Facts of the Case

The present appeal was filed by the Commissioner of Income Tax (Exemptions), Delhi challenging the order dated 20.11.2019 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2017–18. The ITAT had allowed exemption under Section 10(26B) of the Income Tax Act, 1961 to the assessee, namely National Safai Karamcharis Finance and Development Corporation.

The assessee is a Section 25 Company fully owned by the Government of India and engaged in activities for the upliftment and development of Safai Karamcharis and Manual Scavengers, who primarily belong to Scheduled Castes, Scheduled Tribes, and Other Backward Classes. 

Issues Involved

  • Whether the assessee corporation is eligible for exemption under Section 10(26B) of the Income Tax Act, 1961.
  • Whether the benefit under Section 10(26B) is restricted strictly to corporations serving only SC/ST/OBC communities, or extends to entities working for classes substantially comprising such communities 

Petitioner’s Arguments (Revenue)

  • The ITAT erred in granting exemption under Section 10(26B). .
  • The benefit under Section 10(26B) is restricted to promotion of interests of members of SC/ST/OBC communities only.
  • The target group of the assessee, i.e., Safai Karamcharis, may not necessarily belong exclusively to SC/ST/OBC communities, hence the exemption should not apply.

Respondent’s Arguments (Assessee)

  • The assessee is a Government-owned corporation working for the upliftment of Safai Karamcharis and Manual Scavengers.
  • These groups predominantly belong to SC/ST/OBC categories and represent the most economically and socially disadvantaged sections.
  • The activities and financial assistance provided are specifically directed towards such communities, thereby satisfying the conditions under Section 10(26B). 

Court’s Findings / Order

  • The Delhi High Court upheld the findings of the ITAT.
  • It was observed that:
    • The assessee is a Government-owned entity fulfilling the statutory conditions under Section 10(26B).
    • The Tribunal had recorded a categorical finding of fact that the funds were used exclusively for the benefit of Scheduled Castes in Delhi.
    • Section 10(26B) applies to corporations working for promotion of interests of SC/ST/OBC communities, either individually or collectively.
  • The Court held that there was no perversity in the ITAT’s findings.
  • Accordingly, the appeal filed by the Revenue was dismissed as being devoid of merit 

Important Clarification by the Court

  • Section 10(26B) is not confined strictly to caste-based classification but also includes class-based beneficiaries.
  • Even if the target group (such as Safai Karamcharis) is not exclusively limited to SC/ST/OBC, the exemption can still apply if the beneficiaries substantially fall within these categories.
  • A corporation engaged in upliftment of any one or more of SC/ST/OBC communities qualifies for exemption.

Sections Involved

  • Section 10(26B), Income Tax Act, 1961

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2649-DB/MMH27082021ITA1382021_225318.pdf

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