Misc. Appeal No.657 OF 2010 ******* Against the order dated 31.3.2010 passed in ITA No.7 (Pat.)/2010 (A.Y. 2006-07) by the Income Tax Appellate Tribunal, Patna Bench, Patna. ******* Deputy Commissioner of Income Tax, Circle -1, Patna. …….Appellant. Versus Sulabh International Social Service Organisation, Sulabh Bhawan, New Patliputra Colony, Patna-13. ……..Respondent. ******* For the Appellant: Mr. Rishi Raj Sinha & Mr. Harshwardhan Prasad, Advocates. For the Respondent: Mr. M.L. Varma, Sr. Advocate with Mr. S.K. Verma Mr. A.K. Rastogi Mr. S.Alamdar Hussain Mr. Anil K. Sinha Mr. Arindam Mukherjee & Kumari Gargi Tuli, Advocates. ******* P R E S E N T THE HON'BLE MR. JUSTICE SUDHIR KUMAR KATRIAR THE HON'BLE MR. JUSTICE SAMARENDRA PRATAP SINGH ******* S.K. Katriar, J. Heard learned counsel for the parties at length. The following issues have been formulated for adjudication in this appeal, purporting to be substantial questions of law within the meaning of Section 260-A of the Income-tax Act 1961 (hereinafter referred to as „the Act‟): (i) Whether in the facts and circumstances of this case the learned Income Tax Appellate Tribunal was justified in allowing the maintenance work as a charitable purpose u/s 2(15) of the Act, when the 2 memorandum of association of the society does not include it as an object in any clause? (ii) Whether in the facts and circumstances of this case the learned Income Tax Appellate Tribunal was justified in holding that the assessee society had not violated the provision of section 13(1) (c) of the Act even though it was diverting substantial fund through its sub-contractors to the founder author of the trust who is a person covered u/s 13(3) (a) of the Act? (iii) Whether in the facts and circumstances of the case the learned Income Tax Appellate Tribunal was justified in allowing exemption U/s 11 in complete oversight of the fact and law that the founder author is a person covered u/s 13(3) (a) of the Act and is deriving benefit from the assessee trust directly or indirectly and therefore, hit by the provisions of section 13(1) (c) of the Act? (iv) Is the appeal maintainable in view of the scope and sweep of Section 260A of the Act, having been concluded by findings of facts? and (v) Whether or not the appeal raises a substantial question of law in view of the parameters of section 260A of the Act? 2. The department of Income-tax has preferred this appeal under section 260A of the Act, and have challenged the judgment dated 31.3.2010, passed by the Income Tax Appellate Tribunal, Patna Bench, Patna, in ITA No.7 (Pat)/2010 (The Dy. CIT, Circle-1, Patna vs. 3 Sulabh International Social Service Organisation), with respect to the assessment year 2006-07, whereby the order dated 20.11.2009, passed by the learned Commissioner of Income-tax (Appeals), has been upheld. The learned Commissioner, in his turn, disagreed with, and set aside, the order of assessment dated 31.12.2008, passed by the learned Deputy Commissioner of Income Tax, Circle-1, Patna, whereby he had rejected the returns submitted by the respondent, and had proceeded to tax the receipts of the respondents. 3. A brief statement of facts essential for the disposal of this appeal may be indicated. It is with respect to assessment of the respondent‟s income under the Act for the assessment year 2006-07. The respondent is a society registered under the Societies Registration Act, 1860. Its aims and objects have been set out in the impugned order, and we shall have the occasion to refer to them at the appropriate stage. It is also registered as a charitable institution by the Commissioner of Income-tax in terms of section 12A of the Act. The respondent is engaged in the charitable work of abolishing the system of service latrines, installation of inexpensive water-seal, flush latrines for the poor people as a common and general facility, and also to take care of the problems of, and abolish the inhuman practice of, manual scavenging, and carriage of head-load of human excreta. In order to attain its aims and objects, the respondent ever since its registration in 1971, in relentless pursuit of its revolutionary step, has been building 4 flush latrines in public places. It has been building toilets on mass scale for public use, has also carried out the function of running, repair and maintenance of those latrines, as well as the task of abolition of manual scavenging, and disposal of human excreta by its carriage by Bhangis (Scavengers) on their heads. It is relevant to state that, perhaps on account of the enormity of the task of construction and installation, the respondent has engaged contractors and sub-contractors at different places for construction of latrines. However, the respondent has itself been doing the job of running and maintenance of those latrines. The respondent charges nominal amount from the users to run and maintain the latrines, which naturally brings certain money every year. The respondent, therefore, submitted its returns for the period in question showing NIL income because the receipts were shown as not taxable in view of its aims and objects, as well as its registration under section 12A of the Act. 3.1) The learned assessing officer selected the respondent‟s case for the period in question for scrutiny, and notices under section 143(2) and 142(1) of the Act were issued. After a detailed hearing, the learned assessing officer did not accept the returns of the respondent. He held that the alleged activities of the respondent are not charitable activities within the meaning of section 2(15) of the Act as it stood at the relevant point of time. He, inter alia, held that the alleged activities of the respondent, namely, maintenance of latrines, is not within the 5 aims and objects and, therefore, cannot enjoy the benefit of exemption from tax under the Act. He has also held that the respondent has received huge sums of money from the users of latrines which is indicative of commercial activity and disentitles the respondent for the benefit of exemption from taxation. 3.2) Aggrieved by the order of the learned assessing officer, the respondent preferred appeal which was allowed by the learned Commissioner of Income Tax (Appeals). He disagreed with the order of the learned assessing officer and set aside the same. The learned Commissioner has, inter alia, held that maintenance of public toilets is a necessary, incidental activity for attainment of the objectives of the respondent. He has also held that the department has consistently and uniformly in the past periods held that the activities of the respondent are charitable in nature and are, therefore, entitled to the benefit of exemption. He has further held in the same vein that, in the absence of fresh materials, it was not open to the learned assessing officer to take a different view on identical facts. He has also held that running and maintenance of the gigantic operation of the respondent is likely to bring in its wake cash in-flow which is essential for the maintenance of the project, and for further attainment of its aims and objects. 3.3) Aggrieved by the order of the learned Commissioner, the department preferred appeal before the learned Tribunal which has been dismissed by the impugned order, and the order of the learned 6 Commissioner has been upheld. The learned Tribunal in its elaborate judgment has upheld the findings of facts recorded by the learned Commissioner, and dismissed the appeal. 4. While assailing the validity of the impugned order, the learned Assistant Standing Counsel submits that maintenance of latrines is nowhere to be found in the aims and objects of the respondent and, therefore, the cash in-flow of the respondent on account of maintenance of its project does not qualify for exemption from taxation. He has taken us through the order of the learned assessing officer in an effort to satisfy us that the huge in-flow of cash is Per Se indicative of commercial nature of activities. He wraps up his elaborate submissions by submitting that the impugned order is fit to be set aside in view of the findings of facts recorded by the learned assessing officer. 5. Learned counsel for the respondent has in his elaborate submissions supported the impugned order. He, inter alia, raises a preliminary objection as to the maintainability of this appeal. In his submission, the issues are concluded by findings of facts recorded by the learned Commissioner, and upheld by the learned Tribunal, and the present appeal does not raise any substantial question of law within the meaning of section 260A of the Act. 6. We have perused the materials on record, and considered the submissions of learned counsel for the parties. We shall 7 first of all consider the preliminary objection raised by the learned counsel for the respondent. Section 260A of the Act is reproduced hereinbelow: 260A. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal [before the date of establishment of the National Tax Tribunal], if the High Court is satisfied that the case involves a substantial question of law. (2)[The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be-] (a) filed within one hundred and twenty days from the date on which the order appealed against is [received by the assessee or the Chief Commissioner or Commissioner]; (b) [****] (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question; Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. (6) The High Court may determine any issue which- (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision 8 on such question of law as is referred to in sub-section (1). [(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.] (Emphasis added) 7. It is evident that, in view of the mandate of law, an appeal under Section 260A of the Act will be maintainable before the High Court if the appellant is able to satisfy this Court that it involves a substantial question of law. This expression has acquired a definite connotation over the years by authoritative pronouncements of the Supreme Court and High Courts. The same expression occurs in Section 100 of the Code of Civil Procedure which provides that a second appeal shall lie in this Court if the High Court is satisfied that the case involves a substantial question of law. It has been consistently held that the High Court in exercise of its second appellate jurisdiction should normally accept all findings of facts recorded by the first appellate court, being a forum of facts. Adequacy of materials or possibility of another view on facts, is no ground for the High Court to entertain a second appeal. High Court can on facts interfere only after it reaches the conclusion that, in view of the materials on record, no person duly instructed in law can reach that conclusion. In other words, it is not possible to reach the conclusion as has been arrived at by the first appellate court. This well-established principle has avowed public 9 policy that there should be finality to judgments and orders of courts and quasi-judicial authorities. Judicial experience has shown that unlimited number of appeals is never conducive to administration of justice. One author has gone to the extent of observing that unlimited number of appeals is only permissive of substituting one speculation on facts for another. The position is far more stringent for the appellant in the present case in contra-distinction to the second appellate jurisdiction under section 100 of the Code of Civil Procedure, inasmuch as the second appeal before the High Court is the third forum for the appellant, whereas the present forum is the fourth one. This, to our mind, it is a vital aspect of the matter and the appellant will have to make out a strong case of substantial questions of law to maintain this appeal. 8. Speaking on the scope of second appeal within the meaning of section 100 CPC, the Supreme Court has observed in the case of Santosh Hazari vs. Purushottam Tiwari, (2001)3 SCC 179, that a point of law which admits of no two opinions may be a proposition of law, but cannot be a substantial question of law. To be substantial, a question of law must be debatable, not previously settled under law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, in so far as the rights of the parties before it are concerned. 10 9. The Supreme Court has held in the case of M. Janardhana Rao vs. CIT, (2005)2 SCC 324, that the conditions mentioned in section 260A of the Act must be strictly fulfilled in order to maintain appeal thereunder, otherwise the appeal would not be maintainable. The High Court must make every effort to distinguish between a question of law and a substantial question of law. In exercise of the powers under section 260A of the Act, the findings of facts of the Tribunal cannot be disturbed. The right of appeal is neither a natural nor an inherent right attached to the litigation. Being a statutory right, it has to be regulated in accordance with law in force at the relevant time. Such an appeal cannot be decided on merely equitable grounds. The expression „Substantial question of law‟ has not been defined anywhere in the Statute. But it has acquired a definite connotation through various judicial pronouncements. The conditions mentioned in section 260A must be strictly fulfilled before an appeal can be maintained under section 260A. 9.1) In Sir Chunilal v. Mehta & Sons Ltd. v. Century Spg. & Mft. Co. Ltd. (1962 Supp.(3) SCR 549 : AIR 1962 SC 1314), the Supreme Court laid down the following tests to determine whether a substantial question of law is involved. The tests are: (1) whether directly or indirectly it affects substantial rights of the parties, or (2) the question is of general public importance, or (3) whether it is an open question in the sense that the issue is not settled by pronouncement of 11 this Court or Privy Council or by the Federal Court, or (4) the issue is not free from difficulty, and (5) it calls for a discussion for alternative view. There is no scope for interference by the High Court with a finding recorded when such finding could be treated to be a finding of fact. 10. We have hereinabove summarized the findings of facts recorded by the three forums. The findings of facts recorded by the learned assessing officer have not found favour by the learned Commissioner as well as the Tribunal. The issues are concluded by concurrent findings of facts. In such a situation, the needless emphasis placed by the learned Assistant Standing Counsel on the order of the learned assessing officer is completely misplaced. He was unable to point out any change of circumstance which enabled the learned assessing officer to take a different view from those taken by the authorities under the Act with respect to the same respondent and its ancillary organizations with respect to the past periods. It is in fact evident from the impugned order that the assessment with respect to the respondent in identical situation for the period A/Y 2004-05, the learned Tribunal had found in favour of the respondent which attained finality, no appeal having been taken to the High Court. We further observe from the materials on record that the respondent‟s returns for the next period, namely, A/Y 2005-06, were accepted in full. On the self-same facts, the learned assessing officer for the period in question 12 has taken a different view without any change of circumstance, without any suppression of material facts, fraud or misrepresentation. The learned assessing officer also completely overlooked the order for the past years in identical situation, where identical transactions have been treated to be charitable activities qualifying for exemption from taxation. We can not understand the approach of the appellant, and wholly disapprove of the appeal at the instance of the department which ought to have been done thoughtfully, and has burdened this Court with a most unwanted matter. In that view of the matter, we are clearly of the view that the learned assessing officer exceeded his jurisdiction in passing the order of assessment. We are equally convinced that the learned Commissioner has rightly set aside the order of the learned assessing officer, and the learned Tribunal rightly upheld the order of the learned Commissioner. 11. A Division Bench of this Court to which one of us (S.K.Katriar, J.), was a party, passed the judgment dated 28.9.2010 in C.W.J.C. No.4748 of 1997 (Dr. Bindeshwar Pathak vs. Commissioner of Income Tax, Patna and others), since reported in 2011(1) B.B.C.J. 595, wherein the present respondent was respondent no.5. On the issue of consistency, this Court observed as follows: 7. Learned counsel for the petitioner submits that consistency is the hall-mark of justice and the assessee should not be rattled by inconsistent decisions of the authorities. Every assessee is entitled to organize his affairs in the manner they perceive to 13 have been accepted by the authorities in the previous years. Learned counsel for the petitioner has rightly relied on assessment orders and the appellate orders with respect to respondent nos.3 to 7 with respect to the past periods which are to the same effect as the appellate orders for the period in question. Looking at it from this angle, the view taken by the learned assessing authority in the present case with respect to the period in question seems to be without justification. There was no allegation against the petitioner, nor against respondent nos.3 to 7, of suppression of income or material facts. A mere change of opinion on the self-same facts should not normally be the basis to alter the approach consistently followed in the previous years and later also. This would unsettle and discourage honest assessees. 7.1 The return of respondent no.5 herein for the period 1995-96, a later period, for example was allowed by the learned assessing officer by his order dated 5.3.98 (Annexure 9), whereby he held that Sulabh International is indeed a charitable society, its income is exempt under sections 11, 12 and 13 of the Act, it is not a benami organization of the petitioner, the fees payable to the petitioner was just and reasonable and for genuine and worth-while services. 7.2 Learned counsel has rightly relied on the judgment of a Division Bench of this Court in Dr. Narendra Prasad (supra), to which one of us (S K Katriar,J.) was a party. That was a case where the order of assessment had been passed by the Settlement Commission which was followed by the authorities under the Act in the subsequent years. During a period of 17 years, the view taken by the Settlement Commission was followed for 15 years, except for a brief period of two years in between when the learned assessing authority on the self-same facts had taken a different view. In other words, the view taken by the Settlement Commission was followed by the learned assessing authority for a long length of time preceding the two periods in question there as well as the periods following thereafter. This Court disapproved of such an approach on the part of 14 the learned assessing authority and observed as follows:- “Suppose for the sake of argument that it were open to the learned Assessing Officer to take a different view on the returns submitted by the two assessees. However, in the peculiar facts and circumstances of the present case, the Department will have to make out an extraordinary case for departure from the settled state of affairs. We do not find adequate justification for the learned authorities under the Act to take a different view for the two periods in question from the periods preceding thereto and following thereafter. It would need strong and adequate justification to take a sharp departure for the two years in-between which we find absent in the present case. Consistency is the hall-mark of law and justice, and the individuals are entitled to organize their affairs in a manner perceived to have been accepted by the authorities for such a long length of time. No such change of circumstances is discernible in the present case. The learned authorities under the Act have neither come across new facts or circumstances, nor suppression of fact, and is really a case of different view on the self-same facts as it obtained before the Settlement Commission. The view taken by the Settlement Commission has been followed by the learned authorities under the Act even for the periods that have followed the ones in question apart from the preceding periods.” 8. The learned assessing authority should trust honest assessees, and discard their returns for very valid reasons in a situation like the present one, as it had happened in the case of Dr. Narendra Prasad (supra), that the Department has taken a consistent view for all these years except the period in question. We hope the learned authorities under the Act will keep this in mind in future, otherwise it gives rise to clearly avoidable litigations, and rattles honest assessees. 15 12. We really regret to record that the learned Assessing Officer completely overlooked the principle of consistency, and passed an illegal order of assessment. To repeat the words of the said Division Bench judgment, every assessee is entitled to organize his affairs in the manner they perceive it to have been accepted by the authorities in the previous years. As stated above, the learned assessing officer grievously erred in exercise of his jurisdiction in passing the order of assessment. In the facts and circumstances of this case, we are clearly of the view that the present appeal indeed does not give rise to any issue at all, let alone a substantial question of law. The issues are concluded by findings of facts. The appeal is not maintainable. 13. We must also deal with the issues elaborately argued by the learned counsel for the parties about the aims and objects of the respondent, particularly its functions relating to maintenance of the toilets. The learned assessing officer has held that maintenance of public latrines described as Sulabh Shauchalaya are nowhere to be found in the aims and objects of the respondent and, therefore, does not qualify for exemption. The contention is stated only to be rejected. Law is well settled by a long line of authoritative pronouncements of Courts that every functionary has all the incidental and ancillary powers for the effective exercise of the dominant power, otherwise the dominant and the primary power may be rendered otiose. Taking cue from this salutary and well-established principle of