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Director Of Income-Tax (Exemption) v. Raunaq Education Foundation
Factual and Procedural Background
The Revenue challenged an order dated 1 January 2006 of the Income-tax Appellate Tribunal, Delhi Bench A in I.T.A. No. 2590.Del/2002 (assessment year 1987-88) and I.T.A. No. 2591.Del/2002 (assessment year 1998-99). The central dispute concerned whether an assessee entitled to exemption under section 10(22) of the Income-tax Act, 1961 could claim that exemption in respect of income deemed to be chargeable to tax under section 68 of the Act. The Assessing Officer held that the undisclosed (deemed) income could not be exempted under section 10(22); the Commissioner (Appeals) upheld that view. On further appeal the Tribunal reversed that approach, holding that the word "income" in section 10(22) includes deemed income under section 68. The Revenue appealed to this Court.
Legal Issues Presented
- Whether an assessee entitled to exemption under section 10(22) of the Income-tax Act, 1961 can claim that exemption in respect of income deemed to be chargeable to tax under section 68 of the Act.
Arguments of the Parties
Assessing Officer / Commissioner (Appeals)
- The Assessing Officer's position: undisclosed income (deemed under section 68) could not be exempted under section 10(22) of the Act.
- The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's view.
Assessee's Arguments
- Assessee's counsel drew attention to Orissa State Warehousing Corporation v. Commissioner Of Income Tax, [1999] 237 ITR 589, noting the Supreme Court's interpretation of section 10(29) which uses the expression "derived from"; counsel emphasized that the expression "derived from" is absent in section 10(22), implying a different (wider) meaning of "income" in section 10(22).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Orissa State Warehousing Corporation v. Commissioner Of Income Tax, [1999] 237 ITR 589 | Interpretation of section 10(29): the expression "derived from" gives a restrictive meaning to the word "income" in that provision. | Cited by assessee's counsel; Court distinguished it because section 10(22) does not contain "derived from", so the restrictive interpretation applied in Orissa State Warehousing is inapplicable to section 10(22). |
| P.R Prabhakar v. Commissioner Of Income Tax, Coimbatore, [2006] 284 ITR 548 | Principle that exemption provisions are to be construed strictly as to applicability, but once applicability is established they should be interpreted liberally and given full play. | Applied to support the view that, since exemption under section 10(22) is available, it must be given full effect. |
| Tata Iron and Steel Co. Ltd. v. State of Jharkhand, [2005] 4 RC 641 (SC); [2005] 140 STC 284 (SC); (2005) 4 SCC 272 | Cited within the P.R. Prabhakar passage as authority for the interpretive principle regarding exemptions. | Referenced as supporting authority for interpreting exemption provisions liberally once applicability is found. |
| Government of India v. Indian Tobacco Association, [2005] 5 RC 379 (SC); (2005) 7 SCC 396 | Cited within the P.R. Prabhakar passage as authority for the interpretive principle regarding exemptions. | Referenced as supporting authority for interpreting exemption provisions liberally once applicability is found. |
| Commissioner Of Central Excise, Raipur v. Hira Cement., [2006] 6 RC 219 (SC); [2006] 145 STC 264 (SC); [2006] 2 JT 369 | Cited within the P.R. Prabhakar passage as authority for the interpretive principle regarding exemptions. | Referenced as supporting authority for interpreting exemption provisions liberally once applicability is found. |
| Adityapur Industrial Area Development Authority v. Union of India, [2006] 5 Scale 321 | Principle that an exemption is to be granted unless it is expressly taken away. | Applied to reinforce that exemption should be given effect unless statute expressly denies it. |
Court's Reasoning and Analysis
The Court analyzed the statutory language and prior authorities and proceeded as follows:
- Noted the sole question: whether exemption under section 10(22) can be claimed in respect of income deemed under section 68.
- Recorded the Assessing Officer's and Commissioner (Appeals)'s view rejecting exemption for deemed income and the Tribunal's contrary conclusion.
- Observed that the Tribunal had considered sections 4 and 5 read with sections 2(24), 2(45) and section 10(22) and concluded that the word "income" in section 10(22) is wide enough to include deemed income under section 68.
- Distinguished Orissa State Warehousing (which interpreted section 10(29)) on the ground that section 10(29) contains the phrase "derived from" (giving a restrictive meaning), whereas section 10(22) lacks such words; therefore "income" in section 10(22) should be given its natural meaning as per section 2(24).
- Relied on the principle (as stated in P.R. Prabhakar and cited authorities) that although exemption provisions are to be strictly construed as to applicability, once applicability is established they are to be interpreted liberally and given full effect; and on Adityapur that exemptions are to be granted unless expressly taken away.
- Concluded there was no infirmity in the Tribunal's decision that section 10(22) covers income deemed under section 68.
Holding and Implications
DISMISSED.
Holding: The Court found no infirmity in the Tribunal's decision that the term "income" in section 10(22) includes income deemed to be chargeable under section 68 and accordingly dismissed the Revenue's appeal.
Implications: The direct effect is that the Tribunal's orders allowing exemption under section 10(22) in respect of income deemed under section 68 are upheld. The opinion states that no substantial question of law arises; it does not set out any broader precedent beyond affirming the Tribunal's conclusion in these proceedings.
Madan B. Lokur, J.:— The Revenue is aggrieved by an order dated. 1 January 6, 2006, passed by the Income-tax Appellate Tribunal, Delhi Bench A in I.T.A No. 2590.Del/2002 relevant to the assessment year 1987-88 and I.T.A No. 2591.Del/2002 relevant to the assessment year 1998-99.
2. The sole question that has arisen in this appeal is whether the assessee who is entitled to exemption under section 10(22) of the Income-tax Act, 1961, can claim the benefit thereof for the purpose of income deemed to be chargeable to tax under section 68 of the Act.
3. According to the Assessing Officer, the undisclosed income could not be exempted under section 10(22) of the Act and the Commissioner of Income-tax (Appeals) upheld the view taken by the Assessing Officer.
4. On further appeal, the Tribunal considered the provisions of sections 4 and 5 of the Act read with section 2(24) and 2(45) as well as section 10(22) of the Act and came to the conclusion that the use of the word “income” in sub-section (22) of section 10 of the Act is wide enough to include deemed income under section 68 of the Act.
5. Learned counsel for the assessee has drawn our attention to Orissa State Warehousing Corporation v. Commissioner Of Income Tax, [1999] 237 ITR 589, wherein the Supreme Court has interpreted section 10(29) of the Act which uses the expression “derived from” which expression is missing in section 10(22) of the Act.
6. The Supreme Court held that the expression “derived from” is intended to give a restrictive meaning to the word “income” as used in section 10(29) of the Act and, therefore, proceeding on that basis, the Supreme Court decided against the assessee.
7. We find that the words “derived from” (or some other similar words) do 6 not occur in section 10(22) of the Act and, therefore, the word “income” as occurring in section 10(22) cannot be given restrictive meaning and must be given its natural meaning or the meaning ascribed to it in section 2(24) of the Act.
8. It is well-settled that exemption provision must be strictly construed but when it is found an exemption is available then it must be given its full play. This has recently been held by the Supreme Court in P.R Prabhakar v. Commissioner Of Income Tax, Coimbatore, [2006] 284 ITR 548 in the following words:
“It is now a well-settled principle of law that although the exemption provisions are to be construed strictly as regards the applicability thereof to the case of the assessee once it is found that the same is applicable, the same are required to be interpreted liberally. (See Tata Iron and Steel Co. Ltd. v. State of Jharkhand, [2005] 4 RC 641 (SC); [2005] 140 STC 284 (SC); (2005) 4 SCC 272; Government of India v. Indian Tobacco Association, [2005] 5 RC 379 (SC); (2005) 7 SCC 396 and Commissioner Of Central Excise, Raipur v. Hira Cement., [2006] 6 RC 219 (SC); [2006] 145 STC 264 (SC); [2006] 2 JT 369).
It is also trite law that an exemption is to be granted unless it is expressly taken away. (See Adityapur Industrial Area Development Authority v. Union of India, [2006] 5 Scale 321).”
9. In view of the above, we do not find any infirmity in the decision of the Tribunal. No substantial question of law arises for consideration.
10. Dismissed.
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