Assessing Officer Can't Act As Prosecutor, Judge And Executor At The Same Time: Himachal Pradesh High Court

Himachal Pradesh High Court held that the Assessing officer must provide the university a fair opportunity to present its case and can't take law in his own hand by acting as a Prosecutor, Judge and Executor at the same time.

Justice Tarlok Singh Chauhan & Justice Sushil Kukreja: “The Assessing officer took the law into his own hand and played as a Prosecutor, Judge and Executor at the same time.”

Background Facts:

The Petitioner, Jaypee University of Information Technology was established in 2002 and is managed by Jaiprakash Sewa Sansthan, a not for profit trust. The university operates on a “Not for Profit Basis”, with the sole objective of imparting technical education to students by providing high standards of Teaching, Research, Training and extension activities."

Being a not for profit organisation the university is exempted from the payment of Income Tax as per Section 10(23C)(vi) of the Income Tax Act, 1961, which provides tax exemption to educational institutions that exist solely for educational purposes and not for profit.

As, the university is located in a remote village of Solan District, it set up an in-house mess facility for its students, as there was no market in the vicinity of 15 kms of the university. The mess was divided into three wings. One provided meals, the second offered snacks and confectionery items and the third supplied daily use items such as stationery or toiletries. Access to these facilities is strictly limited to students; outsiders are not permitted, and the facilities were not operated for any commercial or business purpose.

On 06.03.2013, officers from the Excise & Taxation Department visited the university campus and demanded records related to the mess facility, including purchase details, daily receipts, and expenditure accounts. The officers of the Department imposed a tax of ₹38,17,348 on the university.

Contentions of the University:

The university contended that the officers demanded instant payment of the tax without giving the university any opportunity to present its case. In failure of the same it will seal the entire premise of the university. Subsequently, the university paid the entire amount on the same day to avoid reputational damage.

It further stated that the Excise & Taxation Department issued a receipt for the said amount but no assessment order was passed in the matter. Later, when the university officials requested for the order, the Department refused it, stating the order would be issued only after expiry of the 60-day appeal period. It warned them to not go for any legal or appellate recourse as it would cause harsh actions for them in future.

Thereafter, the university filed an appeal before the HP Tax Tribunal against the demand of Department. However, the Tribunal held the university liable for payment of tax, stating that the university is supplying foodstuff and other items within its premises, which was not permitted as it is predominately existing for education.

Aggrieved by the order of the Tribunal, the university filed revision petitions in the High Court.

Findings:

The Court observed that the order for payment of tax was passed by the Assessing Authority, without giving an opportunity to the university to be heard and present its case. Stating that the Assistant Excise & Taxation Commissioner acted in an unprofessional and illegal manner by fixing the liability to pay the tax on the day of visit and did not even give the university an opportunity to present their case.

The Court remarked that “The Assessing officer took the law into his own hand and played as a Prosecutor, Judge and Executor at the same time.”

The Court observed that in this case the canteen facilities provided by the university is clearly not with an intent to conduct business. Therefore, the university could not be held liable to pay any tax for these facilities provided. It is a well-settled legal position that where there is no intention to earn profits, the activity can't be regarded as trade, commerce, or business under Section 2(15) of the Income Tax Act, 1961.

In Commissioner of Sales Tax v. Sai Publication Fund (2002), it was held that “where the main activity is not business, then any incidental or ancillary transactions would normally amount business out if an independent intention to carry on the business in the incidental or ancillary transaction is established. It was further held that the burden to prove such intention rests on the department”.

In this case, the Court held that main dominant activity of the university is to impart education, it can't be termed as business activity. Additionally, the university had clearly disclosed its income and expenditure details in its financial records and the tax demand had been raised without establishing by the department that how those incomes were subject to Tax.

Thus, the Court concluded that the establishment of canteen by the university would only be termed as business if an intention to carry on the business is established by the Excise Department.

Case Name: M/s Jaypee University of Information Technology v/s State of H.P. & Ors.

Case No.: Civil Revision Nos. 41 to 44 of 2015

Date of Decision: 22.05.2025

For the Petitioner(s): Mr. Rakesh Kumar, Advocate.

For the Respondents: Mr. Anup Rattan, A.G. with Mr. Ramakant Sharma, Mr. Navlesh Verma, Ms. Sharmila Patial, Mr. Sushant Kaprate, Addl. A.Gs. and Mr. Raj Negi, Dy. A.G.,lta, Dy. A.G.

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