STOCK EXCHANGE VS CENTRAL BOARD OF DIRECT TAXES
1999 P T D 920
[225 I T R 761]
[Gujarat High Court (India)]
Before R. K. Abichandani and Rajesh Balia, JJ
STOCK EXCHANGE
Versus
CENTRAL BOARD OF DIRECT TAXES and another
Special Civil Application No.2164 of 1996, decided on 09/01/1997.
Income-tax---
----Exemptions---Stock exchange---Application for continuance of exemption as charitable institution under S.10(23-C)---Rejected on ground assessee fell under cl. (23-A)---Request by assessee to treat application as under cl. (23-A)---Ground for rejection in earlier order deleted ---Assessee to apply afresh and Central Government to consider---Discretion of the Central Government is not an absolute discretion---Indian Income Tax Act, 1961, S.10(23-A) & (23-C). .
The petitioner, the Ahmedabad Stock Exchange, was granted exemption in terms of section 10(23-C) of the Income Tax Act, 1961, up to the assessment year 1988-89. On an application for continuance of exemption under section 10(23-C), the Central Board of Direct Taxes by order, dated September 9, 1991, intimated that as the case of the stock exchange was covered by the specific provisions contained in section 10(23-A) of the Act, the exemption under section (23-C) of section 10, which applied to charitable and religious trusts, was not continued. The petitioner thereupon wrote to the Central Board to treat its application for renewal of exemption under section 10(23-C)(iv) made on December 27, 1988, as an application under section 10(23-A). By order, dated October 31, 1996, the Board directed that in its earlier order, dated September 9, 1991, the words "as the case of stock exchange is covered by the specific provisions contained in section 10(23-A)" be deleted, and the application seeking notification under section 10(23-A) was rejected.
On a writ petition, the Court directed the petitioner to make a fresh application for the years in question and the Central Government to consider it and take a decision in accordance with law.
Per Rajesh Balia, J.---There is a vital difference between the schemes of the two provisions (clauses (23-A) and (23-C) of section 10). Once there is a requirement of an application to be made to the Central Government, the necessary consequence is, that though the grant of approval or exemption, as the case may be, rests within the discretion of-the Central Government that discretion has to be exercised after due application of mind to the application within the precincts of the provisions of the Act and once that duty inheres in the exercise of the discretion, that application of mind must be reflected in the order that is made on such application. Once the Central Board of Direct Taxes conveyed to the petitioners that their application under clause (23-C) could not be considered because it fell under clause (23-A), et was not open to it later on, when it was called upon to consider it under clause (23-A), to withdraw the reasons furnished in its earlier order and allow the order be construed as rejection of the application under clause (23-C) simpliciter without reason. Whether to grant exemption under clause (23-A) or clause (23-C) or not, is not an absolute discretion of the Central Government.
K.H. Kaji for Petitioner.
Manish R. Bhatt for Respondent No. 1
JUDGMENT
R.K. ABICHANDANI, J. ---Leave to add Union of India as a party respondent No.2. Notice on respondent No.2. Learned counsel appears for respondent No.2 and waives service of notice.
The petitioner challenges the order, dated September 9, 1991, of the Central Board of Direct Taxes holding that the exemption under section 10(23-C)(iv) of the Income-tax Act cannot be continued to favour of the petitioner-stock exchange.
At the hearing of this petition, it was pointed out that by its subsequent order, dated October 31, 1996, the Board has, with reference to the earlier order, dated September 9, 1991, directed that the words: "the Board has examined your case and I am directed to say that as the case of the Stock Exchange, Ahmedabad, is covered by the specific provisions contained in section 10(23-A) of the Income Tax Act, 1961 " were withdrawn and the application seeking notification under section 10(23-A) was rejected on the ground that the petitioner-stock exchange does not have as its object, control, supervision, etc., of any profession as contemplated by section 10(23-A).
By the earlier order, dated September 9, 1991, which has been challenged in this petition with reference to the application, dated December 27, 1988, made by the petitioner for continuance of the exemption under section 10(23-C) of the income-tax Act, the Board had directed that since the petitioner was covered by the specific provisions contained in section 10(23-A) of the Income-tax Act, the provisions of section 10(23-C)(iv) and (v) of the Act which applied to charitable and religious trusts in general, were not applicable to the case of the petitioner. It was further ordered that notwithstanding the earlier practice in this regard, it would not be-legally permissible to notify the Stock Exchange, Ahmedabad, under section 10(23-C)(iv) or (v) of the Act.
An noted above, by the subsequent order, dated October 31, 1996, the ground on the basis of which the Board had directed that the provisions of section 10(23-C)(iv)' were not applicable, was withdrawn. Therefore, the very basis for the decision communicated, was withdrawn from the impugned order. It was, however, submitted that a policy decision was reflected in the order, dated September 9, 1991, in the last portion that the earlier practice of notifying the Stock Exchange, Ahmedabad, under section 10(23-C)(iv) of the Act will not be permissible. It would be noticed that the exemption under the provisions of section 10(23-C)(iv), would apply to a fund or institution established for charitable purposes which maybe notified by the Central Government in the Official Gazette. Though the exemption granted to the petitioner under the earlier notification which was issued by the Government under the said provision, was for a specific period of five years, a question arose during the hearing of this petition as to whether the Board can decide that the Central Government will not issue any notification under the said provision in respect of the petitioner. There was a communication, dated December 18, 1980, a copy of which is on record, addressed by the Government of India to the stock exchange, which refers to an application of the petitioner being made to the Board for consideration of the issuance of a notification under section 10(23-C)(iv) of the said Act. There is, however, no decision taken by the Central Government on the subject. Admittedly, in the past, exemption notification under section 10(23-C)(iv) was issued in respect of the petitioner-stock exchange as per the prevalent policy. The discontinuance of further exemption under section 10(23-C)(iv) was on the ground that the petitioner could apply under section 10(23-A). The petitioner, therefore, wrote to the Central Board of Direct Taxes to treat its application for renewal of exemption under section 10(23-C)(iv) made on December 27, 1988, as an application under section 10(23-A). It was, therefore, felt at the hearing of this petition that the petitioner should make a fresh application in respect of the relevant assessment years in question, which could be considered by the Central Government in the context of the provisions of section 10(23-C)(iv) of the Act. Learned counsel for the petitioner states that a fresh application in respect of the relevant assessment years which are under consideration will be made within two weeks. Learned counsel for the respondents submits that eight weeks' time may be given to the Government to take a decision on such application. It is, therefore, directed that on the petitioner's making a fresh application in respect of the relevant assessment years in question within two weeks from today, the Central Government will consider the same and take a decision in accordance with law within six weeks after the application is received. This petition stands disposed of accordingly with no order as to costs.
RAJESH BALIA, J.---I agree. However, I would like to add that from the facts it is apparent that the impugned order, dated September 9, 1991, was a communication of the Board's view that the stock exchange is an institution, which falls within the scope of exemption available under section 10(23-A) and not under section 10(23-C) of the Act and, therefore, the application of the petitioner-exchange, dated December 27, 1988, for continuance of the exemption under section 10(23-C) which was made available to the petitioner up to the assessment year 1988-89, cannot be considered under the said provision and its case for exemption can be con?sidered only on making an appropriate application under section 10(23-A), as an association or institution of a profession. It wag in pursuance of this order that the petitioners had made a request to treat their application for continu?ing the exemption under section 10(23-C), moved in accordance with the first proviso to section 10(23-C), as an application under section 10(23-A). It may be noticed that there is a vital difference between the two schemes of the provisions. While an application is required to be made under section 10(23-A) for the purpose of grant of approval to an institution or association which has been established for the purpose of encouragement of profession of law, medicine, accountancy, engineering or architecture or any other notified profession, section 10(23-A) has no application to. any institution which is not an association or institution of professionals nor does it require a notification of exemption. It only requires the approval of the Central Government by general or special order by the provision of section 10(23-A) and once the approval is granted, it continues year after year till it is cancelled. However, when the exemption is claimed under section 10(23-C), the purpose of the fund or institution of claiming exemp?tion would be a charitable one and in the first instance application has to be made for the purposes of grant of exemption and once exemption has been granted for a particular year, every year another application for continuance thereafter, has to be made. The field of distinction and field of operation does not end there, while under clause (23-A) of section 10, all incomes are not exempt, the entire income of the Funds referred to in section 10(23-C) is exempt from the payment of tax subject to fulfilment of . conditions mentioned therein. Once there is a requirement of application to be made to the Central Government, the necessary consequence is that though the grant of approval or exemption, as the case may be, rests with the discretion of the Central Government, but that discretion has to be exercised after due application of mind to the application within the precincts of the provisions of the Act and once that duty inheres in the exercise of the discretion, that application of mind might be reflected in the order that is made on such application. Moreover, it is also discernible from the provisions governing the two exemptions that the discretion is not a discretion of a monarch but has to be exercised in well-defined limits emanating from the provisions themselves. It is to be noticed that the fifth proviso to clause (23-C) which has been inserted from April 1, 1990, envisages that exemption under sub?clause (iv) or sub-clause (v) shall not be denied in relation to voluntary contributions, other than voluntary contributions of the nature referred to in clause (b) of the third proviso, subject to other conditions-mentioned therein. This proviso makes it imperative that in respect of the funds or institutions mentioned in sub-clause (iv) or (v), before an application is rejected or allowed, a reasoned order has to be made whether the conditions thereof are fulfilled or not. Keeping in view the aforesaid scheme, it is apparent that once the Central Board of Direct Taxes conveyed to the petitioners that their application under clause (23-C) cannot be considered because it falls under clause (23-A), it was not open to it later on when it was called upon to consider it under clause (23-A), to withdraw the reasons furnished in its earlier order and allow the order to be construed as rejection of application under clause (23-C) simplicitor without reason. It not only betrays total non-?application of mind to the question of determining the application for exemption on the merits but also adherence to procedure, which is neither fair nor just, which is an integral part of equality enshrined under Article 14 of the Constitution. This, in our opinion, may suffice to dispel the contention of learned counsel for the Revenue that whether to grant exemption under clause (23-A) or clause (23-C) or not is an absolute discretion of the Central Government and rejection of application does not call for application of mind and assigning of reasons.
C.M.A./1764/FC???????????????????????????????????????????????????????????????????????????????? Order accordingly.