Indian Medical Trust v. Principal Commissioner Of Income-Tax Central, Jaipur,New Central Revenue Building, State Circle,New Central Revenue Building, State Circle

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR S.B. Civil Writs No. 6896/2018 Indian Medical Trust Having Its, At 4, Govind Marg, AdarshNagar, Jaipur In The State Of Rajasthan. ----Petitioner Versus 1. Principal Commissioner Of Income-Tax Central, Jaipur,New Central Revenue Building, State Circle,New Central Revenue Building, State Circle, 2. Deputy Commissioner Of Income-Tax, Central Circle 1,Jaipur New Central Revenue Building, State CirJaipur New Central Revenue Building, State Cir ----Respondents Connected With Principal Commissioner Of Income Tax Central, Rajasthan, NewCentral Revenue Building Extension Building, Near Statue Circle,Janpath, Jaipur. ----Petitioner Versus M/s. Indian Medical Trust, 4, Govind Marg, Adarsh Nagar, Jaipur-302004. ----Respondent For Petitioner(s) : Mr. S.S. HoraFor Respondent(s): Mr. Anil Mehta, AAG HON'BLE MR. JUSTICE VEERENDR SINGH SIRADHANA 12/02/2019 Order The above noted two writ applications have been taken uptogether for adjudication by this common order for both the writapplications are directed against the very same order of IncomeTax Settlement Commission (ITSC), dated 30[th] June, 2017, and asconsented by the counsel for the parties. The first writ application has been instituted by the petitioner i.e. the Indian Medical Trust,with the prayer for rectification of the orders dated 30[th] June,2017 and 08[th] Feb, 2018, made by the Income Tax SettlementCommission to the extent: a)to grant of benefit of Section 11 (1) (a) of the Rajasthan Public Trust Act, 1959,Public Trust Act, 1959, b)to bring and carry forward the unabsorbed losses, c)to grant benefit of amount spent on construction of new educational buildings,educational buildings, d)to grant benefit of amount incurred towards news channel; andchannel; and e)for quashment of telescoping the benefit of cash expenses. The prayer clause of the first writ application, reads thus: “(a) By an appropriate writ, order or direction, the ordersdated 30.06.2017 & 08.02.2018 passed by the SettlementCommission to the extent of (a) grant of benefit of section11(1) (a) of the Act, (b) brought forward and carry forwardof unabsorbed losses, (c) amount spent on construction ofnew educational buildings, (d) amount incurred towardsnews channel and (e) telescoping benefit of cash expensesbe quashed, modified, set aside; (b) By an appropriate writ, order or direction, therespondents be directed to re-compute the total incomeafter giving the benefit of (a) grant of benefit of section11(1)(a) of the Act, (b) brought forward and carry forwardof unabsorbed losses, (c) amount spent on construction ofnew educational buildings, (d) amount incurred towardsnews channel and (e) telescoping benefit of cash expenses; (c) By an interim order the demand against the petitionerbe stayed; (d) By an appropriate writ, order or direction any otherrelief deemed beneficial to the humble petitioner be alsoawarded; (e) This writ petition be allowed with costs.” 2.The second writ has been instituted by the respondent-Income Tax-Department, seeking to set aside or quash the orderdated 30[th] June, 2017, made by the Income Tax SettlementCommission. The prayer clause of the second writ application,reads thus: “1. Issue appropriate writ, order and/or direction declaringthe impugned order dated 30.06.2017 (Annexure-1) passedby Settlement Commission as bad, illegal and invalid in theeyes of law and the same may kindly be quashed and setaside; 2. Issue appropriate writ, order and/or direction bydeclaring that the disclosure made by the respondents inits settlement application to be neither “full” nor “true” andso, declaring the immunity granted to the respondentsfrom penalty and prosecution as bad in law and liable to bedenied; 2.The second writ has been instituted by the respondent-Income Tax-Department, seeking to set aside or quash the orderdated 30[th] June, 2017, made by the Income Tax SettlementCommission. The prayer clause of the second writ application,reads thus: “1. Issue appropriate writ, order and/or direction declaringthe impugned order dated 30.06.2017 (Annexure-1) passedby Settlement Commission as bad, illegal and invalid in theeyes of law and the same may kindly be quashed and setaside; 2. Issue appropriate writ, order and/or direction bydeclaring that the disclosure made by the respondents inits settlement application to be neither “full” nor “true” andso, declaring the immunity granted to the respondentsfrom penalty and prosecution as bad in law and liable to bedenied; 3. In the alternative, issue any appropriate writ, order ordirection and grant the benefit of extrapolation to thepetitioner-department on the basis of material producedbefore the learned ITSC and in view of the submissionsmade therein. 4. In the alternative, issue any appropriate writ, order ordirection and set aside the benefit given by the learnedITSC to the assessee on the basis of an unverified and aflawed valuation report; 5. Issue any other writ, order or direction which thisHon’ble Court may deem fit and proper in thecircumstances of the case.” 3.Shorn off unnecessary details, the essential skeletal material facts necessary for appreciation of the controversy raised are: thatthe petitioner-Indian Medical Trust, came into existence through aTrust Deed dated 23[rd] February, 2000, and was registered under the Rajasthan Public Trust Act, 1959 (for short, Act of 1959). Thepetitioner trust was also accorded registration under section 12 Aof the Income-Tax Act, 1961 (for short, Act of 1961), by theCommissioner of Income Tax, Jaipur, vide registration no. 253/34with effect from 24[th] March, 2000. The petitioner trust was lateron granted approval under section 10 (23C) (v) and 10 (23C)(via) of the Act of 1961, by the Commissioner of Income Tax,Jaipur vide notification dated 20[th] March, 2006. The petitionertrust filed its returns of income year to year which were dulyscrutinized in detail by the Income Tax department and the samewere accepted as complete returns of income without anyadditions thereon. The officials of the Income tax departmentcarried out a search and survey under section 132 of the Act of1961 on 30[th] October, 2014, on 9 premises of the petitioner Trust.On the basis of the search, the respondent-department issuednotices to the petitioner under section 153A of the assessmentyear 2009-10 to 2014-15 on 06[th] August, 2015. The petitionerfiled the returns of income for the assessment year 2014-15 on30[th] September, 2015. Thereafter, on 14[th] December 2015, asettlement application under section 245C (1) of the Income TaxAct, 1961, was filed by the petitioner before the Income TaxSettlement Commission for the assessment years 2009-10 to2015-16. The application was admitted vide order dated 23[rd] Dec,2015, under section 245D (1) of the Income Tax Act, 1961. Theapplication aforesaid was not declared invalid and wasmaintainable under section 245D (2C) of the Income Tax Act,1961. The respondent-department submitted the report underRule 9 on 10[th] May, 2016. Comments under Rule 9A, were (5 of 43) (5 of 43) submitted by the petitioner on 27[th] June, 2016. The Income taxSettlement Commission made the impugned order dated 30[th]June, 2017, under section 245D (4) of the Act of 1961. Thepetitioner Trust and the respondent-department, both filedrectification applications under section 245D (6B) of the Act of1961, before the Settlement Commission, for rectification ofcertain factual errors and mistakes apparent of the face of therecord in the impugned order dated 30[th] June, 2017. Therespondent-department vide order dated 16[th] Jan, 2018, cancelledthe registration granted to the petitioner Trust under section 12Aof the Act of 1961 and also withdrew the approval accorded undersection 10 (23C) (v) and 10 (23C) (via) of the Act of 1961, withretrospective effect from 1[st] April, 2006. The SettlementCommission then disposed off the rectification application filed bythe petitioner Trust, vide order dated 08[th] February, 2018, in thebackdrop of order dated 16[th] January, 2018, made by therespondent-department against the petitioner Trust, revoking theregistration granted, retrospectively. 4.Mr. S.S. Hora, learned counsel for the petitioner, reiteratingthe pleaded facts and grounds of the writ application contendedthat the petitioner is a Trust which is running various educationalinstitutions including Medical college, Dental college, Institute OfEngineering and Technology, School of Nursing, Nursing college,Physiotherapy college, Pharmacy college, Institute of Pharmacy,Para medical technology college, Institute of Management,International School and Hospital. It is further pointed out that themain object of the petitioner Trust is to impart education and provide medical help to the poor and needy and through freemedical camps as well, without any aim to earn profit. Further, thepetitioner Trust came into existence vide trust deed dated 23[rd]Feb, 2000 and was registered under the Act of 1959. Thepetitioner Trust was granted registration under section 12A of theAct of 1961 vide registration no. 253/34 on 24[th] March, 2000. Andit was further granted approval under section 10 (23C) (v) & 10(23C) (via) of the Act of 1961 by the Commissioner of IncomeTax, Jaipur, vide notification dated 20[th] March, 2006, forAssessment Year 2004-05 to 2006-07 and thereafter videnotification dated 29[th] April, 2008 for Assessment Year 2007-08and so on thereafter. The petitioner Trust filed its returns ofincome every year including for the assessment year 2001-02 to2012-13 and the same were scrutinized in detail by the IncomeTax Department regularly, without any addition to the returns ofincome submitted. 5.Learned counsel further stated that a search and survey wasconducted by the officials of the Income Tax Department on 30[th]October, 2014, under section 132 of the Income Tax Act, 1961, onthe premises of the petitioner. The petitioner filed a SettlementApplication under section 245C (1) of the Act of 1961, before theIncome Tax Settlement Commission on 14[th] December 2015, forthe period of assessment years 2009-10 to 2015-16. Thepetitioner offered additional undisclosed income of Rs.1,70,00,000/- (Rupees One crore seventy lacs), for the aforesaidperiod of assessment years and as per law; Entire tax and interestwas deposited by the petitioner beforehand. The Income Tax (7 of 43) 5.Learned counsel further stated that a search and survey wasconducted by the officials of the Income Tax Department on 30[th]October, 2014, under section 132 of the Income Tax Act, 1961, onthe premises of the petitioner. The petitioner filed a SettlementApplication under section 245C (1) of the Act of 1961, before theIncome Tax Settlement Commission on 14[th] December 2015, forthe period of assessment years 2009-10 to 2015-16. Thepetitioner offered additional undisclosed income of Rs.1,70,00,000/- (Rupees One crore seventy lacs), for the aforesaidperiod of assessment years and as per law; Entire tax and interestwas deposited by the petitioner beforehand. The Income Tax (7 of 43) Settlement Commission accepted the said application vide orderdated 23[rd] December, 2015 and further stated that settlementapplication was not invalid and maintainable according to thedisclosures made by the petitioner Trust and other relevantmaterial found in the said application. The petitioner during thehearing on the admitted settlement application co-operated withdue diligence by providing assistance, detailed submissions,comments, counter comments etc. during the whole process ofadjudication before the Income Tax Settlement Commission. Therespondents arbitrarily made the irrational submission before theIncome Tax Settlement Commission to treat the petitioner Trust asa commercial establishment, which was however blatantly rejectedby the Commission with the following observation: “However, in view of the fact that the applicant is an entityregistered u/s. 12A and also recognized u/s. 10(23C)(iv) of theI.T. Act, according to us, there are primarily two issues that needto be taken cognizance of and resolved by us.” 6.Be that as it may, the irrational submission of therespondent-department was rejected; however, the respondent-department made another baseless and arbitrary submissionbefore the Income Tax Settlement Commission to withdraw theregistration granted to the petitioner under section 12A and undersection 10 (23C) (v) & 10 (23A) (via) of the Act of 1961; that pleawas also declined by the Commission with the followingobservation: “However, the Settlement Commission declined to interfere andheld that it is not the prescribed authority to pass such an order.” 7.Thereafter, the Income Tax Settlement Commission made itsfinal order under section 245D (4) of the Act of 1961, on thesettlement application vide order dated 30[th] June, 2017, wherebythe total income of the petitioner was calculated to be Rs.53,94,68,710/- (Rupees Fifty three crores ninety four lacs sixtyeight thousand seven hundred ten). 8.Learned counsel for the petitioner Trust also pointed out thatthe order dated 30[th] June, 2017, made by the Income TaxSettlement Commission, suffered with certain factual errorsapparent on the face of record and the findings arrived at beingcontrary to the provisions of the Act of 1961, and therefore, thepetitioner filed a rectification application dated 19[th] Sep, 2017,before the Commission. The respondent-department also filedrectification application. The points raised in the rectificationapplication by the petitioner, which were to be rectified by theIncome Tax Settlement Commission, reads thus: 1.The corpus donations of the petitioner trust weretreated as income of the trust while they were entitled toget the benefit under section 11 (1) (a) of the Act, and thesaid donations were not to be treated as income of thetrust. 2.The benefit of carry forward of losses or deficit for theperiod of assessment year 2010-11 to 2012-13 as undersection 11 (1) (a) of the Act, was not given to the petitionertrust. 3.The investment made by the petitioner trust, in the TVChannel was considered to be done so for deriving profitswhereas the acquiring of the TV Channel was done in lieu with the objectives of the petitioner trust i.e. foreducational purpose. 1.The corpus donations of the petitioner trust weretreated as income of the trust while they were entitled toget the benefit under section 11 (1) (a) of the Act, and thesaid donations were not to be treated as income of thetrust. 2.The benefit of carry forward of losses or deficit for theperiod of assessment year 2010-11 to 2012-13 as undersection 11 (1) (a) of the Act, was not given to the petitionertrust. 3.The investment made by the petitioner trust, in the TVChannel was considered to be done so for deriving profitswhereas the acquiring of the TV Channel was done in lieu with the objectives of the petitioner trust i.e. foreducational purpose. 4.The depreciation in respect to the expenditure made inlieu of construction of educational buildings of Rs.25,78,00,000/- (Rupees twenty five crores seventy eightlacs), was not accounted for by the Settlement Commissionthus contrary to the provisions under section 11 (1) (a) ofthe Act. 9.Further, the Income Tax Settlement Commission in its orderdated 30[th] June, 2017, held that the petitioner Trust spent anamount of Rs. 25,78,00,000/- (Rupees twenty five crores seventyeight lacs), for construction of educational buildings but failed togive the depreciation in respect of the expenditure for constructionof the above stated amount. The Settlement Commission held thatsection 11 (6) of the Act of 1961, restricts the petitioner Trustfrom claiming depreciation. Thus, the Commission lost sight of thefact that the said provision was inserted in the Act of 1961, on 01[st]April, 2015, and therefore, it could only be applied prospectively.And the depreciation in respect of the expense claimed by thepetitioner Trust was for the assessment years 2009-10 to 2014-15. Thus, the Settlement Commission clearly went wrong andagainst the provisions of the Act of 1961 and failed to extend thebenefit under section 11 (1) (a) of the Act of 1961, to thepetitioner Trust. 10.Learned counsel for the petitioner vehemently argued thatfor the respondent’s arbitrary and irrational submission towithdraw the registration of the petitioner under section 12A andunder section 10 (23C) (v) and 10 (23A) (via) of the Act of 1961,was rejected by the Commission; then the respondents came upwith a more arbitrary and adopted an illegal manner to frustrate the petitioner’s rectification application that was pending beforethe Income Tax Settlement Commission, by cancelling theregistration granted under section 12A and also withdrew theapproval granted under section 10 (23C) (v) and 10 (23A) (via) ofthe Act of 1961, to the petitioner with retrospective effect witheffect from 01[st] April, 2006, vide order dated 16[th] Jan, 2018. Thepetitioner preferred a writ petition against the order dated 16[th]Jan, 2018, before the Income Tax appellate Tribunal, whichwrongly upheld the impugned order of the respondent. Thepetitioner, thereafter preferred an appeal against the order dated12[th] Oct, 2018, of the Income Tax appellate Tribunal before theDivision Bench of this Court, which in turn stayed the impugnedorder dated 16[th] Jan, 2018 made by the respondents vide its orderdated 20[th] December, 2018. 11.It is urged that the Income Tax Settlement Commission,summarily disposed of the rectification application filed by thepetitioner vide order dated 8[th] February, 2018. The Income TaxSettlement Commission totally failed to take note of the fact thatthe respondent-department in order to frustrate the efforts of asettlement by the petitioner, arbitrarily withdrew the registrationgranted under section 12A and approval accorded under section10 (23C) (v) and 10 (23A) (via) of the Act of 1961, withretrospective effect; and further made the observation that sincethe registration and approval of the petitioner had been withdrawnwith retrospective effect, hence, no benefit under section 11 (1)(a) of the Act of 1961, shall be admissible to the petitioner for it is 11.It is urged that the Income Tax Settlement Commission,summarily disposed of the rectification application filed by thepetitioner vide order dated 8[th] February, 2018. The Income TaxSettlement Commission totally failed to take note of the fact thatthe respondent-department in order to frustrate the efforts of asettlement by the petitioner, arbitrarily withdrew the registrationgranted under section 12A and approval accorded under section10 (23C) (v) and 10 (23A) (via) of the Act of 1961, withretrospective effect; and further made the observation that sincethe registration and approval of the petitioner had been withdrawnwith retrospective effect, hence, no benefit under section 11 (1)(a) of the Act of 1961, shall be admissible to the petitioner for it is not a ‘charitable trust’ in view of the order dated 16[th] Jan, 2018, ofthe respondents. 12.According to learned counsel the rectification application thatwas filed by the petitioner before the Income Tax SettlementCommission, was for rectification of the order dated 30[th] Oct,2017, which ought to have been decided considering the status ofthe petitioner at the time of passing of the order dated 30[th] Oct,2017, whereas the Income Tax Settlement Commission relied on asubsequent order of the respondent-department dated 16[th] Jan,2018, in denying the rectifications pleaded and prayed for by thepetitioner, which is bad in the eye of law and contrary to theprovisions of the Act of 1961, itself. Furthermore, the Income TaxSettlement Commission, failed to realize that the respondent-department, does not have the power to cancel the registrationgranted, with retrospective effect. 13.Learned counsel for the petitioner also pointed out the factthat the respondent-department revoked the registration of thepetitioner Trust in an arbitrary manner contrary to well settledprinciples of law and precedents. Under the law in the face ofsection 12AA (3) of the Act of 1961, the registration could havebeen cancelled only in following two situations: a) When the activities of the trust are not genuine or b) The activities are not carried out in accordance with objects ofthe Trust. 14.In case of the petitioner Trust, neither the genuineness of itsactivities has been doubted nor were the activities being carriedout for the object other than the object of the Trust. Therefore, the cancellation of registration of the petitioner Trust, is, in itselfarbitrary, irrational and without any reason or justification in law. 15.Learned counsel for the petitioner also pleaded that IncomeTax Settlement Commission determined the losses which are thedeficits of the assessment years 2009-10 to 2015-16 vide orderdated 30[th] June, 2017, but, failed to give the benefit of carryforward of loss which is a contradictory view to its findings undersection 11 (1) (a) of the Act of 1961, for the denial is on the basisof the alleged cancellation of registration of the petitioner Trustwith retrospective effect by the respondent department vide orderdated 16[th] Jan, 2018. And, such an act of the SettlementCommission, is, contrary to its own findings in the face of its orderdated 30[th] June, 2017. 15.Learned counsel for the petitioner also pleaded that IncomeTax Settlement Commission determined the losses which are thedeficits of the assessment years 2009-10 to 2015-16 vide orderdated 30[th] June, 2017, but, failed to give the benefit of carryforward of loss which is a contradictory view to its findings undersection 11 (1) (a) of the Act of 1961, for the denial is on the basisof the alleged cancellation of registration of the petitioner Trustwith retrospective effect by the respondent department vide orderdated 16[th] Jan, 2018. And, such an act of the SettlementCommission, is, contrary to its own findings in the face of its orderdated 30[th] June, 2017. 16.Furthermore, the Income Tax Settlement Commission alsodeclined the acquisition of the TV channel to be in consonance ofthe objects of the petitioner Trust on the ground for having notfurnished any evidence in that behalf. Whereas, the petitioneracquired the TV Channel for educational purposes only and wasconducting courses of both graduation and post-graduation in'Mass Media' and 'Journalism', which is in accordance and inconsonance with the objective of the Trust and evidence in thisregard was also submitted during the course hearings on thesettlement application before the Income Tax SettlementCommission. Thus, the petitioner was entitled to benefit undersection 11 (1) (a) of the Act of 1961, as application of fund anddepreciation on amounts spent in construction of buildings andnew buildings for education and acquisition of the TV Channel as well, which was not accorded contrary to the provisions of law. In order to fortify his stand learned counsel for the petitioner has relied upon the following opinions: Assistant Commissioner of Income Tax Vs. Agra DevelopmentAuthority (2018) 90 Taxman 288Assistant Commissioner of Income Tax Vs. Agra DevelopmentAuthority (2018) 90 Taxman 288 Industrial Infrastructure Development Corporation M.P. Ltd. Vs.Commissioner of Income Tax (2018) 4 SCC 494Industrial Infrastructure Development Corporation M.P. Ltd. Vs.Commissioner of Income Tax (2018) 4 SCC 494 State of Uttar Pradesh Vs. Vam Organic Chemicals Ltd. (2010)6 SCC 222State of Uttar Pradesh Vs. Vam Organic Chemicals Ltd. (2010)6 SCC 222 Oxford Academy for Career Development Vs. Commissioner ofIncome Tax (2009) 315 ITR 382Oxford Academy for Career Development Vs. Commissioner ofIncome Tax (2009) 315 ITR 382 Commissioner of Income Tax Vs. Manav Vikas Avam SewaSansthan (2011) 336 ITR 250Sansthan (2011) 336 ITR 250 Commissioner of Income Tax Vs. Rajasthani and GujaratiCharitable Foundation (2018) 7 SCC 810Commissioner of Income Tax Vs. Rajasthani and GujaratiCharitable Foundation (2018) 7 SCC 810 Commissioner of Income Tax Vs. Subros Educational Society(2018) 7 SCC 548Commissioner of Income Tax Vs. Subros Educational Society(2018) 7 SCC 548 Commissioner of Income Tax Vs. Magarana of Mewar CharitableFoundation (1987) 164 ITR 439Commissioner of Income Tax Vs. Magarana of Mewar CharitableFoundation (1987) 164 ITR 439 Commissioner of Income Tax Vs. Shri Plot Swetamber MurtiPujak Jain Mandal (1995) 211 ITR 293Pujak Jain Mandal (1995) 211 ITR 293 Commissioner of Income Tax Vs. Institute of Banking (2003)264 ITR 110Commissioner of Income Tax Vs. Institute of Banking (2003)264 ITR 110 Union of India Vs. Ind-Swift Laboratories Ltd. (2011) 4 SCC635Union of India Vs. Ind-Swift Laboratories Ltd. (2011) 4 SCC635 Commissioner of Income Tax Vs. Settlement Commission(2014) 369 ITR 606(2014) 369 ITR 606 Jyotendrasingji Vs. S.I. Tripathi (1993) Supp (3) SCC 389Jyotendrasingji Vs. S.I. Tripathi (1993) Supp (3) SCC 389 Director of Income Tax Vs. Sri Belimatha Mahasamsthana SocioCultural and Educational Trust (2011) 336 ITR 694Cultural and Educational Trust (2011) 336 ITR 694 Chief Commissioner of Income Tax Vs. Geetanjali UniversityTrust (2013) 3 RLW 2049Chief Commissioner of Income Tax Vs. Geetanjali UniversityTrust (2013) 3 RLW 2049 Commissioner of Income Tax Vs. Institute of Banking (2003)264 ITR 110Commissioner of Income Tax Vs. Institute of Banking (2003)264 ITR 110 Union of India Vs. Ind-Swift Laboratories Ltd. (2011) 4 SCC635Union of India Vs. Ind-Swift Laboratories Ltd. (2011) 4 SCC635 Commissioner of Income Tax Vs. Settlement Commission(2014) 369 ITR 606(2014) 369 ITR 606 Jyotendrasingji Vs. S.I. Tripathi (1993) Supp (3) SCC 389Jyotendrasingji Vs. S.I. Tripathi (1993) Supp (3) SCC 389 Director of Income Tax Vs. Sri Belimatha Mahasamsthana SocioCultural and Educational Trust (2011) 336 ITR 694Cultural and Educational Trust (2011) 336 ITR 694 Chief Commissioner of Income Tax Vs. Geetanjali UniversityTrust (2013) 3 RLW 2049Chief Commissioner of Income Tax Vs. Geetanjali UniversityTrust (2013) 3 RLW 2049 Sanjeevamma Hanumanthe Gowda Charitable Trust Vs.Director of Income Tax (2006) 155 Taxman 466 Sanjeevamma Hanumanthe Gowda Charitable Trust Vs.Director of Income Tax (2006) 155 Taxman 466 Chevoit Company Ltd. Vs. Income Tax (2011) SCC Online Cal1106Chevoit Company Ltd. Vs. Income Tax (2011) SCC Online Cal1106 Director of Income Tax Vs. Raghuvanshi Charitable Trust(2010) SCC Online Del 2488Director of Income Tax Vs. Raghuvanshi Charitable Trust(2010) SCC Online Del 2488 Commissioner of Income Tax Vs. Shri Sadguru Seva Trust(Bombay High Court, Dated: 27[th] Nov, 2018)Commissioner of Income Tax Vs. Shri Sadguru Seva Trust(Bombay High Court, Dated: 27[th] Nov, 2018) Maharishi Mahesh Yogi Vedic Vishwavidyalaya Vs. State ofMadhya Pradesh and Others (2013) 15 SCC 677Maharishi Mahesh Yogi Vedic Vishwavidyalaya Vs. State ofMadhya Pradesh and Others (2013) 15 SCC 677 Ajmera Housing Corporation and Another Vs. Commissioner ofIncome Tax (2010) 8 SCC 739Ajmera Housing Corporation and Another Vs. Commissioner ofIncome Tax (2010) 8 SCC 739 17.Per contra; Mr. Anil Mehta, learned counsel for therespondents, strenuously contended that a search was conductedunder section 132 of the Act of 1961 on 30[th] October 2014, by theIncome Tax Department on the premises of the petitioner Trustwherein a total of 9 premises of the Trust were searched whichresulted in seizer of an abundant amount of evidence in the formof diaries, registers, loose papers and computer prints. The seizedevidence helped in establishing the receipts of unaccountedcapitation fee charged by the petitioner Trust which was notrecorded in their regular books of accounts. The petitioner alsofailed to establish the fact that the capitation fee was ever usedfor any ‘charitable purpose’ of the petitioner Trust; thus, it impliedthat the said capitation fee was charged in contravention to theby-laws and objectives of the petitioner Trust. In this regardnotices were issued to the petitioner under section 153A of the Actof 1961, on 30[th] Oct, 2014 for the assessment year 2009-10 to2014-15. Returns of income of assessment year 2014-15 was filedon 30[th] Sep, 2015. Notice for the assessment year 2015-16 wasissued under section 142 (1) of the Act of 1961. Before theassessment could have been completed the petitioner filed asettlement application before the Income Tax SettlementCommission under section 245C (1) of the Act of 1961, offering an (15 of 43) (15 of 43) amount of taxable income of Rs. 1,70,00,000/- ((Rupees Onecrore seventy lacs), for the assessment years 2009-10 to 2015-16. The aforesaid settlement application was admitted by theIncome Tax Settlement Commission vide order dated 23[rd] Dec,2015. The settlement application of the petitioner was allowed toproceed further under section 245A (4) of the Act of 1961. Reportunder Rule 9 was submitted before the Income Tax SettlementCommission, counter to which, as reply, under Rule 9A was alsosubmitted by the petitioner. The respondent-department filedcounter comments to the reply of the petitioner raising severalissues before the Income Tax Settlement Commission, which weredecided by the Commission, vide order dated 30[th] June, 2017made under section 245D (4) of the Act of 1961. 18. It was pointed out by the counsel for the respondent that thepetitioner Trust was created for several charitable purposes andobjects, including that of ‘medical treatment and education’ as perthe deed of the 'Indian Medical Trust' whereas it was onlyoperating as a commercial venture. Further, the object of the Trustwas to provide free medical treatment and assistance to the needythrough medical camps and other events which though are withinthe ambit of ‘charitable purpose’, but, to the contrary, thepetitioner Trust was engaged solely in educational activities bysetting up various educational institutions. The petitioner Trustwas operating only on the commercial lines with a view to earnhuge amount of profits through its activities, one of which is‘capitation fee’ charged through involuntary donations. (16 of 43) 19.Learned counsel further argued that the Income TaxSettlement Commission in its order dated 30[th] June, 2017,overlooked the huge amount that was charged as ‘capitation fee’and huge profits earned by the petitioner Trust. The respondent-department emphasized and made submissions before the IncomeTax Settlement Commission with reference to the unaccounteddonations and capitation fee, so collected by the petitioner Trustand also submitted diaries as well as evidence, that was requiredto be looked into to ascertain whether the entries were voluntarydonations which were not recorded in the regular books ofaccounts. It was further pointed out to the Income Tax SettlementCommission that the voluntary donations towards corpus,accepted by the petitioner Trust were duly recorded in theprevious years of returns filed; however, in the relevant years,which were the subject matter of the settlement application, therewere no clear records found in the regular books of accounts. 20.Further, the petitioner Trust accepted donations only fromthe students who have been admitted in MBBS/ PG/ MBS/ BDS,which were not recorded in the normal books of accounts. Theyear statics analysis of the diary, which was seized during thesearch and seizure process, revealed an average amount ofcapitation fee for a particular subject of MBBS, as per particularfinancial year, which is as follows: FY 2008-09- Rs. 20,00,000 (Rupees Twenty lacs) FY 2009-10-Rs. 10,00,000 (Rupees ten lacs) FY 2010-11-Rs. 10,00,000 (Rupees Ten lacs) FY 2010-11-Rs. 10,00,000 (Rupees Ten lacs)  FY 2011-12-Rs. 24,00,000 (Rupees Twenty four lacs)  FY 2012-13-Rs. 27,00,000 (Rupees Twenty seven lacs)  FY 2013-14-Rs. 40,00,000 (Rupees Forty lacs )  FY 2014-15-Rs. 40,00,000 (Rupees Forty lacs) 21.Furthermore, unexplained cash, jewelry, undisclosedinvestments, foreign travel and tours made out of the petitionerTrust money, were detected during the search conducted by therespondent-department and that was also tendered in evidencebefore the Income Tax Settlement Commission, but, theCommission failed to take note of this vital evidence. FY 2008-09- Rs. 20,00,000 (Rupees Twenty lacs) FY 2009-10-Rs. 10,00,000 (Rupees ten lacs) FY 2010-11-Rs. 10,00,000 (Rupees Ten lacs) FY 2010-11-Rs. 10,00,000 (Rupees Ten lacs)  FY 2011-12-Rs. 24,00,000 (Rupees Twenty four lacs)  FY 2012-13-Rs. 27,00,000 (Rupees Twenty seven lacs)  FY 2013-14-Rs. 40,00,000 (Rupees Forty lacs )  FY 2014-15-Rs. 40,00,000 (Rupees Forty lacs) 21.Furthermore, unexplained cash, jewelry, undisclosedinvestments, foreign travel and tours made out of the petitionerTrust money, were detected during the search conducted by therespondent-department and that was also tendered in evidencebefore the Income Tax Settlement Commission, but, theCommission failed to take note of this vital evidence. 22.Learned counsel for respondents further asserted that thepetitioner Trust, to cover up the undisclosed income, unearthed bythe respondent-department, came up with a lame excuse of notmaking required entries in the books of accounts, stating thatthere was a change of employees/staff in the accounts departmentof the petitioner Trust, and therefore, the said donations could notbe recorded properly. Even the Income Tax SettlementCommission after considering the above mentioned reply of thepetitioner Trust made an observation in the impugned order dated30[th] June, 2017, that the donations accepted by the petitionerTrust, had no declaration of the donors, and thus, the saiddonations shall not form a part of the corpus of the petitionerTrust i.e. they won’t be considered as corpus donations which areexempt under section 11 (1) (d) of the Act of 1961, and thesedonations shall be treated as ordinary receipts which shall form apart of the petitioner’s income only. 23.Learned counsel for the respondents also urged that theIncome Tax Settlement Commission dealt with the issue of claim (18 of 43) in the application as to unaccounted receipts in the petitioner’sbuildings on the basis of valuation report submitted by therespondent-department; however, the Commission in an arbitrarymanner accepted the unaccounted expenditures of Rs.25,78,00,000/- (Rupees twenty five crores seventy eight lacs), ascertified by the valuation officer, although there were glaringdiscrepancies in the record of books and receipts recovered by therespondent-department. The Income Tax Settlement Commissionrightly disallowed the expenses incurred by the petitioner Trust inacquiring TV Channel amounting to Rs. 3,00,00,000/- (RupeesThree crores) and further Rs. 5,61,40,605/- (Rupees Five croresSixty one lacs forty thousand six hundred five), as the incurredexpenses were not intertwined with the objectives of the petitionerTrust. 24.Learned counsel further pointed out that the respondent-department also submitted before the Income Tax SettlementCommission that total amount of cash found during the searchwas Rs. 4,20,13,305/- (Rupees Four crores twenty lacs thirteenthousand three hundred five), and the seized amount was Rs.3,22,89,270/- (Rupees Three crore twenty two lac eighty ninethousand two hundred seventy); however the account booksmaintained by the petitioner Trust showed negative cash balances,which was clearly meant that the record of books of accounts,maintained by the petitioner Trust, was false, fabricated anduntrue. Further, the cash recovered from the premises of variousemployees of the petitioner Trust, was arbitrarily consideredbelonging to them in individual capacity by the Income Tax (19 of 43) (19 of 43) Settlement Commission, whereas the said employees had no othermeans of their own to have accumulated such huge amount ofcash. The petitioner’s disclosure of Rs. 1,70,00,000/- (Rupees onecrore seventy lacs), before the Income Tax SettlementCommission through settlement application, was in fact notanywhere near the real amount that the petitioner hadaccumulated through the means of involuntary donations andcapitation fee and charges, which were estimated by therespondent department to be about Rs. 79,19,00,000/- (Rupeesseventy nine crore nineteen lacs). 25. Learned counsel vehemently asserted that considering theabove stated facts and materials available on record, it wasevident before the Income Tax Settlement Commission that thedisclosure made by the petitioner Trust was neither full nor true.The claim, as stated was rejected by the Commission anddetermined the additional income of the petitioner Trust to be Rs.41,08,08,869/- (Rupees Forty one crore eight lacs eight thousandeight hundred sixty nine), against the amount of Rs.1,70,00,000/- (Rupees One crore seventy lacs). Hence, theIncome Tax Settlement Commission, without application of mindand without considering the material facts submitted by therespondent-department, made the order dated 30[th] June, 2017,granting immunity from prosecution and penalty to the petitionerTrust. In support of his stand learned counsel for the respondentshas relied upon the following opinions: Sinhagad Technical Education Society Vs. Income Tax (2012)343 ITR 23 (Bombay High Court)Sinhagad Technical Education Society Vs. Income Tax (2012)343 ITR 23 (Bombay High Court) U.P. Distillers Association Vs. Commissioner of Income Tax(2017) 399 ITR 143 (Delhi High Court)(2017) 399 ITR 143 (Delhi High Court) Navodaya Education Trust Vs. Union of India (2018) 405 ITR 30(Karnataka High Court)Navodaya Education Trust Vs. Union of India (2018) 405 ITR 30(Karnataka High Court) Sri Vidyaranya Seva Sangha Vs. Commissioner of Income Tax,ITA No. 702/Bang/2014 (ITAT Bangalore)Sri Vidyaranya Seva Sangha Vs. Commissioner of Income Tax,ITA No. 702/Bang/2014 (ITAT Bangalore) Ajmera Housing Corporation and Another Vs. Commissioner ofIncome Tax (2010) 8 SCC 739.Ajmera Housing Corporation and Another Vs. Commissioner ofIncome Tax (2010) 8 SCC 739. 26. Heard the learned counsel for the parties and with theirassistance perused the materials available on record as well asgave my thoughtful consideration to the rival submissions at barand the opinions referred to and relied upon. 27.Considering the entire factual matrix, materials available onrecord and pleadings of the parties in the writ applications, intotality, this court can safely conclude that in fact the crux of thematter and the issues, in dispute, in substance are: I.Whether the petitioner Trust should be accorded the benefit ofcarry forward of losses for subsequent years as contemplatedunder section 11 (1) (a) of the Act of 1959?carry forward of losses for subsequent years as contemplatedunder section 11 (1) (a) of the Act of 1959? II.Whether the petitioner Trust is entitled to the benefits underthe application for the amount spent on construction ofeducational buildings and depreciation in respect to suchexpenses as contemplated under section 11 (1) (a) of the Actof 1959?the application for the amount spent on construction ofeducational buildings and depreciation in respect to suchexpenses as contemplated under section 11 (1) (a) of the Actof 1959? III.Whether the money invested in acquisition of the TV Channelshall be considered to be in view of the object of the Trust?shall be considered to be in view of the object of the Trust? IV.Whether the Commissioner of the Income Tax Department hasthe power to cancel or withdraw registration under section 12 Aof the Act of 1961, of a Trust, with retrospective effect? III.Whether the money invested in acquisition of the TV Channelshall be considered to be in view of the object of the Trust?shall be considered to be in view of the object of the Trust? IV.Whether the Commissioner of the Income Tax Department hasthe power to cancel or withdraw registration under section 12 Aof the Act of 1961, of a Trust, with retrospective effect? V.Whether the disclosure made before the SettlementCommission by the petitioner Trust is full and true?Commission by the petitioner Trust is full and true? 28.Indisputably, the order dated 16[th] Jan, 2018, made by theCommissioner of Income Tax thereby canceling the registrationgranted under section 12A and withdrawing the approval givenunder section 10 (23C) (v) & 10 (23A) (via) of the Act of 1961, tothe petitioner Trust with retrospective effect from the date of 01[st]April, 2006, was arbitrary in the face of the provisions of the Actof 1961; and therefore, cannot be deemed to be in consonancewith any possible interpretation to be valid or legal. This court is ofthe opinion that the provisions of section 12AA (3) of the Act of1961, empowers the Commissioner of Income Tax to initiate stepsfor cancellation of the registration of a Trust, but, the legislationhad no intention of giving the said provision, a retrospectiveeffect. For in such a situation, the same would have been clearlyspecified in the said provision. Interpretation of the said provisionhas to be harmonious rather than being prejudicial to theinstitutions as it would instigate and create a fear of the IncomeTax Department. I find support in my opinion from the followingcases with reference to the issue of cancellation or withdrawal ofregistration with retrospective effect: Vs. Commissioner of Income Tax: (2009) 315 ITR 382, it was thus observed that: 16. In the instant case, the petitioner is a registeredsociety, which was earlier granted registration under Section12A on 1-4-1999. A survey was conducted at the businesspremises on 20-9-2002, from where documents wereimpounded. The registration was cancelled for theassessment years 2000-01 and 2001-02 for the reasons thatthe surplus was quite heavy. In the impugned order, it wasmentioned by the CIT that there was an unusual huge marginand the petitioner was engaged in the commercial activitiesrather than charitable. As per the balance-sheet, hugeamount from the student was charged. The profit marginembodied in the charges taken from the students are sohuge and it proves the profit motive of the petitioner. Thefunds were misused by the president and his family membersof the petitioner. 20. The expression "charitable purpose" is defined inSection 2(15) of the IT Act, 1961. It is of inclusive nature asrevealed in the language. Earlier the words "the advancementof any other object of general public utility" in thisdefinition were succeeded by the words "not involving thecarrying on of any activity for profit". These words wereomitted by the Finance Act, 1983, w.e.f. 1st April, 1984. 26. In the light of the above discussion and by consideringthe totality of the facts and circumstances of the case, wehold that the order dt. 9th March, 2004, passed by the CIT(Annex. No. 15 to the writ petition) as per the then law iswithout power and jurisdiction and therefore, it is liable tobe set quashed. 27. Accordingly, the impugned order dt. 9th March, 2004,passed by opposite party No. 2 withdrawing/rescinding theorder granting registration on 1st April, 1999, to thepetitioner's society under Section 12A of the Act, isquashed. Consequently, the registration granted to thepetitioner's society on 1st April, 1999, stands restored forthe assessment years under consideration.” Vs. Agra Development Authority: (2018) 90 Taxman 288, it was observed thus: 26. In the light of the above discussion and by consideringthe totality of the facts and circumstances of the case, wehold that the order dt. 9th March, 2004, passed by the CIT(Annex. No. 15 to the writ petition) as per the then law iswithout power and jurisdiction and therefore, it is liable tobe set quashed. 27. Accordingly, the impugned order dt. 9th March, 2004,passed by opposite party No. 2 withdrawing/rescinding theorder granting registration on 1st April, 1999, to thepetitioner's society under Section 12A of the Act, isquashed. Consequently, the registration granted to thepetitioner's society on 1st April, 1999, stands restored forthe assessment years under consideration.” Vs. Agra Development Authority: (2018) 90 Taxman 288, it was observed thus: “50. In the context of the IT Act, 1961 it is undisputedthat the grant of registration is a one time affair. Theassessee is required to apply for registration under s. 12Aof the Act. Once