Wp(C)/139/2008 Of Kerala Rural Employment & Welfare Societ v. Asst.director Of Income Tax (Exemption)

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH MONDAY, THE 19TH JANUARY 2009 / 29TH POUSHA 1930 WP(C).No. 139 of 2008(N) ------------------------ PETITIONER(S): --------------------- KERALA RURAL EMPLOYMENT & WELFARE SOCIETY, REG.NO. 631/86, CORPORATION JUBILEE BUILDING, NEAR OVERBRIDGE JUNCTION, THAMPANOOR, M.G.ROAD, THIRUVANANTHAPURAM-695 001, REPRESENTED BY ITS MANAGING DIRECTOR, DR.V.M.GOPALA MENON. BY ADV. SRI.JOSEPH KODIANTHARA SRI.TERRY V.JAMES SRI. JOSEPH MARKOSE (SR.) RESPONDENT(S): ------------------------ 1. ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTION), KAWDIAR, THIRUVANANTHAPURAM-695 003. 2. COMMISSIONER OF INCOME TAX, AAYAKAR BHAWAN, KAWDIAR, THIRUVANANTHAPURAM- 695 003. ADV. SRI. JOSE JOSEPH. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 19/01/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC. 139/2008. APPENDIX PETITIONER'S EXTS: EXT. P1 : TRUE COPY OF THE ARTICLES OF ASSOCIATION OF THEPETITIONER. EXT. P2 : TRUE COPY OF THE ACKNOWLEDGEMENT OF RETURN FOR 2000-2001 AND COMPUTATION. EXT. P3 : TRUE COPY OF ASSESSMENT ORDER DATED 13.3.2006 PASSED BYTHE 1ST RESPONDENT. EXT. P4 : TRUE COPY OF CBDT CIRCULAR NO.273 DATED 3.6.1980. EXT. P5 : TRUE COPY OF ORDER DATED 6.9.2007 OF THE 2ND RESPONDENT. EXT. P6 : TRUE COPY OF CERTIFICATE DATED 7.7.2008 ISSUED UNDERSECTION 222/223 OF THE INCOME TAX ACT BY THE RECOVERY OFFICER. K.M.JOSEPH, J. - - - - - - - - - - - - - - - - - - - - - - - - -WP.(C) No.139 of 2008 - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 19th day of January, 2009 JUDGMENT Petitioner is a welfare society registered under the Travancore- Cochin Literary, Scientific and Charitable Societies Registration Act, 1955,hereinafter referred to as the Act. The membership of the Society consists ofPanchayats in the State of Kerala and the Society itself is a Government ofIndia undertaking. It is registered under Section 12A of the Income TaxAct. It is entitled to exemption from income tax under Sections 11 and 13of the Income Tax Act. The last date for filing the return for the assessmentyear 2000-2001 was 31.10.2000. It is the case of the petitioner that onaccount of the delay on the part of the Chartered Accountant to finalize theaccounts and file the return, the return was filed only on 22.1.2001. Thepetitioner also submitted Form 10 for accumulation along with the return.Rule 17 of the Income Tax Rules, 1962 reads as follows: “17. Notice for accumulation of income by charitable or religious trust or institution or association referred to inclauses (21) and (23) of Section 10 The notice to be given to the Assessing Officer or theprescribed authority under sub-section (2) of Section 11 orunder the said provision as applicable under clause (21) or WPC.139/2008. clause (23) of section 10shall be in Form No.10 and shall bedelivered before the expiry of the time allowed under sub-section (1) of Section 139, for furnishing the return of income.” The assessment for the year was completed. However, petitioner was notgiven the benefit of accumulation of income and it has been reckoned as theincome of the year and the petitioner was called upon to pay tax on the saidbasis. Petitioner filed an application before the Commissioner of IncomeTax invoking the benefit of Ext.P4 Circular and Ext.P5 is the order passedby the Commissioner rejecting the application for condonation of delay ingiving Form 10 under Rule 17. Petitioner challenges Ext.P5 and seeks adirection to the second respondent to condone the delay in filing Form 10.A declaration is sought that conditions in Ext.P4 Circular are complied withand a direction to sought to grant exemption under Section 11 with respectto the income accumulated for the year 2000-2001 in accordance withSection 11 of the Income Tax Act. 2. I heard Sri. Joseph Markose, learned Senior Counsel 2. I heard Sri. Joseph Markose, learned Senior Counsel appearing for the petitioner and also the learned Standing Counsel Sri.JoseJoseph appearing on behalf of the Income Tax Department. 3. Two contentions are urged before me by the learned counsel appearing on behalf of the petitioner. Firstly he contends that under Rule 17 WPC.139/2008. of the Income Tax Rules the petitioner must be treated as having filed Form10 within the time. In this context he drew support of sub section (4) ofSection 139. He would contend that the petitioner has filed the return on22.1.2001, which is well within the period stipulated under sub section (4)of Section 139. Further contention raised by the petitioner is that at any ratethe petitioner must be treated as having fulfilled all the conditions in Ext.P4Circular and being a Government organisation the view taken in Ext.P5 forrejecting the application for condonation of delay cannot be sustained. 4. Per contra, Sri. Jose Joseph, learned Standing Counselwould point out that Rule 17 of the Income Tax Rules specifically mandatesthat notice must be given within the time fixed for filing the return in subsection (1) of Section 139 of the Income Tax Act and there is no scopeelongating the period with the support of Section 139(4). He also supportedthe order of the Commissioner rejecting the application for condonation ofdelay. 5. In order to appreciate the contentions raised by the parties, it is necessary to refer to Section 139(1) as also Section 139(4) of the IncomeTax Act. Section 139 (1) and (4) reads as follows: “139. Return of income (1) Every person, - WPC.139/2008. (a) being a company or a firm; or (b) being a person other than a company or a firm, if histotal income or the total income of any other person in respectof which he is assessable under this Act during the previousyear exceeded the maximum amount which is not chargeable toincome-tax, shall, on or before the due date, furnish a return of his incomeor the income of such other person during the previous year, inthe prescribed manner and setting forth such other particularsas may be prescribed:” xxxxxxxxxxxx (4) Any person who has not furnished a return within the timeallowed to him under sub-section (1), or within the timeallowed under a notice issued under sub-section (1) of Section142, may furnish the return for any previous year at any timebefore the expiry of one year from the end of the relevantassessment year or before the completion of the assessment,whichever is earlier. I have already referred to Rule 17. Rule 17 is unambiguously specific in sofar as it mandates that the notice shall be delivered before the expiry of thetime allowed under Section 139(1) for furnishing the return of income. Inthe first place, in my view, the words used are clear and leave no room forany ambiguity that the notice must be given within the time provided inSection 139(1). The rule making authority was aware of the provisions WPC.139/2008. I have already referred to Rule 17. Rule 17 is unambiguously specific in sofar as it mandates that the notice shall be delivered before the expiry of thetime allowed under Section 139(1) for furnishing the return of income. Inthe first place, in my view, the words used are clear and leave no room forany ambiguity that the notice must be given within the time provided inSection 139(1). The rule making authority was aware of the provisions WPC.139/2008. contained in Section 139(4). The opening words of Section 139(4) itselfare 'Any person who has not furnished return within the time allowed tohim under sub-section (1)'. If it were the intention of the rule makingauthority that time for giving notice can be extended till the date of passingthe order of assessment or the expiry of one year from the end of therelevant assessment year, whichever is earlier, nothing prevented the rulemaking authority from employing the words to indicate such an intention.By no stretch of imagination can the extended period which is given underSection 139(4) be made available for giving the notice for accumulation ofincome by charitable trust or institution beyond the period mentioned inSection 139(1). There can be no doubt that on the one hand the periodunder Section 139(1) is specified in the Act for various categories ofassessees. In fact Section 139(4) extends the period of time for filing thereturn in a case where the assessment is not completed or the period of oneyear has not run out from the date of expiry of the assessment year for aperson inter alia who has not filed return within the time allowed under subsection (1). I therefore reject the contention of the learned Senior Counselfor the petitioner. WPC.139/2008. 6. As far as the second point is concerned, learned Senior Counsel would point out that the only reason forthcoming in Ext.P5 is thatthe explanation offered is not acceptable and being a Governmentorganization it has the responsibility to comply with the provisions of theAct and make suitable arrangements. It is stated that records clearly showthat the Society has not taken any steps to file the return along with From10 within the extended time allowed. 7. The period fixed for filing the return for the year in question ended on 31.10.2000. The time was extended generally for all the assesseestill 30.11.2000. No doubt petitioner did not file either the return or thenotice in Form 10 before the said date. But the petitioner did have anexplanation. I cannot also overlook the fact that petitioner is essentially aGovernment of Kerala undertaking. Further, it is also pointed out thatpetitioner has been registered since for quite sometime. The bone ofcontention apparently centered around a proper interpretation to be given tothe word 'oversight'. The Circular reads as follows: “In exercise of the powers conferred under Section 119 (2)(b) of the Income-tax Act, 1961 (43 of 1961), the CentralBoard of Direct Taxes hereby authorises the Commissioners ofIncome-tax to admit applications under Section 11(2) read with WPC.139/2008. rule 17 of the I.T. Rules, 1962, from persons deriving income from property held under trust wholly for charitable or religiouspurposes for accumulation of such income to be applied forsuch purposes stipulated. Commissioners of Income-tax will,while entertaining such applications, satisfy themselves that thefollowing conditions are fulfilled:- a. that the genuineness of the trust is not in doubt; b. that the failure to give notice to the Income-taxOfficer under Section 11(2) of the Act and investment of themoney in the prescribed securities was due only to oversight; c. that the trustees or the settlor have not been benefitedby such failure directly or indirectly; d. that the trust agrees to deposit its funds int heprescribed securities prior to the issue of the Governmentsanction extending the time under section 11(2); from property held under trust wholly for charitable or religiouspurposes for accumulation of such income to be applied forsuch purposes stipulated. Commissioners of Income-tax will,while entertaining such applications, satisfy themselves that thefollowing conditions are fulfilled:- a. that the genuineness of the trust is not in doubt; b. that the failure to give notice to the Income-taxOfficer under Section 11(2) of the Act and investment of themoney in the prescribed securities was due only to oversight; c. that the trustees or the settlor have not been benefitedby such failure directly or indirectly; d. that the trust agrees to deposit its funds int heprescribed securities prior to the issue of the Governmentsanction extending the time under section 11(2); e. that the accumulation or setting apart of income wasnecessary for carrying out the objects of the trust.” It is clause (b) which is sought to be invoked against the petitioner. 'Oversight' means, according to Oxford Advanced Learner's Dictionary, thefact of making a mistake because you forget to do or you do not notice. Itcannot be said that there is no explanation at all forthcoming from thepetitioner. Apparently according to the petitioner there was delay ofChartered Accountant to finalize the accounts and it was accordingly that WPC.139/2008. the Notice in Form 10 for accumulation was not filed within the timeindicated in Rule 17. I would think that having regard to the totality offacts, Ext.P5 ought to be interfered with and I quash Ext.P5 and the secondrespondent will pass appropriate orders in the light of this judgment withina period of two months from the date of receipt of a copy of this judgment. (K.M. JOSEPH, JUDGE) sb