2000 (4) TMI 14 - HC - Income Tax

Section 148 notice and penalty quashed; 12A(a) registration preserves tax benefits; 80G(5) charitable status remitted for reconsideration

Hiralal Bhagwati Versus Commissioner Of Income-Tax

The HC quashed the section 148 notice and related penalty notices and allowed the petition, holding that the trust's registration under section 12A(a) ... Validity of notice u/s 148 - Charitable Purposes - objects of the trust - general public utility - benefits are limited to its members only, who cannot be termed as 'members of the public' - Donation To Charitable Institution - Denial of the exemption and benefit under section 80G(5) - HELD THAT:- It is very clear that when a notice has been issued on the ground that the income has escaped assessment, then it becomes the duty of the concerned respondent to file an affidavit and to place necessary material before the court and having not done so, the notice issued by respondent No. 2, vide annexure K dated February 10, 1989, under section 148 of the Act is hereby quashed. It appears that the Commissioner of Income-tax has recognised the assessee as a trust for a charitable purpose under section 12A(a) of the Act, vide annexure E, dated April 21, 1982. Reading the registration, it becomes clear that the application has been entered in the register maintained in the office of the Commissioner. Respondent No. 2-Income-tax Officer, rejected the application on the ground that the object of the trust is to help by giving financial aid to the employees of the Gujarat Law Society in cases of death of an employee during his/her services, illness or permanent disability which incapacitates the employee to discharge his/her duties. In the opinion of the Income-tax Officer, it was restricted only to the employees of the assessee and, therefore, the object cannot be said to be of general public utility. It is in view of this, the Income-tax Officer rejected the prayer for exemption under section 80G of the Act and refused to grant exemption. The staff working in these institutes, on becoming members, are getting the benefits of the scheme. Thus, the staff members of all these institutes become entitled to get the benefit of the scheme. The object beneficial to a section of the public is an object of 'general public utility'. To serve as a charitable purpose, it is not necessary that the object must be to serve the whole of mankind or all persons living in a country or province. It is required to be noted that even if a section of the public is given benefit, it cannot be said that it is not a trust for charitable purpose in the interest of the public. It is not necessary that the public at large must get the benefit. It is required to be noted that considering the objects of general public utility, the matter is to be decided. In our opinion, looking to the scheme of the trust, which is produced on the record, it is clear that the same is intended to benefit a section of the public, which certainly can be distinguished. The persons who are entitled to get the benefit should be identifiable. In the instant case, the trust is created under a trust deed dated July 21, 1981. The rules and regulations are also framed vide annexure C. The funds are to be utilised for the purpose of availing of the benefit, the employee has to become a member on payment of entrance fees, and is required to make a contribution to the fund. The trust was created with a view to provide assistance in case of sickness, etc. The rules and regulations are made for the purpose of administering the funds in the interest of the employees. At the relevant time, the application for registration was required to be made for registration of a charitable or religious trust or institution in Form No. 10A under rule 17A read with section 12A(a) of the Act. It is also required to be noted that once the registration under section 12A(a) of the Act is granted, the grant of benefit cannot be denied. The Income-tax Officer was not justified in refusing the benefits which would otherwise accrue under the registration. If there was no registration, as contemplated under section 12A(a) read with rule 17A, the Revenue would have been justified in making a submission that the benefit cannot be granted, but where the application for registration is submitted and the registration has been granted, the benefit cannot be denied on the ground that the scheme is not for the benefit of the public at large. In the result, we allow this petition and we quash and set aside the order rejecting the application for exemption under section 80G(5) of the Act, with a direction to decide the same in accordance with law. The proceedings initiated under section 148 of the Income-tax Act against the assessee for the assessment year 1984-85 and the notices issued under sections 271(1)(a), 271(1)(c) and 273(2)(b) for the assessment year 1985-86 are hereby quashed and set aside. Issues Involved:1. Validity of notice u/s 148 of the Income-tax Act, 1961.2. Entitlement of the trust to exemption u/s 80G(5) of the Income-tax Act, 1961.3. Legality of penalty proceedings initiated u/s 271(1)(a), 271(1)(c), and 273(2)(b) of the Income-tax Act, 1961.Summary:1. Validity of Notice u/s 148:The court examined the issuance of notice u/s 148 for the assessment year 1984-85. The petitioners argued that the notice was issued without jurisdiction as there was no material indicating that income had escaped assessment. The court referenced the apex court's decisions in Madhya Pradesh Industries Ltd. v. ITO and Union of India v. Rai Singh Deb Singh Bist, emphasizing that the Income-tax Officer must provide reasons and material for reopening the assessment. Since the respondents failed to file an affidavit or provide necessary material, the court quashed the notice issued u/s 148 dated February 10, 1989.2. Entitlement to Exemption u/s 80G(5):The trust, registered under the Bombay Public Trusts Act, 1950, and recognized u/s 12A(a) of the Income-tax Act, was denied exemption u/s 80G(5) by the Income-tax Officer on the grounds that its objects were not of general public utility. The court noted that the trust's purpose of aiding employees of the Gujarat Law Society in cases of death, illness, or disability is a charitable purpose benefiting a section of the public. The court highlighted that registration u/s 12A is not an idle formality and once granted, the benefits cannot be denied. The court referenced various apex court decisions, including Addl. CIT v. Surat Art Silk Cloth Manufacturers Association and CIT v. Federation of Indian Chambers of Commerce and Industry, to support the view that an object beneficial to a section of the public is an object of general public utility. Consequently, the court quashed the order rejecting the application for exemption u/s 80G(5) and directed the Income-tax Officer to decide the same in accordance with law.3. Legality of Penalty Proceedings:Given the quashing of the notice u/s 148 and the recognition of the trust's charitable status, the court also quashed the penalty proceedings initiated u/s 271(1)(a), 271(1)(c), and 273(2)(b) for the assessment year 1985-86.Conclusion:The petition was allowed, quashing the notice u/s 148, the order rejecting exemption u/s 80G(5), and the penalty proceedings. The court directed the Income-tax Officer to reconsider the application for exemption in accordance with law. Rule was made absolute to the aforesaid extent.