(2009) 319 ITR 399 (Bom)

IN THE HIGH COURT OF BOMBAY

Maharashtra Academy Of Engineering And Educational Research.

Vs.

Director General Of Income-tax (Investigation) And Another.

Dated 28/7/2009

Section 10(23C)(vi), Income Tax Act, 1961

JUDGMENT

Rule. By consent of the parties, heard forthwith.

2. The petitioner is a public trust whose sole activity is of running educational institutions. Upto asst. yr. 1988-89 (sic-1998-99), the income of the petitioner was exempted under s. 10(22) of the IT Act, 1961 (hereinafter referred to as "the Act"). Sec. 10(22) was omitted by Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999, i.e. from asst. yr. 1999-2000 and the exemption for the income of an educational institution like the petitioner-trust was provided in the amended s. 10(23C)(vi). The said s. 10 (23C)(vi) of the Act, as applicable for asst. yr. 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

(i) ..........

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

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

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

5. The petitioner by its letter dt. 9th Aug., 2007 had requested the 1st respondent to grant renewal of the exemption for the period asst. yr. 2002-03 onwards. Instead of granting renewal, the 1st respondent issued a show-cause notice dt. 26th NoVs., 2007 proposing to rescind the approval granted by CBDT on 9th March, 2004. The 1st respondent by his order dt. 8th Feb., 2008 rescinded the approval granted by CBDT on 9th March, 2004 under s. 10(23C)(vi) of the Act for the period asst. yrs. 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 CIT (Central) dt. 5th NoVs., 2007 opposing the renewal of approval of the petitioner trust under s. 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 dt. 26th March, 2009.

7. Though various contentions have been raised on behalf of the petitioner, it is pointed out that the order passed by the 1st 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 CBDT and not respondent No. 1, i.e. Director General of IT (InVs.), Pune.

8. Replies have been filed on behalf of the respondents. The passing of the impugned order was justified. By our order dt. 22nd June, 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, Dy. Director of IT (InVs.)(H. Qrs.), Pune. Reliance is placed on r. 2CA of the IT Rules. Reliance is also placed on a notification dt. 30th May, 2007 [(2007) 210 CTR (St) 9]. Based on the rules and the notification, it is set out that the respondent No. 1 would be the prescribed authority.

9. Considering the narrow controversy, we will first consider r. 2CA of the IT Rules, which reads as under:

"2CA Guidelines for approval under sub-cls. (vi) and (via) of cl. (23C) of s. 10-(1) The prescribed authority under sub-cls. (vi) and (via) of cl. (23C) of s. 10 shall be the Chief CIT or Director General to whom the application shall be made as provided in sub-r. (2).

(1A) The prescribed authority under sub-cls. (vi) and (via) of cl. (23C) of s. 10 shall be the CBDT constituted under the Central Board of Revenue Act, 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-cls. (vi) and (via) of cl. (23C) of s. 10 shall be the Chief CIT 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-cls. (vi) and (via) of cl. (23C) of s. 10.

(3) The approval of the CBDT or Chief CIT or Director General, as the case may be, granted before the 1st day of Dec., 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:

"Prescribed authority-In pursuance of the provisions contained in sub-cls. (vi) and (via) of cl. (23C) of s. 10 r/w sub-r. (3) of r. 2CA, the CBDT hereby authorises the following Chief CITs or Directors Generals to act as prescribed authority for the purposes of sub-cls. (vi) and (via) of cl. (23C) of s. 10 in relation to any university or other educational institution or any hospital or other medical institution w.e.f. 1st day of June, 2007, namely:

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

(ii) for cases falling in the jurisdiction of Director of IT (Exemption), Bangalore, the prescribed authority shall be Chief CIT, Bangalore-I, Bangalore;

(iii) .........."

11. From a reading of r. 2CA of the rules, it would be clear that in respect of application received prior to 3rd April, 2001, the prescribed authority under sub-cls. (vi) and (via) of cl. (23C) of s. 10 of the Act shall be CBDT constituted under the Central Board of Revenue Act. In s. 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-cl. (vi) and (via) as the Chief CIT or Director General, and in respect of applications received prior to 3rd April, 2001 as CBDT. There is also a proviso to sub-r. 2CA(1A) which sets out that in respect of application received prior to 3rd April, 2001 where no order has been passed granting approval or rejecting the application as on 31st May, 2007, the prescribed authority under sub-cls. (vi) and (via) of cl. (23C) of s. 10 shall be the Chief CIT or Director General.

12. In that context, let us consider s. 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-cl. (iv) or trust or institution referred to in sub-cl. (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-cl. (vi) or any hospital or other medical institution referred to in sub-cl. (via), is approved by the prescribed authority and subsequently that 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 cl. (a) of the third proviso; or

(B) invested or deposited its funds in accordance with the provisions contained in cl. (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 time 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 AO."

13. Thus, insofar as the petitioner is concerned, considering that the approval was granted on 9th March, 2004 and the application was made on 24th Dec., 2002 (sic-30th March, 1999), it would be CBDT which would be the prescribed authority to grant the application and also to consider, review or recall the order insofar as asst. yrs. 1999-2000 to 2000-01 are concerned.

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

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

16. Having held that the prescribed authority is CBDT-respondent No. 1 for the years 1999-2000 to 2000-01, the prescribed authority to pass the order reviewing grant of permission would be CBDT. 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 dt. 8th Feb., 2008 is beyond 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 dt. 8th Feb., 2008, more particularly paras 10 and 11 thereof, are set aside. The power to rescind or recall for the asst. yrs. 1999-2000 to 2000-01 is to be exercised by CBDT alone.

(b) The Director of General IT is directed to consider the pending applications of the petitioner for the asst. yrs. 2002-03 to 2004-05 and for the asst. yrs. 2005-06 to 2007-08.

(c) It is open to the competent authority, if so entitled in law, to take such steps as he is entitled to.

(d) Considering our order, all parties including the CIT(A) 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 asst. yr. 2002-03 onwards, it will be the respondent No. 1-Director General of IT 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.