Sardar Vallabhbhai Patel Education Society v. Income Tax Officer, Ward 2

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 20804 of 2017With R/SPECIAL CIVIL APPLICATION NO. 23190 of 2019With R/SPECIAL CIVIL APPLICATION NO. 590 of 2019With R/SPECIAL CIVIL APPLICATION NO. 16827 of 2019With R/SPECIAL CIVIL APPLICATION NO. 19650 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALAandHONOURABLE MS. JUSTICE NISHA M. THAKORE Sd/- Sd/- ================================================================ 1Whether Reporters of Local Papers may be allowedNOto see the judgment ?to see the judgment ? 2To be referred to the Reporter or not ? NO 3Whether their Lordships wish to see the fair copyNOof the judgment ?of the judgment ? 4Whether this case involves a substantial questionNOof law as to the interpretation of the Constitutionof India or any order made thereunder ?of law as to the interpretation of the Constitutionof India or any order made thereunder ? ================================================================SARDAR VALLABHBHAI PATEL EDUCATION SOCIETY VersusINCOME TAX OFFICER, WARD 2 ================================================================Appearance: MR MANISH J SHAH, ADVOCATE for the writ-applicant(s) No. 1MRS KALPANA K.RAVAL, ADVOCATE for the Respondent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALAandHONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 19/04/2022 COMMON ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1.Since the issues raised in all the captioned writ-applications are the same, those were taken up for hearinganalogously and are being disposed of by this common judgmentand order. 2.For the sake of convenience, the Special Civil ApplicationNo.20804 of 2017 is treated as the lead matter. 3.This is a second round of litigation. The writ-applicant hadcome before this Court by filing the Special Civil ApplicationNo.17878 of 2016. The said writ-application was ordered to bedisposed of vide order dated 11[th] September 2017. The orderreads thus : “1.This petition is filed by one Sardar Vallabhbhai PatelEducation Society, which is an educational societyand is also a trust registered under the BombayPublic Trust Act. The writ-applicant shall hereinafterto be referred to as 'the society'. The writ-applicant societyruns various educational institutions including oneN.G.Patel polytechnic college (hereinafter to be referred toas “N.G.Patel polytechnic”). It is not in dispute thatthe writ-applicant Trust files regular returns beforethe Income Tax Authorities and which are scrutinized fromtime to time by the Assessing Officer for passingorders of assessment. 2.According to the writ-applicant, the variouseducational institutions run by the society wouldreceive sizable amounts by way of cash through fees paid by the students. Only in order to maintain the separation offunds, N.G.Patel polytechnic desired to open a bankaccount. According to the counsel for the writ-applicant,bank insisted on a separate Permanent AccountNumber ('PAN' for short) of the customer only upon whicha separate account can be opened. N.G.Patelpolytechnic therefore applied for PAN which was dulyissued by the Income-tax department whicheventually led the N.G.Patel polytechnic to open asavings bank account with Bank of Baroda. Insuch bank account, the N.G.Patel polytechnic had depositedcash of Rs.2.37 crores (rounded off) during the periodrelevant to assessment year 2009-10. According to the writ-applicant, the writ-applicant society had filed thereturn of income for the said assessment year 2009-10, inwhich, this receipt was reflected. Along with the return,necessary accounts and other documents wereproduced. The return was accepted by the AssessingOfficer without scrutiny. 3.The Assessing Officer noticed that N.G.Patelpolytechnic had a separate PAN and in its savings bankaccount of Bank of Baroda, sizable cash amountof Rs.2.37 crores was deposited, on which, it had alsoreceived interest of Rs.2.40 lakhs. Despite this,N.G.Patel polytechnic had not filed return of income for thesaid assessment year 2009-10. On such basis, N.G.Patelpolytechnic was served with an impugned noticedated 22.03.2016 for reopening of the assessment.The only ground recorded by the Assessing Officer in the reasons for issuing the notice was that despite depositing ofsizable cash of Rs.2.37 crores in the said savings bankaccount, the said account holder had not filed thereturn of income and in response to the notice issuedby the department under section 148 of the Act to furnish asource of the cash deposited, there was no responsefrom the account holder. 4.According to the writ-applicant, N.G.Patelpolytechnic did not have any independent legalexistence and was merely a college run by the society. Thesociety therefore raised detailed objections before theAssessing Officer under a communication dated02.07.2016 urging him to drop the notice forreopening. In such objections, the writ-applicantstressed that it was the society which had maintained thebooks of accounts and filed the audited accounts along withthe return, in which, the said amount of Rs.2.37 crores wasalso reflected. Thus, the society had already offered to taxthe said amount which is now being separatelyquestioned in the hands of N.G.Patel polytechnic.Along with the objections, the writ-applicant also producedcertain documents. 5.The Assessing Officer however, by order dated29.08.2016, rejected the objections primarily on the groundthat N.G.Patel polytechnic was assigned a separatePAN which would indicate that it was a separateentity for the purpose of payment and assessmentof tax and N.G.Patel polytechnic had not filed the return despite the fact that sizable cash amount wasdeposited in its bank account. 6.Section 139A of the Act pertains to permanentaccount number. Sub-section (1) of section 139Aprovides various categories of persons who arerequired to pay tax or for some other reason required tofurnish return of income, would apply to theAssessing Officer for allotment of a PAN. Under sub-section(1B), the Central Government may for the purpose ofcollecting any information which may be useful for orrelevant to the purposes of the Act, may by notificationrequire any class or classes of persons who shallapply to the Assessing Officer for the allotment of the PAN.Under sub-section (2), the Assessing Officer havingregard to the nature of transactions as may beprescribed, may also allot a PAN to any other personfollowing the prescribed procedure. Sub-section (3) ofsection 139A provides that any person not falling under sub-section (1) or sub-section (2), may also apply to theAssessing Officer for allotment of PAN, upon which,the Assessing Officer shall allot the same. 7.It can thus be seen that mere allotment of PAN undersection 139A of the Act would not make theallottee necessarily a separate entity for the purpose ofassessment of tax. The statute recognizes certaineventualities where quite outside the requirement ofpayment of tax and for filing return of income, the AssessingOfficer may allot a PAN to individual. The contention ofthe Assessing Officer therefore that merely because 7.It can thus be seen that mere allotment of PAN undersection 139A of the Act would not make theallottee necessarily a separate entity for the purpose ofassessment of tax. The statute recognizes certaineventualities where quite outside the requirement ofpayment of tax and for filing return of income, the AssessingOfficer may allot a PAN to individual. The contention ofthe Assessing Officer therefore that merely because N.G.Patel polytechnic had obtained the PAN, it was aseparate entity for the purpose of filing of thereturn and assessment of tax was not valid. Inthe order rejecting the objections, the AssessingOfficer did not examine other objections and contentionsraised on behalf of the writ-applicant on his summaryconclusion noted above. The requirement of supplyingreasons recorded by the Assessing Officer whendemanded by the assessee and giving anopportunity to raise objections against the notice forreopening, requiring the Assessing Officer to dispose of suchobjections flow from the decision of Supreme Court in case ofG.K.N.Drive Shaft (India) Ltd. V. ITO reported in (2003)259 ITR 90 (SC). The clear intention of the SupremeCourt in devising such a formula was that in genuinecases where the Assessing Officer may have reopened theassessment which need to be dropped, such cases may befiltered out avoiding unnecessary hardships to theassessee as well as protracted tax litigation. Theexception of the Court of course would be that when anassessee points out the correct facts and makes outa genuine case for dropping the notice for reopening ofthe assessment, the Assessing Officer would apply his openmind and consider the factual and legal aspects asmay be presented by the assessee in suchobjections. The expectation of the Court certainly wouldnot be that such objections are discarded routinely withoutproper consideration or appreciation of the points raised bythe assessee. This is not to suggest that an improper orderdisposing of objections would render the notice issued by the Assessing Officer for reopening of the assessmentinvalid. The reopening of an assessment could bestruck down on any of the jurisdictional facts beingproved wrong on the basis of well known and wellestablished legal principles. 8.This preamble was necessary in the present casesince we find that the Assessing Officer withoutappreciating the writ-applicant's objections to the notice ofreopening, rejected the same. In facts of the case,we would like to request the Assessing Officer to reexaminethe objections in peculiar facts pointed out in such objectionsas well as those urged before us. For the above purpose,following directions are issued : (i)It will be open for the writ-applicant to filesupplementary objections with additionaldocuments if so desired, latest by 25.09.2017before the Assessing Officer. (ii)The Assessing Officer shall dispose ofthe objections of the writ-applicant which are alreadyon record and additional objections if so raised interms of above para (i). (iii)For such purpose, impugned order dated29.08.2016 is set aside. 9.Till the Assessing Officer passes a fresh orderdisposing of the objections of the writ-applicant, interimrelief granted pending the petition directing the Assessing Officer not to pass the final order onassessment shall continue. 10.Petition is disposed of.” (i)It will be open for the writ-applicant to filesupplementary objections with additionaldocuments if so desired, latest by 25.09.2017before the Assessing Officer. (ii)The Assessing Officer shall dispose ofthe objections of the writ-applicant which are alreadyon record and additional objections if so raised interms of above para (i). (iii)For such purpose, impugned order dated29.08.2016 is set aside. 9.Till the Assessing Officer passes a fresh orderdisposing of the objections of the writ-applicant, interimrelief granted pending the petition directing the Assessing Officer not to pass the final order onassessment shall continue. 10.Petition is disposed of.” 4.The writ-applicant is a Trust running various educationalinstitutions which include N.G. Patel Polytechnic (for short, the‘Polytechnic’). For the Assessment Year 2009-10, the writ-applicant-Trust filed its return of income on 07.09.2009,declaring expenditure over income/ loss at Rs.1,47,72,438/-.The aforesaid income/loss includes income/loss from threeinstitutions run and managed by the writ-applicant Trust, whichare as follows: (i)Enviro Consultancy Service Division (ii)N.G. Patel Polytechnic (iii)S.V.P. Education Society 5.The gross total income as per the Income and ExpenditureAccount of the Polytechnic is of Rs.2,87,73,183/- and theexpenditure is of Rs.2,98,66,920/-. The Polytechnic received thetuition fees of Rs.2,74,38,250/- in the Assessment Year 2009-10. Further, on perusal of the balance sheet of the Polytechnic,it can be seen that the Polytechnic maintains bank account withthe Bank of Baroda and the State Bank of India. Thus, it can beseen that the writ-applicant Trust has duly offered the income ofabove three institutions run and managed by it while filing theincome tax return for the Assessment Year 2009-10. The writ-applicant Trust, since the inception of these institutions, hastreated them as its own part and the Income Tax Department has also duly accepted such a fact in the past assessment years,wherein, in some of the assessment years, order u/s.143(3) waspassed accepting the income offered by the Education Society,which includes the income of the above three institutions.Accordingly, it can be seen that the Sardar Vallabhbhai PatelEducation Society, i.e. the writ-applicant, is an assessee underthe Income Tax Act and the Polytechnic is not a separateassessable person under the Act. Till the issuance of the noticeu/s.148 on 22.03.2016 for the Assessment Year 2009-10, therespondent Department never questioned the fact that thePolytechnic is not a separate assessable entity. The acceptanceof the income tax returns, even in 143(3) scrutiny proceedingsfor the Assessment Years 1999-2000, 2007-08, 2010-11 and2011-12 respectively of the Sardar Vallabhbhai Patel EducationSociety, offering the income of the Polytechnic in its hands,makes it very clear that the Polytechnic is not a separateassessable entity under the Income Tax Act. It is submitted thatfor the subsequent assessment years, i.e. Assessment Years2016-17, 2017-18 and 2018-19 respectively, the returns ofincome filed by the Sardar Vallabhbhai Patel Education Society,which includes the income from the Polytechnic, were taken upfor scrutiny by issuing a notice u/s.143(2), and accordingly,orders u/s.143(3) were passed accepting the returned income asthe assessed income. Accordingly, it is empathetically submittedthat the Polytechnic has never been treated as a separateassessable entity under the Income Tax Act. 6.It is submitted that in the first round of litigation beforethis Court, the Court, vide its order dated 11.09.2017, remandedthe matter back to the Assessing Officer for deciding the 6.It is submitted that in the first round of litigation beforethis Court, the Court, vide its order dated 11.09.2017, remandedthe matter back to the Assessing Officer for deciding the objections raised by the writ-applicant to the effect that thetransaction of deposit of cash being the amount of tuition feesreceived from the students throughout the year, whether thesaid had duly been recorded in the audited books of accounts ofthe writ-applicant Trust, and accordingly, shown in the return ofincome filed by the writ-applicant Trust. 7.Despite the directions issued by this Court in the orderdated 11.09.2017 (order of first round of litigation) to dispose ofthe objection in an objective manner, the respondent, withoutfollowing the directions of this Court in true letter and spirit, hasdisposed of the objections by stating that the matter is requiredto be examined with reference to the books of accounts and thebanking transactions. This Court, while admitting the presentwrit-applications, in its order dated 21.11.2017, in para 2, hasobserved the same, which reads thus : “2.Having perused the order rejecting the objections, itappears that the Assessing Officer has not taken intoconsideration the observations made by this court in itsjudgment and order dated 11.09.2017, while remanding thematter to the Assessing officer for deciding the objectionsafresh.” 8.It is to be noted here that the respondent has not deniedthe fact that the Sardar Patel Education Society has included allthe transactions carried out by the Polytechnic in its books ofaccounts, and in turn, filed the return of income taking intoconsideration all the transactions carried out by the Polytechnic.The aforesaid return of income filed by the Society was also accepted by the Income Tax Department for the year underconsideration. 9.The case of the respondent is that the objections taken bythe writ-applicant will be examined with reference to the booksof accounts at the time of carrying out the reassessmentproceedings. Thus, the stance of the department is directlycontrary to the direction issued by this Court. The respondentfailed to appreciate that, when the fundamental facts on whichthe jurisdiction is assumed, is proved incorrect, then the veryassumption of jurisdiction is rendered invalid. In the presentcase, the Society is able to point out that the assertion of thedepartment that the transaction carried out in the Bank ofBaroda by the Polytechnic has already been accounted for by theSociety in its books of accounts as the Polytechnic is not aseparate assessable entity within the ambit of the Income TaxAct. Thus, if the respondent wants to assume the jurisdiction tocarry out the reassessment proceedings, the respondent has toarrive at the conclusion that the aforesaid factual position takenout by the writ-applicant Trust is factually incorrect. In thepresent case, no such objective denial came from the respondentstating in clear terms that the objection in the form of factualsubmission to the effect that the writ-applicant Society hasincluded the transactions of the Polytechnic in its books ofaccounts, is found to be incorrect. In this view of the matter, thepersistence on the part of the department to carry out thereassessment proceedings of the Polytechnic is patently illegal,bad in law and without the fundamental requirement that theincome should have escaped the assessment for acquiring thejurisdiction under Section 147/148. 10.It is further submitted that in the order dated 11.09.2017,this Court made it very clear that, any person cannot be treatedas an independent assessable entity only on the basis of thePAN. The natural consequences of the above observation on lawpoint would be that the respondent is first required to establishlegally and factually that the Polytechnic is a separate assessableentity under the Income Tax Act. The respondent, withoutcoming to a conclusion that the Polytechnic is a separateassessable entity, tried to justify the reopening notice issuedu/s.148 in the name of the Polytechnic. It is most humblysubmitted that no valid proceeding u/s.148 can be initiated byissuing a notice on a person who is not assessable as a distinctperson under the Income Tax Act. The allegation of therespondent that the writ-applicant has filed return of income inits alleged PAN for the Assessment Years 2005-06 to 2007-08,was clearly denied by the writ-applicant in its affidavit. The writ-applicant further in its affidavit, attaching the relevantdocuments, in the form of Return of Income, Computation ofIncome and Audit Report for the Assessment Years 2005-06,2006-07, 2016-17, 2017-18 and 2018-19 (alongwith Section143(3) assessment order), clearly demonstrated that the writ-applicant Society has included the income of the Polytechnic inits books of accounts and the income tax return for the abovementioned assessment years, and hence, the question of filingthe income tax return on the PAN of the Polytechnic by treatingthe Polytechnic as a separate person, did not arise. Therespondent further has not denied the fact that the respondentIncome Tax Department itself, for all the years from inception,and more particularly, in the later Assessment Year i.e. Assessment Years 2016-17 to 2018-19, for which theassessment was completed u/s.143(3) after initiation of thislitigation, has accepted the Polytechnic as a part of the writ-applicant Society and assessed the income of the Polytechnic inthe hands of the writ-applicant Society. Thus, the basic fallacycum incongruity arising in the stand of the Department is that,for the Assessment Years 2016-17 to 2018-19 (whereinassessment orders have been passed u/s.143(3) after filing ofthis petition), the Department is treating the Polytechnic as apart of the writ-applicant Society while for the Assessment Years2009-10, 2011-12 and 2012-13, the Department wants to treatthe Polytechnic as a separate assessable entity. This basiccontradiction in the stand of the Department itself is sufficient tohold that the notice issued u/s.148 on the Polytechnic bytreating it as a separate assessable entity, is patently illegal. 5.Our final conclusions may be summarised as under : (i)From the inception of the writ-applicant Society andthe Polytechnic, the writ-applicant Society appears tobe an assessable entity. The Polytechnic is an entitywhich is run and managed by the writ-applicantSociety, and hence, it is a part of the writ-applicantSociety and cannot be considered as a separateassessable entity in the eyes of law under the IncomeTax Act.the Polytechnic, the writ-applicant Society appears tobe an assessable entity. The Polytechnic is an entitywhich is run and managed by the writ-applicantSociety, and hence, it is a part of the writ-applicantSociety and cannot be considered as a separateassessable entity in the eyes of law under the IncomeTax Act. (ii)The writ-applicant Society i.e. Sardar VallabhbhaiPatel Education Society has included all thetransactions carried out by the Polytechnic includingthe transactions carried out with the Bank of Baroda.Patel Education Society has included all thetransactions carried out by the Polytechnic includingthe transactions carried out with the Bank of Baroda. (ii)The writ-applicant Society i.e. Sardar VallabhbhaiPatel Education Society has included all thetransactions carried out by the Polytechnic includingthe transactions carried out with the Bank of Baroda.Patel Education Society has included all thetransactions carried out by the Polytechnic includingthe transactions carried out with the Bank of Baroda. (iii)The writ-applicant Society for the relevantassessment years has included the abovetransactions in its return of income.assessment years has included the abovetransactions in its return of income. (iv)The allegation of the respondent that the Polytechnichas filed its return of income for the AssessmentYears 2005-06 to 2007-08 has been denied in clearterms and the said denial is also supported by thedocumentary evidences showing that even in theAssessment Years 2005-06 to 2007-08, that the writ-applicant Society i.e. Sardar Vallabhbhai PatelEducation Society has included the income of thePolytechnic in its return of income, and therefore, thequestion of filing a separate return in the name of thePolytechnic does not arise.has filed its return of income for the AssessmentYears 2005-06 to 2007-08 has been denied in clearterms and the said denial is also supported by thedocumentary evidences showing that even in theAssessment Years 2005-06 to 2007-08, that the writ-applicant Society i.e. Sardar Vallabhbhai PatelEducation Society has included the income of thePolytechnic in its return of income, and therefore, thequestion of filing a separate return in the name of thePolytechnic does not arise. (v)Even after the filing of this petition, the Department,in the assessment order passed u/s.143(3) for theAssessment Years 2016-17 to 2018-19, hasconsidered the Polytechnic as a part of writ-applicantSociety, and hence, the stand of the respondent thatthe Polytechnic is a separate assessable entity iserroneous in law as well as on facts.in the assessment order passed u/s.143(3) for theAssessment Years 2016-17 to 2018-19, hasconsidered the Polytechnic as a part of writ-applicantSociety, and hence, the stand of the respondent thatthe Polytechnic is a separate assessable entity iserroneous in law as well as on facts. (vi)The basic requirement that there has to be incomewhich has escaped the assessment is completelymissing as the Department itself has assessed theincome of the Polytechnic and other institutes run bythe Society as the income of the Society and in factwhich has escaped the assessment is completelymissing as the Department itself has assessed theincome of the Polytechnic and other institutes run bythe Society as the income of the Society and in fact even in the later assessment years i.e. for theAssessment Years 2016-17 to 2018-19 in scrutinyassessment in 143(3) assessed the income so offeredas the income of the writ-applicant Society itself. 6.In view of the aforesaid, these writ-applications succeedand are hereby allowed. The impugned notice issued underSection 148 of the Act for the relevant assessment years ishereby quashed and set-aside. (J. B. PARDIWALA, J.) /MOINUDDIN (NISHA M. THAKORE, J.)