Loading judgment…
Facts
The Assessee, a Section 25 company, filed its return declaring Nil income, claiming exemption under Section 11 of the Act based on gross receipts applied for charitable purposes. The CPC taxed the entire gross receipts without allowing deductions for charitable application. The Assessee's rectification application was rejected.
Held
The Tribunal held that taxing the entire gross receipts without allowing deductions for charitable application of funds is incorrect. Following the principle of consistency and previous years' assessments, the AO was directed to tax only the surplus amount.
Key Issues
Whether gross receipts should be taxed or only the surplus after deducting application for charitable purposes, given past precedents and the nature of the assessee's operations.
Sections Cited
12A, 11, 143(3), 143(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
Before: SHRI C. N. PRASAD & SHRI M. BALAGANESH
Factually there was no delay in filing of appeal at all. The Assessee had filed the revised Form No. 36 and had also filed the evidence regarding the date of receipt of the appellate order. Considering the same, we hold that there is no delay in filing of appeal by the Assessee as pointed out by the registry.
The Assessee has raised the following grounds of appeal:- 3.
“1. That Learned National Faceless Appeal Centre (NFAC) Delhi, has grossly erred in law as well as on facts in dismissing the appeal without appreciating the facts correctly as well as without appreciating the judicial verdicts 2. That Learned National Faceless Appeal Centre (NFAC), Delhi, has grossly erred in law as well as on facts in confirming action of the Assessing Officer in treating gross receipts amounting to Rs. 1,25,27,851 was Income of the Appellant without reducing expenses genuinely incurred in the normal course of operations
That Learned National Faceless Appeal Centre (NFAC), Delhi, has grossly erred in law as well as on facts in confirming action of the Assessing Officer in treating gross receipts amounting to Rs 1.26.27,851/- as income in violation of the principles of real income theory.
That ld National Faceless Appeal Centre (NFAC), Delhi, has grossly erred in law as well as on facts in confirming action of the Assessing Officer in disallowing whole of the expenses amounting to Rs 1.24.78:291/- merely because of the fact that the Appellant company is riot registered under section 12A of the Income tax Act, 1961) 5. That Learned National Faceless Appeal Centre (NFAC), Delhi, has grossly erred in law as well as on facts in confirming action of the Assessing Officer in determining income equivalent to gross receipts without appreciating the fact that in past as well in the next years, only not income le (Receipts expenses) has been taxed by the Revenue 6. The appellant craves leave to add, amend or vary from the aforesaid grounds of appeals at or before the time of hearing.”
We have heard the rival submissions and perused the materials 4. available on record. The Assessee is a Section 25 company duly registered under the erstwhile Companies Act, 1956. The return of income for the assessment year 2018-19 was filed by the Assessee on 27- 10-2018 declaring income of Rs Nil. The Assessee had filed the return in ITR 7 in the status of trust. The PAN allotted to the Assessee i.e. AAATT7449L denotes the status of the Assessee as trust. The Assessee filed its income tax return in ITR 7 along with the audited income and expenditure account and balance sheet together with the audit report in Form 10B. The Assessee had filled in the gross receipts from the objects of the trust and interest income in the relevant column of the ITR 7. The Assessee had duly filled the application of funds for charitable purposes in the relevant column in ITR 7. Since more than 85 percent of the receipts were applied for charitable purposes, the Assessee had claimed exemption under Section 11 of the Act in the return. The Learned CPC Bengaluru while processing the return brought to tax only the gross receipts without giving deduction on account of application of funds for charitable purposes and determined the total income of the Assessee accordingly. The Assessee filed rectification application on 7-12-2022. The Learned AO vide rectification order dated 5-1-2024 rejected the contention of the Assessee. The appeal filed by the Assessee resulted in no relief to the Assessee.
This is a simple case of a Assessee Trust getting taxed on the gross 5. receipts without giving deduction on account of application of funds for charitable purposes. The Learned AR before us submitted that for assessment year 2016-17, the assessment was completed under Section 143(3) of the Act wherein only the surplus was taxed and not the gross receipts, since the Assessee could not produce the copy of registration earlier obtained, if any, under section 12A of the Act. Accordingly, the Assessee was assessed in the capacity of Association of Persons (AOP) and surplus was brought to tax by the Learned AO. He placed on record the scrutiny assessment order framed for assessment year 2016-17 under Section 143(3) of the Act dated 30-12-2018 enclosed in pages 59-60 of the paper book. However, for the year under consideration, the Learned AO / CPC had sought to tax the entire gross receipts instead of the surplus arising therefrom. The books of accounts of the Assessee is not sought to be disputed or rejected by the revenue. It is trite law that even if the Assessee is to be assessed as AOP, only the surplus could be brought to tax and not the entire gross receipts. We find that the revenue had accepted the plea of the Assessee in Assessment year 2017-18 under section 143(1) of the Act dated 27-2-2018. Similar was the situation in assessment year 2020-21 under section 143(1) of the Act dated 9-3-2022 and for assessment year 2021-22 under section 143(1) of the Act dated 13-10-2022. Hence for the earlier and subsequent years, the revenue itself had sought to tax only the surplus by treating the Assessee as an AOP. Hence there is no reason for the year under consideration to be given a differential treatment. Hence on the principle of consistency and by basic common sense, we direct the Learned AO to tax only the surplus amount and recompute the income accordingly. The grounds raised by the Assessee are partly allowed.
In the result, the appeal of the Assessee is partly allowed. 6.
Order pronounced in the open court on 15/12/2025.