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Income Tax Appellate Tribunal, DELHI BENCHES “G” : DELHI
Before: SHRI BHAVNESH SAINI, J.M. & SHRI O.P. KANT, A.M.
ORDER PER BHAVNESH SAINI, J.M. This appeal by Assessee has been directed against the Order of the Commissioner of Income Tax, Dehradun, under section 263 of the I.T. Act, 1961, Dated 04.03.2015, for the A.Y. 2010-2011. 2. The facts of the case are that the assessee claims to be engaged in the business of doing welfare of ex-
2 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. servicemen by providing them and their family members with employment. It furnished return of income claiming exemption under section 10(26BBB) of the I. T. Act in respect of its entire profit of business i.e., Rs.6,18,57,597/-. Assessment under section 143(3) of the Income tax Act was made on 17.12.2012 and benefit of exemption was allowed to the extent of Rs.5,66,34,094/-. The Learned CIT examined the assessment record and found the assessment order to be erroneous in so far as it is prejudicial to the interests of the Revenue. The assessee was given opportunity to explain the issue in proceedings under section 263 of the IT Act. The Ld.CIT noted that according to Sec.10(26BBB) of the I. T. Act, the following income is not to be included in total income - "any income of a corporation established by a Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen being the citizens of India." The assessee was asked to furnish documentary evidence showing that it had been established by a Central, State or Provincial Act for the welfare and 3 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. economic upliftment of ex-servicemen being the citizens of India. The assessee submitted that it had been established under the Companies Act which is a Central Act and that its main objective was welfare and economic upliftment of ex- servicemen of Uttarakhand. 2.1. The Learned CIT noted that the basic requirement of law is that the corporation should have been "established by a Central, State or Provincial Act". The corporation was not established by any such Act. It was incorporated as any other company under the provisions of the Companies Act, 1956. It was incorporated on 01.03.2004 as "Uttaranchal Purv Sainik Kalyan Udham Limited". Its name was changed to "Uttarakhand Purv Sainik Kalyan Nigam Limited" on 31.01.2007. It is a State government owned company but that is not enough. It is noted that since it was not "established by a Central, State or Provincial Act", it stands disqualified at the threshold itself for exemption u/s 10(26BBB). It is also noted that if the contention of the assessee to be accepted, it would amount to admission that 4 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. all companies incorporated under the provisions of the Companies Act have been established by an Act of Parliament and that would be plain absurdity.
2.2. The Learned CIT also noted that the Explanation following the provision makes it clear that the scope of the term "ex-serviceman" is restricted to "a person who has served in any rank in the armed forces of the Union or armed forces of the Indian States before the commencement of the Constitution". Even a corporation established by a Central, State or Provincial Act would be eligible for the exemption only if it was established for the welfare and economic upliftment of such persons. There is nothing In the Memorandum of Association of the assessee to suggest that it is intended to serve such persons. Therefore, the case of the assessee fails on this count also. It is noted that there is no restriction in the memorandum of the assessee. It was also noted that even though its main object is to provide employment/self-employment to the ex-servicemen and their dependencies, the main object itself contains the 5 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. narration that employment may be provided to “other than dependents” for the sake of continuity or in the case of non- availability of such ex-servicemen or their dependents. The Learned CIT noted that while the corporation would work primarily for the target group, but it is free to provide employment to others also. The statistics of employment provided by it to ex-servicemen and others are mentioned in the impugned order of the Learned CIT to show that as per the report, the ex-servicemen or their dependents constitute only about 65% of the total employees. Therefore, these ex- servicemen do not fit the definition of the term 'ex- servicemen' as appearing in section 10 (26BBB) of the I.T. Act. The Ld.CIT, therefore, noted that assessee did not fulfill the conditions of Section 10 (26BBB) of the Income Tax Act. The A.O. was misled by the provisions of the Act and as such allowing the exemption under section 10 (26BBB) is erroneous in so far as it is prejudicial to the interests of the Revenue. The assessee reiterated the submissions before the 6 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun.
Learned CIT and the submissions of the assessee have been summarized as under : I. “Proceeding u/s 263 can be validly initiated only if the both the conditions, namely, the order is erroneous and it is prejudicial to the interests of the revenue, are satisfied simultaneously. II. When the finding of the CIT that the AO had arrived at his finding without conducting any enquiry was itself erroneous, the exercise of powers u/s 263 cannot be said to be validly exercised. III. There was due application of mind by the AO while considering its claim of exemption for Rs.6,18,57,597/ and allowing the same to the extent of Rs.5,66,34,094/-. That being the case, action u/s. 263 is not justified.” 2.3. The Learned CIT after examining the issue in detail found that exemption under section 10(26BBB) is not allowable in the case of the assessee. The AO took the 7 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. representation of the assessee at face value and, completely failed to comprehend the import of the Section. The A.O. failed to examine that assessee had failed to satisfy substantive requirements of the provisions under reference. The A.O. has failed to apply his mind to the provisions of law and the facts. Therefore, such order is revisable under section 263 of the I.T. Act. The assessee made a wrong claim for exemption and A.O. without applying his mind, has partly allowed the wrong claim. The Learned CIT, therefore, held that assessee is not eligible for exemption under section 10(26BBB) of the I.T. Act and that assessment order in question which allowed exemption to the extent of Rs.5,66,34,094/- is erroneous in so far as it is prejudicial to the interests of the Revenue. The benefit of exemption is clearly not allowable to the assessee. The same was withdrawn and the assessment is enhanced by the impugned amount. The AO is directed to compute the tax and interest payable as per the Order.
8 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun.
The Learned Counsel for the Assessee reiterated the submissions made before the Learned CIT and submitted that that assessee has been established under the Companies Act which should be treated as established under Central Act. He has referred to page-4 of the paper book which is a letter dated 28.10.2003 issued by Secretary, Uttaranchal Government to the Director, Uttaranchal Sainik Kalyan Evam Punarvas Nirdeshalay, Dehradun, in which the Government of Uttaranchal has conveyed to their decision to set-up a Retired Sainik Welfare Corporation and it was directed that Corporation be registered under Companies Act. He has submitted that assessee is a Corporation registered under the Companies Act by the Uttaranchal Government which is 100% company of Government of Uttarakhand incorporated for welfare and economic upliftment of ex-servicemen. He has submitted that A.O. has applied his mind to the submissions of the assessee and accepted the claim of assessee. Therefore, when two views are possible and A.O. has taken one of the 9 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun.
view with which the Commissioner does not agree, in such circumstances, the assessment order cannot be treated as an Order erroneous in so far as it is prejudicial to the interests of the Revenue and in support of its contention, the Learned Counsel for the Assessee relied upon the decisions of Hon’ble Supreme Court in the case of CIT vs. Kwality Steel Suppliers Complex 84 taxmann.com 234. He has also relied upon the decision of Hon’ble Supreme Court in the case of CIT vs. Canara Bank (2018) 95 taxmann.com 81 (SC) in which it was held as under :
“New Okhla Industrial Development Authority (NOIDA) is a Corporation established by a State Act and is, therefore, entitled to exemption of payment of tax at source under section 194A(1)”. 3.1. In this case, NOIDA Authority has been constituted by Notification Dated 17.04.1976 issued under section 3 of the Uttar Pradesh Industrial Area Development Act, 1976. He has also relied upon decision of the Hon’ble Supreme Court in the case of Dalco Engineering Private
10 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun.
Limited vs. Satish Prabhakar Padhye and Others (2010) 4 SCC 378 (SC) in which it was held as under :
“Where definition of “establishment” uses the term “a corporation established or under an Act”, the emphasis should be on the word “established” in addition to the words “by or under”. The word “established” refers to coming into existence by virtue of an enactment. It does not refer to a company, which, when it comes into existence, is governed in accordance with the provisions of the Companies Act. There is difference between “established by a Central Act” and “established under a Central Act”. When the words “by and under an Act” are preceded by the words ““established”, the reference is to a corporation established, that it is brought into existence, by an Act or under an Act. The term refers to a statutory corporation as contrasted from a non-statutory corporation incorporated or registered under the Companies Act.”
11 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun.
3.2. He has, therefore, submitted that the Order under section 263 of the I.T. Act may be set aside.
On the other hand, Ld. D.R. relied upon the impugned Order of the Learned CIT and submitted that as per Section 10(26BBB) of the I.T. Act, the assessee is eligible for exemption if it is a Corporation established by Central, State or Provincial Act. The assessee is a company established under the Companies Act and hence not eligible for this exemption. The Ld. D.R. submitted that a perusal of Memorandum of Association shows that it is for benefit of people even other than ex-servicemen. The main object itself contains the narration that the employment may be provided to “other than dependents” for the sake of continuity or in the case of non-availability of such ex- servicemen/their dependents. As per report, the ex- servicemen or their dependents constitute only about 65% of the total employees. He has submitted that A.O. did not apply his mind to the facts and Law and passed the Order without making any enquiry and verification. He has relied
12 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. upon decision of the Hon’ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017, decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., vs. CIT (2000) 243 ITR 84 (SC) and Judgment of Hon’ble Calcutta High Court in the case of Rajmandir Estates (P.) Ltd., vs. PCIT (2017) 77 taxmann.com 285 (Calcutta) in which it was held that A.O. passed assessment order without carrying out requisite enquiry into increase of share capital including premium received by the assessee. The Commissioner was justified in treating the assessment order as erroneous in so far as it is prejudicial to the interests of the Revenue. This Judgment have been confirmed by the Hon’ble Supreme Court by dismissing the SLP of the assessee reported in (2017) 245 Taxman 127 (SC).
We have considered the rival submissions and perused the material available on record. Section 10(26BBB) of the I.T. Act provides that the income which do not form part of total income - “any income of a Corporation
13 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. established by Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen being the citizen of India”. The Explanation to this Section provides the definition of “Ex-servicemen”. According to the above provisions, when assessee seeks exemption of income under the above Section, the assessee shall have to prove that the Corporation have been established by Central, State or Provincial Act. In the present case, the assessee has been registered under the Companies Act only. No Corporation have been established by any such Act in the case of the assessee. It was incorporated as any other Company under the provisions of Companies Act and its name was later on changed to Uttarakhand Purv Sainik Kalyan Nigam Limited. However, by mere mention of Corporation in the name of the assessee would not serve any purpose unless the assessee is incorporated as a Corporation as is required by Section 10(26BBB) of the I.T. Act. It may be a State Government owned Company but it would not serve the purpose of claiming exemption under section 10(26BBB) of the I.T. Act.
14 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun.
Since the assessee has admittedly not been established by Central, State or Provincial Act, it is disqualified on this point itself for exemption under the above provision. We may also note that the word ‘Corporation’ established by Central, State or Provincial Act, is a standard term used in several enactments to denote statutory Corporation established or brought into existence by or under same statute. On the other hand, a Company is not established under the Companies Act. A registered Company, does not owe its existence to the Companies Act. An incorporated Company is formed by the act of required persons associated for any lawful purposes subscribing their name to the Memorandum of Association and by complying with the requirements of the Companies Act in respect of registration. A Company is incorporated and registered under the Companies Act and not established under the Companies Act. Thus, the A.O. miserably failed to enquire and investigate into the substantive provisions of Law - whether assessee is entitled for exemption under section 15 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun.
10(26BBB) of the I.T. Act. The impugned assessment order shows that A.O. asked for the explanation of assessee and the entire reply of the assessee has been reproduced in the assessment order and the A.O. without examining and without verifying the contents of the reply of the assessee has partly disallowed the exemption under section 10(26BBB) of the I.T. Act in a sum of Rs.52,23,503/-. The A.O. in the assessment order has nowhere mentioned or concluded that assessee has satisfied the conditions of Section 10(26BBB) of the I.T. Act. Therefore, it is a case where A.O. did not make any enquiry with regard to applicability of substantive provisions of Section 10(26BBB) of the I.T. Act. The A.O. has failed to apply his mind to the facts and circumstances of the case. The A.O. did not make any enquiry into the issue involved in the present appeal. The A.O. merely reproduced the reply of the assessee and accepted the claim of assessee partly. Therefore, there is no question of taking any possible view into the matter as is contended by Learned Counsel for the Assessee. During the 16 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. course of arguments, the Learned Counsel for the Assessee was not able to satisfy as to how the assessee satisfied the requirements of Section 10(26BBB) of the I.T. Act and how the Judgments, relied upon by him are applicable to the facts and circumstances of the case. The Ld. D.R. on the other hand has suggested that both the decisions relied upon by the Learned Counsel for the Assessee support the case of the Revenue. On this reason itself, the assessment order was correctly found to be erroneous in so far as it is prejudicial to the interests of the Revenue. On this reason itself, the appeal of assessee is liable to be dismissed. We may also note briefly that Learned CIT has noted that even the case of the assessee would not fit within the definition of the term “Ex-servicemen” appearing in Section 10(26BBB) of the I.T. Act, on which, no arguments have been made during the course of hearing of the appeal. Since the assessee failed to satisfy the conditions of Section 10(26BBB) of the I.T. Act and A.O. did not examine this issue at all, therefore, learned CIT, Delhi was justified in 17 ITA.No.2622/Del./2015 M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited, Dehradun. setting aside the assessment order and to enhance the income of assessee by holding that assessee is not entitled for exemption under the provisions of Section 10(26BBB) of the I.T. Act. No infirmity have been pointed out in the Order of the learned CIT. We, accordingly, do not find any error in the Order for interference. The appeal of assessee have no merit and the same is accordingly dismissed.
In the result, appeal of Assessee is dismissed. Order pronounced in the open Court.