Addl. CIT, Muzaffarnagar V. N.s. Committee, Muzaffarnagar

ITA 1541/DEL/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61596 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 23-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGHDR
• Section: 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI U.B.S. BEDI, JM & SHRI A.N. PAHUJA, A M ITA NO.1541/DEL/2008 ASSESSMENT YEAR:2006-07 ADDL. C.I.T., RANGE-2, MUZAFFARNAGAR V/S . N.S. COMMITTEE, VILLAGE THANABHAWAN, TEHSIL, SHAMLI,DISTT.MUZAFFARNAGAR [PAN : AAALL 0299 A) (APPELLANT) (RESPONDENT) ASSESSEE BY NONE REVENUE BY SHRI SAT PAL SINGH,DR DATE OF HEARING 04-04-2012 DATE OF PRONOUNCEMENT 04-04-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 23.04.2008 BY THE REVENUE AGAI NST AN ORDER DATED 05.02.2008 OF THE LD. CIT(A)- MUZAFFARNAGAR, RAISES THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN HOLDING THAT ANSHDAN AND NIRMAN YOGNA FUND RECEIVED AND TO BE NE CESSARY SPENT ON SANCTIONED PROJECT, CAN BE TREATED AS NOT FORMIN G PART OF TOTAL RECEIPTS, EVEN IF, THE VARIOUS ACTIVITIES UNDER TAK EN BY PARISHAD CAN BE CONSIDERED AS BUSINESS ACTIVITY, IGNORING THAT THE ASSESSEE HAS NOT UTILIZED THESE EXPENDITURE FOR ROAD CONSTRUCTION WH EREAS THESE PAYMENTS HAS BEEN RECEIVED FOR ROAD CONSTRUCTION WH ICH IS A PART OF INCOME AND EXPENDITURE ACCOUNT. 2. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT MERE GENERATION OF SURPLUS WILL NOT AMOUNT TO GENERATION OF PROFIT SO LONG AS SURPLUS IS NOT DISTRIBUTED AND IT RATHER PLOUGHED B ACK FOR THE PURPOSE OF SOME DESIGNATED ACTIVITIES, IGNORING THAT THE ASSES SEE IS HAVING SPECIFIC PROJECT OF ROAD CONSTRUCTION AND ALSO IGNO RING THAT INCOME OF THE ASSESSEE IS NOT EXEMPT U/S 11. ITA N O.1541 /DEL./2008 2 3. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN OBSERVING THAT ANSHDAN AND FUND FOR NIRMAN YOGNA WERE GIVEN TO THE ASSESSE E FOR SPECIFIC PROJECT OF ROAD CONSTRUCTION AND THESE FUNDS HAVE B EEN SPENT FOR THOSE SPECIFIC PROJECT IGNORING THAT THE FUNDS HAVE NOT B EEN SPENT FOR SPECIFIC PROJECT OF ROAD CONSTRUCTION WHICH RESULTED IN SUR PLUS OF INCOME. 4. THAT THE ORDER OF THE LEARNED CIT(A) BE SET ASIDE A ND THAT OF THE AO TO BE RESTORED. 2. AT THE OUTSET, NONE APPEARED BEFORE US ON BEHA LF OF THE ASSESSEE DESPITE SERVICE OF NOTICE OF HEARING THROUGH THE JCIT RANGE -2,MUZAFFARNAGAR[COPY OF HER LETTER DATED 23.12.2011 ON RECORD] ON THE ASSESSEE ON 23.12.2011.EARLIER ALSO NONE APPEARED ON BEHALF OF THE ASSESSEE. IN THESE C IRCUMSTANCES, CONSIDERING THE NATURE OF ISSUE, THE BENCH DECIDED TO DISPOSE O F THE APPEAL AFTER HEARING THE LD. DR. 3. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T RETURN DECLARING LOSS OF ` ` 16,71,135/- FILED ON 31.10.2006 BY THE ASSESSEE, A LOCAL AUTHORITY, WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE CLAIMED EXEMPTION OF ITS INCOME U/S 10(20) OF THE A CT. TO A QUERY BY THE AO, THE ASSESSEE VIDE LETTER DATED 16 TH AUGUST, 2007 EXPLAINED THAT THE ASSESSEE WAS NEITHER CARRYING ON ANY BUSINESS ACTIVITIES OR PROF IT MOTIVATED ACTIVITY NOR THERE WAS ANY GENERATION OF INCOME FROM ACTIVITIES CARRIE D ON BY THE ASSESSEE. WHILE REFERRING TO THE FINDINGS IN THE CASE OF CANE DEVEL OPMENT COUNCIL, KHATAULI FOR THE AY 2002-03 , THE ASSESSEE SUBMITTED THAT GRANTS PROVIDED BY THE STATE GOVERNMENT AND CONTRIBUTIONS MADE BY THE SUGAR FACT ORIES COULD NOT BE TREATED AS INCOME OF THE ASSESSEE AND THUS, COULD NOT BE T AXED ,PARTICULARLY WHEN THE ASSESSEE IS A LOCAL AUTHORITY COVERED UNDER CLAUSE III OF EXPLANATION TO SECTION 10(20) OF THE ACT. THE ASSESSEE FURTHER POINTED OUT THAT CANE COMMISS IONER OF UP STATE EXERCISED ADMINISTRATIVE CONTROL OVER THE COMMITTEE . HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE IN V IEW OF THE AMENDED PROVISIONS OF SECTION 10(20) OF THE ACT W.E.F. 1. 4.2003 AND THE ASSESSEE BEING ITA N O.1541 /DEL./2008 3 NOT REGISTERED U/S 12A OF THE ACT. THE AO FURTHER NOTICED THAT THE ASSESSEE DID NOT REFLECT RECEIPT OF ` 93,17,000/- UNDER THE HEAD ZILA YOJNA AND ` 60,79,000/- ON ACCOUNT OF ANSHDAN IN THE INCOME EXPENDITURE ACCOU NT. TO A QUERY BY THE AO AS TO WHY THESE AMOUNTS BE NOT BROUGHT TO TAX, THE ASSESSEE SUBMITTED THAT THESE AMOUNTS WERE PROVIDED BY THE U.P. GOVERNMENT AND SUGAR FACTORIES FOR CONSTRUCTION OF ROADS AND WERE NOT LIABLE TO TAX. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND ADDED THE AFORE SAID TWO AMOUNTS TO THE TOTAL INCOME, REJECTING THE CLAIM FOR EXEMPTION BY THE ASSESSEE. 4. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE WHILE RELYING UPON DECISION DATED 24.02.2006 OF THE ITAT G BENCH IN THE CASE OF VARIOUS GANNA PARISHADS (OF SAHARANPUR DISTRICT), I N I.T.A. NOS.2812 TO 2818/DEL./2005 AND RELEVANT CROSS OBJECTIONS, IN TH E FOLLOWING TERMS:- FROM THE ABOVE REASONING, IT TRANSPIRES THAT A) VARIOUS AMOUNTS, LIKE ANSH DAN AND NIRMAN YOJNA FUND, RECEIVED AND TO BE NECESSARILY SPENT ON SANCTIONED PROJECT, CAN BE TREATED AS NOT FARMING PART OF TOTAL RECEIPTS, E VEN IF THE VARIOUS ACTIVITIES UNDERTAKEN BY PARISHADS CAN BE C ONSIDERED AS BUSINESS ACTIVITIES. B) FURTHER, EVEN IF SOME SURPLUS IS GENERATED, MERE GENERATION OF THE SURPLUS OF EXPENSE WILL NOT AMOUNT TO GENERATIO N OF PROFIT SO LONG AS THE SURPLUS IS NOT DISTRIBUTED AND IS RATHE R PLOUGHED BACK FOR THE PURPOSE OF SOME DESIGNATED ACTIVITIES. THUS, FOLLOWING THE ABOVE REASONING OF THE ITAT, I HOLD THAT THERE IS CONSIDERABLE FORCE IN APPELLANTS CON TENTION THAT THESE COUNCILS ARE NOT INVOLVED IN ANY BUSINESS ACT IVITY. 5.2 HOWEVER, MORE IMPORTANTLY, THE ISSUE IS CLINCH ED IN FAVOUR OF THE APPELLANT, WHEN IT IS REALIZED THAT T HERE IS, IN ANY CASE, NO SURPLUS GENERATED DURING THE YEAR. I HAVE PERUSED COPIES OF INCOME AND EXPENDITURE ACCOUNT AN D FIND THAT THE APPELLANT SUBMITTED TWO SUCH ACCOUNTS BEFO RE THE ASSESSING OFFICER, BOTH ARE PART OF THE AUDITED REP ORT. FIRST IS INCOME AND EXPENDITURE ACCOUNT WHICH IS AN ACC OUNT IN RESPECT OF APPELLANTS REGULAR ACTIVITIES. THE SEC OND IS RECEIPT & PAYMENTS, WHICH IS BY ITS NOMENCLATURE, SUMMATION OF ALL RECEIPTS AND OF PAYMENTS. THE ASS ESSING OFFICER NOTICED THAT THE AMOUNT OF `93,17,000/- BEI NG DISTRICT ITA N O.1541 /DEL./2008 4 PRIME SUBSIDY, `69,00,420/- BEING ROAD CONSTRUCTION SUBSIDY ARE INCORPORATED ON THE RECEIPT SIDE OF RECEIPTS AN D PAYMENTS ACCOUNT. THE ASSESSING OFFICER QUESTIONED THE ASSESSEE REGARDING THESE RECEIPTS AND HELD THAT THE SE TWO GRANTS WERE IN THE NATURE OF INCOME. ON CAREFUL CONSIDERATION, HOWEVER, I AGREE WITH T HE APPELLANTS CONTENTION THAT THE ASSESSING OFFICER H AS APPARENTLY MISSED TO APPRECIATE THAT THESE AMOUNTS HAVE BEEN SPENT FOR SPECIAL PROJECT OF ROAD CONSTRUCTION ; BECAUSE OF WHICH AMOUNT OF `1,62,17,420/- STANDS INCLUDED O N THE PAYMENT SIDE UNDER THE HEAD ROAD CONSTRUCTION. T HE ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THE SE AMOUNTS OF EXPENDITURE ARE OVER AND ABOVE THE REGUL AR ROAD CONSTRUCTION EXPENSE OF `46,42,810/- BEING SPENT BY THE ASSESSEE. I ALSO FIND THAT EXHAUSTIVE DETAILS AND EVIDENCE REGARDING SUCH FUNDS RECEIVED AND SPENT FOR SPECIAL PROJECT, ARE ON RECORD. (E.G. THE ORDERS OF CANE COMMISSIONE R AND CONSEQUENT SANCTION ORDER OF GRANTS AND DETAILS OF PROJECT EXPENDITURE). IN SUM, THE ASSESSING OFFICER HAS FAILED TO APPRE CIATE THAT ANSH DAN AND FUND FOR NIRMAN YOGNA, WERE GIVEN TO THE ASSESSEE FOR SPECIFIC PROJECTS OF ROAD CONSTRUCTION AND, THAT THESE FUNDS HAVE BEEN SPENT ALSO FOR THOSE SPECIFIC PROJECTS. CONSEQUENTLY, THERE IS NO SURPLUS WITH THE ASSESSEE AND THUS THERE DOES NOT ARISE ANY QUESTION OF TAXABLE I NCOME. 5.3 THEREFORE, IN VIEW OF DISCUSSION MADE ABOVE, T HE ADDITION OF `1,53,96,000/- IS DELETED. THE ASSESSI NG OFFICER IS DIRECTED TO ASSESS THE ASSESSEES INCOME AT LOSS OF `16,71,135/-. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR MERELY SUPPORTED THE ORD ER OF THE AO. . 6. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE F ACTS 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), T HESE FUNDS HAVE BEEN SPENT ITA N O.1541 /DEL./2008 5 ALSO FOR THOSE SPECIFIC PROJECTS. THERE IS NOTHING TO SUGGEST THAT THE ASSESSEE IS CARRYING ON ANY BUSINESS ACTIVITIES, GENERATING INC OME. ACCORDINGLY, THE LD. CIT(A) CONCLUDED THAT THERE WAS NO SURPLUS WITH TH E ASSESSEE AND THEREFORE, THERE WAS NO QUESTION OF ANY TAXABLE INCOME. ADMITT EDLY, THE GRANT-IN-AID IN QUESTION IS A FINANCIAL AID OR SUBSIDY GIVEN BY THE STATE GOVERNMENT OF UP & SUGAR FACTORIES FOR THE SPECIFIC PURPOSE OF CONSTRU CTION 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 S AID SECTION 2(24), SUCH A GRANT- IN-AID HAS NOT BEEN SPECIFICALLY INCLUDED AS AN INC OME OR A REVENUE RECEIPT. THEREFORE, CONSIDERING THE USE OF THE WORD 'INCLUDE ' IN SECTION 2(24), THE WORD 'INCOME' SHALL BE CONSTRUED AS COMPREHENDING NOT ON LY THOSE ITEMS WHICH SAID SECTION DECLARES THAT THESE SHALL INCLUDE BUT ALSO SUCH ITEMS AS IT SIGNIFIES 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 W ORD 'REVENUE' SHALL BE CONSTRUED AS COMPREHENDING WHAT IT SIGNIFIES ACCORD ING TO ITS NATURAL IMPORT. IN RELATION TO A BUSINESS UNDERTAKING, THE WORD 'REVEN UE' CONNOTES INCOMINGS OF THE UNDERTAKING WHICH ARE PRODUCTS OF THE NORMAL WORKIN G 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 FACTORIES. THUS, THE GRANT-IN-AID IN QUESTION WAS N OT A PRODUCT OF THE NORMAL BUSINESS ACTIVITIES OF THE ASSESSEE COMMITTEE, ASSE SSED BY THE AO AS A LOCAL AUTHORITY. THEREFORE, SUCH A GRANT-IN-AID COULD NO T 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 SPENT ONL Y 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 DIFFERE NT VIEW IN THE MATTER, THERE IS NO BASIS TO INTERFERE WITH HIS FINDINGS .CONSEQUENTLY, GROUND NOS.1 TO 3 IN THE APPEAL ARE DISMISSED. ITA N O.1541 /DEL./2008 6 7. GROUND NO.4 IN THE APPEAL, BEING GENERAL IN NATU RE, DOES NOT REQUIRE ANY SEPARATE ADJUDICATION AND IS ,THEREFORE, DISMISSED. 8. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 9. IN THE RESULT, APPEAL IS DISMISSED. SD/- SD/- (U.B.S. BEDI) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ADDL. CIT, RANGE-2, MUZAFFARNAGAR. 2. N.S. COMMITTEE, VILLAGE THANABHAWAN, TEHSIL, SHA MLI, DISTT. MUZAFFARNAGAR 3. CIT CONCERNED. 4. CIT(A)-MUZAFFARNAGAR 5. DR, ITAT,C BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT