Case Law Details
HIGH COURT OF BOMBAY
Society of Franciscan (Hospitaller) Sisters
Versus
Deputy Directors of Income-tax (Exemptions) 1(2)
Writ Petition (Lodging) No. 155 of 2013
JANUARY 23, 2013
JUDGMENT
DR. D.Y. Chandrachud, J.
The Petitioner is a public trust registered under the Bombay Public Trusts Act, 1950 and conducts educational institutions all over India as well as homes for the elderly, hostels for small children and health centers for the poor and needy. On 14 July 1975, the Petitioner was granted a registration under section 12A of the Income Tax Act, 1961 (‘the Act’). On 6 September 1986, an amendment was made to the objects of the Petitioner and as amended, the objects clause, insofar as material, reads as follows :
“3. The Society is established for educational, medical relief, religious and charitable objects for the benefit of women and children in India, primarily Catholics, and in consonant with Catholic principles for all persons irrespective of race, community, caste, religion, language or social status; and in furtherance of the above objects.
(a) To take over, conduct, develop, improve equip, administer and carry on such of the religious educational, medical and charitable institutions, works and activities at present conducted and carried on in India, by the Congregation of the Franciscan Hospitaller Sisters of the Immaculate Conception, a Religious Congregation of Roman Catholic Nuns (hereinafter referred to as the said Congregation) with or without all or any of the property rights, assets and liabilities belonging or attaching thereto, as the Governing Body of the Society may deem fit.” (Emphasis supplied)
In the objects clause as amended a reference is incorporated to the rendering of services primarily for Catholics and in consonance with Catholic principles.
2. Admittedly the registration under section 12A of the Act was not withdrawn from 1986 till 2008 and a certificate under section 80G of the Act was granted from time to time. Between 1975 and 2010, the Petitioner was also allowed an exemption under Section 11 of the Act including upon scrutiny assessments which were made after taking note of the amendment in the objects clause. For assessment years 2004-2005 and 2006-2007, orders were passed under section 143(3) on 29 November 2006 and 26 November 2008. Both the orders, as submitted by the Petitioner, refer to the amended objects clause and grant the exemption under section 11. The assessments for A.Y. 2004-05 and A.Y.2006-07 were reopened by notices under section 148 issued on 25 March 2011. Simultaneously, a notice was issued on 25 March 2011 for the withdrawal of the registration under section 12AA. Though the Petitioner has filed its objections on 23 September 2011, proceedings in pursuance of the notice for withdrawal are still pending. For A.Y. 2009-10, an order of assessment was passed on 7 December 2012 under section 143(3) denying exemption under section 11 on the ground that the objects clause had been amended. On 29 December 2011, orders were passed under section 143(7) read with Section 147 for A.Ys. 2004-05 and 2006-07 withdrawing the exemption which had been granted earlier.
3. The Petitioner has filed appeals before the Commissioner of Income Tax (Appeals) for A.Ys. 2004-05, 2006-07 and 2009-10. Those appeals are pending.
4. On 2 March 2012, the First Respondent issued a communication for recovery of demands for A.Ys. 2004-05 and 2006-07. By a communication dated 15 March 2012, the Petitioner requested that the demands be kept in abeyance pending the disposal of the appeal. On 12 October 2012, the Petitioner filed written submissions for A.Ys.2004-05, 2006-07 and 2009-10 before the CIT(A).
5. On 9 January 2013, the Petitioner received a notice dated 28 December 2012 for the recovery of outstanding demands for A.Y. 2004-05 in the amount of Rs.5.75 crores, for A.Y.2006-07 in the amount of Rs.5.25 crores and for the A.Y.2009-10 in the amount of Rs. 75.35 lakhs. On 17 January 2013, the Petitioner addressed a reply seeking an opportunity of being heard in the event that the recovery of the demands was sought to be enforced. No hearing has been given to the Petitioner.
6. A notice was issued by the Deputy Director of Income Tax (Exemption)-I(2) dated 10 January 2013 to the Branch Manager of Bank of India under Section 226(3) of the Act calling upon the bank to pay over an amount of Rs.11.72 crores towards the demands raised on the Petitioners. The Branch Manager was informed that he must not contact the assessee till the payment is made to the Income Tax Department. A copy of this notice was served on the Petitioner on 17 January 2013 and according to the submission before the Court of learned senior counsel, was posted on 16 January 2013. On 11 January 2013, another notice was issued to the Branch Manager of Bank of India, calling upon him, under Section 226(3) of the Act to pay over all amounts held by the bank in the savings bank accounts of the Petitioner as well as amounts due under fixed deposit receipts. The bank manager was once again informed that he shall not contact the assessee till the payment is made. In the petition, a statement has been set out of the term deposits and the savings bank account from which monies were withdrawn by the Revenue in the total sum of Rs.4.76 crores in pursuance of the notices under Section 226(3) dated 10 and 11 January 2013. The second notice was also received by the Petitioner on 17 January 2013 after the monies were withdrawn.
7. The submission which has been urged on behalf of the Petitioner is that the entire action is high handed and contrary to law having regard to the fact that :
(i) The applications for stay of demand for A.Ys. 2004-05, 2006-07 and 2009-10 are pending before the CIT(A);
(ii) The assessee had specifically sought a hearing which has been denied; and if such a hearing were to be granted, the assessee would be able to demonstrate, prima facie, the merits of the contention that the original orders of assessment were passed, granting exemption under section 11 after duly noticing the change in the objects clause. Moreover, the assessee would be in a position to demonstrate that notwithstanding the change in the objects clause, each of the institutions of the Petitioner is open to all communities irrespective of religious affiliation;
(iii) The notices under Section 226(3) have been executed in complete disregard of the law. The Assessing Officer informed the branch manager of the bank not to make any contact with the assessee. Though Section 226(3) requires that a copy of the notice should be forwarded to the assessee, a copy of the notice was received on 17 January 2013 after the monies had been withdrawn leaving no recourse to the Petitioner. As a result of the action of the Revenue, the Petitioner is left with virtually no funds to run the educational institutions, hospices and Balwadis.
8. Learned Senior Counsel submitted that since the action is completely without the authority of law, this Court would be within jurisdiction in directing that the monies should be refunded. At the present stage, however, a reasonable amount is required to carry on the day to day operations of the trust and unless some funds are provided back, it would be impossible to run the institutions. Relief to such an extent should, it was urged,be granted.
9. On the other hand, learned counsel appearing on behalf of the Revenue submitted that the action under Section 226(3) was followed in accordance with law having regard to the fact that there is a demand outstanding in the sum of Rs.11.72 crores for A.Ys.2004-05, 2006-07 and 2009-10.
10. The admitted position before the Court is that against the orders of assessment that were passed for A.Ys. 2004-05 and 2006-07 after the original assessments were reopened, appeals have been filed before the CIT(A), which are pending. Similarly an appeal is pending for the A.Y. 2009-10. Though the appeals are pending since 24 January 2012 for nearly a year, no decision has been taken on those appeals. There is a request of the Petitioner for keeping the demands in abeyance. In this background, it is necessary for the Court to consider as to whether the recourse which was taken to the provisions of Section 226(3) was in accordance with the stipulations and safeguards provided therein. Under clause (i) of Section 226(3), the assessing officer is empowered by a notice in writing to require any person from whom money is due or may become due to the assessee, or to any person who holds or may subsequently hold money for or on account of the assessee to pay to the assessing officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice so much of the money as is sufficient to pay the amount due by the assessee in respect of the arrears. Clause (iii) of Section 226(3) requires a copy of the notice to be forwarded to the assessee at his last address known to the assessing officer and in the case of a joint account to all the joint holders at their last addresses known to the assessing officer. The contention of the assessee before the Court is that the amounts which were invested in Fixed Deposit Receipts had not become due for payment. For the purposes of these proceedings, it is not necessary to delve further into this aspect since in any case, the manner in which recourse was taken to Section 226(3) shows that the provision was observed more in its breach than in compliance. The whole object of serving a notice on the assessee is to enable the assessee to have some recourse. In a given case, we are cognizant of the fact that it may be necessary for the Revenue to take recourse to Section 226(3) and it would not be feasible to serve a prior notice on the assessee if there is an apprehension that the monies would be spirited away to the detriment of the Revenue. This was not that kind of a case at all. The Petitioner was granted a registration under Section 12A on 14 July 1975 and the benefit of an exemption under Section 11 right since 1975 until it came to be denied in respect of the assessment years in question. A uniform formula cannot be applied to all cases. In a situation such as the present where the appeals filed by the assessee are pending before the CIT (A) and the assessee had sought an opportunity of being heard and filed applications for stay, there was no justification whatsoever to proceed hastily with the enforcement of the recovery of the demand without disposing of the application for stay.
11. Applications for stay cannot be treated by the assessing officers or for that matter by appellate authorities as meaningless formalities. Quasi judicial authorities have to apply their mind in an objective and dispassionate manner to the merits of each application for stay. While the interest of the Revenue has to be protected, it is necessary for assessing officers to realize that fairness to the assessee is an intrinsic element of the quasi judicial function conferred upon them by law. Applications for stay must be disposed of at an early date. Such applications cannot be kept pending to obviate compliance with the need to evaluate the contentions of the assessee until after monies are recovered using the coercive arm of the law. Appellate authorities must set down time schedules for disposal of stay applications with reasonable expedition. The manner in which recourse has been made to the coercive process of law, leaves much to be desired and we are of the view that the action which was pursued was completely high handed and arbitrary. There could have been absolutely no apprehension that the assessee in the present case was likely to spirit out the monies which were invested in Fixed Deposit Receipts. The assessee is an age old trust which carries on welfare activities.
12. In this view of the matter, we are of the view that the assessee would be entitled to the grant of equitable relief in the exercise of the jurisdiction under Article 226 of the Constitution. In pursuance of the notice under Section 226(3), an amount of Rs.4.76 crores has been withdrawn. Considering the interests of the Revenue, we are of the view that it would not be appropriate to direct that the entire amount should be restored in the bank account of the assessee. The learned counsel for the Petitioner submitted that on a conservative estimate, an amount of Rs.63.00 lakhs is required to run all the institutions and just to meet the day to day expenses every month. Having regard to this position, we are of the view that it would be appropriate for the Court to ensure that sufficient funds are restored to the bank account of the Petitioner with a view to allow it to carry on its activities for a period of 45 days within which recourse can be taken to the pending stay application before CIT(A) and if an adverse order is passed, thereafter to such remedies as may be available in law. Considering that the total demand is of Rs.11.72 crores, it would meet the ends of justice if the Revenue at this stage is permitted to retain an amount of Rs.3.76 crores and to put back an amount of Rs.One Crore in the account of the assessee. To recapitulate, we have found that the action under Section 226(3) was arbitrary and high handed. The Petitioner is an order of Catholic Sisters which has not, the Court is informed by learned Senior Counsel, been left with virtually any funds to carry on their day to day welfare activities. The appeals for A.Ys. 2004-05, 2006-07 and 2009-10 are pending. The applications for stay of demand are yet to be heard.
13. We accordingly proceed to dispose of the petition in terms of the following order :
(i) The Commissioner of Income Tax (Appeals)-I before whom the appeals are pending for A.Ys. 2004-05, 2006-07 and 2009-10, shall dispose of the applications for stay of demand within a period of three weeks from the receipt of an authenticated copy of this order;
(ii) Out of the amount of Rs.4.76 crores that was withdrawn by the First Respondent in pursuance of the notices under Section 226(3) dated 10 January 2013 and 11 January 2013, an amount of Rupees One crore shall be repatriated to the bank account of the Petitioner held in Bank of India, Bandra (West), Mumbai- 400050 forthwith upon receipt of an authenticated copy of this order;
(iii) The balance of the amount which has been recovered in pursuance of the notice under Section 226(3) shall abide by the orders that may be passed by the CIT(A)-I subject to such further remedies as may be available to the Petitioner, if an adverse order is passed.
14. The petition is accordingly disposed of. There shall be no order as to costs.
A welcome judgement. It would be very nice if CBDT issues an internal circular circular covering the governing principles laid down by the Court in para 11 of the Judgement.
Regards.
R Balasubramanian, Chennai-59.