Assistant Commissioner of Income-Tax -1, Durg V. Board of Trustee, Durg

ITA 68/BIL/2011

• Counselvise Citation: 6824714 RSA 2011
• Duration Of Justice: 3 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 27-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K JAIN
• Assessee Lawyers: JAVERI LAL JAIN
• Keywords: Competent authority
• Section: 10

Judgement Text

INCOME TAX APPELLATE TRIBUNAL,BENCH -RAIPUR . . , , . . BEFORE S/SH.H.L.KARWA,PRESIDENT AN D RAJENDRA,ACCOUNTANT MEMBER ./ITA NO.68/BLPR/2011- / ASSESSMENT YEAR -2007-08 ASSTT. COMMISSIONER OF INCOME TAX, BHILAI. V/S. BOARD OF TRUSTEES, HINDUSTAN STEEL LTD., BHILAI STEEL PROJECT PROVIDENT FUND SHED- 47, OLD MAIN OFFICE, BHILAI PAN:AAATH3990E ( % / ASSESSEE) ( &'% / RESPONDENT) REVENUE BY : SH.D.K. JAIN, SR. D.R. ASSESSEE BY : SH.JAVERI LAL JAIN, CA ) /DATE OF HEARING : 22-12-2014 ) /DATE OF PRONOUNCEMENT : 24 -12-2014 ,1961 ) )) ) 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM- 0 0 0 0 , : CHALLENGING THE ORDER DT. 30.12.2010 OF THE CIT(A)- ,RAIPUR,THE ASSESSING OFFICER(AO)HAD RAISED FOLLOWING GROUNDS OF APPEAL: 1. WHETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.4,86,03,960/- MADE BY THE AO ON ACCOUNT OF DOUBTFUL INTEREST DEBITED BY THE ASSESSEE IN THE P&L A/C. 2. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH IN LA W AND ON FACTS. 2. THE ASSESSEE IS A PF TRUST FOR THE BENEFIT OF EMPLO YEES OF SAIL, BHILAI STEEL PLANT.BEING A RECOGNIZED PF TRUST,ITS INCOME WAS EXEMPT FROM TAX U/S.10(25)(II) OF THE ACT.RETURN WAS FILED ON 23.01.2008,ALONG WITH AUDIT REPORT,DECLARING TOTAL INCOME AT NIL.THE AO DISALLOWED PROVISION FOR DOUBTFUL INTEREST,AMOUNTING TO RS.4,86,03,960/- AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE-TRUST FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).IT WAS STATED BEFORE HIM THAT THE AS SESSEE HAD DEBITED AN AMOUNT OF RS.4,86,03, 960/-AGAINST THE NARRATION DOUBTFUL INTEREST IN T HE PROFIT AND LOSS A/C FOR THE YEAR ENDING ON 31. 03.2007,THAT IN THE COMPUTATION SAID AMOUNT WAS NOT ADDED BACK WHILE ARRIVING AT THE GROSS TOTAL INCOMEOF THE YEAR,THAT WHENEVER INTEREST WAS DUE O N INVESTMENT ACCRUED INTEREST A/C.WAS DEBITED AND CREDITED TO THEINTEREST ON INVESTMENT A/C,THAT AND ON RECEIPT OF INTEREST BANK A/C. WAS TRANSFERRED TO INCOME AND EXPENDITURE A/C.,THAT INTEREST ON INVESTMENT A/C. WAS DEBITED AND CREDITED TO THE INCOME AND EXPENDITURE A/C,THAT THE WHOLE INTEREST PERTAINING TO THE SAME FINANCIAL YEAR WAS SHOWN UNDER INCOME SIDE OF THE INCOME AND EXPENDITURE A/C.,THAT ACCORDINGLY INTEREST ON INVESTMENT WAS CREDITED IN BOOKS OF ACCOUNT.WITH RESPECT TO DEBIT FOR DOUBTFUL INTEREST OF RS.4.86 CRORES,IT WAS EXPLAINED THAT THE SAME AMOUN T WAS ALSO CREDITED AS INTEREST ON INVESTMENT IN INCOME AND EXPENDITURE A/C.,THAT WHOLE OF THE AM OUNT OF RS.4,86,03, 960/-WAS INCLUDED IN THE RECEIPT SIDE OF THE P & L A/C.,THAT THE AO HAD NOT DISPUTED THE EXPLANATION BUT HE OBSERVED THAT THE ASSESSEE WAS SILENT ON THE ALLOWABILITY OF THE DEDUCTION OF DOUBTFUL INTEREST.HENCE IT WAS CONFRONTED AS TO WHY PROVISION FOR DOUBTFUL INTERES T DEBITED IN P & L A/C.SHOULD NOT BE DISALLOW- ED IN THE LIGHT OF THE FACT THAT IT DID NOT QUALIFY AS PER THE PROVISIONS OF SECTION 36(1)(VIIA) OF TH E ACT. 2 ITA/68/BPLR/2011/BOT-HS AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,THE FAA HELD THAT THAT INTEREST ON INVESTMENT SHOWN IN INCOME AND EXPENDIT URE ACCOUNT ALSO INCLUDED THE INTEREST ON THOSE SECURITIES AGAINST WHICH PROVISION FOR DOUBTF UL INTEREST WAS MADE SINCE IT WAS KNOWN THAT RECEIPT OF INTEREST ON SUCH INVESTMENT WAS DOUBTFUL ,THAT DISALLOWANCE OF PROVISION FOR DOUBTFUL INTEREST WOULD GIVE CREDENCE TO THE INTEREST RECEI PT OF WHICH WAS NOT CERTAIN,THAT OTHERWISE SUCH DOUBTFUL INTEREST WOULD GET THE COLOUR OF GENUINE I NCOME IF THE PROVISION WAS NOT MADE,THAT THE INCOME OF THE ASSESSEE WAS EXEMPT U/S.10(25)OF THE ACT,THAT PROVISIONS OF SECTION 36 WERE NOT APPLICABLE TO THE INCOME WHICH DID NOT FORM PART OF TOTAL INCOME.FINALLY,THE FAA REVERSED THE ORDER OF THE AO. 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPOR TED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE STATED THAT THE ASSESSEE WAS A PF TR UST AND WAS RECOGNISED BY THE COMPETENT AUTHORITY, THAT THE INCOME DERIVED BY IT WAS EXEMPT ,THAT THERE WAS NO JUSTIFICATION ON PART OF THE AO TO INVOKE THE PROVISIONS OF SECTION 36 IN THE CA SE UNDER CONSIDERATION,THAT FAA HAD RIGHTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE-TRUST. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE TRUST WAS RECOGNISED BY ON AND IT WAS ESTABLISHED FOR THE BENEFIT OF THE WORKERS OF SAIL,BHILAI,THAT IT HAD CLAIMED EXEMPTION AS PER THE PROVISIONS OF SECT ION 10(25)OF THE ACT,THAT THE AO HAD MADE AN ADDITION OF RS.4.86 CRORES TO THE INCOME OF THE TRU ST.THE MOOT QUESTION TO BE DECIDED IN THE CASE BEFORE US IS AS TO WHETHER THE INCOME OF AN ASSESSE E,WHO IS ENTITLED TO CLAIM EXEMPTION AS PER THE PROVISIONS OF CHAPTER III OF THE ACT,CAN BE SUBJECT ED TO ANY DISALLOWANCE ? THE ACT IS A SELF-CONTAINED CODE AND THE TAXABILITY OF RECEIPTS HAS TO BE DETERMINED ONLY WITHIN THE SCHEME OF THE ACT.IN THE MATTER OF SUDARSHAN PLYWOO D INDUSTRIES LTD.(245ITR751),THE HONBLE GAUHATI HIGH COURT HAS DISCUSSED THE THEORY OF EXEM PT INCOME.THE COURT HAS HELD THAT THE QUESTION OF ALLOWING DEDUCTIONS WILL ARISE ONLY IN CASE THE INCOME IS INCLUDED IN THE TOTAL INCOME CHARGEABLE TO INCOME-TAX AND NOT OTHERWISE,THAT THE SECTION 5 ITSELF BEGINS WITH THE WORDS, SUBJECT TO THE PROVISIONS OF THIS ACT THE TOTAL IN COME OF ANY PREVIOUS YEAR . . ..THAT THE TOTAL INCOME,WOULD BE SUBJECT TO THE OTHER PROVISIONS OF THE ACT.IN OUR OPINION,SECTION 10 SETS DOWN VARIOUS ITEMS OF INCOME WHICH ARE WHOLLY OUTSIDE TH E PURVIEW OF TAXABLE INCOME.THE OPENING WORDS OF THE SECTION VERY CLEARLY SHOW THAT THE ITE MS LISTED THERE ARE UNDOUBTEDLY OF AN INCOME- CHARACTER,BUT THEY ARE NEVERTHELESS TO BE EXCLUDED FROM THE COMPUTATION OF TAXABLE INCOME.WE WOULD LIKE TO RE-PRODUCE THE INITIAL LINE OF THE SE CTION AND SAME READS AS UNDER: INCOMES NOT INCLUDED IN TOTAL INCOME.--IN COMPUTIN G THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOW ING CLAUSES SHALL NOT BE INCLUDED- IT IS TRUE THAT ANYTHING WHICH CAN PROPERLY BE DESC RIBED AS INCOME IS TAXABLE UNDER THE ACT, UNLESS EXPRESSLY EXEMPTED. IN ORDER TO ESCAPE LIABILITY OF PAYMENT OF TAX, THE ASSESSEE MUST SHOW THAT HIS CASE FALLS SQUARELY WITHIN THE FOUR CORNERS OF A ST ATUTORY EXEMPTION,AS ENUMERATED IN SECTION 10 OF THE ACT.WE ARE AWARE THAT THERE IS DIFFERENCE BETWE EN THE WORDS NOT INCLUDIBLE AND NOT INCLUDED AND THE WORDS USED IN THE SECTION 10 OF THE ACT SH ALL NOT BE INCLUDED.BUT,THAT DOES NOT MEAN THAT THE ITEMS APPEARING IN THE SECTION CAN BE TAXED BY THE TAX AUTHORITIES. AS STATED EARLIER SECTION 10 PROVIDES EXEMPTION TO VARIOUS ITEMS OF INCOME AND ONE OF THEM IS SUB-SECTION 25. SUB-SECTION 25 PROVIDES EXEMPTION T O INTEREST ON SECURITIES WHICH ARE HELD BY, OR ARE THE PROPERTY OF, ANY PROVIDENT FUND TO WHICH TH E PROVIDENT FUNDS ACT,1925 APPLIES.IN OUR OPINION,THE EXEMPTION GRANTED U/S.10(25)IS NOT COND ITIONAL,BUT IS AN ABSOLUTE EXEMPTION.IT IS SAID THAT EXEMPTIONS PROVIDED BY THE LEGISLATURE IN THE ACT FURNISH AN INFALLIBLE CLUE TO THE CHARACTER OF RECEIPTS.PROVISIONS OF SECTION 10(25) CLEARLY INDIC ATE THE UNDERSTANDING AND THE INTENTION OF THE LEGISLATURE.FROM THE VERY FACT THAT EXEMPTION HAS B EEN PROVIDED WITH REGARD TO INTEREST ON SECURITIES HELD BY PF,IT IS MANIFEST THAT THE LEGIS LATURE TREATED THE RECEIPT OF INTEREST BY THE 3 ITA/68/BPLR/2011/BOT-HS PROVIDENT FUNDS AS AN ITEM THAT IS NOT CHARGEABLE T O TAX.THUS,THE SECTION ITSELF FURNISHES A VERY VALUABLE CLUE IN REGARD TO THE TRUE SCOPE OR THE OV ERALL SCHEME OF THE SECTION.BY EXCLUDING THE INTEREST INCOME FROM TAXATION THE LEGISLATURE HAS G IVEN A CLEAR MANDATE THAT PROVISIONS OF CHAPTER IV OF THE ACT WILL NOT BE APPLICABLE TO IT.IN OTHER WORDS,THE QUESTION OF ANY DEDUCTION OR DISALLOW -ANCE WOULD ARISE ONLY WHEN INCOME IS INCLUDIBLE OR INCLUDED IN THE TOTAL INCOME.IT IS FOUND THAT THE AO HAD NOT DOUBTED THE EXPLANATION FILED BY THE ASSESSEE,BUT HE HAD RESERVATION ABOUT THE TREATMENT GIVEN TO THE ENTRIES RELATED WITH INTERES T INCOME IN THE BOOKS OF ACCOUNTS.HE HELD THAT THE PROVISIONS OF SECTION 36 WERE APPLICABLE TO THE INCOME IN QUESTION.AS HELD EARLIER,THE PROVISION OF CHAPTER ARE APPLICABLE TO TAXABLE INCO ME AND NOT TO EXEMPT ITEMS OF INCOME.SO,IN OUR OPINION THE ORDER OF THE FAA DOES NOT SUFFER FROM A NY LEGAL INFIRMITY.CONFIRMING HIS ORDER,WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE ASSE SSEE STANDS DISMISSED. 1 1 - 3 4 ) ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH , DECEMBER,2014. ) 8 24 9 ,2014 ) . SD/- SD/- (H.L.KARWA/ . . ) ( / RAJENDRA) PRESIDENT/ 0 0 0 0 /ACCOUNTANT MEMBER /RAIPUR. 9 DATE: 24.12.2014 ) )) ) &:; &:; &:; &:; <; <; <; <; / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / % 2. RESPONDENT / &'% 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR ITAT,RAIPUR BENCH/ ; & , . . ., 6. GUARD FILE/ . '; & //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, RAIPUR