Manipal Academy of Higher Education, Manipal University V. Chief Commissioner of Income Tax and The Union of India and The Chairman, Central Board of Direct Taxes and The Commissioner of Income Tax and The Additional Commissioner Of Income Tax, Udupi Range and The Deputy Commissioner, Of Income Tax, Circle-1

WP/22044/2014

AI Insights

The case involves Manipal Academy of Higher Education, which filed writ petitions against the Chief Commissioner of Income Tax and other respondents, challenging a show cause notice dated 19.3.2014. The petitioner, a trust managing educational institutions, had been granted tax exemptions under various sections of the Income Tax Act, 1961. However, the exemptions were questioned due to an alleged violation of Section 11(5) concerning the use of trust funds. The High Court had previously remanded the matter for a detailed examination of these allegations. The court found that the subsequent proceedings did not adhere to the principles of natural justice, as the petitioner was not given a proper opportunity to respond before the exemptions were rescinded.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 794095 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-12-2014
• Assessment Year: misc
• Other Referred Cases: ITA.No.1344/2006
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATI
• Assessee Lawyers: ARVIND DATAR; S K TULASIYAN; RADHIKA GOUTAM; NAILINA MAYEGOWDA; PRATEEK RUTH
• Keywords: Charitable Trust; Educational institution; Income tax exemption; Show cause notice; Violation of section 11(5); Writ petition
• Section: 11; 12; 11(5); 10(23C)(vi); 12(A)(a)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 4th DAY OF DECEMBER 2014 BEFORE THE HON’BLE MR.JUSTICE HULUVADI G.RAMESH Writ Petition No.22044/2014 C/w. W.P.Nos.22045 & 22111 – 22112 / 2014 (T-IT) BETWEEN: Manipal Academy of Higher Education, Manipal University, University Building, Manipal, Udupi, Karnataka, Rep.by its Registrar Dr.Gopalakrishna Prabhu K., .. Petitioner Aged 47 yrs. (common) ( By Sri Arvind P. Datar, Sr.Counsel, Sri S.K.Tulasiyan, Sr.Counsel, Smt.Radhika Goutam, Smt.Nailina Mayegowda and Sri Prateek Ruth, Advocates ) AND: 1. Chief Commissioner of Income Tax “Aayakar Bhavan”, Plot No.5, EDC Complex, Patto Plaza, Panaji. 2. The Union of India, Through its Revenue Secretary, North Block, New Delhi. 3. The Chairman, Central Board of Direct Taxes, North Block, New Delhi. 4. The Commissioner of Income Tax Central Revenues Building, Attavar, Mangalore. 2 5. The Additional Commissioner Of Income Tax, Udupi Range, Aayakar Bhavan, Maple Road, Ambalpady Post, Adiudupi, Udupi. 6. The Deputy Commissioner, Of Income Tax, Circle-1, Aayakar Bhavan, Maple Road, Ambalpady Post, Adiudupi, Udupi. .. Respondents (common) ( By Sri E.I.Sanmati, Advocate ) These Writ Petitions are filed under Articles 226 & 227 of the Constitution of India praying to quash and set aside the show cause notice dated 19.3.2014 issued by the Office of the R-1 vide Annexure-H. These Writ Petitions coming on for preliminary hearing in `B’ group this day, the Court made the following : ORDER These Writ Petitions are filed by the petitioner praying for quashing the show cause notice dated 19.3.2014 vide Annexure-H issued by the 1st respondent – Chief Commissioner of Income Tax, Panaji. 2. Petitioner is a trust registered under Section 12(A)(a) of the Income Tax Act, 1961 (hereinafter referred to as `the Act’) for short. It is the case of the petitioner that it is a deemed University managing various institutions in the field of 3 education. The petitioner-Trust has been granted exemption under Section 10(23C)(vi) of the Act by the Central Board of Direct Taxes, New Delhi vide order dated 2.7.2004 for the assessment years 1999-2000 to 2001-2002 and exemption was also granted independently for the assessment years 2002-03 to 2004-05 vide order dated 17.8.2004, for the assessment year 2005-06 to 2007-08 vide order dated 29.11.2004 and from the assessment year 2008-09 onwards vide order dated 25.4.2008. It is the case of the petitioner that in none of the above exemption orders, there is a reference to the exemption granted for the assessment year 1999-00 to 2000-01. For the assessment year 2001-02, petitioner filed returns claiming that its income was exempted under Section 10(23C)(vi) and he was also eligible for exemption under Section 11 and 12 of the Act. The exemption claimed was not granted on the ground that the petitioner had advanced a sum of Rs.37 crores to one Dayananad Pai vide agreement dated 8.5.2000 for purchase of land, which was not an admissible investment under Section 11(5) of the Act. It was concluded by the Assessing Officer by recording a finding that the said amount of Rs.37 crores cannot 4 be considered as utilized for educational purposes. Against this, petitioner preferred appeal before the Commissioner of Income Tax (Appeals), Mangalore. The Commissioner vide order dated 20.8.2004, partly allowed the appeal and held that since an exemption under Section 10(23C)(vi) of the Act had already been granted, the entire income of the trust would qualify for exemption. The Department preferred appeal before the Income Tax Appellate Tribunal, Bangalore Bench. The appeal came to be dismissed vide order dated 21.4.2006. The Department preferred an appeal before this Court in ITA.No.1344/2006. The Division Bench of this Court by order dated 1.4.2013 set aside the orders passed by all the authorities and remitted the matter to the Assessing Authority directing that a show cause notice be issued in case of violation. It is the grievance of the petitioner, the directions of this Court have not been complied with and without giving an opportunity, the impugned order came to be passed withdrawing the exemption granted to the petitioner under Section 10(23C)(vi) of the Act for the assessment year 2001-02 to 2004-05. Hence, petitioner is before this Court. 5 Heard the learned Senior Counsel appearing for the petitioner and the learned Standing Counsel for respondents. 3. It appears, the Division Bench of this Court in ITA.No.1344/2006 had directed to hear the matter and pass orders whether there is any violation of Section 11(5) of the Income Tax Act and in this regard, when the matter was remanded by the Division Bench to the appropriate authority, the appropriate authority commenced its proceeding by letter dated 19.3.2014 with regard to rescinding from giving exemption granted under Section 10(23)(c)(6) of the Act in respect of this petitioner. Of course, the content of the letter indicates that the petitioner is requested to attend the office on that date in person or through a representative duly authorised in this behalf, thereby commencement of very proceeding itself is without giving show cause notice. Apart from that, with regard to investment of Rs.37 crores made by the real estate agent, it is noticed by the Assessing Officer that there are some irregularities. As such, he sought to opine that there is non-compliance of Section 11(5) of the Act and thereby tried to exercise the power in withdrawing the recognition 6 granted seeking for an exemption from payment of income tax by the petitioner as a charitable trust. According to the petitioner, without examining the documents produced by it, the impugned order came to be passed. 4. Be that as it may, the Division Bench of this Court in ITA.No.1344/2006 filed by the Commissioner of Income Tax, Mangalore against the petitioner, in para-13 has observed that the Assessing Authority shall on the facts available as on today, go into the question whether assessee has violated the terms and conditions of Section 11(5) of the Act subject to which, exemption was granted. If it records a finding that there is violation of Section 11(5) of the Act, then it shall bring the said violation to the notice of the prescribed authority. On such violation being brought to the notice of the prescribed authority, the prescribed authority shall issue a show cause notice to the assessee to show cause why the order of exemption should not be rescinded and after hearing him, pass orders on merits, in accordance with law. If the prescribed authority decides to rescind the order of exemption granted earlier, it shall do so and shall send a copy of the same to the 7 Assessing Authority as well as to the assessee. On receipt of such order, the Assessing Authority shall proceed to frame the assessment order and proceed in accordance with law. That would meet the ends of justice. So, this is the clear indication of requirement in following the principles of natural justice. That is not being done in the present case. As irregular procedure is adopted by the Assessing Authority and prescribed authority, the impugned order needs interference. In that view of the matter, the impugned order is set aside and the matter is remitted to the Assessing Authority and the Assessing Authority shall consider the case in accordance with the observations made by the Division Bench in ITA.No.1344/2006 and pass appropriate orders in accordance with law. Ordered accordingly. Writ Petitions are disposed of. Sd/- JUDGE *bk/- "