Ita/807/2009 Of M/S Maheshwari Foundation v. The Director Of Income Tax

IN THB HIGH COURT OF KARNATAKA AT BENGALURU DATBD THIS THE 19[th]DAY OF JANUARY 2015 PRESENT THER HON’BLE MR. JUSTICE N.KUMARAN 1 THER HON’BLE MR. JUSTICE B.VBEBRAPP I.T.A. NO.807/2009 BETWEEN: M/s.Maheshwari Foundation,Represented by itsManaging Trustee,Sri.Rajgopal Bhutada,No.336, Ideal Homes Society,17[th]Cross, Rajarajeshwari Nagar,Bangalore — 560 098. ...APPELLANT (By Sri.A.Shankar, Adv.) — AND :. The Director of Income-Tax,(Exemptions), 3[&+]Floor,C.R.Building, Queens Road,Bangalore — 560 OO1. ...RESPONDENT (By Sri.K.V.Aravind, Adv.) -9O-. This I.T.A. is filed under Section ZJO0OA of thIncome Tax Act, 1961, arising out of order dated07.08.2009 passed in ITA No.1456/BNG/2008, for theAssessment Year 2009-2010, praying to: :'=formulate the substantial questions of lawstated therein, ©stated therein, © :''=Allow the appeal and set-aside the orderpassed by the Income Tax Appellate Tribunal,Bangalore|in.I.T.A.No.1456/BNG/2008,dated 07.08.2009 in the interest of justice andequity.passed by the Income Tax Appellate Tribunal,Bangalore|in.I.T.A.No.1456/BNG/2008,dated 07.08.2009 in the interest of justice andequity. This I.T.A. coming on_ forhearing,this day,N.Kumar J., delivered the following: JU DBGMENT The assessee has preferred this appeal against the order passed by the Tribunal upholding the orderpassed by the Commissioner holding that the assesseeis not entitled to the benefit of renewal of recognitionunder Section 80G of the Income-Tax Act, 1961(forshort, hereinafter referred to as the Act).| -3-. ”.. The assessee is a Trust formed on 12.07.2000.It filed an application for renewal of the recognitionsranted under Section 80G of the Act on 31.03.2008. ©The authorities called for certain details in connection|with the renewal of the recognition and the same was.furnished. The assessee was running a Hostel forstudents, for which charges were collected for bothboarding and lodging. According to the assessee it was.treated as a charitable purpose and Section 80G benefitwas given up to 31.03.2008. Even aiter the amendmentto Section 2(15) of the Act without prejudice to itsapplicability, in view of the provisos, the position will bethe same if the gross revenue from business was lessthan|Rs.25|lakhs.TheDirector|oT|IncomeTax(Exemptions) was not convinced. Therefore, he rejectedthe renewal on the ground that the activity does notcome within the scope of Section 2(15) of the Act asamended from 01.04.2009. - 4 _| 3. Aggrieved by the said order, the assesseepreferred an appeal to the Tribunal. The Tribunal alsoheld that running of a hostel would not fall within thedefinition of a charitable purpose and therefore, upheldthe order of the Director ot Income Tax. 4. Aggrieved by the said order, the present appealis filed. The appeal was admitted to consider thefollowing substantial questions of law: a)Whether on the facts and in circumstances|of the case, the Tribunal was justified inupholding the order of learned Director ofIncome Tax (Exemptions) that the appellant|activity is in the nature of trade, commerceor business and hence is not entitled torenew the recognition under Section 80G ofthe Act?|of the case, the Tribunal was justified inupholding the order of learned Director ofIncome Tax (Exemptions) that the appellant|activity is in the nature of trade, commerceor business and hence is not entitled torenew the recognition under Section 80G ofthe Act?| b}WhethertheAuthoritiesbelowWwerfjustified in law in not granting of renewal|of recognition on the ground that thejustified in law in not granting of renewal|of recognition on the ground that the activity of the appellant are hit by theamendment to section 2 (15) of the Income-tax Act?| CcWhether the learned Director of Income,tax(Exemptions) was justified in law inpassing rejection order beyond the time|prescribed under rule 11AA?|tax(Exemptions) was justified in law inpassing rejection order beyond the time|prescribed under rule 11AA?| b}WhethertheAuthoritiesbelowWwerfjustified in law in not granting of renewal|of recognition on the ground that thejustified in law in not granting of renewal|of recognition on the ground that the activity of the appellant are hit by theamendment to section 2 (15) of the Income-tax Act?| CcWhether the learned Director of Income,tax(Exemptions) was justified in law inpassing rejection order beyond the time|prescribed under rule 11AA?|tax(Exemptions) was justified in law inpassing rejection order beyond the time|prescribed under rule 11AA?| So. The learned counsel for the assessee, assailingthe impugned order contended that if the thirdsubstantial question of law is answered in favour of theassessee, the question of going into the other twoquestions of law would not arise, as the order passed bythe authorities would be one without jurisdiction. Hiscase is that, the application for renewal was made on.31.03.2008. The order rejecting or granting the benefitshould have been passed on or before 30[th]september2008. The order is passed on 06.10.2008 beyond theperiod prescribed under the law and therefore, he submits that the impugned order requires to be set-aside. 6. Per contra, the learned counsel appearing for the revenue submitted that if an order is passed within the prescribed period, it does not mean that permissionis granted. There is no such deemed permission. —Therefore, he submits that the impugned order is validand illegal. | 7. The question is not whether a deemedpermission is granted or not. The question is whetheran order passed beyond the period prescribed under thelaw is valid? The reliance is placed on Rule 11AA of theIncome Tax Rules which reads as under: Requirementsforapprovalof|amlinstitution orfund under section 80G. IL[ILA(1) The application for approval of any|institution or fund under clause (vi) of sub- section (5) of section 80G shall be in Form No.10G and shall be made in triplicate. (2) The application shall be accompanied bythe following documents, namely: | (it) Copy of registration granted under|section 12A or copy of notification|issuedundersectionLO(23)OLr1O0(23C) ;section 12A or copy of notification|issuedundersectionLO(23)OLr1O0(23C) ; (it) Notes on activities of institution or|fund since its inception or during the|last three years, whichever ts less ;fund since its inception or during the|last three years, whichever ts less ; (iu) Copies of accounts of the institution|or fund since its inception or during|the last three years, whichever ts less.or fund since its inception or during|the last three years, whichever ts less. (3) The Commissioner may call for such|further documents or information from the.institution or fund or cause such inquiries to|be made as he may deem necessary in order|to satisfy himself about the genuineness of|the activities of such institution orfund. | (4) Where the Commissioner is satisfied that|all the conditions laid down in clauses (1) to (v)| of sub-section (5) of section 80G are fulfilled|by the institution orfund, he shall record such|satisfaction in writing and grant approval totheinstitutionOLrfund specifyingtheassessment year or years for which the|approval ts valid. (5) Where the Commissioner ts satisfied thatone or more of the conditions laid down in|clauses (i) to (v) of sub-section (5) of section|S0G are not fulfilled, he shall reject the|application for approval, after recording the|reasons for such rejection in writing : Provided_ that no order of rejection of anapplication shall be passed without giving the|institution or fund an opportunity of being|heard. (6)ThetimelimitwithinwhichtheCommissioner shall pass an order eithergranting|the|approvalOLrrejectingtheapplication shall not exceed six months from|the date on which such application was.made: Providedthat in computing the period of six)months, any time taken by the applicant in|not complying with the directions of the|Commissioner under sub-rule (3) shall beexcluded.|| (5) Where the Commissioner ts satisfied thatone or more of the conditions laid down in|clauses (i) to (v) of sub-section (5) of section|S0G are not fulfilled, he shall reject the|application for approval, after recording the|reasons for such rejection in writing : Provided_ that no order of rejection of anapplication shall be passed without giving the|institution or fund an opportunity of being|heard. (6)ThetimelimitwithinwhichtheCommissioner shall pass an order eithergranting|the|approvalOLrrejectingtheapplication shall not exceed six months from|the date on which such application was.made: Providedthat in computing the period of six)months, any time taken by the applicant in|not complying with the directions of the|Commissioner under sub-rule (3) shall beexcluded.|| 8. A reading of the aforesaid provisions makes itclear that the Commissioner shall pass an order eithereranting the approval or rejecting the application withinsix months from the date on which such applicationwas made. Therefore, it is mandatory that if theapplication is not disposed of within six months fromthe date on which the application is made, theCommissioner has no jurisdiction either to pass anorder granting the approval or rejecting it. 9. It is not in dispute that the Commissioner didnot pass any order within the period prescribed. He haspassed an order on 06.10.2008 1.e., beyond the periodprescribed under the aforesaid rule. Therefore, on the -10-. date the order was passed, the Commissioner had nojurisdiction. Therefore, it is an order passed withoutjurisdiction.|ThisASpecthasNOTbeenproperlyconsideredandappreciatedby the authorities. |Therefore, the third substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order: (a) Appeal is"allowed (b) The impugned order passed by both the authorities are hereby set-aside. | (c) The third substantial question of law is answered in favour ot the assessee andagainst the revenue.against the revenue. (d) Liberty is reserved to the assessee to make a fresh application for benefit of Section 80G ofthe Act.the Act. (e) If such an application is made, the authority shall consider the said application on merits - |] -. and in accordance with law without being influenced in any way, by the finding recorded by the Director of Income-tax (Exemptions) or the Tribunal. (f) The finding recorded by the authorities is set-| set-aside in this order. Ordered accordingly. Sd/- JUDGE Sd/-. JUDGE) SPS