M/S. Vision Research Foundation v. The Deputy Commissioner Of Income Tax (Exemptions), Chennai Circle, Chennai - 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 18.12.2019CORAMTHE HONOURABLE DR. JUSTICE ANITA SUMANTHW.P. Nos.1293 and 1312 of 2018and WMP Nos.1624 and 1647 of 2018and WMP Nos.27324 and 27325 of 2018 M/s. Medical Research Foundation,41, Sankara Nethralaya,College Road, Nungambakkam,Chennai - 600 006Represented by its Honorary Secretary,Mr.G.Ramachandran ...Petitioner in W.P. No.1293 of 2018 M/s. Vision Research Foundation,41, College Road, Nungambakkam,Chennai - 600 006Represented by its Honorary Secretary,Dr S.Bhaskaran ...Petitioner in W.P. No.1312 of 2018Vs The Deputy Commissioner of Income Tax(Exemptions), Chennai Circle,Chennai - 600 034. ... Respondent in both WPs. Writ Petitions filed under Article 226 of the Constitutionof India, to issue a Writ of Certiorari to call for the recordsof the Petitioner on the file of the Respondent inPAN: & PAN: and quash the impugned ordersu/s.143(3) dt 28.12.2017 for the Assessment year 2015-16. For Petitioner : Mr.Vijaya Raghavan for Mr.Subbarayaaiyar Padmanabhan For Respondents : Mrs.Hema Muralikrishnan, Senior Standing Counsel ----------- Heard Mr.Vijayaraghavan, learned counsel for the petitionerand Mrs.Hema Muralikrishnan, learned Senior Standing Counsel forthe respondents. 2. Two orders of assessment passed under Section 143(3) ofthe Income Tax Act, 1961 (in short 'Act') are impugned in theseWrit Petitions, both dated 28.12.2017, one in the case of 1/4 https://hcservices.ecourts.gov.in/hcservices/ Medical Research Foundation (MRF) and the other in the case ofVision Research Foundation (VRF). Both MRF and VRF aresocieties registered in terms of the Societies Registration Act,1860. 3. MRF was formed in the year 1975 with the avowed objectsof engaging in research in Opthalmology and establishment ofhospitals, schools, colleges and similar Institutions foradvancement of research in all forms of medicine, particularlyeye diseases. It manages several units, mostly under the nameand style of 'Sankara Netralaya' and variants thereof. It isregistered in terms of Section 12A(a) of the Act, by order dated20.09.1978 and also holds an exemption under Section 80G dated17.08.2007 and an approval dated 10.12.2015 in terms of Section35 AC of the Act. 4. VRF was constituted in the year 1978 with the specifiedobjects of furthering research in Opthalmology and eye diseasesspecifically the incidence of short sight and increasedprevalence of cataract, among others. It is registered underSection 12A(a) of the Act by order dated 10.09.1985 and holds an80G exemption vide order dated 25.02.2009. In addition, VRF isalso approved under Section 35(1)(ii) of the Act by Notificationdated 25.06.2009. 5. The two Societies are stated to be independent anddistinct entities, assessed to tax separately, over the years. 6. Both the impugned assessments relate to Assessment Year2014-15. The orders are identical and are wholly based upon aletter received from the Commissioner of Income Tax(Exemptions), Calcutta dated 19.11.2015 on the subject of 'moneylaundering through receipt of bogus donation and repayment incash'. The aforesaid letter, styled as a Caution Notice, hasbeen issued by the Departmental Officials at Calcutta pursuantto several complaints as well as information received thatcertain institutions were engaged in money laundering throughthe agency of bogus donations. 5. The two Societies are stated to be independent anddistinct entities, assessed to tax separately, over the years. 6. Both the impugned assessments relate to Assessment Year2014-15. The orders are identical and are wholly based upon aletter received from the Commissioner of Income Tax(Exemptions), Calcutta dated 19.11.2015 on the subject of 'moneylaundering through receipt of bogus donation and repayment incash'. The aforesaid letter, styled as a Caution Notice, hasbeen issued by the Departmental Officials at Calcutta pursuantto several complaints as well as information received thatcertain institutions were engaged in money laundering throughthe agency of bogus donations. 7. One of the entities named is VRF, the petitioner inW.P.No.1312 of 2018, which has received donations from twoindividuals, Mr.Ajay Kumar Shroff and Mr.Amarnath Shroff('individuals') stated to have indulged in money laundering toseveral institutions including VRF. MRF, for its part, isstated to have entered into a construction agreement with oneAlcove Industries Ltd. In which the two individuals referred toearlier are Directors. The respondent officer has examined thetransactions between VRF and Mr.Ajay Kumar Shroff andMr.Amarnath Shroff on the one hand and MRF and AlcoveIndustries Ltd. on the other in the light of the backgroundprovided by the Caution Notice from Calcutta. 2/4 https://hcservices.ecourts.gov.in/hcservices/ 8. The provisions of Section 13(3) of the Act are invoked,since the Officer notes that there is some commonality in theoffice bearers of MRF and VRF: Dr.SS.Badrinath, the President ofMRF is a member of VRF, Dr.L.Gopal, the President of VRF is amember of MRF and Dr.TS.Surendran and Mr.V.Vaidyanathan aremembers in both the Societies. Thus, according to the Officer,the exemption claimed in terms of Section 11 is liable to berejected, since the provisions of Section 13 stand violated. 9. The petitioners aver that they are two separate entities,both legally and activity-wise, the transaction of constructionof a hospital at Kolkata on land allotted by the Government ofWest Bengal by and between MRF and Alcove Industries Ltd. is oneat arms' length, the allegation foisted upon MRF of inflatedcost of construction merely to accommodate bogus donations isbaseless, the donations made by the two individuals to VRF is adonation simpliciter and unconnected to the transaction inter sethe individuals with MRF, and that the rejection of the claimsof exemption under section 11, legally and factually erroneous. 10. However, there is really no necessity to examine therelevant provisions of law or the merits of the claims of thepetitioners since there is a more fundamental aspect of thematter that appeals, the gross violation of the principles ofnatural justice. Apart from the fact that the two orders ofassessment are entirely identical, word to word, except for thedifferences in the figures in the computation, there is nothingin the order itself to indicate that the petitioners have beenput to notice of the proposals for assessment prior tofinalization thereof and this aspect of the matter is really notdisputed or contested by the revenue. The stand of the AssessingAuthority as revealed from a perusal of the impugned orders isthat the donations by the two individuals to VRF have beenreceived back by them through MRF by way of a circulartransaction which amounts to money laundering. However, such aconclusion has to be arrived at only after soliciting anexplanation for the proposed assessment from the petitioners aswell as a proper consideration of the explanations furnished aswell as materials filed, if any, by the petitioners. 11. Though the provisions of the Income Tax Act do notprovide for the issuance of a show cause notice in all cases, inmatters such as the present, where the Assessing Authority hasformulated a specific issue based upon his understanding of atransaction, it is incumbent upon him to reveal his mind to theassessee, in order that the assessee is put to notice of theproposed basis of assessment and can reply/respond to the same.This not having been done, the impugned orders are set aside. 3/4 12. The impugned orders of assessment in both Writ Petitionsshall be treated as show cause notices and the petitioners willappear before the Assessing Officer on Tuesday, the 07[th] January,2020 at 10.30 a.m. without expecting any further notice in thisregard along with a written reply as well as materials insupport of their stand, if any. 13. I consciously refrain from adverting to the merits ofthe impugned assessments in the light of my conclusion that theassessments have been completed in violation of principles ofnatural justice and all contentions are left open to beappreciated and adjudicated upon de novo and by way of speakingorders. Let this exercise be carried out and completed within aperiod of six weeks from 07.01.2020. 14. Disposed in the aforesaid terms, with no order as tocosts. Connected Miscellaneous Petitions are closed. Sd/- Asst.Registrar (CS IV ) /true copy/ sl Sub Asst. Registrar To The Deputy Commissioner of Income Tax(Exemptions), Chennai Circle, Chennai - 600 034. +2 ccs to M/s.Subbaraya Aiyar Advocate sr105730 & 105731 +1 cc to Mrs.Hema Muralikrishnan Standing Counsel sr 105131 W.P. Nos.1293 and 1312 of 2018and WMP Nos.1624 and 1647 of 2018and WMP Nos.27324 and 27325 of 2018 aa02/01/2020 4/4