Ita/173/2011 Of The Director Of Income Tax v. St. Ann"S Education Society

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 4 DAY OF JUNE 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR| LT.A. NO.173 OF JZO1L BETWEEN: THE DIRECTOR OF INCOME-TAXEXEMPTIONSC.R.BUILDINGQUEENS ROADBANGALORE. — ADPELLANT. (BY SRI.K.V.ARAVIND, ADV.,) AND: ST.ANN'S EDUCATION SOCIETYNO.742, 6 BLOCK|RAJAJINAGARBANGALORE - 560 O10. ... RESPONDENT (BY SRIL.A.SHANKAR, SENIOR COUNSEL FOR SRI. M.LAVA, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961.ARISING OUT OF ORDER DATED O/7.01.2011 PASSED IN ITANO.796/BANG/2001, PRAYING THAT THIS HON'’BLE COURT MAYBE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS|OF LAW STATED THEREIN, (I1) ALLOW THE APPEAL AND SETASIDE THE ORDERS PASSED BY THE ITAT, BNAGALORE IN ITA]NO. 796/BANG/2001 DATED 07.01.2011 CONFIRMING THE ORDERPASSED BY THE DIRECTOR OF INCOME TAX, EXEMPTIONS,|BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax) Act, 1961 (hereinafter referred to as the Act for short) Nas been preferred by the revenue. The appeal was admitted by a bench of this Court vide order dated 24.08.2011 on following substantial questions of law: (1)Whether the tribunal was correct [nNholdingthat|theobjectsoftheassessee is of general public utility”and is entitled to registration underSection 1ZAA of the Act In view of Itsearlier order in M/s Karnataka GolfAssociation? (iI)Whether tne tribunal order is vitiatedon account of non-consijderation oflegal evidence on record as set out inpara 2 of the substantial questions oflaw in the appeal memo? 2 |The facts leading to filing of this appeal in anut shell are that assessee was registered as a societyunder the Karnataka Societies Registration Act on14.10.1990|withtheobjectofestablishing»and|conducting Nursery, Primary and Middle Schools andtechnical training institutes, teachers training school,adult education, tutorial college, child care center,creche etc. The assessee only established a schoolsometime in 1994. The Managers of the assessee tookanother school being run by another association viz.,M/s Vishwa Bharathi Vidhya Mandir. Since then, theassessee did not file returns of Income. The assesseefiled an application for grant of registration underSection12A(a)oftheAct.ON|17.09.1999.Acommunication was issued to the assessee calling forcertain details including audited statement of accountsin Form No.10B for last 5 years and details of furnishingof returns of income. The assessee filed a reply on2/.0/7.7200and|furnishedaudited.accountsUPTO 23.12.1998 and stated that assessee being engagedonly in advancement of education, its income is exemptunder Section 10(22) of the Act and no returns of.income have been filed. 3.Thereafter, a search was conducted in thepremises of Sri.IJ.Balakrishna and concerns underSection 132 of the Act on 13.07.1999 and subsequently,the proceeding under Section 158BD of the Act wereinitiated on 26.10.1999. During the pendency of blockassessment proceedings the file was transferred to DIT(Exemptions), Bangalore on 01.10.2001. Thereafter, anotice dated 05.10.2001 was issued to the assessee tofile audited accounts for the year ending 31.03.1999and 31.03.2000. However, the same was not filed. Theassessee thereafter was heard. The Director of Income|Tax (Exemptions) vide order dated 31.10.2001, interalia found that admittedly, assessee had borrowedSubstantial amounts in cash from various persons athighinterest|rates|and|repayment.andinterest 3.Thereafter, a search was conducted in thepremises of Sri.IJ.Balakrishna and concerns underSection 132 of the Act on 13.07.1999 and subsequently,the proceeding under Section 158BD of the Act wereinitiated on 26.10.1999. During the pendency of blockassessment proceedings the file was transferred to DIT(Exemptions), Bangalore on 01.10.2001. Thereafter, anotice dated 05.10.2001 was issued to the assessee tofile audited accounts for the year ending 31.03.1999and 31.03.2000. However, the same was not filed. Theassessee thereafter was heard. The Director of Income|Tax (Exemptions) vide order dated 31.10.2001, interalia found that admittedly, assessee had borrowedSubstantial amounts in cash from various persons athighinterest|rates|and|repayment.andinterest payments of such amounts have not been recorded inthe regular books of accounts. It was held that theaffairs of the association was not conducted In atransparent manner. It was noticed that for years 1994.and 1995, the assessee nad admitted that somevoluntary contributions from parents were received. Itwas held that aforesaid voluntary contributions are theamounts collected from the parents to grant admissionsto tneir children in the schools. It was also neld tnat theaforesaid amounts were collected illegally. On the basisof the entries made in the audited balance sheets, it wasneid tnat association did not Nave adequate bDOOobalance of cash and association recorded payments andtherefore, tne casn was being maintained withoutrecording the same in the books. It was also held thataffairs of the associations are not being conducted either ©in a transparent manner or with a view to achieve theobjects for which the assessee was formed. It was alsoheld that the funds of the assessee were diverted to private limited companies of the management. Thus, itwas held that school was being run like a proprietaryconcern of Sri.T.Balakrishna and existed on a paper onlyas a facade to enable the management to make money. —Accordingly, the application under Section 12AA of theAct was rejected. 4Being aggrieved, the assessee filed an appealbefore the Income Tax Appellate Tribunal (hereinafterreferred to as ‘the Tribunal for short). The tribunal videorder dated 21.02.2005, inter alia held that as perprovisions of Section 12AA(2) of the Act, order on anapplication for grant of registration under Section 12A ofthe Act, either granting or refusing to grant registrationhas to be passed before expiry of six months. It wasfurther held that the application for grant of registrationwas filed on 17.09.1999 and the order was passed on31.10.2001 i.e., almost over a period of two years.Thus, the mandatory provision requiring the order to bepassed on the application under Section 12A of the Act within six months has not been complied with. Thetribunal therefore, set aside the order passed by theDirector of Income Tax (Exemptions) and direct theauthorities to proceed as if registration was grantedunder Section 12AA of tne Act. 5.|The revenue challenged the aforesaid orderin ITA No.2791/2005. A division bench of this court byan order dated 21.04.2010, remitted the matter to tne.tribunal to consider the same afresh after reconsideringthe decision in the case of“KARNATAKA GOLFASSOCIATION’» The tribunal by an order dated|07.01.2011 placing reliance on the decision of thetribunalIntheCASCof“KARNATAKA GOLFASSOCIATION vs. DIRECTOR OF INCOME TAX(EXEMPTION)passed in.ITA NO.175/BANG/2003DATED 31.07.2003"Inter allaneld tnat the assessee Is.entitled to registration under Section 12A of the Act asthe object of the assessee is an object of general public utility. In the aforesaid factual background, this appealhas been filed. 5.|The revenue challenged the aforesaid orderin ITA No.2791/2005. A division bench of this court byan order dated 21.04.2010, remitted the matter to tne.tribunal to consider the same afresh after reconsideringthe decision in the case of“KARNATAKA GOLFASSOCIATION’» The tribunal by an order dated|07.01.2011 placing reliance on the decision of thetribunalIntheCASCof“KARNATAKA GOLFASSOCIATION vs. DIRECTOR OF INCOME TAX(EXEMPTION)passed in.ITA NO.175/BANG/2003DATED 31.07.2003"Inter allaneld tnat the assessee Is.entitled to registration under Section 12A of the Act asthe object of the assessee is an object of general public utility. In the aforesaid factual background, this appealhas been filed. 6.|Learned counsel for the revenue whileinviting our attention to para 3.6 of the order passed bythe tribunal submitted that despite directions issued bythis court, the tribunal has not examined the matter onmerits and by a cryptic order, in view of decision in thecase of“KARNATAKA GOLF ASSOCIATION’has heldthat assessee is entitled to registration. It is furthersubmitted that even assuming that assessee is entitledto registration under Section 12A of the Act, mereregistration would not entitle the assessee to the benefitof provisions contained in Sections 11 and 12 of the Actautomatically. On the other hand, learned senior counselfore the assessee submitted that the application underSection 172A of the Act was filed on 17.09.1999 and theSame was admittedly decided beyond a period of sixmonths i.e., on 30.10.2001. Therefore, no sanctity canbe attached to the aforesaid order in view of the decision of the supreme court in °COMMISSIONER OFINCOME-TAX, KANPUR VS. SOCIETY FOR PROMN.OF EDN., ALLAHABAD’, (2016) 67 TAXMANN.COM264 (SC).A copy of order dated 03.06.2003 passedunder Section 12AA (1)(b)(II) of the Act has also beenproduced and it has been pointed out that the assesseehas already been registered under Section 12A of theAct by aforesaid order and therefore, substantialquestions of law involved in this case have beenrendered academic. It is also pointed out that blockassessment proceedings were also initiated against theassessee, which has attained finality in view of orderpassedby|division bench|ofthis.courtIn|ITA.Nos.1254/2006 and 1253/2006. However, it is fairlysubmitted by learned Senior counsel for assessee thatmere grant of registration will not automatically entitlethe assessee to the benefit of provisions of Section 11and 12 of the Act. J |We have considered the submissions madeon both the sides and have perused the record.—Admittedly, an application under Section 12A of the Acton 17.09.1999 and order on the aforesaid applicationhas been passed beyond a period of six months i.e., on30.10.2001. Therefore, in view of law laid down bySupreme Court, the registration under Section 12A ofthe Act shall be deemed to have taken effect after sixmonths from the date of presentation of the application1.e., 18.03.2000. In any case, the registration has|already been granted in favour of the assessee under.Section 127A of the Act vide order dated 03.06.7003.Therefore, it is not necessary for us to examine thevalidity of the order passed by the tribunal andtherefore, in our opinion, the substantial questions oflaw framed by a bench of this court have been renderedacademic. Therefore, it is not necessary to answer theSame. However, the appeal is disposed of with theobservation that the mere grant of registration to the assessee shall not result in grant of benefit to itIDSOfactounder Sections 11 and 12 of the Act and if any,regular assessment is pending, the same may becompleted in accordance with law. Needless to statethat if any proceeding for regular assessment isinitiated, the same shall be initiated subject to law oflimitation. In view of the preceding analysis, the appeal is)disposed of. SS| Sd/-. JUDGE Sd/-.JUDGE.