2017 (1) TMI 1513 - AT - Income Tax

Tribunal rules dismissal of SLP not binding precedent for tax exemption, directs grant of benefit

Moradabad Development Authority Versus ACIT (Exemption), Lucknow

The Tribunal overturned the denial of exemption under section 11 of the Income-tax Act for the assessee, emphasizing that the dismissal of an SLP by the ... Denial of exemption u/s 11 - Held that:- Admittedly, the assessee’s registration has not been canceled by the Commissioner. Further, it is a settled legal position that a summary dismissal of SLP cannot be construed as a declaration of law by the Hon'ble Supreme Court under Article 141 of the Constitution. A mere dismissal of SLP without giving any reasons, cannot be equated with exposition of law by the Hon’ble Supreme Court so as to indicate the imprimatur on the reasoning and/or the ratio decidendi of the High Court in the judgment. In other words, the view point of the Department that the mandate of the Hon'ble jurisdictional High Court on the issue has ceased its binding force and hence preference should be given to the judgment of the Hon'ble J&K High Court as SLP against the same has been dismissed, cannot be countenanced. We, therefore, hold that the decision taken by the Hon'ble jurisdictional High Court in several cases including that of the assessee itself holds the field and, accordingly, the benefit of exemption u/s 11 of the Act cannot be denied. The impugned order on the issue is overturned and it is directed to grant exemption u/s 11 of the Act. - Decided in favour of assessee. Issues:1. Denial of exemption u/s 11 of the Income-tax Act, 1961 to the assessee based on the applicability of the proviso to section 2(15).2. Interpretation of the effect of the dismissal of an SLP by the Hon'ble Supreme Court against the judgment of the Hon'ble Jammu & Kashmir High Court in a case involving cancellation of registration under section 12AA(3) of the Act.Analysis:Issue 1: Denial of exemption u/s 11The assessee, an Authority formed under the Rules and Regulations of the UP Urban Planning and Development Act, 1973, was granted registration u/s 12AA of the Income-tax Act, 1961. The Assessing Officer denied the exemption u/s 11 to the assessee, citing that its activities were not charitable in nature and the proviso to section 2(15) was applicable. The CIT(A) upheld this denial primarily based on the dismissal of SLP by the Hon'ble Supreme Court against the judgment of the Hon'ble Jammu & Kashmir High Court in a similar case. However, the Tribunal noted that the assessee had been consistently allowed exemption u/s 11 in the past, either by the AO or by the Tribunal as affirmed by the Hon'ble High Court. The Tribunal held that the mere dismissal of SLP does not equate to a declaration of law by the Supreme Court, and thus, the benefit of exemption u/s 11 cannot be denied based on this ground. The impugned order denying exemption u/s 11 was overturned, and the Tribunal directed to grant the exemption.Issue 2: Interpretation of the effect of SLP dismissalThe Tribunal clarified that the dismissal of an SLP by the Supreme Court does not establish a binding precedent or confirm the reasoning of the lower court's judgment. It emphasized that a summary dismissal of SLP without reasons does not indicate the Supreme Court's endorsement of the lower court's decision. Citing legal precedents, the Tribunal held that the dismissal of SLP cannot be construed as an affirmation of the High Court's judgment. Therefore, in the absence of a clear declaration of law by the Supreme Court, the Tribunal maintained that the judgment of the Hon'ble jurisdictional High Court, which consistently favored the assessee, should prevail. The Tribunal concluded that the denial of exemption u/s 11 based on the dismissal of SLP against the J&K High Court's judgment was not justified, and the benefit of exemption was upheld for the assessee.In conclusion, the Tribunal allowed both appeals, overturning the denial of exemption u/s 11 for the assessment years in question based on the consistent favorable decisions in the assessee's case and the limited effect of the dismissal of the SLP by the Supreme Court.