Vildirect: IncomeTax-caselaws-2009-VIL-441-BOM-DT

2009-VIL-441-BOM-DT

Equivalent Citation: [2009] 319 ITR 399 (Bom)

BOMBAY HIGH COURT

7708 of 2008

Date: 28.07.2009

MAHARASHTRA ACADEMY OF ENGINEERING AND EDUCATIONAL RESEARCH

DIRECTOR GENERAL OF INCOME-TAX (INVESTIGATION) AND ANOTHER

S. G. Dastur with K. B. Bhujle for the petitioner.
B. M. Chaterjee with Y. Patki and P. S. Sahadevan for the respondents.

BENCH

FERDINO I. REBELLO and D. G. KARNIK JJ.

JUDGMENT

The judgment of the court was delivered by

1. FERDINOI. REBELLO J.-Rule. By consent of the parties, heard forthwith.

2. The petitioner is a public trust whose sole activity is of running educational institutions. Up to the assessment year 1988-89, the income of the petitioner was exempted under section 10(22) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). Section 10(22) was omitted by Finance (No. 2) Act, 1998, with effect from April 1, 1999, i.e., from the assessment year 1999-2000 and the exemption for the income of an educational institution like the petitioner-trust was provided in the amended section 10(23C)(vi). The said section 10(23C)(vi) of the Act, as applicable for the assessment year 1999-2000, reads as under :

"10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- . . .

(23C) any income received by any person on behalf of . . .

(vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause ( and which may be approved by the prescribed authority."

3. The petitioner-trust made an application for approval on March 30, 1999. The prescribed authority for granting approval was the Central Board of Direct Taxes (CBDT). By its order dated March 9,2004 the Central Board of Direct Taxes approved the petitioner-trust for the purposes of exemption under section 10(23C)(vi) of the Act for the assessment years 1999-2000 to 2001-02. The petitioner, thereafter, made applications for renewal dated December 24, 2002, for the assessment years 2002-03 to 2004-05 and on February 22, 2005, for the assessment years 2005-06 to 2007-08.

4. Subsequent to the survey under section 133A of the Act carried out on the office premises of the petitioner-trust on July 20, 2005, a show-cause notice dated April 30, 2007, by the Commissioner of Income-tax (Central), Pune, came to be issued on the petitioner under section 12AA(3) of the Act to show cause why the registration granted to the petitioner-trust under section 12A(a) of the Act on March 25, 1999, ought not to be cancelled. The petitioner showed cause against the same. By an order dated October 31, 2007, passed by the Commissioner of Income-tax (Central), Pune, the registration was cancelled.

5. The petitioner by its letter dated August 9, 2007, had requested the first respondent to grant renewal of the exemption for the assessment year 2002-03 onwards. Instead of granting renewal, the first respondent issued a show-cause notice dated November 26, 2007, proposing to rescind the approval granted by the Central Board of Direct Taxes on March 9, 2004. The first respondent by his order dated February 8, 2008, rescinded the approval granted by the Central Board of Direct Taxes on March 9, 2004, under section 10(23C)(vi) of the Act for the period assessment years 1999-2000 to 2001-02 and also refused to renew the approval for the subsequent period.

6. The show-cause notice issued was also based on the report of the Commissioner of Income-tax (Central) dated November 5, 2007, opposing the renewal of approval of the petitioner-trust under section 10(23C)(vi) of the Act. There are various other facts which need not be set out including those which have been incorporated pursuant to the amendment allowed by this court by an order dated March 26, 2009.

7. Though various contentions have been raised on behalf of the petitioner, it is pointed out that the order passed by the first respondent is without jurisdiction and consequently on this point alone the petition has to be allowed and the order is liable to be set aside and the matter remanded for consideration by the prescribed authority, which, according to the petitioner, is the Central Board of Direct Taxes and not respondent No. 1, i.e.) Director General of Income-tax (Investigation), Pune.

8. Replies have been filed on behalf of the respondents. The passing of the impugned order was justified. By our order dated June 22, 2009, after hearing the parties, the court had directed the respondents to clarify as to who is the prescribed authority. Pursuant to that, an affidavit has been filed by Mr. Dharamchand Nemichand Parikh, Deputy Director of Income-tax (Investigation) (H. Qrs.), Pune. Reliance is placed on rule 2CA of the Income-tax Rules, 1962. Reliance is also placed on a notification dated May 30, 2007. Based on the Rules and the notification, it is set out that respondent No. 1 would be the prescribed authority.

9. Considering the narrow controversy, we will first consider rule 2CA of the Income-tax Rules, which reads as under :

"2CA. Guidelines for approval under sub-clauses (vi) and (via) of clause (23C) of section 10.-(1) The prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director General to whom the application shall be made as provided in sub-rule (2).

(1A) ( The prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Central Board of Direct Taxes constituted under the Central Board of Revenue Act, 1963 (54 of 1963) for applications received prior to 3rd day of April 2001 :

Provided that in case of applications received prior to 3rd day of April, 2001, where no order has been passed granting approval or rejecting the application as on 31st day of May, 2007, the prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director General.

(2) An application for approval shall be made in Form No. 56D by any university or other educational institution or any hospital or other medical institution referred to in sub-clause (vi) or (via) of clause (23C) of section 10.

(3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, granted before the 1st day of December, 2006, shall at any one time have effect for a period not exceeding three assessment years."

10. We may also reproduce below the part of notification ([2007] 291 ITR 10 (St.) 383) :

"Prescribed authority.-In pursuance of the provisions contained in sub-clauses (vi) and (via) of clause (23C) of section 10 read with sub-rule (3) of rule 2CA the Central Board of Direct Taxes hereby authorises the following Chief Commissioner or Director General to act as prescribed authority for the purposes of sub-clauses (vi) and (via) of clause (23C) of section 10 in relation to any university or other educational institution or any hospital or other medical institution with effect from the 1st day of June, 2007, namely :-

(i) for cases falling in the jurisdiction of Director of Income-tax (Exemption), Ahmedabad, the prescribed authority shall be the Chief Commissioner of Income-tax, Ahmedabad-IV, Ahmedabad;

(ii) for cases falling in the jurisdiction of Director of Income-tax (Exemption), Bangalore the prescribed authority shall be Chief Commissioner of Income-tax, Bangalore-I Bangalore ;"

11. From a reading of rule 2CA of the Rules, it would be clear that in respect of application received prior to April 3, 2001, the prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 of the Act shall be the Central Board of Direct Taxes constituted under the Central Board of Revenue Act. In section 10(23C), the expression used is "prescribed authority". Prescribed authority is not defined under the Act. Under the Rules framed the prescribed authority has been defined for the purpose of sub-clause (vi) and (via) as the Chief Commissioner or Director General, and in respect of applications received prior to April 3, 2001, as the Central Board of Direct Taxes. There is also a proviso to rule 2CA(1A) which sets out that in respect of application received prior to April 3, 2001, where no order has been passed granting approval or rejecting the application as on May 31, 2007, the prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director General.

12. In that context, let us consider section 10(23C)(vi) and/or (via) of the Act as also the 13th proviso which reads as under :

"Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the Central Government or is approved by the prescribed authority, as the case may be, or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that the Government or the prescribed authority is satisfied that-

(i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not,-

(A) applied its income in accordance with the provisions contained in clause (a) of the third proviso ; or

(B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso ; or

(ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution,-

(A) are not genuine ; or

(B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved,

it may, at any lime after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer:"

13. Thus, in so far as the petitioner is concerned, considering that the approval was granted on March 9, 2004, and the application was made on December 24, 2002, it would be the Central Board of Direct Taxes which would be the prescribed authority to grant the application and also to consider, review or recall the order in so far as the assessment years 1999-2000 to 2000-01 are concerned.

14. The only argument advanced on behalf of the respondents has been that if the notification of May 30, 2007, is considered, it would be clear that the Central Board of Direct Taxes has authorised the Chief Commissioner or the Director General. It is the submission on behalf of the respondents that there is delegation of powers by the Central Board of Direct Taxes in favour of the Director General. Let us examine the said contention.

15. The Rules made are pursuant to the power conferred on the Central Board of Direct Taxes under section 295 of the Act. The Rules so made, in so far as section 10(23C)(via) is concerned, have defined the "prescribed authority" in respect of applications made prior to April 3, 2001, and which were not disposed of by May 31, 2007, as the Central Board of Direct Taxes. The notification issued on May 30, 2007, would be referable to rule 2CA (1) which has notified the Chief Commissioner or the Director General, generally, i.e., without any territorial jurisdiction. There are several Chief Commissioners or Directors General for various commissionerates or areas throughout India. The notification only spells out which of the Directors General or Chief Commissioners would have jurisdiction, in that area. So read, in so far as sub-rule (1A) is concerned, it is clear that it will be that Chief Commissioner or Director General for that area alone who would have jurisdiction over that area. The rule cannot be read into sub-rule (1A) which has specifically defined the prescribed authority as the Central Board of Direct Taxes. There is no delegation of power of the Central Board of Direct Taxes by the notification to the Director General or any Commissioner. The notification, therefore, is clearly inapplicable in so far as rule 2CA (1A) is concerned

16. Having held that the prescribed authority is the Central Board of Direct Taxes - respondent No. 1 for the years 1999-2000 and 2000-01, the prescribed authority to pass the order reviewing grant of permission would be the Central Board of Direct Taxes. In our opinion, once a power is conferred by the Act and the Rules, it is only that authority, who has been conferred power under the Act and the Rules who alone can assume jurisdiction. Merely because in the reply to the show-cause notice, an objection was not raised would not confer power on an authority which otherwise had no jurisdiction. Clearly, therefore, the order recalling or reviewing the earlier order dated February 8, 2008, is beyond the jurisdiction and is liable to be set aside.

17. In the light of the above and for the aforesaid reasons, this petition is disposed of in the following terms :

(a) The petition is partly allowed and the impugned order dated February 8, 2008, more particularly paragraphs 10 and 11 thereof are set aside. The power to rescind or recall for the years 1999-2000 and 2000-01 is to be exercised by the Central Board of Direct Taxes alone.

(b) The DGIT is directed to consider the pending applications of the petitioner for the assessment years 2002-03 to 2004-05 and for the assessment years 2005-06 to 2007-08.

(d) Considering our order, all parties including the Commissioner of (Appeals) to act accordingly and hear the pending appeals and dispose of the same at the earliest.

(e) In the event there be an adverse order, the same shall not be acted upon for a period of 8 weeks from the date of its communication.

(f) It is made clear that in respect of applications for the assessment 2002-03 onwards, it will be respondent No. 1-Director General of Income-tax in terms of the Rules, who will be the competent authority.

18. We further make it clear that we have not gone into the issues on the merits and have left all questions open for consideration by the prescribed authority.

19. The learned counsel for the respondents prays for stay of this order. The request is rejected. In the meanwhile, during the pendency of the appeals, the respondents shall not make any recovery.

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