2020 (1) TMI 408 - HC - Income Tax

Income u/s 2(24) / Exemption u/s 10(24) - receipt by the trade Union for settlement on behalf of member worker - assessee is a registered trade union who passed an unanimous resolution that as a result of compromise arrived and amount is received from the Company - HELD THAT - Once the factum of settlement is not disputed couple with the factum of receipt of a particular amount from the Company, and as observed by the Assessing Officer in the assessment order that the amount has been distributed amongst the employees, the case would squarely stand covered under Section 10(24) of the Act. Though the contribution from the employer is received as per the settlement agreement, it is only incidental to the activities of the services of the assessee in resolving the dispute between the member workers and the employer with the intention of advancement of welfare of the members. We take notice of the decision of the Tribunal referred to and relied upon on behalf of the assessee before the Appellate Tribunal in the present case. We are referring to the decision in the case of Mumbai Mazdoor Sabha vs. Assistant Commissioner of Income Tax 2016 (11) TMI 537 - ITAT MUMBAI We are in complete agreement with the aforesaid observations of the Tribunal. - The only reason for the Tribunal in not following the dictum of the said order of the Tribunal is that the amount credited into the Bank Account of the State Bank of India, Chikhli Branch was not shown in the audited books of account and balance-sheet as on 31st March, 2009. According to the Appellate Tribunal, as the assessee failed to show the receipts in its audited books of account, the dictum of law as laid in Mumbai Mazdoor Sabha would not be applicable. We are afraid, we are not in agreement with such finding recorded by the Appellate Tribunal. In fact, in the entire impugned order passed by the Appellate Tribunal, there is no worthy discussion of Section 10(24) of the Act. In the overall view of the matter, we are convinced that the Appellate Tribunal committed an error in dismissing the appeal preferred by the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Taxability of the receipt of ?60,96,818/- in the hands of the assessee.
3. Applicability of Section 10(24) of the Income Tax Act, 1961.
4. Penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The assessee challenged the reopening of assessment under Section 148 on the grounds that no income had escaped assessment and that the Assessing Officer (AO) did not properly address the objections raised during the reassessment proceedings. The Commissioner of Income Tax (Appeals) [CIT(A)] found that the AO had issued a speaking order against the objections and that the receipt of ?60,96,818/- was not disclosed in the assessee's books of account. Thus, the reopening was deemed in accordance with the provisions of the Act.

2. Taxability of the Receipt of ?60,96,818/-:
The AO treated the receipt of ?60,96,818/- as taxable income under the head "Income from other sources," asserting that the amount was not distributed to the workers during the financial year and was under the control of the assessee. The CIT(A) upheld this view, noting a lack of documentary evidence supporting the claim of an overriding charge by the employees and the absence of expenses incurred for the welfare of the workers. The Income Tax Appellate Tribunal (ITAT) also dismissed the appeal, emphasizing that the amount was not shown in the audited balance sheet and was lying idle in the bank account, thus corroborating it as taxable income.

3. Applicability of Section 10(24):
The assessee argued that the receipt should be exempt under Section 10(24) of the Act, which exempts income chargeable under the heads "Income from house property" and "Income from other sources" for registered trade unions. The High Court noted that the amount received was incidental to the activities of resolving disputes between workers and the employer, which aligns with the welfare objectives of the union. The Court referred to the case of Mumbai Mazdoor Sabha vs. Assistant Commissioner of Income Tax, where similar receipts were considered exempt under Section 10(24). The High Court found that the ITAT erred in not considering this exemption, especially since the settlement amount was eventually distributed among the employees.

4. Penalty Proceedings under Section 271(1)(c):
The AO initiated penalty proceedings under Section 271(1)(c) for concealment of income. However, the High Court's ruling on the primary issue of taxability under Section 10(24) implies that the basis for the penalty may not hold, as the income was not taxable in the first place.

Conclusion:
The High Court allowed the appeal, quashing the ITAT's order and holding that the receipt of ?60,96,818/- is not taxable in the hands of the assessee under Section 10(24) of the Income Tax Act, 1961. The substantial question of law was answered in favor of the assessee and against the Revenue.