DR.BINDESHWAR PATHAK V. COMMISSIONER OF INCOME TAX PAT

CWJC/4748/1997

AI Insights

The case revolves around a writ petition filed by Dr. Bindeshwar Pathak challenging a notice issued under section 148 of the Income Tax Act, which sought to re-assess his income for the assessment year 1994-95. The notice was based on the premise that the charitable institutions from which Dr. Pathak received consultancy fees were actually benamidars of his, implying they had no separate legal existence and were merely conduits for his income. However, subsequent appellate decisions recognized these institutions as independent charitable entities, which led to the quashing of the initial assessments against them. The Income Tax Department, acknowledging the change in circumstances and the appellate decisions, conceded to the quashing of the notice against Dr. Pathak.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 768139 (HC-PATNA)
• Appeal Type: Others
• Pronouncement Date: 28-09-2010
• Assessment Year: misc
• Other Referred Cases: Dr. Narendra Prasad vs. Commissioner of Income Tax [(2010) 322 ITR 171]
• Laws Referred To: Income Tax Act, Societies Registration Act 1860
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: RISHI RAJ; SYED NAZMI; BHUPENDRAKUMAR; ALAMDAR HUSSAIN; SHASHI KUMAR; SUBODH KUMAR
• Assessee Lawyers: M L VERMA; S K VERMA; AJAY RASTOGI
• Keywords: Assessment Year; Benami; Charitable Institutions; Consultancy fees; Income Tax; Re-assessment; Writ petition
• Section: 147; 148; 143(3); 11; 12A; 13(1)(c); 13(3); 226; 227

Judgement Text

"CIVIL WRIT JURISDICTION CASE No.4748 OF 1997 In the matter of an application under Article 226 and 227 of the Constitution of India. DR.BINDESHWAR PATHAK, s/o of Late Ramakant Pathak, resident of 187 Patliputra Colony, PS Patliputra, District of Patna ….Petitioner Versus 1. COMMISSIONER OF INCOME TAX PATNA 2. Deputy Commissioner of Income Tax, Special Range, Patna 3. M/s Dhanbad District Sulabh Sauchalaya Sansthan, PP Colony, Patna 4. M/s International Institute of Sulabh System, 21/33, Vaibhav Apartment, Budh Marg, Patna 5. M/s Sulabh International, South Gandhi Maidan, Patna 6. M/s Akhil Bhartiya Parayavaran Ewam Gramin Vikash Sansthan, North Mandiri, Patna 7. M/s Bhangi Mukti Sansthan, Road no.6, Patel Nagar, Patna ……..Respondents ******** For the Petitioner : M/s M L Verma, Senior Advocate Dr. S K Verma, Ajay Kumar Rastogi For Respondent nos. 1 & 2 :Mr. Rishi Raj, Junior Standing Counsel For Respondent no.3 : Mr. Syed Asghar Nazmi For Respondent no.4 : Mr. Bhupendra Kumar For Respondent no.5 : Mr. Alamdar Hussain For Respondent no.6 : Mr. Shashi Bhushan Kumar For Respondent no.7 : Mr. Subodh Kumar no.1 ******** P R E S E N T THE HON'BLE MR. JUSTICE SUDHIR KUMAR KATRIAR THE HON'BLE MR. JUSTICE BIRENDRA PRASAD VERMA S K KATRIAR, J. This writ petition has been preferred by the petitioner with the prayer to quash the notice dated 22.4.1997 (Annexure 2), issued by the learned Deputy Commissioner of Income Tax, in terms of section 148 of the Income Tax Act (hereinafter referred to as `the Act’), as to why his return for the assessment year 1994-95 be not re-assessed in terms of section 147 of the Act. Respondent nos. 1 and 2, the official respondents, have placed on record their counter affidavit as well as supplementary counter affidavit. Respondent nos. 3 to 7, the alleged benamidars of the 2 petitioner, are represented by their respective counsel but have not placed on record their respective counter affidavit(s). 2. A brief statement of facts essential for the disposal of this writ petition may be indicated. The petitioner before us is in the capacity of individual assessee. It is stated in paragraph 5 of the writ petition that his source of income, inter alia, is by way of advisory fee from different charitable institutions which are duly registered under the provisions of the Societies Registration Act 1860, also as charitable institutions in terms of section 12A of the Act by appropriate orders of the Commissioner of Income Tax, and are respondent nos. 3 to 7 herein. The petitioner had rendered consultancy services to respondent nos. 3 to 7 during the assessment year 1994-95, and had received fees from them. The petitioner had submitted his returns where he disclosed all his income including the fees received from respondent nos. 3 to 7. The return was accepted and the order of assessment in terms of section 143(3) of the Act was passed by the learned Deputy Commissioner of Income Tax by his order dated 2.3.1995 (Annexure 1). 2.1) On the other hand, respondent no.3 to 7 had also submitted their returns and were separately assessed to tax for the same assessment year, namely, 1994-95. The learned assessing officer observed that respondent nos.3 to 7 are benamidars of the petitioner, and in truth and substance have no separate legal existence. The orders of assessment with respect to respondent nos. 3 to 7 led to the impugned notice dated 22.4.97 (Annexure 2). It appears that the 3 petitioner had submitted before the learned assessing officer to disclose reasons for the impugned notice as mandated by the provisions of section 147 of the Act. The learned Assessing Officer obliged the petitioner by supplying the reasons already recorded on 22.4.97, which was communicated to the petitioner on 28.5.97 (Annexure 3). The petitioner challenged the impugned notice by preferring the present writ petition which was for the first time taken up on 25.6.97. A Division Bench of this Court recorded the following interim order:- “ Heard counsel for the parties. It appears that for the assessment years in question the charitable institutions from which the petitioner was getting consultancy fees have been treated as his Benamidars. Separate orders of assessment have been passed in respect of those institutions and it is stated that those institutions have preferred appeals against the orders of assessment. The decision in those appeals may be of some significance in the case of the petitioner as well, though it is open to the petitioner to argue his own case that those institutions are not benami of the assessee. Be that as it may, the matter requires consideration. This application is admitted for hearing. Pending disposal of this writ petition, further proceedings in pursuance of Anenxure-2 are stayed. Liberty to the parties to mention when the appeals preferred by the so- called Benami institutions are disposed of.” 2.2) Aggrieved by the orders of assessment with respect to their own returns, respondent nos. 3 to 7 preferred separate appeals before the learned Commissioner of Income Tax (Appeals), which were allowed by different orders. The orders of assessment with respect to them were set aside, and the learned appellate authority held that those institutions are charitable institutions within the meaning of sections 11 and 12A of the Act. 4 3. While assailing the validity of the impugned notice, learned counsel for the petitioner submits that, in view of the appellate orders with respect to respondent nos. 3 to 7, the very foundation of the impugned notice is gone. He next submits that the petitioner’s case is no longer hit by the provisions of section 13(1)(c) read with sub- section (3) of section 13 of the Act. He lastly submits that the appellate orders with respect to past periods have consistently held on the appeals preferred by respondent nos. 3 to 7 that those are charitable institutions and, therefore, the learned assessing officer should have followed the same position with respect to respondent nos. 3 to 7 relating to the period in question in the interest of uniformity and consistency of justice delivery system. He relies on the judgment of a Division Bench of this Court in the case of Dr. Narendra Prasad vs. Commissioner of Income Tax [(2010) 322 ITR 171]. 4. Learned Junior Standing Counsel for the Deptt. Of Income Tax has taken us through the counter affidavit and the supplementary counter affidavit filed for and on behalf of respondent nos. 1 and 2, and submits that the former was placed on record before the appellate orders, and the latter was filed after the appellate orders were passed with respect to respondent nos. 3 to 7 which explains the change in the department’s stand. The respondents had taken the stand in the counter affidavit that the impugned notices were justified. They have in their supplementary counter affidavit taking notice of the appellate orders conceded the position in favour of the petitioner. He 5 next submits that, in view of the appellate orders with respect to respondent no.3 to 7, the matter may now be remitted to the learned Assessing Officer to re-examine the case of the petitioner. 5. We have perused the materials on record and considered the submissions of learned counsel for the parties. It appears to us that the petitioner in his individual capacity during the period in question had received advisory fees for consultancy services rendered to respondent nos. 3 to 7. He had submitted his returns disclosing this income as well as income from other sources. The returns of the petitioner were accepted by the learned assessing officer by his order dt. 2.3.95, taking respondent nos. 3 to 7 to be charitable institutions as per the provisions of the Societies Registration Act, and also registered as such by the Commissioner of Income Tax within the meaning of section 12A of the Act, as well as the assessment orders with respect to respondent nos. 3 to 7 for the past periods. It further appears to us that, by different returns for the period in question submitted by respondent nos. 3 to 7, the learned assessing officer had recorded the finding that those are not charitable institutions, and are benamidars of the petitioner, leading to the impugned notice dated 22.4.97. Respondent nos. 1 and 2 in their counter affidavit sworn on 23.6.97 had taken the stand that the finding in the orders of assessment for the period in question with respect to respondent nos. 3 to 7 is the basis for the impugned notices. It is further relevant to state that aggrieved by the assessment orders, respondent nos. 3 to 7 had preferred separate statutory appeals which were allowed by different 6 orders passed by the learned Commissioner of Income Tax (Appeals) on 31.12.1997, whereby he disagreed with the orders of assessment, set aside the same and, inter alia, held that respondent nos. 3 to 7 are charitable institutions, the payments made by them to the petitioner were for services rendered by him, and those institutions are not benamidars of the petitioner. It is thus evident on the face of it that the very foundation for the impugned notice go. When the substratum is gone, where is the question of the super structure? In fact, respondent nos. 1 and 2 in their supplementary counter affidavit sworn on 12.2.2001, obviously filed after the appellate orders with respect to respondent nos. 3 to 7, takes notice of the same and fairly concedes the position that the very basis for the impugned notice is gone. The relevant portion of the supplementary counter affidavit is reproduced hereinbelow:- “4. That the proceedings under section 148 was stayed by the Hon’ble High Court with direction to mention before the Court when the appeals preferred by the following institutions held to be benami of the petitioner, namely, Dr. Bindeshwar Pathak are disposed of : Name of the Institution Appeal disposed of by CIT(A) Appeal no. Date of disposal 1. M/s Sulabh International 97/P/A-II/97-98 31.12.97 2. M/s Akhil Bhartiya Paryavaran & Gramin Vikas Sansthan 95/P/A-II/97-98 31.12.97 3. M/s International Instt. Of Sulabh System 114/P/A-II/97-98 31.12.97 4. M/s Bhangi Mukti Sansthan 98/P/A-II/97-98 31.12.97 5. M/s Dhanbad Distt.Sulabh Sauchalaya Sansthan 96/P/A-II/97-98 31.12.97 5. That after disposal of the appeals setting aside assessment made in the five cases on 31.12.97 fresh assessment as per direction of CIT(Appeal) in all the five 7 cases mentioned above has been completed and the institutions have been held to be charitable in nature and not benami of Shri B Pathak. Thereby accepting the petitioner’s case and putting on end to the dispute raised in the present writ petition. 6. That the revenue has accepted the decision of CIT(A) as it has not filed second appeal before the Tribunal and as such the order of CIT (A) and fresh assessment made in pursuance thereof become final. 7. That on the facts stated above the writ petition pending before the Hon’ble High Court may be disposed of since the revenue has accepted the petitioner’s case and made assessment substantively in hands of five institutions after setting aside by CIT (A). In view of the direction of the Hon’ble High Court this affidavit is being filed to put on record the facts stated herein.” Respondent nos. 1 and 2 have thus fairly accepted the position. We are indeed beholden to respondent nos.1 and 2 to have so fairly conceded the position that the very basis for the impugned notice is gone. We are, therefore, satisfied that the impugned notice has to be set aside as a mere formality. 6. Learned counsel for the petitioner has also taken us through the provisions of section 13 of the Act and, relying on the orders of the appellate authority with respect to respondent nos. 3 to 7, submits that the finding against the petitioner in terms of section 13(1)(c) read with section 13(3) of the Act, has to go. We agree with the submission and hold accordingly. 7. Learned counsel for the petitioner submits that consistency is the hall-mark of justice and the assessee should not be rattled by inconsistent decisions of the authorities. Every assessee is entitled to organize his affairs in the manner they perceive to have been accepted by the authorities in the previous years. Learned counsel for the petitioner has rightly relied on assessment orders and the appellate 8 orders with respect to respondent nos. 3 to 7 with respect to the past periods which are to the same effect as the appellate orders for the period in question. Looking at it from this angle, the view taken by the learned assessing authority in the present case with respect to the period in question seems to be without justification. There was no allegation against the petitioner, nor against respondent nos. 3 to 7, of suppression of income or material facts. A mere change of opinion on the self-same facts should not normally be the basis to alter the approach consistently followed in the previous years and later also. This would unsettle and discourage honest assessees. 7.1 The return of respondent no.5 herein for the period 1995- 96, a later period, for example was allowed by the learned assessing officer by his order dated 5.3.98 (Annexure 9), whereby he held that Sulabh International is indeed a charitable society, its income is exempt under sections 11, 12 and 13 of the Act, it is not a benami organization of the petitioner, the fees payable to the petitioner was just and reasonable and for genuine and worth-while services. 7.2 Learned counsel has rightly relied on the judgment of a Division Bench of this Court in Dr. Narendra Prasad (supra), to which one of us (S K Katriar,J.) was a party. That was a case where the order of assessment had been passed by the Settlement Commission which was followed by the authorities under the Act in the subsequent years. During a period of 17 years, the view taken by the Settlement Commission was followed for 15 years, except for a brief period of two years in between when the learned assessing authority on the self- 9 same facts had taken a different view. In other words, the view taken by the Settlement Commission was followed by the learned assessing authority for a long length of time preceding the two periods in question there as well as the periods following thereafter. This Court disapproved of such an approach on the part of the learned assessing authority and observed as follows:- “ Suppose for the sake of argument that it were open to the learned Assessing Officer to take a different view on the returns submitted by the two assessees. However, in the peculiar facts and circumstances of the present case, the Department will have to make out an extraordinary case for departure from the settled state of affairs. We do not find adequate justification for the learned authorities under the Act to take a different view for the two periods in question from the periods preceding thereto and following thereafter. It would need strong and adequate justification to take a sharp departure for the two years in-between which we find absent in the present case. Consistency is the hall-mark of law and justice, and the individuals are entitled to organize their affairs in a manner perceive to have been accepted by the authorities for such a long length of time. No such change of circumstances is discernible in the present case. The learned authorities under the Act have neither come across new facts or circumstances, nor suppression of fact, and is really a case of different view on the self-same facts as it obtained before the Settlement Commission. The view taken by the Settlement Commission has been followed by the learned authorities under the Act even for the periods that have followed the ones in question apart from the preceding periods.” 8. The learned assessing authority should trust honest assessees, and discard their returns for very valid reasons in a situation like the present one, as it had happened in the case of Dr. Narendra Prasad (supra), that the Department has taken a consistent view for all these years except the period in question. We hope the learned authorities under the Act will keep this in mind in future, otherwise it gives rise to clearly avoidable litigations, and rattles honest assessees. 10 9. In the result, we allow this writ petition, and quash the impugned notice dated 22.4.97 (Annexure 2). The communication dated 28.5.97 (Annexure 3), being consequential in nature, automatically falls to the ground. In the circumstances of the case, there shall be no order as to costs. ( S K Katriar, J.) Birendra Prasad Verma, J. I agree. ( Birendra Prasad Verma, J.) Patna High Court, Patna The 28th of September 2010 AFR/mrl. "