HIGH COURT OF DELHI
Escorts Heart Institute & Research Centre
Versus
Commissioner of Income-tax, Centre
W.P.(C) NO. 11909 OF 2005
DECEMBER 14, 2012
JUDGMENT
R.V. Easwar, J.
Shorn of all niceties, the precise question which arises for consideration in this writ petition is this. Can the assessing officer, who intends to issue notice under section 148 of the Income Tax Act, 1961 to reopen an assessment, entertain a “reason to believe” which is contrary to the statute?
2. Section 10(21) provides for exemption of any income of a scientific research association which is approved under section 35(1)(ii). The first proviso, however, makes the exemption subject to the provisions of sub-sections (2) and (3) of section 11 of the Act. Section 11(3) provides for certain contingencies in which the accumulated income of the scientific research association which was granted exemption over a period of years would become taxable. On the happening of any of the contingencies provided for, the accumulated income which earlier enjoyed exemption “shall be deemed” to be the income of the scientific research association of the previous year in which the contingency happened. It does not matter that the accumulated income in respect of the earlier years which had hitherto enjoyed exemption from tax, does not relate to the previous year in which the contingency took place. This, in short, is the substance of section 10(21) read with section 11(2) and (3) of the Act.
3. The petitioner is a scientific research society approved by the competent authority under section 35(1)(ii) for research activity in the field of coronary diseases and other connected fields. In this writ petition we are concerned with the validity of the notices issued by the assessing officer under section 148 of the Act seeking to reopen the assessments for the assessment years 1998-99, 1999-00 and 2000-01. On 01.04.2000 the petitioner was amalgamated with Escorts Hospital, Chandigarh and the amalgamated society got registered under the Companies Act, 1956 on 30.05.2000. The assessing officer recorded reasons as required under section 148(2) and reopened the assessments for the earlier three years under section 147 of the Act and issued notices on 29.03.2004, 22.3.2005 and 14.7.2005 respectively. The reasons recorded by the assessing officer are identical for all the three years and are as under: –
“A.Y. 98-99
Escorts Heart Institute & Research Centre, New Delhi – Report regarding
Escorts Heart Institute & Research Centre, New Delhi registered as a charitable trust u/s 12A(A) of the Income Tax Act, 1961 transferred its assets worth Rs. 110.40 crores to Escorts Heart Institute & Research Centre Ltd. Chandigarh which is a subsidiary of Escorts Ltd. Escors Ltd. was the main promoter of the EHIRC, New Delhi and had also contributed Rs. 60 lacs on 30.12.81. Therefore, EHIRC New Delhi has violated the provisions of section 13(2)(g) read with section 13(3)(b) of the Income Tax Act, 1961. Section 11 & 12 no more remain applicable as the society no longer remains a charitable institution. Thus it is established that the society applied the accumulated income for purposes other than charitable (violation of section 13).
The EHIRC, New Delhi has also violated the guidelines for approval u/s 35(1)(ii) for recognition of Scientific and Industrial research, the approval granted needs to be withdrawn with retrospective effect.
On perusal of assessment record, there was an accumulated balance of Rs. 17,55,71,699/- pertaining to Assessment Year 1998-99 which has been utilized for other than charitable purpose. As income of Rs. 17,55,71,699/- has escaped assessment for the Assessment Year 1998-1999 for which the assessment u/s 143(1) was completed on 25.5.99 at Nil income. In order to tax the escaped income for Assessment Year 1998-99 action u/s 147 is required. Your approval is solicited for issue of notice u/s 148 for which limitation expires on 31.3.2006.
ADIT(E) TC-II, New Delhi
Approval from the Addl. DIT(E) Range-I, New Delhi vide letter No.76 dated 21.5.04 received for issue of notice u/s 148 for Assessment Year 1998-99 and placed on record. A notice u/s 148 for Assessment Year 98-99 is issued.”
The reasons recorded for the other two years are identical except for the amounts.
4. It would appear that the petitioner filed its objections to the notices, but these objections were rejected by the assessing officer who proceeded to complete the reassessments. In the re-assessments the assessing officer has added the balances of the accumulated income at the end of each year i.e. 31.03.1998, 31.03.1999 and 31.03.2000 which came to the following: –
