2018 (10) TMI 283 - AT - Income Tax

Eligibility to benefit of section 10(26B) - proof of promoting the interest of the members of the scheduled tribes - Held that - In view of the above order of the Tribunal in assessee s own case for the immediately preceding assessment years, i.e. A.Ys. 2011-2012 and 2012-2013 2017 (8) TMI 849 - ITAT COCHIN we hold that 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. Interest on delayed payment of VAT and TDS as allowable expenditure - Held that - Interest on delayed payment of VAT and TDS is only compensatory and is not penal in nature. Therefore, the CIT(A) has correctly deleted the disallowance made for the interest expenditure claimed on delayed payment of VAT and TDS. Hence, this ground raised by the Revenue is rejected.

Summary

Issues Involved:

1. Whether the CIT(A) is justified in granting the assessee the benefit of section 10(26B) of the I.T. Act for the assessment years 2013-2014 and 2014-2015.
2. Whether the CIT(A) is justified in holding that the interest on delayed payment of VAT and TDS are allowable expenditures for the assessment year 2014-2015.

Issue-wise Detailed Analysis:

1. Benefit of Section 10(26B) of the I.T. Act:

The primary issue in both appeals is whether the CIT(A) was justified in granting the assessee the benefit of section 10(26B) of the I.T. Act. The assessee is a Government of India undertaking focused on the development and upliftment of the Scheduled Tribe community in Lakshadweep. For the assessment years 2013-2014 and 2014-2015, the assessee claimed its entire income as exempt under section 10(26B). The assessments were completed by denying this exemption.

The CIT(A) allowed the claim by relying on a previous order of the Cochin Bench of the Tribunal for the assessment years 2011-2012 and 2012-2013, which had granted the same exemption. The Tribunal found that the assessee was wholly financed by the Government and engaged in activities directly benefiting the Scheduled Tribe community in Lakshadweep. The Tribunal emphasized that the primary objective of the assessee's establishment was to promote the interests of the Scheduled Tribes, which qualifies for the exemption under section 10(26B).

The Tribunal reiterated that section 10(26B) provides an exemption for any body, institution, or association wholly financed by the Government and established for promoting the interests of the Scheduled Castes or Scheduled Tribes. The Tribunal cited judicial precedents, including the Allahabad High Court and Gauhati High Court, supporting a broad interpretation of section 10(26B) to encourage activities promoting the interests of these communities.

Based on these findings, the Tribunal upheld the CIT(A)'s decision to grant the exemption under section 10(26B) for the assessment years 2013-2014 and 2014-2015.

2. Allowability of Interest on Delayed Payment of VAT and TDS:

For the assessment year 2014-2015, the Revenue raised an additional issue regarding the CIT(A)'s decision to allow the interest on delayed payment of VAT and TDS as an expenditure. The Assessing Officer had disallowed ?6,573, considering it penal in nature.

The CIT(A) reversed this disallowance, holding that the interest on delayed payment of VAT and TDS is compensatory, not penal, and therefore allowable as a business expenditure. The Tribunal agreed with this view, stating that such interest is compensatory and not penal, and thus, the CIT(A) correctly deleted the disallowance.

Conclusion:

The Tribunal dismissed the appeals filed by the Revenue, upholding the CIT(A)'s decisions on both issues. The assessee was granted the benefit of section 10(26B) for the assessment years 2013-2014 and 2014-2015, and the interest on delayed payment of VAT and TDS was allowed as an expenditure for the assessment year 2014-2015. The order was pronounced on October 3, 2018.