Loading judgment…
Facts
The assessee, Tamilnadu Construction Workers Welfare Board, filed returns declaring 'nil' income for AY 2017-18 & 2018-19, claiming exemption under section 11. The AO treated the collected cess as income and brought it to tax. The CIT(A) upheld the AO's order.
Held
The Tribunal noted that the assessee's application for retrospective approval under Section 10(46) was pending with the CBDT. If granted, the cess would not be taxable. Therefore, the matter was remanded to the AO.
Key Issues
Whether compulsory cess collected by the welfare board for extending benefits to construction workers qualifies for exemption under Section 10(46) or Section 11, particularly when a retrospective approval is pending.
Sections Cited
11, 10(46), 143(2), 143(3), 250, 11(1)(d), 243G, 243H, 243X, 12AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI JAGADISH
आदेश /O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: These appeals at the instance of the assessee are directed against the two orders of Commissioner of Income Tax (Appeals), both dated 13.12.2024 passed u/s.250 of the Income Tax Act, 1961 & 318CHNY/2025 & SA No.46 & 47/CHNY/2025 (hereinafter called ‘the Act’). The relevant Assessment Years are 2017-18 & 2018-19.
Common issues are raised in these appeals. Hence, they are heard altogether and are being disposed off by this consolidated order. Identical grounds are raised. The grounds raised read as follows:- 1.1 The CIT(A) erred in disposing of the appeal without considering the facts of the case and submissions made by the appellant in proper perspective. 1.2 The CIT(A) erred in confirming the AOs order by denying the Appellant's request keep the proceedings in abeyance until the disposal of its petition u's.10(46). 2.1 The CIT(A) failed to see that the Appellant is a body constituted by a state legislature under G.0.Ms.No.95 dated 02.05.1997. solely administering a beneficial scheme for the construction workers and is therefore entitled to exemption u/s. 10(46) even for the year under appeal. 2.2 The CIT(A) ought to have seen that the amount was collected as cess on construction activities in Tamil Nadu at 1% of the total construction cost towards corpus of the Board for extending the benefits of the construction workers. 2.3 The CIT(A) ought to have seen that the funds received, even if not voluntary, still qualify as corpus fund, as they represent contributions mandated by the state for obtaining approval or permission for any construction activity. 3.1 The CIT(A) erred in upholding the AO's order levying tax on the Appellant, an arm of the state, discharging the functions of the municipality is bad in law as the Appellant is not carrying on any commercial activity. 3.2 The CIT(A) ought to have seen that the AO's order bad in law, as it failed to consider the provisions of the Section l1(1)(d) of the Act is an inclusive one.
& 318CHNY/2025 & SA No.46 & 47/CHNY/2025 3.3 The CIT(A) ought to have seen that the AO's order is in violation of the Article 243G, 243H and 243X of the Constitution of India which empowers local bodies to collect revenue to be utilized for welfare schemes. 3.4 The Appellant craves leave to file additional grounds of appeal at or before the time of hearing.
Brief facts of the case are as follows:- The assessee is a construction workers welfare board constituted on 30.11.1994 vide G.O. (Ms) No.236 issued by Labour and Employment Department of Government of TamilNadu. For the assessment years 2017-18 & 2018-19, the returns of income were filed declaring ‘nil’ income after claiming exemption u/s.11 of the Act. The assessments for assessment year 2017-18 & 2018-19 were selected for scrutiny and notice u/s.143(2) of the Act was issued. During the course of scrutiny proceedings, the AO noticed that assessee had collected corpus / capital fund and same was not routed through income and expenditure account. The AO after making enquiries with the assessee board, came to a conclusion that the amount collected which were taken to the corpus / capital account were not voluntary contributions / donations but compulsory CESS collected from persons undertaking construction contract. Accordingly, the AO completed the assessment u/s.143(3) of the Act for the assessment years 2017-18 & 2018-19 by bringing to tax the CESS collected, & 318CHNY/2025 & SA No.46 & 47/CHNY/2025 holding the same is not eligible for exemption u/s.11(1)(d) of the Act.
Aggrieved by the assessments completed for assessment years 2017-18 & 2018-19, the assessee filed appeals before the First Appellate Authority. Before the First Appellate Authority, the assessee submitted that it had filed application u/s.10(46) of the Act before the CBDT seeking retrospective approval for assessment years concerned namely 2017-18 & 2018-19 and requested that appeals may be kept pending till CBDT takes a decision on assessee’s application. However, the request of the assessee was not acceded to by the First Appellate Authority. The CIT(A) confirmed the additions made by the AO and dismissed the appeals of the assessee.
Aggrieved by the orders passed by the CIT(A) for assessment years 2017-18 & 2018-19, the assessee has filed the present appeals before the Tribunal. The assessee has filed a paper-book enclosing therein the notification issued by the Government of TamilNadu constituting the assessee, the order of registration passed u/s.12AA of the Act, notification of approval granted by the & 318CHNY/2025 & SA No.46 & 47/CHNY/2025 CBDT u/s.10(46) of the Act (prospectively), application filed seeking approval retrospectively u/s.10(46) of the Act, notes on the activities undertaken by the assessee, etc.
5.1 The Ld.AR submitted that the assessee’s application for approval u/s.10(46) of the Act retrospectively for the relevant assessment years is pending consideration by the Board (refer pages 30 to 36 of the Paper-book). The Ld.AR submitted that the assessee has been given approval u/s.10(46) of the Act for and from financial years 2020-21 to financial years 2024-25. Hence, the approval is in vogue as on date. It was stated that since the application for retrospective grant of approval u/s.10(46) of the Act is pending consideration by the CBDT, the matter may be restored to the files of the AO so that he can complete the assessments subsequent to the outcome of the assessee application pending consideration by the CBDT for retrospective effect.
The Ld.DR did not have serious objection for remitting the matter. However, he submitted that the matter may be remitted to the CIT(A) since there is a time limit for passing orders by the AO pursuant to the remand by the ITAT.
& 318CHNY/2025 & SA No.46 & 47/CHNY/2025 7. In rejoinder, the Ld.AR submitted that the time limit for passing fresh order by the AO pursuant to remand by the ITAT is up to 31.03.2027 and before the said date, the assessee is hopeful that CBDT will grant retrospective approval u/s.10(46) of the Act for the relevant assessment years. In this context, the Ld.AR had placed on record the approval granted by CBDT, retrospectively in the case of West Bengal Construction Workers Welfare Board, Haryana Construction Workers Welfare Board and Delhi Construction Workers Welfare Board.
We have heard rival submissions and perused the material on record. The assessee’s application filed u/s.10(46) of the Act seeking retrospective approval from 01.04.2015 to 31.03.2020 is pending consideration by the CBDT. If, assessee is granted exemption u/s.10(46) of the Act, the CESS which has been brought to tax for assessment years 2017-18 and 2018-19 would not be liable to tax, as entire income will not form part of total income u/s.10 of the Act. In the interest of justice, we are of the view that the matter needs to be remanded to the AO and accordingly, we do so. The AO is directed to await the outcome of the assessee’s application filed u/s.10(46) of the Act for seeking retrospective & 318CHNY/2025 & SA No.46 & 47/CHNY/2025 approval from 01.04.2015 to 31.03.2020. In the event, the CBDT issues a notification granting retrospective approval to the assessee, the AO shall take note of the same and pass fresh assessment order. If the assessee’s application is not been disposed off by the CBDT prior to the time limit for passing assessment order by the AO, needless to state that the AO shall, complete the assessments for assessment years 2017-18 & 2018-19 as per law. It is ordered accordingly.
Since, we have decided the appeals, the stay petitions are rendered infructuous and we dismiss the same.
In the result, the appeals filed by the assessee are allowed for statistical purposes and the stay petitions filed by the assessee are dismissed.
Order pronounced in the open court on 9th May, 2025 at Chennai.