2013 (4) TMI 418 - AT - Income Tax

Taxation of net income instead of gross receipt and Hundi Collection - As per revenue assessee society was not registered u/s.12A thus the provisions of section 11 are not applicable - Held that - As the assessee has not preferred registration u/s.12A for the impugned AY and was therefore considered by the CIT(A) that the activities carried out by the assessee whether charitable or not were to be allowed expenditure on the basis of nature of expenditure claimed as per the financial statements produced before the authorities below. It was not the case of the CIT(A) to grant exemption u/s.11 insofar as the assessee had not been granted registration u/s.12A. But the CIT(A) in his turn had considered the total receipts which were not part of the business income directing the AO to allow the expenses carried out by the assessee from such receipts which we are inclined to uphold. The assessee respondent s objection to tax NIL income thereafter is unjustified insofar as he had filed the NIL return in the first place holding a view that the receipts should not be taxed alone. The CIT(A) therefore, rightly directed the AO to tax the excess of income over expenditure amounting which we are inclined to uphold. The assessee respondent has supported the order of the CIT(A) in this respect therefore requires no further adjudication. Appeal of the Revenue dismissed.

Summary

Issues:
1. Taxation of net income instead of gross receipt and Hundi collection.
2. Justification of excluding various expenses from gross receipt.

Analysis:

1. Taxation of Net Income:
The case involved an appeal by the Revenue challenging the direction of the CIT(A) to tax the net income instead of the gross receipt and Hundi collection. The appellant argued that since the assessee society was not registered under section 12A of the Income Tax Act, the provisions of section 11 were not applicable. The Assessing Officer had treated the society as an AOP and taxed the gross receipts under "Income from Other Sources" due to the failure to produce necessary details. The appellant contended that the CIT(A) was not justified in directing the Assessing Officer to tax the net income. The Tribunal analyzed the facts, noting that the society accepted donations for charitable purposes related to Lord Jagannath Chetana activities. The CIT(A) directed the Assessing Officer to tax the net income based on the nature of expenditure claimed, considering the activities of the society. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had not sought registration under section 12A and that the expenses incurred were to be allowed based on the financial statements provided.

2. Exclusion of Various Expenses:
The second issue raised was whether the expenses claimed in the Receipt and Expenditure accounts should be excluded from the gross receipt. The CIT(A) had held that certain expenses could not be considered as wholly and exclusively laid out for earning the gross receipt, which mainly comprised voluntary contributions and grants. The appellant contested this decision, arguing that all receipts should be taxed without excluding any expenses. The Tribunal considered the arguments and observed that the Assessing Officer had accepted the society's status as an AOP engaged in charitable activities. The CIT(A) rightly allowed the expenditures incurred by the society, even though registration under section 12A had not been obtained. The Tribunal upheld the CIT(A)'s decision to exclude certain expenses from the gross receipt, considering the nature of the activities carried out by the society and the financial statements provided.

In conclusion, the Tribunal dismissed the appeal of the Revenue and disposed of the Cross objection filed by the assessee accordingly. The judgment highlighted the importance of considering the nature of expenses claimed and the activities of the society in determining the tax liability, especially in cases where registration under relevant sections of the Income Tax Act had not been obtained.