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2012 (8) TMI 194 - HC - Income TaxRefusal to grant approval in terms of Section 35(1)(ii) - assessee being Scientific Research Institution - Held that - As decided in Indian Planetary Society Versus CBDT 2009 (7) TMI 14 - BOMBAY HIGH COURT CBDT has the power to make a reference to the Central Govt. which alone has the jurisdiction to decide the question in terms of Section 35(3) and the governing Rules - The CBDT could not be unaware of the legal position having regard to the mandate of Section 35 and to decide the matter itself without authority of law - As the direction of the Court had to be construed within the frame work of law and the CBDT could only refer the matter to the Central Govt. but not to decide the matter itself - order for denial of grant is set aside and matter is sent back to CBDT to decide afresh - in favour of assessee by way of remand.
Issues Involved:
1. Refusal to grant approval under Section 35(1)(ii) of the Income Tax Act, 1961. 2. Jurisdiction of the Central Board of Direct Taxes (CBDT) to decide the matter. 3. Compliance with the procedural requirements and directions of the Court. Issue-wise Detailed Analysis: 1. Refusal to Grant Approval under Section 35(1)(ii) of the Income Tax Act, 1961: The petitioner, Shriram Scientific & Industrial Research Foundation, established in 1940 and recognized as a Scientific & Industrial Association since 1946, sought approval under Section 35(1)(ii) of the Income Tax Act, 1961. The application for approval made on 22nd August 2008 was rejected by the first respondent on 24th September 2010, citing non-fulfillment of prescribed conditions. The petitioner challenged this rejection, and the Court found the order to be "extremely cryptic" and lacking "cogent reasons." Consequently, the Court quashed the order and directed the competent authority to reconsider the application with proper reasoning. 2. Jurisdiction of the Central Board of Direct Taxes (CBDT) to Decide the Matter: The petitioner contended that the CBDT did not have the jurisdiction to decide the approval application under Section 35(1)(ii). According to Section 35(3), if the CBDT was not satisfied with the petitioner's claims, it should have referred the matter to the Central Government. The petitioner relied on the Bombay High Court's decision in Indian Planetary Society v. CBDT (2009) 318 ITR 102, which held that the CBDT's rejection of approval without referring to the Central Government was invalid. The Court concurred with this view, stating that the CBDT's assumption of jurisdiction was "without authority of law," and it should have referred the matter to the Central Government. 3. Compliance with Procedural Requirements and Directions of the Court: Following the Court's order dated 9th August 2011, which quashed the initial rejection and directed a fresh decision, the CBDT again denied the approval on 20th March 2012. The petitioner argued that the CBDT failed to follow the Court's directions properly and did not refer the matter to the Central Government as required by law. The Court agreed, emphasizing that the CBDT should have understood the Court's directions within the legal framework and referred the matter to the Central Government. The Court quashed the CBDT's order dated 20th March 2012 and directed the CBDT to refer the matter to the Central Government for a decision within two months. Conclusion: The High Court quashed the CBDT's order denying approval under Section 35(1)(ii) of the Income Tax Act, 1961, on the grounds that the CBDT lacked the jurisdiction to decide the matter and failed to comply with procedural requirements. The Court directed the CBDT to refer the matter to the Central Government, which should determine the issue within two months. The writ petition was allowed in these terms.
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