1997 (1) TMI 71 - HC - Income Tax

Summary

Issues:
1. Challenge to the order of the Central Board of Direct Taxes regarding exemption under section 10(23C)(iv) of the Income-tax Act.
2. Withdrawal of grounds for rejecting application under section 10(23C)(iv).
3. Discontinuance of exemption and requirement for fresh application.
4. Distinction between provisions of section 10(23A) and section 10(23C) of the Act.
5. Discretionary powers of the Central Government in granting exemptions and the need for reasoned orders.

Analysis:
1. The petitioner challenged the order of the Central Board of Direct Taxes dated September 9, 1991, which held that the exemption under section 10(23C)(iv) of the Income-tax Act could not be continued for the petitioner-stock exchange. The Board had earlier directed that the petitioner was covered by section 10(23A) and, therefore, the provisions of section 10(23C)(iv) and (v) were not applicable to the petitioner. However, a subsequent order dated October 31, 1996, withdrew the grounds for rejecting the application under section 10(23C)(iv), leading to a reconsideration of the petitioner's case for exemption.

2. The withdrawal of the grounds for rejecting the application under section 10(23C)(iv) raised questions about the legality of the decision communicated in the impugned order. The petitioner had requested to treat its application for renewal of exemption under section 10(23C)(iv) as an application under section 10(23A). The Court directed the petitioner to make a fresh application for the relevant assessment years, which would be considered by the Central Government within a specified timeframe.

3. The judgment highlighted the distinction between the provisions of section 10(23A) and section 10(23C) of the Act. While section 10(23A) requires approval from the Central Government for institutions related to specific professions, section 10(23C) deals with exemptions for charitable purposes. The discretion of the Central Government in granting exemptions must be exercised within the framework of the Act, and reasoned orders are necessary before rejecting or allowing applications under section 10(23C).

4. The judgment emphasized that the discretion of the Central Government in granting exemptions under section 10(23A or 10(23C) is not absolute and must be based on a proper application of the law. The withdrawal of reasons for rejecting the application under section 10(23C) without proper consideration was deemed unfair and against the principles of equality enshrined in the Constitution. Reasoned orders are essential to ensure a fair and just decision-making process in matters of tax exemptions.