Exemption under section 10(26B)

P.G. Agarwal, J. - All the above appeals under section 260A of the Income-tax Act, 1961, have been heard analogously and disposed of by this common judgment and order. The appeals are in respect of different assessment years but the substantial question of law formulated is one and it reads as follows : “Whether, on the facts and in the circumstances of the case, the appellant-corporation is not entitled for the benefit of exemption under section 10(26B) of the Income-tax Act, 1961?” 2. We have heard Dr. A.K. Saraf, assisted by Ms. N. Hawelia, appearing for the appellants, and Mr. U. Bhuyan, learned counsel appearing for the respondent-revenue. The facts : 3. The appellant-Arunachal Pradesh Forest Corporation Limited (for short ‘the APFC’), is a company incorporated in 1977 and for the respective assessment years, the company filed its return of income wherein, the company claimed exemption under clause (26B) of section 10 of the Income-tax Act, (for short ‘the Act’). The claim was rejected by the assessing authority whereupon appeal was filed before the appellate authority and thereafter also before the Appellate Tribunal. Both the appellate authority as well as the Appellate Tribunal rejected the contention of the APFC holding, inter alia, that the corporation was not established/formed for the purpose of promotion of tribal welfare and as such it is not entitled to exemption. Hence, the present appeal. 4. Clause (26B) of the Act reads as follows : “(26B) any income of a corporation established by a Central, State or Provincial Act or of any other body, institution or association (being a body, institution or association wholly financed by Government) where such corporation or other body or institution or association has been established or formed for promoting the interests of the members of the Scheduled Castes or the Scheduled Tribes or backward classes or of any two or all of them.” 5. In the present cases, the APFC has claimed exemption under clause (26B) of the Act and as such it is for the Corporation to establish that it is eligible for exemption. The law on the subject was settled by the Apex Court in the case of CIT v. Ramakrishna Deo [1959] 35 ITR 312. The Apex Court observed : “. . .The law is well-settled that it is for a person who claims exemption to establish it, and there is no reason why it should be otherwise when the exemption claimed is under the Income-tax Act. . . . ** ** ** . . .There is ample authority for the view that the principle that a person who claims the benefit of an exemption has to establish it, applies when the exemption claimed is under the provisions of the Income-tax Act. Vide the observations of the Lord President and of Lord Adam, in Maughan v. Free Church of Scotland [1893] 3 Tax Cas. 207 and the observations of Lord Hanworth, M.R. in Keren Kayemeth Le Jisroel Ltd. v. Commissioner of Inland Revenue [1931] 17 Tax Cas. 27 at page 36 that ‘the right to exemption under section 37 must be established by those who seek it. The onus therefore lies upon the appellants’, and of Lord Macmillan, at page 58 that, ‘in my opinion, the appellants have failed to bring it within any one of the these categories and consequently have failed in what it was essential for them to make out, namely, that this company is a body of persons established for charitable purposes only’. The decisions of Indian Courts have likewise ruled and quite rightly that it is for those who seek exemption under section 4 of the Act to establish it. . . .” (p. 316) 6. Before proceeding further, we would like to recapitulate the following observations of the Hon’ble Allahabad High Court in the matter of interpretation of clause (26B) of section 10 of the Income-tax Act, in the case of CIT v. Harijan Evam Nirbal Varg Avas Nigam [1997] 226 ITR 696 : “Clause (26B) like other clauses of section 10 provides exemption in respect of any income of a corporation established by a Central or State Government. The assessee being a body within the meaning of clause (26B) may qualify for exemption under that clause if it is established that it was formed for promoting the interests of the members of the Scheduled Castes or the Scheduled Tribes or of both. Simply because the assessee has some other main objects besides one of the objects for promoting the interests of the members of the Scheduled Castes, there seems to be no good reason to deny the exemption, envisaged by clause (26B). The principle of severability of common law is well recognised in our country. Insofar as the income of the assessee from the main object No. 1, is severable from the income accruing to it from other main objects, we see no legal infirmity in taking the view that the assessee’s income attributable to the housing schemes undertaken for promoting the interests of the members of the Scheduled Castes will be entitled to exemption under clause (26B). The matter may be looked at from the angle of constitutional law as well. Article 47 of the Constitution of India mandates, inter alia, that the State shall regard the raising of the standard of living of its people and improvement of public health as its primary duty. Article 46 of the Constitution enjoins upon the State to promote with special care the educational and economic interests of the Scheduled Castes and Scheduled Tribes in particular and to protect them from social injustice and all forms of exploitation. These two articles put together, cast a duty on the State to protect the members of the Scheduled Castes and the Scheduled Tribes and raise their standard of living. Exemption under clause (26B) is in furtherance of these articles. It need hardly be mentioned that the Constitution is the supreme law of the land. All other laws, including the Income-tax Act, are subordinate to the Constitution and must be read and interpreted in the light of the constitutional provisions. We, therefore, must take into account articles 46 and 47 while interpreting section 10(26B) of the Income-tax Act, 1961, and give the latter provision a meaning which will further the object of the former articles. Clause (26B), therefore, deserves to be interpreted in such a way as to promote the schemes undertaken for ameliorating the lot of the members of the Scheduled Castes or the Scheduled Tribes or of both. A corporation or other bodies may be formed having one of the objects for promoting the interests of the members of the Scheduled Castes or the Scheduled Tribes or of both and if strict interpretation is put on clause (26B), then they will be precluded from taking the benefit of exemption. Clause (26B) is, therefore, to be interpreted in such manner as to encourage the corporations or other bodies to undertake the activities to promote the interests of the members of the Scheduled Castes and the Scheduled Tribes more and more, rather than to defeat the purpose of clause (26B). Viewed from this angle, there is no justification to put a restricted interpretation on clause (26B). . . .” (p. 705) 7. The contention of the revenue is that the APFC was not established or formed only for promoting the interests of the Scheduled Tribes as claimed by the assessee. It was founded for the purpose of commercial activities to be undertaken in Arunachal Pradesh and as such it is not covered by the exemption under clause (26B) of section 10 of the Act. 8. We may note the background under which APFC was formed. During the 5th Lok Sabha, a Parliamentary Committee was formed for the purpose of considering the matter relating to welfare of Scheduled Castes/Scheduled Tribes. The Committee submitted its report on May 3, 1974. In the said report in respect of Arunachal Pradesh, the Committee observed that the total area of Arunachal Pradesh is 83,578 sq. kms. out of which 60,750 sq. kms. are covered by forest and out of the total population of Arunachal Pradesh, more than 98 per cent are Scheduled Tribes. The Committe was, therefore, of the view that the forest having valuable timber of commercial importance can be utilised for the economic development of the local people of Arunachal Pradesh. Acting on the recommendation of the said Committee, the APFC was formed as a wholly owned Government company with the avowed object to establish and to promote the forest resources. 9. The seven main objects as prescribed in the memorandum of association reads as follows : “1. To provide the necessary infrastructure to harvest and develop forest resources, to promote forest resource based industries, to arrange marketing of timber and other forest resource within the country and abroad. 2. To plant, grow, cultivate, produce and raise plantations of various forest species of proven utility and other agricultural, plantation and horticultural crops, medicinal and aromatic plants and to buy, sell, export, import, process, distribute or otherwise deal with all kinds of forest crops, natural products, agricultural, plantation and horticultural crops, medicinal and aromatic plants. 3. To develop land, to maintain, conserve, protect, preserve, tend, exploit and to manage in all respects, crops and trees raised or come up naturally and forests and land of all description and to arm all officers including the managing director and staff of the company with powers similar to those of the officers and staff of the Forest Department under the Assam Forest Regulation, III of 1891, other Acts and Rules made thereunder and as amended from time to time. 4. To carry on the business of planters, cultivators, producers, sellers and dealers in timber, processed or not and such other products of every description and to manufacture, dispose of, sell and deal in products of natural forest and forest plantations, agricultural, plantation and horticultural crops and medicinal and aromatic plants. 5. To establish, administer, own and run industries for manufacturing forest products, agricultural, plantation and horticulture products, and medicinal and aromatic plants. 6. To conduct and contract for training and research connected with the integrated development of forest resources of the territory and cultivation as well as processing of agricultural, plantation and horticultural crops, medicinal and aromatic plants. 7. To protect, maintain and improve wild life and other natural resources, including the environmental factors.” 10. It may be mentioned that the said memorandum was subsequently amended and the following was incorporated : “(A) (1) to promote welfare of the Scheduled Tribe people in Arunachal Pradesh by undertaking socio-economic development activities through efficient utilisation of forest based resources naturally available and also through creation of new resources based on finances.” 11. The assessing authority was of the view that the corporation was not established initially for the welfare of the Scheduled Tribes and as such subsequent incorporation by amendment cannot bring the corporation within the purview of clause (26B) of section 10 of the Act. 12. So far as the amendment is concerned, we find that the said amendment was brought on record subsequently and all the cases before us are in respect of the period prior to the said amendment. Hence, the said amendment is not relevant for the purpose of deciding the issue before us. According to learned counsel for the appellant, the income-tax authority has failed to appreciate the ground realities and background in proper perspective. The tribal population in the State of Arunachal Pradesh constitutes more than 98 per cent of total population and in order to uplift the economic condition of the entire population including Scheduled Tribes it was decided to harness the forest produce and the APFC came into existence on the recommendation of the Parliamentary Committee on Scheduled Castes/Scheduled Tribes. 13. It is, therefore, submitted that even in the absence of any specific words in the objects that it is for the purpose of promoting the interests of the Scheduled Tribes, the fact remains that the corporation was established to promote the development of the local population and admittedly the tribal population constitutes the bulk of the entire population. It is also submitted that considering the poor financial condition of the local tribal population, the corporation organised the local people to form societies to develop the land and engage them in cultivation of tea and other cash crops. The entire finance, manpower and technical activities were provided by the corporation and the above activities of the corporation led to the development of tea production in the State. 14. On consideration of the background under which the corporation came into being and taking into account the provisions under articles 46 and 47 of the Constitution, we are of the view that the APFC was primarily formed to ameliorate the suffering of the tribal population of the Arunachal Pradesh and for ushering the concept of developmental activities in the State. We are constrained to hold that a restricted interpretation of clause (26B) of section 10 is not called for in the facts and circumstances of the present case. 15. Mr. Bhuyan, appearing for the revenue, has placed reliance on a decision of the Apex Court in the case of Delhi Stock Exchange Association Ltd. v. CIT [1997] 225 ITR 2351, where the question came for consideration of the Apex Court was regarding interpretation of the provisions of section 2(15) of the Act regarding exemption on “charitable purpose” and it was held that there must be an obligation created to spend the money exclusively and essentially on charity. The provisions regarding exemption of charity purpose stands on different footing as the amount spent on charity is required to be exempted. Clause (26B) stands on a different footing and the ratio laid down in Delhi Stock Exchange Association Ltd.’s case (supra) is not applicable or relevant. Clause 20 of the memorandum of association of the APFC under the heading “Incidental and Ancillary Objects” provides : “To promote, establish, undertake and execute industries, projects or enterprises for manufacture and production of plant, machinery, tools, implements, materials, substances, goods or things of any description which in the opinion of the company are likely to promote or advance the setting up of industries to utilise the forest resources to the best advantage and to create gainful employment opportunities for the local people and those who opt to work in the territory.” 16. In view of the aforesaid discussions we hold that the APFC was formed with the object to promote the members of the Scheduled Tribes in the State of Arunachal Pradesh and as such the income of the said corporation is entitled to exemption under clause (26B) of section 10 of the Income-tax Act. The substantial question of law is answered in favour of the appellant and against the revenue. 17. The appeals stand allowed. 18. The impugned orders of assessment are set aside.