2008 (6) TMI 76 - HC - Income Tax

Respondent's Jurisdiction Overstepped in Benefits Denial under Income Tax Act Section 80-IA (4) (iii)

The court held that the respondent authority exceeded its jurisdiction by considering irrelevant factors in rejecting the petitioner's application for ... Hotel - benefit u/s 80IA(4)(iii) – hotel in a place of pilgrimage - Once the prescribed authorities grant certificates, if the respondent authority wants to reject the same, then valid and justifiable reasons must be given for the same - since petitioner hotel is approved by the respondent under provisions of Rule 18BBC of ITR, then the petitioner will get relief at the specified rate in respect of the profit earned from hotel - benefit can’t be refused to the petitioner on any flimsy ground Issues Involved:1. Eligibility for benefits under Section 80-IA (4) (iii) of the Income Tax Act, 1961.2. Interpretation and application of Rule 18BBC of the Income Tax Rules, 1962.3. Validity of the rejection order passed by the Director General of Income Tax (Exemption).Issue-Wise Detailed Analysis:1. Eligibility for benefits under Section 80-IA (4) (iii) of the Income Tax Act, 1961:The petitioner, a Public Limited Company operating a hotel in Surat, applied for approval under Section 80-IA (4) (iii) of the Income Tax Act, 1961. This section provides tax benefits to hotels meeting specific conditions, such as not being formed by splitting or reconstruction of an existing business, being owned by an Indian company with a paid-up capital of at least five hundred thousand rupees, and being located in specified areas or places of pilgrimage. The petitioner claimed that Surat is an important place of pilgrimage, particularly for Parsis, and thus qualified under this section. The petitioner also provided certificates from the Director of Tourism, Gujarat Government, and the Department of Tourism, Government of India, to support their claim.2. Interpretation and application of Rule 18BBC of the Income Tax Rules, 1962:Rule 18BBC specifies the prescribed authority for approving hotels under Section 80-IA (4) (iii). For hotels in areas referred to in clause (iii), the Director General (Income Tax Exemption) grants approval with the concurrence of the Director General in the Directorate General of Tourism, Government of India. The rule also outlines conditions for approval, such as the hotel being located in specified areas and having no more than 300 hotel rooms of 3-star category and above within the jurisdiction. The petitioner argued that they met all these conditions and thus should have been granted approval.3. Validity of the rejection order passed by the Director General of Income Tax (Exemption):The respondent rejected the petitioner's application, stating that Surat is an industrial town with existing infrastructure and tourism facilities and does not require additional benefits under Section 80-IA (4) (iii). The respondent also noted that only 3% of the hotel's turnover was from Parsi visitors, and the high room rent of Rs. 4,200 per day was not conducive to promoting pilgrimage tourism. The respondent concluded that the hotel did not promote pilgrimage tourism and thus did not deserve the benefit.Court's Analysis and Judgment:The court found that the respondent authority overstepped its jurisdiction by considering factors beyond the stipulated conditions in the Act and the Rules. The prescribed authority is only required to verify if the conditions in clauses (a), (b), and (c) of Rule 18BBC are met. The court noted that the petitioner provided certificates from the relevant tourism authorities, confirming compliance with the conditions. The court held that the reasons given by the respondent for rejection were irrelevant and extraneous. The court emphasized that once the prescribed authorities grant certificates, the respondent must provide valid and justifiable reasons to reject them. The court concluded that the petitioner met all the required conditions and thus was entitled to the benefits under Section 80-IA (4) (iii).Conclusion:The court quashed and set aside the impugned order dated 31.03.97, directing the respondent to grant the petitioner all consequential reliefs within six weeks. The petition was allowed, and the rule was made absolute with no order as to costs.