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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 ..... e-tax (Appeals), Panchkula, dated September 17, 2012, upholding the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, and pertain to the assessment years 2001-02 and 2002-03 respectively. 3. Since the issues involved in the appeals relating to the quantum proceedings were common and the issue in the penalty appeals relate to the quantum proceedings, all the appeals were taken up and heard 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 Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee are against the action of the Commissioner of Income-tax (Appeals) in upholding the addition on account of interest earned on deposits amounting to Rs. 7,43,56,181 and miscellaneous income of Rs. 49,05,712. The grounds raised read as under : "2. That the Commissioner of Income-tax (Appeals) has erred both on facts and law in confirming the disallowance of Rs. 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 Rs. 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 Rs. 49,05,712, on account of miscellaneous income. This addition is arbitrary, ille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from contractors and other incomes all of which arose during the course of rendering services to the market committees and was therefore exempt under section 10(20) of the Act. Alternatively learned counsel argued that even if it was treated as income from other sources it was exempt under section 10(20) 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also a fact on record that earning of interest is not the business of the assessee. Nothing was brought on record before us or even the lower authorities to show that the assessee is engaged in some kind of money-lending or deposit business with the surplus funds. In such 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 Chemica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject holding the field. Learned counsel for the assessee no doubt cited some of the authorities of the various High Courts which to some extent can be construed as supporting his submissions. These authorities are-CIT v. Madras Refineries Ltd. [1997] 228 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 Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further the activities of the assessee having been held to be falling in the purview of section 10(20) of the Act by the Income-tax Appellate Tribunal vide its order in I.T.A. Nos. 18, 19 and 60/Chd/2009 dated January 29, 2016 these incomes are 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 Rs. 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 Rs. 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 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made before us. 32. In view of the above the disallowance made on account of contribution to pension fund is deleted and the ground raised by the assessee is allowed. 33. The appeal of the assessee therefore stands 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 Rs. 1,10,35,518 on account of interest earned on bank deposits, Rs. 56,33,092 on account of rent received from godowns and Rs. 5,44,49,580 on account of business receipts (total Rs. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion fund. The addition made is illegal, arbitrary and not in consonance with the provisions of law. (3) That the Commissioner of Income-tax (Appeals) has erred both on facts and in law in confirming the disallowance of Rs. 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 Rs. 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 Rs. 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 Rs. 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 Rs. 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 Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disallowance of repair of godowns/boundary walls/roads of Rs. 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income-tax (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 exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the above extent and, therefore, levied penalty at 100 per cent. of tax sought to be evaded on the same amounting to Rs. 1,63,02,887. 55. The learned Commissioner of Income-tax (Appeals) vide his consolidated order passed on September 17, 2012 upheld the levy of penalty. 56. Aggrieved by the same, the assessee has filed both the above appeals before us. 57. We find no reason to uphold the penalty levied since the additions made have been deleted in the quantum proceedings before us in the order passed in I.T.A. No. 47/Chd/2009 and I.T.A. No. 1104/Chd/2008 above. Since the very basis for the levy of penalty has been deleted there can be no occasion to levy penalty under section 271(1)(c) at all. 58. In view of the above, we set aside the order of the Commissioner of Income-tax (Appeals) and delete the penalty levied under section 271(1)(c) of the Act. 59. In effect both the appeals of the assessee stands allowed. 60. In the result : (1) The appeal filed by the assessee in I.T.A. No. 1103/Chd/2008 is allowed. (2) The appeals filed by the assessee in I.T.A. No. 47/Chd/2009 and I.T.A. No. 1104/Chd/2008, are partly allowed. (3) The appeal filed by the assessee in I.T.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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