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TMI Blog2001 (4) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment order on31st March, 1997when it was time barring. 2. The return for the asst. yr. 1994-95 was filed on the basis of accounts of the Central office of the party only. Even on25th March, 1997, accounts of 14 State units were filed. Thus the return filed and the accounts furnished till the completion of the impugned assessment were not complete. 3. The AO proceeded to complete the assessment on the basis of the material on record. He noted that as per accounts of the Central office, assessee had shown the following receipts: Rs. (i) Collection from sale of coupons and purse money, etc. 20,75,000 (ii) Other income 3,12,65,500 (iii) AICC membership fee 3,220 (iv) Delegation fee 13,375 (v) AICC membership fund 600 11,33,57,696 Other income (i) Interest on fixed deposit 89,72,827 (ii) Misc. receipts 13,522 (iii) Donation 2,22,73,430 (iv) Literature sale 5,710 3,12,65,500 4. He further noted that in the details of donation of Rs. 2,22,73,430 furnished by the assessee, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture shown in the accounts of Central office and Rs. 68,71,700 for the State and other units going by proportion which interest receipts bear to the total receipts of the Central office. Accordingly, total expenses allowable were taken at Rs. 1,20,89,616. 7. Thus, the total income of the party was computed by the AO at Rs. 25,12,68,081 (receipts Rs. 26,33,57,696 minus expenses Rs. 1,20,89,616) as against the return filed declaring excess of expenditure over income of Rs. 5,11,69,631 in respect of Central office of the party. 8. Aggrieved, the assessee challenged the AO s order in the first appeal before the learned CIT(A) on several grounds including lack of fair, proper opportunity, non-appreciation of reasonable cause for failure to produce books of accounts, disregard of the provisions of ss. 13A, 139(4B), etc., rejection of receipts and expenditure shown, arbitrary estimate of receipts and expenditure, etc. The assessee filed copies of accounts of remaining State and other units, documents, details, etc. before the learned CIT(A) which were not filed before the AO in the course of assessment proceeding. It also filed audit report in respect of complete accounts. It requeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e estimate of receipts by the AO. 11. The learned CIT(A) considered the AO s estimate of expenditure. He observed that the expenditure of Rs. 37,68,036 being employees expenses and depreciation of Rs. 1,15,86,998 being mandatory allowance should be allowed in full. He thus allowed Rs. 1,53,05,034 as against Rs. 1,20,89,616 allowed by the AO. The learned CIT(A) further observed that out of balance expenditure of Rs. 14,92,22,294, 60 per cent should be allowed as reasonable expenditure to carry on its political activity, i.e., Rs. 8,95,33,374. Thus, the learned CIT(A) held that the assessee was entitled to deduction of expenditure on its political activity also, though he restricted the allowance to 60 per cent of the expenditure shown. Accordingly, the learned CIT(A) allowed deduction for expenditure and depreciation at Rs. 9,27,48,793 (Rs. 8,95,33,374 + Rs. 1,53,05,034 minus Rs. 1,20,89,616). 12. Both the assessee and the Revenue are aggrieved by the order of the learned CIT(A). Hence, the cross-appeals filed before this Tribunal by the assessee and the Revenue. 13. In the assessee s appeal as many as 25 grounds have been taken. Most of them are argumentative. In brief, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectronics (1994) 119 CTR (Bom) 94 : (1994) 209 ITR 63 (Bom), CIT vs. Nagpur Hotel Owners Association (1994) 122 CTR (Bom) 387 : (1994) 209 ITR 441 (Bom), CIT vs. Mumtaz Yarud Dowla Waqf (1999) 153 CTR (AP) 149 : (1998) 234 ITR 6 (AP), Madeva Upendra Sinai vs. Union of India Ors. (1975) 98 ITR 209 (SC), Dhrangadhra Chemical Works Ltd. vs. CIT (1975) 101 ITR 491 (Bom), Anglo French Textiles Ltd. vs. ITO 1975 CTR (Mad) 241 : (1976) 103 ITR 282 (Mad), etc. vide pp. 5 6 of written arguments, dt.23rd Jan., 2001. 15. He further submitted that the estimate of receipt from voluntary contributions was not permissible under s. 13A of the Act. He added that the section concerns grant of exemption in respect of income from house property, other sources and voluntary contribution on fulfilment of the prescribed conditions. In case of non-fulfilment of the prescribed conditions, the exemption is not allowable under s. 13A of the Act. However, unlike s. 145 of the Act, s. 13A of the Act does not empower to estimate income from voluntary contribution. He added that there was no material in possession of the AO that the assessee had not disclosed any specific voluntary contribution or receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Association would not be applicable in the present case because the facts were different. He added that in the said case, the Supreme Court was considering the provisions of s. 11(2)(a) r/w r. 17 of the IT Rules which provided the prescribed manner and the time for giving notice in writing before claiming exemption of such accumulation as provided in s. 11(2)(a) of the Act. He contended that provisions of s. 13A of the Act were different from the provisions of s. 11(2)(a) r/w r. 17 of the IT Rules, and, hence, the Supreme Court decision in the case of Nagpur Hotels Owners Association would not be applicable to the case of the present assessee. 17. The learned counsel for the assessee further submitted that the estimate of receipts was arbitrary and without any basis. He added that while estimating the receipts of all the State units besides taking the actual receipt of Central office shown, the AO had not considered the receipts of 14 State units whose accounts were furnished on25th March, 1997before completion of assessment on31st March, 1997. He pointed out that the receipts of all these 14 State units shown in the accounts were Rs. 3,82,97,972. In view of this, the AO s esti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Mills vs. CIT (1969) 73 ITR 192 (P H). He added that only the actual voluntary contribution received could be subject of consideration under s. 13A of the Act. 20. He further submitted that expenditure incurred to achieve the objects of the political party was allowable and the AO was wrong in his view that only expenditure incurred for earning income from house property and "other sources" was allowable as per provisions of the Act. He added that there was nexus between the assessee s political activity and the voluntary contribution and, therefore, the expenditure was allowable. He further added that in s. 13A word "income" and not "receipts" has been used which means receipt minus expenditure. He contended that in view of this also, expenditure incurred on political activity has to be allowed from the receipts of voluntary contribution to compute the income. In this connection he referred to the scheme of computation of income in the cases of charitable trust where expenditure incurred for carrying out the charitable object, i.e., aims and objects of the trust are allowed. He relied on Supreme Court decision in SRM-MCT M. Trippani Trust vs. CIT (1998) 145 CTR (SC) 176 : (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... places in the given time could not be possible. He contended that it did not constitute reasonable cause. He added the provisions of s. 13A of the Act were introduced w.e.f.1st April, 1979, and the Gujarat High Court decision in Gujarat Pradesh Congress Committee s case was rendered in 1993. Thus, the assessee was well aware long before the due date for filing the return for the asst. yr. 1994-95. He further added that the assessee s failure to file the return on the basis of complete accounts in respect of all the units and its failure to furnish the same even till25th March, 1997, would prove that the assessee s plea of reasonable cause was untenable and unacceptable. He further added that the facts also proved that the assessee did not maintain its books of accounts in course of its day-to-day activity and did not get them audited within the reasonable time. He submitted that the assessee s plea of violation of principle of natural justice, etc., was liable to be rejected. 23. The learned Departmental counsel further submitted that having failed to comply with the substantive mandatory conditions of keeping accounts, getting them audited and furnishing names and addresses of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head income from other sources and, hence, s. 145 was applicable. He also added that CBDT circular referred to above cannot override the provisions of the Act. The circular does not prohibit application of s. 145 to voluntary contributor. This circular is regarding ss. 44AB and 271B and not regarding application of s. 145, etc., of the Act. 26. The learned Departmental counsel further submitted that since there is no mandate in law to allow deduction for expenditure incurred by a political party for political purposes for computing the total income, the AO was justified in not allowing such expenditure. Only that expenditure can be allowed which is wholly and exclusively incurred for earning income under the head income from house property and other sources as provided in law. He added that unlike the provisions of s. 11 and 12 relating to the charitable trust, there is no provision in s. 13A or elsewhere in the Act to allow deduction for expenses incurred for the objects of the political party. Political purpose cannot be said to be a charitable purpose or an object of general public utility. He relied on the Supreme Court decision in All India Hindu Mahasabha case. He added t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical party. In this regard, the submission made in support of the claim of expenditure on political activity would equally apply to the admissibility of depreciation. He pointed out that as depreciation is allowed to a charitable trust despite there being no income under the head income from business or profession on the ground of use for its objects and charitable purposes, similarly depreciation is admissible to a political party. As regards the Revenue s objection to the allowance of 60 per cent of expenditure by the learned CIT(A), he submitted that the learned CIT(A) ought to have allowed the entire expenditure and not 60 per cent. He reiterated his arguments as above regarding the admissibility of expenditure as a whole. 31. We have considered the submissions and contentions both oral and written of the learned counsel for the assessee and the Revenue. We have also gone through the materials on the file including the paper book. We are of the view that there was no breach of natural justice. Perusal of the order sheet entry vide copies in the paper book clearly shows that the AO had given several opportunities to the assessee to file consolidated accounts, documents, list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not aware of the correct position and its duty under the law. For the purposes of s. 13A of the Act, the Explanation to s. 13A provides that political party means "an association or body of individual citizens of India registered with the Election Commission of India as a political party under para 3 of Election Symbol (Reservation and Allotment) Order, 1968 and includes a political party deemed to be registered with the Commission under the proviso to sub-para (2) of that paragraph". As the assessee itself was registered with the Election Commission of India as an all India party and State units were not so registered, the question of the State units having separate and independent status as political party was out of context and any plea of having any such wrong belief in this regard was untenable and wrong. Further the Gujarat High Court s decision in Gujarat Pradesh Congress Committee s case was rendered in 1993. If the assessee had any doubt, this judgment of the Gujarat High Court should have cleared it and the assessee must have understood the real and correct import of Explanation to s. 13A of the Act. It is also worth noting here that even after several opportunities giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not obtain the same in time and, hence, it was prevented by reasonable cause is untenable and unacceptable. Even if no time-limit is prescribed for the completion of accounts and their audit, they had to be completed within the reasonable time. Non-completion of accounts and their audit even in two years from the end of the relevant financial year cannot be condoned and the assessee cannot be given the benefit of reasonable cause and the additional evidence filed before the learned CIT(A) could not have been admitted under r. 46A of the IT Rules, 1962. Rule 46A, sub-r. (1), cls. (b) and (c) provide for the existence of sufficient cause which prevented the assessee from producing the evidence before the AO for the admission of the additional evidence by the learned CIT(A). As stated above, since there was no sufficient cause existing in this case, the learned CIT(A) was justified in declining to admit the additional evidence. Accordingly, this ground of the assessee is also dismissed. 36. We now come to the issue of exemption under s. 13A of the Act. This section provides as under: Sec. 13A: Any income of a political party which is chargeable under the head income from ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miss the assessee s ground. 38. We now come to the issue of estimate of receipts and expenditure. After considering the rival submissions and contentions in this regard we are of the view that the AO was not justified in estimating the receipts of State and other units at Rs. 15 crores. There was no basis or any material on record to warrant such an estimate. The reasons given by the AO for the estimate are not convincing and satisfactory. From the perusal of s. 13A reproduced above, it will be seen that income chargeable under the head income from house property, income from other sources or income by way of voluntary contributions received by a political party is exempt if the conditions prescribed in the proviso to this section are fulfilled. In the present case, the AO did not separately compute income from house property, income from other sources and income by way of voluntary contribution received. He made a lump sum estimate of all the receipts of the State and other units of the party at Rs. 15 crores. It will be noted that the word "received" in s. 13A mentioned after "voluntary contributions" has been used for voluntary contributions. This would mean that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the actual receipts of all the State and other units as per the audited accounts filed before him. It was a different thing not to admit the additional evidence on ground of absence of reasonable cause for non-production of the same before the AO but it was relevant and imperative that these materials should have been appreciated by the learned CIT(A) to decide about the estimate of receipts in the case. As mentioned above, the total receipts of all the State and other units apart from the receipts of the Central office worked out to Rs. 3,82,97,972 + 1,81,17,534. There is no material on record to show that the assessee had not recorded any specific receipts. In view of these facts, we have to hold that the learned CIT(A) was not justified in confirming the AO s estimate of receipts of the State and other units at Rs. 15 crores. It is also relevant to mention here that according to the provisions of s. 13A of the Act, the AO cannot add receipts from voluntary contribution on notional or estimate basis. The words "voluntary contribution received" used in the section are strong indication of the intention of the legislature that the provisions of s. 13A are applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income because of the provisions of s. 13A and in the absence of s. 13A, it would not have been taxable income as it does not fall under any of the heads of income mentioned in s. 14 of the Act. We do not accept the contention of the learned Departmental counsel that it would come under the head income from other sources. From the perusal of ss. 56 to 59, we come to the view that voluntary contribution cannot be brought under the head income from other sources. We, therefore, hold that contribution to a political party is taxable in view of the provision of s. 13A and the same will be exempt under the same section on fulfilment of the prescribed conditions. In this view of the matter, we have to hold that the view of the AO that since the expenditure incurred on political activity was not the expenditure incurred for earning income from voluntary contribution, such expenditure was not allowable as deduction was erroneous and untenable. If this view is taken as correct then by its implication the expenditure incurred by a charitable trust on carrying out its aims and objects will not be allowed because such expenditure in the light of the AO s view was not incurred for earning t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ievement of its objects of general public utility but any other object. The AO has not brought any material on record to prove so. He has also not pointed out any specific expenditure to show that the expenditure was incurred other than for the aims and objects of the party. It is noteworthy here that the aims and objects of association like FICCI, CII, etc., have been considered as objects of general public utility. The importance, place and role of the assessee-political party has been much broader in general public interest. 45. Under the circumstances, we have to hold that the expenditure incurred to achieve the aims and objects of the party was allowable as deduction. 46. Regarding the contention of the learned counsel for the assessee that exemption can be granted even in appeal stage on fulfilment of the prescribed conditions, we are not inclined to accept this plea because we have already held above that on the facts and in the circumstances of the case, the learned CIT(A) was justified in not admitting the additional evidence because there was no sufficient cause for failure to produce books of accounts, etc., before the AO. We have also held above that the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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