Trust claiming exemption u/s 10(23C), No Section 40(a)(ia) Disallowance

Sushil Kumar, DR for the Appellant. Tej Mohan Singh for the Respondent.

ORDER

Ms. Rano Jain, Accountant Member – These four appeals filed by the Revenue are directed against the separate orders of learned Commissioner of Income Tax (Appeals), Panchkula dated 19.12.2011, 12.12.2012, 14.3.2014 and 19.11.2014, relating to assessment years 2008-09, 2009-10, 2010-11 and 2011-12 respectively. The assessee has filed Cross Objections against the appeals in ITA No.277/Chd/2012, ITA No.170/Chd/2013 and ITA No.203/Chd/2015.

2. Since the facts and circumstances are identical in all the appeals, the same were heard together and are being disposed off by this consolidated order for the sake of convenience. The decision given in ITA No.277/Chd/2012 for assessment year 2008-09 shall apply mutatis mutandis to all the appeals filed by the Revenue.

ITA No.277/Chd/2012:

3. Briefly, the facts of the case are that during the assessment proceedings, the Assessing Officer noted that there were certain expenses incurred by the assessee out of which it has not deducted TDS. The Assessing Officer disallowed the amount of Rs. 3,34,92,686/- on account of certain expenses invoking the provisions of section 40(a)(ia) of the Income Tax Act.

4. Before the learned CIT (Appeals), the assessee made detailed submissions with regard to its contention that out of all these payments, since the amounts involved were not exigible to Income Tax Act, there was no need to deduct TDS, therefore disallowance under section 40(a)(ia) of the Act cannot be made. The learned CIT (Appeals) after considering the submissions of the assessee, allowed the appeal of the assessee stating that the disallowance under section 40(a)(ia) of the Act is not warranted in view of the grant of exemption under section 10(23C)(iv) to the assessee by the Commissioner of Income Tax, Panchkula for the year under consideration. Further, the learned CIT (Appeals) stated that the penalty proceedings may be initiated by the Commissioner of Income Tax (TDS) for default in deduction of TDS.

5. Aggrieved by this, the Department has come up in appeal before us, raising the following grounds of appeal :—

6. The learned D.R. while arguing before us started with the fact that it is undisputed that the impugned payments made to third person are liable to TDS under various sections in Chapter-XVII of the Act. It was stated that the arrangement of various Chapters and sections under such Chapters in the Act carries a lot of significance and has often been made the basis of interpreting the intent and purpose of any section by various Courts including the Hon’ble Supreme Court of India. In this background, after quoting the provisions of section 40(a)(ia) and section 28 of the Act, it was stated that as per the Scheme of taxation, as provided in the Act, first a person is to be liable to be taxed under the Act before he claims for exemption of such income under sections 10 or 11 of the Act. If the claim is correct, he goes to enjoy the benefits of such sections or else the income is taxable under different heads of the income as per the provisions under Chapter-IV of the Act. In this way, he tried to demonstrate that the Act makes it very clear that all persons who are entitled to exemption of income under sections 10 or 11 of the Act are first liable to tax under the Act. In other words, persons entitled to exemption of income under sections 10 or 11 of the Act are chargeable to tax under different heads of income including the head “profits and gains of business or profession”. For this proposition, reliance was placed on a decision of Mumbai Bench of the Tribunal in the case of Asstt DIT v. Green Emirate Shipping & Travels [2006] 100 ITD 203 (Mum.). In this view, it was prayed that the provisions of section 40(a)(ia) of the Act may be held to be applicable to the persons enjoying the exemption of income as per the provisions of sections 10 or 11 of the Act. Reliance was placed on the order of the Amritsar Bench of the Tribunal in the case of Municipal Committee v. ITO [2014] 149 ITD 724, a copy of the order was placed on record.

7. The learned counsel for the assessee relied on the order of the learned CIT (Appeals) and stated that since the income of the assessee is not taxable under the head “income from business or profession”, the provisions of section 40(a)(ia) of the Act are not applicable on it. Reliance was placed on the order of the Mumbai Bench in the case of Mahatma Gandhi Seva Mandir v. Dy. DIT (Exemption) [2012]  52 SOT 26 (URO) and another order of the Amritsar Bench in the case of Baba Farid Vidhyapeeth Society v. ACIT [IT Appeal No.180 (Asr) of 2010, dated 30-1-2011]. In view of this, it was prayed that the order of the learned CIT (Appeals) be confirmed.

8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts of the case are that in the assessment year 2008-09, the assessee was registered under section 10(23C)(iv) of the Act and claimed exemption under the said Act. Similarly, in assessment years 2009-10, 2010-11, since the assessee was registered under section 12AA of the Act, the income was claimed to be exempt under section 11 of the Act. It is also a fact on record that on the impugned payments, the assessee have not deducted tax, as required under the provisions of the Act. Since the income of the assessee is exempt in view of these sections, the income of the assessee is not taxable under the head “income from business or profession”, appearing in Chapter-IV of the Income Tax Act. Section 40(a)(ia) of the Act is a part of Chapter-IV for the purposes of computing the income under the head “business income”. We are in agreement with the submissions of the assessee and also the findings of the learned CIT (Appeals) that the provisions of section 40(a)(ia) of the Act can be invoked only for the purposes of computing the income under the head “business income”. Since the income is not computed under this head, the provisions of section 40(a)(ia) of the Act cannot be invoked. This proposition has been laid down by various Benches of the Tribunal as well as the High Courts. We are not in agreement with the arguments of the learned D.R. that first an assessee is to be liable to be taxed under the Act before he claims for any exemption under sections 10 or 11 of the Act. Since as per the Scheme of the Act, before attaching the liability to tax on any receipt of income, the head of income under which it had to be taxed, has to be carved out. Since the assessee is a trust who is claiming exemption under sections 10 or 11 of the Act. This fact itself goes to show that the assessee is not carrying on any business or profession. Therefore, its income is not to be computed under this head. If the income is not computed under this Act, the proposition laid down by various High Courts and Bench of the Tribunal is that the provisions of section 40(a)(ia) of the Act being a part of Chapter-IV of the Act, cannot be invoked in such circumstances.

9. Before parting, in dealing with the argument raised by the learned D.R. with regard to the exemption under sections 10 or 11 of the Act, to be provided only once the income is computed under a specific head, we find the answer in the judgment of the Hon’ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli [2011] 330 ITR 16 whereby at the end of para 6, the Hon’ble High Court observed as under :—

“In fact wherever the statute contemplated the income being computed in the manner set out in the provisions of the Act, appropriate words are used. For instance, in s. 80E, which was considered by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 , after the expression ‘total income’ the following words are added in brackets : ‘as computed in accordance with the other provisions of this Act’. This emphasises that wherever Parliament considered that the computation should be in accordance with the provisions of the Act, it introduced the concept by using appropriate language. In the absence of any such language in s. 11(1), we consider that the computation as envisaged by the other provisions of the Act cannot be imported into s. 11(1).

The Tribunal has in a way mixed up the notion of total income in understanding the expression ‘income from property held under trust’. Sec. 14 occurs in the chapter ‘Computation of total income’. It provides that all income for the purposes of charge of income-tax and computation of total income be classified under certain heads. Therefore, the computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chapter III.”

10. In view of the above, the appeal of the department is dismissed.

ITA No. 170/Chd/2013 :

ITA No. 533/Chd/2014:

&

ITA No. 203/Chd/2015 :

11. It is relevant to observe here that the facts and circumstances in these appeals filed by the Revenue are similar to the facts in ITA No.277/Chd/2012 and the findings given in ITA No.277/Chd/2012 shall apply to this these cases also with equal force.

C.O.No.16/Chd/2012

In

ITA No. 277/Chd/2012 :

&

C.O.No.11/Chd/2013

In

ITA No. 170/Chd/2013 :

&

C.O.No.10/Chd/2015

In

ITA No. 203/Chd/2015 :

12. During the course of hearing, the learned counsel for the assessee seeks the permission of the Bench to withdraw Cross Objections, referred to above.

13. The learned D.R. did not have objection against the same.

14. In view of the above, the Cross Objections filed by the assessee are dismissed as withdrawn.

15. In the result, all the four appeals of the Revenue are dismissed and all the three Cross Objections of the assessee are dismissed as withdrawn.