TaxTMI 
TaxTMI 
2010 (3) TMI 701
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....ing with various statutory requirements of the Income-tax Act. 2.(a) The petitioner is eligible for exemption in respect of income as per section 10(23C) of the Income-tax Act and application has been made to the first respondent through the Commissioner of Income-tax for exemption under the said provision. It is stated that the petitioner-society has been granted exemption up to 2008-09. 2.(b) It is stated that for the year 2007-08, the first respondent by order dated March 4, 2008, accorded approval under the abovesaid provision read with rule 2CA of the Income-tax Rules, 1962, and the approval was subject to certain conditions which included that the accu-mulated income has to be spent for the object of the society and the society should not invest or deposit its funds otherwise than the modes specified under section 11(5) of the Income-tax Act and the said approval is not applicable to any income received by way of profit or gain of business and the society should regularly file return and the approval would be void if it is subsequently found that the same has been obtained by fraud or mis-representation, apart from various other conditions. 2.(c) For t....
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....ondents proposed to withdraw the approval granted by the Director General in respect of the assessment years 2007-2008 and 2008-09 for the reason that for the assess-ment year 2009-10, the approval has been withdrawn.2.(g) It is stated that the rejection for the year 2009-10 with the reason given is not relating to that year and not even relating to the years 2007-08 and 2008-09 and the allegations are relating to the years 1999-2000 to 2000-01 and 2003-04. 3. The said impugned order and show-cause notices are challenged by the petitioner on various grounds that without any evidence of contravention of conditions by the petitioner, the orders have been passed ; that as per section 10(23C), thirteenth proviso, the violation must be only in respect of the relevant year ; that under the third proviso, the prescribed authority must notice that there are violation of conditions set out in respect of the assessment year for which the approval has been sought for ; that in respect of certain irregularities stated to have been found for the previous years, the rejection for the assessment year 2009-10 is not valid ; that the petitioner has complied with various conditions set out i....
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....in the order dated October 26, 2009. 4.(c) It is stated that false accounts have been maintained and the society have not satisfied the conditions stipulated in section 10(23C)(vi) of the Act. It is stated that the approval granted to the petitioner-society on December 11, 2002, for the assessment years 1999-2000 to 2001-02 was given prior to the discovery of incriminating materials which were found during the search made on August 12, 2004, and the proceedings for rescinding of the notification are still pending. 4.(d) It is stated that after the search, no approval was granted under section 10(23C)(vi) for any assessment year up to the assessment year 2006-07 and the approval was granted only for the assessment years 2007-08 and 2008-09 without appreciating the seized records and, there-fore, a notice for withdrawal of approval for those two years was issued under the impugned proceedings dated October 22, 2009, and such notice is authorized as per section 10(23C), thirteenth proviso. 4.(e) It is stated that the conclusion arrived at by the first respondent based on the seized accounts is in consonance with the order of the Income-tax Appellate Tribunal, C....
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....uation of such concession at all. It is his submission that the withdrawal or refusal of grant of such concession can only be based on the past conduct and he would rely upon various judgments in Dhansiram Agarwalla v. CIT [1993] 201 ITR 192 (Gauhati), Coimbatore Spinning and Weaving Co. Ltd. v. CIT [1974] 95 ITR 375 (Mad) to substantiate his contention that the past conduct can be taken into consideration. According to him, if the condi-tions of exemption are violated, certainly the petitioner is not entitled for the grant of exemption for subsequent years and even if a mistake has been committed earlier, such mistake cannot be permitted to continue. 7. I have heard the learned senior counsel for the petitioner and the learned senior Central Government standing counsel for the respondent- Department and perused the records and given my anxious thoughts to the issue involved in this case. 8. It is an admitted case as it is seen in the counter-affidavit filed by the respondents that the petitioner-society was granted approval under section 10(23C)(vi) of the Income-tax Act for the assessment years from 1999-2000 to 2001-02 and a search operation was effected by the D....
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....ificates of a non-resident ; (v) the value of any travel concession orassistance received by or due to an individual from his employer ; (vi) theremuneration received by an individual who is not a citizen of India as an fficial of an embassy, etc. ; (vii) the remuneration received by an individualwho is not a citizen of India as an employee of a foreign enterprise for services rendered by him during his stay in India ; (viii) income chargeable under the head "Salaries" received by or due to any individual being a non-resident as remuneration for services rendered in connection with his employment on a foreign ship ; (ix) remuneration received as an employee of the Gov-ernment of a foreign State during his stay in India ; (x) allowance or perquisites paid or allowed outside India by the Government to a citizen of India ; (xi) any remuneration or fee received by a consultant out of the funds made available to an international organization, etc. 11. In sub-section (23) of section 10, any income of an association or insti-tution established in India, notified by the Central Government, having regard to the fact that the association or institution has as its object the control, ....
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....cation as on the 31st day of May, 2007, the pres-cribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director General. (2) An application for approval shall be made in Form No. 56D by any university or other educational institution or any hospital or other medical institution referred to in sub-clause (vi) or sub-clause (via) of clause (23C) of section 10. (3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, granted before the 1st day of December, 2006, shall at any one time have effect for a period not exceeding three assessment years. Explanation.-For the purposes of this rule, the Chief Commis-sioner or Director General means the Chief Commissioner or Director General whom the Central Board of Direct Taxes may, authorise to act as prescribed authority, for the purpose of sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, in relation to any university or other educational institution or any hospital or other medical insti-tution." 14. The proviso to the said rule which enables an application for approval to be made in Form 56D, in colu....
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....ical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf : Provided also that the fund or trust or institution or any university or other educational institution or any hospital or other medical insti-tution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via)- (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent. of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent. of its income shall in no case exceed five years ; and (b) does not invest or deposit its funds, other than- (i) any assets held by the fund, trust or institution or any uni-versity or other educational institution or any hospital or other medical institution where such assets form part of the corpus of the fund, trust or institution or any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1973 ; (ia) any asset, being equity shares of a ....
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.... medical institution, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later : Provided also that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical insti-tution, being profits and gains of business, unless the business is inci-dental to the attainment of its objectives and separate books of account are maintained by it in respect of such business : Provided also that any notification issued by the Central Govern-ment under sub-clause (iv) or sub-clause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006, receives the assent of the President, shall, at any one time, have effect for such assess-ment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification issued) as may be specified in the n....
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....oes not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or to any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established : Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is not notified by the Central Government or is approved by the prescribed authority, as the case may be, or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that- (i) such fund or institution or trust or any universi....
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....ld be made for every assessment year. 18. Under the third proviso, when an institution covered under section 10(23C)(vi) applies its income or accumulates it for application, wholly to the objects for which it is established and in a case where 15 per cent. of its income is accumulated on or after April 1, 2002, the amount exceeding 15 per cent. shall not be accumulated beyond five years. Further, the said pro-viso makes it clear that such institution shall not deposit or invest its funds other than five circumstances mentioned therein, during the previous year otherwise than in any one or more of the forms or modes specified in sec-tion 11(5) of the Income-tax Act which prescribes the modes of investing or depositing the moneys including the investment in saving certificates as defined in the Government Savings Certificates Act, 1959, the deposit in any account with the post office savings bank, any scheduled bank or co-operative-society engaged in carrying on business of banking, investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963, investment in any security for money created and issued by the Central or State Government, investment....
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....ccumulation to any trust or institution registered under section 12AA or to any fund or trust or institution or uni-versity or other educational institution or any hospital or other medical institution, etc., that shall not be treated as an application of income to the object for which the institution was established. Therefore, the said proviso makes it clear that in cases where the fund of the institution or trust or any university or other educational institution or any hospital or other medical institution are utilised otherwise than the purpose for which the institution was established, it is open to the authority to reject such application. That depends upon the conduct of the society for the purpose of rejection of claim of exemption in that year. 22. The more important proviso is the twelfth proviso which enables the prescribed authority, viz., the first respondent herein to take action to with-draw the approval after giving reasonable opportunity of showing the cause of the proposed action to the concerned institution when such insti-tution has not applied its income for the purpose for which it was estab-lished or invested the amount against the conditions or the ....
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....ed under section 11(5) of the Income-tax Act enumerated above. 25. The Government has in effect issued various circulars including Circular No. 580, dated September 14, 1990*, within the meaning of section 2(24) of the Act by granting exemption under section 10(23C). In the above back-drop of the legal position, we have to consider the impugned order passed by the first respondent especially for the year 2009-10 in respect of which year a positive order of rejection has been passed. A reading of the impugned order shows that by application of section 132(4A) which is as follows : "132.(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery, or other valuable article or thing belong or belongs to such person ; (ii) that the contents of such books of account and other docu-ments are true ; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular p....
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.... on the facts found that for the assessment year 1999-2000 there was gross difference between the contents of CDs. and the returns filed by the peti-tioner. It was also found on the facts that in respect of the assessment year 2003-04 there was a difference as seen from the documents seized. It was in those circumstances, the assessee's appeal came to be dismissed by the Income-tax Appellate Tribunal in its order dated March 31, 2009, and that dismissal order itself was based on the legal presumption drawn which was not rebutted by the assessee. 28. Further, it is seen from the order of rejection that the Income-tax Appel-late Tribunal has found on the basis of statement of auditor that payments were partly routed through the auditor for the personal benefits of the members of the society. After the rejection of the appeal filed by the asses-see on this account, it is not in dispute that no exemption was granted to the petitioner-society in the year 2005-06. However, on the facts, in the years 2006-07, 2007-08 and 2008-09, such exemption came to be granted in respect of which the impugned show-cause notice was issued and for the year 2009-10, taking note of the previous conduct of....
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..... I was paid audit fee of Rs. 90,000 (approximately) and monthly fee for han-dling banking loan transactions which will be around Rs. 50,000 per month. All the other transactions routed through my concern M/s. K.S. & Co. are for the personal benefits of the members of the society and not for any developmental activities of the society. M/s. Val-liammai Society used current account with Tamil Nadu Mercantile Bank and Oriental Bank of Commerce for discounting the cheques to raise temporary funds and later on they used to deposit the amount back in the current account. As stated above, the funds were utilised mainly for the personal benefits of the promoters." 32. While dismissing the appeal of the assessee, viz., M/s. SRM Systems and Software Private Limited for the assessment year 2004-05 in I. T. A. No. 1221 (Mds)/2008, dated March 31, 2009, the Tribunal considered the issue relating to the C.Ds. which were seized, in the light of the judgment of the Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 and came to the conclusion as follows : "8. The case law referred to by the learned counsel of the assessee were in the context of matters where two views were pos....
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....on of the jurisdiction by the Commissioner of Income-tax is justified." 33. While deciding about the drawing of inference under the Income-tax law, the Division Bench of this court in Coimbatore Spinning and Weaving Co. Ltd. v. CIT [1974] 95 ITR 375 held as follows (page 381) : "It is true that the decisions referred to above establish the position that it is for the Revenue to show that a particular receipt is an income, that whether the explanation given by the assessee as to the source of that receipt is acceptable or not is primarily a matter for the Tribunal and that the explanation of the assessee as to the source from which the receipts had been obtained had to be considered in the light of all the facts and circumstances. The assessee, relying upon these decisions, points out that the Tribunal was not justified in draw-ing the inference that the excess stocks of cotton should represent the assessee's income, merely because the assessee's explanation that there were no excess stocks was not acceptable. But, as pointed out by the Supreme Court in CIT v. Durga Prasad More [1969] 72 ITR 807, the principle that once it is found that a receipt by the assessee was his income, it....