Services Association of Seventh Day Adventists P. Ltd. vs Assistant Director of Income Tax

P.P.S. Janarthana Raja, J.—These appeals are filed u/s 260A of the Income Tax Act, 1961, by the assessee, against the order of the Income Tax Appellate Tribunal, Chennai Bench "B", Chennai, in I. T. A. Nos. 960 and 961/Mds/2002, dated April, 21, 2006, raising the following common substantial questions of law:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in taking cognizance of the fresh grounds in appeal, for making out a new case, for the first time before the Tribunal, totally deviating from the assessment proceedings and the appellate proceedings before the Commissioner of Income Tax (Appeals)?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in remitting the entire issue back to the Commissioner of Income Tax (Appeals), by considering the fresh grounds raised for the first time totally deviating from the assessment proceedings and the appellate proceedings and thereby permitting the Department to make roving enquiries?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in adjudicating on the fresh grounds raised by the Department for the first time to make a new case, when the Department had not obtained any leave for raising such grounds by satisfying the Tribunal that the grounds were bona fide and that the same could not have been raised earlier for good reasons, as observed by the Supreme Court in Jute of Corporation of India Ltd. Vs. Commissioner of Income Tax and another, and in National Thermal Power Co. Ltd. Vs. Commissioner of Income Tax, ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in adjudicating on the fresh grounds raised by the Department without a speaking order as to how such grounds, were only questions of law arising from the facts which are on record in the assessment proceedings?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in remanding back the entire issue to the Commissioner of Income Tax (Appeals) to consider whether the receipts were voluntary contribution, even though there is no dispute with regard to the application of such income for charitable purpose?

The facts leading to the above substantial questions of law are as under:

The assessee is a company registered u/s 25 of the Companies Act, 1956. It is a charitable organisation and is also registered with the Revenue u/s 12A(a) of the Income Tax Act ("the Act" in short). It carries on various activities through its church organisation called Southern Asia Division of Seventh Day Adventists, supporting about 1016 evangelist and pastoral workers. Their work is to preach the word of God from the Bible in and around the churches. They also teach healthful living and provide medical and relief services where they are needed. The assessee also incurred substantial administrative expenses for these pastoral works consisting of salary, travel allowance, medical allowance, educational allowance, house rent allowance, etc. In order to meet these expenses and to carry out the various activities, the assessee-company collected donations from local contributions and substantial donations from foreign sources also. The operation of the assessee-company pertains to the field of medical relief, education relief to poor, rehabilitation of victims due to natural calamities like flood, cyclone, earth quake, etc. The relevant assessment years are 1997-98 and 1998-99 and the corresponding accounting years ended on March 31, 1997, and March 31, 1998, respectively. For the assessment year 1997-98, the assessee filed the return of income on October 29, 1997, and the same was processed u/s 143(1)(a) of the Act. Later, the assessment was taken up for scrutiny and notice u/s 143(2) of the Act was issued. During the year of account, the assessee admitted gross receipts to the tune of Rs. 17,77,99,694. The Assessing Officer granted exemption in respect of the above receipt u/s 11 of the Act. While completing the assessment, the Assessing Officer noticed that the assessee had received foreign income to the tune of Rs. 14,19,84,931, but the assessee admitted only to the extent of Rs. 10,69,02,633. Hence the difference of Rs. 3,50,82,298 was unexplained and also not duly recorded in the books of account. The Assessing Officer made addition to the said amount as unexplained foreign income under the head "Income from other sources". For the assessment year 1998-99, the assessee filed the return of income on October 23, 1997, and the same was processed u/s 143(1)(a) of the Act. Later, the assessment was taken up for scrutiny and notice u/s 143(2) of the Act was issued. During the year of account, the assessee admitted gross receipts to the tune of Rs. 19,26,73,934. The Assessing Officer granted exemption in respect of the above receipt u/s 11 of the Act. While completing the assessment, the Assessing Officer noticed that the assessee had received foreign income to the tune of Rs. 2,66,21,036 which was not duly recorded in the books of account and the assessee had failed to give satisfactory explanation with supporting proof. The total contribution received by the assessee was Rs. 12,12,26,822 and only as per the income and expenditure account, the foreign contribution is shown as Rs. 9,46,05,786. The said difference of Rs. 2,66,21,036 was not recorded and hence the Assessing Officer treated the said amount as unexplained foreign income and assessed the same under the head "Income from other sources". Aggrieved by the orders, the assessee filed appeals to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) allowed the appeals. Aggrieved, the Revenue filed appeals to the Income Tax Appellate Tribunal ("the Tribunal" in short). The Tribunal remanded the matter to the Commissioner of Income Tax (Appeals) with a direction to redo the appeals afresh. Hence the present tax cases by the assessee.

Learned Counsel appearing for the assessee submitted that the Tribunal ought to have appreciated that the assessee had admittedly applied the receipts for charitable purposes and, therefore, satisfied the conditions stipulated u/s 11 of the Act for exemption. Counsel also submitted that the fresh grounds were raised by the Department first time before the Tribunal and hence the Tribunal ought not have entertained the same. It is also further submitted that the Tribunal exceeded the power envisaged u/s 254 of the Act.

Heard counsel. It is seen that the Departmental representative appearing for the Tribunal raised a specific plea that the assessee''s books of account did not reflect foreign contribution received by the assessee as "voluntary contribution". He further submitted that u/s 12 of the Act, the receipts which are not voluntary, would not be covered under the provisions of Section 11 of the Act to qualify for exemption. As there is no finding by the Commissioner of Income Tax (Appeals), the Departmental representative appearing before the Tribunal requested the Tribunal to set aside the appeals to consider the matter after considering the materials and records. The Tribunal, in its order, held as follows:

We have carefully considered the rival submissions and carefully perused the records. In the facts and in the circumstances of the present, we are convinced with the arguments of the learned Departmental representative as well as the learned Counsel for the assessee that the entire issue should go back to the file of learned Commissioner of Income Tax (Appeals) to consider whether there is anything on record to suggest that receipts of the assessee were in the nature of voluntary contribution and whether exemption should have been granted on the basis of mere application of receipts, which fact apparently has not been proved in the instant case. While redeciding the issue in accordance with law, the learned Commissioner of Income Tax (Appeals) should afford adequate opportunity of being heard both to the assessee as well as the Assessing Officer.

From a reading of the above, it is clear that it is a remand by the Tribunal to the Commissioner of Income Tax (Appeals) with a direction to rehear the matter afresh, after giving opportunity to both the parties. Counsel appearing for the assessee also unable to say that the remand would cause great hardship and prejudice to him.

Under the circumstances, we do not find any error or legal infirmity in the order of the Tribunal so as to warrant interference. Hence, no substantial questions of law arise for consideration of this Court and accordingly the tax cases are dismissed. Consequently, M.P. No. 1 of 2007 in T.C. (A) No. 483 of 2007 is closed. No costs.