By TIOL News Service

ALLAHABAD, JULY 27, 2017: THE ISSUE BEFORE THE COURT IS - Whether a hotel can be denied deduction u/s 80IB(7) on the ground that the clause under which exemption was claimed while claiming the deduction, was different. NO is the verdict.

Facts of the case:

The assessee has set up a Hotel after getting approval of project of Hotel from Department of Tourism, Government of India. The Hotel unit of Assessee commenced operation on 03.07.2000. Government of India has also granted recognition to said Hotel as a three star hotel. Assessee's hotel comes within the Buddhist Circuit which is a tourist place notified by Department of Tourism, Government of India. To claim exemption u/s 80-IB(7)(a), assessee submitted application before Director General, Income Tax (Exemptions). Since no decision was communicated to Assessee, it continued to request Prescribed Authority to pass order on its application. In the meantime assessment order was passed against Assessee by competent Assessing Authority. ITAT remanded matter to Assessing Authority. Claim for deduction under Section 80 IB(7)(a) was rejected by Assessing Authority on the ground that Assessee was not granted approval by Prescribed Authority and hence no deduction was admissible in view of Section 80 IB(7)(c). The CIT(A) allowed exemption u/s 80IB(7)(b). ITAT dismissed appeals of Assessee as well as Revenue. Denial of Assessee's claim for exemption u/s 80-IB(7)(a) was upheld. Deduction, however, granted u/s 80IB(7)(b) was upheld on the ground that there was an approval granted by Competent Authority.

On appeal, the HC held that,

++ the Director General in the Directorate of Tourism, Government of India, admittedly had granted approval and for that reason benefit of deduction under Clause (b) has been allowed by Revenue Authorities to Assessee. In order to attract Clause (a), no decision has been taken by Director General, Income Tax (Exemptions) though application has been filed by Assessee in this regard in 2002. Competent Authority for granting approval is an officer of Income Tax Department itself. Assessee has neither any administrative control nor otherwise can compel said authority to act within a particular time and in a particular manner. It is the authority of Revenue itself, who has to grant approval. For own lethargy or inaction on the part of an officer of Income Tax Department, a deduction which otherwise may be available to Assessee, cannot be denied since it is not a case where Assessee is disqualified being ineligible for such deduction but question of approval is pending before Competent Authority, who is a senior officer of Income Tax Department and has not been able to get enough time to take a decision on the application filed by Assessee on 28.08.2002. Observations of Tribunal that Assessee did not pursue matter are unwarranted for the reason that whatever could have been done by Assessee, it has done by submitting application and rest is the job of departmental authority, specified in Rule 18 BBC;

++ where a power has been conferred upon a holder of public office, it has to exercise such power within a reasonable time and in accordance with relevant considerations of law. It is a fit case where Tribunal ought to have required Director General, Income Tax (Exemptions) to take a decision on Assessee's application within a particular time and thereafter it ought to have decided matter but that has not been done. It was inappropriate and illegal on the part of Director General, Income Tax (Exemptions) not to take a decision on Assessee's application filed for seeking approval as required u/s 80-IB(7)(c). Tribunal in upholding denial of deduction to Assessee ignoring the fact that application seeking approval submitted by Assessee is still pending for consideration before Competent Authority, has committed manifest error. Deduction u/s 80 IB(7) to a hotel is common and difference in Clauses (a) and (b) is with regard to percentage, which is 50% and 30% respectively. It is not a case where Assessee did not claim deduction u/s 80 IB(7). Whether his claim was justified for 50% deduction under Clause (a) or 30% under Clause (b) is a matter which relates to only quantum of deduction but it is not a case where deduction has not been claimed by Assessee specifically under Chapter VIA. The mere fact that clause referred therein is different, is not a substantial reason to exclude the provision of deduction. Even otherwise Section 80 IB(7)(a) provides a deduction of higher amount and would cover deduction under Clause (b) as well if existing facts justify that Assessee would be entitled for same. The Assessee claimed deduction under a provision in Chapter VIA and in the return also it claimed deduction with reference to Section 80 IB(7) but subclause mentioned was (a) and not (b). It cannot be said that Assessee had not claimed any deduction whatsoever in return, therefore, is not entitled in view of Section 80 A.

(See 2017-TIOL-1404-HC-ALL-IT )