Ahmedabad Urban Development Authority vs Deputy Director of Income Tax (Exemption)

D.A. Mehta, J.—Heard learned Counsel appearing for both sides. Considering the nature of controversy and the view that the Court is inclined to adopt, the petition has been heard finally with the consent of the learned Counsel for both the sides. Rule. Learned Counsel appearing for the respondent is directed to waive service of Rule.

The petitioner is Ahmedabad Urban Development Authority, an autonomous body constituted under the provisions of The Gujarat Town Planning and Urban Development Act, 1976. The income of the petitioner was exempt till Assessment Year 2002-2003 u/s 10(20A) of the Income Tax Act, 1961 (the Act) considering the fact that the petitioner was engaged in development of urban areas of Ahmedabad. The said provision was omitted with effect from 1.4.2003 by the Finance Act, 2002. The petitioner had applied for and had been granted registration u/s 12AA of the Act with effect from 1.4.2002 vide order (in the form of Certificate) dated 23.10.2003 by the Director of Income Tax (Exemption), Ahmedabad.

For Assessment Years 2003-2004 to 2006-2007 the petitioner filed returns of income declaring total income at Rs. Nil as the income was exempt under the Provisions of Section 11 of the Act on the basis of Certificate of Registration dated 23.10.2003 u/s 12AA of the Act. The Assessing Officer accepted the stand of the petitioner and assessed the petitioner as a charitable institution entitled to exemption u/s 11 of the Act for all the Assessment Years upto Assessment Year 2000-2007.

For Assessment Year 2007-2008, the petitioner filed return of income on 22.10.2007 declaring income at Rs. Nil after claiming set-off of carried forward losses to the extent of income available, i.e. Rs. 1,83,29,82,000/-. The Assessing Officer did not accept the claim made by the Assessee and came to the conclusion that the claim of the petitioner for set-off of capital deficit of earlier years and unabsorbed depreciation was disallowable not being business losses and unabsorbed depreciation as per the Act. Accordingly, the total income was assessed at a sum of Rs. 1,89,22,49,213/- vide assessment order dated 30.12.2009 framed u/s 143(3) of the Act.

The Assessee has challenged the said assessment by way of Appeal and the Appeal is pending before the Appellate Authority. In the meantime, the Assessee sought stay of demand. However, vide communication dated 16.2.2010 (Annexure ''A'') the respondent informed the petitioner that the request for stay of demand was accepted partially subject to the condition that 50% of the demand is paid up by 25.2.2010 failing which the respondent would initiate coercive measures to enforce the demand payable by the petitioner. It is this communication which is primarily challenged in the present petition along with incidental/alternative prayer to stay the Demand Notice dated 30.12.2009.

On behalf of the petitioner it was submitted that the issue on merits was concluded in favour of the petitioner by the judgments rendered by this Court as confirmed by the Apex Court. It was also submitted that Circular issued by Central Board of Direct Taxes was binding so far as the respondent is concerned and the respondent was duty bound to stay the disputed demand till decision of First Appeal. In support of the submissions reliance has been placed on the following judgments:

[1] Commissioner of Income Tax Vs. Shri Plot Swetamber Murti Pujak Jain Mandal,

[2] Hiralal Bhagwati Vs. Commissioner of Income Tax,

[3] Asstt. Commissioner of Income Tax Vs. Surat City Gymkhana,

[4] Madhu Silica Pvt. Ltd. Vs. Commissioner of Income Tax and Another,

[5] Commr. of Income Tax Vs. Gujarat Maritime Board,

Attention was also invited to order dated 3.4.2008 made in Tax Appeal No. 667 of 2007 in the case of CIT v. Surat Urban Development Authority, to submit that on merits the issue was concluded in favour of the petitioner.

On behalf of the respondent it was contended that as and when the assessment was taken-up, as recorded by respondent, there was non cooperation from the petitioner Assessee by not furnishing Profit and Loss Account as called for and not furnishing details in the format called for. That though Certificate issued u/s 12AA was cancelled only by order dated 15.2.2010 the same was with effect from 1.4.2002 and hence the petitioner was not eligible for exemption u/s 11 of the Act and the assessment had correctly been framed. Therefore, the exercise of discretion by the Assessing Officer to recover 50% of the demand while staying the balance 50% of the demand should not be interfered with. Learned Counsel read extensively from Affidavit-in-Reply dated 12.3.2010 filed by the respondent to emphasise the stand of the respondent Authority.

Considering the fact that the Appeal filed by the petitioner is pending before the First Appellate Authority the Court does not intend to observe anything in relation to the merits of the controversy. Admittedly the assessment has been framed on 30.12.2009. The Certificate of Registration granted by Director of Income Tax (Exemption) u/s 12AA of the Act dated 23.10.2003 has been cancelled only on 15.2.2010. In the circumstances, on the date when the Assessment Order was framed viz., 30.12.2009, the income of the petitioner was exempt in entirety and the Assessing Officer could not have travelled beyond the Certificate of Registration granted u/s 12AA of the Act.

Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of Sections 11 & 12 as provided in Section 12A of the Act. Therefore, once the procedure is complete as provided in Sub-section (1) of Section 12AA of the Act and a Certificate is issued granting registration to the Trust or Institution it is apparent that the same is a document evidencing satisfaction about: (1) genuineness of the activities of the Trust or institution, (2) about the objects of the Trust or Institution. Section 12A of the Act stipulates that provisions of Sections 11 & 12 shall not apply in relation to income of a Trust or an Institution unless conditions stipulated therein are fulfilled. Thus granting of registration u/s 12AA of the Act denotes, as per legislative scheme, that conditions laid down in Section 12A of the Act stand fulfilled.

The effect of such a Certificate of Registration u/s 12AA of the Act, therefore, cannot be ignored or wished away by the Assessing Officer by adopting a stand that the Trust or Institution is not fulfilling conditions for applicability of Sections 11 & 12 of the Act. In the case of Gestetner Duplicators Pvt. Ltd. Vs. Commissioner of Income Tax, West Bengal, the Apex Court was called upon to determine as to whether the contribution made by the employer should be treated as a business expenditure, the requirement being contribution should be made to a recognized provident fund. In almost similar circumstances, the Assessing Officer in the said case did not hold in favour of the employer and the Apex Court while deciding the controversy as to what constituted ''Salary'' observed as under:

...The facts in the present case that need be stressed in this behalf are that it was as far back as 1937 that the CIT had granted recognition to the provident fund maintained by the assessee under the relevant Rules under the 1922 Act, that such recognition had been granted after the true nature of the commission payable by the assessee to its salesmen under their contracts of employment had been brought to the notice of the Commissioner and that the said recognition had continued to remain in operation during the relevant assessment years in question, the last fact in particular clearly implied that the provident fund of the assessee did satisfy all the conditions laid down in Rule 4 of Part A of the Fourth Schedule to the Act even during the relevant assessment years. In that situation we do not think that it was open to the taxing authorities to question the recognition in any of the relevant years on the ground that the assessee''s provident fund did not satisfy any particular condition mentioned in Rule 4. It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the provident fund satisfies all the conditions under Rule 4 of Part A of the Fourth Schedule to the Act and not sit in judgment over it.

Applying the ratio enunciated as aforestated to the facts of the present case, it is apparent that while framing Assessment Order on 30.12.2009 it was not open to the Assessing Officer to ignore Certificate of Registration dated 23.10.2003 granted u/s 12AA of the Act by Director of Income Tax (Exemption), Ahmedabad. Therefore, on this limited count the Assessment Order appears to be without jurisdiction and the demand in pursuance thereto could not have been sought to be recovered. The respondent was therefore duty bound to stay recovery of the demand raised pursuant to Assessment Order dated 30.12.2009 for Assessment Year 2007-2008 till disposal of the First Appeal which is alrady pending before First Appellate Authority.

Accordingly, the respondent is hereby directed to stay recovery of entire demand raised in pursuance of Assessment Order dated 30.12.2009 for Assessment Year 2007-2008 till final disposal of the Appeal pending before First Appellate Authority.

The petition is allowed accordingly in the aforesaid terms. Rule made absolute with no order as to costs.

At this stage, learned Counsel for the respondent states that the matter may be admitted and the demand may be stayed till disposal of the First Appeal as the Counsel is not agreeable to the final disposal of the petition. The statement is noted. No further orders are necessary.