2024 (3) TMI 619 - HC - Income Tax

Exemption u/s 10(23C) (iv ) - Charitable activity u/s 2(15) or not? - Respondent no. 2 rejected petitioner s application for grant of approval u/s 10(23C) (iv) primarily by invoking the provisions of proviso to Section 2(15) as petitioner is not a charitable institution because it carries on the activities mentioned in the impugned order - HELD THAT - Since the order of the ITAT for Assessment Year 2016-2017 and 2017-2018 has been passed after the impugned order was passed, in our view, respondent no. 2 should be given an opportunity to apply the law as laid down by the ITAT. It will be useful to reproduce paragraph 14 of the judgment of this Court in Indusind Bank Ltd. 2023 (7) TMI 135 - BOMBAY HIGH COURT As revenue submitted that the order of the ITAT for Assessment Year 2016-2017 and 2017-2018 has been challenged in this Court by way of an appeal which is still pending. Further submitted that, therefore, the Revenue has not accepted the findings of the ITAT. The Apex Court in Union of India and Ors. V/s. Kamlakshi Finance Corporation Ltd. 1991 (9) TMI 72 - SUPREME COURT held that the mere fact that the order of the appellate authority is not acceptable to the department-in itself an objectionable phrase-and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. The Court further observed that if this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws. Thus as submitted that petitioner is an institution that has been formed and established for promoting, advancing and protecting trade, commerce and industry in India and has been in existence for over 100 years and was established in the year 1907 and petitioner might have chosen not to contest the order for Assessment Year 2013-2014. But that cannot alter the fact that the law, as laid down by the ITAT, is the law on the subject. We hereby quash and set aside the impugned order dated 23rd September 2015 and remand the matter to respondent no. 2 for de novo consideration.

Summary

Issues involved:
The primary issue in this case is the denial of the petitioner's claim for exemption under Section 10(23C) (iv) of the Income Tax Act, 1961 by respondent no. 2. The key contention revolves around whether the petitioner qualifies as a charitable institution.

Details of the Judgment:

Issue 1: Denial of Exemption Claim
The petitioner, an institution promoting trade, commerce, and industry in India, has been filing income tax returns regularly and believes it qualifies for exemption under Section 10(23C) (iv) of the Act. The Central Government previously recognized the petitioner for this exemption, and until Assessment Year 2008-2009, the Revenue granted it exemption under Section 11 as a charitable institution. However, respondent no. 2 rejected the petitioner's application for exemption for Assessment Year 2014-2015, citing the proviso to Section 2(15) of the Act, claiming the petitioner does not qualify as a charitable institution due to its activities.

Issue 2: Judicial Decision Impact
The petitioner's representative highlighted that the Income Tax Appellate Tribunal (ITAT) for subsequent assessment years overturned the rejection and granted the petitioner exemptions under Section 10(23C) (iv) of the Act. The court emphasized the retrospective effect of judicial decisions, stating that the law as interpreted by the ITAT should be applied by respondent no. 2 unless distinguished based on facts.

Issue 3: Challenge to ITAT Order
The Revenue challenged the ITAT's decision for certain assessment years, arguing that the findings were not accepted. However, the court referenced a precedent emphasizing that appellate orders should be followed unless suspended by a competent court to avoid undue harassment to taxpayers and maintain discipline in tax law administration.

Issue 4: Impact of Unchallenged Orders
The Revenue noted a similar order for a previous assessment year, which the petitioner did not challenge. The court clarified that the petitioner's decision not to contest a previous order does not alter the applicability of the law as determined by the ITAT. The court quashed the impugned order and remanded the matter for fresh consideration by respondent no. 2, instructing to apply the law as per the ITAT's interpretation unless distinguished based on facts.

In conclusion, the court set aside the original order and directed respondent no. 2 to reconsider the petitioner's exemption claim in light of the ITAT's decisions, ensuring all rights and contentions remain open for further proceedings.