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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. SANJAY ARORA & SH. N. K. CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. No. 660/Asr/2013 Assessment Year: 2008-09
Gidderbaha Janta Truck Union Vs. A.C.I.T., Circle- II, Bathinda Gidderbaha, Bathinda [PAN: AAAAT 6257H] (Appellant) (Respondent)
Appellant by : Sh. Tarun Bansal (Adv.) Respondent by: Sh. Rajeev K. Gubgotra, (D.R.) Date of Hearing: 04.07.2018 Date of Pronouncement: 28.08.2018
ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax (Appeals), Bathinda (‘CIT(A)' for short) dated 23.08.2013, partly allowing the assessee’s appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 16.12.2010 for the Assessment Year (AY) 2008-09.
The issue arising in the instant appeal is the correct determination of the assessee-Association of Persons’ (AOP’s), taxable income for the relevant year, i.e., in-so-far as it arises from contract receipt as well as that stated to be from the several persons constituting it for the time being. The relevant facts may be noticed as follows. The assessee is an AOP formed by truck owners, who are individuals
2 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT owning one or more truck each. It enters into contracts for transportation of goods with several agencies, primarily government and semi-government agencies, viz. Punsup, Markfed, FCI, Punjab State Warehousing Corporation, etc. It is admittedly formed to provide optimum gain for its members, the truck operators, by avoiding internal competition between them, as well as securing a better price through collective bargaining. The contract receipt is, as claimed, reimbursed to the individual truck owners, retaining what is called ‘bilty charges’ at Rs.10 per bilty (goods receipt note – GRN). In addition, it claims to receive a monthly contribution from its members, fixed by resolution, stated to be at Rs.150/- per month for the relevant year. The same enables the Union to meet the maintenance cost of its’ office, including salary to its’ employees. It furnished its’ return of income for the relevant year on 22.01.2009 at an income of Rs.5,03,305/-, comprising the following (PB pg. 28):
(a) Excess of receipt over expenditure : Rs.2,83,203/- (#) (b) Interest on income-tax refund : Rs. 55,520/- (c) Sales of scrap : Rs. 1,64,582/-
(#) stated to be the excess of contribution from members (Rs.5,46,830) over the expenditure (Rs.2,63,627/-). The Assessing Officer (AO) queried the assessee on its’ contract receipt which, as per the TDS certificates (toward tax deducted at source thereon), worked to Rs.361.66 lacs. As the assessee did not produce any books of account, with its’ authorized representative (AR) stating of no cash book or ledger being maintained, he estimated the assessee’s income from contract receipt at 6% thereof, i.e., at Rs.21,69,950. The total income was accordingly assessed at Rs.23,90,052 , i.e., after including income by way of interest and scrap sales. The assessee agitated the
3 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT addition to its’ returned income in appeal. The ld. CIT(A) noted that despite affording opportunity to produce its’ books of account for a dozen time by the AO, the assessee did not produce its’ account books for his examination, who was therefore constrained to estimate the income at the rate of 6% of the total freight receipt. However, as there were decisions by the tribunal as well by himself (listed at pg. 5 of his order), the ld. CIT(A) applied a net profit rate of 2%, further directing the AO to include the income of Rs.2,83,203/- disclosed by the assessee, which had been, while computing the total income, omitted to the included by the AO inasmuch as he had, on applying the rate of 6%, ignored that returned by the assessee as excess of income over expenditure. Aggrieved, the assessee is in second appeal.
We have heard the parties, and perused the material on record. Our first observation in the matter is that the assessee is an AOP, i.e., a ‘person’ (a term defined u/s. 2(31) of the Act), separate and distinct from the several persons constituting it for the time being. As a reading of the said provision, including Explanation thereto, would clarify, it is of no consequence that the AOP is, as in the present case, not incorporated, or not formed with the object of deriving income, profit or gains. Even if therefore it was to be argued that it is not a legal person, it matters little; it being a separate assessable entity under the Act, liable for taxation on the income, if any, arising to or received by it. Income, by definition, can only come from outside oneself. As such, any surplus out of the contributions received from its’ members for the time being, for being spent toward maintenance cost, would not qualify to be income, being governed by the principle of mutuality. There is, however, no finding that the same is a surplus out of the contributions from the members. In fact, there could not be any such finding in the absence of the assessee producing its’ account books before the
4 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT Revenue authorities for verification, called for time and again; rather, it admitting (through its’ counsel) to be not maintaining any books of account. In fact, a register containing the names of the members as well as the monthly subscription received, including the mode of its’ acceptance, evidenced by a receipt, is the minimum, primary record that the association would, or is expected to, maintain. Further, the same would be either held in cash or banked, as are the contract receipts, requiring, at the minimum, a cash book which agrees with the collection (subscription) register. How, then, one may ask, could the admitted surplus be said to be arising out of the monthly contribution from members? The onus to show that its’ income is exempt under the Act is on the assessee, and which remains completely undischarged in the present case. Even as, therefore, the assessee’s argument is valid in principle, it completely fails on facts. The contract receipt of Rs.361.66 lacs, arise as it does from a source outside oneself, i.e., the contractees, whose goods are being transported by the assesseee in lieu of freight charges, is ‘income’ by definition. The assessee receives the same in its’ own right; the privity of contract being between it and the company whose goods are to be transported, and there is no question of any overriding title in favour of any person, as through whom the Union chooses to undertake the job. That the job (transportation work) is allocated to its’ members is a matter internal to the assessee, an aspect of the management of its’ work by it, and which has nothing to do, i.e., per se, with the contractee companies. The assessee claims that it does not retain any part of it, including the TDS component, save the bilty charges of Rs.10 (per bilty), paying over the entire amount on receipt to the concerned truck operator toward his hire income. The claim, completely unevidenced, has not found favour with the Revenue, which proceeds to estimate the assessee’s income therefrom. That is, it is the quantification of the income
5 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT which is in dispute and is required to be decided by us, which can only be on the basis of the material on record. Continuing further, there is, as afore-noted, nothing to justify its’ claim, with the assessee admittedly not maintaining any books of account. In fact, the claim of disbursement of even the TDS component stands made before us for the first time; the assessee before the ld. CIT(A) in fact relying on the decision by the tribunal in Mansa Truck Operators’ Union v. ITO (in ITA No. 296/Asr/2010, dated 15/6/2011 / PB pgs.70-75), wherein the income (from contract receipt) stands estimated at 1.5% thereof, contending for adoption of this rate, i.e., as against 6% by the AO, who did not have the benefit of this, later decision by the Amritsar Bench of the tribunal. Even as agreed to by the Revenue in principle, the assessee, without doubt, disburses a substantial part of its’ contract (freight) receipt. This as the assessee has no trucks (vehicles) of its’ own. The contract work is therefore understandably undertaken by hiring the same from/assigning it to, as stated, its’ members. The matter, therefore, turns on facts, which is to be, as afore-stated, decided on the basis of the material on record. Upon this, the ld. counsel, Sh. Bansal, would argue that if the assessee could show that the entire sum (contract receipt) is paid to its’ members as hire charges for transportation, there is no scope for any income or for imputing the same, further submitting that the assessee be allowed an opportunity to show that the entire amount, i.e., inclusive of TDS, is paid over as hire charges. The argument, valid in principle, fails on facts. The assessee has, firstly, already been allowed more than abundant opportunity by the Revenue to exhibit its’ case/claims, and which it has completely failed to. As stated by the ld. CIT(A), a dozen opportunities were provided by the AO alone. It is in fact unfortunate that the representatives (i.e., of either side) did not bring this aspect of the matter to our notice during hearing, which they ought to have so as to extend proper assistance
6 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT to the Bench for arriving at the correct decision in the given facts and circumstances of the case. If the truckers are paid a fixed rate, as otherwise those of the longer routes may stand to gain, the Union stands to gain for the difference in rates. Why, in any case, would the truckers await the refund of TDS, for being paid the same? Where not so, the assessee invests its’ own funds toward the same (TDS), which has not been shown or contended; it, in fact, not maintaining any accounts so as to exhibit the same. Further, clearly, no case for remand was made even at the first appellate stage, whereat the assessee in fact argued for adoption of a lower rate (1.5%) of profit (refer pg.5 of the impugned order). The argument itself is a tacit admission of a margin, at whatever rate or sum, arising to the assessee. Again, implicit in the argument of payment – retaining whatever sum or percentage, to the truck operators, is the maintenance of record, which is completely absent. As such, while a gross revenue of Rs.361.66 lacs arises to the assessee on account of contract work, it is unable to exhibit the cost thereof, incurred by way of payments, at whatever rate or sum, to the individual truck operators engaged for the purpose. Further still, no case for a set aside has been made by the assessee even before us, as by showing availability of relevant materials, impacting its’ case favourably, which therefore may need to be admitted and considered. Why, it is this complete absence of any material with the assessee that led the Revenue to estimate its’ income, and which it does, following the decision by the tribunal in The Truck Union, Sardulgarh (in ITA No. 330/Asr/2010, dated 24.09.2010 / copy on record), at 2% of the gross receipt, also referring to the decision in Warsat Hussain (reported at 171 ITR 405 (Pat)), wherein it stands held that assessment by estimate is one of the processes known to the world of taxation. In fact, the Revenue – which is not in appeal against the impugned order, has estimated only the part retained on account of tax deduction at source on contract
7 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT receipt (2%), and therefore not paid to it, as its’ income, so that a lower (or nil) estimation, as contended before us, would imply that the assessee pays over the TDS (deducted at 2%) part as well. As afore-noted, the contention qua the payment of the TDS component stands raised before us for the first time and, besides, only emphasizes the need for and, rather, hinges critically on, the record, which is absent. The payment of the TDS component, assuming so, would only be on its receipt, so that consignment-wise record would have to be maintained, of which there is no mention. In fact, there could be, as indeed would be, cases of shortfall in contract receipt on account of exigencies such as delayed delivery, shortage of goods, etc. which would require settling of claims and counter claims by the Union – all pointing to the assessee retaining a margin, albeit small. Apart from meticulous record, only the TDS refunded could be disbursed, while the refund (to the assessee) of the entire TDS itself has not been shown, as for earlier years, much less its’ disbursement, even if later, holding the amount in trust for the truck operators till the same (disbursement) is complete. Again, non-receipt of the entire TDS implies cost, so that the Union would, rather, stand to loose. Why, even for the current year, the assessee, returning an income of Rs. 5.03 lacs, admits a tax liability to some extent, so that it would not be entitled to refund of the entire tax deducted at source. This loss/cost – the assessee having no other regular source of income, would entail appropriation thereof, of which there is again no whisper. The plea (of no retention by the assessee), in fact runs counter to the assessee’s own declaration of an excess of income over expenditure (at Rs.2,83,203/-) per its return of income for the year (which cannot, in the absence of the record, be regarded as arising out of contributions by the members), besides to its’ plea for estimation of income from contract receipt at, following a decision by the tribunal, 1.5% of the contract receipt. Looked at from an angle, the plea is, therefore, not maintainable.
8 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT The only issue that survives qua contract receipt is the reasonability of estimation of the income there-from. The assessee’s case being wholly un- evidenced, the same has necessarily to be decided in the conspectus of the case. The same has been taken at 2% following decision by the tribunal cited supra. The rate of tax deduction at source in respect of contract receipt is at 2% thereof (u/s. 194C), implying that the balance 98%, as received, gets disbursed to the truck drivers by way of hire charges, and only the balance retained toward tax liability, is regarded as the income arising to the assessee from the contract work. The same can only be regarded as reasonable. In fact, the Revenue’s estimate at 2% (of the contract receipt) agrees with the assessee’s contention of the entire amount collected being disbursed inasmuch as the same is only net of TDS. We are conscious of another order by the tribunal, estimating the income, in a similar case, at 1.5%. The matter, it needs to be emphasized, cannot be generalized. In fact, in the very same decision, the tribunal notes of another decision by its Amritsar Bench (in ITA No. 380/Asr/2003, dated 28/4/2006), wherein the profit was estimated at 3%. Why, the assessee has also not disclosed even the admitted income of Rs.10 per bilty. So, however, the assessee admittedly incurring some expenditure toward running the organization, we, estimating the same at 0.5%, consider a percentage of 1.5% (one-and-a-half per cent.) as an appropriate rate of profit on the contract receipt. The decision in the case of CIT v. Rohtak Public Goods Motor Union [2005] 26 IT Rep. 264 (P&H), also relied at the first appellate stage, stands considered and distinguished by the ld. CIT(A). We have already held that the income by way of surplus out of the contributions by the members, where so, would be exempt on the principle of mutuality. The proposition is well-settled, and this is precisely what the Hon’ble High Court has held in the said decision, clarifying, with reference to decision in CIT v. Bankipur Club Ltd. [1997] 226 ITR 97 (SC), that there should be dealing or relation with any outside party.
9 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT Conclusion 4. The income that admittedly stands brought to tax in assessment is that arising to the assessee-AOP out of the contract receipt from different contractee- companies. The assesee’s stand before the Revenue, as before us, is with regard to the estimate of the income from the transportation work being excessive, and which in fact has found substantial acceptance by the ld. CIT(A), reducing the same from 6% to 2%, so that it is only the TDS component that finally enures to the assessee, with the assessee before us claiming even this to be excessive, raising a plea of disbursement of the entire receipt, i.e., including the TDS. The same, unsupported by any material, has yet found part acceptance by us, reducing the profit rate to 1.5%, i.e., as urged before the first appellate authority. The question, therefore, has always, and only rightly so, been one of quantum, and not of the character of the receipt, which would in fact make quantum irrelevant. The receipt arises to the assessee on the basis of transportation work undertaken by it, and which it does through its members, paying them a sum which, in the absence of any record, led to the estimation of its income in the first place. The decision in Rohtak Public Goods Motor Union (supra) stands rightly distinguished by the ld. CIT(A). In fact, no argument qua the said decision, explaining a proposition on which there is no quarrel, was made during hearing, with we adverting thereto for the reason that the same is by the Hon’ble jurisdictional High Court and, further, mentioned in the impugned order as well as the assessee’s grounds of appeal before the ld. CIT(A). Further, this being a regular source of income, there is no question of two additions, i.e., on account of surplus (Rs.2.83 lacs) and the other as a percentage of the contract receipt. The AO, who estimated the same at 6% of the contract receipt, accordingly, had rightly not included the admitted surplus, which stands therefore wrongly included by the ld. CIT(A) by inferring its exclusion by the AO to be a mistake. The assessee has
10 ITA No. 660/Asr/2013 (AY 2008-09) Gidderbaha Janta Truck Union Gidderbaha v. Asst. CIT reported two other incomes, i.e., interest on tax-refund and sale of scrap. No issue in their respect, as apparent from the orders as well the grounds raised before the first appellate authority, stands raised before the Revenue authorities; the only issue being qua the addition made in assessment. The same, in any case, arising from outside oneself – as is contract receipt, the quantum of income from which source is the subject matter of dispute, is income, as indeed it would be for any other person. Reference in this regard may be made to the decision in Banglore Club v. CIT [2013] 350 ITR 509 (SC), reiterating the settled position of law in the matter with reference to several judicial precedents. We decide accordingly.
In the result, the assessee’s appeal is partly allowed. Order pronounced in the open court on August 28, 2018
Sd/- Sd/- (N. K. Choudhry) (Sanjay Arora) Judicial Member Accountant Member Date: 28.08.2018 /GP/Sr. Ps. Copy of the order forwarded to: (1) The Appellant: Gidderbaha Janta Truck Union Gidderbaha, Bathinda (2) The Respondent: A.C.I.T., Circle- II, Bathinda (3) The CIT(Appeals), Bathinda (4) The CIT concerned (5) The Sr. DR, I.T.A.T