2024 (7) TMI 144 - HC - Income Tax

Exemption u/s 10(25)(iii) - AO denied exemption to the assessee fund on the finding that the Fund looses its recognition. Hence exemption u/s 10(25)(iii) claimed by the Fund is rejected - as argued no formal order of withdrawal of approval in respect of the pension fund of the assessee by the Commissioner of Income Tax given - HELD THAT - The question whether the Tribunal erred in law in holding that the assessee is not entitled to exemption u/s 10(25)(iii) in the absence of withdrawal of the order approving the fund of the assessee stands answered from bare perusal of the provisions of the Rules aforequoted and Section 10(25)(iii). Section 10(25)(iii) of the Act 1961 clearly mandates that any income received by the Trustees on behalf of an approved superannuation fund shall not be included in computing the total income of a previous year of any person. The approval has been granted under the Rules afore-quoted. It is admitted case of the respondents that the approval continued during the assessment year in question. No power has been conferred upon the assessing officer to interfere with the order of approval granted by the Chief Commissioner or Commissioner of Income Tax. Therefore the assessment order as upheld by the ITAT holding that the fund loses its recognition and hence exemption under Section 10(25)(iii) of the Act 1961 claimed by the Fund is rejected; is without jurisdiction. So long as the approval order under Section 10(25)(iii) of the Act read with rules continues AO is bound to accord exemption. The action of the Assessing Officer to deny exemption and to hold that the funds loses it recognition is without jurisdiction. It is conducive to judicial discipline propriety and to maintain certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that approval granted by the competent authority under Section 10(25)(iii) of the Act of 1961 read with rules available for a particular assessment year satisfies all the conditions and cannot sit in judgment over it. The power to withdraw approval as conferred under the rules can be exercised only by the competent authority and in accordance with the provisions of the rules. Until the approval order continues AO cannot take a different view or deny exemption. Thus we find that the impugned order of the ITAT is legally unsustainable and is therefore set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Tribunal erred in law in holding that the assessee is not entitled to the exemption under Section 10(25)(iii) of the Income Tax Act, 1961, in the absence of a formal order of withdrawal of approval by the Commissioner of Income Tax.

Issue-wise Detailed Analysis:

1. Formal Order of Withdrawal of Approval:
The core issue was whether the Tribunal erred in denying the exemption under Section 10(25)(iii) of the Income Tax Act, 1961, given that there was no formal order of withdrawal of approval by the Commissioner of Income Tax. The assessee, a pension fund, had been granted approval by the Commissioner of Income Tax on 29.09.1995. The assessing officer denied the exemption under Section 10(25)(iii) on the grounds that the assessee failed to submit requisite documents, thus losing its recognition. However, the CIT (A) overturned this decision, stating that the power to withdraw approval lies solely with the Chief Commissioner or Commissioner, and such withdrawal must be communicated in writing with reasons and effective date. The ITAT, however, reinstated the assessing officer’s decision, which led to the present appeal.

2. Jurisdiction and Authority:
The judgment emphasized that the authority to grant or withdraw approval of a superannuation fund lies exclusively with the Chief Commissioner or Commissioner of Income Tax, as per Rule 2(1) of Part-B of the Fourth Schedule of the Income Tax Act, 1961. The CIT (A) highlighted that the assessing officer exceeded his mandate in denying the exemption without a formal withdrawal of approval by the competent authority. The Tribunal’s decision was found erroneous as it overlooked the statutory provisions that the assessing officer does not have the jurisdiction to withdraw the approval or deny the exemption.

3. Compliance with Conditions:
The Tribunal justified its decision by stating that the assessee failed to comply with the conditions laid down by the CIT for claiming the exemption. However, the High Court clarified that non-compliance with conditions should be addressed by the competent authority, who can withdraw the approval after providing a reasonable opportunity to the assessee to be heard. The assessing officer can only recommend withdrawal to the competent authority but cannot himself deny the exemption.

4. Legal Precedents:
The judgment referenced the Supreme Court cases of Gestetner Duplicators Pvt. Ltd. and Industrial Infrastructure Development Corporation (Gwalior) Madhya Pradesh Limited, which reinforced that the power to withdraw approval lies with the Commissioner and not the assessing officer. The Karnataka High Court case of Commissioner of Income Tax, Mangalore v. M/s. Manipal Academy of Higher Education was also discussed, which supports the view that the assessing officer must refer non-compliance to the prescribed authority for action.

Conclusion:
The High Court concluded that the Tribunal’s order was legally unsustainable as it was contrary to the statutory provisions and settled law. The assessing officer’s action to deny the exemption was without jurisdiction since the approval had not been formally withdrawn by the competent authority. The substantial question of law was answered in favor of the assessee, and the appeal was allowed, setting aside the Tribunal’s order. The assessing officer must grant the exemption as long as the approval continues, and any withdrawal of approval must follow due process by the competent authority.