2018 (4) TMI 1134 - HC - Income Tax

Garnishee order making a demand to a assessee Educational Society - College is financially crippled due to the attachment and recovery made by the respondent - Held that - Considering the interest of the students community as well as hundreds of employees working in the College and the Society, this Court is of the view that this is a fit case for issuing certain directions. Because of the rivalry between the members of the Management the real beneficiaries shall not be deprived of their rights and the benevolent object of the Society to impart Education to the people of the Backward areas should not be defeated. Society is not represented by regularly by the Elected Office Bearers. There is an apprehension on the side of the respondent, from the past experiences, that too many persons would interfere and meddle with the matter. Permission is granted to the person named as Secretary of the petitioner Society before this Court to present an appeal and the respondent Department shall deal only with that person. No else can interfere in the matter of appeal to be filed. This order cannot be taken advantage by named Secretary in this petition for other issues or affairs of the Society and it is absolutely only in respect of filing an appeal before the respondent alone. Directions are issued to appeal shall be filed through the Secretary named in the present Writ Petition for the assessment year 2010-2011 within a period of two weeks from the date of receipt of a copy of this order.

Issues:
1. Exemption from income tax for an Educational Society running an educational institution.
2. Delay in filing an appeal against a demand made by the Income Tax Department.
3. Dispute over the management of the Society affecting the appeal process.
4. Legal implications of the Garnishee order issued by the respondent.
5. Consideration of the interests of students and staff of the College.
6. Application of the principles of natural justice in deciding the appeal.
7. Authorization for filing an appeal and restrictions on interference in the appeal process.

Issue 1: Exemption from income tax for an Educational Society
The writ petitioner, an Educational Society running a College, claimed exemption from income tax under Section 10(23C)(iiiab) and Section 11 of the Income-tax Act, 1961 due to its public charitable activities. The Society received grants from the Government and had been exempted previously. However, a sudden demand of ?83,74,558 was made by the respondent, leading to a legal dispute.

Issue 2: Delay in filing an appeal
Due to internal management disputes, no appeal was filed by the petitioner against the demand within the stipulated time frame. The Special Officer appointed by the High Court was managing the College since 2011, preventing the Society from approaching the respondent in time. Consequently, a Garnishee order was issued, and the Income Tax Department recovered the demanded amount from the Society's bank account.

Issue 3: Dispute over the management affecting the appeal process
The petitioner argued that the internal rivalry among the Society's members hindered the timely filing of the appeal. However, the respondent contended that the management dispute did not affect the demand made by the Income Tax Department, and all procedures were followed correctly. The petitioner's delayed response after the attachment and recovery of dues raised questions about the condonation of delay in filing the appeal.

Issue 4: Legal implications of the Garnishee order
The petitioner sought to quash the Garnishee order issued under Section 226(3) of the Income-tax Act, 1961. The recovery of funds from the Society's bank account had financially crippled the College, impacting students and staff. The Court acknowledged the adverse effects of the attachment and emphasized the need to consider the interests of the beneficiaries, i.e., the students and staff of the Educational Institution.

Issue 5: Consideration of interests of students and staff
Recognizing the financial strain on the College due to the respondent's actions, the Court aimed to ensure that the rights of students and staff were protected. Referring to a Supreme Court judgment, the Court emphasized the importance of advancing substantial justice over technicalities, especially when the real beneficiaries would suffer due to delays or disputes.

Issue 6: Application of principles of natural justice
In light of the circumstances and to safeguard the interests of the students and employees, the Court issued directions for filing an appeal and directed the respondent to provide a fair opportunity for the petitioner to present their case. The order emphasized adherence to natural justice principles and timely resolution of the appeal within three months.

Issue 7: Authorization for filing an appeal and restrictions on interference
To streamline the appeal process and prevent undue interference, the Court granted permission to a named Secretary of the petitioner Society to file the appeal. This authorization aimed to avoid multiple interventions and ensure a focused approach to resolving the tax dispute. The order restricted the named Secretary's involvement solely to the appeal process, maintaining clarity and efficiency in addressing the tax issue.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the Court's considerations in addressing the challenges faced by the Educational Society regarding income tax exemption and appeal procedures.

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