Stock Exchange Ahmedabad vs Central Board of Direct Taxes

R.K. Abichandani, J.—Leave to add Union of India as a party respondent No. 2. Notice on the respondent No. 2. The learned counsel appears for the respondent No. 2 and waives service of notice.

The petitioner challenges the order dt. 9th September, 1991 of the CBDT holding that the exemption under s. 10(23C)(iv) of the IT Act cannot be continued in favour of the petitioner-Stock Exchange.

At the hearing of this petition, it was pointed out that by its subsequent order dt. 31st October, 1996, the Board has, with reference to the earlier order dt. 9th September, 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the Stock Exchange, Ahmedabad is covered by the specific provisions contained in s. 10(23A) of the IT Act, 1961" were withdrawn and the application seeking Notification under s. 10(23A) was rejected on the ground that the petitioner-Stock Exchange does not have as its object control,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 s. 10(23A).

By the earlier order dt. 9th September, 1991 which has been challenged in this petition with reference to the application dt. 27th December, 1988 made by the petitioner for continuance of the exemption under s. 10(23A) of the IT Act, the Board had directed that since the petitioner was covered by the specific provisions contained in s. 10(23A) of the IT Act, the provisions of s. 10(23C)(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 s. 10(23C)(iv) or (v) of the Act.

As noted above, by the subsequent order dt. 31st October, 1996, the ground on the basis of which the Board had directed that the provisions of s. 10(23C)(iv) were not applicable, was withdrawn. Therefore, the very basis for the decision communicated was withdrawn from the impugned order.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 dt. 9th September, 1991 in the last portion that the earlier practice of notifying the Stock Exchange, Ahmedabad under s. 10(23C)(iv) of the Act will not be permissible. It would be noticed that the exemption under the provisions of s. 10(23C)(iv), would apply to a fund or institution established for charitable purposes which may be notified by the Central Government in the Official Gazette. Though the exemption granted to the petitioner under 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 dt. 18th December, 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 s. 10(23C)(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 s. 10(23C)(iv) was issued in respect of the petitioner Stock Exchange as per the prevalent policy. The discontinuance of further exemption under s. 10(23C)(iv) was on the ground that the petitioner could apply under s. 10(23A). The petitioner therefore, wrote to the CBDT to treat its application for renewal of exemption under s. 10(23C)(iv) made on 27th December, 1988 as an application, under s. 10(23A). 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 context of the provisions of s. 10(23C)(iv) of the Act. The 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. The 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 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 dt. 9th September, 1991 was a communication of the Board''s view that the Stock Exchange is an institution, which falls within the scope of exemptions available under s. 10(23A) and not under s. 10(23C) of the Act and, therefore, application of the petitioner-Exchange dt. 27th December, 1988 for continuance of the exemption under s. 10(23C) which was made available to the petitioner upto asst. yr. 1988-89, cannot be considered under the said provision and its case for exemption can be considered only on making an appropriate application under s. 10(23A) as an association or institution of a profession. It was in pursuance of this order that the petitioners had made a request to treat their application for continuing the exemption under s. 10(23C), moved in accordance with first proviso to s. 10(23C) as an application under s. 10(23A). 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 s. 10(23A) 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, Medicines, Accountancy, Engineering or Architecture or any other notified profession, s. 10(23A) has no application to any institution which is not an association or institution of professionals nor it requires a notification of exemption. It only requires the approval of the Central Government by general or special order by provision of s. 10(23A) and once the approval is granted, it continues year after year till it is cancelled. However, when the exemption is claimed under s. 10(23C), the purpose of the fund or institution of claiming exemption would be 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 sub-s. (23A) of s. 10, all incomes are not exempt, the entire income of fund referred to in s. 10(23C) 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 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 is inhered in the exercise of the discretion, that application of mind might be reflected in 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 monarch but has to be exercised in well defined limits emanating from the provisions themselves. It is to be noticed that fifth proviso to sub-s. (23C) which has been inserted from 1st April, 1990 envisages that exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to voluntary contribution, 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 institution mentioned in sub-cls. (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 of the aforesaid scheme, it is apparent that once the CBDT conveyed the petitioners that their application under sub-s. (23C) cannot be considered because it falls under sub-s. (23A), it was not open for it later on when it was called upon to consider it under sub-s. (23A), to withdraw the reason furnished in its earlier order and allow the order to be construed as rejection of application under sub-s. (23C) simpliciter without reason. It not only betrays total non-application of mind to the question of determining application for exemption on merit, but also adherence to procedure which is neither fair nor just which is an integral part of equality enshrined under Art. 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 sub-s. (23A) or sub-s. (23C) 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.