Gujarat High Court
Director Of Income Tax (Exemption) vs K. Varma Charitable ... on 8 June, 2017
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
O/TAXAP/343/2007 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 343 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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DIRECTOR OF INCOME TAX (EXEMPTION)....Appellant(s)
Versus
K. VARMA CHARITABLE TRUST....Opponent(s)
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Appearance:
MR MANISH BHATT WITH MRS MAUNA M BHATT, ADVOCATE for the
Appellant(s) No. 1
MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 08/06/2017
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Page 1 of 8 HC-NIC Page 1 of 8 Created On Fri Aug 18 05:57:46 IST 2017 O/TAXAP/343/2007 JUDGMENT
1. This appeal is filed by the Revenue challenging the judgement of the Income Tax Appellate Tribunal dated 18.08.2006. The Tax Appeal has been admitted for consideration of following substantial question of law:
"Whether the Appellate Tribunal is right in law and on facts in restoring the issue relating to cancellation of registration of the assessee trust under section 12AA to the DIT(E) for examination afresh to give a finding with respect to the activities carried on by the assessee trust during the Financial year 2003-04 when the DIT (E) had arrived at a finding of fact that the assessee was not carrying on any charitable activity and was involved in misutilisation of the bank account?"
2. Brief facts are as under:
Respondent-assessee is a Public Charitable Trust enjoying registration under the Income Tax Act, 1961, which enables the Trust to claim exemption on the donations received by the Trust. The objects of the Trust were in the field of education, relief to the poor and other general public charitable objects. The activities of the Trust and its financial affairs came under scrutiny of the Director of Income Tax for the financial year 2000-01, particularly in connection with the earthquake relief. When the Director of Income Tax prima facie believed that the donations received by the Trust were misapplied by the Trust along with other trusts having commonality of Directors, proceedings for withdrawal of the registration of the Trust were initiated. After several rounds of orders and remands, the Page 2 of 8 HC-NIC Page 2 of 8 Created On Fri Aug 18 05:57:46 IST 2017 O/TAXAP/343/2007 JUDGMENT Director finally passed a detailed order dated 14.03.2005 withdrawing of registration of the Trust w.e.f. 30.03.2004. In order to do so, he had come to the following factual conclusions :
"23. In light of the above discussion, following points emerge, a. Perusal of the accounts maintained by assessee trust for the year 2000-01 do not exhibit evidence for carrying out of any charitable activity.
b. The assessee trust, in collusion with its sister concerns, has hatched a web of bank transactions in order to defraud revenue to the extent of Rs. 15,00,000/- and to enrich its sister concerns namely Hari Om Sarjak, Hari Om Associates and Hari Om Finstock Ltd. by giving them receipts for receipt of bogus earthquake relief donations which have entitled them to claim exemption to this extent from their taxable income.
c. All the entities are either managed by or have close association with the group engaging in this transaction.
d. The involvement of the assessee trust is evident from perusal of the banking transactions undertaken with its sister concerns, in addition to the mis-utilisation of the bank account of Madhusudan Trust, whether with or without the approval of the trustees of the Madhusudan Trust.
e. All steps taken by the assessee trust and its sister concerns in the subsequent years are merely attempts to give a cloak of legitimacy to this patently illegal transaction.
f. The assessee trust has tried to prove that Madhusudan trust has willingly accepted the donation from it. However, there is no denying the fact that the amount has been withdrawn immediately from this account and has reached the account of the sister concerns of the assessee trust on the same day without any benefit accruing to Madhusudan Trust. The fact remains Page 3 of 8 HC-NIC Page 3 of 8 Created On Fri Aug 18 05:57:46 IST 2017 O/TAXAP/343/2007 JUDGMENT that whether with consent or without, the accounts of Madhusudan have been used by the Managing Trustee of assessee trust for the enrichment of his sister concerns which agitates against the spirit of charitable objects enshrined in the trust deed of the assessee trust.
24. The above discussion clearly demonstrates that the assessee trust has engaged in activities which are unbecoming of the charitable nature of the trust and is against the objects of the trust. Under the circumstances, I am satisfied that this is a fit case for withdrawal of registration granted to it as it has ceased to be a charitable trust. The registration granted to the trust under section 12AA is hereby withdrawn of registration u/s. 12A/2003-04 dated 30.03.2004 withdrawing registration. In other words, the registration stands withdrawn w.e.f 30.03.2004."
3. The assessee carried the matter in appeal before the Tribunal. The Tribunal, by the impugned judgement dated 18.08.2006, allowed the appeal in part and remanded the proceedings before the Director for fresh consideration in light of the observations made in the order. Relevant observation of the order of the Tribunal reads as under:
"31. After careful consideration of the rival submissions, facts and circumstances of the case and the relevant provisions of law, we are of the opinion that so far as order dated 14.03.2005 passed by the Director of Income-Tax (Exemption), Ahmedabad withdrawing the registration with effect from 30.03.2004 is concerned, the same having been passed solely on the basis of activities carried on by the assessee, i.e. deployment/application of funds; during the previous year relevant to Assessment Year 2001-02 and there being no mention as to the assessee's activities carried on during the Financial year 2003-04 is not justified.
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32. Since we are of the opinion that registration could not be withdrawn with effect from 30.03.2004 solely on the basis of activities carried on during the period relevant to assessment year 2001-02, we, in the interest of justice, restore the issue relating to withdrawal of Registration to the concerned authority with the directions that the issue may be examined afresh and be decided after giving a finding also with respect tot he activities carried on by the assessee during the Financial Year 2003-04.
33. In the result, the appeal of the Assessee is treated as allowed for statistical purposes."
4. The above reproduced portion of the impugned order of the Tribunal is the sole portion which the Tribunal has devoted for discussion of merits and demerits of the rival cases. The remaining portion of the Tribunal's order records background of the controversy and reproduces relevant portion of the order of the Director. This aspect is being highlighted to suggest that the only reasons given by the Tribunal for remanding the proceedings are those stated in the above quoted portion.
5. Having heard learned counsel for the parties and having perused the documents on record what emerges is that, the Commissioner, in his detailed order, arrived at certain important factual conclusions with respect to the activities of the Trust during the financial year 2000-01. He inter alia held that during the said period, there is nothing to suggest that the Trust carried out any charitable activity. In collusion with the sister concern Trust, the assessee trust created a web of bank transaction leading to defraud and avoidance to the extent of Rs. 15 lacs Page 5 of 8 HC-NIC Page 5 of 8 Created On Fri Aug 18 05:57:46 IST 2017 O/TAXAP/343/2007 JUDGMENT which benefited the sister concerns. This was done by the assessee-Trust by giving them receipts of bogus earthquake relief donation which entitled the sister concerns to claim exemption from the taxable income. On such grounds, the Director of Income Tax was persuaded to withdraw the registration granted under section 12A of the Act.
6. Another aspect that emerges from the record is that the Tribunal did not disturb these findings of the Director. In fact, perusal of the order of the Tribunal would suggest that the Tribunal approved such findings. Despite this, the Tribunal did not confirm the order of the Director but observed that such order was passed solely on the basis of the activities carried on by the assessee during the previous year relevant to the assessment year 2001-02 and therefore, being not mentioned as to the assessee's activities carried on during the financial year 2003- 04, the Director was not justified (in withdrawing the registration). The Tribunal proceeded to observe that the registration could not be withdrawn solely on the basis of the activities carried on during the period relevant to the assessment year 2001-02. The Tribunal, therefore, required the Director to examine the question afresh "after giving a finding also with respect to the activities carried on by the assessee during the financial year 2003-04."
7. In our view, the Tribunal committed a serious error in law in adopting this course. As noted, the Director had discussed in Page 6 of 8 HC-NIC Page 6 of 8 Created On Fri Aug 18 05:57:46 IST 2017 O/TAXAP/343/2007 JUDGMENT detail the evidence before me to come to the conclusion about the financial improprieties of the Trust in a particular year. If the Tribunal was of the opinion that these findings are factually incorrect, the Tribunal ought to have recorded such opinion and it was thereafter certainly open for the Tribunal to interfere with the order of the Director. However, having not disapproved the findings of the Director, in facts of the present case, it is simply not open for the Tribunal to require re-consideration of the issue merely on the basis that the withdrawal of registration was based on the financial improprieties of one particular financial year whereas by the time the Director passes his order, one more order had passed by. The Tribunal in fact suggested that the Director ought to have looked into the affairs of the Trust for the subsequent year and without doing so, could not have withdrawn the registration.
8. The observations and directions of the Tribunal are somewhat curious. If the Trust had incurred disqualification resulting into withdrawal of its registration, the same had to be upheld merely because one year had passed by the time the order was passed, would not gloss-over the past deeds of the Trust. It appears that even the assessee had not put forth any such case for reconsideration on the ground that the Tribunal had adopted. Even if the subsequent period of financial year of the Trust was uneventful, it would not mean that the past misdeeds should be ignored. In other words, we do not see any relevance of the events which might have taken place in the later year.
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9. It is not the case where by the time the Director passed the order, many years had rolled by and the Tribunal thought that the initial misdeeds themselves were not very serious and therefore required the Director to take a fresh look considering the record of the Trust for the long period that may have passed in between.
10. In the result, the question is answered in favour of the Revenue. Judgement of the Tribunal dated 18.08.2006 is set aside that of the Director dated 14.03.2005 is restored. Appeal is allowed and disposed of.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) Jyoti Page 8 of 8 HC-NIC Page 8 of 8 Created On Fri Aug 18 05:57:46 IST 2017