ACIT, Circle, Shimla V. M/s H.P. Excise & Taxation Technical Services Agency, Shimla

ITA 100/CHANDI/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6683 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 01-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Revenue expenditure; Set aside
• Section: 43B; 12AA; 201; 12

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , ! '# $ % & '# , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.58/CHD/2018 / ASSESSMENT YEAR : 2014-15 M/S H.P. EXCISE & TAXATION TECHNICAL SERVICE AGENCY, BLOCK NO.30, SDA COMPLEX, KASUMPTI, SHIMLA. THE D.C.I.T., CIRCLE SHIMLA. ./PAN NO: AAATH7485A & \ ./ ITA NO.100/CHD/2018 / ASSESSMENT YEAR : 2014-15 THE D.C.I.T., CIRCLE SHIMLA. M/S H.P. EXCISE & TAXATION TECHNICAL SERVICE AGENCY, BLOCK NO.30, SDA COMPLEX, KASUMPTI, SHIMLA. ./PAN NO: AAATH7485A /ASSESSEE BY : SHRI VISHAL MOHAN, ADV. / REVENUE BY : SMT.CHANDERKANTA, SR. DR ! ' /DATE OF HEARING : 03.12.2018 #$%& ' /DATE OF PRONOUNCEMENT: 28.02.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER THE PRESENT ARE CROSS APPEALS PREFERRED BY THE ASSE SSEE AND REVENUE AGAINST THE ORDER DATED 20.11.2017 OF T HE COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA [HEREI NAFTER REFERRED TO AS CIT(A)] PASSED U/S 250(6) OF THE INC OME TAX ACT,1961(HEREINAFTER REFERRED TO AS ACT). ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 2 2. BRIEF FACTS RELATING TO THE CASE ARE THAT THE ASSESSEE IS A SOCIETY REGISTERED WITH REGISTRAR OF SOCIETIES VIDE NO. 140/2004, DATED 23/08/2004. THE ASSESSEE S OCIETY IS MANNING ALL THE MULTIPURPOSE BARRIERS IN THE STA TE OF HIMACHAL PRADESH AND IN RESPECT OF ALL GOODS WHICH CROSS THE BARRIER TO COME INTO HIMACHAL OR WHICH GO OUT O F HIMACHAL THE SAME WERE TO BE DECLARED AT THE MULTI- PURPOSE BARRIER AS PER THE PROVISION OF SEC 34 OF THE H.P. VAT ACT, 2005 READ WITH THE H.P. VAT RULES OF, 2005. AGAINS T THE SAID DECLARATIONS A FORM BEARING NO. ST XXVI-A WAS TO BE ISSUED TO THE PERSON DECLARING THE GOODS. TILL THE YEAR 2009 A USER FEE OF RS.5/- PER FORM WAS CHARGED BY THE AS SESSEE SOCIETY AND WHICH WAS ENHANCED TO RS.10 AS PER THE LETTER DATED 18.05.2009. AS PER THE CLAUSES OF 8.2 OF THE BYE LAWS OF THE MEMORANDUM, THE ASSESSEE USED TO DEPOSIT. RS .1 PER DECLARATION WITH THE STATE TREASURY PRIOR TO 2009 WHICH WAS ENHANCED TO RS.2 PER DECLARATION AFTER 2009. TH E APPLICATION OF THE ASSESSEE FOR REGISTRATION U/S 12 AA OF THE ACT, 1961 WAS REJECTED ON 29/11/2013 BY CIT, SHIMLA BY HOLDING THAT THE ACTIVITIES CARRIED ON BY THE SOCIE TY WERE NOT FOR THE BENEFIT OF GENERAL PUBLIC UTILITY, BUT WAS FOR PROVIDING INFRASTRUCTURE FACILITIES TO THE STATE GOVERNMENT ( EXCISE AND TAXATION DEPARTMENT). THE ASSESSEE FILED ITS RETURN DECLARING NIL INCOME ON 31.03.2015 AFTER SETTING OF F THE EXCESS OF INCOME OVER EXPENDITURE AT AN AMOUNT OF RS.89,98,634/-, AS PER CLAUSE 10(2) & 8(2) OF BYE L AWS OF THE ASSESSEE-SOCIETY, AS PAYABLE TO H.P. GOVT. THE CASE OF THE ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 3 ASSESSEE WAS SELECTED FOR SCRUTINY THROUGH CASS. TH E ASSESSEE CLAIMED DURING THE SCRUTINY PROCEEDINGS TH AT IT HAD NO REAL INCOME AND HENCE WAS NOT LIABLE TO PAY TAX. THE DETAILED REPLY FILED BY THE ASSESSEE WAS CONSIDERED BY THE. A.O. AND IT WAS HELD BY THE A.O. THAT SINCE THE ASS ESSEE HAD NOT BEEN GRANTED REGISTRATION U/S 12AA OF THE ACT, THE AMOUNT SHOWN AS PAYABLE AND CLAIMED DEDUCTIBLE REFE RRED SUPRA WAS NOTHING BUT AN APPROPRIATION OF THE INCOM E OF THE ASSESSEE AND WAS NOT AN ALLOWABLE DEDUCTIBLE EXPEND ITURE. HE IN THE ALTERNATIVE ALSO HELD THAT THE SAME WAS N OT ALLOWABLE AS THE SAME HAD NOT BEEN PAID DURING THE YEAR AND WAS HIT BY THE PROVISIONS OF SECTION 43B OF THE ACT . THE A.O. ALSO DREW STRENGTH FROM THE AMENDMENT CARRIED OUT T O SECTION 40 OF THE ACT BY FINANCE ACT, 2013 W.E.F. 1 .4.2014 WHEREIN SIMILAR PLACED AMOUNTS APPROPRIATED BY THE STATE GOVERNMENTS WERE SPECIFICALLY HELD AS NOT ALLOWABLE AS AN ELIGIBLE EXPENDITURE. THE A.O. ACCORDINGLY TREATED THE AMOUNT OF RS.89,98,634/- AS THE INCOME OF THE ASSES SEE. FURTHER, FROM THE PERUSAL OF INCOME AND EXPENDITURE STATEMENT FILED BY THE ASSESSEE IT WAS NOTICED BY T HE A. O. THAT AN AMOUNT OF RS.1,27,90,072/- HAD BEEN DEPOSIT ED WITH THE TREASURY WHICH WAS DEBITED TO THE INCOME AND EXPENDITURE STATEMENT AS AN EXPENSE. THE A.O. DISAL LOWED THE SAME BY HOLDING THAT THE SAME WAS NOT RELATED T O BUSINESS ACTIVITY OF THE ASSESSEE. HE HELD THAT THE SAME WAS DIVERSION/DISTRIBUTION OF THE INCOME OF THE SOCIET Y TO THE ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 4 STATE GOVERNMENT. ACCORDINGLY, THE DEDUCTION FOR T HE SAME WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSES SEE. 3. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.C IT(A) WHO HELD THAT THE REMISSION TO THE TREASURY BY THE ASSESSEE IN LINE WITH CLAUSE 8.2 OF THE BYELAWS WAS NOT BE T REATED AS INCOME OF THE ASSESSEE. HOWEVER, 80% RETAINED AFTER REMITTING TO THE TREASURY WAS HELD TO PARTAKE THE C HARACTER OF THE INCOME. THE LD.CIT(A) FOLLOWED HIS OWN DECIS ION IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2007-08 T O 2010- 11 WHILE HOLDING SO. 4. AGGRIEVED BY THE SAME, BOTH THE ASSESSEE AND THE REVENUE HAVE COME UP IN APPEAL BEFORE US. THE ASSES SEE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN UPHOLDING THE ADDITION OF THE AMOUNT RETAINED BY THE ASSESSEE OUT OF THE TOTAL FEES COLLECTED RAISING FOLLOWING GROUNDS: ITA NO.58/CHD/2018(ASSESSEE APPEAL) : 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN UPHOLDING THE ADDITION OF RS 89,98,634/- MADE TO TH E TAXABLE INCOME OF THE ASSESSEE TREATING THE ALLEGED I NCOME OVER EXPENDITURE TO BE THE TAXABLE INCOME OF THE AS SESSEE APPELLANT. FACT OF THE MATTER IS THAT THE SURPLUS I F ANY BELONGS TO THE GOVERNMENT AND AS SUCH IS NOT THE IN COME OF THE ASSESSEE APPELLANT. 2. THAT THE ORDER OF THE ID COMMISSIONER OF INCOME TAX ( APPEALS) IS BAD IN LAW AND FACTS. 5. THE REVENUE ON THE OTHER HAND HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN HOLDING THAT THE AMOUNT OF FEES COLLECTED TO BE DIRECTLY REMITTED TO THE STATE TREA SURY WAS ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 5 NOT IN THE NATURE OF INCOME OF THE ASSESSEE AND HAS RAISED THE FOLLOWING GROUNDS BEFORE US: 1. ON THE FACTS AND IN THE CIRCUMSTANCES, THE LD. CIT(A) HAS ERRED' IN NOT JUSTIFIED IN DELETING THE ADDITIO N OF RS. 1,27,90,072/- MADE BY THE A.O. WHICH WAS PAID TO TH E GOVT. AS PER THE BYELAWS OF THE ASSESSEE SOCIETY AN D HOLDING THEM AS NON TAXABLE, INSPITE OF THE FACT THAT THE ASS ESSEE HAD DEBITED SUCH PAYMENT TO ITS P&L ACCOUNT AND HAD CLA IMED IT AS A REVENUE EXPENDITURE THROUGH THE ASSESSEE IS NO T REGISTERED U/S 12AA OF THE ACT AND NOR ITS INCOME I S EXEMPT UNDER ANY OF THE PROVISIONS OF THE ACT. 2. IT IS PRAYED THAT THE ORDER OF THE LD CIT(A) BE SET- ASIDE AND THAT OF THE A.O. RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD ANY OTHER GROUND OF APPEAL WHICH MAY ARISE AT THE TIME OF HEARING. 6. DURING THE COURSE OF HEARING BEFORE US, LD. COU NSEL FOR THE ASSESSEE POINTED OUT THAT IDENTICAL ISSUE HAD T RAVELLED UP TO THE I.T.A.T. IN THE PRECEDING YEARS I.E. ASSE SSMENT YEARS 2007-08 TO 2011-12 AND IN ASSESSMENT YEAR 201 3-14, WHEREIN THE ORDER OF THE CIT(A) DELETING THE ADDITI ON MADE TO 25% OF THE RECEIPTS WHICH WERE TO BE REMITTED DIREC TLY TO THE TREASURY WAS UPHELD, WHILE HIS ORDER UPHOLDING THE ADDITION OF THE BALANCE 80% OF THE RECEIPTS WAS SET ASIDE. C OPY OF THE ORDERS WAS PLACED BEFORE US. SUBSEQUENTLY, AFTER TH E CONCLUSION OF THE HEARING, COPY OF THE ORDER OF THE HON'BLE JURISDICTIONAL HIGH COURT CONFIRMING THE ORDER OF T HE TRIBUNAL WAS PLACED BEFORE US. IT WAS POINTED OUT T HEREFROM THAT THE QUESTION FRAMED BEFORE THE HON'BLE HIGH CO URT WAS WHETHER 80% OF THE BALANCE AMOUNT WAS TO BE TREATED AS INCOME OF THE ASSESSEE. OUR ATTENTION WAS DRAWN TO PARA 16 OF THE ORDER OF THE HON'BLE HIGH COURT AS UNDER IN THIS REGARD: ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 6 16. IT IS IN THIS BACKDROP, COUPLED WITH A FIRM FINDING OF FACT TO THE EFFECT THAT THE SURPLUS OF INCOME OVER EXPENDITURE OF THE RESPONDENT- ASSESSEE BELONGS TO THE STATE GOVERNMENT AND HAS BEEN DULY DEPOSITED IN THE PUBIC EXCHEQUER THAT THE QUESTION WHICH FALLS FOR DETERMINATION IS-WHETHER 80% OF THE BALANCE AMOUNT DULY DEPOSITED BY THE RESPONDENT-ASSESSEE IN THE GOVERNMENT TREASURY, AFTER DEDUCTING THE EXPENSES INCURRED BY IT, AMOUNTS TO TAXABLE INCOME UNDER THE IT ACT, 1961, MORE SO WHEN THE RESPONDENT-ASSESSEE IS NOT REGISTERED UNDER SECTION 12AA OF THE SAID ACT? 7. IT WAS POINTED OUT THAT THE HON'BLE HIGH COURT H AD ANSWERED THE QUESTION OF LAW IN NEGATIVE AGAINST TH E REVENUE AND IN FAVOUR OF THE ASSESSEE HOLDING THAT THE SURPLUS OF INCOME OVER EXPENDITURE BELONGED TO THE STATE GOVERNMENT AND HENCE DID NOT PARTAKE THE CHARACTER OF PROFITS AND GAINS EARNED BY THE ASSESSEE. OUR ATTEN TION WAS DRAWN TO PARAS 28 TO 33 OF THE ORDER AS UNDER: 28. TO SAY IT DIFFERENTLY, THE WORD 'PROFIT' CONNOT ES THE IDEA OF PECUNIARY GAIN. IF THERE IS AN ACTUAL GAIN, ITS QUANTUM OR AMOUNT WOULD NOT BE MATERIAL; BUT SUCH AMOUNT WOULD COMPONENT OF 'INCOME' IN TERMS OF SECTI ON 2 (24)(I) OF THE IT ACT, 1961. 29. THE EXPRESSION 'GAIN', ON THE OTHER HAND, IS NO T SYNONYMOUS WITH THE WORD 'PROFIT', FOR IT IS NOT RESTRICTED TO PECUNIARY OR COMMERCIAL PROFITS ONL Y AS IT INCLUDES OTHER CONSIDERATIONS OF VALUE GAINED ALSO. FOR EXAMPLE, ANY ADVANTAGE OR BENEFIT ACQUIRED OR VALUE ADDITION MADE BY SOME ACTIVITIES WOULD AMOUNT TO GAI N, EVEN THOUGH THE ACTIVITIES ARE NOT PROFIT MOTIVATED. 30. APPLYING THESE PRINCIPLES TO THE FACTS OF THE C ASES IN HAND, IT MAY BE SEEN THAT THE RESPONDENT- ASSESSEE CONTINUED TO RECEIVE RS.5/- PER FORM TILL MAY, 2009 OUT OF WHICH RE.I/- WAS STRAIGHTAWAY DEPOSITED IN THE GOVERNMENT TREASURY AND OUT OF THE BALANCE OF RS.5/-, ONLY THE ACTUAL EXPENDITURE INCU RRED BY IT ON COLLECTION PROCESS WAS DEDUCTED AND THE BALA NCE AMOUNT (80% AS ASSESSED BY THE AUTHORITIES) WAS DUL Y DEPOSITED IN THE GOVERNMENT TREASURY TO BE PAID TO THE EXCISE AND TAXATION DEPARTMENT OF THE STATE GOVERNM ENT. IN THIS ENTIRE PROCESS, THE RESPONDENT-ASSESSEE NEITHER ANYTHING NOR EARNED ANY PROFIT. THE VAT AMOUNT RECOVERED BY T HE RESPONDENT-ASSESSEE WAS/IS AN ENTRUSTMENT OF THE ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 7 STATUTORY FUNCTION OF THE STATE WHICH ALONE IS COMP ETENT TO LEVY VAT UNDER SECTION 34 OF THE VAT ACT, 2005. THE RESPONDENT-ASSESSEE THUS NEITHER CREATED ANY SOURCE OF INCOME NOR GENERATED ANY PROFIT OR, GAIN OUT OF SU CH SOURCE. THE ASSESSEE MERELY PERFORMS THE STATUTORY FUNCTIONS UNDER THE VAT ACT, 2005 AND COLLECTS THE TAX AMOUNT FOR AND ON BEHALF OF THE STATE AND TRANSFERS SUCH COLLECTION TO THE GOVERNMENT TREASURY. EVEN IF THE TAX COLLECTION REMAINS TEMPORARILY PARKED WITH THE ASS ESSEE FOR SOME TIME, IT CANNOT BE TREATED AS 'INCOME' GENE RATED BY THE ASSESSEE AS THE SAID AMOUNT DOES NOT BELONG TO IT. 31. THE TRIBUNAL HAS THUS RIGHTLY CONCLUDED THAT THE SURPLUS OF INCOME OVER EXPENDITURE, AS REFLECTED IN T HE ENTRIES OR THE RETURNS FILED BY THE RESPONDENT-ASSES SES, ALSO BELONGED TO THE STATE GOVERNMENT WHICH WAS DULY DEPOSITED IN THE GOVERNMENT TREASURY. HENCE, IT DOE S NOT PARTAKE THE CHARACTER OF 'PROFIT OR GAIN EARN ED BY THE RESPONDENT-ASSESSEE. 32. THE NON-REGISTRATION OF THE RESPONDENT-ASSESSEE, UNDER SECTION 12AA OF THE IT ACT, 1961 IS INCONSEQUEN TIAL, FOR AN OCCASION TO SEEK EXEMPTION FROM PAYMENT OF T AX ON THE INCOME BY A TRUST OR INSTITUTION SERVING THE CA USE OF GENERAL PUBLIC UTILITY WOULD ARISE ONLY WHEN SOME A CTUAL INCOME IS DERIVED. THE RESPONDENT-ASSESSEE THOUGH IS A 'JURISTIC PERSON' BUT IN THE ABSENCE OF ANY INCOME H AVING BEEN EARNED BY IT THROUGH 'PROFITS OR GAINS' WITHIN THE MEANING OF SECTION 2 (24) OF THE IT ACT, 1961, THE RESPONDENT-ASSESSEE IS INDEED NOT OBLIGED TO SEEK EX EMPTION UNDER SECTION 12AA OF THE IT ACT, 1961, FOR IT DOES NO T HAVE ANY TAXABLE INCOME. 33. FOR THE REASONS AFORE-STATED, THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN NEGATIVE AGAINST THE APPELLANT-REV ENUE AND IN FAVOUR OF RESPONDENT-ASSESSEE. 8. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE CIT(A) POINTING OUT THAT THE ADDITION DREW STRE NGTH FROM THE AMENDMENT TO SECTION 40 WHEREIN THE SUB CLAUSE (IIB) WAS INSERTED W.E.F. 1..4.2014 STATING THAT THE AMOU NTS APPROPRIATED BY THE STATE GOVERNMENT ARE NOT TO BE ALLOWED AS ELIGIBLE EXPENDITURE. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE LD.CIT(A) AT PARAS 5.1.2 TO 5.1.3 O F THE CIT(A)S ORDER AS UNDER: ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 8 5.1.2 MOREOVER, IN THIS YEAR, THE A.O HAS CORREC TLY RELIED ON THE AMENDMENTS CARRIED OUT TO SECTION 40 OF TH E INCOME TAX ACT. AMENDMENT OF SECTION 40. IN SECTION 40 OF THE INCOME- TAX ACT, IN CLAUSE (A), AFTER SUB-CLAUSE (IIA), THE F OLLOWING SUB- CLAUSE HAS BEEN INSERTED WITH EFFECT FROM THE 1ST DA Y OF APRIL, 2014, NAMELY:- '(IIB) ANY AMOUNT- (A) PAID BY WAY OF ROYALTY, LICENCE FEE, SERVICE FEE, PR IVILEGE FEE, SERVICE CHARGE OR ANY OTHER FEE OR CHARGE, BY WHATEVER NAME CALLED, WHICH IS LEVIED EXCLUSIVELY ON ; OR (B) WHICH IS APPROPRIATED, DIRECTLY OR INDIRECTLY, FROM, A STATE GOVERNMENT UNDERTAKING BY THE STATE GOVERNME NT. EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE, A STATE GOVERNMENT UNDERTAKING INCLUDES (I) A CORPORATION ESTABLISHED BY OR UNDER ANY ACT OF THE STATE GOVERNMENT; (II) A COMPANY IN WHICH MORE THAN FIFTY PER CENT OF THE PAID- UP EQUITY SHARE CAPITAL IS HELD BY THE STATE GOVERNM ENT; (HI) A COMPANY IN WHICH MORE THAN FIFTY PER CENT OF THE PAID-UP EQUITY SHARE CAPITAL IS HELD BY THE ENTITY REFERRED TO IN CLAUSE (I) OR CLAUSE (II) (WHETHER SINGLY OR TAKEN TO GETHER); (IV) A COMPANY OR CORPORATION IN WHICH THE STATE GO VERNMENT HAS THE RIGHT TO APPOINT THE MAJORITY OF THE DIRECT ORS OR TO CONTROL THE MANAGEMENT OR POLICY DECISIONS, DIRECTLY O R INDIRECTLY, INCLUDING BY VIRTUE OF ITS SHAREHOLDING OR MANAGEMENT RIGHTS OR SHAREHOLDERS AGREEMENTS OR VOT ING AGREEMENTS OR IN ANY OTHER MANNER; (V) AN AUTHORITY, A BOARD OR AN INSTITUTION OR A BO DY ESTABLISHED OR CONSTITUTED BY OR UNDER ANY ACT OF TH E STATE GOVERNMENT OR OWNED OR CONTROLLED BY THE STATE GOVERNMENT;'. 5.1.3 THE EXPLANATORY NOTES TO THE FINANCE BILL CLA RIFY THE PURPOSE FOR BRINGING ABOUT THE SAID AMENDMENT - 12.1 THE PROVISIONS OF SECTION 40 OF THE INCOME-TAX ACT, 1961 BEFORE ITS AMENDMENT BY THE ACT, SPECIFIES THE AMOUNTS WHICH SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSIONL. THE NON-DEDUCTIBLE EXPENSE UNDER THE SAID SECTION ALSO INCLUDES STATUTORY DUES LIKE FRINGE BENEFIT TAX, INCOME-TAX, WEALTH-TAX, ETC. DISPUTES HAVE ARISEN IN RESPECT OF INCOME-TAX ASSESSMENT OF SOME STATE GOVERNMENT UNDERTAKINGS AS TO WHETHER ANY SUM PAID BY WAY OF PRIVILEGE FEE, LICENSE FEE, ROYALTY, ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 9 ETC. LEVIED OR CHARGED BY THE STATE GOVERNMENT EXCLUSIVELY ON ITS UNDERTAKINGS ARE DEDUCTIBLE OR NOT FOR THE PURPOSES OF COMPUTATION OF INCOME OF SUCH UNDERTAKINGS. IN SOME CASES, ORDERS HAVE BEEN ISSUED TO THE EFFECT THAT SURPLUS ARISING TO SUCH UNDERTAKINGS SHALL VEST WITH THE STATE GOVERNMENT. AS A RESULT IT HAS BEEN CLAIMED THAT SUCH INCOME BY WAY OF SURPLUS IS NOT SUBJECT TO TAX. IT IS A SETTLED LAW THAT STATE GOVERNMENT UNDERTAKINGS ARE SEPARATE LEGAL ENTITIES THAN THE STATE AND ARE LIABLE TO INCOME-TAX. 12.2 IN ORDER TO PROTECT THE TAX BASE OF STATE GOVERNMENT UNDERTAKINGS VIS-AVIS EXCLUSIVE LEVY OF FEE, CHARGE, ETC. OR APPROPRIATION OF AMOUNT BY THE STATE GOVERNMENTS FROM ITS UNDERTAKINGS, SECTION 40 OF THE INCOME-TAX ACT HAS BEEN AMENDED TO PROVIDE THAT ANY AMOUNT PAID BY WAY OF FEE, CHARGE, ETC., WHICH IS LEVIED EXCLUSIVELY ON, OR ANY AMOUNT APPROPRIATED, DIRECTLY OR INDIRECTLY, FROM A STATE GOVERNMENT UNDERTAKING, BY THE STATE GOVERNMENT, SHALL NOT BE ALLOWED AS DEDUCTION FOR THE PURPOSES OF COMPUTATION OF INCOME OF SUCH UNDERTAKINGS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION}. THE EXPRESSION STATE GOVERNMENT UNDERTAKING FOR THIS PURPOSE INCLUDES (I) A CORPORATION ESTABLISHED BY OR UNDER ANY ACT O F THE STATE GOVERNMENT; (II) A COMPANY IN WHICH MORE THAN FIFTY PER CENT OF THE PAID-UP EQUITY SHARE CAPITAL IS HELD BY THE STATE GOVERNMENT; (III) A COMPANY IN WHICH MORE THAN FIFTY PER CENT OF TH E PAID-UP EQUITY SHARE CAPITAL IS HELD BY THE ENTITY REFERRED TO IN CLAUSE (I) OR CLAUSE (II) (WHETHER SINGLY OR TAKEN TOGETHER); (IV) A COMPANY OR CORPORATION IN WHICH THE STATE GOVERNMENT HAS THE RIGHT TO APPOINT THE MAJORITY OF THE DIRECTORS OR TO CONTROL THE MANAGEMENT OR POLICY DECISIONS, DIRECTLY OR INDIRECTLY, INCLUDING BY VIRTUE OF ITS SHAREHOLDING OR MANAGEMENT RIGHTS OR SHAREHOLDERS AGREEMENTS OR VOTING AGREEMENTS OR IN ANY OTHER MANNER; (V) AN AUTHORITY, A BOARD OR AN INSTITUTION OR A BODY ESTABLISHED OR CONSTITUTED BY OR UNDER ANY ACT OF THE STATE GOVERNMENT OR OWNED OR CONTROLLED BY THE STATE GOVERNMENT. 12.3 APPLICABILITY: - THIS AMENDMENT TAKES EFFECT FR OM 1ST APRIL, 2014 AND WILL, ACCORDINGLY, APPLY IN ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 10 RELATION TO THE ASSESSMENT YEAR 2014-15 AND SUBSEQUENT ASSESSMENT YEARS. A PERUSAL OF THE AMENDMENT AND THE EXPLANATION CLEARLY SHOWS THAT THE INTENTION OF THE LEGISLATURE WAS TO PREVENT THE SURPLUSES OF ANY ENTITY TO FLOW TO THE STATE GOVERNMENTS ETC. WITHOUT PAYING DUE TAXES AND TREAT ING THE PAYMENT AS AN ELIGIBLE EXPENSE RATHER THAN IT BEING A N APPROPRIATION OF INCOME. CONSIDERING ALL THESE FACTS A ND OBSERVATIONS MADE SUPRA, THE REMISSION OR PAYMENT TO THE TREASURY IN LINE WITH CLAUSE 8.2 OF THE BYLAWS IS D IRECTED AS NOT TO BE TREATED AS INCOME. HOWEVER, 80% OF THE RE CEIPTS RETAINED BY THE SOCIETY AFTER REMITTING THE AMOUNTS T O THE TREASURY AS REQUIRED UNDER CLAUSE 8.2 OF THE BYE LA WS PARTAKES THE CHARACTER OF INCOME OF THE APPELLANT. THE A.O. IS ACCORDINGLY DIRECTED TO RE-COMPUTE THE DEDUCTION DISA LLOWED. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE RELATES TO THE TAXABILITY OF THE AMOUNTS COLLECTED BY THE ASSESSEE SOCIETY ON ACCOUNT OF SELLING VAT FORMS, 20% OF WHICH WAS T O BE REMITTED AFFRONT TO THE STATE TREASURY, WHILE 80% W AS TO BE RETAINED BY IT FOR MEETING OUT EXPENSES AND BALANCE THEREAFTER TO BE REMITTED TO THE STATE TREASURY. AD MITTEDLY, THESE ISSUES HAVE ALREADY BEEN DECIDED BY THE I.T.A .T. IN THE EARLIER YEARS IN THE CASE OF THE ASSESSEE HOLDING T HAT 20% OF THE AMOUNT RECEIVED WHICH WAS REMITTED DIRECTLY TO THE STATE TREASURY WAS NOT THE INCOME OF THE ASSESSEE WHILE R ELIEF OF 80% OF THE AMOUNT WAS ALLOWED TO THE EXTENT THE SUR PLUS REMAINING OUT OF IT WAS REMITTED TO THE STATE GOVER NMENT IN THE IMPUGNED YEAR. FURTHER THE JURISDICTIONAL HIGH COURT HAS UPHELD THE ORDER OF THE ITAT IN ITS ORDER DATED 07-12 2018. THE REVENUE HAS POINTED OUT THAT AN AMENDMENT HAS BEEN BROUGHT ON STATUTE TO SECTION 40(A) BY INSERTI NG CLAUSE (IIB) DISALLOWING AMOUNTS REMITTED TO STATE GOVERNM ENTS CLAIMED AS EXPENDITURE AND THE SAID AMENDMENT IS EF FECTIVE ITA NO.58/CHD/2018 & ITA NO.100/CHD/2018 A.Y.2014-15 11 FROM THE IMPUGNED YEAR ONLY. NOTWITHSTANDING THE SA ME, SINCE THE HON'BLE HIGH COURT VIDE ITS ORDER PASSED IN THE CASE OF THE ASSESSEE ITSELF, IN ITA NO.85 OF 2018 A LONGWITH CONNECTED MATTERS, DATED 07-12-2018, HAS HELD THAT THE REMAINING 80% OF THE COLLECTION BY THE ASSESSEE WAS NOT IN THE NATURE OF INCOME AT ALL WE ARE BOUND BY THE SA ME. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT AND THAT OF THE ITAT IN THE CASE OF THE ASSESSEE FO R PRECEDING YEARS THEREFORE WE HOLD THAT THE ENTIRE AMOUNT COLL ECTED BY THE ASSESSEE WAS NOT IN THE NATURE OF ITS INCOME. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- $ % & '# (SANJAY GARG) (ANNAPURNA GUPTA) /JUDICIAL MEMBER () /ACCOUNTANT MEMBER +$ /DATED: 28 TH FEBRUARY, 2019 * # * $'( )*+* / COPY OF THE ORDER FORWARDED TO : 1. , / THE APPELLANT 2. (-, / THE RESPONDENT 3. . / CIT 4. . ( )/ THE CIT(A) 5. */0( 1 , '1 , 23405 / DR, ITAT, CHANDIGARH 6. 046! / GUARD FILE $' / BY ORDER, / ASSISTANT REGISTRAR