2023 (5) TMI 214 - AT - Income Tax

Exemption from income tax - status of the assessee - local authority or 'Artificial Juridical Person' - SCN as why assessment be not completed in the status of Artificial Juridical Person in view of the amendment in provisions of section 10(20) wherein assessee cannot be treated as a Local Authority - HELD THAT - From Hon ble Jurisdictional High Court case M/S. N.S. COMMITTEE 2018 (1) TMI 1712 - ALLAHABAD HIGH COURT we hold that the issue in dispute stands squarely covered by the said decision. The impugned disputes have been accepted by the ld. AO in A.Y. 2017-18 in assessee s own case accepting the stand of the assessee. Similarly CIT(A) also had accepted the stand of the assessee for the A.Y. 2015-16 and 2016-17 on identical facts and circumstances, which had attained finality as no appeals were preferred by the revenue before us for those years. We hold the assessee to be a local authority and its receipts are not chargeable to tax in the facts and circumstances of the instant case. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues involved:
The issues involved in this case include the assessment order passed under section 143(3) of the Income Tax Act, 1961, addition made on account of Commission Received, addition made on account of Interest received from Bank, and the status of the assessee as a 'local authority'.

Assessment Order under Section 143(3):
The appellant challenged the assessment order as illegal, bad in law, and without jurisdiction, with the CIT(A) upholding the same. The appellant contended that the additions made were unjust and excessive, not based on any material, and wrongly computed the total income. The assessing officer added amounts on account of Commission Received and Interest received from Bank, which the appellant argued were arbitrary and against the facts of the case. The appellant further claimed that the additions made were unjust, unlawful, and lacked justification. The appellant asserted that the assessment order was against the principles of natural justice, as they were not afforded a reasonable opportunity to be heard.

Status of Assessee as a 'Local Authority':
The assessing officer treated the assessee as an 'Artificial Juridical Person' due to a provision in section 10(20) of the Act, which defines a local authority as specific entities. The assessee, a local authority, objected to this classification, stating it was formed before the relevant amendment. The assessing officer held that as the assessee did not fall under the specified categories, it should be treated as an 'Artificial Juridical Person'. The assessing officer disallowed expenses claimed by the assessee and added commission and interest income as the assessee's income. The appellant argued that the funds received were at the behest of the State Government for specific purposes, and therefore, not income of the assessee. The assessing officer's decision was upheld by the CIT(A).

Judicial Precedent and Decision:
The appellant cited a case before the Hon'ble Allahabad High Court where a similar issue was considered, and it was held that funds granted for specific purposes by the State Government did not form part of the assessee's total income. The High Court concluded that such grants were not revenue receipts and should not be taxed. The appellant's representative highlighted that in subsequent assessment years, the assessing officer and CIT(A) accepted the assessee as a 'local authority', leading to the allowance of the appellant's appeal in the present case based on the High Court's decision and past acceptance of the assessee's status.

Conclusion:
The ITAT Delhi allowed the appeal, holding that the appellant is a 'local authority' and its receipts are not chargeable to tax based on the judicial precedent and past acceptance of the assessee's status. The decision was in favor of the assessee, and the appeal was allowed.