1973 (2) TMI 10 - HC - Income Tax

Court orders reconsideration of tax exemption denial due to lack of clarity and finds petitioner eligible.

Bharat Nidhi Limited Versus Union Of India And Others (And Other Petitions).

The court held that the Central Board of Revenue's order refusing super-tax exemption was not a speaking order and lacked clarity, thus requiring reasons ... Under section 60 of the Indian Income-tax Act of 1922, a statutory Notification No. 47 dated 9th December, 1933, has been issued granting exemption from payment of super-tax - On 9th June, 1961, the petitioner-company applied to the Central Board of Revenue for exemption from payment of super-tax in pursuance of the aforesaid notification. This has been refused by the Central Board of Revenue by its order dated 30th December, 1963 (annexure ' F '), on the grounds that all the conditions laid down in the aforesaid notification had not been satisfied by the petitioner-company. Aggrieved by this order, the petitioner has filed this writ petition challenging the impugned order on the grounds, inter alia, that the order of the Board is not a speaking order and does not give reasons for refusing the exemption and, secondly, that, on the merits of the case, the order is not sustainable in law. Issues Involved:1. Whether the Central Board of Revenue's order refusing super-tax exemption was a speaking order.2. Whether the petitioner-company satisfied the conditions specified in the statutory notification for super-tax exemption.Detailed Analysis:Issue 1: Whether the Central Board of Revenue's order refusing super-tax exemption was a speaking orderThe petitioner-company applied for exemption from super-tax under Notification No. 47 dated 9th December 1933. The Central Board of Revenue refused the exemption on 30th December 1963, stating that 'all the conditions laid down in Notification No. 47 dated the 9th December, 1933, are not satisfied by the company.' The petitioner challenged this order on the grounds that it was not a speaking order and did not provide reasons for the refusal.The court observed that the impugned order was not sustainable as it did not specify which conditions were not satisfied. The order lacked clarity and did not show that the Board had applied its mind to the issue. The court referenced the Supreme Court's decision in *Travancore Rayons v. Union of India*, which emphasized the necessity for non-judicial authorities exercising judicial functions to provide sufficient reasons for their decisions. The court concluded that the Central Board of Revenue was required to pass a speaking order and provide reasons for its findings, making the order liable to be quashed on this ground alone.Issue 2: Whether the petitioner-company satisfied the conditions specified in the statutory notification for super-tax exemptionThe statutory notification under section 60 of the Indian Income-tax Act of 1922 exempted from super-tax the income of any investment trust company derived from dividends paid by other companies that had paid super-tax. The notification specified three conditions:1. The company must primarily engage in acquiring and holding investments.2. The company must not be formed for acquiring or exercising control over other companies.3. The company must be deemed to have public interest under section 23A of the Act.The Central Board of Revenue's counter-affidavit argued that the petitioner-company failed to satisfy condition (ii), as it was engaged in enabling other persons to acquire or exercise control over other companies. The counter-affidavit provided detailed analysis and annexures to support this claim, showing the petitioner's substantial interest in several companies within the Sahu Jain group.The court analyzed the shareholdings and found that the petitioner-company's shares in the companies mentioned were less than 51%, making it difficult to conclude that the petitioner had control over these companies. Even in cases where the petitioner's voting power influenced the appointment of managing agents, the court found that this did not equate to exercising control over the companies. The court held that the material provided in the counter-affidavit was insufficient to reasonably conclude that the petitioner-company did not satisfy condition (ii).ConclusionThe writ petition was allowed, and the order of the Central Board of Revenue dated 30th December 1963 was quashed. The Board was directed to reconsider the matter according to law in light of the court's observations. The parties were ordered to bear their respective costs.Judgment:Petition allowed.