2015 (8) TMI 77 - AT - Income Tax

Addition on account of Dharmarth Receipts - whether the receipt is not by a charitable trust, but by the assessee company, which is doing business and trading? - Held that - Once the receipts are routed as such to a charitable trust by the assessee company and the nature of that trust has not been questioned, we hold that the receipts are Dharmarth receipts and nothing else. The consistent acceptance of such receipts by the Department itself, for as many as eight earlier assessment years, mandates the acceptance of such receipts of the assessee during the year under consideration also as Dharmarth receipts, when no change in facts has been pointed out by the authorities to have come about during the year under consideration. That Dharmarth receipts are not taxable, has been laid down as law by the Hon ble Supreme Court, way back in the year 1979, in the case of CIT Vs. Bijli Cotton Mills (P) Ltd. (1978 (11) TMI 1 - SUPREME Court). Clause of no. 30 of memorandum and articles of association of the assessee company clearly shows that one of the objectives of the assessee company is charity. The learned CIT(A) has remained oblivious of this specific clause in the memorandum and articles of association of the assessee company, while holding that the appellant could not establish before me that the objectives of the company as per memorandum and articles of association was also to carry out charity. Thus addition deleted - Decided in favour of assessee.

Summary

Issues:
Appeal against CIT(A) order for assessment year 2010-11 - Addition of Dharmarth Receipts.

Analysis:
The appellant contested the CIT(A)'s decision confirming the addition of Dharmarth Receipts to the returned income. The appellant argued that the collection of Dharmarth was for charity, not income, citing CBDT Circular and legal precedents. The appellant highlighted the consistent practice of collecting and donating Dharmarth, supported by registration certificates of the charitable trusts. The appellant emphasized the existence of a charity provision in the company's Memorandum and Articles of Association. The appellant sought deletion of the addition based on non-taxable nature of Dharmarth receipts and past tribunal rulings.

The AO observed that the Dharmarth receipts were related to the business activities and added the amount to the income. The CIT(A) upheld the AO's decision, stating that the company's objectives were commercial, not charitable. The CIT(A) referenced the company's failure to prove charitable objectives and justified treating the receipts as trade income. The appellant's counsel argued for consistency, presenting past years' approvals of similar receipts and relevant CBDT Circular. The appellant emphasized the charitable clause in the company's Articles of Association.

The tribunal analyzed the case, noting the consistent practice of collecting and donating Dharmarth without claiming it as income or expenditure. The tribunal referenced legal precedents and the company's Articles of Association supporting charity. The tribunal emphasized the non-taxable nature of Dharmarth receipts and the importance of consistency. Relying on past tribunal decisions and legal principles, the tribunal directed deletion of the addition, concluding that Dharmarth Receipts were not taxable. The tribunal allowed all grounds of the appellant's appeal, canceling the addition and ruling in favor of the appellant.

In conclusion, the tribunal ruled in favor of the appellant, highlighting the non-taxable nature of Dharmarth Receipts and the consistent practice of collecting and donating for charity. The tribunal emphasized the importance of company objectives and legal precedents in determining the tax treatment of such receipts. The tribunal's decision was based on past rulings and legal principles, directing the deletion of the addition and allowing all grounds of the appellant's appeal.