2007 (10) TMI 173 - HC - Income Tax

Petitioner is a body corporate with perpetual succession created by the State Act engaged in administration of temple not statutorily required to file return nor tax is required to be deducted at source on interest on deposits in bank circular 4/02 applicable - so section 10(23BBA) not applicable & exemption granted under this section is a total unconditional exemption if demand is raised on bank to deduct tax at source then impugned committee has locus standi to file petition

Summary

Issues Involved
1. Withdrawal of income tax exemption under section 10(23BBA) of the Income-tax Act, 1961.
2. Issuance of notices under sections 142, 201, 201(1A), and 221(1) of the Income-tax Act.
3. Legality of post-decisional hearing.
4. Requirement to file income tax returns under section 139.
5. Deduction of tax at source (TDS) from the petitioner's income.

Detailed Analysis

1. Withdrawal of Income Tax Exemption
The petitioner, Shri Jagannath Temple Managing Committee, challenged the order dated October 12, 2006, by the Income-tax Officer, Puri Ward, which withdrew the exemption granted under section 10(23BBA) of the Income-tax Act, 1961. The court noted that the petitioner is a statutory body constituted under the Shri Jagannath Temple Act, 1955, and its income is unconditionally exempt under section 10(23BBA). The court held that the withdrawal of this exemption without prior hearing was a violation of natural justice and quashed the order.

2. Issuance of Notices
Following the withdrawal of exemption, various notices were issued under sections 142, 201, 201(1A), and 221(1) of the Income-tax Act. These notices were directed at the petitioner and its bankers for non-deduction of tax at source on interest income. The court found that these notices were consequential to the impugned order of withdrawal of exemption and thus, also quashed them.

3. Legality of Post-Decisional Hearing
The Revenue attempted to offer a post-decisional hearing to the petitioner on December 8, 2006. The court held that post-decisional hearing in this context was an "empty ritual" and did not comply with the principles of natural justice, as the authorities had already made up their mind to enforce the withdrawal of exemption.

4. Requirement to File Income Tax Returns
The court examined whether the petitioner was required to file income tax returns under section 139. It was clarified that bodies whose income is unconditionally exempt under section 10, like the petitioner, are not required to file returns. This was supported by the Central Board of Direct Taxes (CBDT) Circular No. 4 of 2002, which explicitly stated that bodies covered under section 10(23BBA) are not required to file returns.

5. Deduction of Tax at Source (TDS)
The Revenue directed the petitioner's bankers to deduct TDS on interest income. The court held that since the petitioner's income is unconditionally exempt under section 10(23BBA), no TDS should be deducted. The court emphasized that the petitioner's income is protected from tax deduction, and any such deduction would be unauthorized.

Conclusion
The court quashed the order dated October 12, 2006, and all consequential notices and directions issued to the petitioner's bankers. It held that the petitioner is not required to file returns under section 142(1) and that the directions for TDS were unauthorized. The writ petition was allowed, and no costs were awarded.