Declaration U/s. 158A not provide any immunity from payment of tax due

HIGH COURT OF KARNATAKA

Karnataka Chamber of Commerce & Industry

versus

Commissioner of Income-tax

S. ABDUL NAZEER, J.

Writ Petition Nos. 68734 to 68735 of 2010
W.P. Nos. 68773 to 68776 of 2010 (T-IT)

JANUARY  25, 2011

ORDER

1. In these cases, the petitioner has sought for an order : restraining the second respondent from enforcing the demand notices at Annexures ‘A’ and ‘B’ dated 15.11.2010 and 18.11.2010 respectively and for certain other reliefs.

2. The petitioner contends that it is a charitable institution incorporated under section 26 of the Companies Act, 1913, and is entitled for exemption of its income under section 11 of the Income-tax Act, 1961 (for short ‘the Act’). Therefore, it did not seek registration in the assessment year 1993-94. In the month of March, 2004, it was advised to seek registration under section 12-A of the Act for the assessment year 1994-95 onwards. Accordingly, it filed an application dated 14.3.2000 for registration, which was rejected by the first respondent by order dated 27.9.2000. The petitioner challenged the said order before the Income Tax Appellate Tribunal in ITA No. 800/Ban/2000. The Tribunal allowed the appeal by order dated 12.7.2001. The revenue preferred an appeal challenging the said order in ITA No. 374/2001 under section 260-A of the Act before this Court.

This Court allowed the appeal on 31.7.2007 and set aside the order of the Tribunal. The review petition filed by the petitioner in R.P.No.448/2007 against the said order was dismissed on 24.1.2008. The petitioner has filed a Special Leave Petition No. 16868/2008 before the Hon’ble Supreme Court challenging the orders of this Court dated 31.7.2007 and 24.1.2008. The Apex Court has granted special leave to appeal and the case is numbered as C.A.No.7664/2009.

3. The petitioner filed a declaration before the second respondent in form No.8 dated 9.12.2009 under section 158-A(1) of the Act contending that an identical question of law is pending before the Hon’ble Supreme Court. The second respondent has passed an order at Annexure ‘K’ dated 23.12.2009 accepting the said application and agreeing to apply the decision of the Apex Court.

4. The second respondent completed the assessments under section 144 read with section 147 of the Act for the assessment years 1996-1997 and 2000-2001 to 2004-2005. The demand has been raised against the petitioner in a sum of Rs. 1,23,26,846/- relating to the aforesaid assessment years. The petitioner filed appeals challenging the assessment orders, which are pending before the first respondent. The petitioner filed an application dated 18.9.2010 before the first respondent for stay of recovery of the arrears as envisaged in the notice dated 19.3.2010. The first respondent after considering the contentions has passed the order at Annexure ‘A’ granting stay of recovery of the disputed tax subject to the petitioner paying 50% of the demand outstanding i.e. Rs. 61,63,423/- in five equal monthly installments and a demand notice has been issued as per Annexure ‘B’ accordingly.

5. Learned Counsel for the petitioner submits that petitioner is not liable to pay the tax as it is a charitable institution. It has fulfilled the conditions laid down under sections 11 to 13 of the Act. Therefore, it is entitled for registration under section 12-AA of the Act. The income earned by way of commission by one of the wings of the assessee is used for its administrative purposes. The appeal filed by the petitioner challenging the order of the first respondent dated 27.9.2000 was set aside by the Income Tax Appellate Tribunal in ITA No. 800/Bang/2000 dated 27.9.2000. A Division Bench of this Court has set aside the said order. The petitioner challenged the said judgment in SLP (Civil) No. 16868/2008. The Apex Court has granted special leave to appeal. The petitioner therefore filed a declaration under section 158-A(1) contending that the question of law involved in the appeals for the assessment years 1997-1998 and 2000-2001 to 2004-2005 is similar to the one pending before the Hon’ble Supreme Court. In the declaration filed by the petitioner, it has agreed to apply the decision of the Apex Court for the aforementioned assessment years. Therefore, the first respondent ought to have granted stay of the demand notices pending disposal of the Civil Appeal before the Apex Court.

6. On the other hand, learned Counsel appearing for the revenue argues that the petitioner having not paid the tax was treated as a defaulter since January, 2010. When the collection of tax was pursued by the Department, the petitioner approached the Commissioner of Income Tax, Hubli, seeking stay of the demand. The Commissioner of Income Tax granted stay subject to the petitioner depositing 50% of the demand in five equal installments.

7. It is further argued that Section 158-A is a special provision for avoiding repetitive appeals. It spares the assessee from approaching various appellate authorities every year on the same question of law or issue till the same is finally decided by the highest court in appeal. If the assessment orders for later years are not passed and served in time, the proceedings would be barred by limitation. The assessing authority cannot keep the assessment proceedings in abeyance. Once the concerned High Court or the Supreme Court gives a finding on an issue, the assessing authority has to follow the decision. When the claim made by the assessee under sec. 158-A is admitted, the assessee is not entitled to raise the question of law in appeal before any appellate authority or Courts under the provisions of the Income Tax Act.

8. It is submitted that section 158-A will not provide any immunity to the assessee from payment of tax due. The application filed by the petitioner seeking stay has been disposed of by the first respondent on merits. Therefore, the petitioner is not entitled for deferment of tax. In case the petitioner succeeds before the Apex Court, the same shall be applied to the case on hand and the appellate authority will amend the order in conformity with such decision and the petitioner is entitled for refund of the tax with interest in accordance with law.

9. Having regard to the contentions urged, the question for consideration is whether the petitioner is entitled for stay of the demand notices issued by the second respondent for the assessment years 1997-1998 and 2000-2001 to 2005-2006, as the declaration filed under section 158-A has been accepted by the second respondent?

10. Chapter XIV-A comprising of section 158-A has been inserted by Taxation Laws (Amendment) Act, 1984 (67 of 1984) w.e.f. 1.10.1984. The said provision lays down the procedure for avoiding repetitive appeals when the assessee claims that identical question of law is pending before the High Court or the Supreme Court. When there is a difference between the Assessing Officer and a taxpayer on any question of law arising in the case of the taxpayer for several years, the taxpayer has to contest the question of law for each of the years. This leads to unnecessary filing of appeals before the appellate authorities and reference applications before the High Court on identical questions of law in the case of the same taxpayer.

11. With a view to avoid such repetitive appeals and reference applications, section 158-A has been inserted, which provides for special procedure in cases where an assessee claims that any question of law arising in his case for an assessment year which is pending before the Income Tax Officer or any appellate authority, is identical with a question of law arising in his case for another assessment year which is pending before the High Court or the Supreme Court. In those cases, the assessee may furnish to the Assessing Officer or the Appellate Authority as the case may be, a declaration in the prescribed form and verified in the prescribed manner, that if the Assessing Officer or the Appellate Authority as the case may be, agrees to apply to the relevant case the final decision on the question of law in the other case, he shall not raise such question of law in the relevant case in appeal before any appellate authority or for a reference before the High Court or Supreme Court under the aforesaid sections of the Income Tax Act.

12. Where a declaration is furnished to any appellate authority, the appellate authority shall call for a report from the Income Tax Officer on the correctness of the claim made by the assessee and where the Assessing Officer makes a request to the Appellate Authority to give him an opportunity of being heard in the matter, the Appellate Authority shall allow such opportunity to the Income Tax Officer.

13. If the Assessing Officer or the Appellate Authority, as the case may be, is satisfied that the question of law arising in the relevant case is identical with the question of law in the other case, he may admit the claim of the assessee. Where the authority concerned is not so satisfied, the claim of the assessee shall be rejected. When the decision on the question of law in the other case becomes final, it shall be applied to the relevant case and the Assessing Officer or the Appellate Authority shall if necessary amend the order passed by the Assessing Officer or the Appellate Authority conformably to the final decision on the question of law in the other case.

14. It is to be noted here that the claim made by the assessee under section 158-A will not however preclude the Assessing Officer from making an order disposing of the relevant case without awaiting the final decision on the question of law in other case. When the decision on the question of law becomes final, it shall be applied to the relevant case and the Assessing Officer and the appellate authority shall amend the order earlier passed, if necessary in view of the final decision on the question of law in the other case.

15. If the assessment orders for later years are not passed and served in time, the proceedings would be barred by limitation. The assessing authority cannot keep the assessment proceedings in abeyance. The declaration under section 158-A will not provide any immunity to the assessee from payment of tax due. There is no merit in the contention that once an application under section 158-A is accepted, the Assessing Officer should refrain from demanding the tax in terms of the orders of assessment.

16. In the instant cases, the petitioner has challenged the assessment orders for the assessment years 1997-1998 and 2000-2001 to 2005-2006 before the appellate authority. The first respondent has granted an interim order as per Annexure ‘A’ subject to the petitioner depositing 50% of the demand outstanding in five equal monthly installments by 25th of each month commencing from the month of November, 2010 and ending in March, 2011. I do not find any error in the said order. The writ petitions are accordingly dismissed. No costs.