2025 (3) TMI 998 - AT - Income Tax

Denial of exemption claimed u/s 10(26BBB) - HELD THAT - Respectfully following the order of the Tribunal 2019 (1) TMI 1267 - ITAT DELHI and in view of identical facts for the present Assessment Year also the assessee s claim for exemption u/s 10(26BBB) is rejected by the AO is confirmed. Further in view of Form No.8 declaration filed u/s 158A of the Act by the assessee the assessee/the AO after receipt of the order of the Hon ble Uttarakhand High Court in the aforesaid 2020 (10) TMI 1398 - UTTARAKHAND HIGH COURT in assessee s own case may furnish suitable application in terms of section 158A(5) of the Act and as per the procedure laid down in section 158A of the Act. Decided against assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment are:

1. Whether the appellant corporation qualifies for income exemption under Section 10(26BBB) of the Income Tax Act, 1961, which requires the corporation to be established by a Central, State, or Provincial Act for the welfare and economic upliftment of ex-servicemen.

2. Whether the reopening of the assessment under Section 148 of the Income Tax Act, 1961, constitutes a mere change of opinion and is therefore invalid.

3. The appropriateness of the levy of interest under sections 234A/B/C and 234D of the Income Tax Act, 1961.

4. The validity of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, given the appellant's claim of no willful concealment of income or furnishing of inaccurate particulars.

ISSUE-WISE DETAILED ANALYSIS

1. Eligibility for Exemption under Section 10(26BBB)

Relevant Legal Framework and Precedents: Section 10(26BBB) of the Income Tax Act, 1961, provides that any income of a corporation established by a Central, State, or Provincial Act for the welfare and economic upliftment of ex-servicemen shall not be included in total income.

Court's Interpretation and Reasoning: The Tribunal examined whether the appellant corporation was established by a Central, State, or Provincial Act. It concluded that the corporation was incorporated under the Companies Act, 1956, rather than being established by a specific legislative act, which disqualified it from exemption under Section 10(26BBB).

Key Evidence and Findings: The Tribunal noted that the corporation's Memorandum of Association did not restrict its activities solely to ex-servicemen and their dependents, allowing employment to others, which further disqualified it from the exemption.

Application of Law to Facts: The Tribunal found that the corporation's establishment under the Companies Act did not meet the requirements of being established by a legislative act as required under Section 10(26BBB).

Treatment of Competing Arguments: The appellant argued that the corporation was established for the welfare of ex-servicemen and should qualify for the exemption. However, the Tribunal emphasized the statutory requirement of establishment by a legislative act, which was not fulfilled.

Conclusions: The Tribunal upheld the denial of the exemption under Section 10(26BBB) as the corporation was not established by a legislative act.

2. Reopening of Assessment under Section 148

Relevant Legal Framework and Precedents: Section 148 of the Income Tax Act, 1961, allows the Assessing Officer to reopen an assessment if there is reason to believe that income has escaped assessment.

Court's Interpretation and Reasoning: The Tribunal did not find the reopening to be a mere change of opinion, as the initial assessment was completed without the appellant filing a return for the assessment year in question.

Conclusions: The Tribunal found the reopening of the assessment to be valid.

3. Levy of Interest under Sections 234A/B/C and 234D

Relevant Legal Framework: Sections 234A/B/C and 234D of the Income Tax Act, 1961, pertain to the levy of interest for defaults in furnishing return of income, payment of advance tax, and excess refund granted.

Court's Interpretation and Reasoning: The Tribunal did not provide a detailed analysis of this issue, as the primary focus was on the exemption under Section 10(26BBB).

Conclusions: The Tribunal upheld the levy of interest as per the assessment order.

4. Penalty Proceedings under Section 271(1)(c)

Relevant Legal Framework: Section 271(1)(c) of the Income Tax Act, 1961, deals with penalties for concealment of income or furnishing inaccurate particulars.

Court's Interpretation and Reasoning: The Tribunal noted that penalty proceedings were initiated separately and did not delve into the merits of the penalty in this judgment.

Conclusions: The Tribunal did not address the penalty proceedings substantively in this judgment.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reaffirmed the principle that for a corporation to qualify for exemption under Section 10(26BBB), it must be established by a legislative act, not merely incorporated under the Companies Act.

Final Determinations on Each Issue: The Tribunal dismissed the appeal, upholding the denial of exemption under Section 10(26BBB) and affirming the validity of the assessment reopening and the levy of interest. The penalty proceedings were noted but not substantively addressed in this judgment.

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