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TMI Blog2017 (5) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... to be exempt under section 10(20) of the Act. Disallowance on account of contribution to pension fund - Disallowance on account of repair of godowns/boundary walls/roads - Held that:- Where entire income of the assessee has been held to be exempt under section 10(20) of the Act, there is no case for making disallowance of any expenses at all. Any disallowance made will only result in enhancing the income of the assessee which in any case has been held to be exempt from tax. Further the entire income earned from rendering services has been held to be exempt at the threshold itself and, therefore, there is no requirement of resorting to computational provision relating to income under the head business and provision stipulated under sections 28 to 44 of the Income-tax Act, 1961. In view of the above, the disallowances are deleted and the ground raised by the assessee is allowed. Entitlment to exemption under sections 11 and 12 - Held that:- Disallowance made on account of contribution of unapproved pension and gratuity funds, relate to the computational provisions of the income assessable under the head "Income from business and profession" more specifically under section 36 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd together and are being disposed of by this common order. 4. We shall first be dealing with the appeals of the assessee against the orders of the Commissioner of Income-tax (Appeals) in the quantum proceedings. The issues involved in I.T.A. No. 1103/Chd/2008, I.T.A. No. 47/Chd/2009 and I.T.A. No. 1104/Chd/2008 are common and identical and therefore for the sake of convenience we shall be dealing with the facts in the case of I.T.A. No. 1103/Chd/2008. The decision rendered in this case will apply mutatis mutandis in the other appeals also. I.T.A. No. 1103/Chd/2008 5. Brief facts relating to the case are that the assessee-board was set up under section 3(1) of the PAPM Act by the Government of Haryana with a view to regulate the functioning of market committee's in the State of Haryana. During the impugned assessment year the assessee showed revenue receipts in its return of income comprising of profit from rent, interest on loan and contributions received from market committees. Original assessment was framed under section 143(3) at an income of ₹ 2,03,15,120 in the status of association of persons, vide order dated December 9, 2002. The matter was taken up in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firming the disallowance of ₹ 7,43,56,181 on account of interest earned on bank deposits. This addition has been made without considering the facts of the case correctly and applying the correct provisions of law. The income of the assessee derived from other sources is fully exempt under section 10(20) of the Income-tax Act. The addition is unjustified, illegal and deserves to be quashed. Suitable directions in the matter may be given to allow exemption under section 10(20) of the Income-tax Act in respect of the interest earned from bank deposit. It is prayed that the addition of ₹ 7,43,56,181 may kindly be ordered to be deleted. (4) That the Commissioner of Income-tax (Appeals) has erred both on facts and law in confirming the disallowance of ₹ 49,05,712, on account of miscellaneous income. This addition is arbitrary, illegal hence unjustified and deserves to be deleted. It is prayed that the addition of ₹ 49,05,712 may kindly be ordered to be deleted. 9. Brief facts relating to the issue are that the assessee had shown interest income of ₹ 7,43,56,181 and miscellaneous income of ₹ 49,05,712 as capital receipts. The As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) of the Act. 12. The learned Departmental representative on the other hand relied on the order of the Commissioner of Income-tax (Appeals). 13. We have heard the contentions of both the parties, perused the orders of the authorities below as also the documents placed before us. 14. The issue in dispute before us is whether interest earned on deposits with banks and miscellaneous income earned by the assessee are eligible for exemption under section 10(20) of the Act. 15. The undisputed facts necessary for adjudicating the issue are that the assessee is a body formed under section 3(1) of the PAPM Act by the Government of Haryana with a view to regulate the functioning of market committees in the State. The activity carried out by the assessee of assisting and monitoring the functions of market committees has been held by the Commissioner of Income-tax (Appeals) and upheld by the Income-tax Appellate Tribunal vide its order dated July 29, 2016 in I.T.A. Nos. 18, 19 and 60/Chd/2009, to be falling within the ambit of section 10(20) of the Act. 16. As part of its function the assessee-board carries out capital works for the market committees who in turn place lump sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances the interest earned by the assessee cannot be attributed to arising from the business of the assessee of rendering services and is clearly assessable under the head Income from other sources . The Hon ble apex court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) has categorically stated that interest received by a company from bank deposits and loans would be chargeable as income under the head Income from other sources . Following the decision of the apex court, the Madhya Pradesh High Court in the case of Ferro Concrete Construction (India) (P) Ltd. v. CIT [2007] 290 ITR 713 (MP) has held that interest on short-term deposits, not being in the nature of the business of the assessee, was assessable under the head Income from other sources . The Hon ble High Court relied upon the decision of the apex court in the case of Tuticorin Alkali Chemicals (supra) and stated that though the issue before the Supreme Court was slightly different yet the observations made therein were binding. The relevant paragraphs 8 to 12 of the order are reproduced hereunder (page 715 of 290 ITR) : In our opinion, the income earned by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 354 (Mad), Snam Progetti S. P. A. v. Addl. CIT [1981] 132 ITR 70 (Delhi), CIT v. Tirupati Woollen Mills Ltd. [1992] 193 ITR 252 (Cal). However, in view of the decision of the Supreme Court relied on by us supra, we cannot place reliance on the decisions rendered by the High Courts. In this view of the matter, we hold that income earned by the assessee on their funds invested in short-term deposits in order to earn interest is not to be treated as their business income but it is chargeable to tax under section 56 of the Act as an income from other sources. 21. The issue in the present case being identical to that decided by the Hon ble court, the decision rendered therein squarely applies to the present case following which we hold that the interest earned by the assessee on its surplus/idle funds was assessable under the head Income from other sources . 22. We find no merit in the argument of the learned Departmental representative that the interest income earned has direct nexus with the activity of the assessee and therefore is taxable as business income, in view of the clear-cut observation of the Supreme Court in the case of Tuticorin Alkali Chemicals (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also exempt under section 10(20) of the Act. The rest of the income, being miscellaneous in character is assessable as income from other sources, which is also exempt under section 10(20) of the Act. Therefore the entire miscellaneous income amounting to ₹ 49,05,712 is held to be exempt under section 10(20) of the Act. 26. Ground Nos. 2 and 4 raised by the assessee are therefore allowed. 27. Ground No. 5 has been raised by the assessee against the disallowance made of contribution to the pension fund holding that the same to be to an unrecognised fund. The ground raised reads as under : 5. That the Commissioner of Income-tax (Appeals) has erred both on facts and law in confirming the disallowance of ₹ 1,45,00,000 on account of contribution to pension fund. This addition has been made without considering the facts correctly. The addition has been made in an arbitrary manner, illegal and deserves to be quashed. 28. Brief facts relating to the issue are that the contribution made by the assessee to pension fund was disallowed since it was found to have been made to an unrecognised fund. The same was upheld by the Commissioner of Income-tax (Appeals) relyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s allowed. I.T.A. No. 47/Chd/2009 34. The effective grounds raised by the assessee in this appeal are as follows: 2. That the Commissioner of Income-tax (Appeals) has erred both on facts and law in not giving specific findings in respect of the ground taken up to challenge the disallowance of ₹ 1,10,35,518 on account of interest earned on bank deposits, ₹ 56,33,092 on account of rent received from godowns and ₹ 5,44,49,580 on account of business receipts (total ₹ 7,11,18,190). The exemption under section 10(20) of the Act denied without considering the facts of the case correctly and applying the correct provisions of law. 3. The action of the Commissioner of Income-tax (Appeals) not passing a speaking order in the matter is unjustified, illegal and deserves to be quashed. Suitable directions in the matter may be given to pass a speaking order after allowing exemption under section 10(20) of the Income tax Act in respect of the incomes as stated above. 4. That the Commissioner of Income-tax (Appeals) has erred both on facts and law in confirming the disallowance of ₹ 6,45,25,986.23, on account of miscellaneous income. The additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax (Appeals) has erred both on facts and in law in confirming the disallowance of ₹ 90,292 on account of expenditure incurred on Krishak Uphar Yojna. The addition made is illegal, arbitrary and not in consonance with the provisions of law. It is prayed that the addition of ₹ 90,292 may kindly be ordered to be deleted. (4) That the Commissioner of Income-tax (Appeals) has erred both on facts and in law in confirming the disallowance of ₹ 1,15,18,370 on account of repair of godowns/boundary walls/roads. The addition made is illegal, arbitrary and not in consonance with the provisions of law. It is prayed that the addition of ₹ 1,15,18,370 may kindly be ordered to be deleted. (5) That the Commissioner of Income-tax (Appeals) has erred both on facts and law in confirming the disallowance of ₹ 1,28,94,316 on account of miscellaneous income. The addition made is illegal, arbitrary and not in consonance with the provisions of law. 39. Ground Nos. 2 and 5 raised by the assessee pertain to the disallowance upheld by the learned Commissioner of Income-tax (Appeals) on account of contribution of pension fund and addition made of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering services has been held to be exempt at the threshold itself and, therefore, there is no requirement of resorting to computational provision relating to income under the head business and provision stipulated under sections 28 to 44 of the Income-tax Act, 1961. In view of the above, the disallowance of repair of godowns/boundary walls/roads of ₹ 1,15,18,370 is deleted and the ground raised by the assessee is allowed. 44. The appeal of the assessee is partly allowed. I.T.A. No. 452/Chd/2010 45. The facts in this case slightly differ from that in the appeals dealt with hereinabove, as in the present case the assessee was not entitled to exemption under section 10(20) of the Act but was eligible to claim exemption under sections 11 and 12 of the Income-tax Act, 1961. The Assessing Officer denied the assessee exemption under sections 11 and 12 of the Act and further made disallowance of contribution made to pension fund establishment and pension fund work establishment. In first appeal, the learned Commissioner of Income-tax (Appeals) allowed the assessee's claim of exemption of its income under sections 11 and 12 of the Act but upheld the disallowance ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) has attained finality on the issue. Thus for all intents and purposes the assessee's income is exempt under sections 11 and 12 of the Act. Having said so, we find that the disallowance made on account of contribution of unapproved pension and gratuity funds, relate to the computational provisions of the income assessable under the head Income from business and profession more specifically under section 36 of the Act. Since the income of the assessee has been held to be exempt under sections 11 and 12 of the Act at the threshold itself, we hold that there is no occasion to apply the computational provision provided under Chapter IV of the Act running from sections 28 to 44, in computing the income since the same is attracted only if the income is brought to tax under the head Income from business and profession . Even the Central Board of Direct Taxes vide its Circular No. 5P(LXX-6) dated June 19, 1968 has stated that the word income for the purpose of claiming exemption under sections 11 and 12 of the Act should be understood in its commercial sense. In view of the above we hold that in the present case, the assessee being entitled to exemption under sections 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B Sale of tender form ₹ 15,91,918 C Enlistment fee of contractors ₹ 11,91,750 D Other miscellaneous income included in suspense account ₹ 1,10,478 ₹ 1,28,94,316 II Contribution to pension fund ₹ 2,35,00,000 III Contribution to Kisan Mela ₹ 15,00,000 IV Repair to godown/boundary walls/roads ₹ 1,15,18,370 Total ₹ 4,94,02,686 54. In the assessment year 2002-03, the Assessing Officer held that the assessee had furnished inaccurate particulars of income to the above extent and, therefore, levied penalty at 100 per cent. of tax sought to be evaded on the same amounting to ₹ 1,63,02,887. 55. The learned Commissioner of Income-tax (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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