Assessee cannot claim to be under reasonable belief of Income Exemption after paying Tax on the same for 40 Years

While confirming the penalty levied on the assessee/Trust under Section 273(2)(a) as well as under Section 140A(3) of the Income Tax Act 1961, the learned ITAT has thoroughly examined the matter and concluded that as for last forty years, income of the assessee/Trust was held to be taxable by several decisions rendered by the Tribunal which were not upset till then, there is no scope for holding that the assessee/Trust was prevented by a reasonable cause from filing its estimate of advance tax and in not paying the tax on the basis of self assessment. The learned ITAT further held that there is no provision in law to conclude that the penalty under Section 140A(3) cannot be imposed if the proceedings were not initiated during the course of original assessment or that the return came to be filed under Section 239 of the I.T.Act, 1961. The learned ITAT further held that even if the claim is for an exemption being a charitable society, the society is bound to file its return under section 139(4)(a), if its income without taking into account the provisions of Sections 11 and 12 is above the taxable limit. The learned ITAT held that the assessee/Trust is not covered by the provisions of Section 2(15) of the I.T.Act, 1961 and hence the return cannot be considered as one filed under Section 239 of the I.T.Act, 1961. We do not find any illegality or perversity in such finding. It cannot be said that the assessee/Trust was under bonafide belief that its activities were nontaxable and therefore there was no reason for it to believe that its estimate of advance tax was untrue or that it was under bonafide and reasonable belief that its income is exempt. To our mind, that which an ordinary person of average intelligence and sound mind would believe is a reasonable belief. Existence of reasonable basis to believe is sine-qua­non for ascertaining whether a person had reasonable belief. However, in the case in hand, as held by the learned ITAT, for more than forty years, income of the assessee/Trust was being held as a taxable income by the authorities and it could not get benefit of the judgment of the Apex Court in Surat Art Silk Cloth Manufacturers Association (supra) till the assessment year 1983­-84 upon consideration of its case on factual premises. As such, it cannot be held that the assessee/Trust had compelling reason to consider its income as exempt from the tax liability. The history of this assessee/Trust with repeated non­compliance despite orders of the learned ITAT must weigh negatively on the assessee bonafides. The length of period during which the assessee/Trust was denied benefit of exemption does not allow us to hold that the assessee/Trust had reasonable belief to consider its income entitled for exemption, resulting in consequential actions of filing “NIL” estimate of advance tax and non­payment of the self assessment tax.

In the light of foregoing discussion, we hold that the ITAT was justified in allowing the appeals of the Revenue and confirming penalty levied on the assessee/Trust under Section 273(2)(a) and under Section 140A(3) of the I.T.Act, 1961.

Full Text of the High Court Judgment / Order is as follows:-

1. On allowing appeals by the Revenue and / or rejection of Cross Objections filed by the assessee, the assessee moved an application seeking reference of following two questions of law for decision of this court :

Question in R.A.No.293/Mum/97

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