×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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11-06-2019, Escorts Heart Institute, Section 11(3), 10(21), Tribunal Delhi
These appeals by the Revenue for the assessment year 2001-02 are directed against the order of learned CIT(A)-3, New Delhi dated 2nd March, 2015 and 3rd March, 2015.
ITA No.3710/Del/2015 - T o / el M/s Escorts Heart Institute and Research Centre, H rt i u e a Re r n r New Delhi :-
2. In this appeal, the Revenue has raised the following grounds :-
“1. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in deleting the addition of Rs.156,44,47,193/- on account of transfer of accumulated profit.
2. Whether the CIT(A) was correct in holding that reference in section 11(3) of the Act is to be accumulation u/s 11(2) of the Act only and out to the accumulation u/s 11(1) of the Act.
3. Whether the CIT(A) was correct in holding that addition of Rs.95,26,54,640/- on account of excess of assets over liabilities tantamount to retrospective withdrawal of the charitable status.
4. Whether the CIT(A) was correct in holding that addition in respect of donation, keyman insurance, software expense and difference in the value of land couldn’t have been made u/s 11(3) of the Act.
5. Whether the CIT(A) was correct in holding that the assessee had no surplus which could have been charged to income under the provision of section 11(3) of the act.
6. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”
3. The facts of the case are that a society by the name of Escorts Heart Institute & Research Centre was formed at Delhi (EHIRC, Delhi) on 21.10.1981 and its objects were charitable in nature, its income was exempt under Section 10(21) of the Act. It also had the approval of the Central Government under Section 35(1)(ii) of the Act which was effective till 31s March, 2001. On 11th November, 1999, another society by the same name was formed at Chandigarh (EHIRC, Chandigarh) with objects identical to that of EHIRC, Delhi. However, EHIRC, Chandigarh was not a charitable society and it did not have any object of relief to the poor. On 1st April, 2000, EHIRC, Delhi merged with EHIRC, Chandigarh under due process of law and all its assets and liabilities vested with the latter. The Chandigarh society registered itself as a company under Part IX of the Companies Act, 1956 vide Certificate of Incorporation dated 31st May, 2000 granted by the Registrar of Companies, Punjab, H.P. and Chandigarh.
4. For the year under consideration i.e. assessment year 2001-02, the assessee did not file the return of income. The Assessing Officer issued notice under Section 148, in response to which, the assessee filed the return declaring nil income. That due to amalgamation of assessee with EHIRC, Chandigarh, the Assessing Officer reopened the assessment for assessment years 1997-98, 1998-99, 1999-2000 and 2000-01. The assessee filed a writ petition challenging the reopening before the Hon'ble Delhi High Court. That Hon'ble Delhi High Court, vide order dated 14th December, 2012 in W.P.(C) 11909/2005, held as under :-
“5. Elaborate arguments were addressed before us on the question of jurisdiction of the assessing officer to reopen the assessments. These have been considered. The precise question that arises for ou consideration has been formulated in the beginning of our order. Even assuming that there was breach of any statutory conditions under which the exemption was granted to the petitioner under section 10(21), the entire accumulated income of the earlier years cannot be taxed in those years by reopening the assessments for those years. Section 11(3), which is made applicable to section 10(21), itself provides that the entire accumulated income shall be deemed to be the income of the assessee of the previous year in which the breach of the conditions or the contingency occurs. The statute having thus fixed the assessment year in which the entire past accumulated income falls to be taxed, it is impermissible in law for the assessing officer to entertain a reason to believe that income chargeable to tax for the assessment years 1998-99 to 2000-01 had escaped assessment. The statute has imposed a fetter on the power of the assessing officer to consider the accumulated income, as the income of the respective earlier years and has mandated it to be the income of the previous year i.e. the previous year commencing on 01.04.2000 and ending on 31.03.2001 relating to the assessment year 2001-02, which is the year in which the petitioner was amalgamated with Escorts Hospital, Chandigarh and transferred all its assets to the Chandigarh Hospital which is looked upon as a breach of the statutory provisions subject to which the exemption under section 10(21) was allowed. The consequences of the breach having been provided by the statute itself, it is not open to the assessing officer to consider the accumulated income as having escaped assessment in the past assessment years. He has to perforce bring to tax the accumulated income only in the year in which the breach occurred; that is the mandate of section 11(3).
6. Two important conditions for the applicability of section 147 are (a) income chargeable to tax must have escaped assessment and (b) assessing officer must have reason to believe so. When section 11(3) treats the accumulated income of the past year of the petitioner as income of the assessment year 2001-02, there can be no question of any income escaping assessment in the past assessment years i.e. the assessment years 1998-99 to 2000-01. It follows that the assessing officer cannot entertain any reason to believe that income chargeable to tax for those years had escaped assessment.
For these reasons we quash the notice issued under section 148 of the Act for all three years i.e. assessment years 1998-99 to 2000-01 and allow the writ petition with no order as to costs.”
5. Thus, Hon’ble High Court, while quashing the notice under Section 148 for assessment years 1998-99 to 2000-01, held that any accumulated profit under Section 11(3) of the Income-tax Act in the hands of the assessee of the past years is liable to be taxed in assessment year 2001-02. Thus, the limited question which we are required to adjudicate in this appeal is whether there were any accumulated profits in the hands of the assessee within the meaning of Section 11(3) of the Act which can be taxed on account of merger of the assessee with EHIRC, Chandigarh. We further find that learned CIT(A) has given the finding that there was no accumulated profit