Karnataka High Court Quashes Tax Assessments Against Temple Trust Over Hundi Collections, Seva Receipts

The Karnataka High Court has set aside two ex parte income tax assessment orders against Sri Nimishamba Devasthana, granting the temple trust an opportunity to present its case afresh.

It observed that the temple trust must be given an opportunity to explain why its hundi collections, seva receipts and interest income should not be brought to tax, particularly when similar receipts in the intervening assessment years had not been taxed.

Justice B.M. Shyam Prasad also permitted the temple trust to approach the Commissioner of Income Tax (Exemptions) seeking registration under Section 12A of the Income Tax Act, 1961, with retrospective effect from September 29, 2012, the date on which it was notified under the Karnataka Hindu Religious and Charitable Endowments Act, 1997.

The petitioner, represented by its Executive Officer, submitted that it was a religious and charitable trust managing an old temple at Ganjam in Srirangapatna, Mandya district.

Its only sources of income were donations received through the hundi, cash receipts from sevas performed for devotees, and interest earned on deposits after meeting the temple's maintenance expenses.

The trust challenged assessment orders dated March 18, 2025, for assessment years 2017-18 and 2020-21, contending that the assessments had been completed ex parte without its participation.

It further argued that although it had not applied for registration under Section 12A immediately after the State Government's notification dated September 29, 2012, its religious and charitable character entitled it to seek registration from that date. It relied on the doctrine of substance over form.

The Revenue informed the Court that the trust could apply online for registration under Section 12A prospectively from the date of application. It also stated that the trust could separately approach the Commissioner of Income Tax (Exemptions) with supporting documents seeking retrospective registration, which would be considered in accordance with law.

Accepting the need to provide the trust an opportunity to present its case, the Court observed that the assessments were ex parte and that the trust should be allowed to file returns in response to the notices issued under Section 148 for the two assessment years.

The Court also took note of the fact that while the receipts for assessment years 2017-18 and 2020-21 had been brought to tax, similar receipts for the intervening assessment years had not been subjected to tax.

"..if these receipts for the assessment years 2017-18 and 2020-21 are now brought to tax under the impugned Assessment Orders the similar receipts in the intervening assessment years are not brought to tax", it said.

It further observed that if the Commissioner of Income Tax (Exemptions) grants retrospective registration, the trust must be allowed to place the decision before the assessing authority for consideration while framing the assessments.

Accordingly, the High Court partly allowed the writ petition and quashed both assessment orders.

It granted liberty to the trust to seek retrospective registration under Section 12A from the date of the State Government notification, as well as to apply online for prospective registration from the date of application.

The Court also permitted the trust to approach the Board for transfer of the assessment proceedings to the jurisdictional Assessing Officer.

It clarified that if the proceedings are deferred pending the decision on the retrospective registration application, the trust would be bound by its undertaking to waive any limitation-based objection arising from such deferment.

For the Petitioner: Ms. Poornima H.S., Advocate.

For the Respondents: Mr. M. Thirumalesh and Mr. Nirmal Mathew, Advocates.