2017 (8) TMI 849 - AT - Income Tax

Eligibility to claim u/s. 10(26B) - proof of promoting the interest of the members of the scheduled tribes - Held that - Section 10(26B) was inserted by the Finance Act, 1980 as provides for exemption from income tax to any body, institution or association wholly financed by the Central or a State Government, or to a statutory corporation, established for promoting the interests of the members of the Scheduled Castes and/or the Scheduled Tribes. A close reading of the Section 10(26B) also makes it clear that the object for which a statutory corporation, or any other body, association or institution is created is the crucial aspect for determining the eligibility for availing benefit u/s. 10(26B). AO and the CIT(A) wrongly assumed that the activities carried on by the assessee-company are not for the benefit of the scheduled tribes inhabiting the Lakshadweep Islands. According to us, the paramount consideration for eligibility u/s. 10(26B) is to examine the primary objective for establishment of assessee whether it is for promoting the interest of the scheduled tribes or not. If the Government undertaking is established for promoting the interest of scheduled tribes, it would be entitled to the benefit of Section 10(26B) of the Act. In the instant case, apart from the object of creation of the assessee company, being for development and upliftment of the scheduled tribes inhabiting the Lakshadweep Islands, it activities are also directly and indirectly, promoting the interest of the members of the scheduled tribes. The assessee which is financed and established by the Government for promoting the interest of the members of the scheduled tribes living in the Lakshadweep Islands, is entitled to the benefit of section 10(26B) of the I.T. Act. - Decided in favour of assessee.

Issues Involved:
1. Denial of exemption under Section 10(26B) of the Income Tax Act.
2. Disallowance of bonus payment due to delay.
3. Addition of under-reported interest income.
4. Disallowance of ex-gratia payment due to delayed payment.
5. Disallowance of depreciation claimed on vehicles.

Detailed Analysis:

1. Denial of Exemption under Section 10(26B) of the Income Tax Act:
The assessee, a Government of India undertaking, claimed exemption under Section 10(26B) for the assessment years 2011-12 and 2012-13. The primary objective of the assessee is the development and upliftment of the scheduled tribe community in the Union Territory of Lakshadweep. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed this exemption, arguing that the assessee was not established by a Central, State, or Provincial Act but was a company incorporated under the Companies Act, and its activities did not benefit the scheduled tribes.

The Tribunal examined the Memorandum of Association, financial statements, and various activities of the assessee, which included manufacturing units for local produce, operation of ships, and disbursement of loans to scheduled tribes. The Tribunal concluded that the assessee, being wholly financed by the Government and established for the benefit of scheduled tribes, is entitled to the exemption under Section 10(26B). The Tribunal relied on judicial precedents, including judgments from the Allahabad High Court and Gauhati High Court, to support its decision.

2. Disallowance of Bonus Payment due to Delay:
For the assessment year 2011-12, the AO added ?18,36,040/- to the taxable income of the assessee due to a delay in the payment of bonus. The Tribunal did not specifically address this issue in detail as the primary ground of exemption under Section 10(26B) was upheld, rendering other grounds infructuous.

3. Addition of Under-Reported Interest Income:
The AO added ?1,28,92,551/- to the taxable income for under-reporting interest income for the assessment year 2011-12. Similar to the disallowance of bonus payment, this issue was not specifically addressed in detail by the Tribunal due to the primary ground of exemption under Section 10(26B) being upheld.

4. Disallowance of Ex-Gratia Payment due to Delayed Payment:
For the assessment year 2012-13, the AO disallowed an ex-gratia payment of ?27,03,939/- on the ground that the payment was made beyond the due date. This issue was also not specifically addressed in detail by the Tribunal due to the primary ground of exemption under Section 10(26B) being upheld.

5. Disallowance of Depreciation Claimed on Vehicles:
The AO disallowed depreciation claimed on vehicles amounting to ?68,357/- for the assessment year 2012-13. This issue, like the others, was not specifically addressed in detail by the Tribunal due to the primary ground of exemption under Section 10(26B) being upheld.

Conclusion:
The Tribunal held that the assessee is entitled to the benefit of Section 10(26B) of the Income Tax Act as it is a Government undertaking established for the development and upliftment of the scheduled tribe community in Lakshadweep. Consequently, the other grounds relating to disallowances and additions made by the AO were rendered infructuous and dismissed. The appeals filed by the assessee for the assessment years 2011-12 and 2012-13 were partly allowed, and the Stay Petitions filed by the assessee were dismissed as infructuous.

← Previous Next →