Gujarat Institute of Desert Ecology vs Commissioner of Income Tax

M.S. Shah, J.—Rule. Mr. B.B. Naik, learned counsel for the respondents, waives service of Rule on behalf of the respondents. At the request of learned counsel for the parties, the matter is taken up for final disposal today.

The petitioner is a trust set up by the Government of Gujarat as a result of a memorandum of understanding with the Jacob Blaustein Institute of Desert Research, Israel, in September, 1993, for setting up an institute for research on desert and desertification. Accordingly, the Gujarat Institute of Desert Ecology, the petitioner herein, was established at Bhuj in May, 1995, and was registered as a public trust and a society. The petitioner was also registered as a trust under the provisions of the Income Tax Act. The petitioner had filed returns for the assessment years 1996-97 and 1997-98 on October 30, 1998. The petitioner also filed an application u/s 119(2)(b) of the Act for condonation of delay in giving notice u/s 11(1) read with Explanation 2 to Section 11 of the Act and for late filing of returns before respondent Mo. 2. That application came to be dismissed by the Commissioner of Income Tax, Jamnagar, and the decision was communicated by the impugned communication dated March 21, 2002 (annexure F).

On the basis of the said decision, the Income Tax Officer, Gandhidham, Ward 2, Bhuj, has made assessment orders for both the assessment years on March 27, 2002. For the assessment year 1996-97, the Assessing Officer assessed income at Rs. 11,77,033 on the basis that the delay in giving option u/s 11(1) was not condoned by the Commissioner of Income Tax, Jamnagar, and, therefore, the assessee''s claim u/s 11(1) for the aforesaid amount was to be disallowed and was accordingly disallowed. For the assessment year 1997-98, the same reasoning was adopted and the income was assessed at Rs. 1,43,523.

In this petition, the petitioner has challenged the aforesaid communication dated March 21, 2002, as well as the subsequent assessment orders dated March 27, 2002, for the aforesaid years.

At the hearing of this petition, Mr. Akil Kureshi, learned counsel for the petitioner, has submitted that the impugned order is illegal and passed in violation of the principles of natural justice as the petitioner-Institute was not given any opportunity of personal hearing. Strong reliance is placed on the decision of the Karnataka High Court in H.S. Anantharamaiah Vs. Central Board of Direct Taxes and others, .

On the other hand, Mr. B.B. Naik, learned counsel for the respondent-authorities, has submitted that the Commissioner has taken the impugned decision in accordance with the provisions of Section 119(2)(b) of the Act which does not provide for any personal hearing and, therefore, there is no infirmity in the impugned order.

Before proceeding further, we may quote the following principles laid down by the Karnataka High Court in H.S. Anantharamaiah Vs. Central Board of Direct Taxes and others, :

"The power exercisable by the Board under Clause (b) of Sub-section (2) of Section 119 is quasi-judicial in nature. When an authority discharges a quasi-judicial function, it goes without saying that it has to conform to the principles of natural justice. It has to afford an opportunity to the party who is going to be affected by the decision of the authority. Therefore, the Board is required to afford an opportunity of hearing to the assessee either oral or through submission of written arguments with reference to the points made against the assessee for not granting the relief sought for, by him. As long as the point held against the applicant is made known to him, and his say is obtained and the same is taken into consideration, the principles of natural justice are complied with."

Having heard learned counsel for the parries, we are of the view that when a decision on the question whether delay should be condoned or not entails drastic civil consequences on assessment of the petitioner-trust, the principles of natural justice are required to be read into in the provisions of Section 119(2)(b). As per the settled legal position, whenever a quasi-judicial or even an administrative authority decides the matter which entails civil consequences to a party, the party is required to be given an opportunity of hearing.

Even Circular No. 273, dated June 3, 1980 (see Bar Council of Maharashtra Vs. Commissioner of Income Tax, Bombay City-II, , issued by the Central Board of Direct Taxes provides that very often trusts are not able to file the application u/s 11(1)(2) of the Act within the time limit allowed by the provisions and thereafter the trusts are required to approach the Board for condoning the delay in filing applications. With a view to expedite the disposal of applications filed by the trusts for condoning the delay, the Board has passed a general order u/s 119(2)(b) by which the Commissioners of Income Tax have been authorised to admit belated applications u/s 11(2) read with Rule 17 of the Income Tax Rules, 1962. Accordingly, all the Commissioners of Income Tax were instructed to dispose of all the applications for condoning delay u/s 11(2) in terms of the order dated June 3, 1980.

The said order dated June 3, 1980, u/s 119(2)(b) provides that the Commissioners of Income Tax will, while entertaining such applications, satisfy themselves that the following conditions are fulfilled :

(a) that the genuineness of the trust is not in doubt;

(b) that the failure to give notice to the Income Tax Officer u/s 11(2) of the Act and investment of the money in the prescribed securities was due only to oversight;

(c) that the trustees or the settlor have not been benefited by such failure directly or indirectly;

(d) that the trust agrees to deposit its funds in the prescribed securities prior to the issue of the Government sanction extending the time u/s 11(2) ;

(e) that the accumulation or setting apart of income was necessary for carrying out the objects of the trust.

The impugned order dated March 21, 2002, was passed without giving any opportunity of hearing to the petitioner-trust, nor does it disclose whether the Commissioner of Income Tax, Jamnagar, had considered the aforesaid relevant criteria laid down by the Central Board of Direct Taxes for deciding applications for condoning delay u/s 11(2) of the Act.

We are, therefore, clearly of the view that the impugned decision as communicated by the letter dated March 21, 2002, is vitiated for non-consideration of the relevant criteria for deciding an application for condoning delay u/s 119(2)(b) of the Act. In fact, if the Commissioner had given an opportunity of personal hearing to the petitioner, all the relevant facts could have been brought to his notice and the decision could have been taken in accordance with law.

For the reasons aforesaid, we quash and set aside the decision of the Commissioner of Income Tax, Jamnagar, as communicated by the letter dated March 21, 2002 (annexure F to the petition), as illegal and direct the said authority to decide the matter afresh in accordance with law after giving the petitioner''s representative an opportunity of personal hearing.

As far as challenge to the assessment orders dated March 27, 2002, is concerned, since the impugned decision rejecting the application for condoning delay in the matter of exercise of option u/s 11(2) of the Act has been set aside, the question of assessment will have to be considered in light of the outcome of the application for condoning delay. In case the delay is condoned, then the petitioner will have appropriate remedy for rectification of the assessment orders which may be pursued after the outcome of the application u/s 119(2)(b) of the Act.

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