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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 13/06/2024 Date of Order – 13/06/2024
O R D E R PER K.M. ROY, A.M.
The present appeal has been filed by the Revenue challenging the impugned order dated 29/08/2019, passed by the learned Commissioner of Income Tax (Appeals)–1, Nagpur, [“learned CIT(A)”], for the assessment year 2016–17.
The Revenue has raised following grounds:– “1. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) (hereinafter CIT(A)] erred in holding that the nature of character of the consideration received by the assessee in lieu of services rendered for artificial insemination is deposit.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the beneficiaries have deposited returnable service charges with the assessee having character of liability for availing services of artificial
Maharashtra Live Stock Development Board ITA no.355/Nag./2019 insemination, in the absence of any legally enforceable documentary evidence between the payee and the payer. 3. The appellant craves leave to add, alter, amend or omit any or all the grounds of appeal.”
The brief facts, as culled out from the assessment order is reproduced below:–
“2.0 The brief facts of the case are that the Appellant, Maharashtra Live Stock Development Board, is a trust registered u/s 12AA of the Income Tax Act, 1961. The Appellant is engaged in promoting breeding and development of all species and breeds of livestock, supply and preservation of frozen semen doses, providing artificial insemination services, etc. It is a nodal agency established by the Government of Maharashtra vide GR dated 02/04/2002. It is a state implementing agency which is incorporated to effectuate the Central Government program of NPCCB (National Program for cattle and buffalo breeding). In this case, the appellant board has received certain funds, which are allocated with a specific direction to be used exclusively for the cause of Al (Artificial insemination) activities. The funds being allotted to the appellant was used by the appellant for the assigned purpose and balance amount was reported in the balance sheet as a liability to the state government. The Assessing Officer contended that the said funds, received by the appellant is in the nature of the income and appellant should have applied 85% of such funds for the object of board. As the appellant could not utilize 85% of funds for the assigned objectives, the Assessing Officer treated the balance amount as same income of the board and accordingly levied taxes on the same.”
The learned CIT(A) has granted relief by observing as follows:–
“5.2 For the current year, the MLDB (board) has received total Al service charges of Rs 9,19,84,721/- from veterinary hospitals. Out of this funds, an amount of Rs.2,20,97,209/- was spent by the board for purchase of utilities. The balance amount including the opening balance is reported by the appellant board as a current liability in the balance sheet. The Assessing Officer is of the view that Al service charges received by the appellant is in the form of income and appellant was duty bound to apply 85% of the said income to claim exemption under section 11 of the Statute. 5.3 I have gone through the Assessment Order and the appellant's submission. While the AO has treated Al service charges as income of the board, the AR has submitted various GR's of State Government to buttress his submission that said Al service charges deposited with the appellant is in the realm of liability and not income. It was submitted by the AR that said funds belongs to the State Government and it is held by the appellant in the fiduciary capacity.
Maharashtra Live Stock Development Board ITA no.355/Nag./2019
5.4 On perusal of 17/04/2006 GR, it is apparent that said amount was directed to be deposited to MLDB for purchasing utilities required for Al activity. The entire Al activity is carried out through veterinary polyclinics (hospitals). Veterinary hospitals in Maharashtra are governed by State Government and not MLDB. The utilities such as Al Guns, Semen Straws, gloves, liquid nitrogen are used for storage, transportation and injections of doses. The role of MLDB is confined to producing doses and it is a veterinary hospital which carries out Al activity at the ground level. Even though utilities like Al guns, gloves, sheath, liquid nitrogen, straws, etc, are required by veterinary hospitals to carry out Al activity, same is procured by MLDB and it is further supplied to all veterinary hospitals. Therefore, to reduce the expenditure burden of MLDB, the State Government directed all veterinary hospitals to deposit Al service charges with the appellant Board. The GR has specifically used the word 'jama'- which means 'deposit'. 5.5 During the appellate proceedings, the AR also submitted bank statement of the account in which Al service charges is deposited. The MLDB (board) has opened a separate bank account for depositing Al service charges. The funds deposited in the said account can be used only for the purpose of procuring Al utilities. As per the accepted accounting practice restricted grants are always reported as liability in the balance sheet. A restricted grant for a specific project/purpose, creates a legal obligation to apply said funds for the said purpose. Such funds or grants does not enhance the net worth of the recipient. In the present case an amount is deposited with the Board to purchase utilities on behalf of the Veterinary hospitals. Therefore, in case of any eventuality of a scheme being terminated or board is dissolved, the board is duty bound to refund the above funds to the State Government. 5.6 The fact that said Al service charges belongs to the State Government is also apparent from the fact that prior to 19/04/2006, the said Al charges were deposited by veterinary hospitals directly to the kitty of State Government Even the quantum of service charges to be collected by the Veterinary Hospitals decided and regulated by the State Government. The collection and recovery of Al charges is also regulated by the State Government. Therefore, neither the appellant board has any right in deciding the quantum of charges to be collected nor appellant board has right to recover said Al charges from Veterinary Hospitals. The appellant is not the beneficial owner of Al service charges and no portion of Al service charges deposited with the appellant board, could be used for the purpose other than what is stipulated in GR or directed by the State Government. 5.7 In a similar issue before Patna High Court in the case of CIT Vs Bihar Rajya Pul Nirman Nigam 191 ITR 173 (Born) (1991), Court relying and sighting an Article 266(1) of the Constitution of India held that "The tolls collected by the corporations will immediately become the part of the Consolidated fund of the State' and the corporation cannot have any authority to spend the same except as per direction of the Government for public purpose keeping in view the Constitutional mandate. 5.8 During the appellate proceedings, the AR submitted that the appellant is consistently reporting Al service charges as a current liability since last many years The AR also submitted photocopy of the assessment order of the immediate preceding year, where same Assessing Officer accepted the aforementioned treatment of liability. I have gone through assessment order Page | 3
Maharashtra Live Stock Development Board ITA no.355/Nag./2019 and also the balance sheet of the previous year. In the earlier the amount of Rs.4,10,04,636/-is appearing as a current liability in the balance sheet Therefore, the fact that appellant is consistently reporting said charges as a current liability and the A has accepted this treatment in the earlier year cannot be disregarded, specifically in the view of Supreme Court judgment in the case of Radhasoami Satsang vs CIT 193 ITR 321 (SC), where in it was held that in the absence of any material change justifying the department to take different view from what was taken earlier, it is not permissible to take different and contradictory stand in a subsequent year with regard to the view taken earlier. 5.9 In view of the facts of the case, that the Board is acting as a nodal agency of the State Government and has received funds in the fiduciary capacity to be spend for the benefit of public at large, I am of considered view that AO erred in treating said service charges as income of the appellant and MLDB (board) has rightly reported same as a current liability. Accordingly, the addition of Rs.2.08,51,814/- is directed to deleted. The appeal of the appellant is allowed.
Before us, at the outset, the learned Departmental Representative (“the learned D.R.”) pointed out that there is no compelling reason to show the services received as part of current liability instead of income to be reflected in the Income & Expenditure Account. The learned D.R. vehemently opposed the order passed by the learned CIT(A) which is at complete variance with the facts of the case and the documents filed.
On the other hand, the learned Authorised Representative prayed that the order passed by the learned CIT(A) need not be interfered with.
We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. We find that the moot question before us is to take a call as to whether the service charges is an item of income or a liability to be disclosed in the Balance Sheet. Upon perusal of Page–53 of the assessee’s paper book which is an English translation of Government Resolution dated 17/04/2006, issued by the Government of Maharashtra, it is clearly mentioned that the service charges Page | 4
Maharashtra Live Stock Development Board ITA no.355/Nag./2019 are taken from the live cost holders to level down the burden of excess expenditure of Maharashtra Live Stock Development Board. It was proposed to deposit AI service charges to MLDB. Upon enquiry from the Bench, the learned A.R. submitted that there is no requirement of submitting any utilisation certificate. Thus, it is not a case of any grant which is required to be refunded upon any contingent circumstances and violation of terms and conditions. It appears that the money exclusively belongs to the assessee and there is no requirement of holding it on behalf of Government of Maharashtra in any fiduciary capacity. The matter was initially taken up on 12/06/2024. On that date, the Bench posed a question to the learned A.R. as to what is the utilisation of funds in subsequent years. The learned A.R. sought time to answer to this question and today he submitted the details of all the Bank Accounts in which AI service charges were deposited. Such details are as follows:–
Sr. Opening Closing Year no. Balance Balance 1. 2015–16 41855596 102077113 2. 2016–17 102077113 62060853 3. 2017–18 62060853 110258004 4. 2018–19 110258004 12602637 5. 2019–20 12602637 28684498 6. 2020–21 28684498 27704042 7. 2021–22 27704042 12739154 8. 2022–23 12739154 22304678 9. 2023–24 22304678 5093354 10. 2024–25 5093354
Upon coming through the statement, we are unable to understand as to how and in what manner the service charges were utilised in the later year. Page | 5
Maharashtra Live Stock Development Board ITA no.355/Nag./2019 The learned A.R. specifically submitted before the Bench that there has been no occasion to refund the same to the Government of Maharashtra. Thus, it appears that the money is at the absolutely discretion and in no way it has any connection with the Government of Maharashtra. The learned A.R. poihted out that since the rate is fixed by the Government, service charges are not in the nature of income. Just because the rate has been fixed by the Government, it does not mean that money belongs to the Government of Maharashtra authorities. Moreover, the Government resolution specifically mentioned that the service charges are collected to reduce the expenditure burden of the appellant. So, it is primarily of a revenue nature and there is no justification of recording it as a liability and not routing through the Income & Expenditure Account. The learned A.R. finally submitted that the assessee is an extension of the Government of Maharashtra and being a sovereign authority, no tax can be imposed on it. However, we are not impressed by this argument, because the assessee is an independent entity having Permanent Account Number (PAN) and has been regularly filed return of income. Just because functionaries of the assessee are senior bureaucrat appointed by the Government of Maharashtra, it does not mean that the same can be equated to the status of the Government. We further find that these types of Boards can claim their income to be totally exempt under section 10(46) of the Act. The learned A.R. was specifically questioned about whether the appellant was enjoying such exemption, he emphatically replied that such exemption need not be referred to once the assessee is registered under section 12A of the Act. He also referred to the judgment of the Hon’ble Supreme Court rendered in Ahmedabad Urban Development Authority. Page | 6
Maharashtra Live Stock Development Board ITA no.355/Nag./2019 However, the facts of the case is different and hence, there is no requirement to refer to the said case law. Upon careful consideration of the arguments and the material available on record, we find that the learned CIT(A) erred in holding that the service charges received to be in the nature of liability instead of income. Accordingly, the order passed by the learned CIT(A) is set aside and we uphold the order passed by the Assessing Officer. Thus, all the grounds raised by the Revenue are allowed.
In the result, appeal filed by the Revenue is allowed. Order pronounced in the open Court on 13/06/2024