2016 (9) TMI 508 - SC - Income Tax

Rejection/refusal of extension of approval under Section 35(1)(ii) - refusing the extension of the approval granted by the High Court on the ground that the same was made by the Director and not by the competent authority i.e. the Finance Minister - Held that - We have perused the order dated 22.10.2010 refusing to renew the approval for the period 01.04.2008 onwards. From the said order it is evident that the initial grant of approval was ordered by the Minister but the same was conveyed by the Director. The order dated 22.10.2010, recites that the decision not to extend the approval was approved by the prescribed authority. It has been averred by the appellant that under Rule 3, Govt. of India (Transaction of Business) Rules, 1961 such decisions are required to go to the CBDT and thereafter to the Minister which requirement was complied with in the present case. In view of the aforesaid averments, which remained uncontroverted, we are of the view the High Court was not justified in striking down/refusing the extension of the approval granted on the ground that the same has been passed by the Director, who is not competent to do so. 7. Accordingly, we set aside the order of the High Court and allow this appeal.

Summary

Issues:
Challenge of refusal to extend approval under Section 35(1)(ii) of the Income Tax Act, 1961 based on authority of decision-maker.

Analysis:
The Supreme Court addressed the issue of the rejection of the extension of approval under Section 35(1)(ii) of the Income Tax Act, 1961. The High Court had set aside the rejection on the grounds that it was made by the Director and not by the competent authority, the Finance Minister. The Union of India appealed against this decision. The Court noted that the initial approval was ordered by the Minister but conveyed by the Director. The decision not to extend the approval was approved by the prescribed authority, as per the requirements of the Govt. of India (Transaction of Business) Rules, 1961. The appellant contended that the decision complied with the rule, going through the Central Board of Direct Taxes (CBDT) and then to the Minister. The Court found that the High Court erred in striking down the extension of approval based on the decision-maker being the Director, who was deemed incompetent. As the appellant's contentions were uncontroverted, the Court concluded that the High Court's decision was unjustified, and therefore, set aside the High Court's order and allowed the appeal.