The Commissioner Of Income Tax (Exemptions), Chandigarh v. M/S Haryana State Pollution Control Board, Panchkula

ITA No.229 of 2017 cUlp. IN THE HIGH COURT OF PUNJAB AND HARYANA.AT CHANDIGARH Income Tax Appeal No.229 of 2017Date of decision: July 14, 2017 The Commissioner of Income Tax (Exemptions), Chandigarh ....Appellant Versus M/s Haryana State Pollution Control Board, Panchkula ....Respondent CORAM:HON'BLE MR. JUSTICE AJAY KUMAR MITTALHON'BLE MR. JUSTICE AVNEESH JHINGAN Present:Mr. Denesh Goyal, Sr. Standing Counselfor the appellant-Revenue. AJAY KUMAR MITTAL, J. inThe appellant-Revenue has filed the instant appeal underSection 260A of the Income Tax Act, 1961 (in short, “the Act’) againstthe order dated 04.09.2016 (Annexure A-3) passed by the Income TaxAppellate Tribunal, Division Bench, Chandigarh (in short, ‘the Tribunal’)in ITA No.668/CHD/2016 for the assessment year 2012-13, claiming thefollowing substantial questions of law:- “)Whether on the facts and circumstances of the case theHon'ble ITAT was justified in upholding the order of CIT(A)in deleting the additions made by the AO simply on theground that exemption certificate u/s 10(23C)(iv) had beengranted to the assessee? (11)Whether on the facts and circumstances of the case the ITA No.229 of 2017 -~2- Hon'ble ITAT was justified in accepting the results based onthe provisional balance sheet when the requirement forclaiming exemption u/s 10(23C)(iv) was that the auditedbalance sheet was required to be filed along with the returnof income on or before the due date? (111)Whether on the facts and circumstances of the case theHon'ble ITAT was justified in granting relief on capitalexpenditure even when the exemption u/s 10(23C)(iv) wasdenied by the AO?” ?)A few facts necessary for adjudication of the controversyinvolved as narrated in the appeal may be noticed. The assessee-respondent filed return of income claiming exemption under Section10(23C)(iv) of the Act. The Assessing Officer (AQ) framed assessmentby denying the exemption under Section 10(23C)(iv) of the Act as it wasnot approved by the prescribed authority. Credit for capital expenditurewhich was allowable to an exempted entity was also denied. The AOmade the additions of excess of income over expenditure ofL15,15,89,376/- apart from additions of capital expenditure ofL1,52,03,549/- (Annexure A-1). Against the Nil returned income, thetotal income was assessed at.a16,67,92,925/-. Aggrieved by the order,the assessee filed an appeal before the Commissioner of Income Tax(Appeals), Panchkula, {in short, ‘the CIT(A)], who vide order dated22.03.2016 (Annexure A-2), allowed the assessee's claim for exemptionunder Section 10(23C)(iv) of the Act and the capital expenditure bytreating the same as application of income. The CIT(A) allowed therelief on the ground that the Commissioner of Income Tax (Exemptions)'sorder dated 01.03.2016 granting exemption under Section 10(23C)(iv) ofthe Act for the assessment years 2006-07 to 2011-12 was also applicable ITA No.229 of 2017 -3- for the instant assessment year 2012-13. Not satisfied with the orderpassed by the CIT(A), the Department-Revenue filed an appeal before theTribunal. Vide order dated 04.09.2016 (Annexure A-3), the Tribunalupheld the order passed by the CIT(A), holding that the amount spent bythe assessee-respondent was clearly application of income in naturewhich had been spent to achieve the objects. Further, when the assesseehad been granted approval under Section 10(23C)(iv) of the Act and theexemption was available with it, there was no question of disallowingany amount of this nature (Annexure A-3). Hence, the instant appeal bythe appellant-Revenue.3We have heard learned Sr. Standing Counsel for theappellant-Revenue, ITA No.229 of 2017 -3- for the instant assessment year 2012-13. Not satisfied with the orderpassed by the CIT(A), the Department-Revenue filed an appeal before theTribunal. Vide order dated 04.09.2016 (Annexure A-3), the Tribunalupheld the order passed by the CIT(A), holding that the amount spent bythe assessee-respondent was clearly application of income in naturewhich had been spent to achieve the objects. Further, when the assesseehad been granted approval under Section 10(23C)(iv) of the Act and theexemption was available with it, there was no question of disallowingany amount of this nature (Annexure A-3). Hence, the instant appeal bythe appellant-Revenue.3We have heard learned Sr. Standing Counsel for theappellant-Revenue, 4Admittedly, the assessee filed return of income declaring Nilincome. During the year under consideration, the assessee was havingincome of.Ly15,15,89,376/-, but after claiming exemption under Section10(23C)(iv) of the Act, the assessee showed Nil income in the return ofincome. The CII(A) noticed that CIT(Exemption) vide order dated1.3.2016 had granted exemption under Section 10(23C)(iv) of the Act tothe assessee with effect from assessment years 2006-07 to 2011-12. It wasfurther observed that after considering the explanation of the assessee inthe light of the Circular No.7/2010, once the approval had been grantedunder Section l10(23C)(iv) of the Act, that would be valid untiwithdrawn. The relevant extract from Circular No. 7/2010. date2710.2010 reads as under:- aApprovals under sub-clauses (vi) and (via) of Section10(23C) are governed by the procedure contained in rule ITA No.229 of 2017 -4- 5.| 2CA. Rule 2CA was amended with effect from 01.12.2006,inter alia by substitution of the existing sub-rule 3 by a newprovision which is reproduced below:- “(3) The approval of the Central Board of Direct Taxesor Chief Commissioner or Director General, as thecase may be, granted before the Ist day of December,2006 shall at any one time have effect for a period notexceeding three assessment years.” Read in isolation, without any further guidance as was givenby way of explanatory notes to Finance Act, 2006 in respectof amendment of sub-clauses (iv) and (v) of Section 10(23C),the above amendment leaves some scope for doubt about theperiod of validity of the approval under Section 10(23C)(v1)and (via) on or after 1.12.2006. For the removal of doubts ifany in this regard, it is clarified that as in the case ofapprovals under sub-clauses (iv) and (v) of Section 10(23C),any approval issued on or after 1.12.2006 under sub-clause(vi) or (via) of that sub-Section would also be a one timeapproval which would be valid till it is withdrawn.” When the matter was taken by the revenue in appeal, it was recorded by the Tribunal that in the present case, capital expenditure hadnot been charged to Profit and Loss Account. The third proviso tosection 10(23C) of the Act provides for “xxxx....applies its income oraccumulates it for application, wholly or exclusively to the objects forwhich it is established....xxxxx”. Thus, the amount was spent by theassessee towards the object. It was further recorded by the Tribunal, afterexamining the matter that the amounts spent by the assessee were clearlythe application of its income in nature which had been spent to achievethe objects of the assessee. The assessee had been granted approval undersection 10(23C)(iv) of the Act and thus, there was no question of ITA No.229 of 2017 -5- disallowing of any amount of this nature. recorded by the Tribunal that in the present case, capital expenditure hadnot been charged to Profit and Loss Account. The third proviso tosection 10(23C) of the Act provides for “xxxx....applies its income oraccumulates it for application, wholly or exclusively to the objects forwhich it is established....xxxxx”. Thus, the amount was spent by theassessee towards the object. It was further recorded by the Tribunal, afterexamining the matter that the amounts spent by the assessee were clearlythe application of its income in nature which had been spent to achievethe objects of the assessee. The assessee had been granted approval undersection 10(23C)(iv) of the Act and thus, there was no question of ITA No.229 of 2017 -5- disallowing of any amount of this nature. onAdverting to the judgment relied upon by_ learnedsr. Standing counsel for the appellant-Revenue in 'Commissioner ofIncome Tax vs. Red Rose School’ (2007) 212 CTR 394 (All), it may benoticed that it was held by the Allahabad High Court that theCommissioner of Income Tax has to satisfy himself about the genuinenessof the activities of the trust or institution and also about the objects of thetrust or the institution. On being satisfied, the CIT would either grant thecertificate or would reject the prayer for exemption. The proposition oflaw enunciated therein is not disputed. However, each case has to bedecided on its own facts. Similar is the position in|St. Francis ConventSchool vs. Central Board of Direct Taxes and others, (2012) 67 DIR251 (P&H).In view of the findings of fact recorded by the CIT(A) andthe Tribunal in the present case, as noticed hereinabove, the revenuecannot derive any benefit from these pronouncements. |vaLearned Senior Standing Counsel for the appellant-Revenuehas not been able to point out any error in the order passed by theTribunal. He has also not been able to produce any material tosubstantiate the claim made in the appeal. Thus, no substantial question oflaw arises and the appeal stands dismissed. (AJAY KUMAR MITTAL)JUDGE July 14, 2017 -<&- (AVNEESH JHINGAN)JUDGE Whether speaking/reasoned?Whether reportable? YesYes