9911796707
TMI Blog2010 (6) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively and that the petitioner be granted a reasonable period for compliance. There is an ancillary challenge in these proceedings to an order dated 22 December 2009 issued by the Director of Income Tax (International Taxation), the second respondent, directing the petitioner to furnish security to cover the demand of tax for assessment years 1999-2000 to 2006-2007. The petitioner has sought a stay on the recovery of the outstanding demand for these assessment years. For assessment years 1999-2000 to 2001-2002 approval has been granted to the petitioner under Section 10(23C)(vi) of the Income Tax Act, 1961 by the Central Board of Direct Taxes subject to the condition noted earlier. For assessment years 2002-2003 to 2006-2007, orders have still not been passed by the Central Board of Direct Taxes or by the prescribed authority. The grievance of the petitioner is that the inaction on the part of the respondents is in breach of the principles laid down by the Supreme Court in a decision rendered on 9 May 2008 in American Hotel and Lodging Association Educational Institute V/s. Central Board of Direct Taxes and others{(2008) 301 ITR 86 (SC)}. This decision was rendered on an appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the conditions subject to which approval was granted. As a result of the provisos, several provisions came to be incorporated for regulating the grant of approvals and for monitoring compliance of the conditions subject to which approvals have been granted. 6. In terms of the newly substituted provision, the petitioner made an application to the First respondent on 7 April 1999 for a block of assessment years, 1999-2000 to 2001-2002. Similar applications were made for two blocks of assessment years - 2002-2003 to 2004-2005 and assessment years 2005-2006 and 2007-2008 on 16 July 2002 and 9 May 2005. The application for assessment years 1999-2000 to 2001-2002 was rejected by the Central Board of Direct Taxes on 12 October 2004 on the ground that the petitioner was not an educational institution established in India and that it had a surplus under its balance sheet and profit and loss account for the year ending 31 March 1999. 7. A writ petition under Article 226 was filed by the petitioner, before the Delhi High Court. The petition was dismissed on 24 November 2006. In an appeal by the petitioner, the Supreme Court delivered judgment in American Hotel and Lodging Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority, while judging the genuineness of the activities of the applicant, has to ascertain whether the applicant applies its income wholly and exclusively for the objects for which it is constituted or established; (viii) Under the twelfth proviso, the prescribed authority is required to examine cases where an applicant does not apply its income during the year of receipt and accumulates it but makes payment therefrom to a trust or institution registered under section 12AA or to any fund or trust or institution or university or other educational institution; (ix) Under the thirteenth proviso, a power is given to the prescribed authority to withdraw the approval which has been granted earlier; (x) There is a difference between stipulation of conditions and compliance of conditions. The threshold conditions are the actual existence of an educational institution and approval of the prescribed authority. It is only if the condition of existence is fulfilled, that the question of compliance with the stipulations set out in the provisos would arise. The third proviso contains monitoring conditions such as application and accumulation of income; (xi) In order to make the provision work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Board of Direct Taxes no action can be taken for recovery. Consequently, the recovery of the outstanding demands was kept in abeyance till the decision of the Central Board of Direct Taxes. Though the text of the order that was passed by the Director of Income Tax (International Taxation) referred to assessment years 1999-2000 to 2006-2007, the covering letter addressed to the petitioner on 30 March 2009 made a reference only to assessment years 1999-2000 to 2001-2002 for which, it was stated, that the demand was kept in abeyance pending the decision of the Central Board of Direct Taxes. The petitioner by its letter dated 7 April 2009 sought a clarification on this issue. 11. On 19 October 2009, a notice to showcause was issued to the petitioner to explain as to why the stay that was granted on 30 March 2009 should not be revoked on the ground that the Supreme Court had not stayed the demand. The petitioner by its reply dated 28 October 2009 drew the attention of the authority to the fact that though over a year had elapsed since the judgment of the Supreme Court, the CBDT had not passed orders on the application for approval under Section 10(23C)(vi). Proceedings wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunity has been granted; and (iii) Despite the directions that were issued by the Supreme Court, no order has been passed for assessment years 2002-2003 to 2006-2007. The demand for taxes in the circumstances is, it is urged, arbitrary. 15. On the other hand Counsel for the Revenue has placed reliance on the affidavit in reply that has been filed in these proceedings and has drawn the attention of the Court to the fact that the appeals of the assessee against the assessment order for assessment year 1999-2000 are pending before the Commissioner of Income Tax (Appeals) and for assessment years 2000-2001, 2001-2002 before the Tribunal. It has also been stated in the affidavit that in view of the approval granted by the Central Board of Direct Taxes on 3 November 2009, the Assessing Officer would have to rework the demand for assessment years 1999-2000 to 2001-2002. Counsel for the revenue however had no justification to advance for the failure of the prescribed authority to pass an order on the application under Section 10(23C)(vi) for assessment years 2002-2003 to 2006-2007, which continues to remain pending. 16. The first submission that has been urged on behalf of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to the institute to comply with the monitoring conditions which have been stipulated for the first time by the third proviso. In that context, the Supreme Court held that where the applicant had obtained an exemption earlier, as in this case, the case need not be reopened on the ground that the third proviso has not been complied with. However, after the grant of approval if it is brought to the notice of the authority that the conditions subject to which the approval was granted were breached or if the circumstances in the thirteenth proviso exist, the approval which has been granted earlier can be withdrawn by following due procedure. These observations have been made in the context of monitoring compliance with the conditions subject to which approval has been granted. As regards the imposition of conditions of approval, the Supreme Court has categorically held that such conditions could be imposed including a condition that a certain percentage of the accounting income should be utilized or applied for imparting education in India. 17. Even as a matter of first principle, the imposition of such a condition cannot be faulted. The rationale for the grant of an exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in imposing a condition that a certain proportion (Seventy Five per cent) of the accounting income should be applied and utilized for educational purposes in India, it is only appropriate and proper that (i) The contention of the petitioner that it has duly fulfilled the conditions of approval is verified; (ii) An opportunity is furnished to the petitioner, in the event of a the short fall being found by the Assessing Officer, of a reasonable period for making up the deficit. We propose to pass orders directing the prescribed authority to dispose of the applications under Section 10(23C)(vi) for the remaining assessment years expeditiously within a prescribed time schedule. While we uphold the conditions for approval that have been imposed by the Central Board of Direct Taxes for assessment years 1999-2000 to 2001-2002, we will direct that verification of compliance be made and an opportunity be granted to the petitioner, upon a determination being made by the Assessing Officer, to bridge the short fall, if any within a reasonable period. Hence, following order: i) The prescribed authority is directed to pass orders on the applications for approval made by the petitioner fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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