1996 (7) TMI 183 - AT - Income Tax

Summary

Issues Involved:
1. Exemption under section 10(17B) of the Income-tax Act for generation reward (incentive) granted to DESU employees.
2. Approval of the incentive scheme by the Central Government.
3. Classification of DESU as part of the Central Government or a local authority.
4. Interpretation of "public interest" under section 10(17B).

Issue-wise Detailed Analysis:

1. Exemption under section 10(17B) of the Income-tax Act for generation reward (incentive) granted to DESU employees:
The assessees, employees of the Delhi Electricity Supply Undertaking (DESU), claimed that the generation reward was exempt under section 10(17B) of the Income-tax Act. The Assessing Officer disallowed the exemption, stating that the Central Board of Direct Taxes (CBDT) had not notified these exemptions. The appeals were consolidated for convenience.

2. Approval of the incentive scheme by the Central Government:
The DCIT(A) Range-I, New Delhi, observed that the Generation Reward Scheme by DESU had not been specifically approved by the Central Government for the assessment year 1988-89. Conversely, the DCIT(A) Range-II, New Delhi, opined that DESU could be considered part of the Central Government due to its operations being regulated by the Central Government, and thus, the scheme had implicit approval. The Tribunal, however, concluded that DESU's scheme was not approved by the Central Government, as there was no notification or approval from the relevant authorities.

3. Classification of DESU as part of the Central Government or a local authority:
The Tribunal held that DESU is a wing of the Delhi Municipal Corporation, created under the Delhi Municipal Corporation Act, 1957, and can be considered a local authority within the meaning of section 3(31) of the General Clauses Act, 1897. The Tribunal rejected the argument that DESU should be construed as "State" within the meaning of Article 12 of the Constitution for the purposes of section 10(17B) of the Income-tax Act. The expressions "Central Government" and "State Government" were to be interpreted based on definitions in the General Clauses Act, 1897, not the Constitution.

4. Interpretation of "public interest" under section 10(17B):
The Tribunal observed that not every reward given by the Government is exempt under section 10(17B); the reward must be a payment made by the Central Government in public interest. The Tribunal noted that the scheme framed by DESU was not approved by the Central Government, and thus, the incentives paid under the scheme could not be considered exempt under section 10(17B).

Conclusion:
The Tribunal confirmed the order of the DCIT(A) Range-I, New Delhi, in the case of Shri Rajinder Tiku, denying the exemption. It set aside the order of the DCIT(A) Range-II, New Delhi, in the case of Shri S.R. Sethi, restoring the Assessing Officer's decision to disallow the exemption. The generation incentive paid by DESU was not exempt under section 10(17B) of the Income-tax Act.