Sunday 17 February 2013

Whether when recourse to recovery u/s 226 is taken against public trust, then no prior notice is warranted, although there exists no apprehension of diversion of funds: Bombay HC


THE issues before the Bench are - Whether when recourse to recovery proceedings u/s 226 is taken against a public trust, then no prior notice is warranted, although there exists no apprehension of diversion of funds; Whether money recovered from the bank account of a public trust under such recovery proceedings, when appeals and stay applications are pending, amounts to abusive usage of coercive process of law; Whether in such a case an equitable relief can be granted to the assessee in the exercise of the jurisdiction under Article 226 of the Constitution; Whether the option of not serving a prior notice to the assessee in recovery proceedings u/s 226, can be applied uniformly to all cases; Whether application for stay pending before the Department needs to be disposed off expeditiously and Whether interest of the Revenue can take precedence over the fairness of proceedings, merely because it is before the quasi judicial authorities of the Department. And the verdict goes in favour of the assessee.
Facts of the case
The assessee is a public trust registered under the Bombay Public Trusts Act, 1950 and conducts educational institutions all over India as well as homes for the elderly, hostels for small children and health centres. On 14 July 1975, the assessee was granted a registration u/s 12A. On 6 September 1986, an amendment was made to the objects of the assessee with a reference that the rendering of services shall be primarily for Catholics and in consonance with Catholic principles. The registration u/s 12A was not withdrawn from 1986 till 2008 and a certificate u/s 80G was granted from time to time. Between 1975 and 2010, the assessee was also allowed an exemption u/s 11 including upon scrutiny assessments which were made after taking note of the amendment in the objects clause. The assessment completed for the AY 2004-2005 and 2006-2007, were reopened by notices u/s 148 issued on 25 March 2011 and simultaneously, a notice was also issued for the withdrawal of the registration u/s 12AA. For A.Y.2009- 10, assessment was made denying exemption u/s 11 on the ground that the objects clause had been amended. On 29 December 2011, orders were passed u/s 143(7) read with Section 147 for A.Ys.2004-05 and 2006-07 withdrawing the exemption which had been granted earlier. The assessee filed appeals for all these AYs, which are still pending before the CIT(A).
In March 2012, the assessee was issued a communication for recovery of demands for the concerned AYs, to which the assessee requested the demands to be kept in abeyance, pending the disposal of the appeal before the CIT(A). In January, 2013, the assessee received a demand notice for Rs 11.72 crores for the concerned AYs involved. On 17 January 2013, the assessee addressed a reply seeking an opportunity of being heard in the event that the recovery of the demands was sought to be enforced, but no hearing was granted. Thereafter, a notice was served u/s 226 to the Branch Manager of Bank of India, the assessee's banker to pay over the said amount towards the demands raised on the assessee. The notice was served on the assessee after the amount of Rs 4.76 Crores was withdrawn from the account, and the Branch Manager was repeatedly instructed by the Department not to contact the assessee before the amount was withdrawn.
Aggrieved by such action of the Department, the assessee filed this writ petition before the High Court.
The Counsel for the assessee contended that the assessee was not granted an opportunity of hearing to present its case against the withdrawal of exemption, and the action of the department was arbitrary, high handed and in complete disregard to the process of law.
Having heard the parties, the High Court held that,
+ for the purposes of these proceedings, it is not necessary to delve further into this aspect since in any case, the manner in which recourse was taken to Section 226(3) shows that the provision was observed more in its breach than in compliance. The whole object of serving a notice on the assessee is to enable the assessee to have some recourse. In a given case, we are cognizant of the fact that it may be necessary for the Revenue to take recourse to Section 226(3) and it would not be feasible to serve a prior notice on the assessee if there is an apprehension that the monies would be spirited away to the detriment of the Revenue. This was not that kind of a case at all. The Petitioner was granted a registration under Section 12A on 14 July 1975 and the benefit of an exemption under Section 11 right since 1975 until it came to be denied in respect of the assessment years in question. A uniform formula cannot be applied to all cases. In a situation such as the present where the appeals filed by the assessee are pending before the CIT (A) and the assessee had sought an opportunity of being heard and filed applications for stay, there was no justification whatsoever to proceed hastily with the enforcement of the recovery of the demand without disposing of the application for stay;
+ applications for stay cannot be treated by the assessing officers or for that matter by appellate authorities as meaningless formalities. Quasi judicial authorities have to apply their mind in an objective and dispassionate manner to the merits of each application for stay. While the interest of the Revenue has to be protected, it is necessary for assessing officers to realize that fairness to the assessee is an intrinsic element of the quasi judicial function conferred upon them by law. Applications for stay must be disposed of at an early date. Such applications cannot be kept pending to obviate compliance with the need to evaluate the contentions of the assessee until after monies are recovered using the coercive arm of the law. Appellate authorities must set down time schedules for disposal of stay applications with reasonable expedition. The manner in which recourse has been made to the coercive process of law, leaves much to be desired and we are of the view that the action which was pursued was completely high handed and arbitrary. There could have been absolutely no apprehension that the assessee in the present case was likely to spirit out the monies which were invested in Fixed Deposit Receipts. The assessee is an age old trust which carries on welfare activities;
+ in this view of the matter, we are of the view that the assessee would be entitled to the grant of equitable relief in the exercise of the jurisdiction under Article 226 of the Constitution. In pursuance of the notice under Section 226(3), an amount of Rs.4.76 crores has been withdrawn. Considering the interests of the Revenue, we are of the view that it would not be appropriate to direct that the entire amount should be restored in the bank account of the assessee. The counsel for the Petitioner submitted that on a conservative estimate, an amount of Rs.63.00 lakhs is required to run all the institutions and just to meet the day to day expenses every month. Having regard to this position, we are of the view that it would be appropriate for the Court to ensure that sufficient funds are restored to the bank account of the Petitioner with a view to allow it to carry on its activities for a period of 45 days within which recourse can be taken to the pending stay application before CIT(A) and if an adverse order is passed, thereafter to such remedies as may be available in law. Considering that the total demand is of Rs.11.72 crores, it would meet the ends of justice if the Revenue at this stage is permitted to retain an amount of Rs.3.76 crores and to put back an amount of Rs. One Crore in the account of the assessee. To recapitulate, we have found that the action under Section 226(3) was arbitrary and high handed. The Petitioner is an order of Catholic Sisters which has not, the Court is informed by Senior Counsel, been left with virtually any funds to carry on their day to day welfare activities. The appeals for A.Ys. 2004-05, 2006-07 and 2009-10 are pending. The applications for stay of demand are yet to be heard.

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