2015 (5) TMI 117 - HC - Income Tax

Entitlement to the benefit of renewal of recognition under Section 80G - Tribunal upholding the order of Director of Income Tax (Exemptions) that the appellant activity is in the nature of trade, commerce or business and hence is not entitled to renew the recognition under Section 80G of the Act? - whether an order passed beyond the period prescribed under the law is valid? - Held that - Reading of Rule 11AA of the Income Tax Rules makes it clear that the Commissioner shall pass an order either granting the approval or rejecting the application within six months from the date on which such application was made. Therefore, it is mandatory that if the application is not disposed of within six months from the date on which the application is made, the Commissioner has no jurisdiction either to pass an order granting the approval or rejecting it. It is not in dispute that the Commissioner did not pass any order within the period prescribed. He has passed an order on 06.10.2008 i.e., beyond the period prescribed under the aforesaid rule. Therefore, on the date the order was passed, the Commissioner had no jurisdiction. Therefore, it is an order passed without jurisdiction. This aspect has not been properly considered and appreciated by the authorities. Liberty is reserved to the assessee to make a fresh application for benefit of Section 80G of the Act. - Decided in favour of the assessee

Summary

Issues:
Renewal of recognition under Section 80G of the Income-Tax Act, 1961 for a Trust running a hostel as a charitable purpose.

Analysis:
1. The assessee, a Trust formed in 2000, sought renewal of recognition under Section 80G of the Income-Tax Act. The authorities rejected the renewal, stating that the activity of running a hostel does not qualify as a charitable purpose under Section 2(15) of the Act post-amendment from 01.04.2009.

2. The Tribunal upheld the rejection, leading to the appellant filing an appeal. The substantial questions of law considered were whether the activity was in the nature of trade, commerce, or business, whether the amendment to section 2(15) applied, and whether there was a delay in passing the rejection order.

3. The appellant argued that the rejection order was passed beyond the prescribed time limit of 30th September 2008 as per Rule 11AA, thus rendering it invalid. The revenue contended that passing an order within the time limit did not imply permission was granted.

4. The Court emphasized Rule 11AA, which mandates the Commissioner to pass an order within six months of the application. Since the Commissioner's order was issued on 06.10.2008, beyond the stipulated period, it was deemed as an order passed without jurisdiction.

5. Consequently, the Court allowed the appeal, setting aside the impugned orders, and ruled in favor of the assessee. The assessee was granted liberty to reapply for Section 80G benefits, with a directive for authorities to consider the application on its merits and without influence from previous decisions.

6. The judgment highlighted the importance of adhering to statutory timelines and ensuring due process in decision-making under the Income-Tax Act. The ruling underscored the significance of procedural compliance and the need for authorities to act within the prescribed legal framework.