2017 (8) TMI 296 - HC - Income Tax

Non-payment of self assessment tax by assessee trust - Penalty levied on the assessee/Trust under Section 273(2)(a) and under Section 140A(3) - proof of charitable activities - filing NIL estimate of advance tax and nonpayment of the self assessment tax - Held that - The quantum of its income is not the test to determine whether the Trust is created for a charitable purpose. What is relevant is the object and purpose of creation of the Trust. The act of the assessee/Trust in not paying self assessment tax by returning its income and filing NIL estimate of the advance tax cannot be said or termed as bonafide act. If the assessee had taken due care and acted authentically or genuinely by keeping in its mind the verdict of the learned ITAT in respect of assessment years 1962-63 onwards, then it would not have acted in such a manner of declaring NIL estimate of the advance tax and nonpayment of the self assessment tax while returning its income for the assessment year 1983-84. The excuse sought to be given by the assessee/Trust that it was swayed by the verdict of the Apex Court in the matter of Surat Art Silk Cloth Manufacturers Association (1979 (11) TMI 1 - SUPREME Court) appears to be a lame excuse in order to avoid the tax liability and depriving the Revenue its due share in the taxable income earned by the assessee/Trust Despite past orders of several authorities that the income earned by the assessee/Trust is liable for tax at the hands of the Revenue, even in the assessment year 198384 return of income came to be filed by the assessee/Trust without paying self assessed tax but by making note in the statement of computation of income that the income is exempt under Section 11 of the I.T.Act, 1961. The assessee/Trust had given complete go bye to earlier decisions of the learned ITAT and other authorities in its own case which were available to the assessee/Trust from the assessment year 1962-63 onwards. The petitioner cannot interpret the finding of Apex Court erroneously and say it bonafidely believed that its income is exempted. As such, by no stretch of imagination it can be said that the assessee/Trust was acting bonafidely having belief that it is earning an exempt income, and therefore, the assessee/Trust is not liable either to pay advance tax or the self assessment tax.The history of this assessee/Trust with repeated noncompliance despite orders of the learned ITAT must weigh negatively on the assessee bonafides. The length of period during which the assessee/Trust was denied benefit of exemption does not allow us to hold that the assessee/Trust had reasonable belief to consider its income entitled for exemption, resulting in consequential actions of filing NIL estimate of advance tax and nonpayment of the self assessment tax. ITAT was justified in allowing the appeals of the Revenue and confirming penalty levied on the assessee/Trust under Section 273(2)(a) and under Section 140A(3) of the I.T.Act, 1961. - Decided against assessee.

Summary

Issues Involved:
1. Justification of penalty under Section 273(2)(a) of the Income Tax Act, 1961.
2. Justification of penalty under Section 140A(3) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Justification of Penalty under Section 273(2)(a):

The assessee, a Trust founded in 1941, claimed that its income from publishing newspapers and periodicals was exempt from income tax under the definition of "Charitable Purpose" in Section 2(15) of the Income Tax Act, 1961. However, the Income Tax Appellate Tribunal (ITAT) denied this exemption, following the Supreme Court's decisions in Sole Trustee, Loka Shikshana Trust vs. CIT and Indian Chamber of Commerce vs. CIT, which held that the Trust's activities involved profit-making and thus were not exempt.

Despite the Supreme Court's later decision in Additional Commissioner of Income Tax vs. Surat Art Silk Cloth Manufacturers Association, which allowed certain profit-making activities under "Charitable Purpose," the ITAT remanded the matter to the Assessing Officer for re-examination. For the assessment year 1983-84, the assessee filed an estimate of income as Nil, but the regular assessment determined the income to be ?84,65,270, later revised to ?6,26,52,031. The Assessing Officer found the estimate untrue and imposed a penalty of ?2,90,409 under Section 273(2)(a).

The CIT (Appeals) canceled this penalty, holding that the assessee relied on the Supreme Court's decision and had no malafide intention. However, the ITAT restored the penalty, stating that the assessee did not have a bona fide belief that its income was exempt, given the consistent treatment of its income as taxable for over forty years. The ITAT concluded that the assessee's actions were not genuine or bona fide, as it was aware of the ITAT's previous decisions and still filed a Nil estimate of advance tax.

2. Justification of Penalty under Section 140A(3):

For the same assessment year, the Assessing Officer also imposed a penalty of ?26,34,216 under Section 140A(3) for the assessee's failure to pay self-assessment tax. The CIT (Appeals) canceled this penalty as well, reasoning that there was no liability for self-assessment tax based on the return filed by the assessee and that no penalty had been imposed in past years.

The ITAT, however, upheld the penalty, asserting that the assessee's belief in its income being exempt was not reasonable. The ITAT emphasized that the assessee's consistent failure to pay tax despite knowing its income was taxable demonstrated a lack of bona fide belief. The ITAT noted that the assessee had not paid advance or self-assessment tax for subsequent years as well, indicating a pattern of non-compliance.

Conclusion:

The High Court affirmed the ITAT's decision, stating that the assessee's actions were not bona fide, given the long history of its income being treated as taxable. The court held that the penalties under Sections 273(2)(a) and 140A(3) were justified, as the assessee did not have a reasonable belief that its income was exempt. The reference was answered in the affirmative, upholding the penalties imposed by the Assessing Officer and confirmed by the ITAT.