N. Kumar, J. - These two appeals arise out of the two assessment orders passed in respect of the assessment years 1999-2000 and 2001-2002 - respectively, where a common question of law is involved.
2. The Revenue has preferred these appeals against the order passed by the Tribunal holding that the assessee is entitled under Section 10(23C)(vi) of the Income Tax Act, 1961, (hereinafter referred to as 'the Act' for brevity), in respect of the contribution made to the Model Chit Fund and that there is no violation of the provisions of Section 11(5) of the Act.
3. The assessee is a charitable society running an educational institution. The assessee made an application for grant of approval in the prescribed form on 21.9.1999 for grant of recognition and for exemption of income under section 10(23C)(vi) of the Act, for the assessment years 1999-2000; 2000-2001 and 2001-2002. By an order dated 12.5.2004, the Central Board of Direct Taxes accorded approval to the assessee-society for the purpose of Section 10(23C)(vi) of the Act. It imposed certain conditions on the assessee-society subject to which an approval was granted. The relevant condition for the purpose of these cases is condition No.2 relating to the mode of investment of funds. The Society has also made an application under Section 12AA of the Act with the prescribed authority in respect of its educational activity on the ground of "charitable" within the meaning of Section 2(15) of the Act and consequently for claiming benefits under Sections 11 and 12 of the Act, in addition to the exemption under Section 10(23C)(vi) of the Act. The DIT (Exemption) registered the assessee-society under Section 12AA by its order dated 5.5.2003. The assessee-society had filed its return of income for the assessment year 1999-2000 on 5.7.2000, reporting NIL income. They enclosed a balance sheet as on 31.3.1999 showing the income and expenditure, receipt and payments for the relevant period. The Assessing Officer issued a notice under Section 148 of the Act on 11.9.2003 on the ground that the assessee-society was neither granted approval by C.B.D.T. under Section 10(23C)(vi) nor was the assessee-society registered under Section 12A of the Act. The assessee entered appearance and brought to the notice of the Assessing Officer, the order passed by the C.B.D.T. on 12.5.2004, granting approval for exemption under Section 10(23C)(vi) of the Act. They also brought to the notice of the Assessing Authority the order of the Tribunal dated 14.1.2004 in I.T.A.No.1217/Bang/2003 where the Tribunal had allowed the assessee's appeal and directed grant of exemption under Section 11 of the Act. Inspite of the same, the Assessing Authority declined to grant the exemption on the ground that the assessee had made investments in violation of the conditions stipulated by the Board. Therefore, the approval granted by the Board was withdrawn by the Assessing Officer. In the said assessment order, the Assessing Authority referred to an advance of Rs.10 lakhs to Kammavari Sangha and the contributions to the chits conducted by Model Chit Fund of Rs.15 lakhs. Aggrieved by the said order, the assessee - society preferred an appeal to the Commissioner of Income Tax (Appeals). The Appellate Authority accepted the contention of the assessee insofar as the advance of Rs.10 lakhs to Kammavari Sangha, but declined to accept the contributions made to Model Chit Fund, however, dismissed the appeal. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal on consideration of the material on record and the rival contentions, held that the order passed by the Assessing Authority is unsustainable because in view of the twelfth proviso to Section 10(23C) and the proviso inserted under Section 143(3) w.e.f. 1.4.2003. It was incumbent on the Assessing Authority to intimate the prescribed authority of any alleged contravention noticed by him in the assessment proceedings and only after the withdrawal of the exemption and approval granted by the prescribed authority, the Assessing Authority could have passed an order denying the exemption under Section 10 of the Act. The Tribunal also held on merits that the contribution to the chit fund has an element of savings attached to it, one cannot ignore that the predominant object of the chit fund scheme is to act as a lending instrument to the members of the chit and therefore, there was no reason for denial of exemption granted by the assessee. Further, the Tribunal held that there is no violation of the provisions of Section 11(5) of the Act. Therefore, the Tribunal partly allowed the appeal and set aside the order passed by the Assessing Authority as well as the Appellate Authority. Aggrieved by this order, the Revenue is in appeal.
4. In the light of the aforesaid facts, the following substantial questions of law do arise for our consideration in this appeal:
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Whether the Tribunal was correct in holding that when exemption under Section 10(23C)(vi) of the Act is granted, the Assessing Authority has no jurisdiction to deny the exemption on the ground that the assessee has not complied with the terms of the grant of exemption? |
(2) |
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When the Assessing Officer has issued an intimation under Section 143(1) of the Act and when he initiates proceedings under Section 147, whether the Tribunal was justified in holding that re-opening of assessment, is bad?" |
5. The learned Counsel appearing for the Revenue assailing the impugned order contended that the proviso to Section 143(3) of the Act, on which reliance is placed, was introduced 'by Finance Act' 2002, which came into effect from 1.4.2003. Therefore, the said provision has no application for the assessment years anterior to the said period. As the law stood earlier to the said amendment, there is no provision for recession of the permission granted and therefore, the Assessing Authority had the jurisdiction to deny the exemption, if the assessee has committed any act in contravention of the conditions subject to which the said exemption is granted. He also relied on the memo explaining the provisions of the Finance Bill of 2002 where it is categorically stated that the proposed amendment will take effect from 1.4.2003 and will accordingly apply in relation to the assessment year 2003-04 and subsequent years.
6. Per contra, learned Counsel for the assessee submitted that the proviso to Section 143(3) of the act is a procedural provision and therefore, it comes into effect from 1.4.2003 and is applicable to all assessment orders passed subsequent to that date irrespective of the assessment year in respect of which the said order is passed. He further submitted that, the contention that prior to 1.4.2003, the authority granting exemption had no power to withdraw the exemption, if the assessee commits default or contravenes the conditions stipulated in the said order of permission, the power to rescind the permission granted is implicit in the order granting permission itself and therefore, he submits that there is no merit in these appeals. He also submitted that even on merits, rightly the Tribunal has held that there is no contravention of law and therefore, the assessee is entitled to the benefit. In fact, before granting the permission, the Board itself has considered the very same aspect and same did not come in the way of granting permission. Therefore, the Assessing Authority could not have recorded a finding contrary to the same.
Point No. 1:
7. From the aforesaid facts, it is not in dispute that the assessee is a charitable society running an educational institution. The DIT (Exemption) registered the assessee-society under Section 12AA of the Act on 5.5.2003. By an order dated 12.5.2004, the Central Board of Direct Taxes accorded approval to the assessee-society for the purpose of Section 10(23C)(vi) of the Act, subject to certain conditions to be fulfilled by the assessee-society. The assessee had filed its return on 21.9.1993 before grant of such approval and exemption. The proceedings under Section 147 was initiated on 10.4.2003 and notice under Section 148 was issued on 11.9.2003 and the re-assessment order is passed on 28.3.2005, holding that the assessee has not complied with the conditions imposed by C.B.D.T. and therefore, he is not entitled to the exemption.
8. The proviso to Section 143(3) was inserted by way of Finance Act, 2002 w.e.f. 1.4.2003. The said provision reads as under:
"Provided that in the case of a–
(e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or medical institution referred to in sub-clause (vii) of clause (23C) of Section 10,
which is required to furnish the return of income under sub-section 4(C) of section 139, no order making an assessment of the total income or loss of such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or any other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of Section 10 unless -
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the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) or clause (23C) of section 10 as the case may be, by such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place, and |
(ii) |
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the approval granted to such scientific research association or other association or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded)". |
The aforesaid provision makes it clear that no order making an assessment shall be made by the Assessing Officer without giving effect to the provisions of Section 10 unless the Assessing Officer has intimated the Central Government or the prescribed authority, the contravention of the provisions of clause (23C) of Section 10. Only after such approval granted has been withdrawn, he can proceed to pass an order, denying the benefit of exemption on the ground of contravention. Having regard to the language employed, the said provision is mandatory. Without complying with the requirement of the said provision, the Assessing Authority gets no jurisdiction to re-open the assessment made. That is what the Tribunal has held and therefore, the said finding is in accordance with law and do not suffer from any legal infirmity, which calls for interference.
9. Insofar as the contention that prior to 1.4.1993 as the law stood, there was no express provision for withdrawal of an approval granted once or recession of such approval is concerned, it has no substance. In the absence of a specific provision, Section 21 of the General Clauses Act, 1897, is attracted, which provides that where, by any Central Act or Regulations a power to issue notifications, orders, rules, or bye-laws is conferred, then that power includes a power, exercisable in the like manner and subject to the like sanction and conditions, if any, to add to, amend, vary or rescind any notifications, orders, rules or bye-laws so issued. Therefore, the argument that prior to 1.4.2003 when there was no express provision for recession of the approval granted once, the Assessing Authority was vested with the power to deny the exemption without seeking for recession of the approval granted, is without any substance.
10. Accordingly, the substantial question of law No.1 is answered in favour of the assessee and against the Revenue.
Point No. 2:
11. In view of the finding recorded on substantial question No.1, we decline to answer the second substantial question of law and leave it open to be decided in appropriate case.
In that view of the matter, we do not see any merit in these appeals. Accordingly, both the appeals are dismissed.