No assessee can be compelled to continue any exemption, if it intends not to avail same. It is always open for an assessee to arrange its affairs in a manner which it feels it would be beneficial, and it cannot be compelled to continue its operations/activities in a particular manner which would be prejudicial to its interest.

  • vide Decision of High Court of Telangana in Telangana State Pollution Control Board, Hyderabad v. Central Board of Direct Taxes, New Delhi

Facts of the case:

1. The Telangana State Pollution Control Board (for short ‘TSPCB’) is the petitioner constituted by the State Government under section 4 of Water (Prevention and Control of Pollution) Act, 1974 and Section 5 of the Air (Prevention and Control of Pollution) Act, 1981.

2. The petitioner is established for the purpose of administering and controlling various steps relating to reduction of pollution and hazardous waste of all kinds, as per the statutory provisions of the said statutes.

3. The prescribed authority granted approval under section 10(23C)(iv) of the Act with effect from the Assessment Year 2014-15 onwards to the petitioner.

4. The petitioner was approved by the respondent and granted exemption under section 10(23C) of the Act.

5. The petitioner contends that Parliament by the Finance Act, 2011, inserted sub-section (46) to Section 10 of the Act, with effect from 1-6-2011; that the said provision being more apt to the activities carried on by the petitioner, the petitioner submitted application dt.07-3-2017 and 8-3-2017, respectively, for being notified under section 10(46) of the Act.

6. The petitioner also added that they satisfy the conditions specified under section 10(46) of the Act.

7. The similarly placed Pollution Control Boards of the other States, have been notified under section 10(46) of the Act; and that despite the petitioner making applications for issue of notification under section 10(46) of the Act, which would entail the petitioner to avail exemption on their income, the said request of the petitioner is not being considered and the petitioner is not notified under section 10(46) of the Act.

8. It is claimed that the petitioner having made applications to the respondent during the financial year 2016-17, they are required to be notified under section 10(46) of the Act from the Assessment Year 2016-17 and on being notified, the petitioner would surrender the approval granted to them earlier under section 10(23C) of the Act.

9. The Respondent contended that the petitioner is not eligible to be notified under section 10(46) of the Act, since the petitioner was already granted registration under section 10(23C)(iv) of the Act.

10. It is also contended that the claim of the petitioner with regard to the similarly placed Boards of other States being notified under section 10(46) of Act, would attract the concept of “Zohnerism” (whatever that means), as unlike other Pollution Control Boards, the petitioner is already registered under section 10(23C)(iv) of the Act.

11. Learned Senior Standing Counsel stated that the petitioner cannot seek to surrender the exemption, once it is granted under a particular provision of the Act, and seek for grant of exemption under another provision of the Act, merely because it is more beneficial to it, he added.

12.It is to be noted that on grant of approval to an assessee under section 10(23C)(iv) of the Act by the prescribed authority, assessee would be eligible to claim exemption in respect of certain incomes as not forming part of its total income.

13. Upon the assessee making a claim, grant of exemption is not automatic or compulsory, but the same is subject to scrutiny and grant by the assessing authority.

14. The stand of the respondent that the approval granted under section 10(23C) of the Act, is in perpetuity and cannot be surrendered by the assessee, like the petitioner, also appears to be without any basis.

15. No provision of the Act has been shown to this Court, expressly placing such a restriction on an assessee, from surrendering an approval obtained, by approaching the prescribed authority, who thereafter can exercise powers conferred on him to withdraw such approval granted.

16. Applying the principles to the facts of the case, it is to be held that the power to ‘withdraw’ is the right of the respondent, and the assessee cannot seek to surrender the approval granted to it under 10(23C)(iv) of Act.

17. This, in the court’s view, would run contrary to the harmonious interpretation of the provision required to be undertaken.

18. It is understandable, that in normal circumstances, as it is the assessee who would seek for grant of approval in order to avail exemption, may not by itself seek for ‘withdrawal’.

19. But, in a given circumstance where an assessee decides not to avail exemption and chooses to surrender the approval obtained by approaching the prescribed authority, it cannot be said that the Act does not provide for surrender, and also that the prescribed authority lacks power to accept surrender and exercise the power of withdrawal conferred on him.

20. This interpretation results in the assessee being compelled to continue with such approval obtained.

21. It is always open for an assessee to arrange its affairs in a manner which it feels it would be beneficial, and it cannot be compelled to continue its operations/activities in a particular manner which would be prejudicial to its interest.

22. The basic difference between the two provisions of the Act viz., 10(23C)(iv) and 10(46) of the Act, is that, while under the first provision, it is only a grant of an approval making an assessee eligible to claim exemption without any certainty of exemption being allowed on any income, since it is subject to scrutiny, the latter provision confers benefit of automatic exemption in respect of the specified income of the assessee as notified by the Central Government in the gazette.

23. It is also to taken note that the petitioner, while applying for exemption and seeking for being notified under section 10(46) of the Act, also offered to surrender the approval obtained by it under section 10(23C)(iv) of the Act on being notified.

Judgement:

The High Court of Telangana held the case as follows:

The writ petitions are allowed. The respondent is directed to withdraw the approval granted to the petitioner under section 10(23C) of the Act with effect from the date of application made by the petitioner for being notified under section 10(46) of the Act; and process the petitioner’s applications dt. 7-3-2017 and 8-3-2017 filed for being notified under section 10(46) of Act in accordance with the provisions of the Act, from the previous year relevant to the date of applications, filed.

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