Court Deems Recovery Notices Arbitrary, Orders Return of Rs.1 Crore to Petitioner

The Court found the execution of recovery notices under Section 226(3) to be arbitrary and high-handed, depriving the Petitioner of any recourse. It directed the Commissioner of Income Tax (Appeals) to dispose of the stay applications promptly and ordered the Revenue to return Rs.1 crore to the Petitioner's bank account for operational purposes. The remaining recovered amount was to be subject to the CIT (Appeals) orders. The petition was disposed of without costs.

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Issues Involved:
1. Withdrawal of registration under Section 12AA of the Income Tax Act.
2. Denial of exemption under Section 11 of the Income Tax Act.
3. Execution of recovery notices under Section 226(3) of the Income Tax Act.
4. Pending appeals before the Commissioner of Income Tax (Appeals).
5. Request for stay of demand and opportunity of being heard.

Detailed Analysis:

1. Withdrawal of Registration under Section 12AA:
The Petitioner, a public trust registered under the Bombay Public Trusts Act, 1950, was granted registration under Section 12A of the Income Tax Act in 1975. An amendment to the objects clause in 1986 included a reference to rendering services primarily for Catholics in consonance with Catholic principles. Despite this amendment, the registration under Section 12A was not withdrawn until 2008. A notice for withdrawal of registration under Section 12AA was issued on 25 March 2011, and the Petitioner filed objections on 23 September 2011, but proceedings are still pending.

2. Denial of Exemption under Section 11:
The Petitioner was granted exemptions under Section 11 of the Act from 1975 until 2010, even after the amendment in the objects clause. However, for Assessment Years (AY) 2009-10, the exemption was denied on 7 December 2012, citing the amended objects clause. Similarly, exemptions for AYs 2004-05 and 2006-07 were withdrawn by orders dated 29 December 2011.

3. Execution of Recovery Notices under Section 226(3):
Recovery notices under Section 226(3) were issued to the Petitioner's bank on 10 and 11 January 2013, demanding payment of Rs.11.72 crores. The bank was instructed not to contact the Petitioner until payment was made. The Petitioner received these notices on 17 January 2013, after the funds had already been withdrawn, leaving the Petitioner with virtually no funds to run its institutions.

4. Pending Appeals before the CIT (Appeals):
The Petitioner filed appeals for AYs 2004-05, 2006-07, and 2009-10 before the Commissioner of Income Tax (Appeals), which are still pending. Despite requests to keep the demands in abeyance, no decision has been taken on these appeals.

5. Request for Stay of Demand and Opportunity of Being Heard:
The Petitioner argued that the execution of recovery notices was high-handed and contrary to law, as applications for stay of demand were pending and no hearing was granted. The Petitioner contended that the original orders of assessment had granted exemptions under Section 11 after considering the amended objects clause and that the institutions were open to all communities. The Court noted that the manner in which Section 226(3) was executed showed a breach of the provision, as the Petitioner was not given prior notice, depriving them of any recourse.

Conclusion:
The Court found the action under Section 226(3) to be arbitrary and high-handed. It directed the CIT (Appeals) to dispose of the stay applications within three weeks and ordered the Revenue to repatriate Rs.1 crore to the Petitioner's bank account to allow it to continue its activities. The balance amount recovered would be subject to the orders of the CIT (Appeals). The petition was disposed of with no order as to costs.

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