BIRAMANE EDUCATION FOUNDATION,SATARA, MAHARASHTRA vs. THE ITO, EXEMPTION WARD 1(1), PUNE, MAHARASHTRA

The only grievance of the assessee is that the Ld.CIT(A) erred on facts and in law in upholding the disallowance of ₹17,65,000 u/s.40(a)(ia) of the Act without appreciating the fact that assessee is a registered charitable trust and is not carrying on the activity of business or profession and, therefore, the provisions of section 40(a)(ia) are not applicable for the year under appeal.

At the outset, learned counsel for the assessee placing reliance on the decision of this Tribunal in the case of DCIT vs. Sahaan Infrastructure India Pvt. Ltd. in dated 03.10.2019 submitted that assessee is not engaged in any business or profession, therefore, disallowance u/s. 40(a)(ia) of the Act could be made only from A.Y. 2018-19 and onwards as provided u/s.58(1A) of the Act. Since the assessee’s appeal is under A.Y. 2011-12, the impugned disallowance could not be made by the Assessing Officer.

On the other hand, Ld. Departmental Representative (DR) supported the order of Ld. CIT(A).

I have heard rival contentions and perused the records placed before me. I observe that the assessee is a charitable trust having object of spreading education through schools and is registered with Charity Commission as well as under the Societies Registration Act. For A.Y. 2011-12 assessment completed u/s.143(3) r.w.s. 147 of the Act and the Ld.AO has made disallowance u/s.40(a)(ia) of the Act for non-deduction of tax at source on the payment of honorarium charges and computer fee, totaling to ₹17,65,000. Against the impugned disallowance, assessee failed to get any relief from the Ld. CIT(A).

I find that the assessee is a charitable society and is not engaged in any business or profession and the income, if any, earned during the year is declared under the head ‘income from other sources’. I find that an amendment has been brought in by the Finance Act, 2017 effective from 01.04.2018, as per which, the provision of section 40(a)(ia) and 40A(2)(a) of the Act shall so far as may be applied in 3 ITA.No.2945/PUN./2025 Biramane Education Foundation computing the income chargeable under the head ‘income from other sources’, as they apply in computing the income chargeable under the head ‘profits and gains of business or profession’. The said amendment clearly indicates that prior to 01.04.2018, in case of assessee showing income chargeable under the head ‘income from other sources’, no disallowance u/s.40(a)(ia) or 40A(2)(a) of the Act could be made by the Assessing Officer. This issue has also been examined by this Tribunal in the case of Sahaan Infrastructure India Pvt. Ltd. (supra) where also under similar set of facts and circumstances, disallowance made by the Ld.AO for A.Y. 2012-13 has been deleted by this Tribunal considering the amendment brought in by Section 58(1A) of the Act effective from 01.04.2018.

Respectfully following the above said decision and also considering the provisions of section 58(1A) of the Act and amendment brought therein from 01.04.2018, I find that Ld.AO grossly erred in making disallowance u/s. 40(a)(ia) of the Act as the income of the assessee for A.Y. 2011-12 falls under the head ‘income from other sources’. Finding of the Ld.CIT(A) is set aside and the grounds of appeal raised by the assessee are allowed.

In the result, appeal of the Assessee is allowed.