Karnataka HC Quashes CBDT’s Rejection of University’s Income Tax Exemption Request, Directs Fresh Hearing [Read Order]

The court has not expressed any opinion on the petitioner’s claim on the merits, and all contentions are left open to be urged before the authority.

In a recent ruling, the Karnataka High Court has quashed a communication issued by the Central Board of Direct Taxes (CBDT) regarding an application for exemption under Section 10(46) of the Income Tax Act, 1961, and remitted it to the CBDT for fresh consideration.

The writ petition was filed by the petitioner ,Ranni Channamma University, challenging the CBDT's order dated 12.12.2023, which had rejected without granting a hearing.

The petitioner argued that it is a statutory, non-profit institution established under the Karnataka State Universities Act, 2000, and added that the rejection is based on an erroneous assumption that the registration under Section 12AA or exemption under Section 10(23C)(vi) of the Act bars consideration of an application under Section 10(46) of the Act, which is legally unsustainable.

The petitioner has placed reliance on the judgment of the High Court of Judicature at Telangana, Hyderabad, in Telangana State Pollution Control Board, Hyderabad v. Central Board of Direct Taxes and others. Also said that the impugned communication is non-speaking, arbitrary, and reflects non-application of the mind.

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On the other hand revenue defended the rejection and the impugned communication by contending that the petitioner has already availed exemption under Section 12AA and Section 10(23C)(vi) of the Act and, therefore, is not entitled to a notification under Section 10(46) of the Act. It is contended that the decision is administrative in nature and does not warrant interference.

After hearing both sides, the High Court finds that the impugned communication dated 12.12.2023 has been issued without affording any opportunity of hearing to the petitioner. When an application seeking statutory exemption is rejected, particularly after calling for explanations, adherence to the principles of natural justice is mandatory.

It is also observed that Section 10(46) operates in a distinct field and that the existence of registration under Section 12AA or exemption under Section 10(23C)(vi) does not bar consideration under Section 10(46).

The bench Justice K.S. Hemalekha quashed the impugned order and remitted the matter back to the authority for fresh consideration. The CBDT was directed to grant the University a hearing and pass a reasoned order expeditiously.

Accordingly, the writ petition was allowed

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