Supreme Court of India
VIVEKANAND SCHOOL THROUGH HEADMASTERversusPRESIDENT OF ZILA PANCHAYAT AND ORS.
- Citation
- 2008 INSC 1304
- Decided
- 14 November 2008
- Disposal
- Case Partly allowed
- Bench
- ARIJIT PASAYAT
Holding
The tax authorities were not justified in treating the student fees as taxable income; they must first compute the school's taxable income and then determine any tax liability.
Summary
The Vivekanand School challenged a tax demand made by the Zila Panchayat under Section 121 of the Uttar Pradesh and Uttaranchal (Kshetra Panchayat and Zila Panchayat) Adhiniyam, 1961, on the ground that the fees collected from students were being treated as taxable income. The school argued that it was not a commercial entity and that its total income, after accounting for expenses and donations, was well below the statutory threshold of Rs.12,000 per annum. The High Court dismissed the writ petition, accepting the Panchayat's view that the student fees constituted taxable income. The Supreme Court held that the tax authorities were not justified in treating the fees as taxable income and directed them to first compute the school's taxable income before deciding any tax liability. Consequently, the appeal was partly allowed and the authorities were instructed to recompute the income and reassess the tax.
Issues considered
- Whether fees collected from students constitute taxable income under Section 121 of the Uttar Pradesh and Uttaranchal (Kshetra Panchayat and Zila Panchayat) Adhiniyam, 1961.
- Whether the school qualifies as a commercial body for the purpose of levying tax on circumstances and property.
- Whether donations received by the school should be included in the computation of taxable income.
- Whether the school’s total income falls below the minimum taxable income threshold of Rs.12,000 per annum.
Legislation cited
Subjects
TaxCircumstances and Property TaxSection 121School feesCommercial bodyTaxable incomeUttar Pradesh Zila Panchayat ActSupreme Court
Judgment
[2008] 16 S.C.R. 54
A VIVEKANAND SCHOOL THROUGH HEADMASTER
v.
PRESIDENT OF ZILA PANCHAYAT AND ORS.
(Civil Appeal No. 6657 of 2008)
NOVEMBER 14, 2008
B
[DR. ARIJIT PASAYAT AND DR. MUKUNDA!<AM
/.-
SHARMA, JJ.]
Uttar Pradesh and Uttaranchal (Kshetra Panchayats and
c Zila Panchayats) Adhiniyam, 1961: s.121 ~~Demand under
- On the ground that fees collected from students was part
of receipts for computing taxable incoine - Held: Tax
Authorities were not justified in treating the student fees as
part of taxable income - Authorities directed to compute
D taxable income and then decide tax liability - Tax/Taxation.
The Tax Assessing Officer demanded payment of tax
from the appellant,-school under s.121 of the Uttar
Pradesh and Uttaranchal (Kshetra Panchayat and Zila
E Panchayats) Adhin_iyam, 1961 for assessment years
1998-99, 1999-2000 and 2000-2001. Appellant filed appeal
before Commissioner which was dismissed after
considering the affidavit filed by the respondent stating
that the appellant-school· was a commercial body and
F had collected Rs.2.86 lacs and Rs. 3.32 lacs as fees from
the students iii the year 1993-94 and 1994-95 respectively.
Hence the instant appeal.
Partly allowing the appeal, the Court
G HELD: 1. S.121 of the Uttar Pradesh and Uttaranchal
(Kshetra Panchayat and Zila Panchayats) Adhiniyam,
1961 deals with tax on "circumstances and property. .J..
Rule 6 of the U.P. Zila Panchayat (Imposition, Assessment
H 54
-
VIVEKANANDSCHOOL THROUGH HEADMASTER v. 55
PRESI. OF ZILA PANCHAYAT AND ORS.
·and Collection of Circumstances and Property Tax) A
Rules, 1994 provides that tax shall be assessed and paid
on the basis of the total taxable income of the assessee
in the previous financial year. As provided in clause (e)
of Rule 7 of the Rules, the total arnount of tax imposed
on any person shall not exceed rupees six thousand per B
annum. Different provisions of the Rules envisage the
powers and duties of the taxing authority, basis and
conditions of assessment of tax, assessment and
collection of tax, notice to general public for inspection
of the list and filing of objection against the tax so c
assessed. A bare reading of the Act shows that the tax
is leviable on the total income. Relevance of this question
would arise only after the authorities decide as to whether
there is taxable income or not. [Paras 5 and 7] [58-C-D]
.• Mis. R.R. Engineering Co. v. Zila Parishad, Bareil/y and
D
Anr. AIR (1980) SC 1088, distinguished.
Pandit Ram Narain v. State of U.P. & Ors. (1956) SCR
664, referred to.
E
2. Pursuant to the directions of this Court, the
Balance Sheets as on 31.3.1994 and 31.3.1995 and the
Income-Expenditure Statement for the financial years
1993~94 and 1994-95 were produced. Receipt from the
I>· students was Rs.2,86,472/- for the first period, while for
F
the subsequent period, it was Rs.3,32,425/-. Apparently,
the respondents were not justified in treating the said
amounts to be the taxable income. It appears from the
financial statements that apart from the students' fees,
donation was received from Indian School Society
amounting to Rs.3, 15,000/- for the first year and G
Rs.2,84,000/- for the subsequent year. After deduction of
the expenses, the surplus, i.e. income over expenditure
which was transferred to the school fund account was
Rs.28,449.15 for the first year and Rs.26,647 .80 for the
H
56 SUPREME COURT REPORTS (2008] 16 S. C.R.
A subsequent year. The question may arise as to whether
donation could be treated as a part of the receipts for
computing the taxable income. The relevance of this
question would arise only after the authorities decide as
to whether there is taxable incom·e·or not. The authorities
B are directed to compute the taxable income and then
decide as to whether any tax is leviabh:!. [Paras 10 and
12] [59-C, D, E, F, HJ
l
Case Law Reference
c AIR (1980) SC 1088 distinguished Para 8
(1956) SCR 664 referred to Para 7
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6657 of 2008.
D
From the final Judgment and Order dated 22.2.2007 of the
High Court of Uttarakhand at Na in ital in Writ Petition No. 1055
of 2003(M/B)
J.C. Gupta, Dharam Singh and Rajesh for the Appellant.
E
The Judgment of the Court was delivered by
DR. ARIJIT PAfJAYAT, J.1. Leave granted.
2. Challenge in this appeal is to the judgment of a Division
F Bench of the Uttarak,hand High Court dismissing the writ petition
filed by the appellant.
•
3. Factual background in a nutshell is as follows:
.I
Demand of tax was made by the Tax Assessing
. Officer,
G Zila Panchayat, Dehradun under Section 121 of The Uttar
Pradesh and Uttaranchal (Kshetra Panchayat and Zila
Panchayats) Adhif)iyam, 1961 (hereinafter referred to as the
'Act'), for the asse~sment years 1998-1999, 1999- 2000 and
2000-2001. The appellant took the stand that it has no liability
H to pay the tax. The appeal before the Commissioner, Garhwal
VIVEKANAND SCHOOL THROUGH HEADMASTER v. PRESI. 57
OFZILAPANCHAYAT AND ORS. [OR. ARIJITPASAYAT. J.]
Division, has been dismissed. A writ petition was filed A
challenging the orders. It was submitted that the School was
not a commercial venture and in any event, the income level
stipulated under Section 121 had riot been crossed and,
therefore, the demand of tax, as raised cannot be maintained.
B
The President of Zila Panchayai and its officials filed
counter affidavit justifying the demand, inter alia, stating that the
School is a commercial body and it had collected Rs.2,86,472/
- and Rs.3,32,435/- as fees from the students in the year 1993-
94 and 1994-95 respectively. Therefore, the demand was c
justified. The High Court on consideration of the counter affidavit
filed, dismissed the writ petition.
3. Learned counsel for the appellant submitted that the true
scope and ambit of Section 121 of the Act has not been kept
in view. D
4. There is no appearance on behalf of the respondents
in spite of service of notice.
5. Section 121 deals with tax on "circumstances and E
property". The relevant portion of Section 121 reads as follows:
"121 - Conditions and restrictions for tax on
Circumstances and Property - The power of a Zila
Panchayat to impose a tax on circumstances and property
shall be subject to the following conditions and restrictions, F
namely-
a) the tax may be imposed on any person residing or
carrying on business in the rural area provided that such
person has so resided or carried on business for a total G
period of atleast six months in the year under assessment;
b) no tax shall be imposed on any person whose total
taxable income is less than twelve thousand rupees per
annum; H
58 SUPREME COURT REPORTS [2008] 16 S.C.R.
A c) the rate of tax shall not exceed three Naye Paise in the
rupee on the total taxable income; and
d) the total amount of tax imposed on any person shall not
exceed such maximum, if any, as may be prescribed by
B rule."
6. Rule 6 of the U.P. Zila Panchayat (Imposition,
Assessment and collection of Circumstances and Property Tax)
Rules, 1994 (for short 'the Rules') provides that tax shall be
assessed and paid on the basis of the total taxable income of
C the assessee in the previous financial year. As provided in
clause (e) of Rule 7 of the Rules, the total amount of tax imposed
on any person shall not exceed rupees six thousand per annum.
Different provisions of the Rules envisage the powers and
duties of the taxing authority, basis and conditions of
D assessment of tax, assessment and collection of tax, notice to
general public for inspection of the list and filing of objection
against the tax so assessed.
7. A bare reading of the Act shows that the tax is leviable
E on the total income. "Taxable income" is a well known concept.
In Pandit Ram Narain Vs. State of U.P. & Ors. (1956 SCR
664), it was noted as follows:
"A tax on 'circumstances and property' is a
F
composite tax and the word 'circumstances' means a ,.
man's financial position, his status as a whole depending,
among other things, on his income from trade or business."
8. In Mis. R.R: Engineering Co. Vs. Zila Parishad,
Bareilly and Anr. (AIR 1980 SC 1088), it was, inter-alia
G observed as follows:
"But a person can be subjected to tax on
circumstances and property in relation to his 'Haisiat', that
is to say, the status he occupies by reason of the fact of
H the pursuit by him of a beneficial calling or possession by
VIVEKANAND SCHOOL THROUGH HEADMASTER v. PRESI. 59
OFZILAPANCHAYAT AND ORS. [DR.ARIJITPASAYAT,J.]
him of an interest in property. While determining the status A
of an individual for the purposes of tax on circumstances,
the total turnover of his business or avocation may
therefore be legitimately taken into consideration."
9. Strictly speaking, R.R. Engineering case (supra) did not B
deal with the question as to what is taxable income. The said
expression can be considered in the background of what has
been stated in the Income Tax Act, 1961 (in short 'the Income
Tax Act).
10. Pursuant to our directions, the Balance Sheets as on C
31.3.1994 and 31.3.1995 and the Income-Expenditure
Statement for the financial years 1993-94 and 1994-95 were
produced. Receipt from the students was Rs.2,86,472/- for the
first period, while for the subsequent period, it was Rs.3,32,425/
-. Apparently, the respondents were not justified in treating the D
said amounts to be the taxable income.
11. It appears from the financial statements that apart from
the students' fees, donation was received from Indian School
Society amounting to Rs.3, 15,000/- for the first year and E
Rs.2,84,000/- for the subsequent year. After deduction of the
expenses, the surplus, i.e. income over expenditure which was
transferred to the school fund account was Rs.28,449.15 for the
first year and Rs.26,647.80 for the subsequent year. The
.,_ question may arise as to whether donation could be treated as F
. a part of the receipts for computing the taxable income. We
need not express any opinion in that regard because the
authorities have proceeded on erroneous premises. The High
Court also fell into error by considering the students' fees as
taxable income. G
12. In the circumstances, we set aside the impugned order
of the High Court and direct the authorities to compute the
taxable income and then decide as to whether any tax is
leviable.
H
60 SUPREME COURT REPORTS [2008] '16 S. C.R.
A 13. Another aspect which has been submitted by learned
counsel for the appellant is that even if it is conceded for the
sake of arguments that while computing the surplus i.e. income
over expenditure donations can be taken into account, yet, the
tax payable cannot exceed three naya paisa on a rupee on the
B total taxable income. The relevance of this question can only
arise after the authorities decide as to whether there is any r
taxable income or not.
14. The appeal is allowed to the aforesaid extent. No
C costs.
D.G. Appeal partly allowed.
j
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