2021 (11) TMI 106 - HC - Income Tax

Court Overturns Denial of Renewal Approval, Cites Natural Justice Violations

M/s. Park Health Systems Private Limited Versus The Principal Chief Commissioner of Income Tax

M/s. Park Health Systems Private Limited Versus The Principal Chief Commissioner of Income Tax - [2021] 439 ITR 643 (Telangana) Issues Involved:1. Denial of renewal of approval under proviso (ii)(b) to section 17(2)(viii) of the Income Tax Act, 1961.2. Consideration of the State Government's revocation of permission for Covid-19 treatment.3. Alleged violation of principles of natural justice by the 1st respondent.4. Classification of Covid-19 as a respiratory disease under Rule 3A of the Income Tax Rules, 1962.Detailed Analysis:1. Denial of Renewal of Approval:The petitioner challenged the order dated 19.10.2020, which denied the renewal of approval under proviso (ii)(b) to section 17(2)(viii) of the Income Tax Act, 1961. The petitioner had been providing medical treatment and had previously received approval for three consecutive terms starting from 2011-12, with the last approval valid until 21.03.2020. The petitioner applied for renewal on 13.01.2020, two months before the expiry date.2. Consideration of State Government's Revocation of Permission for Covid-19 Treatment:The 1st respondent issued a show-cause notice on 12.10.2020, citing the revocation of the State Government's permission for Covid-19 treatment as a reason for denying the renewal. The petitioner contended that the revocation was based on media propaganda and misinformation and was limited to Covid-19 treatment, not affecting other medical treatments. The petitioner also mentioned that they were in the process of getting the permission reinstated, which was indeed granted on 13.10.2020, a day before the show-cause notice was issued.3. Alleged Violation of Principles of Natural Justice:The petitioner argued that the impugned order was passed without considering their explanation dated 16.10.2020 and that the order traveled beyond the scope of the show-cause notice. The court found that the 1st respondent’s order included issues not mentioned in the show-cause notice, such as the nature of Covid-19 as a respiratory disease and allegations of exorbitant pricing. This was deemed a violation of the principles of natural justice, as the petitioner was not given an opportunity to respond to these additional grounds.4. Classification of Covid-19 as a Respiratory Disease:The 1st respondent classified Covid-19 as a respiratory disease under Rule 3A of the Income Tax Rules, 1962, which the court found to be unsupported by scientific data. The court noted that neither the World Health Organization (WHO) nor the Indian Council of Medical Research (ICMR) had classified Covid-19 solely as a respiratory disease, pointing out that the virus has multiple symptoms and effects. Therefore, the 1st respondent's classification was considered a self-evolved theory and was rejected by the court.Conclusion:The court set aside the impugned order dated 19.10.2020, directing the 1st respondent to process the petitioner's application for renewal of approval under proviso (ii)(b) to section 17(2)(viii) of the Income Tax Act, 1961, in accordance with the provisions of the Act. The court emphasized the violation of natural justice and the lack of scientific backing for the classification of Covid-19 as a respiratory disease. Pending miscellaneous petitions were closed, and no order as to costs was made.