2023 (1) TMI 277 - HC - Income Tax

Maximum marginal rate of tax to the appellant/assessee u/s 167B - Exclusion of the amount received towards building fund from the income of the appellant/assessee - whether the CPC was right in taxing gross receipts as against income? - Respondent relies upon the order of the CIT(A) as well as the Tribunal to highlight the fact that the entire case set up by the appellant/assessee was that it was entitled to claim exemption under Section 11 and 12 of the 1961 Act, having regard to the first proviso to Section 12A(2) of the Act? HELD THAT - Respondent is right to the extent that the appellant/assessee is, perhaps, responsible for its own woes. The return filed by the appellant/assessee did indicate the appellant/assessee s status as AOP/BOI. However, having said that, the CIT(A) failed to exercise powers which were available with him and examine a specific ground of appeal raised by the appellant/assesseee. Clearly, the assertion made by the appellant/assessee in one of the grounds taken in the appeal was that it was constituted as a society. If this position is correct, something which is not disputed before us by the revenue then, as indicated hereinabove, the maximum marginal rate of tax could not have been applied to the appellant/assessee. Whether the CIT(A), having concluded that the provisions of Sections 11 and 12 of the Act were not applicable to the appellant/assessee in the AY in issue , he ought to have then gone on to rule on what was, really, an alternate ground, i.e., should gross receipts, simpliciter, be brought to tax . In other words, should gross receipts or the taxable income arrived at, after adjusting deductible expenses be subjected to tax? - Concerning this aspect as well, according to us, CIT(A) side-stepped the contention, although, a specific ground had been raised by the appellant/assessee in the appeal filed before the CIT(A). Respondent cannot but accept that in the succeeding AY i.e., AY 2015-16, CPC has brought to tax that amount which constitutes excess of income over expenditure i.e., from gross receipts, deductible expenses have been adjusted. We are also of the view that since the return of the appellant/assessee was processed under Section 143(1) of the 1961 Act, if there were any doubts, scrutiny should have been carried out and the necessary powers available under the 1961 Act should have been taken recourse to. Evidently, this was not done and therefore, the order was passed by the CPC and confirmed by the CIT(A) without delving into the specific grounds raised by the appellant/assessee, which remain unrebutted, cannot be sustained. It is also a matter of record that the Tribunal also failed to take into account similar grounds raised by the appellant/assessee consistent with what was averred in the appeal preferred before CIT(A). This is evident upon perusal of ground incorporated in the appeal instituted before the Tribunal. Thus, having regard to the aforesaid, the questions of law are decided in favour of the appellant/assessee and against the respondent/revenue.

Summary

Issues Involved:
1. Application of Section 167B of the Income Tax Act
2. Taxation of gross receipts versus taxable income
3. Failure to consider specific grounds raised by the appellant/assessee

Application of Section 167B of the Income Tax Act:
The appeal was directed against the order passed by the Income Tax Appellate Tribunal concerning Assessment Year 2014-15. The appellant argued that the assessing officer wrongly assessed the entire receipts as income without allowing corresponding expenses, emphasizing that only surplus is taxable. The appellant contended that Section 167B was incorrectly applied, resulting in incorrect taxation at the maximum marginal rate. The appellant's status as a society under the Societies Registration Act, 1860, was highlighted to challenge the application of the maximum marginal rate. The court noted that the CIT(A) failed to consider the appellant's specific ground regarding the application of slab rates for AOPs, further emphasizing that the maximum marginal rate should not have been applied.

Taxation of Gross Receipts versus Taxable Income:
The appellant's return for AY 2014-15 declared income of Rs. 2,39,350, which was processed by the Centralized Processing Centre. The CPC disallowed expenses of Rs. 3,22,837 incurred by the appellant for activities involving 'Gurupurab and Kirtan Darbar,' resulting in the taxable income being pegged at Rs. 13,41,461. The appellant argued that only the income, not gross receipts, should be taxed, and deductible expenses should be considered. The court observed that the CIT(A) and Tribunal failed to address the appellant's contention regarding taxing only surplus income after deducting expenses. The court highlighted that in the succeeding AY, CPC taxed the excess income over expenditure, indicating that deductible expenses should be adjusted from gross receipts to arrive at taxable income.

Failure to Consider Specific Grounds Raised by the Appellant/Assessee:
The appellant raised specific grounds before the CIT(A) and the Tribunal regarding the incorrect application of the maximum marginal rate and the taxation of gross receipts without considering deductible expenses. The court noted that both the CIT(A) and the Tribunal did not address these specific grounds raised by the appellant. The court emphasized that the powers available under the Income Tax Act should have been utilized for scrutiny when processing the appellant's return under Section 143(1). The failure to address the appellant's contentions and specific grounds led to the appeal being decided in favor of the appellant/assessee, setting aside the orders of the Tribunal and CIT(A).

By thoroughly analyzing the issues related to the application of Section 167B, taxation of gross receipts, and the failure to consider specific grounds raised by the appellant/assessee, the court's judgment favored the appellant/assessee, highlighting procedural errors and incorrect application of tax provisions by the authorities.