2025 (6) TMI 1062 - HC - Income Tax

Revision petition filed u/s 264 - denial of exemption u/s 10(26) - petitioner had claimed that he had earned the income in question by conducting religious tours to Syria Iran and Iraq for the residents of Ladakh. HELD THAT - As aptly noted by the Principal Commissioner that the petitioner had given his address as Mumbai as is evident from his PAN and was accordingly assessed by the jurisdictional Assessing Authority i.e. Income Tax Officer Ward-25(2)(1) Mumbai. This was indication enough to show that the petitioner was conducting his business of Tour and Travels from Mumbai and therefore no income which accrued or arose to him from any source in the Ladakh region. Principal Commissioner has also noted that the brother of the petitioner who as per the petitioner was the proprietor of Tour and Travels business had filed the Income Tax Returns for the assessment year 2014-15 on 23rd September 2014 at the same address i.e. Room No. 25 C Block Bandukwala Bldg Opp Jail Road Dongri Mumbai. All these facts including the reasoning given by the Assessing Authority persuaded the Principal Commissioner to dismiss the revision petition of the petitioner and uphold the order of assessment passed by the Assessing Authority. We see no reason or justification to take a view contrary to the concurrent view taken by the two Authorities under the Act. The petitioner having failed to satisfy the three conditions laid down in Section 10(26) of the Act is not entitled to claim exemption of his entire income. What is agitated before us by the learned counsel for the petitioner clearly falls in the realm of disputed questions of fact. The two Authorities under the Act i.e. Jurisdictional Assessing Authority and the Principal Commissioner having concurrently determined the questions of fact this Court in the exercise of its jurisdiction under Article 226 of the Constitution of India would be loath to interfere with such concurrent findings of fact arrived at by two quasi-Judicial Authorities performing adjudicatory functions under the Act.

Summary

The core legal questions considered by the Court in this matter are:

(i) Whether the petitioner, claiming to be a member of a Scheduled Tribe and a resident of the Union Territory of Ladakh, is entitled to exemption from payment of Income Tax under Section 10(26A) of the Income Tax Act, 1961;

(ii) Whether the petitioner satisfied the conditions precedent for claiming exemption under Section 10(26A), specifically regarding residence in the specified area and source of income;

(iii) Whether the orders passed by the Assessing Authority and the Principal Commissioner under Sections 144 and 264 of the Income Tax Act, respectively, suffer from any error of law or fact warranting interference under Article 226 of the Constitution of India;

(iv) Whether the petitioner's failure to file returns and respond to notices under Sections 148 and 142(1) of the Act affects the claim of exemption;

(v) The scope of judicial review in writ jurisdiction concerning concurrent findings of fact by quasi-judicial authorities under the Income Tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Section 10(26A) of the Income Tax Act

The relevant legal framework is Section 10(26A) of the Income Tax Act, which exempts income of a member of a Scheduled Tribe residing in the Ladakh region of Jammu and Kashmir from tax, provided the income accrues or arises from specified sources within that region. The petitioner relied on a Scheduled Tribe certificate and a resident certificate to claim exemption.

Precedents emphasize strict compliance with the conditions laid down in the statute, requiring proof of both tribal status and residence in the specified area, as well as the source of income being within the region.

The Court noted that the petitioner furnished a Scheduled Tribe certificate dated 17th May 2019 and a resident certificate dated 28th February 2022. However, the resident certificate post-dated the relevant assessment year (2013-14), and no contemporaneous evidence was produced to establish residence in Ladakh during the relevant period.

The Assessing Authority and Principal Commissioner found that the petitioner's PAN application listed a Mumbai address, and the petitioner conducted business activities from Mumbai, undermining the claim of residence in Ladakh. The petitioner's claim that income was derived from conducting religious tours for residents of Kargil was unsupported by documentary evidence.

The Court held that the petitioner failed to satisfy the three conditions for exemption under Section 10(26A): membership of Scheduled Tribe, residence in Ladakh during the relevant year, and income derived from sources in the specified area.

2. Compliance with Procedural Requirements and Impact on Claim

The petitioner did not file the original return of income for the assessment year 2014-15 and failed to respond to notices under Sections 148 and 142(1) of the Act. The Investigation Wing's report revealed irregularities in the bank's Annual Information Return filings, prompting issuance of a show cause notice under Section 144.

The petitioner's non-compliance and failure to provide satisfactory explanations or evidence led the Assessing Authority to treat the deposits as unexplained income and pass an assessment order determining taxable income of Rs. 3,90,87,098/-. The Principal Commissioner dismissed the revision petition challenging this order.

The Court emphasized that procedural non-compliance weakened the petitioner's position and justified the Assessing Authority's reliance on available evidence to reject the exemption claim.

3. Validity of Assessment and Revision Orders under Sections 144 and 264

The Assessing Authority's order under Section 144 was based on the petitioner's failure to explain the source of deposits and non-filing of returns. The Principal Commissioner's revision order under Section 264 upheld the assessment order after considering the petitioner's submissions and evidence.

The Court found no error of law or fact in the orders and noted that the findings by two quasi-judicial authorities were concurrent and based on material evidence. The petitioner's failure to prove residence and source of income in Ladakh was a question of fact rightly decided by the authorities.

The Court held that it would be inappropriate to interfere with such concurrent findings in writ jurisdiction, especially when they involve disputed questions of fact.

4. Scope of Judicial Review under Article 226

The Court reiterated the principle that interference under Article 226 is limited where concurrent findings of fact have been recorded by competent quasi-judicial authorities. The petitioner's claim involved disputed factual issues regarding residence and source of income, which had been examined and decided upon by the Assessing Authority and the Principal Commissioner.

The Court declined to disturb these findings, underscoring that writ jurisdiction is not a substitute for appellate or revisionary jurisdiction in tax matters where facts have been duly considered.

5. Treatment of Competing Arguments

The petitioner argued exemption based on tribal status and residence certificate, asserting income derived from religious tours. The Court found these contentions unsupported by contemporaneous evidence and inconsistent with the petitioner's Mumbai address and business operations.

The Respondent's position, supported by investigation reports and documentary evidence, was that the petitioner's income was unexplained and not derived from the specified area, justifying assessment and rejection of exemption.

The Court favored the Respondent's reasoning, given the petitioner's failure to discharge evidentiary burden.

Significant Holdings:

"With a view to claiming the benefit of exemption envisaged under Section 10(26) of the Act, an assessee must satisfy the following three conditions: (i) The person claiming exemption should be a member of a Schedule Tribe as defined in clause (25) of Article 366 of the Constitution; (ii) The assessee should be residing only in the Ladakh region of the State of Jammu and Kashmir; (iii) The income in respect of which exemption is claimed must be an income which accrues or arises to him from any source in the specified area by way of dividend or interest on securities."

"Whether a person is or was residing in the specified area and whether the income in respect of which he is claiming exemption is derived from a source/sources in the said area is a question of fact to be determined by the Assessing Authority on the basis of evidence produced before it."

"The petitioner having failed to satisfy the three conditions laid down in Section 10(26) of the Act, is not entitled to claim exemption of his entire income."

"The two Authorities under the Act i.e., Jurisdictional Assessing Authority and the Principal Commissioner, having concurrently determined the questions of fact, this Court in the exercise of its jurisdiction under Article 226 of the Constitution of India, would be loath to interfere with such concurrent findings of fact arrived at by two quasi-Judicial Authorities performing adjudicatory functions under the Act."

Ultimately, the Court upheld the assessment order and the revision order dismissing the exemption claim, finding no merit in the petitioner's contentions and no grounds for judicial interference.