Hinduja Foundation v. Income Tax Officer, Exemptions 1(3), Mumbai & Anr

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO. 2866 OF 2018 Hinduja Foundation..Petitioner Versus Income Tax Officer, Exemptions 1(3), Mumbai & Anr...Respondents ................... Mr. Mihir Naniwadekar a/w Mr. Ruturaj Gurjar for the Petitioner Mr. Mihir Naniwadekar a/w Mr. Ruturaj Gurjar for the Petitioner Mr. Charanjeet Chanderpal a/w Ms. Pragya Chandra for theRespondentMr. Charanjeet Chanderpal a/w Ms. Pragya Chandra for theRespondent ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : FEBRUARY 15, 2019. P.C.: 1.The petitioner has challenged a notice of reopening ofassessment dated 23.3.2018 issued by respondent -Assessing OfÏcer under Section 148 of the Income Tax Act,1961 ("the Act" for short). 2.Brief facts are as under:- 2.1 Petitioner - Hinduja Foundation is a registeredtrust. The petitioner had filed return of income for theassessment year 2013-14 on 27.9.2013 disclosing NILincome after taking benefit of Section 11 of the Act. The return was taken in scrutiny by the Assessing OfÏcer. Hepassed an order of assessment under Section 143(3) of theAct on 29.1.2016 in which he accepted the petitioner'sdeclaration of NIL Income. To reopen such assessment, theAssessing OfÏcer issued the impugned notice which, as canbe seen was done within a period of four years from the endof relevant assessment year. In order to do so, he hadrecorded following reasons:- -" Reasons for reopening of assessment u/s. 148 of the Income-Tax Act, 1961 for A.Y. 201314 1.The assessee is a trust which is registered with the Director ofIncome Tax (Exemption), Mumbai u/s. 12A under registration No.TR/H(a)/33/74-758 of the Income Tax Act, 1961. The trust is alsoregistered with the Charity Commissioner, Mumbai. 2.The main object of the trust is as under:- i) Operating, Running, Continuing education and vocationalschool.school. ii) Establishment&supportofProfessorships,Instructorships, Fellowships, Lectureships, Scholarshipsand prizes at any school, colleges or other educationalinstitutions. Instructorships, Fellowships, Lectureships, Scholarshipsand prizes at any school, colleges or other educationalinstitutions. iii) Establishment & Maintenance of hostels and / or boardinghouses to students and those connected with theinstitutions.houses to students and those connected with theinstitutions. iv) Grant of subscriptions and donations to hospitals,dispensaries, convalescent homes, asylums, nursinghomes, orphanages, etc.dispensaries, convalescent homes, asylums, nursinghomes, orphanages, etc. v. Establishment of cheap or low rent chawls / buildings /housing for the poor etc. 3. In this case, the assessee filed return of income on 27.9.2013for the Asst. Year 2013-14 and declaring total income at Rs. NIL afterclaiming exemption u/S. 11 of the Income Tax Act, 1961. Theassessment u/S. 143(3) of the I.T. Act,1961 has been completed inthis case on 29.1.2016 assessing the total income at Rs. NIL. 4. During the course of assessment proceedings for A.Y. 2014-15which was completed u/S. 143(3) vide order dated 31.12.2016assessing total income at Rs. 4.29 crores, it is observed that theassessee has received of Rs. 1,98,71,842/- from P.D. HindujaNational Hospital & Research Centre (PDHNHRC) and shown asReimbursement of expenses. Hence, the claim of exemption u/s 11was denied. 4.1In this regard, the assessee had not furnished any documentsregarding agreement between P.D. Hinduja Hospital & ReseachCentre (PDHNHRC) during the course of proceedings for A.Y. 2014-15. 4.2Definition of Income as per 2(24)(iia) is reproduced as -under: 4. During the course of assessment proceedings for A.Y. 2014-15which was completed u/S. 143(3) vide order dated 31.12.2016assessing total income at Rs. 4.29 crores, it is observed that theassessee has received of Rs. 1,98,71,842/- from P.D. HindujaNational Hospital & Research Centre (PDHNHRC) and shown asReimbursement of expenses. Hence, the claim of exemption u/s 11was denied. 4.1In this regard, the assessee had not furnished any documentsregarding agreement between P.D. Hinduja Hospital & ReseachCentre (PDHNHRC) during the course of proceedings for A.Y. 2014-15. 4.2Definition of Income as per 2(24)(iia) is reproduced as -under: Voluntary contribution received by a trust created wholly orpartly for charitable or religious purposes or by an institutionestablished wholly or partly for such purposes [or by anassociation or institution referred to in clause (21) or clause(23), or by a fund or trust or institution referred to in sub-clause(iv) or sub-clause (v) [or by any university or other educationalinstitution referred to in sub-clause (iiiad) or sub-clause (vi) orby any hospital or other institution referred to in sub-clause(iiiae) or sub-clause (via)] of clause (23C) of Section 10 or byan electoral trust;] Explanation—For the purposes of this sub-clause, "trust"includes any other legal obligation;] From the plain reading of Section 2(24)(iia) of the I.T.Act, 1961, it is clear that any income derived from the propertyheld under the trust forms parts of its income. -4.4Findings during assessment proceedings for A.Y. 2014 15:- If the senior functionaries are working with P.D. HindujaNational Hospital & Research Centre (PDHNHMRC), then whyPDHNHMRC is not able to pay these functionaries directly, isnot divulged by assessee. The question arises that whyPDHNHMRC is using assessee as a tool to make payment tothese functionaries. When it can reimburse it then it can paythem directly also. 4.5The transaction is observed as follows: Whatever nomenclature used by the assessee,here assesseehas received a fund / donation for its object and has utilized forthe person who has donated money to the assessee. 4.6Here donation given by PDHNHMRC is more than Rs.50,000/-. Therefore PDHNHMRC is covered u/S. 13(3)(b) of the I.T.Act, 1961. 4.7 The assessee has reimbursed for Chief Expenditure offer(CEO) and two directors remuneration. As PDHNHMRC is itself atrust and all three persons are covered u/S. 13(3) of the I.T. Act, 1961and therefore, PDHNHMRC is using the assessee trust as a tool sothat there should not be any objection regarding denial of Section 11of the I.T. Act, 1961 of PDHNHMRC. Here, the assessee is only a tool in the hands of PDHNHMRCand the payment which should have been paid by itself. It has usedassessee as a tool to distinguish its transaction. Hence, the assessee has routed the funds through PDHNHMRC which shouldhave been paid by itself to distinguish the transaction. -4.8Section 13(3)(b) reads as under: The person referred to in clause 1 of sub-section (1) and sub-section (2) are the following namely:- any person who has made a substantial contribution to thetrust or institution, that is to say, any person whose totalcontribution up to the end of the relevant previous yearexceeds fifty thousand rupees; -Section 13(1)(c) reads as under: 13.(1) Nothing contained in section 11 or section 12 shalloperate so as to exclude from the total income of the previousyear of the person in receipt thereof— (i) if such trust or institution has been created or establishedafter the commencement of this Act and under the terms ofthe trust or the rules governing the institution, any part of suchincome enures, or -4.8Section 13(3)(b) reads as under: The person referred to in clause 1 of sub-section (1) and sub-section (2) are the following namely:- any person who has made a substantial contribution to thetrust or institution, that is to say, any person whose totalcontribution up to the end of the relevant previous yearexceeds fifty thousand rupees; -Section 13(1)(c) reads as under: 13.(1) Nothing contained in section 11 or section 12 shalloperate so as to exclude from the total income of the previousyear of the person in receipt thereof— (i) if such trust or institution has been created or establishedafter the commencement of this Act and under the terms ofthe trust or the rules governing the institution, any part of suchincome enures, or (ii) if any part of such income or any property of the trust or theinstitution (whenever created or established) is during theprevious year used or applied, directly or indirectly for thebenefit of any person referred to in sub-section (3). Section 13(2)(g) reads as under:- 2) Without prejudice to the generality of the provisions ofclause I and clause (d) of sub-section (1), the income or theproperty of the trust or institution or any part of such income orproperty shall, for the purposes of that clause, be deemed tohave been used or applied for the benefit of a person referredto in sub-section (3),— (g) if any income or property of the trust or institution is divertedduring the previous year in favour of any person referred to insub-section (3):during the previous year in favour of any person referred to insub-section (3): Provided that this clause shall not apply where the income,orthe value of the property or , as the case may be, theaggregate of the income and the value of the property, sodiverted does not exceed one thousand rupees; From the plain reading of the above section 13(1)(c) & 13(2)(g)of the I.T. Act, 1961 it is clear that the transaction of assessee withPDHNHMRC is covered u/s. 13(1)(c) & 13(2)(g) r.w.s. 13(3) OF THEI.T. Act, 1961. 4.9Accordingly, provision of Section 13(1)(c) & 13(2)(g) r.w.s.13(3) of the I.T. Act, 1961 were invoked and exemption u/s. 11 wasdenied to the assessee. 5. In A.Y. 2013-14 as well, the assessee has received Rs.76,59,018/- from PDHNHRC and again spent it on the officers /Directors of PDHNHRC and claimed it as reimbursement ofexpenses. Here, PD Hinduja National Hospital & Research Centre(PDHNHRC) is covered u/S. 13(3)(b) of the I.T. Act, 1961 as it hasdonated / given a sum of Rs. 76,59,018/- to the assessee. Here, assessee become 'Special Purpose Vehicle (SPV) ofHinduja Group. Assessee is making payment to three seniorfunctionaries of PDHNHMRC, who are working with PDHNHMRC,and showing it as applicable of income.What assessee has stated is that it has entered intoagreement to provide senior functionaries. Therefore, here again provisions of Section 13(1)(c) and 13(2)(g) r.w.s. 13(3) is applicable in A.Y. 2013-14 also and exemption u/s.11 claimed by the assessee of Rs. 87,71,567/- needs to be lookedinto. 6. Therefore, in view of the above discussion and in order toarrive at the real income of the assessee, its computation needs tobe re-worked for the relevant assessment year, as far as the aboveissue is concerned. 7. In view of the above facts, I have been reason to believe thatan amount of more than Rs. 1,00,000/- which has been claimed asexempt u/s. 11 of the I.T. Act, 1961 for A.Y. 2013-14 has escapedassessment within the meaning of section 147 of the I.T. Act, 1961.Therefore, I am satisfied that this is a fit case for reopening u/S. 147 of the I.T. Act, 1961 for issue of notice u/s. 148 of the Income TaxAct, 1961. 8.The sanction u/s. 151(2) of the Income Tax Act, 1961 issolicited for issuance of notice u/S. 148 of the Act, if approved, asthe assessment is completed u/s 143(3) of the Act." 3.Upon being supplied the reasons, the petitioner raised 7. In view of the above facts, I have been reason to believe thatan amount of more than Rs. 1,00,000/- which has been claimed asexempt u/s. 11 of the I.T. Act, 1961 for A.Y. 2013-14 has escapedassessment within the meaning of section 147 of the I.T. Act, 1961.Therefore, I am satisfied that this is a fit case for reopening u/S. 147 of the I.T. Act, 1961 for issue of notice u/s. 148 of the Income TaxAct, 1961. 8.The sanction u/s. 151(2) of the Income Tax Act, 1961 issolicited for issuance of notice u/S. 148 of the Act, if approved, asthe assessment is completed u/s 143(3) of the Act." 3.Upon being supplied the reasons, the petitioner raised objections to the notice of reopening of assessment undercommunication dated 16.7.2018. Such objections wererejected by the Assessing OfÏcer by order dated 24.8.2018upon which this petition has been filed. 4.Mr. Naniwadekar, the learned counsel appearing for the petitioner has raised following two main contentions:- (i) The Assessing OfÏcer has proceeded on entirelyerroneous factual basis. The impugned noticeshould, therefore, be quashed;erroneous factual basis. The impugned noticeshould, therefore, be quashed; (ii) Even going by the reasons recorded by theAssessing OfÏcer, it cannot be stated that anyincome chargeable to tax in the hands of theassessee had escaped assessment. In other words,the reasons recorded lack validity. Assessing OfÏcer, it cannot be stated that anyincome chargeable to tax in the hands of theassessee had escaped assessment. In other words,the reasons recorded lack validity. 5.On the other hand, learned counsel for the Revenue opposed the petition contending that the Assessing OfÏcerhas recorded proper reasons. At this stage, the Court would not examine the sufÏciency of the reasons. 6.Having heard the learned counsel for the parties andhaving perused the documents on record, we may recall thatthe impugned notice has been issued within the period offour years from the end of relevant assessment year in acase where original assessment was framed after scrutiny. Itis not the case of the petitioner that the ground on which theAssessing OfÏcer desires to reopen the assessment, came upfor discussion during the original scrutiny assessment. Inother words, the assessee does not press the ground ofchange of opinion to attack the impugned notice. 7.To appreciate the petitioner's contention, we maysummarize the reasons which the Assessing OfÏcer hasrecorded. These reasons are some what long but in short,what the Assessing OfÏcer has contended is that thepetitioner Hinduja Foundation had received donation fromHinduja Hospital which is also a registered trust of a sum ofRs. 76.59 lacs. This amount was spent on the ofÏcers /directors of Hinduja Hospital and was claimed as 7.To appreciate the petitioner's contention, we maysummarize the reasons which the Assessing OfÏcer hasrecorded. These reasons are some what long but in short,what the Assessing OfÏcer has contended is that thepetitioner Hinduja Foundation had received donation fromHinduja Hospital which is also a registered trust of a sum ofRs. 76.59 lacs. This amount was spent on the ofÏcers /directors of Hinduja Hospital and was claimed as reimbursement of expenditure. According to the AssessingOfÏcer, therefore, such receipt was hit by Section 13(3)(b) ofthe Act. In the process, the Assessing OfÏcer refers to adetail exercise which he had undertaken in case of theassessee for the assessment year 2014-15. We are preparedto accept the contention of the learned counsel for thepetitioner that the sum of Rs. 76.59 lacs is not accurate andin fact, the petitioner trust had received a sum of Rs. 68.16lacs from Hinduja Hospital. However, a mere minorinaccuracy in indicating the figure in the reasons recorded,would not shake the very foundation of the reasons so as tonullify the notice of reopening based on such reasons. Weare also prepared to proceed on the basis as contended bythe learned counsel for the petitioner that there may besome differences in the situation emerging out of the returnfor the assessment year 2014-15 and the present one.Nevertheless, when we examined the situation in the presentyear, on the basis of reasons recorded by the AssessingOfÏcer, we are unable to accept either of the twocontentions. Once, we proceed on the basis that thepetitioner Hinduja Foundation received sizable donation from Hinduja Hospital and the Assessing OfÏcer asserts on theprima facie information available with him that such sumwas spent on the ofÏcers / directors of Hinduja Hospital, thequestion of applicability or non-applicability of Section 13(3)(b) in the context of the provisions contained in Section 13(1)(c)(ii) would arise. When such an issue was never examinedby the Assessing OfÏcer during the original scrutinyassessment, we would be well advised not to carry out anincisive inquiry into the question which would an inquiry,necessarily be factual as well as legal. An opinion of law canbe rendered only once facts are conclusively established. Itis a settled law that at the stage of examining the validity ofnotice of reopening of assessment in a Writ Petition, theCourt would not, in exercise of the writ jurisdiction, go intothe sufÏciency of the reasons recorded by the AssessingOfÏcer. Reference in this respect can be made to thedecisions of the Supreme Court in the case of RaymondWoollen Mills Ltd Vs. I.T.O. & Ors.[1]and in the case ofACIT Vs. Rajesh Jhaveri Stock Brokers Pvt Ltd[2]. 1(1999) 236 ITR 34 (SC) 2(2007) 291 ITR 500 (SC) 8.In the result, the petition is dismissed. 9.At this stage, learned counsel for the petitioner prayedthat the interim relief against carrying out the assessmentmay be continued to enable the petitioner to carry thematter in the appeal. Even in absence of continuation ofstay, the Assessing OfÏcer is unlikely be able to complete theassessment in a hurry. Request for continuation of stay isrefused. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]