2016 (2) TMI 522 - HC - Income Tax

Validity of approval issued under Section 10 (23 C) (vi) - whether in view of CBDT circular dated 27th of October 2010 the petitioner was required to file an application for exemption and if not whether the Chief Commissioner could have rejected the application for exemption? - Held that - A perusal of Clause (4) reveals that approvals granted on or after 1st December 2006 shall be valid till they are withdrawn. The argument by counsel for the revenue that the circular would come into effect from October 2010 by reference to Clause (5) of the circular is not tenable as Clause (5) of the circular applies to approvals granted under Section 80(4) and not to exemptions granted under Section 10 (23 ) (vi) of the Act. We therefore have no hesitation in holding that as Clause (4) of CBDT circular No.7 of 2010 provides that an exemption once granted shall operate in perpetuity till withdrawn the impugned orders passed by ignoring Clause (4) are contrary to law. The petition is allowed the impugned orders are set aside and the Commissioner of Income Tax Exemption Chandigarh the officer empowered to consider an application for exemption is directed to pass a fresh order after taking into consideration Clause (4) of the CBDT circular.

Summary

Issues involved:
1. Interpretation of CBDT circular dated 27th October, 2010 regarding exemptions under Section 10 (23 C) (vi) of the Income Tax Act.
2. Validity of exemptions granted under Section 10 (23 C) (vi) and the impact of the circular on such exemptions.
3. Whether the Chief Commissioner was justified in rejecting the petitioner's application for exemption for assessment years 2008-09 and 2009-10.

Analysis:

1. The main issue in this case revolves around the interpretation of the CBDT circular dated 27th October, 2010, concerning exemptions under Section 10 (23 C) (vi) of the Income Tax Act. The petitioner, a registered society seeking tax exemption, argued that the circular, particularly Clause (4), clarified that approvals granted after 1st December, 2006, would be valid until withdrawn. The petitioner contended that their exemption granted for the assessment year 2007-08 should remain valid as it was not withdrawn. On the other hand, the revenue's counsel argued that the circular did not have retrospective effect and cited Clause (5) to support their position that approvals existing on or granted after 1st October, 2009, would be extended perpetually unless withdrawn.

2. The court analyzed the relevant clauses of the CBDT circular in detail. It noted that Clause (4) explicitly stated that approvals granted after 1st December, 2006, would be valid until withdrawn. The court rejected the revenue's argument that the circular's effect only began from October 2010, pointing out that Clause (5) referred to a different section of the Act, not relevant to exemptions under Section 10 (23 ) (vi). Consequently, the court held that the impugned orders, which ignored Clause (4) of the circular, were contrary to law. The court allowed the petition, set aside the orders, and directed the Commissioner of Income Tax Exemption to reconsider the application in light of Clause (4) of the CBDT circular.

3. The court further addressed the Chief Commissioner's rejection of the petitioner's application for exemption for assessment years 2008-09 and 2009-10 as barred by time. The court clarified that as per the CBDT circular, once an exemption is granted, it remains valid until withdrawn. Therefore, the Chief Commissioner's decision to dismiss the applications based on the period of limitation was deemed incorrect. The court directed the parties to appear before the Commissioner of Income Tax Exemption for a fresh decision within three months, emphasizing the importance of considering Clause (4) of the CBDT circular in determining the validity of exemptions.

Overall, the judgment focused on interpreting the CBDT circular to uphold the petitioner's right to exemption under Section 10 (23 C) (vi) and emphasized the importance of adhering to the circular's provisions in granting and evaluating tax exemptions.