2016 (4) TMI 294 - HC - Wealth-tax

Entitlement to exemption under Section 5 (1) (i) of WT Act - Non filing of wealth tax returns - entitlement to Section 11 - Held that - It appears to the Court that the Petitioner is not entitled to any reliefs as claimed in the petition. Under the Finance (No. 2) Act of 1991, an amendment was brought about in Section 13 (1) (d) of the IT Act whereby clause (iia) was inserted in the proviso with retrospective effect from 1st April 1983 which provided that for a charitable trust to retain its exemption under Section 11 (5) of the IT Act, it was required to disinvest its shares/assets, after the expiry of one year from the end of the previous year in which such asset is acquired or 31st March 1992, whichever was later. This was later extended till 31st March 1993. It was in view of the above amendment that the Petitioner filed its revised return on 18th January 1992 under the IT Act claiming exemption under Section 11 of the IT Act. However, for the reasons best known to it, the Petitioner did not file a wealth tax return. The Respondent is right in contending that there was no valid reason given by the Petitioner in not filing the wealth tax return within the stipulated time when it had filed its income tax return on 28th June 1991 and a revised return on 18th January 1992. As rightly pointed out by Mr. Manchanda, learned Senior standing counsel for the Revenue, the conduct of the Petitioner in filing the wealth tax return belatedly and much after the date by which it was required to disinvest the shares held in the prohibited modes, and the fact that it did not do so, should disentitle it to any of the reliefs prayed for. On the date of filing of the wealth tax return, the Petitioner was fully aware that it did not comply with the essential conditions for claiming exemption. Therefore, it could not be heard to say that it must be refunded the wealth tax voluntarily paid by it.

Issues Involved:
1. Validity of wealth tax returns filed by the Petitioners.
2. Entitlement to exemption under Section 11 of the Income Tax Act, 1961.
3. Compliance with the conditions for disinvestment of assets as per Section 13 (1) (d) of the Income Tax Act.
4. Refund of wealth tax paid under protest.
5. Alleged violation of principles of natural justice.

Detailed Analysis:

1. Validity of Wealth Tax Returns Filed by the Petitioners:
The Petitioners, public charitable trusts, challenged the orders dated 30th November 1993 and 28th April 2000 issued by the Additional Director of Wealth Tax (Exemption) and the Central Board of Direct Taxes (CBDT) respectively, which treated the wealth tax returns filed by the Petitioners as invalid and rejected their application for refund of wealth tax payments. The court noted that the Petitioners filed their wealth tax returns belatedly on 26th November 1993, well after the due date of 31st October 1991, and without valid reasons for the delay. Consequently, the returns were deemed time-barred and invalid.

2. Entitlement to Exemption under Section 11 of the Income Tax Act, 1961:
The Petitioners initially did not claim exemption under Section 11 of the Income Tax Act in their income tax returns filed on 28th June 1991, as they were not aware of the retrospective amendment introduced by the Finance (No. 2) Act, 1991. This amendment allowed charitable trusts to hold certain assets until 31st March 1993. However, the Petitioners filed revised returns on 18th January 1992 claiming the exemption. Despite this, the wealth tax returns were filed late, and the Petitioners were aware that they did not meet the conditions for exemption under the Income Tax Act at the time of filing.

3. Compliance with Conditions for Disinvestment of Assets as per Section 13 (1) (d) of the Income Tax Act:
The Petitioners were required to disinvest shares held in prohibited modes by 31st March 1993 to retain their exemption status. The court found that the Petitioners did not comply with this requirement. The Petitioners' failure to disinvest the shares by the stipulated deadline was undisputed, and thus, they were not entitled to the claimed exemption.

4. Refund of Wealth Tax Paid Under Protest:
The Petitioners argued that they were entitled to a refund of the wealth tax paid under protest. However, the court held that since the Petitioners filed their wealth tax returns voluntarily and belatedly, knowing that they did not meet the exemption criteria, they were not entitled to a refund. The payment of self-assessment tax was a voluntary act, and the claim for a refund was not sustainable.

5. Alleged Violation of Principles of Natural Justice:
The Petitioners contended that the impugned order dated 28th April 2000 violated the principles of natural justice. The court, however, did not find merit in this argument. The court noted that the Petitioners were given ample opportunity to present their case, and the decision was based on the factual circumstances and compliance requirements.

Conclusion:
The court dismissed the writ petitions, concluding that the Petitioners were not entitled to any reliefs as claimed. The court emphasized that the Petitioners' failure to comply with the essential conditions for claiming exemption and the belated filing of wealth tax returns disqualified them from seeking the refund of wealth tax paid under protest. The court also imposed costs of ?10,000 on each petition, payable to the Department within four weeks.

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