2016 (2) TMI 1157 - HC - Companies Law

Court affirms rejection of Scientific Research Association approval; compliance with procedural rules and hearing opportunity pivotal

Indian Institute of Chemical Engineer Versus Central Board of Direct Taxes & Ors.

The court upheld the rejection of the appellant's application for approval as a Scientific Research Association under Section 35(1)(ii) of the Income Tax ... Writ in the nature of Certiorari quashing the order - Writ in the nature of Mandamus directing the respondents to withdraw or to recall the order dated 21st March, 2013 amongst others and a Writ in the nature of Mandamus commanding the respondent authorities to act in accordance with law and the principles of natural justice - Held that:- In this case the petitioner was offered an opportunity of hearing before “Member (IT) CBDT and CIT (IT)”. CIT (IT) is also the authority to receive the application for approval. CIT(IT) after receiving such application is required to satisfy himself as regards eligibility of the applicant. In case he is not satisfied he may also afford an opportunity of hearing to the appellant and shall thereafter make the recommendation. In this case such an opportunity was granted by the letter dated 26th February, 2013 but the writ petitioner refused to avail the opportunity on the ground that the member (IT) CBDT was not authorised to hear. The writ petitioner failed to realize that the matter shall thereafter be placed before the Ministry of Finance for passing an order either accepting or rejecting the prayer for approval. For that purpose the Ministry is entitled to make further enquiry into the matter. Provision for such further enquiry is there in Rule 9 and 10 quoted above. In case the Ministry allows the prayer, there is no reason why any further hearing is to be given. In case it is inclined to reject the prayer, it has to disclose reasons but before it does that it is required to give an opportunity of hearing to the applicant. Therefore, hearing before the member (IT) CBDT and the CIT proposed by the letter dated 26th February, 2013 was not the end of the road. The writ petitioner by refusing to appear at personal hearing and by refusing to satisfy the CIT as regards its eligibility prevented the statutory authority from performing its job. In the circumstances there was no occasion for any further hearing before rejecting the prayer for approval Issues Involved:1. Jurisdiction of the authority passing the order.2. Opportunity of hearing provided to the writ petitioner.3. Compliance with procedural rules under Section 35(1)(ii) of the Income Tax Act.Issue-wise Detailed Analysis:1. Jurisdiction of the Authority Passing the Order:The appellant contended that the order dated 21st March 2013, rejecting their application for approval as a Scientific Research Association under Section 35(1)(ii) of the Income Tax Act, was passed by an authority without jurisdiction. The court examined the procedural rules and found that the Member (IT) CBDT and CIT (IT) were authorized to hear the applicant before making a recommendation to the Ministry of Finance. The court clarified that the Ministry of Finance, as the competent authority, was entitled to make further inquiries and pass the final order. The court rejected the appellant's contention that the hearing by the Member (IT) CBDT was unlawful, affirming that the procedural rules were followed correctly.2. Opportunity of Hearing Provided to the Writ Petitioner:The appellant argued that the order was passed without affording an opportunity of hearing. The court found no merit in this argument, noting that the Government of India, Ministry of Finance, had issued a letter dated 26th February 2013, providing detailed reasons for the potential rejection and inviting the petitioner to justify their claims and attend a personal hearing. The petitioner responded by requesting an adjournment and challenging the authority of the Member (IT) CBDT to hear the matter. The court held that the petitioner was given sufficient opportunity to present their case but chose not to avail it. Consequently, the court concluded that the order was not passed without an opportunity of hearing, and the petitioner's refusal to participate in the hearing invalidated their claim.3. Compliance with Procedural Rules under Section 35(1)(ii) of the Income Tax Act:The court reviewed the procedural rules under Section 35(1)(ii) and Rule 5(C) of the Income Tax Rules, which outline the steps for processing applications for approval as a Scientific Research Association. The court noted that the Commissioner of Income Tax or the Director of Income Tax must make necessary inquiries and send recommendations to the Member (IT) CBDT, who then forwards it to the Ministry of Finance. The Ministry, before granting approval, may call for additional documents and conduct further inquiries. The court found that these procedures were followed, and the petitioner's application was processed in accordance with the law. The court emphasized that the petitioner's refusal to participate in the hearing before the Member (IT) CBDT and CIT (IT) hindered the statutory process, justifying the rejection of their application.Conclusion:The court dismissed the appeal, affirming that the procedural rules were followed, the petitioner was given an opportunity of hearing, and the authorities acted within their jurisdiction. The court upheld the rejection of the petitioner's application for approval as a Scientific Research Association under Section 35(1)(ii) of the Income Tax Act.