Karnataka High Court Quashes Ex Parte Income Tax Assessments Against Temple Trust

The Karnataka High Court has set aside two ex parte income-tax assessment orders passed against Sri Nimishamba Devasthana, granting the temple trust a fresh opportunity to contest the taxability of its receipts. Justice B.M. Shyam Prasad passed the order after holding that the trust had to be heard on why its hundi collections, seva receipts and interest income should not be brought to tax.

The assessments under challenge had taxed those three streams for two assessment years. The orders were passed ex parte, without the trust placing its explanation on record. The trust approached the High Court seeking an opportunity to show that the amounts did not attract income-tax, pointing to the department's own treatment of similar receipts in the intervening assessment years where no tax had been imposed.

Retrospective 12A claim allowed from 2012

The Court also permitted the trust to seek registration under section 12A of the Income-tax Act, 1961 with retrospective effect from 29 September 2012. That is the date on which Sri Nimishamba Devasthana was notified under the Karnataka Hindu Religious and Charitable Endowments Act, 1997. The bench allowed the retrospectivity plea so that the exemption claim could be examined by the authorities with reference to the period when the temple came under the State endowments law.

On procedure, the bench addressed the reassessment notices issued for the two years. Notices under section 148 of the Income-tax Act, 1961 had been issued to the trust for those assessment years. The Court allowed the trust to file returns of income pursuant to those notices. Those returns will now provide the foundation for the de novo assessment proceedings that must follow the quashing of the ex parte orders.

The assessing authority will reconsider the question of taxability after hearing the trust on its hundi collections, seva receipts and interest income. The claim for section 12A registration from the 2012 notification date will also be placed before the competent authority for consideration in accordance with law.