THE HONOURABLE MR v. The Assistant Director of Income-tax,Exemption-III,Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 15.06.2007Coram :THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Appeal) Nos.482 and 483 of 2007M/s.Services Association of Seventh Day Adventists P. Ltd.,#AA-148, 3rd Avenue,Anna Nagar,Chennai-600 040. ..Appellant in boththe T.C.(A)s.VsThe Assistant Director of Income-tax,Exemption-III,Chennai. ..Respondent in boththe T.C.(A)s. Appeals under Section 260A of the Income-tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Chennai Bench 'B',Chennai in I.T.A. Nos.960 & 961/Mds/2002 dated 21.04.2006 for theassessment years 1997-98 and 1998-99, respectively against theorder of the Commissioner of Income Tax (Appeals) XI, Chennai inITA.Nos.47848/2001-2002 dated 15.3.2002 and order dated 29.3.2001in PAN/GIR.No.3606-S-TN 1998-99 from the Deputy Director of IncomeTax (Examption) III, Chennai 34 and order dated 29.3.2001 inPAN/GIR/No.3606-S for the Assessment year 1997-98 from the DeputyCo Director of Income Tax (Examption) III, Chennai 34.For Appellant :Mr.Philip George JUDGMENT(Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.)These appeals are filed under Section 260A of the Income TaxAct, 1961 by the assessee, against the order of the Income TaxAppellate Tribunal, Chennai Bench 'B', Chennai in I.T.A. Nos.960 &961/Mds/2002 dated 21.04.2006 raising the following commonsubstantial questions of law:- https://hcservices.ecourts.gov.in/hcservices/ "1. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in law in takingcognizance of the fresh grounds in appeal, formaking out a new case, for the first timebefore the Tribunal, totally deviating from theAssessment proceedings and the Appellateproceedings before CIT(A)?2. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in remitting theentire issue back to the CIT(A), by consideringfresh grounds raised for the first time totallydeviating from the assessment proceedings andappellate proceedings and thereby permittingthe department to make roving enquiries?3. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in adjudicating onthe fresh grounds raised by the Department forthe first time to make a new case, when theDepartment had not obtained any leave forraising such grounds by satisfying the Tribunalthat the grounds were bonafide and that thesame could not have been raised earlier forgood reasons, as observed by the Supreme Courtin Jute Corporation of India Ltd. v. CIT [1991]187 ITR 688 and in National Thermal Power Co.Ltd. v. CIT [1998] 229 ITR 383?4. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in adjudicating onthe fresh grounds raised by the Departmentwithout a speaking order as to how suchgrounds, were only questions of law arisingfrom the facts which are on record in theassessment proceedings?5. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in law inremanding back the entire issue to the CIT(A)to consider whether the receipts were voluntarycontribution, even though there is no disputewith regard to the application of such incomefor charitable purpose?"2.The facts leading to the above substantial questions oflaw are as under: https://hcservices.ecourts.gov.in/hcservices/ The assessee is a company registered under Section 25 of theCompanies Act. It is a charitable organisation and is alsoregistered with the Revenue under Section 12A(a) of the Income-taxAct ("Act" in short). It carries on various activities through itschurch organisation called Southern Asia Division of Seventh DayAdventist, supporting about 1016 Evangelist and Pastoral workers.Their work is to preach the word of God from the Bible in andaround the churches. They also teach healthful living and providemedical and relief services where they are needed. The assesseealso incurred substantial administrative expenses for thesepastoral works consisting of Salary, Travel Allowance, MedicalAllowance, Educational Allowance, House Rent Allowance etc. Inorder to meet these expenses and to carry out the variousactivities, the assessee Company collected donations from localcontributions and substantial donations from foreign sources also.The operation of the assessee company pertains to the field ofmedical relief, education relief to poor, rehabilitation of victimsdue to natural calamities like flood, cyclone, earth quake etc.The relevant assessment years are 1997-98 and 1998-99 and thecorresponding accounting years ended on 31.03.1997 and 31.03.1998,respectively. For the assessment year 1997-98, the assessee filedReturn of income on 29.10.1997 and the same was processed underSection 143(1)(a) of the Act. Later, the assessment was taken upfor scrutiny and notice under Section 143(2) of the Act was issued.During the year of account, the assessee admitted gross receipts tothe tune of Rs.17,77,99,694/-. The Assessing Officer grantedexemption in respect of the above receipt under Section 11 of theAct. While completing the assessment, the Assessing Officernoticed that the assessee had received foreign income to the tuneof Rs.14,19,84,931/-, but the assessee admitted only to the extentof Rs.10,69,02,633/-. Hence the difference of Rs.3,50,82,298/- wasunexplained and also not duly recorded in the books of account.The Assessing Officer made addition to the said amount asunexplained foreign income under the head "income from othersources". For the assessment year 1998-99, the assessee filedReturn of income on 23.10.1997 and the same was processed underSection 143(1)(a) of the Act. Later, the assessment was taken upfor scrutiny and notice under Section 143(2) of the Act was issued.During the year of account, the assessee admitted gross receipts tothe tune of Rs.19,26,73,934/-. The Assessing Officer grantedexemption in respect of the above receipt under Section 11 of theAct. While completing the assessment, the Assessing Officernoticed that the assessee had received foreign income to the tuneof Rs.2,66,21,036/- which was not duly recorded in the books ofaccount and the assessee had failed to give satisfactoryexplanation with supporting proof. The total contributionreceived by the assessee was Rs.12,12,26,822/- and only as per theIncome and Expenditure Account, the foreign contribution is shownas Rs.9,46,05,786/-. The said difference of Rs.2,66,21,036/- wasnot recorded and hence the Assessing Officer treated the said https://hcservices.ecourts.gov.in/hcservices/ amount as unexplained foreign income and assessed the same underthe head "income from other sources". Aggrieved by the orders, theassessee filed appeals to the Commissioner of Income-tax (Appeals).The C.I.T.(A) allowed the appeals. Aggrieved, the Revenue filedappeals to the Income-tax Appellate Tribunal ("Tribunal" in short).The Tribunal remanded the matter to the C.I.T.(A) with a directionto redo the appeals afresh. Hence the present tax cases by theassessee. 3.Learned counsel appearing for the assessee submitted thatthe Tribunal ought to have appreciated that the assessee hadadmittedly applied the receipts for charitable purposes andtherefore satisfied the conditions stipulated under Section 11 ofthe Act for exemption. The counsel also submitted that the freshgrounds were raised by the Department first time before theTribunal and hence the Tribunal ought not have entertained thesame. It is also further submitted that the Tribunal exceeded thepower envisaged under Section 254 of the Act. 4.Heard the counsel. It is seen that the DepartmentalRepresentative appearing for the Tribunal raised a specific pleathat the assessee's books of account did not reflect foreigncontribution received by the assessee as "voluntary contribution".He further submitted that under Section 12 of the Act, the receiptswhich are not voluntary, would not be covered under the provisionsof Section 11 of the Act to qualify for exemption. As there is nofinding by the C.I.T.(A), the Departmental Representative appearingbefore the Tribunal requested the Tribunal to set aside the appealsto consider the matter after considering the materials and records.The Tribunal, in its order, held as follows:-"4. We have carefully considered the rivalsubmissions and carefully perused the records.In the facts and in the circumstances of thepresent, we are convinced with the arguments ofthe ld.DR as well as the ld. Counsel for theassessee that the entire issue should go backto the file of the ld. CIT(A) to considerwhether there is anything on record to suggestthat receipts of the assessee were in thenature of voluntary contribution and whetherexemption should have been granted on the basisof mere application of receipts, which factapparently has not been proved in the instantcase. While re-deciding the issue inaccordance with law, the ld. CIT(A) shouldafford adequate opportunity of being heard bothto the assessee as well as the A.O."From a reading of the above, it is clear that it is a remand by theTribunal to C.I.T.(A) with a direction to rehear the matter afresh,after giving opportunity to both the parties. The counselappearing for the assessee also unable to say that the remand would https://hcservices.ecourts.gov.in/hcservices/ cause great hardship and prejudice to him. Under thecircumstances, we do not find any error or legal infirmity in theorder of the Tribunal so as to warrant interference. Hence, nosubstantial questions of law arise for consideration of this Courtand 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.kmSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo1. The Assistant Registrar, Income-tax Appellate Tribunal, Chennai Bench "B", Chennai.2. The Secretary, Central Board of Direct Taxes, New Delhi.3. The Commissioner of Income-tax (Appeals) XI, Chennai-34.4. The Deputy Director of Income-tax (Exemptions)-III, Chennai-34.5. The Assistant Director of Income Tax Exemption III, Chennai. SSV(CO)SR/9.7.2007 T.C.(A) Nos.482 and483 of 2007