Indira Gandhi Institute of Pharmaceutical Sciences, Bhubaneswar V. ITO, Bhubaneswar

ITA 103/CTK/2012

• Counselvise Citation: 10322114 RSA 2012
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 10-08-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 06-02-2012
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: K C JENA
• Keywords: Charitable institution; Maximum Marginal Rate
• Section: 12; 11; 143(3); 12AA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, (SMC) BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND / I.T.A.NO S . 103,104,105 /CTK / 2012 ( / ASSESSMENT YEAR 2002 - 03,2003 - 04 AND 2004 - 05) INDIRA GANDHI INSTITUTE OF PHARMACEUTICAL SCIENCES, N - 4/208, IRC VILLAGE,NAYAPALLI, BHUBANESWAR 751 015 PAN: AAABI 0087 M - - - VERSUS - INCOME - TAX OFFICER, WARD 2(1), BHUBANESWAR. ( /APP ELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI K.C.JENA, AR / FOR THE RESPONDENT: / SHRI . S.C.MOHANTY, DR / DATE OF HEARING: 10.08.2012 / DATE OF PRONOUNCEMENT: 24.08.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THESE APPEALS BY THE ASSESSEE BEING A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT FOR THE AYS 2002 - 03, 2003 - 04 AND 2004 - 05 RAISE COMMON ISSUE S WHICH A RE BEING T AKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE COMMON ISSUE WHICH HAS BEEN RAISED FOR THESE THREE AYS ARE (I) ARBITRARY DISALLOWANCE OF 20% OF THE EXPENSES CLAIMED USED FOR THE PURPOSE OF CARRYING OUT THE MAIN OBJECT OF THE ASSESSEE SOC IETY AND (II) THAT HAVING ACCEPTED THAT THE ASSESSEE IS A SOCIETY DULY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT CANNOT BE SUBJECTED TO TAX AT THE MAXIMUM MARGINAL RATE OF AOP WHEN THE FACT REMAINS THAT THE EXEMPTION U/S.12A HAD NOT BEEN OBTAINED F OR THE IMPUGNED AYS. I.T.A.NOS. 103,104,105 OF 2012 2 3. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE ASSESSEE IS A SOCIETY REGISTERED UNDER REGISTRATION OF SOCIETIES ACT, XXI 1860 ON 20 . 07 . 1988 TO RUN AN EDUCATIONAL INSTITUTION IN BHUBANESWAR. ITS M AIN OBJECTS ARE TO PROMOTE EDUCATION IN DIFFERENT FIELDS SUCH AS SOCIAL, EDUCATIONAL, TECHNICAL, ENGINEERING, ENVIRONMENT, DENTAL, MEDICAL, PHARMACY, PARAMEDICAL AND OTHER EDUCATION ETC. LEARNED ASSESSING OFFICER WHILE MAKING ORDER UNDER SECTION 143(3) OF INCOME TAX ACT FOR A.Y. 2002 - 03 DISALLOWED 57,720 BEING 20% OF THE EXPENDITURE OF LAB CONSUMABLES, STAFF WELFARE, PRINTING & STATIONERY AND PUJA, TRAVELING & CONVEYANCE, MISCELLANEOUS EXPENSES AND ANNUAL FUNCTION EXPENSES. LEARNED CIT(A) CONFIRMED THE ORD ER OF A.O. SIMILAR DISALLOWANCES WERE MADE FOR ASSESSMENT YEAR 2003 - 04 1,26,596 AND ASSESSMENT YEAR 2004 - 05 1,56,876 WHICH WERE CONFIRMED BY THE LEARNED CIT(A). 4. BEING AGGRIEVED BY THE SEPARATE ORDER S OF LEARNED CIT(A) THE ASSESSEE PREFERRED THE PRESE NT APPEAL WITH THE SUBMISSIONS THAT THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND THE DETAILS HAVE BEEN PROVIDED TO THE AUDITORS. THEY HAVE EXAMINED ALL THE VOUCHERS, DOCUMENTS AND OTHER EVIDENCES PRODUCED. ULTIMATELY, NO ADVERSE REMARK WAS CITED BY THE AUD ITORS ON THE ACCOUN TS. AS MENTIONED IN THE ASSESSMENT ORDER THE ASSESSEE HAD PRODUCED ALL BOOKS OF ACCOUNTS LIKE BANK ACCOUNTS, CASH BOOK, GENERAL LEDGER, DETAILS OF INCOME AND EXPENDITURE FOR EXAMINATION. THE A.O. HAS ACKNOWLEDGED IN PARA 2 OF HIS ORDER T HAT DETAILS OF INCOME AND EXPENDITURE WERE PRODUCED FOR EXAMINATION AND THE SAME WERE EXAMINED. BUT HE RUSHED TO ADD ESTIMATED 20% OF THE AFORESAID EXPENSES TO THE INCOME WITH THE REASON THAT DETAILS OF SUCH EXPENSES COULD NOT BE PRODUCED BY THE ASSESSEE. SO, THE A.O . HAS GIVEN CONTRADICTORY STATEMENT IN THE SAME ORDER. I.T.A.NOS. 103,104,105 OF 2012 3 AS A RESULT THE REASON SHOWN IS NOT AUTHENTIC AND CANNOT BE CONCLUSIVE TO IMPOSE TAX ON THE ASSESSEE. SECONDLY, THE ASSESSEE HAS NOT STATED THAT THE DETAILS OF THESE EXPENSES ARE OLD DOCUMEN TS AND THE ASSESSEE IS NOT ABLE TO FIND THESE & SOME ARE MIGHT BE LOST. SINCE DETAILS OF ALLEGED EXPENSES HAVE BEEN SUBMITTED BEFORE THE A.O . THERE IS NO JUSTIFICATION TO ADD IT ON ESTIMATED BASIS. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT MOST OF THE PAYMENTS ESPECIALLY THE LARGE AMOUNTS ARE PAID BY CHEQUES AND BILLS ARE AVAILABLE. PETTY EXPENSES WHERE CHEQUES ARE NOT ACCEPTED BY PARTIES ARE PAID IN CASH AND IN SOME CASES HANDMADE BILLS ARE AVAILABLE AS PRACTICALLY PRINTED BILLS ARE NOT ISSUED BY THEM. 4 .1. THE LEARNED COUNSEL CONTENDED THAT S USPICION HOWEVER STRONG IT CANNOT BE TREATED AS EVIDENCE. THE A.O. MAY ACT ON EVIDENCE - DIRECT OR CIRCUMSTANTIAL, BUT NOT ON MERE SUSPICION, GOSSIP OR RUMOR. THE NORMAL PRESUMPTION IS IN FAVOUR OF GOOD FAITH AND THIS PRESUMPTION APPLIES TO THE BONAFIDES OF THE ASSESSEES TRANSACTIONS AS WELL AS ACCOUNTS. ACC ORDING TO THE OBSERVATIONS OF THE LEARNED CIT (A) NO HARD AND FAST RULE CAN BE MADE FOR UPHOLDING OR DISMISSING THE FINDING OF THE AO WHICH WERE NOT BASED ON DIRECT EVIDENCE. CIRCUMSTANTIAL EVIDENCES BACKED BY PREPONDERANCE OF PROBABILITIES WOULD WEIGH IN DECIDING THE ISSUE. UNDER SUCH CIRCUMSTANCES, IN SOME CASES ESTIMATED ADDITION IS TO BE UPHELD, WHERE AS IN OTHER CASES THE ESTIMATED ADDITION NEEDS TO BE DELETED. EVERYTHING DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE QUALITY OF EVIDENCE ADDUCED BY THE APPELLANT FOR DISTURBING A RULING QUASI JUDICIAL ORDER. BUT THE LEARNED CIT(A) HAS LOST SIGHT OF THE JUDICIAL APPROACH EXPECTED FROM AN A.O. THE BOOKS OF ACCOUNTS, DETAILS, SUPPORTING ARE TAKEN AS FACE - VALUE UNLESS CHALLENGED BY THE A. O WITH REASONS. BUT, IN THIS CASE NO REASON IN RELATION TO ANY I.T.A.NOS. 103,104,105 OF 2012 4 DISALLOWED EXPENDITURE HAS BEEN CITED BY THE A.O. ONCE BOOKS OF ACCOUNTS ARE PRODUCED ONUS LIES ON THE A.O. TO PIN - POINT THE ADVERSE FINDINGS WHICH HAS NOT BEEN TAKEN CARE OF IN THIS CASE. THE BASIS OF MAKING OF ADDITION BY THE A.O. IS ILLEGAL, ARBITRARY AND DEVOID OF JUDICIAL DISCIPLINE. ALSO THE LEARNED CIT(A) HAS NOT EMPHASIZED THE DEFICIENCIES IN TH E ORDER OF THE A.O. THE LEARNED CIT(A) HAS OBSERVED THAT SINCE THE SHARES OF THE MEMBERS OF AOP ARE NOT DETERMINABLE THE A.O HAS CHARGED THE INCOME TO THE MAXIMUM MARGINAL RATE IN ACCORDANCE WITH SECTION 164 OF THE ACT. THE APPELLANT HAS ACCEPTED ITS STAT US AS A NON - CHARITABLE ORGANIZATION IN THE A.Y. 2005 - 06. THE APPELLANT HAS NOT RECEIVED REGISTRATION U/S 12 AA OF THE ACT AND THEREFORE, THE APPELLANT WAS ASSESSED AS AN AOP. SINCE THE SHARES OF THE MEMBERS ARE INDETERMINATE, THE A.O WAS DULY BOUND TO APPL Y THE MAXIMUM MARGINAL RATE U/S 164 OF THE ACT. THE ASSESSEE IS AN EDUCATIONAL INSTITUTION REGISTERED UNDER THE SOCIETIES REGISTRATION ACT 1860. IN THE ABSENCE OF REGISTRATION U /S 12 AA OF I.T ACT THE EXCESS OF INCOME OVER EXPENDITURE OF THE YEAR IS TREAT ED AS INCOME FROM OTHER SOURCES OF THE ASSESSEE. IN A REGISTERED SOCIETY WITHOUT PROFIT MOTIVE LIKE THIS ONE, THERE CANNOT BE FIXATION OF SHARES. SHARES ARE DETERMINED IN CASES WHERE PROFIT IS SHARED AMONGST MEMBERS. IN THIS CASE SUB SECTION (1) & (3) OF S ECTION 164 RELATE TO CASES WHERE SHARES OF BENEFICIARIES UNKNOWN. SUB - SECTION (2) OF SECTION 164 PROVIDES AS FOLLOWS: (2) IN THE CASE OF RELEVANT INCOME WHICH IS DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES OR WHICH I S OF THE NATURE REFERRED TO IN SUB - CLAUSE (CIA) OF CLAUSE (24) OF SECTION 2 OR WHICH IS OF THE NATURE REFERRED TO IN SUB - SECTION (4A) OF SECTION 11, TAX SHALL BE CHARGED OR SO MUCH OF THE RELEVANT INCOME AS IS NOT EXEMPT UNDER ION 11 OR SECTION 12 AS IF TH E RELEVANT INCOME NOT SO EXEMPT WERE THE INCOME OF AN ASSOCIATION OF PERSONS. PROVIDED THAT IN A CASE WHERE THE WHOLE OR ANY PART OF THE RELEVANT INCOME IS NOT EXEMPT UNDER SECTION 11 OR SECTION 12 BY VIRTUE OF THE PROVISIONS CONTAINED IN CLAUSE (C) OR CLA USE (D) OF SUB - SECTION (1) OF SECTION 13, TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PUT OF RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE . I.T.A.NOS. 103,104,105 OF 2012 5 SO, SUB - SECTION (2) OF SECTION 164 AS TO DERIVING THE INCOME FROM PROPERTY HELD UNDER TRUST FOR CHARITABLE PURPO SES AND THE RELEVANT INCOME NOT BEING EXEMPTED U/S 11 OR 12 ARE APPLICABLE IN THIS CASE LEADING TO TAXABILITY AS ASSOCIATION OF PERSONS. THE INCOME OF THIS INSTITUTION IS NOT EXEMPT FROM TAX U/S 11 OR 12 AS IT IS NOT REGISTERED U/S 12 AA. SO PROVISIONS OF CLAUSE (C) OR (D) OF SUB - SECTION 13 ARE NOT APPLICABLE, SO ALSO MAXIMUM MARGINAL RATE. AS THERE IS NO ELEMENT OF PROFIT SO DETERMINATION OF PROFIT OR SHARING DOES NOT ARISE. IT IS ASSESSED AS ASSOCIATION OF PERSONS SOLELY BECAUSE IT IS NOT HAVING REGISTRAT ION U/S 12 AA. BUT, INCOME TAX REGISTRATION CANNOT ALTER THE BASIC STRUCTURE OF THE SOCIETY. INCOME TAX IS ONE ASPECT OF THE COMPLIANCES AND ACTIVITIES OF THE SOCIETY. THE FOUNDATION OF THE SOCIETY LIES IN ITS NON - PROFIT MAKING AND EDUCATIONAL & SOCIAL PUR POSES. ON THE BASIS OF ABOVE, THE LEARNED COUNSEL SUBMITTED THAT THE LEARNED CIT(A) HAS RELIED ON THE VIEW OF THE A.O. FOR TREATING THE ORGANIZATION AS AN AOP FOR A.Y. 2005 - 06. BUT HE HAS NOT ACTED ON THE VIEW OF A.O. AND CONFIRMED BY CIT(A) ON THE FACT OF NON - APPLICATION OF MAXIMUM MARGINAL RATE APPLIED BY A.O. FOR A.Y. 2005 - 06. PRECEDENCE ALWAYS PREVAILS IN SUCH CASES. 4 .2. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE LEARNED CIT(A) HAS FORCED HIS WAY TO APPLY SECTION164 FOR MAXIMUM MAR GINAL RATE ALTHOUGH THE ASSESSING OFFICER HAS NOT SPELT ANY SPECIFIC PROVISION OF S EC. 164 FOR SUCH VIEW. SECTION 164 OF I.T ACT PROVIDES FOR CHARGE OF TAX, WHERE SHARES OF BENEFICIARIES UNKNOWN. IN THIS CASE THERE IS NEITHER BENEFICIARIES NOR RIGHT TO GE T SHARES AS IT IS A CHARITABLE SOCIETY REGISTERED UNDER SOCIETIES REGISTRATION ACT, FORMED WITH NO PROFIT MOTIVE, NO INDIVIDUAL EXCEPT THE PUBLIC IS LIKELY TO BE WITH BENEFITED FROM THE SOCIETY. IN I.T.A.NOS. 103,104,105 OF 2012 6 THIS CASE THERE IS NO INCOME FOR THE BENEFIT OF ANY INDIVI DUAL, HENCE SHARING OF INCOME AND DETERMINATION OF INCOME OF EACH INDIVIDUAL DOES NOT ARISE LEADING TO NON - APPLICATION OF MAXIMUM MARGINAL RATE. SO, SECTION 164 OF I.T. ACT IS NOT APPLICABLE TO THE APPELLANT. IT GETS FURTHER IMPETUS FROM PREAMBLE OF SOCIET IES REGISTRATION ACT AS GIVEN BELOW: WHEREAS IT IS EXPEDIENT THAT PROVISION SHOULD BE MADE FOR IMPROVING THE LEGAL CONDITION OF SOCIETIES ESTABLISHED FOR THE PROMOTION OF LITERATURE, SCIENCE OR THE FINE ARTS, OR FOR THE DIFFUSION OF USEFUL KNOWLEDGE, (THE DIFFUSION OF POLITICAL EDUCATION) OR FOR CHARITABLE PURPOSE, IT IS ENACTED AS FOLLOWS: - SUB - SECTION (1) OF SECTION 1678 ON MAXIMUM MARGINAL RATE IS NOT APPLICABLE AS IT IS A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATIO N ACT 1860. SUB - SECTION (2) OF S ECTION 167B ON APPLICATION OF MAXIMUM MARGINAL RATES IS ALSO NOT APPLICABLE AS IT IS LINKED TO THE SHARE OF THE MEMBERS OF THE ASSOCIATION OR BODY. SECTION 86 PROVIDES FOR EXEMPTION IN THE HANDS OF THE MEMBERS WHERE THE AOP OR BOL ITSELF IS LIABLE TO TAX. BUT IT MAKES AN EXCEPTION FOR MEMBERS OF A CO - OPERATIVE SOCIETY, A SOCIETY REGISTERED UNDER SOCIETIES REGISTRATION ACT, 1860 OR REGISTERED UNDER ANY OTHER CORRESPONDING LAW BECAUSE A MEMBER OF SUCH AMBULATORY BODIES CANNOT BE MADE LIABLE IN THE CONTEXT OF THE DIFFICULTY IN ASCERTAINING THE SHARE OF ANY MEMBER APART FROM SUCH MEMBER NOT HAVING ANY SPECIFIED RIGHT TO GET THE SHARE, IF ANY. HON BLE MADRAS HIGH COURT IN CIT V. IDEAL ENTERTAINMENT P. LTD. (2011) 336 ITR 357 HAS OBSERVED LIKE THIS: - . A PERUSAL OF THE ABOVE - SAID PROVISION WOULD CLEARLY SHOW THAT IN THE CASE WHERE THE ASSESSEE IS A MEMBER OF ASSOCIATION OF PERSONS, INCOME - TAX WAS NOT TO BE PAYABLE BY THE ASSESSEE IN RESPECT OF HIS SHARE IN THE INCOME OF THE ASSOCIATION OR BODY IN THE MANNER PROVID ED I.T.A.NOS. 103,104,105 OF 2012 7 UNDER SECTION 67A OF THE ACT. THE EXCLUSION PROVIDED UNDER THE SECTION THAT OTHER THAN THE COMPANY OR THE CO - OPERATIVE SOCIETY OR A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 WOULD BE MADE APPLICABLE ONLY TO THE ASSOCIATION OF PERSONS OR BODY OF INDIVIDUAL AND NOT TO THE MEMBER. IN OTHER WORDS, IF THE ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUAL HAPPENED TO BE A COMPANY OR A CO - OPERATIVE SOCIETY OR A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, THEN IN SUCH AN EVENTUALITY THE MEMBER, WHO IS ALSO AN ASSESSEE IS ENTITLED TO GET THE BENEFIT PROVIDED UNDER SECTION 86 OF THE ACT. IT IS A WELL - SETTLED PRINCIPLE OF LAW THAT IN ORDER TO INTERPRET A TAXING STATUE, A LITERAL INTERPRETING WILL HAVE TO BE GIVEN WHILE INTERPRETING THE SAME. UNLESS THE INTERPRETATION WOULD LEAD TO MANIFEST IN JUSTICE OR ABSURDITY SUCH AN INTERPRETATION CAN NOT BE GIVEN OTHER THAN THE LITERAL INTERPRETATION. 4.3. PRIOR TO OMISSION W.E.F. 1.4.1989, SECTION 167A READS AS UNDER: 167A - CHARGE OF TAX WHERE S HARES OF MEMBERS UNKNOWN: - WHERE THE INDIVIDUAL SHARES OF THE MEMBERS OF AN ASSOCIATION OF PERSONS (OTHER THAN A COMPANY OR COOPERATIVE SOCIETY) IN THE WHOLE OR ANY PART OF THE INCOME OF SUCH ASSOCIATION ARE INDETERMINATE OR UNKNOWN, TAX SHALL BE CHARGED O N THE TOTAL INCOME OF THE ASSOCIATION AT THE MAXIMUM MARGINAL RATE. EXPLANATION: FOR THE PURPOSE OF THIS REASON, (A) MAXIMUM MARGINAL RATE SHALL HAVE THE MEANING ASSIGNED TO IT IN EXPLANATION 2 BELOW SUB - SECTION (3) OF SECTION 164; (B) THE INDIVIDUAL SHA RES OF THE MEMBERS OF AN ASSOCIATION OF PERSONS IN THE WHOLE OR ANY PART OF THE INCOME OF SUCH ASSOCIATION SHALL BE DEEMED TO BE INDETERMINATE OR UNKNOWN IF SUCH SHARES (IN RELATION TO THE WHOLE OR ANY PART OF SUCH INCOME) ARE INDETERMINATE OR UNKNOWN ON T HE DATE OF FORMATION OF SUCH ASSOCIATION OR AT ANY TIME THEREAFTER . SECTION 167B (INSERTED W.E.F. 1.04.1989 AND) AS APPLICABLE ON THE REL EVANT YEAR PROVIDES AS FOLLOWS: I.T.A.NOS. 103,104,105 OF 2012 8 167V CHARGE OF TAX WHERE SHARES OF MEMBERS IN ASSOCIATION OF PERSONS OR BODY OF IND IVIDUALS UNKNOWN, ETC: - (1) WHERE THE INDIVIDUAL SHARES OF THE MEMBERS OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (OTHER THAN A COMPANY OR A CO - OPERATIVE SOCIETY OR A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1860) OR UN DER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA) IN THE WHOLE OR ANY PART OF THE INCOME OF SUCH ASSOCIATION OR BODY ARE INDETERMINATE OR UNKNOWN, TAX SHALL BE CHARGED ON THE TOTAL INCOME OF THE ASSOCIATION OR BODY AT THE MAXIMUM MARGINA L RATE: PROVIDED THAT, WHERE THE TOTAL INCOME OF ANY MEMBER OF SUCH ASSOCIATION OR BODY IS CHARGEABLE TO TAX AT A RATE WHICH IS HIGHER THAN THE MAXIMUM MARGINAL RATE, TAX SHALL BE CHARGED ON THE TOTAL INCOME OF THE ASSOCIATION OR BODY AT SUCH HIGHER RATE. (2) WHERE, IN THE CASE OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS AS AFORESAID (NOT BEING A CASE FALLING UNDER SUB - SECTION (1), - (I) THE TOTAL INCOME OF ANY MEMBER THEREOF FOR THE PREVIOUS YEAR (EXCLUDING HIS SHARE FROM SUCH ASSOCIATION OR BODY) E XCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO TAX IN THE CASE OF THAT MEMBER UNDER THE FINANCE ACT OF THE RELEVANT YEAR, TAX SHALL BE CHARGED ON THE TOTAL INCOME OF THE ASSOCIATION OR BODY AT THE MAXIMUM MARGINAL RATE; (II) ANY MEMBER OR MEMBERS THE REOF IS OR ARE CHARGEABLE TO TAX AT A RATE OR RATES WHICH IS OR ARE HIGHER THAN THE MAXIMUM MARGINAL RATE, TAX SHALL BE CHARGED ON THAT PORTION OR PORTIONS OF THE TOTAL INCOME OF THE ASSOCIATION OR BODY WHICH IS OR ARE RELATABLE TO THE SHARE OF OR SHARES O F SUCH MEMBER OR MEMBERS AT SUCH HIGHER RATE OR RATES, AS THE CASE MAY BE, AND THE BALANCE OF THE TOTAL INCOME OF THE ASSOCIATION OR BODY SHALL BE TAXED AT THE MAXIMUM MARGINAL RATE. EXPLANATION. - FOR THE PURPOSE OF THIS SECTION, THE INDIVIDUAL SHARES OF THE MEMBERS OF AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS IN THE WHOLE OR ANY PART OF THE INCOME OF SUCH ASSOCIATION OR BODY SHALL BE DEEMED TO BE INDETERMINATE OR UNKNOWN IF SUCH SHARES (IN RELATION. TO THE WHOLE OR ANY PART OF SUCH INCOME) ARE INDE TERMINATE OR UNKNOWN I.T.A.NOS. 103,104,105 OF 2012 9 ON THE DATE OF FORMATION OF SUCH ASSOCIATION OR BODY OR AT ANY TIME THEREAFTER.) 4.4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT W HERE INCOME IS RECEIVABLE BY THE TRUSTEES, ON BEHALF OF AN UNRECOGNIZED PROVIDENT FOUND OR AN UN APPROVED SUPERANNUATION FOUND, GRATUITY FUND, PENSION FUND OR ANY OTHER FUND CREATED BONAFIDE BY A PERSON CARRYING ON A BUSINESS OR PROFESSION EXCLUSIVELY FOR THE BENEFIT OF PERSONS EMPLOYED IN SUCH BUSINESS OR PROFESSION ARE CONCERNED, THEY WILL CONTINUE TO BE CHARGED TO TAX IN THE MANNER PRESCRIBED BY SECTION 164 (1) (IV), AS HITHERTO. SIMILARLY, IN THE CASES OF REGISTERED SOCIETIES, TRADE AND PROFESSIONAL ASSOCIATION, SOCIAL SPORTS CLUBS, CHARITABLE OR RELIGIOUS TRUSTS ETC. WHERE THE MEMBERS OR TRUSTEES ARE NOT ENTITLED TO ANY SHARE IN THE INCOME OF THE ASSOCIATION OF PERSONS, THE PROVISIONS OF SECTION 167A WILL NOT BE ATTRACTED AND ACCORDINGLY, TAX WILL BE PAYABLE IN SUCH CASES AT THE RAT E ORDINARILY APPLICABLE TO THE TOTAL INCOME OF AN ASSOCIATION OF PE RSONS AND NOT AT TH E MAXIMUM MARGINAL RATE - CIRCULAR NO. 320 (F.NO. 131 (31)/81 - TP (PT)) DATED 11.01.1982. THE LEARNED COUNSEL THEREFORE SUBMITTED THAT THE AMOUNT OF EXPENSES INCURRED ON THE HEADS LIKE LAB CONSUMABLES ETC. ARE MOST REASONABLE KEEPING IN VIE W NATURE OF ACTIVITIES AND BACKED BY VOUCHERS/ BILLS AND DETAILS. PAYMENTS OF HIGH MAGNITUDES HAVE BEEN MADE BY CHEQUES. IN OTHER WORDS THE ADDITIONS MADE BY LD. A.O. CONFIRMED BY LD CIT (A) ARE TOO HIGH AND NEEDS A RELOOK. FURTHER, THE INSTITUTION ALTHOUG H A REGISTERED SOCIETY HAS NOT BEEN ABLE TO APPLY FOR REGISTRATION U/S 12AA OF INCOME TAX ACT RESULTING IN ASSESSMENT MADE AS ASSOCIATION OF PERSONS (AOP) BY DEFAULT. BEING A REGISTERED SOCI ETY, ACCORDING TO THE CIRCULAR N O.320 DATED 11.01.1982 OF CBDT AND INTERPRETATION OF RELEVANT SECTION 167B THE SOCIETY IS TAXABLE AT ORDINARY RATES, BUT NOT AT MAXI MUM MARGINAL RATES. HE POINTED OUT THAT THE ASSESSING I.T.A.NOS. 103,104,105 OF 2012 10 OFFICER AND THE LEARNED CIT(A) HAVE CONFIRMED ORDINARY RATE OF TAX FOR THE ASSESSMENT YEAR 2005 - 06. 5 . THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE DISALLOWANCE IS NOT JUSTIFIED. HE SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND THE DETAILS HAVE BEEN PROVIDED TO THE AUDITORS. THEY HAVE EXAMINED ALL THE VOUCHERS, DOCUMENTS AND OTHER E VIDENCES PRODUCED. ULTIMATELY, NO ADVERSE REMARK WAS CITED BY THE AUDITORS ON THE ACCOUNTS . 6 . THE LEARNED DR SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. 7. I HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE O N RECORD. I AM INCLINED TO FIND FAVOUR IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. HE SUBMITS THAT FOR THE ASSESSMENT YEAR 2005 - 06, THE ASSESSING OFFICER ON HIS OWN ACCEDED TO THE PROVISIONS OF SECTION 167B INSOFAR AS THE LEARNED CIT(A) HAD ALREADY CONFIRMED HIS CONTENTION FOR THE ASSESSMENT YEAR 2004 - 05 BY INVOKING THE PROVISIONS OF SECTION 164 WHICH AGAINST STANDS RECTIFIED AS PER OMISSION OF SECTION 167A BUT CLARIFIED LATER. THE CIRCULAR RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS DIRECTLY ON THE ISSUE WITH RESPECT TO CHARGING OF TAX AT THE MAXIMUM MARGIN RATE AS AOP HAVE TO BE IDENTIFIED INSOFAR AS THE LEARNED COUNSEL FOR THE ASSESSEE FURNISHED THE COPIES OF REGISTRATION CERTIFICATE AND YE - LAWS WHICH WERE ALREADY AVAILABLE TO TH E AUTHORITIES BELOW. THE LEARNED DR S DISTINCTIONS AS TRUST AND REGISTERED SOCIETY ARE OF NO AVAIL. A FUTURE EVENT OF CLAIMING EXEMPTION U/S.12A HAS BEEN DONE AWAY WITH BY THE ASSESSEE. IT WAS NOT THE CASE OF THE ASSESSEE TO CLAIM EXPENDITURE TO BE DISALLO WED ARBITRARILY AT A FIXED PERCENTAGE FOR THE IMPUGNED AYS WHEN THE REASSESSMENTS HAVE BEEN FRAME BY THE ASSESSING OFFICER FOR THE IMPUGNED I.T.A.NOS. 103,104,105 OF 2012 11 AYS ON THE INFORMATION AVAILABLE TO IT HOLDING DEPOSITS IN THE BANK. IN THIS VIEW OF THE MATER, THE ASSESSEE WAS NOT TO EXPLAIN THE EXCESS OF INCOME OVER EXPENDITURE INSOFAR AS HAVING AGREED TO THE PROPOSITION OF VERIFYING THE DEPOSITS BEING EXCESS OF INCOME OVER EXPENDITURE CANNOT BE ENHANCED BY ARBITRARY DISALLOWANCE. OF 20% OF THE EXPENSES WHEN THE ASSESSING OFFICER WAS TO ESTABLISH THAT THEY ARE NOT FOR THE ASSESSEES BUSINESS PURPOSE. THERE IS A LINKING IN HOLDING THE SOCIETY AS AN AOP VIS - - VIS DISALLOWANCE OF EXPENSES AT A FIXED PERCENTAGE IN THE IMPUGNED AYS INSOFAR AS THE ASSESSING OFFICER CANNOT ESTABLISH THAT THESE EXPENSES HAD BEEN INCURRED FOR THE PERSONAL USE OF THE MEMBERS OF THE SOCIETY. THE LEARNED CIT(A) THER EFORE ERRED IN OBSERVING WHERE THE APPELLATE AUTHORITY MERELY CONFIRMS AN ORDER OF THE ASSESSING OFFICER IT WOULD NOT BE NECESSARY FOR HIM TO RE VISE THE REASONING OF THE ASSESSING OFFICER. IF, HOWEVER THE APPELLATE AUTHORITY VARIES THE DECISION OF THE LOWER AUTHORITY, THE FORMER MUST GIVE REASON FOR COMING TO A DIFFERENT CONCLUSION. FOR THIS PROPOSITION OF LAW RELIANCE MAY BE PLACED IN THE CASE OF DARA VENKAIAH V. CIT (1959) 35 ITR 24 (AP) . IN THIS APPELLATE ORDER, THE QUASI JUDICIAL ORDER OF THE ASSESSING OFFICER IS ONLY CONFIRMED . I AM UNABLE TO SATISFY MYSELF TO THIS PROPOSITION AS NARRATED BY THE LEARNED CIT(A). HAVING DISCUSSED THE CONTENTIO N OF THE ASSESSEE REGARDING CLAIMING EXEMPTION U/S.12A AND ALSO THE FACT THAT THE ASSESSEE IS CARRYING ON CHARITABLE ACTIVITIES WHEN HE HAS TAKEN RECOURSE TO THE SUSTAINING OF DISALLOWANCE OF EXPENDITURE, HE OUGHT TO HAVE GIVEN A FINDING AS TO HOW THE ASSE SSEE WOULD BEAR THE TAXATION OF THE DISALLOWANCE BEING A HELPLESS SOCIETY TO CLAIM EXPENDITURE FROM THE MEMBERS OF THE SOCIETY. HE OUGHT TO HAVE GIVEN SPECIFIC FINDINGS FOR SUSTAINING THE DISALLOWANCE INSOFAR AS THE ASSESSING OFFICER HAS CLEARLY DISALLOWED 20% WITHOUT MAKING ANY EFFORT I.T.A.NOS. 103,104,105 OF 2012 12 WHETHER THE EXPENSES DISALLOWED COULD BE PERSONAL IN NATURE. THE LEGAL ENTITY AS TO FUNCTION ON THE BASIS OF ITS EMPLOYEES AND MANAGEMENT AND NOT BECAUSE INTER SE THE MEMBERS WERE SUBMITTING BOGUS BILLS AND VOUCHERS FOR THEIR PERSONAL USE. HAVING LEFT THE ENTIRE DECISION ON THE ASSESSING OFFICER FOR CONFIRMATION HE OUGHT TO HAVE CONSIDERED THE ASSESSEE APPELLANTS SUBMISSIONS INSOFAR AS THE LEARNED COUNSEL FOR THE ASSESSEE FURNISHED ALL THE DETAILS AS WERE CLAIMED FOR INCURRIN G EXPENDITURE IN THE PAPER BOOK BEFORE ME. I HAVE PERUSED THEM AND FIND NO EXPENDITURE WHICH CAN BE CONSIDERED FOR THE PERSONAL USE OF THE MEMBERS OF THE TRUST. IN THIS VIEW OF THE MATTER, I HAVE NO HESITATION TO DIRECT DELETION OF THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A). 8 . ON THE NEXT ISSUE BEING CHARGING OF TAX BY WAY OF REGULAR RETURNS I SUPPORT CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE INSOFAR AS THE LAW PROVIDES U/S.167B DULY EXPLAINED BY THE CBD T CIRCULAR NO.320 DT.11.01.182 THAT THE ASSESSEE COULD NOT BE SUBJECTED TO TAX AS AOP AT THE MAXIMUM MARGINAL RATE OF TAX. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE ENSUING ASSES SMENT YEAR 2005 - 06 WHICH COPY OF ORDER HAS BEEN FURNISHE D IN THE PAPER BOOK, THE TAX DEMAND WAS ON THE BASIS OF REGULAR RETURN WHICH HE IS DIRECTED TO DEMAND FOR THE EARLIER ASSESSMENT YEAR S AS WELL. 9 . IN THE RESULT, THE APPEAL S FILED BY THE ASSESSEE ARE ALLOWED. S D/ - ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 24.08.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NOS. 103,104,105 OF 2012 13 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : INDIRA GANDHI INSTITUTE OF PHARMACEUTICAL SCIENCES, N - 4/208, IRC VILLAGE,NAYAPALLI, BHUBANESWAR 751 015 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 2(1), BHUBANESWAR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEE T BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 10.08.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.08.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 24.08.2012 . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.08.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..