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of <h1>Court deems provision in Income-tax Act as directory, not mandatory. Violation of natural justice in delay condonation. Remitted for fresh decision.</h1> The court held that the provision under clause (v) of sub-section (5C) of section 80G of the Income-tax Act is directory and not mandatory. The rejection ... Donation for Charitable purpose- Special Deduction- The petitioner was a charitable organization. It received donation from January 26, 2001 to September 30, 2001. The petitioner maintained separate accounts of income and expenditure for providing relief to the victims of earthquake in Gujrat. It was also claimed that the entire amount was spent only for providing relief to earthquake victims of Gujrat by the specified date, i.e.March 31, 2004. However, it could not render the accounts of income and expenditure to the prescribed authority by June 30, 2004. Because of the failure on the par of the petitioner, in the Income Tax Return filed by the petitioner for the assessment year 2003-04 the entire donation was treated as taxable income of the petitioner. Held that- the condition regarding rendition of accounts before June 30, 2004 is directory. The application for condonation of delay should not have been rejected on the ground that there was no power to condone. The order was not valid and was liable to be quashed. Issues Involved:1. Nature of the provision under clause (v) of sub-section (5C) of section 80G of the Income-tax Act-whether it is mandatory or directory.2. Violation of principles of natural justice due to lack of hearing before rejecting the application for condonation of delay.Detailed Analysis:Issue 1: Nature of the Provision under Clause (v) of Sub-section (5C) of Section 80G of the Income-tax Act-Mandatory or DirectoryThe primary issue was whether the provision under clause (v) of sub-section (5C) of section 80G of the Income-tax Act, which requires trusts or institutions to render accounts of income and expenditure by June 30, 2004, is mandatory or directory.- Legislative Intent and Purpose: The court emphasized that the provision was introduced to encourage donations for relief to the victims of the Gujarat earthquake. The legislative intent was to ensure that the donations were applied to the specified purpose and within the stipulated timeframe. The court noted that the provision aims to confer benefits on donors and ensure that recipient institutions use the funds appropriately.- Consequences of Non-Compliance: The court distinguished between mandatory provisions, which require strict compliance and entail severe consequences for non-compliance, and directory provisions, which allow for flexibility. The court observed that non-compliance with the mandatory provisions, such as maintaining separate accounts and utilizing funds by March 31, 2004, would lead to the taxation of donations. However, the court found that the deadline for rendering accounts (June 30, 2004) should not result in such severe consequences if there was a genuine reason for delay.- Judicial Precedents and Principles of Interpretation: The court referred to various judicial precedents and principles of statutory interpretation. It highlighted that the essence of the provision should be considered, and if the requirement is procedural and not of the essence, it should be treated as directory. The court cited cases where similar provisions were interpreted as directory to avoid unjust consequences.- Conclusion: The court concluded that the date of June 30, 2004, for rendering accounts is directory and not mandatory. Therefore, the application for condonation of delay should not have been rejected solely on the ground of lack of power to condone the delay.Issue 2: Violation of Principles of Natural JusticeThe second issue was whether the rejection of the application for condonation of delay without a hearing violated the principles of natural justice.- Lack of Hearing: It was conceded that no hearing was provided to the petitioners before rejecting the application for condonation of delay. The court noted that the impugned orders had far-reaching ramifications and adversely affected the petitioners' interests.- Principles of Natural Justice: The court emphasized the importance of providing an opportunity of being heard before passing an order that adversely affects an individual's rights. The court held that the failure to provide a hearing violated the principles of natural justice.- Remedy: The court set aside the impugned order dated August 8, 2006, and remitted the case back to the competent authority to decide the application for condonation of delay on the merits after giving an opportunity of being heard to the petitioners.Conclusion:The court held that the provision under clause (v) of sub-section (5C) of section 80G of the Income-tax Act is directory and not mandatory. The rejection of the application for condonation of delay without a hearing violated the principles of natural justice. The case was remitted back to the competent authority for a fresh decision on the application for condonation of delay, with an opportunity for the petitioners to be heard.
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