2021 (7) TMI 1264 - HC - Income Tax

Court orders withdrawal of approval under Section 10(23C) and processing under Section 10(46) for petitioners.

The court allowed the writ petitions, directing the 2nd respondent to withdraw the approval granted to the petitioners under Section 10(23C) with effect ... Withdrawal of exemption granted u/s 10(23C) - seeking for being notified under Section 10(46) - HELD THAT:- Basic difference between the two provisions of the Act viz., 10(23C)(iv) and 10(46) of the Act, is that, while under the first provision, it is only a grant of an approval making an assessee eligible to claim exemption without any certainty of exemption being allowed on any income, since it is subject to scrutiny, the latter provision confers benefit of automatic exemption in respect of the specified income of the assessee as notified by the Central Government in the gazette. Thus, under Section 10(46) of the Act, there is a certainty with regard to claim of exemption. In the facts of the present case, though there are two different provisions of the Act under which the petitioners can claim the benefit, mere fact of petitioners being granted approval under one particular provision of the Act, namely Section 10(23C)(iv) of the Act, in our opinion, would not disentitle the petitioners/ assessees to seek for being notified under a different provision, as it is for the assessees/petitioners to choose as to which of the provisions would be more beneficial. The respondents for the reasons best known did not take any action on the applications filed by each of the petitioners for being notified under Section 10(46) of the Act, nor communicated the reason for not considering the applications, for nearly three years, till the petitioners approached this Court by the present writ petitions. Thus, the action of the respondents in not processing the case of the petitioners and maintaining static silence, cannot be countenanced The understanding of the 2nd respondent that the power to withdraw conferred under Section 293C or Section 10(23C)(iv) of the Act, to be undertaken only at the behest of the respondents and not at the request of the petitioners, does not appeal to this Court, as a correct understanding. As detailed herein above, the word ‘withdraw’ as used in both the Sections 10(23C)(iv) and 293C of the Act, encompasses in itself the exercise of power even at the behest of the assessee/petitioners, and the contrary view of the respondents is liable to be rejected. It is also to be seen that the petitioners have not sought for grant of exemption under Section 10(46) of the Act either from the day the said provision was introduced or from the date of their initial grant of approval under Section 10(23C) of the Act. The petitioners sought for being notified under Section 10(46) of the Act only from the relevant previous year, having regard to the fact that the benefit of exemption under Section 10(23C) of the Act, was being denied regularly, and they felt that the provisions of Section 10(46) of the Act are more beneficial and are applicable more aptly. In view of the conclusions arrived at by us as above, the petitioners are liable to succeed in these writ petitions. Accordingly, the writ petitions are allowed; the 2nd respondent is directed to withdraw the approval granted to the petitioners under Section 10(23C) of the Act with effect from the date of applications made by the petitioners for being notified under Section 10(46) of the Act; and process the petitioners’ applications dt. 07.03.2017 and 08.03.2017 filed for being notified under Section 10(46) of Act in accordance with the provisions of the Act, from the previous year relevant to the date of applications, filed. Issues Involved:1. Eligibility for notification under Section 10(46) of the Income Tax Act, 1961.2. Validity of denial of exemption under Section 10(46) despite existing approval under Section 10(23C)(iv).3. Power to withdraw exemption under Section 10(23C)(iv) at the behest of the assessee.4. Interpretation of the provisions of Section 10(23C)(iv) and Section 10(46) of the Income Tax Act.5. Applicability of Section 293C of the Income Tax Act regarding the withdrawal of approval.Detailed Analysis:1. Eligibility for Notification under Section 10(46) of the Income Tax Act, 1961:The petitioners, Telangana State Pollution Control Board (TSPCB) and Andhra Pradesh Pollution Control Board (APPCB), argued that they are eligible for notification under Section 10(46) of the Income Tax Act, 1961, due to their establishment under Central Acts, their constitution by State Governments, their activities benefiting the general public, and their non-engagement in commercial activities. The petitioners submitted applications for notification under Section 10(46) on 07.03.2017 and 08.03.2017, respectively, claiming they satisfy the conditions specified under this section. Despite similar Pollution Control Boards being notified under Section 10(46), the petitioners' applications were not considered.2. Validity of Denial of Exemption under Section 10(46) Despite Existing Approval under Section 10(23C)(iv):The respondents contended that the petitioners are not eligible for notification under Section 10(46) because they already have approval under Section 10(23C)(iv). The respondents referenced the 18th proviso to Section 10(23C), which they interpreted as preventing the petitioners from availing benefits under Section 10(46).3. Power to Withdraw Exemption under Section 10(23C)(iv) at the Behest of the Assessee:The court examined whether the petitioners could request the withdrawal of their approval under Section 10(23C)(iv). The respondents argued that the approval under Section 10(23C)(iv) is in perpetuity and can only be withdrawn by the prescribed authority, not at the behest of the assessee. The court found no provision in the Act expressly restricting an assessee from surrendering approval obtained under Section 10(23C)(iv).4. Interpretation of the Provisions of Section 10(23C)(iv) and Section 10(46) of the Income Tax Act:The court analyzed the differences between Section 10(23C)(iv) and Section 10(46). Section 10(23C)(iv) involves approval by the prescribed authority, allowing an assessee to claim exemption subject to scrutiny. In contrast, Section 10(46) provides automatic exemption for specified income once notified by the Central Government. The court noted that the petitioners could choose the more beneficial provision and that the respondents' interpretation restricting withdrawal of approval under Section 10(23C)(iv) was not tenable.5. Applicability of Section 293C of the Income Tax Act Regarding the Withdrawal of Approval:The court referred to Section 293C of the Income Tax Act, which allows the Central Government, the Board, or an income-tax authority to withdraw approval at any time, even if the provision does not specifically provide for such withdrawal. The court concluded that the power to withdraw approval under Section 10(23C)(iv) encompasses requests from the assessee, and the respondents' contrary view was incorrect.Conclusion:The court allowed the writ petitions, directing the 2nd respondent to withdraw the approval granted to the petitioners under Section 10(23C) with effect from the date of their applications for notification under Section 10(46). The 2nd respondent was also instructed to process the petitioners' applications for notification under Section 10(46) from the relevant previous year. Pending miscellaneous petitions were closed, with no order as to costs.