9911796707
TMI Blog2012 (10) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount received from the workers for meeting such expenditure was not in the nature of income in the hands of the assessee being a coordination committee but was merely in the nature of deposit which was meant for meeting expenditure for defending/prosecuting various cases of employees. There was a clear concept of mutuality. No-one can make profit out of himself. When a member agrees to contribute funds for a common purpose, the amount of funds not so required for common purpose and refunded to such individual, cannot be treated as income in their hands liable to tax. Thus, the general principle applicable to the mutual concern is that the surplus accruing to it cannot be regarded as income, profits or gains for the purpose of income tax. As discussed hereinabove, the amount received by the assessee was not in the nature of income and the assessee was not doing any business activity and as such the application of provisions of section 40a(ia) was not justified - ITA Nos.239 to 246/Ind/2012 with Co Nos. 74 to 81/Ind/2012 - - - Dated:- 25-10-2012 - Shri Joginder Singh, Judicial Member And Shri R.C. Sharma, Accountant Member. Revenue by Shri Darshan Singh Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption u/s 10(24) of the Act was declined by the AO. 3. By the impugned order, the CIT(A) confirmed the AO s action after having the following observations :- I am in complete agreement with the findings of the A.O. that registration under the Trade Union Act is mandatory in so far as the Trade Unions are concerned. It is incomprehensible to interpret that the association of the registered trade unions are not liable to be registered. The inadvertent omission of the word Registered before Association of registered Trade Unions in section 10(24)(b) of the Act cannot be interpreted in such a manner to deprive the Government Exchequer of its legitimate claim of IT on the income of the appellant. For the reasons extensively enumerated above, I am of the considered view that the appellant is not entitled to the benefits of section 10(24) of the Act. The AO s conclusions in this regard are confirmed and appellant s grounds of appeal relating to the exemption claimed u/s 10(24) of the Act, are dismissed. 4. The contention of the assessee that its income was not assessable under the head business/profession was not accepted by the AO and the action of the AO was confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or manufacturers for the protection and advancement of their common interest (Webster s New International Dictionary, 2nd Edition, Page 264, referred to in CIT vs. Royal Western India Turf Club (1953) 24 ITR 551-556 (SC); Bellary District Mine Owner s Assocaition Ltd. Vs. CIT (1964) 53 ITR 632 (Mys.); Indian Tea Planteers Association v. CIT (1971) 82 ITR 322 (Cal). Every trade, professional or similar association which renders specific services to its own members for remuneration related to those services would come within the purview of section 28(iii) (Indian Tea Planter s Association v. CIT (1971) 82 ITR 322 (Cal.). In order to bring an income within this clause, two essential facts have to be established viz. That the association rendered specific services to its members and that remuneration was paid by the members for these services; and there must also be a connection between the remuneration adn the services rendered (Chagla C.J. in Ismailia Grain Merchants Association Ltd. V. CIT (1957) 31 ITR 433 437 (Bom); South Indian Planting and Commercial Representation Fund v. CIT (1957) 32 ITR 513-518 (Mad.) the statute does not require that before income of such association w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission and seeks to uphold the standards of the profession through professional codes on matters of conduct and ethics and (iv) high status in the community (Indian Medical Association v. V.P. Santha AIR (1996) (SC) 550-558 (1338). Viewed in this perspective, the aforementioned judicial pronouncements relied upon by the learned counsel for the appellant, enumerated in Paras No. 3.3 above squarely supports the conclusions arrived at by the AO against the appellant. Having given thoughtful consideration to all the relevant facts obtaining from the record, I am in complete agreement with the conclusions of the AO that all the receipts received by the Coordination Committee from employees of the SPM were professional receipts and after deduction of expenses, net receipts were chargeable to tax as income under the head income from business or profession . Since the High Court in WP No. 5696/98 directed payment of 50% of the incentive to the workers, after discussion with employees, all the employees gave in writing to the management to recover 15% of the incentive, that is being paid to them, to be given to the Coordination Committee, for meeting expenses and in the presence of this w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank. The appellant had received interest on deposits in its account held in State Bank of India, Hoshangabad, during the previous years, relevant to the assessment years, under consideration. This was not offered for tax, as according to the learned counsel for the appellant the same was claimed as exempt u/s 10(24) of the Act. For the reasons extensively enumerated above, it was already held in unambiguous terms that the claim of the appellant for exemption u/s 10(24) was not maintainable and that the income of the appellant was not entitled for exemption under the said section. Therefore, I am in complete agreement with the conclusions of the AO that the impugned interest income was clearly taxable in each of the assessment years, under consideration. The addition made by the AO bringing to tax the interest income in each of the assessment years, under consideration, is upheld and the grounds raised against the said addition for all the assessment years, under consideration, are accordingly dismissed. 6. The AO also made addition in respect of interest income from M/s Kachnar BuildeRs.By the impugned order, the CIT(A) partly confirmed the addition by observing as under :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be done in proper exercise of discretion objectively and judiciously on the basis of relevant material evidence. In the case of the appellant, under consideration, no evidence whatsoever was brought on record by the AO, to justify the impugned addition. Hence, for the reasons aforementioned, the impugned addition made by the AO. on mere suspicions, unsubstantiated on the strength of corroborative evidence, brought by the AO on record against. the appellant, cannot be sustained. The same is, therefore, deleted. The appellant accordingly gets relief of ₹ 15,00,000/- for each of the assessment years 2000-01 to 2003-04. 8. For the A.Y. 2000-01 the AO also estimated and made addition presuming the same to be undisclosed income earned from professional receipts. According to the AO, as a result of the litigation, the employees won the case and got about ₹ 30 crores from the management of SPM as incentive bonus; that the amount received by the employees during the period from 17.02.1999 to 08.05.2002 represented only 50% of the incentive bonus decreed in favour of the employees and balance 50% was to be paid later on after the final disposal of the case. An amount of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the workers had deposited 15% of the amount and to treat this merely as a deposit with a view to meet all sorts of expenditure including lawyer's fees, TA/DA, typing, stenography, court fees and all other incidental expenses and balance, if any, be refunded to the deserving employees. Facts obtaining from the record evidences the fact that substantial amount was already refunded to employees in the years 1999 and 2000 after meeting the expenditure. Had the impugned deposits made by the workers were in the nature of income, as erroneously presumed by the AO, then, in my considered view, there would have been absolutely no question or justification for refunding any amount to the workers. 8.3. Facts obtaining from the record, also demonstrate that nearly 2500 employees were working in the Security Paper Mill and incentives were to be paid to the employees. During the pendency of the disputes, on the basis of settlement in June I 973 and award dated 02.09.1998 several thousand cases were filed before various courts such as under Payment of Wages Act, under 33(c)(1) and 33 (c)(2) of ID Act before various Authorities. Coordination committee used the services of several lawye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the matter, although the impugned receipt was held as deposit and not income of the appellant, the expenditure incidental for highting the cases of the appellant, which was to be met from these deposits, was not disallowable, particularly when the impugned deposits made by the employees with the appellant federation was only for fighting their cases and for meeting the expenditure incidental thereto. Since in the preceding paras 8.8, it has been concluded that the amounts received by the Coordination Committee was a deposit which cannot be treated as professional receipt, there remains no professional income and as such remains no ground for disallowance of expenses since any disallowance require income in the profit and loss account. Thus, the disallowance of ₹ 9,83,000/- made by the AO in the AY 2000-01; ₹ 10,000/- in AY 2005-06, ₹ 20,000/- for AY 2006-07 and ₹ 10,000/- for AY 2007-08 are deleted. The appellant accordingly gets relief of ₹ 10,23,000/- for these assessment years. 12. In the A.Ys. 2005-06, 2006-07 and 2007-08 the AO had made disallowance u/s 40(a)(ia) of the Act. The AO disallowed ₹ 26,85,000/- for the A.Y. 2005-06; &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the appellant had made actual payment to the legal professionals and the same having been subjected to tax in the case of the recipients, since the genuineness of the impugned transactions were proved beyond all shadows of doubt and the same having not been proved by the AO as bogus transactions, respecting the intention of the law framers in enacting section 40(a)ia) on the Statute Book, the impugned additions made by the AO for the assessment years 2005-06 to 2007-08 in my considered view, are unsustainable. My findings in this regard are fortified from te decision of the Supreme Court in Hindustan Coca Cola Beverages (P) Ltd. (supra) wherein it has been held in unambiguous terms that the payee/recipient of income having already paid the taxes due on the payments received by it from the appellant/payer, tax could not be recovered once again from the appellant/payer. To reiterate at the risk of repetition, the recipients were explained to have paid the tax due on the aforementioned payments received from the appellant and since the tax had already been paid by the recipient, in my considered view, the same sum, which stood suffered tax, in the hands of the recipient, could not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 The rival submissions have been carefully considered with reference to the facts obtaining from the record. There is no dispute with regard to the fact that the MP High Court in WP No.5696/98 directed for payment of 50% of the incentive to the workers and after discussion with employees, all the employees had given in writing to the management to recover 15% of the incentive that was being paid to them to be deposited with the Co-ordination Committee for meeting the expenditure and balance, if any, to be refunded to employees: On the basis of individual applications made by all the employees, management of SPM deducted 15% of incentive and deposited the same with Co-ordination Committee of SPM Union. This amount, in my considered view, was not income of the Co-ordination Committee but the same was a mere deposit. It is undisputed fact that the impugned deposit was meant for meeting expenditure for defending/prosecuting various cases of employees. Record evidences the fact that several thousands of cases were filed, prosecuted and defended by the Coordination Committee on behalf of the employees. The fact, that amount recovered from employees was a deposit, and it was made clear, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuting various disputes of the employees. Under the provisions of section 10(24)(b) income of an association of registered union as referred to in sub clause (a) of section 10(24) which is in the nature of income from house property or income from other sources is exempt from income tax. In the instant case, the assessee falls under clause (b) which has been clearly explained by the CBDT in its Circular No. 762 dated 18.2.1988 which provides as under :- Income tax exemption to associations of registered trade unions, 18.1 Under the existing provisions of clause (24) of section 10, any income of a registered union within the meaning of the trade Union Act, 1926 (16 of 1926) under the heads income from house property and Income from other sources is exempt from income tax if such trade union is formed primarily for the purpose of regulating the relations between workmen and employer or between workmen and workmen. 18.2 The Finance (No.2) Act, 1996, in line with the above, provide similar exemption to an association of trade unions of the nature specified under the existing provisions of clause (24) of section 10 16. After perusing the various docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely representing its workers but in fact a party to all the litigation either as a petitioner or respondent. The management of SPM, Hon ble High Court and Supreme Court accepted the status of the assessee as an association consisting of workers and, therefore, allowed it to contest in its own name instead of putting up the names of individual workers.There was a clear concept of mutuality. No-one can make profit out of himself. When a member agrees to contribute funds for a common purpose, the amount of funds not so required for common purpose and refunded to such individual, cannot be treated as income in their hands liable to tax. Thus, the general principle applicable to the mutual concern is that the surplus accruing to it cannot be regarded as income, profits or gains for the purpose of income tax. 21. As discussed hereinabove, the amount received by the assessee was not in the nature of income and the assessee was not doing any business activity and as such the application of provisions of section 40a(ia) was not justified. For application of section 40a(ia) firstly there must be some business/professional income against which an expenditure has been claimed. In the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X
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