitations where 12AA is not withdrawn as the grant of 12AA is not an issue in the present appeal. The factum of incorrectness of the grant highlighted in ground No. 2 by the Revenue to my opinion cannot be visited in the present appeal. Being conscious of the sage words spoken by their Lordships who have observed in a catena of cases that there is no heroism in perpetuating an error. In the words of the Page 11 of 12 Hon'ble Justice Bhagwati, specifically as noted in Distributors (Baroda) Ltd. Vs. Union of India "To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this, we derive comfort and strength from wise and inspiring words of Justice Bronson in Pierce v. Delameter : 'a Judge ought to be wise. enough to know that he is fallible, and, therefore, ever ready to learn; great and honest enough to discard all mere pride of opinion and follow the truth wherever it may lead; and courageous enough to acknowledge his errors.' We are, therefore, unable to accept Revenue's contention that a considered opinion expressed by the Tribunal, after applying its mind to an issue in appeal, cannot be unsettled even if the mistake in the process of reasoning is a simple mistake apparent from record on which no two views are possible." It may also not be out of place to refer to the words of wisdom referred to by the Apex Court in the case of CIT Vs Parshuram Pottery wherein their Lordships have observed noting that;

"the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue." The relevant extract from the aforesaid judgement is extracted hereunder :

Looking to all the facts, we are of the opinion that it cannot be said that the excess depreciation was allowed to the appellant company and its income as such escaped assessment because of its omission or failure to disclose fully and truly all material facts. It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarise themselves with the relevant provisions and become well versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that state issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as income-tax assessment orders are concerned, they cannot be reopened on the scope of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, 'this cannot be said in the present case. The appeal is consequently allowed; the judgment of the High Court is set aside and the impugned notices are quashed. The parties in the circumstances shall bear their own costs throughout.

10. I would like to draw attention of the tax administration to this clarion call of the Hon'ble Court which succinctly notes that the mistake on the part of the tax administrators are at the cost of national exchequer. These words must induce repose in the tax administration and to my mind call for serious introspection.

11. Thus being aware that Judicial discipline demands the Tribunal to follow the rule of consistency even if it involves perpetuating an error while dismissing the appeal of the revenue, it is clarified that the relief granted in the present case rests on its own facts and has been granted in the peculiar facts of its own case and shall not serve as a precedent and hence shall not be uniformly applied in case of every Resident Housing Society engaged in the maintenance and upkeep of the Housing Society and engaged Page 12 of 12 in serving only the few who are residents of the said particular Housing Society with no benefit accruing to the public at large.

12. For the reasons given hereinabove the appeal of the Revenue is dismissed.

Order pronounced in the open Court 25/02/2019 Sd/-

DIVA SINGH (JUDICIAL MEMBER) Date: 25/02/2019 AG