2020 (2) TMI 1292 - HC - Income Tax

Exemption Granted Under Income Tax Act for Public Service Recognition, Reopening of Assessment Deemed Valid.

K. Vijaya Kumar Versus The Principal Commissioner of Income Tax, Chennai.

The HC allowed the writ petition, granting the petitioner exemption under Section 10(17A) of the Income Tax Act. It held that Central Government approval ... Exemption to 'Reward' as as approved by the government in Public Interest - whether the reference to ‘approval’ in Section 10(17A) will include an implied approval or whether such approval has to be express? - HELD THAT:- The object of Section 10(17A) is to reward an individual who has been recognized by the Centre or the State for rendition of services in public interest. While clause (i) is concerned with an award whether in cash or in kind, instituted in public interest by the Central or any State Government or instituted by any other body and approved by the Central Government in this behalf, clause (ii) refers to a reward by the Central or a State Government for such purposes as may be approved by the Central Government in this behalf in public interest. No specification or prescription has been set out in terms of how the approval is to be styled or even as to whether a formal written approval is required. Nowhere in the Rules/Forms is there reference to a format of approval to be issued in this regard. That apart, one should, in my view, interpret the provision and its application in a purposive manner bearing in mind the spirit and object for which it has been enacted. It is clear that the object of such a reward is by way of recognition by the State of an individual’s efforts in protecting public interest and serving society in a significant manner. Thus, in my considered view, the reference to ‘approval’ in Section 10(17A) does not only connote a paper conveying approval and bearing the stamp and seal of the Central Government but any material available in public domain indicating recognition for such services, rendered in public interest. The petitioner has been recognized by the Central Government on several occasions for meritorious and distinguished services and from the information available in public domain, it is seen that he was awarded the Jammu & Kashmir Medal, Counter Insurgency Medal, Police Medal for Meritorius Service (1993) and the President’s Police Medal for Distinguished Service (1999). Specifically for his role in nabbing Veerapan, he was awarded the President’s Police Medal for Gallantry on the eve of Independence Day, 2005. What more! If this does not constitute recognition by the Centre of service in public interest, for the same purposes for which the State Government has rewarded him, I fail to understand what is. The reward under Section 10(17A)(ii) is specific to certain 'purposes' as may be approved by the Central Government in public interest and the 'purpose' of the reward by the State Government has been echoed and reiterated by the Centre with the presentation of the Gallantry Award to the petitioner in 2005. This aspect of the matter is also validated by the Supreme Court in Abdul Karim [2000 (11) TMI 1257 - SUPREME COURT] as can be seen from the judgment extracted earlier, where the Bench makes observations on the notoriety of Veerapan and the threat that he posed to the Country, as a whole. Seen in the context of the recognition by the Centre of the petitioners' gallantry as well as the observations of the Supreme Court in Abdul Karim [2000 (11) TMI 1257 - SUPREME COURT] and ratio of the decision in J.G.Gopinath [1979 (6) TMI 1 - MADRAS HIGH COURT], the approval of the Centre in this case, is rendered a fait accompli. Issues Involved:1. Validity of the reopening of the assessment under Section 147 of the Income Tax Act.2. Interpretation of Section 10(17A) of the Income Tax Act regarding the approval of rewards.3. Whether the reward received by the petitioner qualifies for exemption under Section 10(17A).Detailed Analysis:1. Validity of the Reopening of the Assessment under Section 147 of the Income Tax Act:The assessment for AY 2010-11 was reopened under Section 147 of the Income Tax Act, and the assessment was completed on 02.03.2016. The reopening was based on the grounds that the computation of capital gain was incorrect, and the cost of acquisition of the property was not properly examined. The petitioner had initially returned a total income of Rs. 18,38,791/- for AY 2010-11, which was later revised to include short term capital gain of Rs. 82,00,400/- from the sale of the plot allotted to him. The petitioner claimed refund of the tax paid for AY 2012-13 and adjustment against the demand that arose under the revised return for AY 2010-11.2. Interpretation of Section 10(17A) of the Income Tax Act Regarding the Approval of Rewards:The central issue was whether the reference to 'approval' in Section 10(17A) includes an implied approval or requires an express approval. Section 10(17A) exempts any payment made in pursuance of any award instituted in public interest by the Central or State Government or any other body approved by the Central Government. The legislative history of this provision indicated that the requirement for a written approval from the Central Government was omitted effective 01.04.1989, suggesting that approval could be implied from surrounding circumstances and events.The court referred to the case of Commissioner of Income Tax V. J.G.Gopinath, where it was held that approval could be implied and did not necessarily require a formal written document. This view contrasted with the Patna High Court's decision in Commissioner of Income Tax V. S.N.Singh and the Delhi High Court's decision in Commissioner of Income Tax V. J.C.Malhotra, which required explicit approval by the Central Government.3. Whether the Reward Received by the Petitioner Qualifies for Exemption under Section 10(17A):The petitioner argued that the land was purchased from the Tamil Nadu Housing Board for Rs. 1,08,43,000/- with the purchase proceeds met by the Government of Tamil Nadu as reward money for nabbing forest brigand Veerapan. The petitioner contended that the cost of acquisition should include the purchase price and stamp duty, and the reward was the cash paid for the land, not the land itself.The court noted that the petitioner had been recognized by the Central Government for meritorious services, including awards such as the President’s Police Medal for Gallantry. The court concluded that the recognition by the Centre, in this case, constituted an implied approval for the reward under Section 10(17A)(ii). The Supreme Court's observations in Abdul Karim and others V. State of Karnataka underscored the significance of the petitioner's role in public interest, further validating the approval.Conclusion:The court allowed the writ petition, holding that the petitioner was entitled to the exemption under Section 10(17A) of the Income Tax Act. The approval by the Central Government could be implied from the recognition and awards given to the petitioner, and the reopening of the assessment under Section 147 was found to be valid. The court emphasized a purposive interpretation of the provision, considering the spirit and object of rewarding individuals for significant public service. The writ petition was allowed with no costs, and the connected miscellaneous petition was closed.