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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: SH. N. K. BILLAIYA & SH. SUDHANSHU SRIVASTAVA
3569/Del/2014 are cross appeals by the assessee and the revenue preferred against the order of the CIT(A) -26, New Delhi dated 30.03.2014 pertaining to A. Y.2009-10. Both these appeals were heard together and are disposed of by this common order for the sake of convenience.
The grievance of the assessee read as under :-
The Commissioner Of Income Tax (Appeals) has erred in not considering the assessee as registered under section 12A and providing the relief/exemption under section 11 to 13 as the assessee is a charitable organization under section 2(15) of the Income Tax Act.
2. The upholding of the disallowance under section 14A of the expenses of Rs.2,50,394/- by Commissioner of Income Tax (Appeals) is unjust and not in accordance with the law in force. 3. The appellant craves to leave, alter, amend, add, delete and modify the grounds of appeal on or at the time of hearing the appeal.
3. The grievance of the revenue read as under :- (i) The CIT(A) has erred in deleting disallowance of Rs. 25,69,181/- made by the AO out of Telephone, Newspaper & communication Expense being personal in nature. (ii) The CIT(A) has erred in deleting disallowance of Rs. 8,83,921/- made by the AO out of Business promotion Expense being personal in nature.
(iii) The CIT(A) has erred in deleting disallowance of Rs. 34,48,978/- made by the AO out of Vehicle running & hire charges, travelling & conveyance Expense being personal in nature. (iv) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of appeal.
Representatives of both the sides were heard at length and case record carefully perused. Briefly stated the facts of the case are that the assessee is a trust deriving income under the head business/ profession. The assessee trust consists of 16 members. The assessee trust is engaged as regulatory authority of units registered under STP scheme.
The return for the year under consideration was filed on 28.01.2010 declaring taxable income at 97,35,56,330/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.
During the course of scrutiny assessment proceedings the Assessing Officer noticed that the assessee has shown investments in equity shares liable to earn exempt income. The Assessing Officer was convinced that provisions of section 14A read with rule 8D apply on the facts of the case and accordingly computed the disallowance at Rs.250394/-.
Proceeding further the Assessing Officer noticed that the assessee has claimed reimbursement for telephone, newspaper etc of Rs.16429973/- and communication cost of Rs.92,61,841/-. The Assessing Officer observed that the assessee has not maintained separate details for personal use and business use of telephone and, therefore, element of personal nature cannot be ruled out and accordingly made an ad-hoc disallowance of 10% and disallowed Rs.2569181/-.
The Assessing Officer also noticed that the assessee has claimed business promotion expenses of Rs.883921/-. Once again the Assessing Officer was of the opinion that these expense have element of personal nature and accordingly made an ad-hoc disallowance of 10% amounting to Rs.883921/-. The Assessing Officer further made an ad-hoc disallowance of 10% in respect of vehicle running and hire charges and travelling and conveyance expenses and made the addition of Rs.3448978/-.
Assessee strongly agitated the disallowance before the CIT(A) and further raised additional grounds :
“a. The AO has erred as the quasi judicial officer in assessing the income of the assessee as the income from business as the income from interest and income from statutory charges is not income from business. b. The AO has erred as the quasi judicial officer in not considering the assessee as registered u/s12A and providing relief / exemption u/s. 11 to 13 as the assessee is a charitable organization u/s. 2 (15) of the I.T. Act.”
Taking the additional ground first the CIT(A) held as under :- 6.1 The appellant has accepted the finding of the CIT(A) in his own case in the AY 2007-08, which is extracted as under: “4.7 So, there is no doubt about the fact that from A.Y. 2009-10 assessee's income required to be taxed which assessee has already offered as has been admitted during the course of appellate proceedings. This proportion cannot be applied retrospectively so as to tax assessee in the A.Y. 2007-08. In this regard, AO has prepared three remand reports in a very meticulous manner. While deciding the issue, I had the occasion to listen to argument of AO and comments of id. AR and counter comments of AO which were really interesting. In this regard, it is held that I. T. Act is Supreme. My-self and AO both are created of statute. The intention of statute is very clear and it empowers AO to tax the appellant from A.Y. 2009- 10. Activity of the assessee falls in the nature of trade, commerce of business about which there is no doubt and assessee is also in agreement with this fact. The basic question is whether this provision can be applied in the A. Y. 2007-08 or not about which my answer is 'No' it cannot be applied retrospectively because statute does not permit AO to apply it in A. Y. 2007-08. Therefore, assessee succeeds on this issue Finding of AO is reversed and appeal is allowed in favour of appellant. In this regard, I agree with the view of my predecessors who have allowed assessee's appeal on this issue in A. Y. 2003-04 2004-05, 2005-06 and 2006-07 as per following details:- Asst year 2003-04: My predecessor, CIT(A) had allowed the appeal vide para 4.17 of the order, which is available at page no. 154 to 156 of the assessee's Paper Book. Asst year 2004-05: My predecessor, CIT(A) vide para 4.3 of the order has allowed the assessee's appeal, wherein he has relied on the finding given in assessment year 2003-04. The order is available at page 162 of the assessee's Paper Book. Asst. Year 2005-06: My predecessor CIT(A) vide para 4.1 of the order has allowed the assessee's appeal. The order is available at page 169 of the assessee's Paper Book. Asst. Year 2006-07: Para 3.2 of CIT(A)'s order available at page no. 174 of the assessee's Paper Book. As facts of the case are identical, exemption u/s 11 and 12 of the IT Act is allowed to assessee. Ground No. 2 is allowed. ” 6.2 In this regard, I would like to reiterate the finding of the CIT(A) in appellant's own case for the AY 2007-08. which reads as: “Activity of the assessee falls la the nature of trade, commerce of business about which there is no doubt and assessee is also in agreement with this fact.” Here, in the appellate proceedings for the AY 2007-08; the appellant by categorical admitting being engaged in business from the AY 2009-10 onwards claimed relief and got it. Thus, changing in stand in this regard in the appellate proceedings for the AY 2009-10 cannot be held justified. The above finding in the appellate order for the AY 2007-08 has not been challenged by the appellant which further gets buttressed by the fact that the appellant on its own paid tax on the income earned by it in the relevant AY accepting the intent of the amendment in the law with effect from the AY 2009-10. Thus, in view of the above, I do not find any merit in the appellant’s turtle turned stand on the chargeability of its income as the appellant is not found engaged in any charitable activity as defined in section 2(15). Further, the appellant has withdrawn its writ on similar issue; W.P.(C)) 7068/2013, which has been allowed by the Hon’ble Delhi High Court vide order dated 13.11.2013 subject to no finding on the merit. I am of the considered view that the appellant provides platform and services to IT/ITES exporters for enhancing their business and it charges sum in lieu thereof. It does not act like a sovereign body as an arm of the Govt, whose work cannot be outsourced as in the case of BIS. Thus, the ratio laid down by the Hon’ble Delhi high Court in the case of BIS (supra) does not apply here. An association which merely regulates or enhances business of its members is not a charitable institution. Reliance is placed on the decision; (1978) 111 ITR 241 (Mad); Madras Hotels Association. In this case, proprietors of hotels formed an association for obtaining articles on permit for supplying them to members and protecting their business interest. The association was held not to be charitable in nature. Section 11 (4A) enacts that the business income of a charitable institution will also be exempt from tax provided that- (i) business is incidental to the main object, and (ii) separate accounts are maintained for the business. Here, in the present case in hand, the appellant is charging certain sums in lieu of services, etc. provided by it in the STP. This receipt, from any point of view, can be said as receipt in the nature of business incidental to the main object and thus fall in purview of section 11 (4A). The other case laws relied upon by the Ld. AR are held distinguishable on facts and thus are of no help to the appellant.
6.3 Following the decision and observations of the CIT(A) in the appellant’s case for the AY 2007-08 in the appellate order dated 28.02.2011 (A. No. 109/2009-10), it is hereby held that the appellant is not engaged in the charitable activity. Thus, its income is chargeable to tax as offered for tax in the ROI of the relevant AY keeping in view in the amendment in section 2(15) and Circular No. 11/2008 dated 19.12.2008 of the CBDT. The head under which the appellant’s income falls is of academic interest and thus I am refraining to deal it. As a whole, the income of the appellant is held chargeable to tax. The additional grounds thus fail.”
The assessee is in appeal before us. The Ld. Counsel for the assessee vehemently stated that the issue stands covered in favour of the assessee by the decision of the Tribunal in assessee’s own case in A. Y.2006-07 and 2007-08. The counsel supplied the copy of the order of the Tribunal. It was further claim that the revenue preferred an appeal against the order of the Tribunal before the Hon’ble High Court of Delhi and the Hon’ble High Court vide order dated 30.07.2019 in and others have dismissed the appeal of the revenue.
The DR pointed out that the assessment viz-a-viz the order of the Tribunal and the Hon’ble High Court pertained to A.Y.2006-07 and 2007-08 when the first proviso to u/s 2(15) was not applicable. Therefore, the judgments relied upon by the Counsel would do no good to the assessee.
In rejoinder the counsel stated that in earlier assessment years, the revenue has not been able to establish that the assessee was carrying on commercial activities, therefore, the objects of the trust being the same, the same view should be followed.
We have carefully considered the orders of the authorities below and have also gone through the decision of the coordinate bench and that of the Hon’ble High Court. It is an undisputed fact that the proviso to section 2 (15) has been made applicable from A.Y.2009-10. It is also not in dispute that the Assessing Officer has not examined this issue for the year under consideration while framing the assessment order. It is equally true that this issue was raised for the first time before the CIT(A) and in the order CIT(A) has simply drawn support from the findings given in A. Y. 2007-08 without examining the facts of the assessee in the light of the proviso to section 2 (15) of the Act.
We are of the considered view that since the facts are not clearly coming out from the orders of the authorities below, therefore, the assessment has to be restored to the files of the Assessing Officer for fresh adjudication. We accordingly set aside the assessment to the files of the Assessing Officer. The Assessing Officer is directed to examine the issue afresh in the light of the proviso to section 2 (15) of the Act after giving a reasonable and sufficient opportunity of being heard to the assessee. Ground No.1 of assessee’s appeal is allowed for statistical purpose.
In so far as the ground No.2 is concerned the counsel stated that no exempt income has been earned by the assessee, therefore, there cannot be any disallowance u/s. 14A of the Act.
We find that whether or not the assessee has derived any exempt income is not clear from the assessment as well as the order of the CIT(A), therefore, in the interest of justice this issue is also set aside to the files of the Assessing Officer. The Assessing Officer is directed to examine the issue afresh after giving a reasonable opportunity of being heard to the assessee.
Coming to the appeal by the revenue we find that the issues need fresh adjudication as details were neither furnished by the assessee nor examined by the Assessing Officer, we accordingly set aside the issues involved in revenue’s appeal to the files of the Assessing Officer. The assessee is directed to furnish all the details of expenses and the Assessing Officer is directed to examine the same and decide the issues afresh.
In the result, the appeal filed by the assessee and the revenue are treated as allowed for statistical purpose.
Order pronounced in the open court on 07.08.2019.