M/S.social Change & Development Trust,Rep. By Its Chairman And Managing Trustee,S.cletus Babu v. The Commissioner Of Income Tax (Exemption) Aaayakar Bhavan

W.P.(MD)Nos.25375 & 25379 of 2018 BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 23.03.2021 CORAM: THE HONOURABLE MR.JUSTICE G.R.SWAMINATHAN W.P.(MD)Nos.25375 & 25379 of 2018 and W.M.P.(MD)Nos. 22963 & 22965 of 2019 and 1531 & 1532 of 2018 M/s.St.Xavier Educational Trust,Rep. by its Managing Trustee,S.Cletus Babu,No.102,G.2, Byepass Road,Vannarapettai,Tirunelveli-627 003. ... Petitioner in W.P.(MD)No.25375 of 2018 M/s.Social Change & Development Trust,Rep. by its Chairman and Managing Trustee,S.Cletus Babu,No.102,G.2, Byepass Road,Vannarapettai,Tirunelveli-627 003. ... Petitioner in W.P.(MD)No.25379 of 2018 -Vs- 1.The Commissioner of Income Tax (Exemption) Aaayakar Bhavan, No.121, Uthamar Gandhi Road, Nungambakkam, Chennai-600034. 2.The Assistant Commissioner of Income Tax(OSD) (Exemption) 2[nd] Floor, May Flower Midcity Building, 1510, Trichy Road, Coimbatore-641018. ... Respondents in both W.Ps Prayer in W.P.(MD)No.25375 of 2018:Petition filed under Article 226of the Constitution of India to issue a Writ of Certiorari, to callfor the records relating to the impugned show cause notice dated12.12.2018 vide Ref.No.AABTS 1867 L/ACIT/(OSD) (E)/ CBE/2018-19issued by the second respondent and quash the same. Prayer in W.P.(MD)No.25379 of 2018:Petition filed under Article 226of the Constitution of India to issue a Writ of Certiorari, to callfor the records relating to the impugned show cause notice dated12.12.2018 vide Ref.No.AABTS 7716 C/ACIT/(OSD) (E)/ CBE/2018-19issued by the second respondent and quash the same. For Petitioner : Mrs.N.Krishnaveni Senior Counsel for Mr.P.Thiyagarajan For Respondents : Ms.M.Parameswari for Mrs.S.Srimathy (in both W.Ps.) Standing Counsel COMMON ORDER Heard the learned senior counsel appearing for the petitionersand the learned standing counsel appearing for the Income TaxDepartment. 2.The petitioners herein are the Public Charitable Trusts thathave been registered under Section 12(A)(a) of Income Tax Act andare enjoying exemption under Section 11 of the Act. During theassessment years 2016-17, the Trusts were found to have made certainpayments to M/s.Amali Builders Private Limited. In the saidcompany, the Trustees being specified persons are found to be havingsubstantial interest. These materials were discovered during thesurvey. That apart, substantial honorarium was paid to the Trusteesand their family members. The department felt that these paymentsare substantially high and unreasonable and have been made directlyfor the benefit of the persons specified under Section 13(3) ofIncome Tax Act, 1961. Certain bogus bills and and vouchers werealso allegedly found during the survey. Therefore, the impugnednotices were issued calling upon the respective Trustees to showcause as to why the exemptions claimed by the Trusts under Section11 of the Act should not be denied in these cases, as the paymentout of income from property held under Trusts have been paiddirectly for the benefit of persons referred to sub section (3) ofSection 13 of Income Tax Act.The stand of the department is thatthese payments are clear violation as per Section 13(1)(c) ofIncome Tax Act, 1961. Challenging these notices, the writpetitions came to be filed. 3.The respondents have filed a detailed counter affidavitcontroverting the stand taken in the writ petitions. The learnedstanding counsel took me through the contentions set out therein.It is strongly contented that these writ petitions having been filedat the show cause notice stage itself deserve dismissal. Thelearned Standing Counsel placed reliance on the decision of theHon'ble Supreme Court reported in (2006) 12 SCC 28 (Union of IndiaVs. Kunisetty Satyanarayana). 4.I carefully considered the rival contentions and went throughthe materials on record. 3.The respondents have filed a detailed counter affidavitcontroverting the stand taken in the writ petitions. The learnedstanding counsel took me through the contentions set out therein.It is strongly contented that these writ petitions having been filedat the show cause notice stage itself deserve dismissal. Thelearned Standing Counsel placed reliance on the decision of theHon'ble Supreme Court reported in (2006) 12 SCC 28 (Union of IndiaVs. Kunisetty Satyanarayana). 4.I carefully considered the rival contentions and went throughthe materials on record. 5.The learned Senior Counsel appearing for the petitionersubmitted that the petitioners / Trusts have been constrained tohttps://hcservices.ecourts.gov.in/hcservices/ move this Court at the show cause notice stage itself, because theimpugned notices threatened to cancel the primary exemption enjoyedby the Trusts. She would point out that the impugned show causenotices are not in consonance with the circular issued by theDepartment. She drew my attention to Circular 387 of 1984 dated06.07.1984 issued by CBDT. Paragraph 28.6 of the said circularreads as follows:- 28.6. It may be noted that new sub-section (1A) inserted inSection 161 of the Income-tax Act, which provides for taxationof the entire income received by trusts at the maximum marginalrate is applicable only in the case of private trusts havingprofits and gains of business. So far as the public charitableand religious trusts are concerned, their business profits arenot exempt from tax, except in the cases filing under clause(a) of clause (b) of Section 11(4A) of the Income-Tax Act. Asthe maximum marginal rate of tax under the new proviso toSection 164(2) applies to the whole or a part of the relevantincome of a charitable or religious trust which forfeitsexemption by virtue of the provisions of the Income-Tax Act inregard to investment pattern or use of the trust property forthe benefit of the settlor, etc, contained in Section 13(1)(c)and (d) of that Act, the said rate will not apply to thebusiness profits of such trusts which are otherwise chargeableto tax. In other words, where such a trust contravenes theprovisions of Section 13(1)(c) of (d) of the Act, the maximummarginal rate of income-tax will apply only to that part of theincome which has forfeited exemption under the said provisions. 6.The said circular came up for consideration in Commissionerof Income Tax Vs. Working Women's Forum. The question that arosefor consideration in the said decision was whether on the facts andin the circumstances of the case, the Tribunal was right in holdingthat the denial of exemption should only be to the extent of theincome which is violative of Section 13(1)(d) and not the totaldenial of exemption under Section 11. The Tribunal order wasconfirmed and the appeal filed by the revenue was rejected byreferring to the aforesaid circular. 7.I am therefore of the view that the apprehension expressed bythe petitioner may not be having any basis. The second respondentis only proposing to forfeit the exemption only in respect of theoffending payments. The Trusts need not entertain any fear thatexemption granted to them under Section 11 of the Act itself wouldbe denied. The petitioner is therefore given three more weeks fromthe date of receipt of a copy of this order to offer theirexplanation in response to the impugned notices. It is for thesecond respondent to consider the same and pass orders in accordancewith law. https://hcservices.ecourts.gov.in/hcservices/ 8.With this clarification, these writ petitions are disposedof. No costs. Consequently, connected miscellaneous petitions areclosed. Sd/-Assistant Registrar (CO) // True Copy // rmi / /2021 Sub Assistant Registrar(CS) https://hcservices.ecourts.gov.in/hcservices/ 8.With this clarification, these writ petitions are disposedof. No costs. Consequently, connected miscellaneous petitions areclosed. Sd/-Assistant Registrar (CO) // True Copy // rmi / /2021 Sub Assistant Registrar(CS) Note :In view of the present lock down owing to COVID-19 pandemic,a web copy of the order may be utilized for official purposes,but, ensuring that the copy of the order that is presented is thecorrect copy, shall be the responsibility of the advocate/litigantconcerned. +2 CC to M/s.S.SRIMATHY, Advocate ( SR-13097[F] dated 23/03/2021 )+2 CC to M/s.P.THIYAGARAJAN, Advocate ( SR-13131[F] dated23/03/2021 ) W.P.(MD)Nos.25375 & 25379 of 2018 andW.M.P.(MD)Nos.1531 & 1532 of 2019 and 22963 & 22965 of 201823.03.2021 PM(CO) KB(29.04.2021) 4P 5C