Director of Income Tax (Exemption) vs Jamshetji Tata Trust

M.S. Sanklecha, J.—Rule, returnable forthwith. By consent of the parties the petition is taken up for final hearing. By this petition under article 226 of the Constitution of India the Revenue challenges the order dated December 20, 2013, passed by the income tax Appellate Tribunal ("the Tribunal") granting stay of an outstanding demand of tax of Rs. 290 crores under the first proviso to section 254(2A) of the income tax Act 1961 ("the Act"). The impugned order granted a stay for a period of six months from December 20, 2013, or disposal of the appeal, whichever is earlier. For the present, the appeal has been fixed by the Tribunal on March 10, 2014.

Briefly, the facts leading to this petition are as under:

(a) The respondent-assessee is a public charitable trust duly registered under the Bombay Public Trust Act, 1950, and also u/s 12 of the Act. For the assessment year 2010-11, the respondent-assessee filed its return of income on September 30, 2010, declaring its income as nil and claiming exemption u/s 11 of the Act. The petitioner''s sources of income for the assessment year 2010-11 were as under:

(b) During the proceedings u/s 143(3) of the Act, the petitioner claimed exemption from tax u/s 11 of the Act. Alternatively, the petitioner claimed exemption in respect of its long-term capital gains, dividend income and income from mutual funds u/s 10 of the Act. However, the Assessing Officer did not accept the above contention and by an order dated March 30, 2013, determined the respondent-assessee''s income at Rs. 714 crores.

(c) In an appeal, the Commissioner of income tax (Appeals) by an order dated November 7, 2013, confirmed the order of the Assessing Officer dated March 30, 2013.

(d) The respondent-assessee preferred an appeal from the order dated November 7, 2013, of the Commissioner of income tax (Appeals) to the Tribunal. The total tax demand (inclusive of interest) on the respondent-assessee was of Rs. 300 crores. The amount of Rs. 10 crores out of Rs. 300 crores was deposited/paid by the respondent-assessee. For the balance outstanding demand of tax and interest aggregating to Rs. 290 crores the respondent-assessee filed an application for stay before the Tribunal.

(e) On December 20, 2013, the Tribunal by impugned order granted the stay of the outstanding demand of Rs. 290 crores for a period of six months from the date of the above order or till the hearing of the appeal, whichever is earlier. This was on the basis that for a major amount of outstanding tax the respondent-assessee had made out a prima facie case.

Mr. Suresh Kumar, learned counsel for the Revenue, being aggrieved by the order of the Tribunal, submits as under:

(a) The impugned order ought to have directed the respondent-asses-see to deposit at least 50 per cent of the entire tax demand and furnish a bank guarantee for the balance amount. This is particularly so as there was no financial hardship pleaded by the respondent-assessee; and

(b) The respondent-assessee being a trust claiming exemption u/s 11 of the Act and once it is found that it is not entitled to exemption thereunder then it is not open to such an assessee to claim exemption u/s 10 of the Act. Two authorities under the Act have come to the conclusion that the respondent-assessee is not entitled to the benefit of section 11 of the Act for failure to satisfy section 13(1) of the Act. Therefore, it is submitted that the provisions of sections 10 and 11 of the Act are mutually exclusive and once exemption to tax is sought u/s 11 of the Act then benefit of section 10 of the Act cannot be claimed.

As against the above, Mr. Soli Dastur, senior counsel for the respondent-assessee, in support of the impugned order dated December 20, 2013, submits as under:

(a) The respondent-assessee is a charitable trust and engaged in major charitable activities. Therefore, directing the respondent-assessee to deposit/pay any amount of the demand in spite of its having a good prima facie case would entail funds not being available for charitable activities. Further, in any case, as the assessee-respondent has a good prima facie case, no amounts need be deposited only in view of lack of financial hardship.

(b) The impugned order correctly extends the benefit of section 10 of the Act which specifies incomes which do not form part of the total income received by any person, i.e., whether an individual or trust, firm, local authority, Hindu undivided family or a company. The exclusion of income u/s 10 of the Act is to the nature of income and not dependent upon character/status of the person earning the income. As against that section 11 of the Act grants exemption to income earned by a person holding property in trust wholly for charitable purposes, i.e., upon the status of the recipient of the income. Therefore, the denial of benefit u/s 11 of the Act would not deprive the respondent-assessee of the benefit of section 10 of the Act; and

(c) So far as the income other than income to be excluded by virtue of section 10 of the Act is concerned at the highest the impugned order holds that the tax payable would be Rs. 44 crores which is also disputed by the respondent-assessee. In any case an amount of Rs. 10 crores, i.e., about 25 per cent of the demand of Rs. 44 crores had already been paid. Therefore, the order is most reasonable and calls for no interference particularly as the appeal itself is fixed for final hearing on March 10, 2014.

We have considered the rival submissions. This court has in KEC International Ltd. Vs. B.R. Balakrishnan and Others, has laid down the guidelines for disposal of stay application under the Act. Amongst the various parameters laid down was that the order of stay must record/set out briefly the case of the assessee/party and also look at the questions involved in the appeal and the amount required to be deposited considering the issue in appeal.

We find that the impugned order of the Tribunal has after considering section 10 of the Act has prima face accepted the respondent-assessee''s contention that income of Rs. 442 crores attributable to dividend, mutual fund and long-term capital gains would not be assessed to tax as it is not includible in income chargeable to tax. The contention of the Revenue that in case a person is seeking exemption u/s 11 of the Act then the benefit of section 10 of the Act is not available was prima facie negatived by following the decision of the Allahabad High Court in Bar Council of Uttar Pradesh Vs. Commissioner of Income Tax, . Sections 10 and 11 of the Act are not mutually exclusive. Section 10 exempts/excludes income of a particular type received by any person irrespective of the status of person receiving the income. It is the character/nature of income that is to be excluded from the total income u/s 10 of the Act. Therefore, the amount of Rs. 442 crores approximately would be exempted u/s 10(34), section 10(37) and section 10(38) of the Act, i.e., income earned on account of dividend, mutual funds and long-term capital gains while exemption u/s 11 of the Act is dependent upon the status of the respondent, i.e., property being held under trust. Therefore, at this stage a complete stay on the tax attributable to income excluded u/s 10 of the Act is unexceptionable.

However, so far as the tax payable of Rs. 44 crores on the disputable income of Rs. 270 crores is concerned, we find that the Tribunal has not followed the parameter laid down in KEC International Ltd. Vs. B.R. Balakrishnan and Others, , i.e., not considered the stand of the assessee with regard to its dispute to pay the tax of Rs. 44 crores. A prima facie case does not mean mere disputing the liability to pay the tax. It would necessarily mean a strong arguable case. This could only be established by the respondent-assessee if it is pointed out why and how no tax would be payable on Rs. 44 crores. We do not find any mention of the reason even prima facie in the order of the Tribunal. Therefore, there has been no application of mind even prima facie in respect of the dispute as regards the payment of Rs. 44 lakhs as tax by the respondent-assessee. We find that the impugned order proceeds to grant a stay of recovery of Rs. 290 crores on the ground that for a major part of the outstanding demand, the respondent-assessee has a good prima facie case. However, the impugned order of the Tribunal does not state even prima facie in its order as to how the demand of Rs. 44 crores of tax is arguable on the merits.

In view of the above, particularly taking into account the fact that the appeal before the Tribunal itself is scheduled for hearing on March 10, 2013, we are not inclined to interfere at this stage. However, we make it clear that in case the appeal before the Tribunal is adjourned either on March 10, 2014, or any subsequent date at the instance of the respondent-assessee, then the respondent-assessee shall deposit further Rs. 12 crores which would mean deposit in the aggregate of approximately 50 per cent of the demand of Rs. 44 crores within four weeks from the date the adjournment is sought and granted. In view of the above directions, the petition is disposed of. No order as to costs.