2024 (12) TMI 395 - SCH - Income Tax

Non admission of substantial question by High Court - Addition made on account of cash donation collected outside the books of accounts deleted by ITAT - whether ITAT was right holding that violation of conditions u/s 13(1)(c) would not result in denial of exemption on the whole income and denial be restricted to the income in violation of provisions of Section 13(1)(c) HELD THAT - High Court seems to have declined to admit the appeal on the second substantial question of law as proposed by the Revenue, on the premise that the same is covered by Finance Act, 1984, Circular No.387 dated 6-7-1984 issued by the Income Tax Department. High Court relying on the said Circular observed that where such a trust contravenes the provisions of Section 13(1)(c) or (d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provisions. Revenue has manifold contentions to canvass to make good his submission that the High Court was not correct in saying that the second question of law as proposed is covered by Finance Act, 1984 Circular No.387/6.7.1984 As the Income Tax Appeal No. 2021 (11) TMI 1190 - BOMBAY HIGH COURT has already been admitted on one substantial question of law, it will be in fitness of things if the High Court also looks into the second question of law as proposed by the Revenue, more particularly when it has been vociferously submitted that Circular No.387/6.7.1984 is not applicable. We are of the view that the High Court should be asked to formulate the second question of law as proposed by the Revenue as one of the substantial questions of law and answer the same in accordance with law along with the question of law on which the income tax appeal has already been admitted. We may only say that we have otherwise not expressed any final opinion as regards the substantial question of law No.2 as proposed by the Revenue before the High Court. It will be for the High Court to take the final call as regards the merits of the said substantial questions of law.

Summary

Issues:
Challenge to the legality and validity of the High Court's order in an Income Tax Appeal regarding the addition of cash donations and violation of Section 13(1)(c) conditions.

Analysis:
The Supreme Court addressed a petition filed by the Revenue challenging the High Court's order in an Income Tax Appeal. The High Court had declined to record findings on the substantial questions of law raised by the Revenue. Two substantial questions of law were formulated, one regarding the addition of cash donations made outside the books of accounts and the other concerning the violation of Section 13(1)(c) conditions. The High Court admitted the appeal on the first question but declined to admit it on the second question. The Revenue contended that the second question was not covered by a specific Circular and should have been admitted. The Respondent argued that the High Court did not commit any error in rejecting the second question. The Supreme Court held that since the appeal was already admitted on one substantial question, the High Court should consider the second question as well. The Court directed the High Court to formulate and address the second question along with the already admitted question. The Supreme Court clarified that it did not express a final opinion on the second question, leaving it for the High Court to decide on the merits.

This judgment highlights the importance of addressing all substantial questions of law raised in an appeal. The Supreme Court emphasized the need for thorough consideration of all issues, even if one question has already been admitted. The Court directed the High Court to include and decide on the second substantial question raised by the Revenue, ensuring a comprehensive examination of all legal issues involved in the case.