2003 (10) TMI 39 - HC - Income Tax

These petitions are directed against an order of the CBDT, and for a prayer to direct the CBDT to accord approval to the petitioner under section 36(1)(viii) for the AYs 1995-96, 1996-97 and 1997-98. - Income-tax Act provides for substantial concession in terms of section 36(1)(viii) of the Act with regard to the special reserve created and maintained by a public limited company founded and registered in India with the object of carrying on the business of providing long-term finance for construction or purchase of houses - Grant of approval by itself does not directly provide for direct concession to the petitioner. It is further subject to strict scrutiny at the time of assessment proceedings. Taking all aspects into consideration, namely, the object of section 36(1)(viii) of the Act, the ruling of the Supreme Court in the case of CIT v. Sirpur Paper Mills, grant of approval for the subsequent years and consideration in similar circumstances and the safeguards in the assessment proceedings, the authorities are liable to grant approval to the petitioner.

Summary

Issues:
1. Approval under section 36(1)(viii) of the Income-tax Act for assessment years 1995-96, 1996-97, and 1997-98.

Analysis:
The petitioner, a limited company, sought approval under section 36(1)(viii) of the Income-tax Act for providing long-term finance for construction or purchase of houses for residential purposes. The Central Board of Direct Taxes had approved the petitioner for subsequent assessment years but refused approval for the years 1995-96, 1996-97, and 1997-98. The petitioner filed a writ petition challenging this decision, which led to a remand for reconsideration by the authorities.

The central issue revolved around the application of internal norms by the respondent authority for granting approval. The petitioner argued that these norms were not publicized, causing prejudice. The court noted that the norms were not uniformly applied and questioned their necessity for approval under section 36(1)(viii). Referring to a Supreme Court judgment, the court emphasized that conditions imposed for deductions should not curtail the scope of the section. Grant of approval did not automatically entitle the petitioner to concessions; it was subject to scrutiny during assessment proceedings.

Considering the objectives of section 36(1)(viii), previous approvals, and the safeguards in assessment proceedings, the court directed the authorities to grant approval to the petitioner for the disputed assessment years. The court clarified that its approval did not imply automatic concession and that the Assessing Officer would determine the concession's applicability in accordance with the law and the Act's provisions.

In conclusion, the writ petitions were allowed, and each party was directed to bear its respective costs. The judgment highlighted the importance of transparent application of norms, the scope of deductions under the Income-tax Act, and the Assessing Officer's role in determining concessions during assessment proceedings.