Sri. Rajiv M Duseja, Bangalore V. ACIT, Bangalore

ITA 1295/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63784 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: P DINESH
• Keywords: Earning of tax free income

Judgement Text

PAGE 1 OF 7 ITA NO.1295/BA NG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NO.1295/BANG/2011 (ASSESSMENT YEAR 2007-08) SRI RAJIV M DUSEJA, PROP : KRAFT PACK, 39, NANJAPPA LAYOUT, SHANTINAGAR, BANGALORE-27. PAN : ADJPD 9123 D VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 08.11.2012 DATE OF PRONOUNCEMENT : 16.11.2012 ASSESSEE BY : SHRI P DINESH, ADVOC ATE REVENUE BY : SMT. SUSAN THOMAS J OSE, JCIT ORD ER PER GEORGE GEORGE K : THIS APPEAL FILED BY THE ASSSESSEE IS DIRECTED AG AINST THE ORDER OF THE CIT (A)-I, BANGALORE, DATED 14.10.2011. THE RELEVANT ASSESSMENT YEAR IS 2007-08. 2. THOUGH THE ASSESSEE HAS RAISED FIVE GROUNDS IN HIS GROUNDS OF APPEAL, THE MAIN GRIEVANCE OF THE ASSESSEE IS THAT - (I) THE CIT (A) GROSSLY ERRED IN NOT APPRECIATING THAT THE CHIT FUND WAS A MUTUAL BENEFIT ASSOCIATION; & (II) THAT THE CIT ALSO ERRED IN NOT CONSIDERING TH E CASE LAWS RELIED WHICH WERE SQUARELY APPLICABLE TO HIS C ASE. PAGE 2 OF 7 ITA NO.1295/BA NG/2011 2 3 . THE ISSUE, IN BRIEF, IS AS UNDER: THE ASSESSEE, AN INDIVIDUAL, IS ENGAGED IN THE MA NUFACTURE AND SUPPLY OF CORRUGATED BOXES. DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE, IN HIS COMPUTATION OF INCOME, SHOWN AN IN COME OF RS.2,35,540/- FROM CHIT DIVIDENDS WHICH HAS BEEN CLAIMED AS EXEMP TION ON THE PRINCIPLE OF MUTUALITY. BEING QUERIED BY THE AO AS TO HOW THE SAI D SUM WAS EXEMPT, THE ASSESSEE HAD COME UP WITH A LENGTHY SUBMISSION TO JU STIFY HIS CLAIM. AFTER DUE CONSIDERATION OF THE ASSESSEES CONTENTIONS, AS RECORDED IN THE ASSESSMENT ORDER, THE AO HAD REJECTED THE CLAIM AND ADDED BACK THE ENTIRE SUM TO THE TOTAL INCOME OF THE ASSESSEE. THE RELEV ANT PORTION OF THE REASONING OF THE AO IS EXTRACTED AS UNDER: [ON PAGE 4].. THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT CORRE CT. AS PER SEC.2 (24), INCOME INCLUDES PROFITS AND GAI NS, IT IS CLEAR THAT INCOME IS A INCLUSIVE DEFINITION. ANYTHING WHICH CAN BE PROPERLY DESCRIBED AS INCOME IS TAXABLE UNDER THE ACT, UNLESS, IT IS EXEMPTED UNDER ONE OR THE OTHER PROVISIONS OF THE ACT. IT IS FURTHER CLARIFI ED THAT EVEN IF A RECEIPT DOES NOT EXPRESSLY MENTIONED IN AN Y OF THE SUB-CLAUSES OF SEC. 2(24), IT WILL STILL BE INC OME, IF IT PARTAKES THE NATURE OF INCOME. THE IDEA OF PROVIDI NG INCLUSIVE DEFINITION TO INCOME IS TO WIDEN ITS NET. THESE ARE FEW THINGS WHICH ARE CLARIFIED WHEN WE GO THROU GH VARIOUS CASE LAWS. EVEN WITH THE COMMON UNDERSTAND ING, IT IS CLEAR THAT THE ASSESSEE HAS GOT SOME EXTRA IN COME IN THE MEANS OF CHIT DIVIDEND WHICH IS TAXABLE. THE C OMMON UNDERSTANDING THAT DIVIDEND IS NOT TAXABLE IS BECAU SE THAT THE DIVIDEND WILL SUFFER TAXATION WHILE DISTRI BUTION IN THE HANDS OF THE COMPANY DURING DISTRIBUTION (DIV IDEND DISTRIBUTION TAX). THESE DIVIDENDS IN NO STRETCH O F PAGE 3 OF 7 ITA NO.1295/BA NG/2011 3 IMAGINATION CAN BE EXEMPT INCOME AS THIS NOT EXPRES SLY PROVIDED IN THE ACT. THE CASE LAW QUOTED BY THE ASSESSEE HAVE BEEN TAKEN INTO CONSIDERATION BUT IT MAY BE CLARIFIED THAT MATT ER HAS NOT REACHED FINALITY AND THESE CASES ARE IN APPEAL A ND THE FACTS OF THE CASE ARE NOT IDENTICAL. THE BASIS ON WHICH THE DECISION IS TAKEN IN THESE CASE LAWS IS TAKEN F ROM CO- OPERATIVE SOCIETIES RUNNING SUGAR MILLS FOR SUGARCA NE GROWERS CO-OPERATIVES. THE INCOME COMPONENT WHETHE R IT IS EXEMPT AS PER LAW HAS TO BE TAKEN INTO CONSIDERA TION. THE PRIMARY INCOME MAY BE EXEMPT LIKE AGRICULTURAL INCOME AND CO-OPERATIVES GAINING INCOME FROM SUCH OPERATIONS / RELATED OPERATIONS SHALL BE EXEMPT FRO M INCOME-TAX ON THE BASIS OF MUTUALITY. HENCEFORTH AN INCOME OF RS.2,35,540/- IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WITH THE CIT (A) FOR RELIEF. AFTER TAKING INTO ACCOUNT THE ASSESSEE S SUBMISSION, AS REPRODUCED VERBATIM IN HIS APPELLATE ORDER UNDER DI SPUTE, THE LEARNED CIT (A) HAD UPHELD THE STAND OF THE AO WITH THE FOLLOWI NG REASONING: 3..I OBSERVE THAT THE CHIT FUND ORGANIZATIONS ARE NOT LIKE CLUB VIZ., BANKIPUR CLUB OR WELFARE ORGANI ZATIONS VIZ., CANARA BANK GOLDEN JUBILEE STAFF WELFARE FUND BECAUSE IN THOSE ORGANIZATIONS, THE MEMBERS CONTRIB UTE TO THE CLUB / WELFARE FUND FOR THEIR WELFARE HAVING NO MOTIVE TO EARN ANY PROFIT FROM SUCH CONTRIBUTION. E VEN THE CLUB ALSO CANNOT BE ASCRIBED ANY PROFIT MOTIVE. IN SUCH CLUBS, THE CONTRIBUTORS DO NOT GET ANY FINANCIA L GAIN AT ALL. IN THE CHIT FUND, THE CHIT FUND MAY NOT EAR N ANY GAIN BECAUSE THE ENTIRE CONTRIBUTION / RECEIPTS GET S CONSUMED IN THE SHAPE OF PAYMENT EITHER TO SUCCESSFU L BIDDER AS PRIZE MONEY OR TO THE FOREMAN AS COMMISSIO N OR THE OTHER PARTICIPANTS AS DIVIDEND. AND THEREFORE THERE REMAINS NO INCOME ELIGIBLE TO TAXATION IN THE HANDS OF THE PAGE 4 OF 7 ITA NO.1295/BA NG/2011 4 CHIT FUND. BUT SO FAR THE PARTICIPANT IS CONCERNED HE IS BOUND TO GET EITHER MORE THAN WHAT HE CONTRIBUTES O R INCURS LOSS BY NOT GETTING BACK THE EXACT AMOUNT OF CONTRIBUTION. THEREFORE, INHERENTLY PARTICIPATION I N A CHIT BED INVOLVES AN ELEMENT OR INTENTION TO EARN P ROFIT EVEN IF EACH MEMBER MAY NOT ACTUALLY GET SUCH PROFIT . BESIDES THE SUCCESSFUL BIDDER ALWAYS GETS A LUMP SUM WHICH IS MORE THAN THE CONTRIBUTION WHICH CAN BE UT ILIZED FOR THE PURPOSE OF OTHER BUSINESS AT THAT POINT OF TIME. THUS, A BUSINESS ADVANTAGE IS GAINED IN THE MONTH W HEN THE PARTICIPATORY BIDS IN HIS TURN. THUS, SUCH ADVA NTAGE IS CERTAIN AND CONSTANT FOR ONE OF THE PARTICIPANTS IN EACH MONTH. BUT, IN WELFARE CLUBS OR OTHER CLUBS N O SUCH DISCRIMINATORY TREATMENT IS PROVIDED AMONGST THE CONTRIBUTORS CUM PARTICIPANTS. WHAT IS BEING POINT ED OUT HERE IS THAT THE PARTICIPANT IN A CHIT FUND KNOWS O F HIS BUSINESS ADVANTAGE AND PROFIT ABINITIO WHICH GETS O NLY QUANTIFIED OR CRYSTALLIZED AT THE END OF FINANCIAL YE AR. THUS, IN CHIT FUNDS, ONE OF THE CARDINAL PRINCIPLES OF MUTUALITY I.E., THERE IS NO PROFIT MOTIVATION IS A BSENT SO FAR AS THE CONTRIBUTORS ARE CONCERNED AND, THEREFOR E, THE CONTRIBUTORS OF CHIT FUND ARE NOT ELIGIBLE FOR EXEMPTION ON THE INCOME / SURPLUS EARNED BY THEM FRO M INVESTMENT MADE IN THE CHIT FUND AS BIDS. THE AO H AS ALSO RIGHTLY POINTED OUT THAT THERE IS NO SPECIFIC P ROVISION IN THE ACT TO TREAT SUCH SURPLUS AS NON-TAXABLE INC OME IN THE HANDS OF THE BIDDER OF THE CHIT FUND. 5. AGITATED, THE ASSESSEE HAS COME UP WITH THE PRE SENT APPEAL. THE LEARNED AR REITERATED MORE OR LESS WHAT HAS BEE N SUBMITTED BEFORE THE CIT (A). IN FURTHERANCE, IT WAS SUBMITTED THAT THE CIT (A) HAD GROSSLY FAILED TO CONSIDER AND RECORD HIS FINDINGS ON THE F OLLOWING CASE LAWS* ON WHICH THE ASSESSEE HAD PLACED HIS STRONG RELIANCE. CIT V. NATRAJ FINANCE CORPORATION (1988) 169 ITR 73 2 (AP); ARUN KUMAR BHANSALI V. DCIT (2006) 99 TTJ 1308 (ITA T, BLORE); SODA SILICATE AND CHEMICAL V. CIT (198) 179 ITR 588 PAGE 5 OF 7 ITA NO.1295/BA NG/2011 5 5.1. BY DOING SO, IT WAS ARGUED, THE ASSESSEE HAS B EEN DEPRIVED OF THE BENEFIT OF THE FINDINGS OF THE HONBLE JURISDIC TIONAL TRIBUNAL IN THE CASE OF ARUN KUMAR BHANSALI (SUPRA). IT WAS, THEREFORE, PLEADED THAT STAND OF THE AUTHORITIES BELOW REQUIRES TO BE REVERSED. TO SUPPORT HIS SUBMISSION, THE LEARNED AR HAD FILED A PAPER BOOK CONTAINING 1 46 PAGES WHICH CONSIST OF, INTER ALIA, THE COPIES OF (I) CORRESPONDENCE WI TH THE AO, (II) WRITTEN SUBMISSION BEFORE THE CIT (A) COUPLED WITH VARIOUS CASE LAWS ETC., 6. ON THE OTHER HAND, THE LEARNED D R STRONGLY SUPP ORTED THE REASONING OF THE AO IN REJECTING THE ASSESSEES CLA IM WHICH HAS BEEN DULY UPHELD BY THE CIT (A). IT WAS, THEREFORE, URGED THA T THE FINDINGS OF THE CIT (A) REQUIRE TO BE SUSTAINED. 7. WE HAVE CAREFULLY EXAMINED THE SUBMISSIONS OF RI VAL PARTIES. WE HAVE ALSO DULY PERUSED THE RELEVANT MATERIALS ON THE CASE RECORDS AND THE PAPER BOOK SUBMITTED BY THE LEARNED AR. 7.1. IT HAS BEEN OBSERVED FROM THE ASSESSMENT ORDE R THAT THE CASE LAWS REFERRED TO BY THE ASSESSEE HAS BEEN REJECTED B Y THE AO ON THE PREMISE THAT THE MATTER HAD NOT REACHED FINALITY AND THAT THE FACTS OF THE CASES WERE NOT IDENTICAL. HOWEVER, ON A PERUSAL OF THE ASSESSMENT ORDER, IT IS NOTICED THAT THE AO HAS NOT CONSIDERED THE DETAI LS OF THE CHIT AGREEMENT/SCHEME. ACCORDING TO THE LEARNED AR WHEN THERE WAS A LOSS IN CHIT BIDDING IN THE SUBSEQUENT YEARS I.E., 2008-09 AND 2010-11, THE SAME WAS ADDED BACK TO THE P & L ACCOUNTS OF THE RESPECT IVE YEARS [SOURCE: P 7 & 11 OF PB]. THEREFORE, IT WAS ARGUED, THE INCOME AL SO SHOULD NOT BE INCLUDED IN THE P & L ACCOUNT FOR THE CURRENT YEAR UNDER CONS IDERATION. PAGE 6 OF 7 ITA NO.1295/BA NG/2011 6 7.2. THESE ASPECTS HAVE NEITHER BEEN CONSIDERED BY THE AO AND THE CIT(A) NOR THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED STRONG RELIANCE. WHEN THE ASSESSEE HAD PLACED STRONG RELIANCE WITH T HE FINDINGS OF (I) THE HONBLE JURISDICTIONAL EARLIER BENCH OF THE TRIBUNA L IN THE CASE OF ARUN KUMAR BHANSALI (SUPRA) AND ALSO THE RULING OF THE ( II) HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT V. NATARAJ FINANC E CORPORATION (SUPRA) AMONG OTHERS ON A SIMILAR ISSUE, THE CIT(A) OUGHT T O HAVE CONSIDERED THE SAME AND RECORDED HIS FINDINGS, AS TO WHY THOSE FIN DINGS DO NOT FIT IN WITH THE ISSUE BEFORE HIM. THIS VITAL FACT HAS NOT BEEN ADDRESSED TO BY THE CIT(A). 7.3. TAKING INTO ACCOUNT THE ABOVE FACTS AND THE C IRCUMSTANCES OF THE ISSUE, WE ARE OF THE CONSIDERED VIEW THAT THE I SSUE REQUIRES TO BE RESTORED TO THE FILE OF THE AO SO AS TO CONSIDER TH E MATTER AFRESH AND TO TAKE APPROPRIATE DECISION AFTER AFFORDING A REASONA BLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. THE ORDER PRONOUNCED ON THE 16 TH DAY OF NOVEMBER, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER PAGE 7 OF 7 ITA NO.1295/BA NG/2011 7 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BAN GALORE.