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2019 (4) TMI 548 - AT - Income TaxIncome of State government society - accrual of real income - amounts collected on account of selling VAT forms - 20% of receipt was to be remitted affront to the State treasury, while 80% was to be retained by it for meeting out expenses and balance thereafter to be remitted to the State treasury - scope of amendment to section 40(a) - Registration u/s 12AA refused as activities carried on by the society were not for the benefit of general public utility, but was for providing infrastructure facilities to the State Government (Excise and Taxation Department) - HELD THAT - These issues have already been decided by the I.T.A.T. in the earlier years in the case of the assessee holding that 20% of the amount received which was remitted directly to the State treasury was not the income of the assessee while relief of 80% of the amount was allowed to the extent the surplus remaining out of it was remitted to the State Government in the impugned year. Further the order of the ITAT is upheld by HC 2018 (12) TMI 834 - HIMACHAL PRADESH HIGH COURT The Revenue has pointed out that an amendment has been brought on Statute to section 40(a) by inserting clause (iib) disallowing amounts remitted to State Governments claimed as expenditure and the said amendment is effective from the impugned year only. Notwithstanding the same, since the Hon ble High Court has held that the remaining 80% of the collection by the assessee was not in the nature of income at all we are bound by the same. Respectfully following the case of the assessee for preceding years therefore we hold that the entire amount collected by the assessee was not in the nature of its income. - decided in favour of assessee.
Issues Involved:
1. Taxability of the amounts collected by the assessee society on account of selling VAT forms. 2. Applicability of Section 40(a)(iib) of the Income Tax Act, 1961. 3. Whether the amounts remitted to the State Treasury should be treated as income of the assessee. 4. Impact of the assessee not being registered under Section 12AA of the Income Tax Act, 1961. Detailed Analysis: 1. Taxability of the Amounts Collected by the Assessee Society: The assessee, a society registered with the Registrar of Societies, was responsible for manning multipurpose barriers in Himachal Pradesh and collecting a user fee for issuing declaration forms (ST XXVI-A) for goods entering or exiting the state. The fee was initially ?5 per form and later increased to ?10. The society deposited a portion of this fee with the State Treasury as per its byelaws. The Assessing Officer (A.O.) treated the amount retained by the assessee as taxable income, arguing that the assessee had not been granted registration under Section 12AA of the Income Tax Act, 1961, and thus could not claim the amount as deductible expenditure. 2. Applicability of Section 40(a)(iib) of the Income Tax Act, 1961: The A.O. also held that the amount was not allowable as it had not been paid during the year, invoking Section 43B of the Act. Furthermore, the A.O. cited the amendment to Section 40 by the Finance Act, 2013, effective from 1.4.2014, which disallowed amounts appropriated by the State Governments as eligible expenditure. 3. Whether the Amounts Remitted to the State Treasury Should be Treated as Income: The CIT(A) ruled that the portion of the fees remitted to the State Treasury should not be treated as the assessee's income. However, the remaining 80% retained by the assessee was considered to partake the character of income. This decision was based on the CIT(A)'s own rulings in the assessee's cases for previous assessment years. 4. Impact of the Assessee Not Being Registered Under Section 12AA: The Revenue argued that the non-registration of the assessee under Section 12AA made the amounts remitted to the State Treasury taxable. However, the Hon'ble Jurisdictional High Court had previously ruled that the surplus of income over expenditure belonged to the State Government and did not constitute taxable income for the assessee. The High Court emphasized that the assessee merely performed statutory functions under the VAT Act, 2005, and did not generate any profit or gain. Conclusion: The ITAT, following the High Court's ruling, held that the entire amount collected by the assessee was not in the nature of its income. The Tribunal noted that the High Court had confirmed that the surplus belonged to the State Government and was duly deposited in the public exchequer. Therefore, the appeal of the assessee was allowed, and the appeal of the Revenue was dismissed. Order Pronounced in the Open Court.
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