Standard Fireworks (P) Ltd., CHENNAI V. Addl. CIT, Virudhunagar

ITA 2287/CHNY/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3921 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAHADEVAN JCIT
• Assessee Lawyers: S SRIDHAR
• Keywords: Charitable institution
• Section: 80G

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.2286 & 2287/MDS/2015 * +* / ASSESSMENT YEARS : 2009-10 & 2011-12 M/S STANDARD FIREWORKS (P) LTD., C/O SHRI S. SRIDHAR, ADVOCATE, NEW NO.14, OLD NO.82, FLAT NO.5, 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI - 600 020. PAN : AACCS 1480 M V. THE ADDITIONAL COMMISSIONER OF INCOME TAX, VIRUDHUNAGAR RANGE, VIRUDHUNAGAR. (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /0-. 1 2 / RESPONDENT BY : SHRI B. SAHADEVAN, JCIT ' 1 3& / DATE OF HEARING : 02.11.2016 45+ 1 3& / DATE OF PRONOUNCEMENT : 27.12.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AG AINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)1, MADURAI, DATED 13.10.2015 AND PERTAIN TO ASSESSMENT YEARS 2009- 2 I.T.A. NOS.2286 & 2287/MDS/15 10 AND 2011-12. SINCE COMMON ISSUE ARISES FOR CON SIDERATION IN BOTH THE APPEALS, WE HEARD THESE APPEALS TOGETHER A ND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF CHARITY / MAHAMAI COLLECTED BY THE ASSESSEE. 3. SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT THE ASSESSEE COLLECTED 1.5% OF THE SALE VALUE AFTER DISCOUNT TOWARDS CHARITY / MAHAMAI. THE CHARITY / MAHAMAI C OLLECTED BY THE ASSESSEE TO THE EXTENT OF 94,04,737/- WAS NOT TAKEN AS SALES TURNOVER AND IT WAS ALSO NOT OFFERED FOR TAXATION. ACCORDING TO THE LD. COUNSEL, THE CHARITY / MAHAMAI COLLECTED BY THE ASSESSEE FROM THE CUSTOMERS ON THE SALES ARE PAID TO THE CHARITAB LE TRUST AND THE SAME WAS APPLIED FOR CHARITABLE PURPOSE. THE LD.CO UNSEL CLARIFIED THAT THE DIRECTORS OF THE ASSESSEE-COMPANY PROMOTED TRUST AND ESTABLISHED EDUCATIONAL INSTITUTION. THE AMOUNT CO LLECTED BY THE ASSESSEE-COMPANY TOWARDS CHARITY / MAHAMAI WAS PAID TO THE CHARITABLE INSTITUTION FOR THE PURPOSE OF RUNNING T HE EDUCATIONAL INSTITUTION. THE LD.COUNSEL FURTHER SUBMITTED THAT THE AMOUNT WAS COLLECTED TOWARDS CHARITY / MAHAMAI, THEREFORE, THE AMOUNT COLLECTED BY THE ASSESSEE WAS DIVERTED BY OVERRIDIN G TITLE. 3 I.T.A. NOS.2286 & 2287/MDS/15 ACCORDING TO THE LD. COUNSEL, MAHAMAI / CHARITY COL LECTED BY THE ASSESSEE IS NOT PART OF SALE PRICE; IT IS A PAYMENT MADE BY THE RESPECTIVE CUSTOMERS FOR A SPECIFIC CHARITABLE PURP OSE. THE LD.COUNSEL PLACED HIS RELIANCE ON THE JUDGMENT OF S UPREME COURT IN CIT V. BIJLI COTTON MILLS (P.) LTD. (1979) 116 ITR 60 AND ALSO THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. COIMBATORE COTTON MILLS LTD. (1983) 140 ITR 562. THE LD.COUNSEL HAS ALSO P LACED RELIANCE ON THE JUDGMENT OF SUPREME COURT IN SIDDHESHWAR SAH AKARI SAKHAR KARKHANA LTD. V. CIT (2004) 270 ITR 1. 4. ON THE CONTRARY, SHRI B. SAHADEVAN, THE LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE COLLECT ED CHARITY / MAHAMAI FROM THE CUSTOMERS WHO PURCHASED THE GOODS FROM THE ASSESSEE. THE LD. D.R. FURTHER CLARIFIED THAT NO C HARITY / MAHAMAI WAS COLLECTED FROM THE PERSONS WHO HAS NO BUSINESS DEALING WITH THE ASSESSEE. ADMITTEDLY, CHARITY / MAHAMAI WAS CO LLECTED FROM THE CUSTOMERS WHO PURCHASED GOODS FROM THE ASSESSEE, TH EREFORE, ACCORDING TO THE LD. D.R., WHAT WAS COLLECTED BY TH E ASSESSEE IS NOTHING BUT PURCHASE PRICE, HENCE, IT CANNOT BE TAK EN AS VOLUNTARY CHARITY PAID BY THE CUSTOMERS. 4 I.T.A. NOS.2286 & 2287/MDS/15 5. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBM ITTED THAT THE TRUST M/S STANDARD FIREWORKS CHARITIES WAS PROM OTED BY THE DIRECTORS OF THE ASSESSEE-COMPANY AND THE DIRECTORS OF THE ASSESSEE-COMPANY HAVE FULL CONTROL OVER THE CHARITA BLE INSTITUTION. THEREFORE, THE CIT(APPEALS) FOUND THAT THE JUDGMENT OF APEX COURT IN BIJLI COTTON MILLS (P.) LTD. (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. THE ASSESSEE ITSELF CLAIMED BEF ORE THE CIT(APPEALS) ALTERNATIVE CLAIM OF DEDUCTION UNDER S ECTION 80G OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). THE CIT(APPEALS), IN FACT, ACCEPTED THE ALTERNATIVE CLAIM OF THE ASSESSE E AND FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80G OF THE ACT WITH RESPECT TO 50% OF THE CHARITY COLLECTED DURING THE YEAR UNDER CONSIDERATION, WHICH WAS PAID TO THE TRUST. THEREF ORE, ACCORDING TO THE LD. D.R., NO INTERFERENCE IS CALLED FOR. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F FIREWORKS. IN THE COURSE OF BUSINESS ACTIVITY, THE ASSESSEE HAS C OLLECTED 1.5% OF SALE VALUE TOWARDS CHARITY. FROM THE MATERIAL AVAI LABLE ON RECORD, IT APPEARS WITHOUT PAYMENT OF SO-CALLED MAHAMAI / CHAR ITY, THE 5 I.T.A. NOS.2286 & 2287/MDS/15 CUSTOMERS WERE NOT ABLE TO PURCHASE FIREWORKS FROM THE ASSESSEE- COMPANY. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE CHARITY / MAHAMAI COLLECTED BY THE ASSESSEE FORMS P ART OF TOTAL TURNOVER OF THE ASSESSEE? WHEN THE PAYMENT WAS MAD E TO THE CHARITABLE INSTITUTION, WHETHER IT IS AN APPLICATIO N OF INCOME OR THE INCOME DIVERTED BY OVERRIDING TITLE ALSO NEEDS TO B E CONSIDERED? 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF A PEX COURT IN BIJLI COTTON MILLS (P.) LTD. (SUPRA). IN THE CA SE BEFORE THE APEX COURT, DHARMADA WAS COLLECTED ON SALE OF YARN AND COTTON, AT THE RATE OF 1 ANNA PER BUNDLE OF 10 LBS. OF YARN AND 2 ANNAS PER BALE OF COTTON. IN THE BILLS ISSUED TO THE CUSTOMERS, THES E AMOUNTS WERE SHOWN IN A SEPARATE COLUMN HEADED DHARMADA. THE AMOUNT SO COLLECTED WAS NOT IN THE TRADING ACCOUNT BUT A SEPA RATE BOOKS OF ACCOUNT WAS MAINTAINED KNOWN AS DHARMADA ACCOUNT IN WHICH THE AMOUNT COLLECTED WAS CREDITED AND PAYMENTS MADE TO CHARITY WERE DEBITED. THE HIGH COURT FOUND THAT THE AMOUNT COLL ECTED BY THE ASSESSEE TOWARDS DHARMADA IS NOT AN INCOME OF THE ASSESSEE, THEREFORE, NOT LIABLE TO TAX. ON FURTHER APPEAL BE FORE THE APEX COURT, IT WAS FOUND THAT WHEN THE CUSTOMERS PAID AM OUNTS TO ASSESSEES EARMARKING THEM FOR DHARMADA, THOSE PA YMENTS WERE 6 I.T.A. NOS.2286 & 2287/MDS/15 VALIDLY EARMARKED FOR CHARITY AND THE ASSESSEE HOLD S THE AMOUNT UNDER AN OBLIGATION TO SPEND THE SAME FOR CHARITABL E PURPOSE, IT CANNOT BE CONSIDERED TO BE A TRADING RECEIPT. IN T HE CASE BEFORE US, IT IS NOT CLEAR FROM THE ORDERS OF BOTH THE AUTHORI TIES BELOW WHETHER THE CHARITY / MAHAMAI COLLECTED BY THE ASSESSEE IS CREDITED IN THE TRADING ACCOUNT OR THE ASSESSEE IS MAINTAINING SEPA RATE BOOKS OF ACCOUNT. IF THE ASSESSEE WAS MAINTAINING SEPARATE BOOKS AND CREDITED THE AMOUNTS COLLECTED TOWARDS CHARITY / MA HAMAI AND DEBITED THE AMOUNTS PAID TO CHARITABLE PURPOSE, THE N THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IN VIEW OF THE JUDGM ENT OF APEX COURT IN BIJLI COTTON MILLS (P.) LTD. (SUPRA), IT CANNOT BE CONSIDERED TO BE INCOME OF THE ASSESSEE, THEREFORE, THERE IS NO LIAB ILITY TO PAY THE TAX. 8. THIS JUDGMENT OF APEX COURT WAS DISTINGUISHED BY THE CIT(APPEALS) ON THE GROUND THAT THE DIRECTORS OF TH E ASSESSEE- COMPANY WERE CONTROLLING THE TRUST. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERELY BECAUSE THE DIRECTOR S OF THE ASSESSEE-COMPANY WERE CONTROLLING THE TRUST, WHEN T HE AMOUNTS WERE SPECIFICALLY COLLECTED TOWARDS CHARITY AND THE ASSESSEE WAS MAINTAINING SEPARATE BOOKS OF ACCOUNT WITH REGARD T O COLLECTION OF CHARITY AND THE PAYMENTS MADE TO TRUST, IT CANNOT B E SAID THAT THE 7 I.T.A. NOS.2286 & 2287/MDS/15 JUDGMENT OF APEX COURT IS NOT APPLICABLE TO THE FAC TS OF THE CASE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHE N THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNT IN RESPECT OF THE AMOU NTS COLLECTED TOWARDS MAHAMAI / CHARITY AND CREDITED THE AMOUNTS COLLECTED TOWARDS CHARITY AND DEBITED THE AMOUNTS PAID TO THE TRUST IN THE SEPARATE BOOKS OF ACCOUNT, THE ASSESSEE IS NOT LIAB LE FOR TAXATION. SINCE THESE ASPECTS WERE NOT EXAMINED BY THE ASSESS ING OFFICER AS WELL AS THE CIT(APPEALS), THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED. ACCORDING LY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE CLAIM O F THE ASSESSEE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER AFRESH AND BRIN G ON RECORD WHETHER THE BILLS ISSUED BY THE ASSESSEE DISCLOSE T HE MAHAMAI / CHARITY IN A SEPARATE COLUMN AND ALSO FIND OUT WHET HER THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT IN RESPECT OF CHARITY / MAHAMAI COLLECTED AND PAYMENTS MADE TO THE TRUST AN D, THEREAFTER DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE JUDGMEN T OF APEX COURT IN BIJLI COTTON MILLS (P.) LTD. (SUPRA), AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 8 I.T.A. NOS.2286 & 2287/MDS/15 9. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 27 TH DECEMBER, 2016 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 27 TH DECEMBER, 2016. KRI. 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A)-1, MADURAI 4. PRINCIPAL CIT, MADURAI-1, MADURAI 5. 8; /3 /DR 6. * < /GF.