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2020 (9) TMI 423 - HC - Income Tax


Issues Involved:
1. Entitlement to exemption under Section 10(23C)(iiiab) of the Income Tax Act.
2. Validity of the notice issued under Section 148 of the Income Tax Act.
3. Assessment proceedings and the subsequent reassessment order.

Detailed Analysis:

1. Entitlement to Exemption under Section 10(23C)(iiiab) of the Income Tax Act

The core issue in the proceedings was whether the petitioner, Bihar State Text Book Publishing Corporation, is entitled to exemption under Section 10(23C)(iiiab) of the Income Tax Act. The petitioner is a government-owned entity engaged in printing, publishing, and distributing textbooks, incorporated solely for educational purposes and substantially financed by the Government of Bihar.

The court examined the statutory provision of Section 10(23C)(iiiab), which exempts income of any university or educational institution existing solely for educational purposes and not for profit, provided it is wholly or substantially financed by the Government. The court noted that the petitioner met all the essential conditions:
- It is an educational institution.
- It exists solely for educational purposes.
- It is not established for profit.
- It is wholly or substantially financed by the Government.

The court referred to the Supreme Court's ruling in Queen's Educational Society vs. Commissioner of Income Tax, which clarified that an educational institution making a surplus does not necessarily imply it is for profit if the surplus is used for educational purposes. The court found that the petitioner’s activities and financial structure aligned with these principles.

2. Validity of the Notice Issued under Section 148 of the Income Tax Act

The petitioner received a notice dated 28.1.2010 under Section 148 of the Income Tax Act, indicating the Assistant Commissioner of Income Tax's belief that income assessable to tax had escaped assessment for the assessment year 2006-07. The petitioner challenged this notice, and the court issued an interim order preventing any coercive action.

The court found the notice and subsequent reassessment order to be legally flawed. The Assessing Officer failed to address the petitioner’s contentions or apply the judicial principles established in prior decisions, making the order cryptic and unsatisfactory. The court emphasized that the reassessment was based on the petitioner receiving a subsidy under a government program, which should not have led to a reassessment without proper reasoning.

3. Assessment Proceedings and the Subsequent Reassessment Order

During the pendency of the petition, the assessment proceedings concluded with an order dated 23.12.2010, determining the income chargeable to tax. The court found that the Assessing Officer did not consider the petitioner’s arguments or relevant judicial precedents, rendering the order unsustainable.

The court highlighted that the petitioner’s surplus was utilized for educational purposes, and the activities were in line with the statutory requirements for exemption. The court referred to its earlier decision in Bihar State Text Book Publishing Corporation vs. The Commissioner of Income Tax-I, Patna, where similar circumstances led to the quashing of the Revenue’s order.

The court also considered the Supreme Court’s decision in Assam State Text Book Production and Publication Corporation Limited vs. Commissioner of Income Tax, which supported the petitioner’s case. The court concluded that the petitioner’s activities fell within the exemption clause of Section 10(23C)(iiiab) and that the reassessment proceedings were unjustified.

Conclusion

The court quashed the notice dated 28.1.2010 and the consequential order dated 23.12.2010, allowing the writ petition and ruling in favor of the petitioner. The court found the Revenue’s actions to be misconceived and legally untenable, emphasizing that the petitioner’s activities were solely for educational purposes and substantially financed by the Government, thus qualifying for the exemption under Section 10(23C)(iiiab) of the Income Tax Act.

 

 

 

 

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