DG Income Tax-Exemptions action illegal in not taking decision on assessee’s application seeking approval under Section 80 IB(7)(c)-Allahabad HC

DG Income Tax-Exemptions action illegal in not taking decision on assessee’s application seeking approval under Section 80 IB(7)(c)-Allahabad HC

DG Income Tax-Exemptions action illegal

ABCAUS Case Law Citation:
ABCAUS 1138 (2017) (02) HC

The Substantial Question of Law in assessee’s appeal:
Whether the finding recorded by the Tribunal to the effect that after 13.12.2011 the appellant has done nothing to pursue the pending matter for approval before the Director General of Income Tax under Section 80-IB (7)(a) of the Act is perverse since before the Tribunal the application moved by the appellant dated 29.3.2014 was on record.

Date/Month of Pronouncement: February, 2017

Important Case Laws Cited/relied upon:
Goetze India Ltd. vs. CIT (2006) 284 ITR 323.

Brief Facts of the Case:
The assessee was a private limited company which has set up a Hotel at Lucknow after getting approval of project of Hotel from Department of Tourism, Government of India. The Hotel unit of Assessee commenced operation on 03.07.2000. Government of India has also granted recognition to said Hotel as a three star hotel vide letter dated 08.11.2001.

Section 80-IB of Income Tax Act, 1961 (“the Act”) provides for deduction in respect of profits and gains to certain industrial undertakings other than infrastructure development undertakings. Sub-section (7) thereof deals with the amount of deduction in case of hotels. There are two level of deduction. One is 50% which is within the ambit of Clause (a) of Section 80 IB(7) and second is 30% which is within the ambit of Clause (b) of Section 80 IB(7). However, Clause (c) of Section 80 IB(7) specifically provides that deduction under Clauses (a) and (b) shall be available only if conditions set out in sub-clauses (i), (ii) and (iii) of Clause (c) are satisfied. The condition prescribed in sub-clause (iii) restricts the deduction to the hotels which is for the time being approved the prescribed authority.

Under Rule 18 BBC of Income Tax Rules, 1962 (“the “Rules”), Prescribed Authority is Director General, Income Tax (Exemptions) and he has to grant approval on concurrence of Director General in the Directorate General of Tourism, Government of India in respect of hotels which qualified for 50% deduction under Section 80 IB(7)(a); and, hotels covered by Clause (b) on Section 80 IB(7), there, prescribed authority competent for granting approval is Director General in the Directorate General of Tourism, Government of India. 

The Assessee’s hotel in came within the Buddhist Circuit notified as a tourist place by Department of Tourism, Government of India. Also, Lucknow also falls in Buddhist Circuit as notified by State Government. The Assessee, therefore, in order to claim exemption under Section 80 IB(7)(a) of the Act made an application on 28.08.2002 before Director General, Income Tax (Exemptions). However, no decision was communicated to Assessee, it continued to request Prescribed Authority to pass order on its application. Claim of the assessee for deduction under Section 80 IB(7)(a) was rejected by the Assessing Authority on the ground that Assessee was not granted approval by Prescribed Authority and hence no deduction was admissible in view of Section 80 IB(7)(c) of the Act.

In the appeal preferred by the assessee, CIT(Appeals) upheld the rejection u/s 80 IB(7)(a) for 50% deduction but allowed the exemption under Section 80 IB(7)(b) for 30% deduction. 

Both the parties aggrieved by the order of CIT(A) preferred appeal before the Tribunal. Since no order was passed by Prescribed Authority on Assessee’s application seeking approval, it filed an application before Tribunal requesting to defer hearing of appeal. The application was however rejected by the Tribunal and also the appeals of both the assessee as well as the Revenue.

The rejection of the assessee’s claim for exemption under Section 80 IB(7)(a) was upheld. However, deduction, u/s 80 IB(7)(b) was upheld on the ground that there was an approval granted by Competent Authority. 

With regard to deduction under Section 80 IB(7)(a), Tribunal observed that the assessee did not pursue matter diligently before Competent Authority and, therefore, cannot get any advantage if it has not been able to obtain approval from Competent Authority.

Observations made by the High Court:
The Hon’ble High Court observed that the approach of the Tribunal was neither justified nor sustainable in law. 

It was observed that under the statute, i.e., Section 80 IB(7)(c) deduction under Clause (a) or (b), as the case may be, would be applicable only if hotel is for the time being approved by Prescribed Authority. In order to attract Clause (a), no decision was taken by Director General, Income Tax (Exemptions) though application has been filed by Assessee in this regard in 2002. Competent Authority for granting approval is an officer of Income Tax Department itself. The assessee had neither any administrative control nor otherwise can compel said authority to act within a particular time and in a particular manner. It is the authority of Revenue itself, who has to grant approval.

The Hon’ble Court opined that for own lethargy or inaction on the part of an officer of Income Tax Department, a deduction which otherwise may be available to the assessee, could not be denied since it was not a case where Assessee was disqualified being ineligible for such deduction but question of approval was pending before Competent Authority, who is a senior officer of Income Tax Department and had not been able to get enough time to take a decision on the application filed by Assessee on 28.08.2002.

The Hon’ble High Court observed that observations made by the Tribunal that the assessee did not pursue matter was unwarranted for the reason that whatever could have been done by Assessee, it had done by submitting application and rest is the job of departmental authority, specified in Rule 18 BBC. 

The Hon’ble High Court went on to observe that even otherwise, where a power has been conferred upon a holder of public office, it has to exercise such power within a reasonable time and in accordance with relevant considerations of law. Such authority cannot sit over matter for time immemorial and the person who suffers on account of inaction of authority cannot be denied a benefit which would have been admissible if approval is granted, by keeping matter pending for a long time and failing to take a decision.

The Hon’ble Court opined that the Tribunal ought to have required Director General, Income Tax (Exemptions) to take a decision on the assessee’s application within a particular time and thereafter it ought to have decided matter but that has not been done.

Regarding the basic argument of the Revenue that since the assessee had not claimed deduction under Section 80 IB(7)(b), hence same could not have been granted. The Hon’ble Court observed that the assessee had claimed actual deduction under Section 80 IB(7)(a) but same was declined by Assessing Authority. Deduction under Clause (a) or under Clause (b) was a matter related to only quantum of deduction but it was not a case where deduction was not been claimed by the assessee.

Held:
The substantial question of law involved in Assessee’s appeals was answered in assessee’s favour and it was held that it was inappropriate and illegal on the part of Director General, Income Tax (Exemptions) not to take a decision on Assessee’s application filed for seeking approval as required under Section 80 IB(7)(c).

Tribunal in upholding denial of deduction to Assessee ignoring the fact that application seeking approval submitted by Assessee was still pending for consideration before Competent Authority, had committed manifest error.

DG Income Tax-Exemptions action illegal

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