2015 (1) TMI 11 - HC - Income Tax

Show cause notice - Opportunity of being heard Withdrawal of exemption u/s 10(23C)(vi) Held that - The content of the letter indicates that the petitioner is requested to attend the office on that date in person or through a representative duly authorised in this behalf, thereby commencement of very proceeding itself is without giving show cause notice - apart from that, with regard to investment of ₹ 37 crores made by the real estate agent, it is noticed by the AO that there are some irregularities - as such, he sought to opine that there is non-compliance of Section 11(5) of the Act and thereby tried to exercise the power in withdrawing the recognition granted seeking for an exemption from payment of income tax by the petitioner as a charitable trust - the Assessing Authority shall on the facts available as on today, go into the question whether assessee has violated the terms and conditions of Section 11(5) of the Act subject to which, exemption was granted - If it records a finding that there is violation of Section 11(5) of the Act, then it shall bring the said violation to the notice of the prescribed authority - if the prescribed authority decides to rescind the order of exemption granted earlier, it shall do so and shall send a copy of the same to the Assessing Authority as well as to the assessee - this is the clear indication of requirement in following the principles of natural justice thus, the order is set aside and the matter is remitted back to the Assessing authority Decided in favour of assessee.

Summary

Issues:
Challenge to show cause notice for withdrawal of tax exemption under Section 10(23C)(vi) of the Income Tax Act for assessment years 2001-02 to 2004-05.

Analysis:
The petitioner, a trust managing educational institutions, sought to quash a show cause notice issued by the Chief Commissioner of Income Tax for withdrawing tax exemption. The petitioner had been granted exemptions under Section 10(23C)(vi) for various assessment years. However, the exemption for the assessment year 2001-02 was denied due to an investment made for land purchase not considered admissible under Section 11(5) of the Act. After appeals and remand, the matter was not resolved as per the directions of the Division Bench, leading to the impugned order withdrawing the exemption without proper show cause notice, violating principles of natural justice.

The Division Bench had directed the Assessing Authority to determine if there was a violation of Section 11(5) of the Act, and if so, to issue a show cause notice to the assessee before rescinding the exemption order. The prescribed authority was required to follow the principles of natural justice by allowing the assessee to present their case before making a decision on rescinding the exemption. However, in this case, the Assessing Authority did not comply with the procedural requirements, leading to the impugned order being set aside for irregular procedure and lack of adherence to natural justice principles.

The High Court set aside the impugned order and remitted the matter to the Assessing Authority to reconsider the case in accordance with the observations made by the Division Bench in a previous case. The Assessing Authority was directed to pass appropriate orders in accordance with the law, ensuring that the principles of natural justice are followed. The writ petitions were disposed of accordingly, emphasizing the importance of procedural fairness and adherence to legal requirements in tax matters involving charitable trusts managing educational institutions.