2013 (2) TMI 240 - HC - Income Tax

Withdrawal of registration u/s 12AA - reopening of assessment - notice issued u/s 226(3) to the Branch Manager of Bank of India calling upon the bank to pay over an amount of Rs.11.72 crores towards the demands raised on the Petitioners - applications for stay of demand pending before the CIT(A) - Held that - The admitted position before the Court is that against the orders of assessment that were passed for A.Ys. 2004-05 and 2006-07 after the original assessments were reopened, appeals have been filed before the CIT(A), which are pending. Similarly an appeal is pending for the A.Y.2009-10. Though the appeals are pending since 24 January 2012 for nearly a year, no decision has been taken on those appeals. There is a request of the Petitioner for keeping the demands in abeyance. 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. 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.

Summary

Issues Involved:
1. Withdrawal of registration under Section 12AA of the Income Tax Act.
2. Denial of exemption under Section 11 of the Income Tax Act.
3. Execution of recovery notices under Section 226(3) of the Income Tax Act.
4. Pending appeals before the Commissioner of Income Tax (Appeals).
5. Request for stay of demand and opportunity of being heard.

Detailed Analysis:

1. Withdrawal of Registration under Section 12AA:
The Petitioner, a public trust registered under the Bombay Public Trusts Act, 1950, was granted registration under Section 12A of the Income Tax Act in 1975. An amendment to the objects clause in 1986 included a reference to rendering services primarily for Catholics in consonance with Catholic principles. Despite this amendment, the registration under Section 12A was not withdrawn until 2008. A notice for withdrawal of registration under Section 12AA was issued on 25 March 2011, and the Petitioner filed objections on 23 September 2011, but proceedings are still pending.

2. Denial of Exemption under Section 11:
The Petitioner was granted exemptions under Section 11 of the Act from 1975 until 2010, even after the amendment in the objects clause. However, for Assessment Years (AY) 2009-10, the exemption was denied on 7 December 2012, citing the amended objects clause. Similarly, exemptions for AYs 2004-05 and 2006-07 were withdrawn by orders dated 29 December 2011.

3. Execution of Recovery Notices under Section 226(3):
Recovery notices under Section 226(3) were issued to the Petitioner's bank on 10 and 11 January 2013, demanding payment of Rs.11.72 crores. The bank was instructed not to contact the Petitioner until payment was made. The Petitioner received these notices on 17 January 2013, after the funds had already been withdrawn, leaving the Petitioner with virtually no funds to run its institutions.

4. Pending Appeals before the CIT (Appeals):
The Petitioner filed appeals for AYs 2004-05, 2006-07, and 2009-10 before the Commissioner of Income Tax (Appeals), which are still pending. Despite requests to keep the demands in abeyance, no decision has been taken on these appeals.

5. Request for Stay of Demand and Opportunity of Being Heard:
The Petitioner argued that the execution of recovery notices was high-handed and contrary to law, as applications for stay of demand were pending and no hearing was granted. The Petitioner contended that the original orders of assessment had granted exemptions under Section 11 after considering the amended objects clause and that the institutions were open to all communities. The Court noted that the manner in which Section 226(3) was executed showed a breach of the provision, as the Petitioner was not given prior notice, depriving them of any recourse.

Conclusion:
The Court found the action under Section 226(3) to be arbitrary and high-handed. It directed the CIT (Appeals) to dispose of the stay applications within three weeks and ordered the Revenue to repatriate Rs.1 crore to the Petitioner's bank account to allow it to continue its activities. The balance amount recovered would be subject to the orders of the CIT (Appeals). The petition was disposed of with no order as to costs.