SORABJI BURJORJI GARDA COLLEGE TRUST V. INCOME TAX OFFICER WARD 1

SCA/590/2019

AI Insights

The case revolves around the Sardar Vallabhbhai Patel Education Society, which manages various educational institutions, including the N.G. Patel Polytechnic. The Income Tax Department issued a notice for reassessment under Section 148 of the Income Tax Act, targeting the Polytechnic as a separate entity for the Assessment Year 2009-10 due to unaccounted cash deposits. The Society contested this, arguing that the Polytechnic's income was already included in its returns and that the Polytechnic did not have an independent legal existence for tax purposes. The High Court, after examining the submissions and previous assessments, concluded that the Polytechnic was not a separate assessable entity and that the income had been consistently assessed under the Society's returns.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 677250 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-04-2022
• Assessment Year: misc
• Other Referred Cases: G.K.N. Drive Shaft (India) Ltd. V. ITO (2003) 259 ITR 90 (SC)
• Laws Referred To: Income Tax Act
• Result in Favour of: Applicant
• Court: HIGH COURT
• Department Lawyers: KALPANA RAVAL
• Assessee Lawyers: MANISH SHAH
• Keywords: Assessment Year; Educational trust; Income Tax; Permanent Account Number; Reassessment
• Section: 148; 143(3); 139A

Judgement Text

"C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 20804 of 2017 With R/SPECIAL CIVIL APPLICATION NO. 23190 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 590 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 16827 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 19650 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALA Sd/- and HONOURABLE MS. JUSTICE NISHA M. THAKORE Sd/- ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? NO ================================================================ SARDAR VALLABHBHAI PATEL EDUCATION SOCIETY Versus INCOME TAX OFFICER, WARD 2 ================================================================ Appearance: MR MANISH J SHAH, ADVOCATE for the writ-applicant(s) No. 1 MRS KALPANA K.RAVAL, ADVOCATE for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 19/04/2022 COMMON ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) Page 1 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 1. Since the issues raised in all the captioned writ- applications are the same, those were taken up for hearing analogously and are being disposed of by this common judgment and order. 2. For the sake of convenience, the Special Civil Application No.20804 of 2017 is treated as the lead matter. 3. This is a second round of litigation. The writ-applicant had come before this Court by filing the Special Civil Application No.17878 of 2016. The said writ-application was ordered to be disposed of vide order dated 11th September 2017. The order reads thus : “1. This petition is filed by one Sardar Vallabhbhai Patel Education Society, which is an educational society and is also a trust registered under the Bombay Public Trust Act. The writ-applicant shall hereinafter to be referred to as 'the society'. The writ-applicant society runs various educational institutions including one N.G.Patel polytechnic college (hereinafter to be referred to as “N.G.Patel polytechnic”). It is not in dispute that the writ-applicant Trust files regular returns before the Income Tax Authorities and which are scrutinized from time to time by the Assessing Officer for passing orders of assessment. 2. According to the writ-applicant, the various educational institutions run by the society would receive sizable amounts by way of cash through fees paid Page 2 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 by the students. Only in order to maintain the separation of funds, N.G.Patel polytechnic desired to open a bank account. According to the counsel for the writ-applicant, bank insisted on a separate Permanent Account Number ('PAN' for short) of the customer only upon which a separate account can be opened. N.G.Patel polytechnic therefore applied for PAN which was duly issued by the Income-tax department which eventually led the N.G.Patel polytechnic to open a savings bank account with Bank of Baroda. In such bank account, the N.G.Patel polytechnic had deposited cash of Rs.2.37 crores (rounded off) during the period relevant to assessment year 2009-10. According to the writ- applicant, the writ-applicant society had filed the return of income for the said assessment year 2009-10, in which, this receipt was reflected. Along with the return, necessary accounts and other documents were produced. The return was accepted by the Assessing Officer without scrutiny. 3. The Assessing Officer noticed that N.G.Patel polytechnic had a separate PAN and in its savings bank account of Bank of Baroda, sizable cash amount of Rs.2.37 crores was deposited, on which, it had also received interest of Rs.2.40 lakhs. Despite this, N.G.Patel polytechnic had not filed return of income for the said assessment year 2009-10. On such basis, N.G.Patel polytechnic was served with an impugned notice dated 22.03.2016 for reopening of the assessment. The only ground recorded by the Assessing Officer in the Page 3 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 reasons for issuing the notice was that despite depositing of sizable cash of Rs.2.37 crores in the said savings bank account, the said account holder had not filed the return of income and in response to the notice issued by the department under section 148 of the Act to furnish a source of the cash deposited, there was no response from the account holder. 4. According to the writ-applicant, N.G.Patel polytechnic did not have any independent legal existence and was merely a college run by the society. The society therefore raised detailed objections before the Assessing Officer under a communication dated 02.07.2016 urging him to drop the notice for reopening. In such objections, the writ-applicant stressed that it was the society which had maintained the books of accounts and filed the audited accounts along with the return, in which, the said amount of Rs.2.37 crores was also reflected. Thus, the society had already offered to tax the said amount which is now being separately questioned in the hands of N.G.Patel polytechnic. Along with the objections, the writ-applicant also produced certain documents. 5. The Assessing Officer however, by order dated 29.08.2016, rejected the objections primarily on the ground that N.G.Patel polytechnic was assigned a separate PAN which would indicate that it was a separate entity for the purpose of payment and assessment of tax and N.G.Patel polytechnic had not filed the Page 4 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 return despite the fact that sizable cash amount was deposited in its bank account. 6. Section 139A of the Act pertains to permanent account number. Sub-section (1) of section 139A provides various categories of persons who are required to pay tax or for some other reason required to furnish return of income, would apply to the Assessing Officer for allotment of a PAN. Under sub-section (1B), the Central Government may for the purpose of collecting any information which may be useful for or relevant to the purposes of the Act, may by notification require any class or classes of persons who shall apply to the Assessing Officer for the allotment of the PAN. Under sub-section (2), the Assessing Officer having regard to the nature of transactions as may be prescribed, may also allot a PAN to any other person following the prescribed procedure. Sub-section (3) of section 139A provides that any person not falling under sub- section (1) or sub-section (2), may also apply to the Assessing Officer for allotment of PAN, upon which, the Assessing Officer shall allot the same. 7. It can thus be seen that mere allotment of PAN under section 139A of the Act would not make the allottee necessarily a separate entity for the purpose of assessment of tax. The statute recognizes certain eventualities where quite outside the requirement of payment of tax and for filing return of income, the Assessing Officer may allot a PAN to individual. The contention of the Assessing Officer therefore that merely because Page 5 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 N.G.Patel polytechnic had obtained the PAN, it was a separate entity for the purpose of filing of the return and assessment of tax was not valid. In the order rejecting the objections, the Assessing Officer did not examine other objections and contentions raised on behalf of the writ-applicant on his summary conclusion noted above. The requirement of supplying reasons recorded by the Assessing Officer when demanded by the assessee and giving an opportunity to raise objections against the notice for reopening, requiring the Assessing Officer to dispose of such objections flow from the decision of Supreme Court in case of G.K.N.Drive Shaft (India) Ltd. V. ITO reported in (2003) 259 ITR 90 (SC). The clear intention of the Supreme Court in devising such a formula was that in genuine cases where the Assessing Officer may have reopened the assessment which need to be dropped, such cases may be filtered out avoiding unnecessary hardships to the assessee as well as protracted tax litigation. The exception of the Court of course would be that when an assessee points out the correct facts and makes out a genuine case for dropping the notice for reopening of the assessment, the Assessing Officer would apply his open mind and consider the factual and legal aspects as may be presented by the assessee in such objections. The expectation of the Court certainly would not be that such objections are discarded routinely without proper consideration or appreciation of the points raised by the assessee. This is not to suggest that an improper order disposing of objections would render the notice issued by Page 6 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 the Assessing Officer for reopening of the assessment invalid. The reopening of an assessment could be struck down on any of the jurisdictional facts being proved wrong on the basis of well known and well established legal principles. 8. This preamble was necessary in the present case since we find that the Assessing Officer without appreciating the writ-applicant's objections to the notice of reopening, rejected the same. In facts of the case, we would like to request the Assessing Officer to reexamine the objections in peculiar facts pointed out in such objections as well as those urged before us. For the above purpose, following directions are issued : (i) It will be open for the writ-applicant to file supplementary objections with additional documents if so desired, latest by 25.09.2017 before the Assessing Officer. (ii) The Assessing Officer shall dispose of the objections of the writ-applicant which are already on record and additional objections if so raised in terms of above para (i). (iii) For such purpose, impugned order dated 29.08.2016 is set aside. 9. Till the Assessing Officer passes a fresh order disposing of the objections of the writ-applicant, interim relief granted pending the petition directing the Page 7 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 Assessing Officer not to pass the final order on assessment shall continue. 10. Petition is disposed of.” 4. The writ-applicant is a Trust running various educational institutions which include N.G. Patel Polytechnic (for short, the ‘Polytechnic’). For the Assessment Year 2009-10, the writ- applicant-Trust filed its return of income on 07.09.2009, declaring expenditure over income/ loss at Rs.1,47,72,438/-. The aforesaid income/loss includes income/loss from three institutions run and managed by the writ-applicant Trust, which are as follows: (i) Enviro Consultancy Service Division (ii) N.G. Patel Polytechnic (iii) S.V.P. Education Society 5. The gross total income as per the Income and Expenditure Account of the Polytechnic is of Rs.2,87,73,183/- and the expenditure is of Rs.2,98,66,920/-. The Polytechnic received the tuition fees of Rs.2,74,38,250/- in the Assessment Year 2009- 10. Further, on perusal of the balance sheet of the Polytechnic, it can be seen that the Polytechnic maintains bank account with the Bank of Baroda and the State Bank of India. Thus, it can be seen that the writ-applicant Trust has duly offered the income of above three institutions run and managed by it while filing the income tax return for the Assessment Year 2009-10. The writ- applicant Trust, since the inception of these institutions, has treated them as its own part and the Income Tax Department Page 8 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 has also duly accepted such a fact in the past assessment years, wherein, in some of the assessment years, order u/s.143(3) was passed accepting the income offered by the Education Society, which includes the income of the above three institutions. Accordingly, it can be seen that the Sardar Vallabhbhai Patel Education Society, i.e. the writ-applicant, is an assessee under the Income Tax Act and the Polytechnic is not a separate assessable person under the Act. Till the issuance of the notice u/s.148 on 22.03.2016 for the Assessment Year 2009-10, the respondent Department never questioned the fact that the Polytechnic is not a separate assessable entity. The acceptance of the income tax returns, even in 143(3) scrutiny proceedings for the Assessment Years 1999-2000, 2007-08, 2010-11 and 2011-12 respectively of the Sardar Vallabhbhai Patel Education Society, offering the income of the Polytechnic in its hands, makes it very clear that the Polytechnic is not a separate assessable entity under the Income Tax Act. It is submitted that for the subsequent assessment years, i.e. Assessment Years 2016-17, 2017-18 and 2018-19 respectively, the returns of income filed by the Sardar Vallabhbhai Patel Education Society, which includes the income from the Polytechnic, were taken up for scrutiny by issuing a notice u/s.143(2), and accordingly, orders u/s.143(3) were passed accepting the returned income as the assessed income. Accordingly, it is empathetically submitted that the Polytechnic has never been treated as a separate assessable entity under the Income Tax Act. 6. It is submitted that in the first round of litigation before this Court, the Court, vide its order dated 11.09.2017, remanded the matter back to the Assessing Officer for deciding the Page 9 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 objections raised by the writ-applicant to the effect that the transaction of deposit of cash being the amount of tuition fees received from the students throughout the year, whether the said had duly been recorded in the audited books of accounts of the writ-applicant Trust, and accordingly, shown in the return of income filed by the writ-applicant Trust. 7. Despite the directions issued by this Court in the order dated 11.09.2017 (order of first round of litigation) to dispose of the objection in an objective manner, the respondent, without following the directions of this Court in true letter and spirit, has disposed of the objections by stating that the matter is required to be examined with reference to the books of accounts and the banking transactions. This Court, while admitting the present writ-applications, in its order dated 21.11.2017, in para 2, has observed the same, which reads thus : “2. Having perused the order rejecting the objections, it appears that the Assessing Officer has not taken into consideration the observations made by this court in its judgment and order dated 11.09.2017, while remanding the matter to the Assessing officer for deciding the objections afresh.” 8. It is to be noted here that the respondent has not denied the fact that the Sardar Patel Education Society has included all the transactions carried out by the Polytechnic in its books of accounts, and in turn, filed the return of income taking into consideration all the transactions carried out by the Polytechnic. The aforesaid return of income filed by the Society was also Page 10 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 accepted by the Income Tax Department for the year under consideration. 9. The case of the respondent is that the objections taken by the writ-applicant will be examined with reference to the books of accounts at the time of carrying out the reassessment proceedings. Thus, the stance of the department is directly contrary to the direction issued by this Court. The respondent failed to appreciate that, when the fundamental facts on which the jurisdiction is assumed, is proved incorrect, then the very assumption of jurisdiction is rendered invalid. In the present case, the Society is able to point out that the assertion of the department that the transaction carried out in the Bank of Baroda by the Polytechnic has already been accounted for by the Society in its books of accounts as the Polytechnic is not a separate assessable entity within the ambit of the Income Tax Act. Thus, if the respondent wants to assume the jurisdiction to carry out the reassessment proceedings, the respondent has to arrive at the conclusion that the aforesaid factual position taken out by the writ-applicant Trust is factually incorrect. In the present case, no such objective denial came from the respondent stating in clear terms that the objection in the form of factual submission to the effect that the writ-applicant Society has included the transactions of the Polytechnic in its books of accounts, is found to be incorrect. In this view of the matter, the persistence on the part of the department to carry out the reassessment proceedings of the Polytechnic is patently illegal, bad in law and without the fundamental requirement that the income should have escaped the assessment for acquiring the jurisdiction under Section 147/148. Page 11 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 10. It is further submitted that in the order dated 11.09.2017, this Court made it very clear that, any person cannot be treated as an independent assessable entity only on the basis of the PAN. The natural consequences of the above observation on law point would be that the respondent is first required to establish legally and factually that the Polytechnic is a separate assessable entity under the Income Tax Act. The respondent, without coming to a conclusion that the Polytechnic is a separate assessable entity, tried to justify the reopening notice issued u/s.148 in the name of the Polytechnic. It is most humbly submitted that no valid proceeding u/s.148 can be initiated by issuing a notice on a person who is not assessable as a distinct person under the Income Tax Act. The allegation of the respondent that the writ-applicant has filed return of income in its alleged PAN for the Assessment Years 2005-06 to 2007-08, was clearly denied by the writ-applicant in its affidavit. The writ- applicant further in its affidavit, attaching the relevant documents, in the form of Return of Income, Computation of Income and Audit Report for the Assessment Years 2005-06, 2006-07, 2016-17, 2017-18 and 2018-19 (alongwith Section 143(3) assessment order), clearly demonstrated that the writ- applicant Society has included the income of the Polytechnic in its books of accounts and the income tax return for the above mentioned assessment years, and hence, the question of filing the income tax return on the PAN of the Polytechnic by treating the Polytechnic as a separate person, did not arise. The respondent further has not denied the fact that the respondent Income Tax Department itself, for all the years from inception, and more particularly, in the later Assessment Year i.e. Page 12 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 Assessment Years 2016-17 to 2018-19, for which the assessment was completed u/s.143(3) after initiation of this litigation, has accepted the Polytechnic as a part of the writ- applicant Society and assessed the income of the Polytechnic in the hands of the writ-applicant Society. Thus, the basic fallacy cum incongruity arising in the stand of the Department is that, for the Assessment Years 2016-17 to 2018-19 (wherein assessment orders have been passed u/s.143(3) after filing of this petition), the Department is treating the Polytechnic as a part of the writ-applicant Society while for the Assessment Years 2009-10, 2011-12 and 2012-13, the Department wants to treat the Polytechnic as a separate assessable entity. This basic contradiction in the stand of the Department itself is sufficient to hold that the notice issued u/s.148 on the Polytechnic by treating it as a separate assessable entity, is patently illegal. 5. Our final conclusions may be summarised as under : (i) From the inception of the writ-applicant Society and the Polytechnic, the writ-applicant Society appears to be an assessable entity. The Polytechnic is an entity which is run and managed by the writ-applicant Society, and hence, it is a part of the writ-applicant Society and cannot be considered as a separate assessable entity in the eyes of law under the Income Tax Act. (ii) The writ-applicant Society i.e. Sardar Vallabhbhai Patel Education Society has included all the transactions carried out by the Polytechnic including the transactions carried out with the Bank of Baroda. Page 13 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 (iii) The writ-applicant Society for the relevant assessment years has included the above transactions in its return of income. (iv) The allegation of the respondent that the Polytechnic has filed its return of income for the Assessment Years 2005-06 to 2007-08 has been denied in clear terms and the said denial is also supported by the documentary evidences showing that even in the Assessment Years 2005-06 to 2007-08, that the writ- applicant Society i.e. Sardar Vallabhbhai Patel Education Society has included the income of the Polytechnic in its return of income, and therefore, the question of filing a separate return in the name of the Polytechnic does not arise. (v) Even after the filing of this petition, the Department, in the assessment order passed u/s.143(3) for the Assessment Years 2016-17 to 2018-19, has considered the Polytechnic as a part of writ-applicant Society, and hence, the stand of the respondent that the Polytechnic is a separate assessable entity is erroneous in law as well as on facts. (vi) The basic requirement that there has to be income which has escaped the assessment is completely missing as the Department itself has assessed the income of the Polytechnic and other institutes run by the Society as the income of the Society and in fact Page 14 of 15 C/SCA/20804/2017 JUDGMENT DATED: 19/04/2022 even in the later assessment years i.e. for the Assessment Years 2016-17 to 2018-19 in scrutiny assessment in 143(3) assessed the income so offered as the income of the writ-applicant Society itself. 6. In view of the aforesaid, these writ-applications succeed and are hereby allowed. The impugned notice issued under Section 148 of the Act for the relevant assessment years is hereby quashed and set-aside. (J. B. PARDIWALA, J.) (NISHA M. THAKORE, J.) /MOINUDDIN Page 15 of 15 "