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2013 (11) TMI 212 - AT - Income TaxTaxability of grant in aid - local authority u/s 10(20) - whether assessee was an organ of the state as such immune of Article 289 of the Constitution - Whether only surplus remaining after allowing expenses as per the account of the assessee should be brought to tax - Held that - There is nothing to suggest that the assessee is carrying on any business activities, generating income. Accordingly, the ld. CIT(A) concluded that there was no surplus with the assessee and therefore, there was no question of any taxable income. Admittedly, the grant-in-aid in question is a financial aid or subsidy given by the State Government of UP and Sugar factories for the specific purpose of construction of roads. In section 2(24) of the Act, it is declared that income includes various items which are enumerated therein in clauses (i) to (xv). In the said section 2(24), such a grant-in-aid has not been specifically included as an income or a revenue receipt. Therefore, considering the use for the worked include in section 2(24), the word income shall be construed as comprehending not only those items which said section declared that these shall include but also such items which said section declares that these shall include but also such items as it signified according to its natural import. Since section 2(24) has not declared that such a grant-in-aid shall be included in the income the word revenue shall be construed as comprehending what it signified according to its natural import. In relation to a business undertaking, the word revenue connotes incomings of the undertaking which are products of the normal working of the undertaking. The giving of financial aid or subsidy to the aforesaid committee, which admittedly is not carrying on any business, is at the discretion of the Government or Sugar factors. Thus, the grant-in-aid in question was not a product of the normal business activities of the assessee committee, assessed by the AO as a local authority. Therefore, such a grant-in-aid could not be termed as a revenue receipt so as to form part of the total income. As already pointed out, the ld CIT(A) concluded that the aforesaid funds received by the assessee from State Government and Sugar factories have been spend only for those specific projects and there was no surplus with the assessee. Since the Revenue have not placed before us any material, controverting these findings of facts recorded by the ld. CIT(A) so as to enable us to take a different view in the matter, there is no basis to interfere with his findings - Matter is restored to A.O.
Issues Involved:
1. Taxability of surplus after expenses. 2. Validity of assessment under section 143(3) and issuance of notice under section 148. 3. Status of the assessee as 'Artificial Juridical Person' (AJP) or 'Local Authority'. 4. Applicability of Article 289 of the Constitution. 5. Allowability of expenses without verification. 6. Specific statutory provisions governing the assessee's operations and their impact on taxability. Detailed Analysis: 1. Taxability of Surplus After Expenses: The CIT(A) directed that only the surplus after allowing expenses should be taxed. This decision was challenged by the revenue, arguing that the Assessing Officer (AO) should have been given an opportunity to verify the genuineness of the expenses. The Tribunal modified the CIT(A)'s order, directing the AO to verify the specific provisions and allow only the allowable expenses as per the accounts maintained by the appellant. The AO was instructed to decide the issue in line with the order of the Co-ordinate Bench in a similar case involving N.S. Committee. 2. Validity of Assessment Under Section 143(3) and Issuance of Notice Under Section 148: The assessee contested the validity of the assessment and the notice issued under section 148. The CIT(A) dismissed these grounds, stating that ample opportunities were provided to the assessee during the assessment proceedings. The Tribunal upheld the CIT(A)'s findings, noting that the procedural requirements were followed by the AO. 3. Status of the Assessee as 'Artificial Juridical Person' (AJP) or 'Local Authority': The assessee argued that it should be treated as a 'Local Authority' and not an 'Artificial Juridical Person' (AJP). The CIT(A) held that the assessee did not qualify as a 'Local Authority' under the amended section 10(20) of the Income Tax Act, which now only includes specific entities. The Tribunal confirmed this finding, noting that the assessee was correctly assessed as an AJP. 4. Applicability of Article 289 of the Constitution: The assessee claimed immunity under Article 289 of the Constitution, which exempts the property and income of a State from Union taxation. The CIT(A) rejected this claim, stating that the assessee, being a distinct legal entity created through an act of the State Government, could not be considered as the State itself. The Tribunal upheld this decision, noting that the amendment to section 10(20) was in harmony with Article 289. 5. Allowability of Expenses Without Verification: The revenue contended that the CIT(A) erred in directing the AO to allow all expenses claimed by the assessee without verification. The Tribunal modified the CIT(A)'s order, directing the AO to verify the expenses and allow only those that are admissible under the Income Tax Act. 6. Specific Statutory Provisions Governing the Assessee's Operations: The assessee argued that its operations were governed by the U.P. Sugar Cane (Regulation of Supply and Purchase) Act, 1953, and the related rules, which mandated the utilization of funds for specific purposes. The Tribunal directed the AO to consider these specific statutory provisions while deciding the issue of taxability. The AO was instructed to follow the principles laid down in the Co-ordinate Bench's order in the case of N.S. Committee. Conclusion: The Tribunal allowed the departmental appeals and the assessee's appeals partly for statistical purposes, directing the AO to verify the expenses and consider the specific statutory provisions governing the assessee's operations. The Tribunal upheld the CIT(A)'s findings on the validity of the assessment, the status of the assessee as an AJP, and the non-applicability of Article 289 immunity.
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