Penalty for failure to pay advance income tax by trust claiming exemption u/s 11 upheld when for last forty years, income was held to be taxable by ITAT- High Court
ABCAUS Case Law Citation:
ABCAUS 2017 (2017) (08) HC
The Substantial Question of Law framed for determination:
The ITAT at the instance of the assessee had mafe two references seeking two questions of law :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the appeal of the Revenue and confirming penalty of Rs.2,90,409/ u/s.273(2)(a)?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the appeal of the Revenue and confirming penalty of Rs.26,34,216/ u/s.140A(3)?
Assessment Year : 1983-84
Important Case Laws Cited/relied upon by the parties:
Sole Trustee, Loka Shikshana Trust vs. CIT  101 ITR 234 (SC)
Indian Chamber of Commerce vs. CIT  101 ITR 796 (SC)
Brief Facts of the Case:
The assessee was a Trust founded in or about 1941 and had been publishing newspapers and other periodicals since then. According to the assessee Trust, its activities were charitable and income earned by it was exempt from the liability of payment of income tax.
From Assessment Year 1941-42 till Assessment Year 1961-62 the income of the assessee/Trust was exempted under Section 4(3)(i) of the Income Tax Act, 1922 (old Act) . However as per the Income Tax Act of 1961 (new Act) the term “Charitable Purpose” came to be defined in Section 2(15) which forbade carrying on of activity of profit.
In 1976, ITAT following by following decision of the Hon’ble Supreme Court denied exemption to the assessee/Trust under Section 11 of the new Act by holding that the assessee/Trust had earned profit from the activity of distribution of newspaper, and therefore, it was not liable for exemption under Section 11.
In 1979, the Hon’ble Supreme Court disapproved its earlier view and held that where the purpose of a Trust or Institution is relief of the poor, education or medical relief, the requirement of definition of “Charitable Purposes” would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the Trust or Institution.
The ITAT, in view of the new ruling of the Hon’ble Supreme Court, remanded the matter for the Assessment Year 1975-76 to Assessment Year 1978-79 to the Assessing Officer (AO) to re-examine the issue.
During the AY 1983-84, the assessee/Trust for the purpose of payment advance tax filed an estimate of income by estimating its income as Nil. The regular assessment was completed under Section 143(3) assessing the income of the assessee / Trust at Rs.84,65,270/.
The AO, on perusal of the estimate of income for the purpose of advance tax submitted by the assessee/Trust, found it to be untrue. On being satisfied that the assessee/Trust has reason to believe the same to be untrue, the AO imposed penalty on the assessee /Trust by invoking provisions of Section 273(2)(a). Similarly, for the said assessment year, the AO further found that the assessee/Trust did not pay the self assessment tax as was payable under Section 140A(1) and he further imposed imposed penalty by invoking provisions of Section 140A(3).
In June 1985, the learned ITAT denied exemption claimed u/s 11 for the AY 1975-76 to AY 1978-79.
CIT (Appeals) deleted the penalty levied by the AO u/s 273(2)(a) and 140A(3). However the ITAT allowed the appeals filed by the Revenue and restored penalty imposed on the assessee/Trust.
The assessee/Trust, thereafter, preferred an application under Section 256 of the I.T.Act for referring two questions of law for decision of the High Court.
Observations made by the High Court:
The Hon’ble High Court observed that the Hon’ble Supreme court had held that the quantum of its income is not the test to determine whether the Trust is created for a charitable purpose. What is relevant is the object and purpose of creation of the Trust.
It was noted that despite the claim of the assessee/Trust that income earned by it by the activity of publishing newspaper and periodicals was exempt income, since beginning the Revenue was treating the income earned by the assessee/Trust as taxable. For last about 21 years, that is from AY 1962-63 to AY 1982-83, consistently, the Revenue was treating the income earned by the assessee / Trust as taxable income by holding that the income earned by the assessee / Trust by publishing newspaper and periodicals is not the income exempt from payment of the income tax. Attempt of the assessee / Trust to show that its income is exempt from the liability of payment of income tax, taken from the year 1962-63 onwards, consistently failed.
It was observed that in November 1976 the ITAT had decided appeals of the assessee / Trust in respect of the AYs 1962-63 to AY 1970-71 rejecting the claim of the assessee / Trust for having earned income exempted from the liability of payment of income tax, on the presume that it being a charitable trust. This claim of the assessee / Trust came to be negated by holding that the income from activities relating to printing, publishing newspapers is not exempted under Section 11 of the Income Tax Act, 1961. This made it explicitly clear that the assessee / Trust was well aware of the fact that even the ITAT had ruled that the income earned by it could not be exempted from the liability of payment of income tax.
The Hon’ble High Court opined that in view of the whole factual backdrop, the act of the assessee/Trust in not paying self assessment tax by returning its income and filing “NIL” estimate of the advance tax could not be said or termed as bonafide act. If the assessee had taken due care and acted authentically or genuinely by keeping in its mind the verdict of the learned ITAT in respect of assessment years 1962-63 onwards, then it would not have acted in such a manner of declaring “NIL” estimate of the advance tax and nonpayment of the self assessment tax while returning its income for the assessment year 1983-84.
The Hon’ble High Court rejected the plea of the assessee trust that it was swayed by the verdict of the Apex Court terming it a lame excuse in order to avoid the tax liability. It was observed that the verdict in the said matter was pronounced long back on in November 1979. Till the Assessment Year 1983-84 the assessee/Trust could not demonstrate before the authorities of the Income Tax Department that in view of the ratio and judgment of the Apex Court it is earning exempt income and therefore not liable to pay the advance tax or the self assessment tax. The ITAT while deciding appeals of earlier period has never held that the income of the assessee/Trust it being a charitable was exempt and therefore, not liable to pay income tax.
The Hon’ble High Court opined that the assessee/Trust ought not to have assumed for itself that it was not liable to pay tax on its income, particularly in the light of past verdicts of the authorities in its own matter.
The Hon’ble High Court also clarified that nonlevying penalty in the past years was no ground to conclude that the assessee/Trust was not having any reason to believe that the estimate of advance tax payable by it is untrue or that it had bonafide belief that income earned by it is an exempt income not liable to be taxed at the hands of the Revenue.
The Hon’ble High Court noted and concurred with findings of the ITAT that for last forty years, income of the assessee/Trust was held to be taxable by several decisions rendered by the Tribunal which were not upset till then, there was no scope for holding that the assessee/Trust was prevented by a reasonable cause from filing its estimate of advance tax and in not paying the tax on the basis of self assessment.
The Hon’ble High Court declared that it did not find any illegality or perversity in the findings recorded by ITAT. It could not be said that the assessee/Trust was under bonafide belief that its activities were nontaxable and therefore there was no reason for it to believe that its estimate of advance tax was untrue or that it was under bonafide and reasonable belief that its income is exempt.
The Hon’ble High Court opined that it could not be held that the assessee/Trust had compelling reason to consider its income as exempt from the tax liability. The history of this assessee/Trust with repeated non-compliance despite orders of the learned ITAT must weigh negatively on the assessee bonafides. The length of period during which the assessee/Trust was denied benefit of exemption do not support the view that the assessee/Trust had reasonable belief to consider its income entitled for exemption, resulting in consequential actions of filing “NIL” estimate of advance tax and nonpayment of the self assessment tax.
ITAT was justified in allowing the appeals of the Revenue and confirming penalty levied on the assessee/Trust under Section 273(2)(a) and under Section 140A(3) of the I.T.Act, 1961.