IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'B' NEW DELHI
BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER
SMT. DIVA SINGH, JUDICIAL MEMBER
I.T.A .No.-5602/Del/2011 (A.Y.-2007-08)
I.T.A .No.-5603/Del/2011 (A.Y.-2008-09)
I.T.A .No.-3209/Del/2012 (A.Y.-2006-07)
ITO, VS Cane Development Council, Ward-1, Income Tax Office, Chini Mill Compound, Station Road, Distt.-U.S.Nagar, Kashipur, Distt.-U.S.Nagar, Uttrakhand. Uttrakhand. PAN-AAAJG0723A (APPELLANT) (RESPONDENT) I.T.A .No.-5604/Del/2011 (A.Y.-2007-08)
I.T.A .No.-5605/Del/2011 (A.Y.-2008-09)
Cane Development Council, VS ITO,
Chini Mill Compound, Ward-1, Income Tax Office, Distt.-U.S.Nagar, Station Road, Uttrakhand. Kashipur, Distt.-U.S.Nagar, Uttrakhand.
(APPELLANT) (RESPONDENT) Appellant by: Ms. Archana S. Awasthi, Sr. DR
Respondent by: None
PER DIVA SINGH, JM
These are appeals filed by the assessee and the revenue against the orders
of the CIT(A)-II, Dehradun pertaining to 2007-08, 2008-09 & 2006-07 assessment
years where as the ITA No.-5602/Del/2011 & ITA No.-5604/Del/2011 are cross-
appeals of the assessee and the revenue for 2007-08 and ITA No.-5603/Del/2011 &
ITA No.-5605/Del/2011 are also cross-appeals for 2008-09 assessment year and
ITA No.-3209/Del/2012 is a appeal of the revenue for 2006-07 assessment years. 2 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
All these appeals are being decided by a common order for the sake of
convenience. On the date of hearing, the assessee filed written submission through
the Ld. AR stating that the same may be considered for disposing the appeal. The
Ld. Sr. DR was given time to go through the same. On the next date of hearing
considering the submissions of the Ld. Sr. DR and the material available on record.
The appeals were heard, taking into consideration, the written submissions filed by
the assessee are in the appeal.
2. In all the departmental appeals, identical grounds have been raised. For
ready-reference, we reproduced grounds from ITA No.-5602/Del/201. It reads as
"1. Ld. CIT(A)-II has erred in law and on facts in holding that only surplus remaining after allowing expenses as per the account of the assessee should be brought to tax without appreciating the fact that each and every expenditure claimed by the assessee and not supported by any evidence may not be an allowable expenditure and the Assessing Officer ought to have been given an opportunity to examine and verify the genuineness and admissibility of such claim.
2. Ld. CIT(A)-II has erred in law and on facts in directing the Assessing Officer to allow all expenses claimed by the assessee without affording any opportunity to the Assessing Officer to examine the veracity of such claim and to verify whether such expenses are liable to be deducted from the gross receipts as per the provisions of I.T.Act, 1961.
3. Ld. CIT(A)-II has erred in law and on facts by allowing all expenses even while the assessee furnished no evidence supporting any such claim."
3 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
3. In the cross-appeals filed by the assessee for the grounds of the assessee are
also identical in 2007-08 and 2008-09 assessment years. Accordingly for ready-
reference, the grounds from ITA No.-5604/Del/2011 are being reproduced :-
"1. That the order has been passed by the Ld. C.I.T (A) without considering the whole facts & circumstances of the case & materials on record.
2. That on the whole facts & circumstances of the case, the Ld. C.I.T.(A) is not justified & correct in upholding the validity of the assessment made u/s 143(3) against the appellant in the status of 'Artificial Juridical Person' (AJP), rejecting ground no. 3 & 4 of the 'Grounds of Appeal'.
3. That on the whole facts & circumstances of the case, the Ld. C.I.T.(A) is not justified & correct in upholding validity of the notice issued u/s 148 in the case.
4. That the effect of the statutory provisions of Uttrakhand Sugar Cane (Regulation of Supply and Purchase) Act 1953 (under which the appellant has been established) and the Rules made there under specially rule 49 & 49A, on the nature and chargeability of the commission and bank interest receipts in hands of the appellant under the Income Tax Act'61 has not been considered by the Ld. C.I.T. (A) in its right perspective.
5. That the Ld. CIT(A) is not justified & correct in directing the Ld. A.O. to bring the surplus coming after expenditures as per 'Income and Expenditure' a/c, to tax without considering the whole facts % circumstances of the case and particularly the related provisions of the aforesaid Act and Rules making it mandatory on the appellant to utilize the entire amount of commission received from the Sugar Mill, on specified purposes of construction of roads and other development works in the assigned area either during the year of receipt on in subsequent year/s and not otherwise.
6. That on the whole facts and circumstances of the case, the Ld. CIT(A) is not justified and correct in giving direction to the Ld. A.O. to allow the expenses as per a/c book maintained instead of allowing the same himself.
7. That the appellant craves leaves to argue additional grounds at the time of hearing of appeal.
4 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
8. That the order of Ld. C.I.T.(A) deserves to be set aside & the assessment order passed u/s 143(30 deserves to be declared null & void & the appellant be declared non taxable."
4. The relevant facts of the case are that the assessee declared a NIL income by
way of filing a return on 19.12.2007 which was processed u/s 143(1) on
12.01.2010 and subsequently by way of issuance of notice u/s 148 wherein the
assessee stated the original return filed u/s 139 may be treated as a compliance of
the notice u/s 148. The same was selected for scrutiny assessment by way of
issuance of notice u/s 143(2) & 142(1). The assessee in the said proceedings was
required to justify the claim of refund. The explanation that it was a local authority
was rejected in view of the amendment of section 10(20) as amended by Finance
Act 2002 w.e.f 01.04.2003 which contemplated only 4 specific categories and
assessee was admittedly not either of those categories. The explanation on facts
that the amounts were not taxable and the position of law in support of its
contention at page 4 & 5 were not accepted by the AO. For ready-reference, we
reproduced the explanation on facts from pages 4 of the assessment order:-
"Regarding the objects and activities, " it is submitted that we have been constituted to carry out the sugar cane development programmes/schemes of the state govt. in the area which is assigned to us by the cane commissioner of the state on no profit no loss basis. This development programme includes construction of road culvert & to work for betterment of sugar cane produce etc in the assigned area.
For payments for carrying out the said development programmes, we receive grant from the govt. and also cess as commission from the sugar mills where the cane growers supply their sugar cane. All these amounts received are meant only for 5 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
expenditure on the development programme and if in a particular year it is not spent fully, the balance is spent on the same programme in the next year/years and it is not passed on or disturbed to any person/persons and in case the Parishad is wind up, the total surplus amount reverts back to the govt. We can't use these founds according to out own sweet will or desire or for own purpose. For the funds received we act just as a custodian being an organ of the state govt. All our receipts by way of govt. grant or cess as commission from the sugar mills or bank interest are for specified purpose & objects, hence all these are the tied up receipts in our hands. We have no right, title or interest in it neither we can utilize or treat it as our income, hence these are not the receipts of income nature in our hands and hence these are not falling within the purview of the I.T.Act, 1961. In fact, the funds received by us are out liability which is discharged when these are spent on the specified purposes during the year or in subsequent year. We have no right to receive these funds."
5. The AO observed that the assessee was in receipt of some interest income
from bank and also received income on account of commission received from
sugar mills. The reliance placed upon various decisions in support of the claim
that the receipts of the assessee were not taxable was not allowed by the AO. As
such he brought the amount of Rs.32,86,308/- to tax. The position in the other
years is also materially similar except difference in date and amounts.
6. Aggrieved by this, the assessee went in appeal before the CIT(A). Before
CIT(A), the assessee has agitated the issue on the validity of the proceedings u/s
148 and the action in assessing the assessee as 'Artificial Juridical Person' (AJP)
etc. and the addition on merits are also agitated. The CIT(A) on lack of
opportunity decided the issue against the assessee by para 3.2 holding as under :- 6 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
"3.2. Ground no.-5 is pertaining to alleged denial of proper opportunity of being heard. It is seen from the assessment folder available that ample opportunities have been given to the appellant during the assessment proceedings both through notice u/s 142(1) of the Act and otherwise. Accordingly, there is no force in this ground and the same is dismissed."
7. In regard to issuance of notice u/s 142, the ground was rejected by para 3.3
with the following findings :-
"3.3. Ground no.-6 pertains to denying that no notice has been given u/s 142 of the Act for the additions made in the assessment order. It is seen that the appellant has availed of the opportunities provided by the ld. AO to canvass his point of view against the proposed taxability of receipts accruing to the appellant. This ground is thus worthy of rejection."
8. Ground 12 agitating the issue that the assessee was an organ of the state as
such immune of Article 289 of the Constitution was also decided against the
assessee by a detailed finding in pare 3.4. The same is reproduced here under :-
"3.4. Ground no.12 pertains to denying liability of tax on the basis of operation of Article 289(1) of the Indian Constitution. Here, it may be mentioned that Article 289 deals with "exemption of property and income of a State from Union taxation". It is a settled principle that taxing statutes are subservient to the Indian Constitution. Through the Finance Act, 2002, a change was brought about in the provisions of Sec.10(20) of the Act by defining the term "local authority" to mean only four kinds of entities. This was a departure from the past where a number of entities were being treated as "local authority" on the basis of principles laid down by the Apex Court in the case of Union of India vs. R.C.Jain 1981 (2) SCR 854 (also reported in SCC 308). It is also seen that in the case of Adityapur Industrial Area Development Authority vs. Union of India reported in 283 ITR 97 (SC), the said authority had claimed exemption from taxation under Article 289(1). In this case, on similar principles, the Apex Court had held that exemption under Article 289 was not available to the assessee as it was a distinct 7 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
legal entity and its income cannot be said to be income of the State so as to be exempted form Union Taxation. Further more, in the case of Krishi Utpadan Mandi Samiti Ltd. vs UOI reported in 267 ITR 460 (All.), the question whether the amendment brought about to Sec.10(20) by the Finance Act, 2000 was violative of Article 14 of the Constitution (since only some statutory bodies are treated as local authority), the Hon'ble High Court in para 22 of the said order relied on a number of authorities to advance the view that the Govt. has considerable latitude in taxing some and exempting others. The point that is sought to be made here is that a taxing statue has to be presumed to be in harmony with Article 289 of the Constitution of India till such time that it is held to by ultra vires of the Constitution. In the instant case there is no evidence that any High Court or Supreme Court have struck down the amendment as unconstitutional and thus the amendment has to be treated as being in harmony with Article 289 of the Constitution. It is understood that the appellant was enjoying exemption from taxation due to the operation of Sec. 10(20) of the Act as it was till its amendment. Thus, the contention through this ground of appeal has to be understood in the light of this fact.
It is seen in the instant case that the appellant is a distinct legal entity created through an act of the State Govt. and is certainly not the State per se. Thus, the appellant cannot take shelter behind Article 289. Thus, this ground of appeal cannot help the appellant and is hereby rejected."
8.1. The ground challenging initiation of proceedings u/s 148 was also dismissed
by ground-4 & 4.1 which is reproduced here under :-
"4. Ground no-2 challenged the initiation of proceedings u/s 148 of the Act. During the course of appellate proceedings the assessment folder for this year has been procured from the ld. AO. Copy of the note sheet on which the reasons for reopening of this case were recorded, was handed over to the ld. Counsel for a response. The ld. AR has pointed out several alleged discrepancies in the copy of reasons intimated to the assessee during the course of assessment proceedings as against the reasons recorded on the order sheet placed in the assessment folder. The gist of the objections are as under :-
8 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
i) The reasons recorded quantify the income escaping the assessment whereas the reasons communicated do not do so. ii) The recorded reasons mentioned the basis for income escaping assessment whereas the reasons communicated do not contain any specifics but only generalities.
iii) It is alleged that the reasons recorded were done so after issue of notice u/s 148 since the reasons are apparently on an independent sheet of paper.
iv) The exact reasons recorded could have been communicated rather than an interpretation of the same.
4.1. These contentions have been considered. The fact remains that reasons have been recorded and the same have been communication to the appellant, even though there may be minor differences in the hand written reasons recorded as placed in the assessment folder and the reasons communicated to the appellant. It is seen that such alleged discrepancies do not take anything away from the substance of the matter and the fact that the reasons have not only been recorded but that they have also been communication to the appellant implies that proper procedure was followed by the ld. AO in this matter. Thus, none of the authorities cited by the appellant on this issue can help him as far as assumption of jurisdiction u/s 147/148 of the Act is concerned. This ground is hereby rejected."
8.2. Regarding agitation of the assessee in regard to the AO holding its status, as
'Artificial Juridical Person', the said issue was decided by the CIT(A) in para 5-5.2
which is reproduced hereunder :-
"5. Ground no-3 pertains to challenging the action of ld. AO in assessing the appellant in the status of 'Artificial Juridical Person' (AJP), even though the appellant claims to be a 'local authority'. It has been further contended that no show cause notice was given before changing the status. A number of authorities have also been relied upon by the ld. AR to canvass the view that the AO cannot change the status of assessee. This issue will be discussed in the subsequent paras.
5.1. A perusal of the assessment record reveals that for the assessment year 2007-08 the appellant e-filed its return of income 9 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
mentioning against status 'Other-AOP/BOI'. This return has been filed in ITR-5. A perusal of the proforma available for this assessment year with respect to Form ITR-5 on the portal incometaxindiaeiling.gov.in reveals that there are only five choices with respect to status as under :-
2) Local Authority;
3) Co-operative Bank;
4) Other Co-operative Society;
5) Any other AOP/BOI, Artificial Juridical Person This makes it clear that the AO has assessed the appellant in category 5) as mentioned above which includes AOP/BOI and AJP." 5.2. Thus, it is held that the appellant has not suffered on account of arbitrary change of status as claimed by him and thus the authorities relied upon by the ld. AR will not apply on the facts of this case. This ground is accordingly rejected. This finding also takes care of ground no.4 which is a corollary of ground no.3."
8.3. Deciding the issue of taxability of the amount, the CIT(A) decided the same
in ground no-6. Against this action both the assessee and the revenue are in
appeal. The issue was decided vide para 6 holding as under :-
"6. The grounds of appeal seventh to eleventh protest the taxing of entire receipts as evident from the TDS certificates enclosed with the Return of Income. It is stated that the entire receipts have been brought to tax without giving any benefit of deduction for expenditures made. It is seen that the ld. AO has not discussed anywhere in the body of the assessment order as to why the gross receipts have been brought to tax. However, before considering the issue whether the appellant's receipts are taxable or not or if they are, then what would be the taxable amount, we may examine the legal issues surrounding this matter.
6.1. The law, as it stood till FY 2002-03, mandated that any "local authority" would be exempt u/s 10(20) of the Act. From 01.04.2003 an Explanation was inserted which defined "local authority" as implying only Panchayats, Municipality, Municipal Committee (also District Board) and Cantonment Board. This confined the benefit of Sec. 10(20) of the Act to the above mentioned four categories of entities only. This had the effect of throwing out a large number of 10 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
entities (like the present appellant) out of the umbrella of exemption. This amendment also implied that apart from the four categories specified therein no other entity could claim exemption, even if the statutes bringing them into existence specifically referred to them as "local authority". There are a plethora of rulings concerning entities which suddenly found themselves in the taxable bracket with this amendment. The following cases illustrate the point whereby the Courts have ruled that once they are no longer covered under the definition of "local authority" there could be no exemption available to entities like the appellant:-
1) Agricultural Produce Market Committee VS. 'CIT reported in 173 Taxman 115 (SC).
2) U.P.State Road Transport Corporation vs. CIT, Lucknow reported in 156 Taxman 501 (All).
3) Krishi Utpadan Mandi Samiti vs. UOI reported in 139 Taxman 258 (All).
4) CIT VS. U.P.Forest Corporation reported in 97 Taxman 259 (SC).
Purportedly this appellant's case is similar to the above mentioned entities, which are mentioned in the four rulings cited above, in as much as this case was also covered u/s 10(20) of the Act prior to 01.04.2003.
The point for consideration is that when the legislature has taken a conscious decision to shut the doors on a number of organizations hitherto enjoying exemption u/s 10(20) of the Act as it stood prior to 01.04.2003, such organizations have now perforce come under the tax net. In fact in some of the cases cited supra it has been pleaded that the subject organizations are not earning profits and not indulging in activities which could be called adventure into the nature of trade or commerce. This plea has still not allowed them exemption from either taxation or shelter u/s 10(20) of the Act as per verdict in the four case laws mentioned above.
6.2 The point that is being made is that as far as this appellant is concerned it has emphatically claimed itself to be a "local authority" (before the AO and even before this appellate authority as the statement of facts preceding the ground of appeal would show). It is readily evident that the appellant does not get covered under the meaning of "local authority" as per the explanation to Sec. 10(20) of 11 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
the Act. Thereby taxability has to be presumed of the receipts in the absence of any protection, which could be legally available to it say u/s 11 and 12 or Sec. 10(23C), etc. of the Act. In fact it is seen that a number of such entities have approached the respective Tax Authorities for such exemption as the following cases would demonstrate: -
1) Cane Development Council vs. CIT, Meerut reported in 35 SOT 308 (Delhi).
2) U.P.Awas Evam Vikas Parishad vs. ITO(Tech), Lucknow reported in 162 Taxman 173 (Lucknow)(Mag).
In the above two cases, the activities of the concerned organizations are somewhat similar to the present case and for them the two benches of Hon'ble ITAT have directed registration u/s 12A of the Act. Since in this case no such shelter is available, the taxability of receipts cannot be denied.
6.3 The ld. AR has relied on a number of case laws from time to time which have been considered with respect to various grounds of appeals. However, the ld. AR has specifically emphasized the judgement in the case of Ganna Vikas Parishad, Saharanpur (ITA Nos. 2812 to 2815/Del/2005) which pertains to a finding given that penalty u/s 271B of the Act is not exigible since the assessee is not carrying on a business or profession. As is obvious, this case only illustrates the fact that the receipts of the appellant, being identical to the facts of this case, cannot be considered to be business or professional receipts. However, the point to be emphasized is that it cannot be inferred that the receipts are not taxable under other heads of income.
6.4 It is also seen that the ld. AR has taken pains to point out the statutory provisions [viz. The UP Sugarcane (Regulation of Supply and Purchase) Act, 1953 and 1954]. The provisions pertaining to the appellant have been carefully perused. It is clear that section 6 of the 1953 Act defines the functions of the Council so that the appellant is tasked with developmental work in the geographical area of its jurisdiction. Section 8 of the 1953 Act indicates the sources of funds and section 18 indicates the manner in which commission on purchase of cane will accrue to the appellant. Similarly, Sections 12 and 14 of the 1954 Act indicate the principles governing expenditure and placement of funds available with the appellant. Finally section 49A of the 1954 Act indicates that 12 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
the commission accruing to the appellant shall be utilized for the construction of roads and other development work. The conclusion drawn from a reading of the above mentioned provisions is that the appellant would have been included in the definition of "local authority" u/s 10(20) as it stood prior to 01.04.2003 on the basis of tests laid down by the Hon'ble Apex Court in the R.C.Jain case (supra). However, even at the expense of repetition, it may again be pointed out that the appellant has been thrown out of the protective umbrella of Sec. 10(20) of the Act now and thus its surpluses (the amounts remaining after deduction of expenses) will have to be taxed.
6.5 It is also seen that the Id. AR has relied on the following cases to canvass his contention that the appellant is not a profit earning body and hence outside the purview of taxation altogether. Some cases are discussed below:-
i) 44 ITR 6 (SC) [no case could be found on this citation] ii) 48 ITR 324 (All) [case on penalty for concealment] iii) 264 ITR 684 (Mad) [This case deals with deciding whether a receipt is capital or of revenue nature]
iv) 13 CTR .... (not mentioned) [on reading this case is listed as the case of Surat Art Silk Cloth Manufacturers Assn. reported in 2 Taxmann 501 (SC). This is a leading case which defines the nature and scope of charitable purpose u/s 2(15) of the Act).
It is clear that the view canvassed by the ld. AR does not specifically get strengthened due to the principles laid down in the rulings cited by him.
6.6 Coming back to the grounds of appeal, it is seen that the ld. AO has brought to tax the entire quantum of receipts. Such an action cannot be supported since only the surplus remaining after allowing expenses should be considered for taxation. Accordingly, the ld. AO is directed to allow the expenses as per the accounts maintained by the appellant and bring to tax only the surplus remaining thereafter. Thus, these grounds are treated as partly allowed."
8.4. Ld. Sr. DR inviting attention to the impugned order submitted that the
directions of the CIT(A) may kindly be modified to hold that only allowable
expenses may be allowed and not all expenses as the AO has not considered them. 13 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
9. Considering the written submissions filed before the Bench, it was seen that
on behalf of the assessee it has been canvassed that the assessee company has been
established by an order dated 06.04.1989 passed by the Cane Commissioner of
U.P. in exercise of powers u/s 5 of the U.P. Sugar Cane (Regulation of Supply and
Purchases) Act 1953 r/w rule 8 of the U.P. Sugar cane (Regulation of Supply and
Purchases) Rules 1954. On division of the U.P. State and formation of Uttrakhand
State later on, these Act and Rules have been adopted by the Uttrakhand State also
as it. The functioning and activities of the assessee are stated to be governed by
the provisions made under this Act and Rules. It has also been submitted that as
per section 6 of the said Act, the functions of the assessee are that it carries out
only the development activities consisting of construction of roads, culverts etc and
other development activities in the area assigned to it by the Cane Commissioner
of the State. It was also submitted in the written submissions that there is no
provision under the said-Act/Rule authorizing the appellant to do any business
activity with profit motive or to earn any income/profit and the appellant carries
out the development activities as specified under aforesaid Act on no profit no loss
basis. The appellant is merely a fund management body without any right of
absolute ownership over the funds placed at its disposal. It is further mentioned
here that the said roads, culverts, etc. are constructed by the appellant on the land
belonging to the govt. and the constructions made by the appellant thereon also
belongs to the govt. as absolute owner and not to the appellant or anybody else. 14 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
The funds received by the assessee are either by way of (a) voluntary grant from
the central or state govt. or (b) contribution in the name of commission from the
Sugar Mills, as provided u/s 8 of the aforesaid Act. As per rule 49 of the aforesaid
rules, this contribution amount in the name of commission is worked out by the
Sugar Mill with reference to the amount of purchase of the sugar cane by it from
the cane growers or the cane grower's cooperative society. Addressing the amount
of commission, it is stated that it is worked out and paid by the Sugar Mill to the
appellant, is not sold/supplied by the appellant to the sugar mill nor any service is
rendered by the appellant to the Sugar Mill paying amount in the name of
commission to the appellant as there is no provision under the aforesaid Act and
Rule for it, hence the amount paid by the Sugar Mill to the appellant though is in
the name of commission but, in fact, it is just a contribution amount. Referring to
the mandatory provisions made under rule 49A, the entire amount of said
commission, which is, in fact, just a contribution amount, is required to be utilized
on specific purpose of construction of road etc. and other development activities
are assigned to the appellant and not otherwise. It is further submitted that there is
no provision under the aforesaid Act/Rules made there under authorizing the
appellant to utilize the said amount of said contribution paid in the name of
commission for any other purpose or to distribute it or any part of it to anybody as
profit/income. It has also been submitted that in the present case the assessee has
neither distributed the said contribution amount received in the name of 15 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
commission to anybody nor utilized it for any purpose other than that for which it
has been paid to the appellant. It has also stated that there is no finding by any
lower authority that the assessee has utilized the commission amount for any other
purpose similarly the "surplus" not spend is fully covered by the order of the Delhi
Bench in N.S.Committee, Village-Thanabhawan, Tehsil-Shamli, Dist.-
Muzaffarnagar order copy filed.
10. In the light of the written submissions advanced by the assessee qua the
departmental ground and grounds of the assessee wherein submissions on behalf of
the revenue have already been addressed in the earlier part of this order. We are of
the view that ground nos.-1,2 & 3 in the appeals of the assessee deserves to be
dismissed as the same have not been addressed in the written submissions and it is
presumed that the assessee has nothing to say. The findings of the CIT(A)
reproduced in the earlier part of this order as such are confirmed. Qua the grounds
4, 5 & 6 of the assessee and the departmental grounds 1 & 2, the findings arrived at
in para 6.6, the same is modified and the issue is restored to the file of the AO with
the direction to address the specific provisions to the extent that the AO shall look
into the specific Rules and Sections which the assessee wants to canvass in support
of its claim for the said purpose, assessee has relied on the order of the Co-ordinate
Bench in ITA No.-154/Del/2008 in the case of ACIT vs N.S.Committee, Village-
Thanabhawan, Tehsil-Shamli, Dist.-Muzaffarnagar wherein the departmental 16 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
grounds agitating the issue of Anshdan and Nirman Yogna Fund has taken a view
in para 6 which reads as under :
"We have heard the ld. DR and gone through the facts of the case. Indisputably, the Ansh Dan and fund for Nirman Yojna, were given to the assessee by the State Government & Sugar factories for specific projects of road construction and as pointed out by the Ld. CIT(A), these funds have been spend also for those specific projects. There is nothing to suggest that the assessee is carrying on any business activities, generating income. Accordingly, the ld. CIT(A) concluded that there was no surplus with the assessee and therefore, there was no question of any taxable income. Admittedly, the grant-in-aid in question is a financial aid or subsidy given by the State Government of UP and Sugar factories for the specific purpose of construction of roads. In section 2(24) of the Act, it is declared that "income includes" various items which are enumerated therein in clauses (i) to (xv). In the said section 2(24), such a grant-in-aid has not been specifically included as an income or a revenue receipt. Therefore, considering the use for the worked "include" in section 2(24), the word "income" shall be construed as comprehending not only those items which said section declared that these shall include but also such items which said section declares that these shall include but also such items as it signified according to its natural import. Since section 2(24) has not declared that such a grant-in-aid shall be included in the income the word "revenue" shall be construed as
comprehending what it signified according to its natural import. In relation to a business undertaking, the word "revenue" connotes incomings of the undertaking which are products of the normal working of the undertaking. The giving of financial aid or subsidy to the aforesaid committee, which admittedly is not carrying on any business, is at the discretion of the Government or Sugar factors. Thus, the grant-in-aid in question was not a product of the normal business activities of the assessee committee, assessed by the AO as a local authority. Therefore, such a grant-in-aid could not be termed as a revenue receipt so as to form part of the total income. As already pointed out, the ld CIT(A) concluded that the aforesaid funds received by the assessee from State Government and Sugar factories have been 17 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
spend only for those specific projects and there was no surplus with the assessee. Since the Revenue have not placed before us any material, controverting these findings of facts recorded by the ld. CIT(A) so as to enable us to take a different view in the matter, there is no basis to interfere with his findings. Consequently, ground No. 1 to 3 in the appeal is dismissed.
Accordingly the AO shall decide the issue in accordance with law qua
ground no-4,5 & 6 of the assessee and ground no-1 & 2 of the Revenue in line with
the order of the Co-ordinate Bench. Needless to say that the assessee shall be
affording a reasonable opportunity of being heard.
In the result, the grounds no-1&2 of the department and grounds no.-4, 5 &
6 of the assessee are allowed for statistical purposes. Ground No.-7 is general and
no arguments have been advanced for ground no.-8. As such the same is
11. In the result, the three departmental appeals are allowed for statistical
purposes and both the appeals of the assessee are partly allowed for statistical
The order is pronounced in the open court on 31st of May 2013.
(P.K.BANSAL) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER
18 I.T.A .Nos.-5602/Del/2011,5603/Del/2011, 5604/Del/2011, 5605/Del/2011 & 3209/Del/2012
Copy forwarded to:
5. DR: ITAT
ITAT NEW DELHI