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TMI Blog2012 (8) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... 67,92,152. On appeal by the assessee, by way of order dated 15.8.2008, the CIT(A), allowed the appeal of the assessee for statistical purposes, with a direction to the assessing officer to re-examine the case, along the lines suggested by the ITAT in assessee's own case for the assessment year 2003-04. 4. The assessing officer thereafter passed the consequential assessment order dated 31.12.2009, under S.143(3) read with S.250 of the Act, whereby in the first place the assessing officer noticed that the assessee corporation extended a loan to the Government of Andhra Pradesh, which is founder of the assessee-corporation and holding such advancing of money as violative of the provisions of S.13(1)(d) read with S.11(5) of the Act. Referring to the explanation of the assessee that it was appointed by the State Government as its agent for the payment of wages to the beedi leaf collectors and has utilised sometimes its "own funds" for effecting the sales of beedi leaves on behalf of the State Governments, the assessing officer taking serious cognizance of the harmful effects of smoking and incalculable damage to health of the people done by smoking, concluded that what is committed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the income from other sources for the year was a loss, as there was no other income liable to tax. It was contended that even if there was any surplus income, being charitable institution and having complied with all the requirements of S.11 to 13, no income was liable to tax. It was averred that the assessing officer was guided by his own personal views in making assessment and many of the issues pointed out in the assessment order were not put to the assessee for being explained. 6. It was also submitted before the CIT(A) that the assessing officer has not denied that the assessee was carrying on agricultural operations and thereby raising plantations. However, the assessing officer, observing that the assessee had not obtained any licence or any exemption from payment of market fees at 2% on Eucalyptus and Cashew sales under the Sales Tax Act, held that there was violation of sales tax Act, while effecting the sale of agricultural produce. Similarly, in respect of the Bamboo sales also, the assessing officer opined that it was not permissible to cut the bamboos and therefore, the assessee's raising bamboo plantation and cutting the same for sale was contrary to the Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n nature and represents the actual cost suffered by the Corporation towards monies spent by it on behalf of the State Government. It was averred that all such amount had been spent for the purpose of creating employment for the down trodden people as per the Directions of the State Government itself. 8. Besides making elaborate submissions on the above lines, learned Authorised Representative also filed a petition under Rule 46A of the Income-tax Rules, for admission of additional evidence during the appellate proceedings before the CIT(A). It was claimed in the said petition that the assessment was made without seeking proper clarifications from the assessee-Corporation. After receipt of the assessment order, therefore, the assessee had forwarded the same to the Forest Department of the State Government for issuing appropriate clarifications on the violations pointed out by the assessing officer. Accordingly, the Principal Chief Conservator of Forests, Government of A.P. had addressed a letter, bearing No.5876/2010/F5 dated 8.2.2010 to the DDIT(E)-II, Hyderabad explaining the position and clarifying the issues directly. Since the said reference was made after passing of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he funds were given to the State Government only, the security for the funds so given also could not have been doubted and consequently, there was no violation of the provisions of S.13(1)(c) read with S.13(3) of the Act. (e) It is clear that the funds were advanced to the State Government by the assessee only as a temporary arrangement, as per the directions of the State Government itself. It is not a part of the money accumulated or set apart as per the provisions of S.11(2)(b). (f) Further the action of the assessee in advancing funds to the State Government cannot be considered as a 'deposit' or 'investment', contemplated under S.11(5), which is indeed made with a view to earn regular interest/income. Whatever interest is received by the assessee in the instant case is only of compensatory nature and the same has not been earned on account of any deposits or investments made by the assessee with a view to earn any income. 10. With regard to payment of rent to the Government of A.P. is concerned, the CIT(A) firstly noted that the Government of A.P. itself cannot be considered as an 'interested person' in view of the discussion made by him in the context of the adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Commissioner of Income-tax(Appeals) allowing the appeal of the assessee, Revenue filed the present appeal before us. 16. Effective grounds of the Revenue in this appeal read as under- 1. The order of the CIT(A) erred both on facts and in law. 2. The learned CIT(A) erred in allowing the exemption U/s. 10(1) and U/s. 11 of the I.T. Act without going into the merits of the case. 3. The learned CIT(A) erred in not considering the loan of Rs.11.3 Crores to the Govt. of A.P. which is a founder of the Trust as a violation of provisions of Sec.11(5) of the I.T. Act, 1961. 4. The learned CIT(A) ought not to have considered the claim of the assessee that income derived on the sale of yields like Eucalyptus, cashew, sandal wood, coffee, bamboo, pepper, medical plants, beedi leaves, etc. as agricultural income and is exempt u/s. 10(1) of the I.T. Act, 1961. 5. The learned CIT(A) ought to have consxid3ered the observations made by the Assessing officer in regard to growing and sale of beedi leaves which will lead to hampering to health and most injurious to the public and not as a charitable activity in the interest of public. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the assessee has violated various statutory provisions and as such the agricultural income claimed has no legal sanctity. 17. The learned counsel for the assessee on the other hand, reiterating the contentions urged before the lower authorities, strongly supported the order of the CIT(A). He submitted that the State Government, which has founded and authored the assessee-corporation is not a 'person' within the scope of the Income-tax Act, much less an interested person, and even otherwise, the State Government has not got any benefit whatsoever from the assessee-corporation either by way of profits or dividends. He submitted that the advancing of Rs. 11.43 crores by the assessee to the State Government was not by way of any deposit or investment with the State Government, but only by way of incurring the expenditure from out of its own funds on behalf of the State Government, while playing the role assigned to it by the State Government, as an agent for the payment of wages to Beedi leaf collectors and for effecting sales of beedi leaves on behalf of the State Government. The expenditure thus incurred by the assessee from out of its own funds has been reimbursed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under S.10(1) of the Act, and hence on this very preliminary ground itself, no part of the sum of Rs. 13,55,48,526 is liable to tax regardless of application of S.11 of the Act. He further submitted that the income from other sources is a negative figure, i.e. excess of expenses of Rs. 2,16,75,403 and not income of Rs. 1,27,07,596 as computed and assessed by the assessing officer, and on this issue the CIT(A) vide para 8.10 of his order directed the assessing officer to verify this figure while giving effect to his order. He further submitted the amount of income applied towards activities of the Corporation out of other sources, viz. increasing the green cover in the State is Rs. 2,50,63,441, which is more than the income assessed under other sources and the taxable component of the other income. Even if it is taken at Rs. 1,27,07,596 as assessed, as the application is more, and therefore, no portion of this amount is liable to tax, and in any event there is no taxable income from other sources. He also submitted that for claiming the benefit of S.11 of the Act, it is only registration under S.12A of the Act that is warranted and registration of the assessee-corporation under S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption under S.10(1) of the Act in respect of agricultural income, we find no merit in the contentions of the Revenue in this appeal. The only aspect that clinches the nature of the agricultural income is whether agricultural operations were carried out or not. Once it is established that such agricultural activities are carried out by the assessee, assessee is entitled for exemption in respect of such agricultural income under S.10(1) of the Act, irrespective of any violation of the statutory provisions as alleged by the assessing officer in the present case. Such infraction of the statutory provisions may expose the assessee to the risks of being penalized or punished under the relevant statutes, but the same do not change nature of the agricultural income, and as such, cannot be fatal to the assessee's claim for exemption under S.10(1) of the Act. 22. It is pertinent to mention at this juncture that when the letter of the Principal Chief Conservator of Forests, A.P. dated 10.2.2010, clarifying various points of objection raised by the assessing officer while denying the assessee's claims for exemption, was filed by way of additional evidence before the CIT(A), the CIT(A) for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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