Income Tax Appellate Tribunal - Mumbai
Tata Institute Of Social Science, ... vs Department Of Income Tax on 16 September, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
'E' BENCH, MUMBAI
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER
and
SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER
ITA Nos.3660 & 3661/Mum/2013
(Assessment years: 2004-05 & 2006-07)
Asst. Director of Income-tax(Exemption)-1(2),
Mumbai. ... Appellant
Vs.
Tata Institute of Social Science,
Sion Trombay Road, Deonar,
Mumbai-400 088. ... Respondent
PAN: AAATT4224B
Appellant by : S/Shri Manjunatha Swamy, CIT(DR)
& Sumit Kumar.
Respondent by: Shri Anil J.Sathe (AR)
Date of hearing: 18/08/2015.
Date of pronouncement::16/09/2015
O R D E R
Per VIJAY PAL RAO, JM:
These two appeals by the revenue pertain to assessment years 2004-05 and 2006-07 arising from the respective orders of the CIT(A), Mumbai. Common grounds have been raised by the revenue in these appeals. The grounds raised for the assessment year 2004-05 are as under:
1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the reopening the assessment was bad in law on the basis of the decision o f the Hon'ble ITAT for A Y 2003-04, when the assessment for A Y 200304 was reopened after 4 years and whereas in the concerned year, the case was assessed u/s 143(1) and ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.Page 2 of 14
there was no requirement of showing any failure to disclose material facts fully and truly.
2. That on the facts and circumstances of the case and in law, the Ld. C/T(A) erred in holding that the reopening the assessment was bad in law on the ground that the A O has not dealt with the objections to reopening, raised by the assessee, when the defects are curable and not fatal to the re-assessment.
3. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in d irecting the AO to allow exemption u/s 10(23C)(iii ab) of the Act, without appreciating the fact that the assessee is neither wholly nor substantially financed by the Government in view of the Explanation to subsection (1) of section 14 of the Comptroller and Auditor Generals (Duties, Powers and Conditions of Service) Act, 1971 as the total Government grant during the year is less than 75% of the total expenditure of the assessee.
4. The Appellant prays that the order of the Commissioner of Income-Tax (Appeals) I, Mumbai be set aside and that of the Assessing Officer be restored.
5. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
2. The assessee is an educational institution existing for the purpose of education and substantially financed by the Government. The institution is in existence for over 60 years and was formed with the object of providing education in various fields in general and in social science in particular. The assessee-institution is notified as deemed University vide notification dated 29/4/1964 issued by the Government of India.
The assessee is also registered under the Societies Registration Act as well as Bombay Public Trust Act. The assessee was also granted registration u/s 12A of the IT Act, 1961 ('the Act' for short) as a public charitable trust for education purpose. The assessee has been claiming exemption u/s 10(23C)(iiiab) of the ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.
Page 3 of 14Act and the same has been allowed for more than a decade. For the assessment year 2007-08, the AO took a view that since the total Government grant for the year constituted less than 75% of total expenditure, the institution is not substantially financed by the Government. The AO relied on the provisions of sec.14(1) of the Comptroller and Auditor General's (Duties, Powers and Conditions of Services) Act, 1971 and denied the assessee's claim of exemption u/s 10(23)(iiiab) of the Act. A similar view was taken by the AO for the assessment year 2003-04 and the case was reopened u/s 147. Consequently, the AO disallowed the claim u/s 10(23C)(iiiab) of the Act in the re-assessment u/s 143(3) r.w.s. 147.
3. On appeal, the CIT(A) has allowed the claim of the assessee by following the decision of the Tribunal in the assessee's own case for assessment year 2003-04. The CIT(A) has also held that the reopening of assessment by the AO is also not sustainable and by following the finding of this Tribunal for the assessment year 2003-04, the same was held to be bad.
4. Before us, the revenue has challenged the impugned order of the CIT(A) on both the grounds i.e. (i) reopening of the assessment as well as the exemption allowed u/s 10(23C)(iiiab).
5. We have heard the learned Departmental Representative as well as the learned AR and considered the relevant material on record. At the outset, we not that an identical issue has been considered and decided by this Tribunal in assessee's own case ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.
Page 4 of 14for the assessment year 2003-04 as well as for assessment year 2007-08 vide two separate orders both dated 26/9/2012. The issue of reopening was considered and decided by this Tribunal in assessee's own case for assessment year 2003-04 in ITA No.5685/Mum/2011 in paragraphs 10 to 19 as under:
"10. We have heard the arguments and have perused the orders of the Revenue authorities.
We find that the AO undertook reassessment proceedings under section 148 on 19.03.2010 on an assessment framed under section 143(3), i.e. much after the expiry of four years, which expired on 31.03.2008. To correctly reopen the proceedings under section 148 on a regular assessment, attention has to be paid, that the founding issue has not been dealt with in the regular assessment. If, the issue has been dealt with by the AO in regular assessment then the only basis for reopening can be that the AO must have evidence, to prove that the material fact was not made available to the AO. In the present set of circumstances, there was no material fact, which was not available with the AO in the regular assessment proceedings, or which had not been dealt with by the AO in those proceedings. In our opinion, the ratio in the case of CIT vs. Kelvinator of India, reported in 320 ITR 561 (SC) will squarely apply on the issue at hand. The Hon'ble Supreme Court in the judgment at page 564 held, "However, one needs to give schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assess ments on the basis of "mere change of opinion", which cannot be per se, reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassess ment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.Page 5 of 14
of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to co me to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief".
11. Hon'ble Bombay High Court in the case of Aventis Pharma Ltd. Vs ACIT, reported in 323 ITR 570, held, on facts, "The submission which has been urged on behalf of the assessee is that a full disclosure was made in the return of income. Pursuant thereto, the Assessing Officer passed an order of assessment under section 143(3). It was urged that the Assessing Officer applied his mind specifically to both the aspects of the case noted earlier and to the explanation furnished by the assessee during the course of assessment proceedings. It has been urged that there was no tangible material before the Assessing Officer on the basis of which he could have formed a reason to believe that income chargeable to tax had escaped assessment. Consequently, it has been urged that the assessment is sought to be reopened on a mere change of opinion, which is not permissible. During the course of submission, counsel appearing on behalf of the assessee assisted the court in perusing the entire record before the court, including in particular the disclosures which were made during the course of assessment. In order to obviate a repetition it would be proper to refer to the relevant aspects of the record while dealing with the submissions which have been urged on behalf of the assessee.."
12. The Hon'ble Bombay High Court, in this case, held (head note), "The power to reopen an assess ment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power".
ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.
Page 6 of 1413. These judgments, along with other cited judgments, when taken into consideration, will only lead to one conclusion that the AO erred in initiating the reassessment proceedings.
14. Examining the issue from the other angle, i.e. whether, in the given set of circumstances, the AO was correct in initiating reassessment proceedings, after the expiry of four years. The fact is, that because the regular assessment under section 143(3) had been framed on the assessee, the AO had the legislative leverage of another two years, i.e. a total of six years. This extended period of two further years is subject to the conditions laid down in the first proviso to section 147, which reads as under:
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assess ment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assess ment, for that assessment year:
(c) where an assessment has been made, but--
(i) income chargeable to tax has been under assessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;]
15. In case where there is in existence of a regular assessment, the period of six years becomes available to the AO only in a case where there is a failure on the part of the assessee to fully and truly disclose all material facts. If in case, the reasons being recorded and relied upon by the AO has been dealt with in the regular assessment, the period available is only four years ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.
Page 7 of 14as per Explanation to section 149(1) read with clause (c) to Explanation 2 to section 147. The relevant provisions are :
149 (1) No notice under section 148 shall be issued for the relevant assess ment year,--
[(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) Explanation.--In determining income chargeable to tax which has escaped assessment for the purposes of this sub- section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.
Explanation 2 to section 147 Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :--
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-
tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
(c) where an assessment has been made, but--
(i) income chargeable to tax has been underassessed ; or ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.
Page 8 of 14(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;]
(d) where a person is found to have any asset (including financial interest in any entity) located outside India."
16. In the instant case, assessment under section 143(3) was framed on 28.02.2006. The AO, therefore, could issue the notice under section 148 only upto 31.03.2008, as per the provisions of section 149(1)(a). But the notice, having being received after 31.03.2008, in the present set of circumstances, becomes void. The learned A.R. had placed reliance on the following decisions:
• Calcutta Discount Co. Ltd. vs. ITO :41 ITR 191 (SC) • Hindustan Lever Ltd. vs. R.B. Wadkar:268 ITR 339 (Bom HC) • Hindustan Petroleum Corporation Ltd. vs. DCIT :192 Taxman 178 (Bom) • Mistry Lalji Narsi Development Corp. vs. ACIT :323 ITR 194 (Bom) • 3i Infotech Ltd. vs. ACIT :192 Taxman 137 (Bom) • Haryana Acrylic manufacturing co. vs. CIT :308 ITR 38 (Del HC) • Sterlite Industries (I) Ltd. vs. ACIT :305 ITR 339 (Cal HC) • Anil Kumar Bhandari vs. JCIT :294 ITR 222 (Cal HC) • CIT & Anr. Vs. Saipem SPA :300 ITR 133(Uttarakhand) • CIT vs Rajasthan Patrika Ltd. :258 ITR 300 (Raj.) • Nikhil Kotak vs. Mahesh Kumar, A.O. :319 ITR 445 (Guj.) of the following decisions, we would like to make mention of the latest of these judgments in the case of Mistry Lalji Narsi Development Corp. vs ACIT, 323 ITR 194, the Hon'ble Bombay High Court in a similar circumstance, as noted, that the assessment was completed u/s 143(3), taking into account the claim of deduction u/s 80IB(10). In this case, the sole issue on which the reassessment proceedings were initiated were that commencement certificate had been issued on 24.07.1993, whereas a deduction under the provision is permissible only when the undertaking has commenced construction, hence the deduction was wrongly taken. The Hon'ble High Court concluded, "Significantly, the reasons which have been recorded by the Assessing Officer for reopening the assessment show that reliance ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.Page 9 of 14
is placed on a commencement certificate which it is now common ground before the court was already on record before the Assessing Officer when the original order under section 143(3) was passed. The reasons disclosed to the assessee state that copies of the commencement certificates were made available by the Joint Commissioner of Income-tax subsequent to the order of assessment under section 143(3). Since the documents on the basis of which assessment was sought to be reopened had already been furnished to the Assessing Officer in the course of the proceedings under section 143(3), it cannot possibly be contended that the assessee had failed to disclose documents or the material facts. Moreover, it is also common ground before the court that a deduction has been granted under section 80IB(10) to the assessee for the assessment year 2002-03. This statement of fact by the counsel appearing on behalf of the assessee has not been controverted by counsel for the Revenue during the course of submissions.
We would, while concluding once again clarify that in the present case, we are not concerned with the question as to whether a deduction under section 80IB(10) was validly granted since the only question that falls for consideration is whether a case is made out for reopening of the assessment under the powers conferred by section 148.
For the reasons aforementioned, we are of the view that recourse to the provisions of section 148 read with section 147 cannot be sustained".
17. It may be seen that the jurisdictional High Court at Bombay has very categorically concluded that notice was illegal.
18. In the instant case, as mentioned earlier, in the assessment framed u/s 143(3), the issue of 10(23C)(iiiab) had been gone into and the AO, only initiated the reassessment proceedings, because he had taken a divergent view on the allowability of exemption. Since the issue was discussed in regular assessment proceedings and the AO did not stumble upon any evidence/material, which was not placed before him, the initiation cannot be sustained. In any case, the initiation cannot survive, because even the basis of initiation has ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.
Page 10 of 14been deleted by us in ITA No.4394/Mum/2011.
18. Going into the facts and circumstances of the case and relying on each of catena of decisions, as mentioned above we, respectfully following the ratio decided in these celebrated judgments, hold that the initiation of reassessment proceedings had been bad in law and hence void. In the circumstances, we have no hesitation to hold that consequential order passed by the AO was bad in law, as held by the CIT(A), whose order we sustain.
19. Since we too have annulled the reassessment proceedings, we do not intend to go into the issue involved in the grounds, invoking the merits. "
6. We find that the facts and circumstances are identical for the assessment year under consideration and the CIT(A) has decided the issue of validity of reopening by following the order of this Tribunal in the assessee's own case. Accordingly, we do not find any error or illegality in the impugned order of the CIT(A) qua this issue. The same is upheld.
7. As regards the issue of claim of exemption u/s 10(23C)(iiiab) of the Act, the same has been considered and decided by the co-ordinate bench of the Tribunal in the assessee's own case for assessment year 2007-08 in paras.14 to 23 in ITA No.4394/Mum/2011 dated 26/9/2012 as under:
"14. We have heard the arguments and perused the orders of both the Revenue authorities. The issue before us is whether the exemption under section 10(23c)(iiiab) would be available to the assessee. Section 10(23c)(iiiab) reads as under: "any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.Page 11 of 14
or substantially financed by the Government".
15. From the fact emerging from the assessment order is that the assessee being a Registered Society, is devoting its objects towards social services and Research Institution. In the year under consideration assessee received Government grant to the tune of Rs. 12,79,13,233/- and it incurred expenses to the tune of Rs.
22,49,72,584/-. According to the AO since the grant received from the Government was less than 75%, which, according to the AO should be Rs. 16,87,29,438/-, would not come within the parameters of "substantially financed by the Government", hence, the exemption would not be available to the assessee.
16. In the assessment order, the AO has taken refuge of section 14(1) of the Comptroller and Auditor General's (Duties, Powers and conditions of Service) Act, 1971, which defines the expression "substantially financed" and which would mean, "grant or loan is not less than 75% of the total expenditure". For importing the legislative meaning from another legislation, it becomes imperative that not only the meaning of the entire section is read and understood as a whole, but due cognizance be given to the meaning. The AO, through referred to section 14(1) only, but when we read the entire section, along with sub sections (2) & (3), what we gather from reading of the entire section, is that sub-section (3) allows the audit for a further period of two years, meaning thereby, that in case the assessee or any person, who had availed government grant and is required to have its accounts audited by CAG in the first year and in subsequent year or years the financial assistance falls below the stipulated 75%, CAG will still continue to conduct the audit. If the strict interpretation of the AO's order is to be considered, then the moment financial assistance from the Government goes below 75%, the Society or any person, is out of the parameters of CAG.
17. According to us, this could never have been the intention of the CAG. We cannot subscribe to the observation of the AO, when he defines the expression, "substantially financed by the Government" to mean nearer to 100% or by relying on Explanation to section 14(1) to be not less than 75%.
18. Looking from another angle, that too, strictly following the provisions of the Act, that to claim ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.
Page 12 of 14exemption under section 10(23C)(iiiab), as per clause (vi) of section 10(23C), an approval has to be sought from the prescribed authority (i.e. CCIT or DGIT). If at all the claim of the assessee was questionable, even minutely, the approval would never be given. On the other hand, AO's implied argument that all educational institutions and universities covered under section 10(23c)(iiiab) are required to have their accounts audited from CAG, cannot be accepted, because, had there been any intention of the Government to cover all institutions, seeking exemptions under section 10(23c)(iiiab) and other corresponding sections, would, automatically get covered by CAG rules, and in that circumstance, application of clause (vi) would be at otiose.
19. In that sense, we cannot accept the reasoning given by the AO to import the provisions of section 14 of Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971. We, therefore, hold that the AO erred in importing the section of another legislature, that too partly, to negate the exemption under section 10(23C)(iiiab).
20. Coming back to the expression, "substantially financed by the Government" and what exactly it should mean, so far as, Income Tax Act is concerned. The CIT(A) in the impugned order has referred to the case of Hon'ble Karnataka High Court in National Education Society, ITA No. 808 of 2009, wherein the Hon'ble High Court held:
Para 4 The word "substantial" has not been defined under the Income Tax Act. However, it has been the subject matter of interpretation by various Courts in various contexts. The authorities in deciding what constitutes a "substantial" portion of the finance have taken note of the statutory provisions contained in the Banking Regulation Act, 1949, where, a person has beneficial interest of more than 10% of the total capital subscribed by all the partners of the firm has been held to be having substantial interest.
Para 5 - In the case of assessee itself when the grant was more than 50%,
exemption has been extended to the assessee. It is in this context, in the absence of any definition for the word, "substantial" in the Act, what is to be seen is what is the total receipts and from what source. In what context we have to find out whether the ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.Page 13 of 14
grant of 36.42% of total receipts constitutes substantial by the Government.
Para 6 - Viewed from that angle, after excluding fees received from the students, when we look at the amount received by way of donation from others, when compared to the amount granted by the Government, the grant of 36.42% of the total revenue do constitute substantial financial aid from the Government and thus the institution assessee is entitled to the benefit of the aforesaid provision.
It is pertinent to note that the said appeal is in which the above observation had been made was dismissed by the Karnataka High Court at the stage of admission itself i.e. the High court did not find any substantial question of law in the matter. This decision was followed by the Karnataka High court in CIT vs. Indian Institute of Management (ITA no. 529 of 2008) reported in 196 Taxman 276.
21. We find that in the case of National Education Society, the Court accepted 36.42% to the substantial finance which entitles the assessee to the benefit of the provisions of section 10(23C)(iiiab). Even in the case of IIM the grant equal to 36.42% was held to be substantial finance by the Government.
22. In the instant case, the grant available was 56.86%, much higher than the grants accepted to be substantial by the Hon'ble Karnataka High Court.
23. With these observations and respectfully following the decisions of the Hon'ble Karnataka High Court, we do not intend to disturb the findings of the CIT(A), which we sustain and as a consequence thereof, reject the appeal of the Revenue."
8. 'The Tribunal has considered the grant of more than 50% as substantial finance by Government. There is no dispute that the assessee received Government grant of more than 50% of the expenditure during the year. Therefore, this issue is covered in favour of the assessee by the order of this Tribunal in the ITA Nos.3660 & 3661/Mum/2013 Tata Institute of Social Science.
Page 14 of 14assessee's own case. Accordingly, we do not find any reason to interfere with the findings of the CIT(A) qua this issue.
9. In view of the above, the appeals filed by the revenue are devoid of any merits. Accordingly, the appeals are dismissed.
Pronounced in the open court on 16th September, 2015.
sd/- sd/-
(N.K.Billaiya) (Vijay Pal Rao)
ACCOUNANT MEMBER JUDICIAL MEMBER
eksrinivasulu, sr.ps
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Mumbai.
6. Guard file
By order
Assistant Registrar
Income-tax Appellate Tribunal
Mumbai