1991 (9) TMI 129 - AT - Income Tax

Summary

Issues:
Interpretation of section 10(17B) of the Income Tax Act regarding exemption for rewards from Central or State Government, Approval requirement for rewards in public interest, Delegation of authority for approval, Application of CBDT circulars for deductions, Classification of reward as part of commission income.

Analysis:

The case involved the interpretation of section 10(17B) of the Income Tax Act regarding the exemption for rewards granted by the Central or State Government for purposes approved in the public interest. The assessee, as an authorized agent under a government scheme, received a cash prize and claimed exemption under section 10(17B). The dispute arose as the Central Government had not approved the scheme, leading to the rejection of the claim by the Income Tax Authorities.

The contention was raised that the approval by the State Government should be considered equivalent to approval by the Central Government, emphasizing the liberal construction of section 10(17B) in matters of public interest. However, it was argued that only the Central Government has the authority to relax provisions of the Income Tax Act, and approvals by State Governments do not fulfill the requirement of section 10(17B).

The Tribunal highlighted the specific requirements of section 10(17B), emphasizing that rewards must be approved as being in the public interest by the Central Government. It was clarified that while a State Government can declare an act as being in the public interest, the ultimate approval for tax exemption lies with the Central Government, being a Central Legislation matter.

The Tribunal also addressed the issue of delegation of authority, stating that there was no evidence of the Central Government delegating approval authority to State Governments in such matters. Additionally, the Tribunal distinguished a previous case where the Central Government directly rewarded an officer, clarifying the differences in the present case.

Regarding deductions, the Tribunal acknowledged the applicability of CBDT circulars allowing deductions for certain expenses related to rewards. It was held that 50% of the gross commission should be allowed as a deduction for the assessee, considering the nature of the reward received under the government scheme.

Ultimately, the Tribunal concluded that the reward received by the assessee was part of her gross commission income, and the appeal was allowed in favor of the assessee, directing the deduction of 50% of the gross commission as per the CBDT circulars.