* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on:10th December, 2012
% Date of Decision: 14th December, 2012
+ W.P. (C) 11909/2005
ESCORTS HEART INSTI. & RESEARCH CENTRE ..... Petitioner
Through: Mr. Parag M Tripathi, Sr. Adv. with
Mr. R M Mehta and Mr. Simran
Mehta, Advs.
versus
COMMR.OF INCOME TAX, CENTRE ..... Respondent
Through: Mr. Sanjeev Rajpal, Sr. Standing
Counsel.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
R.V. EASWAR, J.:
Shorn of all niceties, the precise question which arises for consideration in this
writ petition is this. Can the assessing officer, who intends to issue notice under
section 148 of the Income Tax Act, 1961 to reo pen an assessment, entertain a "reason
to believe" which is contrary to the statute?
2. Section 10(21) provides for exemption of any income of a scientific research
association which is approved under section 35(1)(ii). The first proviso, however,
makes the exemption subject to the provisions of sub-sections (2) and (3) of section 11
of the Act. Section 11(3) provides for certain contingencies in which the accumulated
income of the scientific research association which was granted exemption over a
period of years would become taxable. On the happening of any of the contingencies
provided for, the accumulated income which earlier enjoyed exemption "shall be
W.P. (C) 11909/2005 Page 1 of 5
deemed" to be the income of the scientific research association of the previous year in
which the contingency happened. It does not matter that the accumulated income in
respect of the earlier years which had hitherto enjoyed exemption from tax, does not
relate to the previous year in which the contingency took place. This, in short, is the
substance of section 10(21) read with section 11(2) and (3) of the Act.
3. The petitioner is a scientific research society approved by the competent
authority under section 35(1)(ii) for research activity in the field of coronary diseases
and other connected fields. In this writ petition we are concerned with the validity of
the notices issued by the assessing officer under section 148 of the Act seeking to
reopen the assessments for the assessment years 1998-99, 1999-00 and 2000-01. On
01.04.2000 the petitioner was amalgamated with Escorts Hospital, Chandigarh and the
amalgamated society got registered under the Companies Act, 1956 on 30.05.2000.
The assessing officer recorded reasons as required under section 148(2) and reopened
the assessments for the earlier three years under section 147 of the Act and issued
notices on 29.03.2004, 22.3.2005 and 14.7.2005 respectively. The reasons recorded
by the assessing officer are identical for all the three years and are as under: -
"A.Y.98-99
Escorts Heart Institute & Research Centre, New Delhi
Report regarding
Escorts Heart Institute & Research Centre, New Delhi
registered as a charitable trust u/s 12A(A) of the Income Tax Act, 1961
transferred its assets worth `110.40 crores to Escorts Heart Institute
& Research Centre Ltd. Chandigarh which is a subsidiary of Escorts
Ltd. Escors Ltd. was the main promoter of the EHIRC, New Delhi and
had also contributed `60 lacs on 30.12.81. Therefore, EHIRC New
Delhi has violated the provisions of section 13(2)(g) read with section
13(3)(b) of the Income Tax Act, 1961. Section 11 & 12 no more
remain applicable as the society no longer remains a charitable
institution. Thus it is established that the society applied the
accumulated income for purposes other than charitable (violation of
section 13).
The EHIRC, New Delhi has also violated the guidelines for
approval u/s 35(1)(ii) for recognition of Scientific and Industrial
W.P. (C) 11909/2005 Page 2 of 5
research, the approval granted needs to be withdrawn with
retrospective effect.
On perusal of assessment record, there was an accumulated
balance of `17,55,71,699/- pertaining to Assessment Year 1998-99
which has been utilized for other than charitable purpose. As income
of `17,55,71,699/- has escaped assessment for the Assessment Year
1998-1999 for which the assessment u/s 143(1) was completed on
25.5.99 at Nil income. In order to tax the escaped income for
Assessment Year 1998-99 action u/s 147 is required. Your approval is
solicited for issue of notice u/s 148 for which limitation expires on
31.3.2006.
ADIT(E) TC-II, New Delhi
Approval from the Addl. DIT(E) Range-I, New Delhi vide letter
No.76 dated 21.5.04 received for issue of notice u/s 148 for
Assessment Year 1998-99 and placed on record. A notice u/s 148 for
Assessment Year 98-99 is issued."
The reasons recorded for the other two years are identical except for the
amounts.
4. It would appear that the petitioner filed its objections to the notices, but these
objections were rejected by the assessing officer who proceeded to complete the
reassessments. In the re-assessments the assessing officer has added the balances of
the accumulated income at the end of each year i.e. 31.03.1998, 31.03.1999 and
31.03.2000 which came to the following: -
Assessment year Amount
1998-99 17,55,71,699/-
1999-2000 22,33,74,723/-
2000-01 28,62,10,092/-
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
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precise question that arises for our 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
W.P. (C) 11909/2005 Page 4 of 5
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.
(R.V. EASWAR)
JUDGE
(S. RAVINDRA BHAT)
JUDGE
DECEMBER 14, 2012
hs
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