IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE:16-12-2008 CORAM: THE HONOURABLE MRS. JUSTICE PRABHA SRIDEVAN AND THE HONOURABLE MR. JUSTICE K. K. SASIDHARAN W.P.Nos.15527 to 15537 of 2003 and W.P.M.P.Nos.19502, 19504,19506, 19508, 19510, 19512, 19514, 19516, 19518, 19520, 19522 of 2003 Swami Premananda @ Premkumar S/o Somasundaram Central Prison Cuddalore ... Petitioner in all WPs Vs. 1. The Commissioner of Income Tax-I Office of the Commissioner of Income Tax – I No.4, Williams Road, Cantonment Tiruchirapalli – 620 001 2. Sri Premananda Trust Rep. by its Managing Trustee Dhamayanthi Mathaji, Premananda Ashram Melapatchakudi Village,Fathima Nagar Via Viralimalai, Pudukkottai District ... Respondents in all WPs For petitioner :: Mr. V. Ramachandran Senior Counsel for Mr.Jerome Pushparaj For respondents :: Mr. Murali Kumaran, Senior Standing Counsel Prayer in W.P.15527 to 15537 of 2003: Writ petitions filed under Article 226 of the Constitution of India praying for a writ of certiorarified mandamus calling for the records of the 1st Respondent herein in his proceedings C.No.6144(27) https://hcservices.ecourts.gov.in/hcservices/ CIT-1/TRY/2001 - 2002, dated 12.03.03 for the assessment year 1985- 86, C.No.6144(28) CIT-1/TRY/2001-2002 dated 12.03.03 for the assessment year 1986-87, C.No.6144(29) CIT-1/TRY/2001-02 dated 12.03.03 for the assessment year 1987-88, C.No.6144(30)/CIT-1/TRY 2001-02 dated 12.03.03 for the assessment year 1988-89 C.No.6144(31)/ CIT-1/TRY/2001-02 dated 12.03.03 for the assessment year 1989-90, C.No.6144(32)/CIT-1/TRY/2001-02 dated 12.3.03 for the assessment year 1990-91, C.No.6144(33)/CIT-1/TRY/2001-02, dated 12.03.03 for the assessment year 1991-92, C.No.6144(34)/CIT-1/TRY/2001-02 dated 12.03.03 for the assessment year 1992-93, C.No.6144(35)/CIT- 1/TRY/2001-02 dated 12.03.03 for the assessment year 1993-94, C.No.6144(36)/CIT-1/TRY/2001-02 dated 12.3.03 for the assessment year 1994-95, C.No.6144(37)/CIT-1/TRY/2001-02 dated 12.03.03 for the assessment year 1995-96 and quash the same and further direct the 1st respondent herein to drop the Income Tax proceedings initiated against the petitioner as individual income and further make the income tax assessments in the hands of the 2nd Respondent Trust herein as being the real owner of both movable and immovable properties as stated therein JUDGMENT (PRABHA SRIDEVAN,J.) The petitioner, who headed an Ashram, accumulated properties, both movable and immovable. His premises were raided by the Income Tax Authorities on 23-11-1994 and 29-11-1994. In pursuance of the search conducted in the said premises assessment orders were passed for the assessment years 1985-86 to 1995-96. 2. Against the assessment orders, Appeal Nos.75 to 85 of 1997- 98 were filed. The Commissioner of Income Tax(Appeals) (CIT(Appeals) in short) remanded the matter with certain directions to the Assessing Officer. The petitioner filed W.P.No.17649 of 1999 contending that the Trustee of the Premananda Trust( 2nd Respondent herein) should be given an opportunity before any assessment is made. On 02-11-1999, the above Writ petition was disposed of with certain directions. On 29-03-2000, assessment orders were passed. The assessee filed revision petitions which were dismissed on merit. So these writ petitions have been filed. 3. The learned Senior Counsel Thiru. V. Ramachandran, appearing for the assessee submitted that the assessment orders must be quashed. The assessee was not given a fair opportunity. Though the CIT(Appeals) remanded the matter on 27-02-1998 , the Assessing Officer issued the show cause notice only on 19-09-1999 after nearly 18 months. This gave the assessee very little time to present his case effectively. To make matters worse, he was in prison and this too prevented him from effective participation in the proceedings. Though it is claimed that adequate opportunity was given, it was more an illusion of an opportunity. In the show cause notice, the https://hcservices.ecourts.gov.in/hcservices/ assessee was asked to give his explanation regarding the source of his properties. There is a great variation in the items of properties listed in the show cause notice and in the assessment orders. Therefore, even with regard to items for which no explanations were called for, the assessing officer had on his own arrived at a conclusion and passed orders. This also amounted to violation of principles of natural justice. The learned Senior Counsel submitted that when the matter was remitted by the CIT (Appeals), he gave directions that the affdavits given by various donors which were treated as unexplained income should be considered and the said donors should be examined. But the assessing officer ignoring the directions had not summoned these foreign donors. According to the learned Senior Counsel, the Supreme Court had repeatedly frowned upon such judicial indiscipline amongst the authorities and on this ground alone the assessment order deserves to be quashed. It was also submitted that the assessing officer had blindly applied Krishna Menon's case to the donations. Krishna Menon's case revolved round the peculiar facts of the said case where there was proof that the donors had given the gifts for the Vedanta teachings imparted by the assessee. In the present case, there is no such evidence and had those foreign donors been examined, it would have revealed that the donations have been given for the Trust. The Learned Senior Counsel submitted that the Assessing Officer had relied on a stray sentence in the letter given by one such donor to arrive at the conclusion that Krishna Menon's case applied to this case. The learned Senior Counsel submitted that though these donations were credited in the assessee's account, it was meant for the Trust, and the alleged non-application of the funds towards the objects of the Trust would at worst be breach of trust and nothing more. On that ground, the Trust's income cannot be assessed as income in the assessee's hands. Further the income was actually applied for construction of orphanage etc, that is it was actually used only for charitable activities. The learned Senior Counsel submitted that at the relevant point of time anyone could make a gift and there were no restrictions. The learned Senior Counsel relied on several decisions to support his case. 4. In response, Mr. Murali kumaran, learned Senior Standing Counsel would submit that several of the decisions relied on by the learned Senior Counsel arose out of the Income Tax Act, 1922 where the definition of income did not include "profits and gains" . The definition changed subsequently. The learned Senior Standing Counsel submitted that at no point of time did the assessee complain that he had been denied the opportunity for want of examination of all the foreign donors and it is raised for the first time here. He submitted that the so-called affidavits cannot be relied on since they are not properly notarised nor authenticated. He also submitted that there was no Valid Trust and it is futile to contend that it should be assessed in the hands of the Trust. The learned Senior Standing Counsel submitted that the burden of proof is on the https://hcservices.ecourts.gov.in/hcservices/ assessee to prove the genuineness of the donations and in the absence of satisfactory proof the assessing officer rightly treated it as income and referred to various decisions. He also submitted that there was evidence to show that it is on account of the teachings of the assessee that those remittances were made. It was also submitted that the scheme of the Income Tax Act is that it categorizes the income and it charges the said income and then refers to deductions, exemptions and allowances and it is for the assessees to prove that the income or a part thereof is not taxable. It was also submitted that it is hardly relevant for the purpose of assessment, that what was received by the assessee had been spent for building orphanages. If he had spent on deductible expenditure then he could claim it. But that will not change the character of the receipts in his hand as income. He submitted that enough opportunity was given to assessee and he has no cause to complain. . He also submitted that there is absolutely no variation between the show cause notice and the assessment order. The questionnaire referred to certain sources like corpus, fund, cash and loan from bank etc. for which he was asked to furnish supporting evidence. When the evidence was not forthcoming or satisfactory, it was treated as income by the assessing officer but there was no variation. The learned Senior Standing counsel submitted that the writ petitions should be dismissed. 5. The story starts from the time the assessee came to India from Sri Lanka. He attracted some devotees. Definitely from 1984, there appears to have been an Ashram. According to the assessee , he was advised to found a Trust. In the Minutes of the Meeting of the Trustees alleged to be held on 08-07-2004 it is stated as follows: @nkw;go mira[k;. kw;Wk; mirahr; brhj;Jf;fs; Rthkp gpnukhde;jh. jpt;anjtp. khjh$p. Rthkp fkyhde;jh. jpU/kapy;thfdk; Mfpnahh; bgahpy; ,Ue;jhYk;. mit _ gpnukhde;jh ou!;Lf;nf brhe;jkhdit vd bjhptpf;fg;gl;lJ/@ 6. There are bald statements or recitals that the individuals had no right and that the properties belonged to the Trust. The trust deed is dated 08-07-1994 and registered on 20-07-1994. The author of the Trust is the assessee. He had given a sum of Rs.501/- for the creation of the Trust. He has named about eight persons including himself as the trustees of the Trust. Clause 32 of 1994 document reads thus: "It is hereby declared that as on this date the Trust has no movable or immovable property excepting Rs.501/- mentioned in para.no.3 and that the Trustees have power to windup the Trust by merging or amalgamating with another Trust, charitable Society having similar objects and enjoying recognition by the commissioner of income-tax under section 80-G of the income-tax act, 1961 if they are of the decision that the object of this Trust would be better https://hcservices.ecourts.gov.in/hcservices/ served by taking such a step. In such an event, no portion of the assets of the Trust remaining on that date shall be distributed amongst the Trustees." 7. Release deeds had been executed in 1994 by the petitioner. Only on 07-10-1994, forms were filed for registration under Section 12(A) of the Income Tax Act. From the FORM No.10G by the we get these details: "9. Amount accumulated for the purposes mentioned in item 4 .........New Trust 13. Details of shares, security or other property purchased by or on behalf of the trust from any interested person as specified in sub-section (3) of section 13. " .......Nil Therefore, in 1994 when the Trust came into existence it owned no property. On 23-11-1994 and 29-11-1994, the assessee's premises called 'Premananda Ashram' was subjected to search. The documents showing substantial investment in bank deposits and immovable properties were seized in the search u/s.132 and they revealed that the assessee is liable to tax. So income tax assessment proceedings were initiated for all the ten assessment years by separate notices for each assessment year under Section 148 on 21-08-1995. In response to the notice, the assessee's Chartered Accountant sent a letter dated 28-09-1995 seeking time. Since the assessee failed to furnish his returns, two detailed letters were issued to the assessee on 11-10-1995 and 23-10-1995 wherein his explanations regarding the source of the properties and investments was called for. In response, he again sought for time, time was granted till 31-10-1995. Thereafter, there was no response. So an ex-parte assessment was completed under Section 144, on 29-12-1995, taking into account the various investments and outgoings. After the completion of the assessment ex-parte, he filed 'NIL' return for each of the assessment year. Then he preferred an appeal against the ex-parte assessments. Before the CIT(Appeals) he claimed that as he was in judicial custody; he was not given reasonable opportunity. He also claimed that the bank deposits and other investments did not belong to him, but they belonged to the Trust. The CIT(Appeals) called for a remand report. The CIT(Appeals) considered the remand report and after hearing the assessee's representative, concluded that the Assessing Officer had cursorily doubted the evidentiary value of the affidavits without making any effort to cross examine the deponents/depositors and therefore, he passed an order on 27-02-1998 wherein he gave the following directions: "The Assessing officer is directed to reframe the assessment afresh after giving the appellant reasonable opportunity of being heard. While reframing the assessments https://hcservices.ecourts.gov.in/hcservices/ the Assessing Officer is directed to examine the appellant Shri Premkumar alias Premananda Swamigal an oath in respect of unexplained investments in immovable properties/FDRs etc. He should also examine the various parties who filed affidavits in respect of the amounts credited to the NRE A/c of the assessee and Smt. Divyadevi. The Assessing Officer must also provide reasonable opportunity to the appellant regarding additional income which he failed to consider in the ex parte orders under section 144 for assessment years 85-86 to 95-96 mentioned in the annexure to the remand report. .." Thereafter, a detailed questionnaire was issued to the assessee on 20-09-1999. A copy of the questionnaire was also sent to the Chartered Accountants. The various investments and deposits were treated as unexplained and they were shown as: (1) Corpus Fund (2) Cash (3) Loan from Bank (4) Bank withdrawal (5) Bank interest In the above questionnaire, the assessee was required to explain with necessary evidence the receipts such as donations towards corpus fund, Bank loan, bank withdrawal, cash etc. The petitioner sought for a month's time and he also said that "on any day in November as fixed by the Assessing Officer," he would give the details. Time was granted till 04-11-1999. It is at this juncture that he filed W.P.No.17641 of 1999 praying that the Managing Trustee of the second respondent-Trust should be given an opportunity. Therefore, the copy of the questionnaire was also given to the Trust. Then time was granted till 07-01-2000. On 07-01-2000, the Chartered Accountant gave an explanation, which stated that all the bank deposits of the immovable properties did not belong to the assessee nor to the Managing Trustee but to the Trust and that by a Resolution passed on 20-07-1994 "it was declared that all the movable and immovable properties belong to the Trust only." Then the Trust was called upon to furnish the necessary documents to show that the bank deposits and immovable properties stood in the name of the assessee belonged to the Trust. The two documents mentioned above namely the minutes of the meeting of the Trustees and the alleged Trust deed were produced. Since the time for concluding the assessment was running out and since the assessee was in Prison, a Commission was taken out for recording his statement. The summary of all the statements given by the assessee is as follows: "1. The Bank deposits and other assets both movable and immovables standing in the name of the assessee belong to Sri Premananda Trust and not to the assessee. 2. The Bank deposits and other movable and immovables standing in the name of the assessee and Divya Devi have https://hcservices.ecourts.gov.in/hcservices/ been acquired out of donations received from foreign nationals who are the devotees of the assessee. The donations were given by the foreign devotees for being spent on specific purpose by the Ashram and the assessee received the funds only as a custodian. 3. In the meeting of the Board of Trustees of Sri Premananda Trust held on 20.07.94 a resolution was passed declaring all the movable and immovable properties and also the bank deposits standing in the name of the assessee and other trustees as belonging to Sri Premananda Trust. 4. The assessee has executed a Release Deed on 06.10.94 relinquishing his right over both movable and immovable assets and bank deposits held in his name and giving his consent for transferring all the assets and the bank deposits in his name to Sri Premananda Trust. 5. Divya Devi has executed a release deed on 08.08.94 transferring the movable and immovable properties and bank deposits standing in her name to Sri Premananda Trust. 6. Similar release deeds have been executed by Kamalananda and Mylvahanam on 06.10.94 transferring the assets and bank deposits standing in their name to Sri Premananda Trust. 7. Sri Premananda trust has filed property suit and money suit before the competent court seeking declaration that the assets and bank deposits standing in the name of the assessee and Divya Devi as belonging to the Trust and the suits. 8. Sri Premananda Trust has applied for registration u/s.12 A and the donations received from the foreign nationals are spent on charitable objects of the Trust and hence exempt. 9. The income tax proceedings initiated in the case of the assessee as individual have to be dropped and Sri Premananda Trust is to be assessed as the Ashram or the Trust is the real owner of the funds received by the assessee and the latter has acted only as the representative of the Ashram." So, his case is that the income belonged to the Trust or the Ashram and that he had received the funds as the representative of the Ashram. In this statement, there is no request that his donors shall be examined. On a reading of the Trust Deed which showed that the only asset of the Trust on that date was the sum of Rs.501/- , the AO concluded that the properties in the name of the assessee belonged https://hcservices.ecourts.gov.in/hcservices/ only to the assessee. The assessee had also executed a Will on 07-02- 1986 bequeathing all these properties to one Swami Gunananda @ Gunala. Therefore, not only were these properties in assessee's name, he had also dealt with these properties as his own which he could bequeath on the person of his choice. It is true that a will comes into effect only after the death of the testator, but this gives us an insight into the mind of the petitioner and that he dealt with the properties as his own. 8. As regards the foreign remittances credited in his NRE account they were said to be donations received from foreign devotees for a specific purpose. The assessing officer found that the affidavits were more in the nature of confirmation letters, and that there was no authentication and the identities of the foreign devotees were not proved. The Assessing Officer has listed the following purposes as mentioned in the affidavits for which the donations were allegedly given : "1. Food for children 2. Clothes for children 3. Orphanage 4. Forest trees maintenance 5. Office stationery 6. Stamp 7. Special Abishekam 8. Building materials/maintenance 9. Plants 10. Garden tools 11. Paatla Pooja 12. Postage 13. Cattle purchase/cow feed 14. Flower plants 15. Pooja Hall maintenance 16. Fertiliser 17. Vehicle maintenance 18. Agriculture 19. Books for library 20. Borewell maintenance" The Assessing Officer held that, in view of the specific purposes mentioned in the affidavits , they cannot be treated as donations towards the corpus fund. The receipts were deposited in the assessee's Bank account. The Assessing Officer held that the donations were received by the assessee in his individual capacity and not as custodian of the Trust. It is also relevant to note that the Division Bench of this Court which heard the assessee's appeal against his conviction, directed that the interest accrued in the Bank deposits standing in his names should be paid to the victims. This fact has also been noted by the Assessing Officer. He considered the release deeds and found that they were not registered https://hcservices.ecourts.gov.in/hcservices/ in accordance with law. 9. As regards the donors who are foreign nationals, the Assessing Officer held that it is not practicable to enquire them and that since the affidavits indicated the purpose for which the donations were made to the assessee, there is nothing more needed to be done in this regard. The Assessing Officer also referred to one letter which showed that the devotees were benefited by his teachings. So held that Krishna Menon's case would apply. So he assessed the income in the assessee's hands and passed the assessment orders. 10. The assessee filed a revision under Section 264. The revisional authority passed the impugned order. This shows that even before the revisional authority the assessee's case was that he had acted only as a custodian of the Trust and that sufficient opportunity was not given to establish his case. Even before the revisional authority, he did not complain of non-examination of the donors. The revisional authority rejected the revision. 11. We will examine the various issues argued before us and the judgments cited in support of them: I. Judicial Indiscipline: With regard to judicial indiscipline, several decisions were cited. (i)In (2002) 292 ITR 22 [Nokia Corporation Vs. Director of Income-Tax (International Taxation) and Another] the Delhi High Court held that if the order of an appellate authority is the subject- matter of further appeal, that cannot furnish any ground for not following it, unless its operation has been suspended by a competent court. If this rule is not followed, the result will not only be undue harassment to assessees but also chaos in the administration of tax laws. (ii) In 288 ITR 322 (SC) [CIT V. Ralson Industries Ltd.] the Supreme Court held that where an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of judicial discipline. (iii) In 1990 (47) ELT 231 (Bom.) [Kamlakshi Finance Corporation Ltd. Vs. U.O.I.], the case arose with regard to what is the proper classification of the product produced at the assessee's factory. The Appellate Authority decided that it fell under Heading 8546. But on remand, the Assistant Collector failed to consider the claim of the assessee that the product is similar to that of their product produced in the Borivli factory which has been decided by the Appellate Collector and should be applied by the Assistant Collector. https://hcservices.ecourts.gov.in/hcservices/ The Assistant Collector ignored the decision of the Appellate Authority. The Bombay High Court held that, "the Assistant Collector does not even explain why the decision in the other case could not be applied. This indicates how quasi-judicial powers are being misused by people who are not qualified to exercise the same. Their only purpose seems to be collect as much as possible or to harass the assessees to the maximum extent possible. The difficulty is what is to happen in future, because we are quite sure that if we pass an order of remand such incompetent and indisciplined officers will go on passing orders in this unsatisfactory manner. There seems to be no control of the depart ment over such officers." The order of the Bombay High Court was confirmed by the Supreme Court wherein it was held that the strictures passed by the Bombay High Court against two Assistant Collectors for flouting the Appellate Collector's order on classification was in order and that the requirement of judicial discipline must be adhered to. (iv) Similarly in [2007] 8 VST 131 (Mad) [Ragam Polymers Vs. Commercial Tax Officer], the learned Single Judge of this Court had held that when the appellate authority, whose order is binding on the assessing officer, has given certain directions to the assessing officer, while remanding the matter, the assessing officer cannot over-reach the appellate authority's order. (v) In (1960) 40 ITR 618 [Bhopal Sugar Industries Ltd. Vs. Income Tax Officer] the income-tax officer had failed to carry out a legal duty imposed on him and such failure was destructive of a basic principle of justice, a writ of mandamus should issue ex debito justitiae to compel him to carry out the directions given by the Superior Authority. (vi) While there cannot be any gainsaying the position that the direction of a superior Tribunal/Court/Authority should be complied with by those lower in the hierarchy, in some cases, the facts and circumstances may make the directions practically not compliable. (vii) In (1963) 48 I.T.R. 53 [Guru Estate vs. Commissioner of Income Tax], the assessees were a HUF who were Pandas at the Temple of Jagannath at Puri. The assessees collected from the pilgrims, amounts of money known as 'Annadan' on writings executed by the pilgrims. The words used are almost identical. It said that the pilgrims paid to "the name of the Panda for the Bhog of Sri Jagannathji" and that "the Panda will utilise this amount for the Bhog". The Income Tax Officer