1994 (8) TMI 306 - HC - Income Tax

Court overturns tax exemption cancellation, citing lack of hearing. Petitioner granted show-cause opportunity.

The court held that canceling a tax exemption certificate without providing a hearing violated principles of natural justice. The cancellation was ... - Issues:1. Validity of the cancellation of a certificate granting tax exemption under section 80J of the Income Tax Act without providing a hearing to the petitioner.2. Authority of the reviewing officer to dislodge a certificate granted by another officer.3. Permissibility of canceling a certificate after a significant lapse of time during which the petitioner acted upon the certificate.Analysis:The petitioner, initially a private limited company, transitioned into a public limited company due to a turnover exceeding one crore rupees. Engaged in the automobile business, the company expanded by purchasing barges and establishing a 'Shipping Division' with a different accounting year from April to March. The petitioner believed it was entitled to a deduction under section 80J of the IT Act and received a certificate in 1990 certifying 100% dividend exemption. However, this certificate was later canceled by the IAC without a hearing, causing the petitioner to file a writ petition seeking to quash the order.The petitioner challenged the cancellation on three grounds: first, the lack of a hearing violated principles of natural justice; second, the reviewing officer lacked the authority to overturn the certificate; and third, the cancellation after three years, during which the petitioner issued dividends without deduction, was questioned. Despite opposition from the respondents, no representation was made during the hearing.The court, citing the importance of natural justice, held that the cancellation without a show-cause notice and hearing was a violation. Referring to legal precedents, the court emphasized the need for fairness when individual rights or interests are affected by administrative decisions. Consequently, the court quashed the cancellation order, granting liberty to issue a show-cause notice to the petitioner and hear their arguments before making a new decision. The petitioner was also given the right to challenge any adverse decision before the appropriate authority.In conclusion, the petition was allowed, setting aside the cancellation order without costs and directing the refund of any security amount to the petitioner after verification. The issues raised in the petition were deemed open for further legal action in accordance with the law.