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TMI Blog2018 (12) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... uly deposited in the Government Treasury to be paid to the Excise and Taxation Department of the State Government. In this entire process, the respondent Assessee neither gained anything nor earned any profit. The VAT amount recovered by the respondent Assessee was/is an entrustment of the statutory function of the State which alone is competent to levy VAT under Section 34 of the VAT Act, 2005. The respondent Assessee thus neither created any source of income nor generated any profit or gain out of such source. The Assessee merely performs the statutory functions under the VAT Act, 2005 and collects the tax amount for and on behalf of the State and transfers such collection to the Government Treasury. Even if the tax collection remains temporarily parked with the Assessee for some time, it cannot be treated as 'income' generated by the Assessee as the said amount does not belong to it. The Tribunal has thus rightly concluded that the surplus of income over expenditure, as reflected in the entries or the Returns filed by the respondent Assessee, also belonged to the State Government which was duly deposited in the Government Treasury. Hence, it does not partake th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be useful to give a brief synopsis of the facts. The Assessee Society, hereinafter referred to as 'the respondent Assessee', was registered under the Societies Registration Act, 1860 (hereinafter referred to as 'the 1860 Act') on 27.8.2002. The object of the Society as incorporated in its Memorandum of Association, inter alia, includes: To facilitate the general public dealers carrying goods and crossing the barriers established by the State Govt. and also to diffuse awareness amongst the general public/dealers about the sales tax laws. To utilize the information technology for deeper systematic reforms in tax administration by creation of a separate entity properly geared to provide supportive role to the Department in creation of data bank (dealer wise/commodity wise, Circle wise and Barrier wise), in transmission of information and establishment of client server environment. To back up the computerization requirement of the Department of Excise Taxation Department and for this purpose develop infrastructure therefore both in terms of software as well as hardware. To facilitate adoption of ST XXVI A form in a computer friendly forma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Society. 5. It would also be relevant to reproduce at this stage the extracts of ST XXVI A as prescribed in Clause 8 of the Bye Laws of the Society read with Clause 10.2 thereof, which are to the following effect: 8. ACCOUNT OF ST XXVI A FORM 1. The computer generated STXXVI A form bearing serial number shall be issued at the Barrier(s) and the E.T.O/In charge Barrier shall maintain proper account of the said forms under the supervision of concerned Assistant Excise and Taxation Commissioner of the District. 2. E.T.O./In charge barrier will deposit ₹ 1/ per form (out of the amount of ₹ 5/ per form as at present or as per rates prescribed from time to time in respect of computerized ST XXVI A form/services rendered)/ in the relevant receipt head of the Department as per practice hitherto fore. 3. The balance amount after depositing ₹ 1/ per form will be credited to the Funds of the Society and deposited on day to day basis in a Saving Bank Account to be opened in respect of each barrier(s) with the nearest Scheduled Bank/Cooperative Bank. 4. Keeping in view the requirement of the funds, the Executive Committee can authorize the Assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of the income over expenditure, the amount ranging from ₹ 64,20,238/ (Assessment Years 2007 2008) to ₹ 1,29,37,365/ (Assessment Years 2010 2011) and supplied the copy of reasons recorded for the re opening of the cases. 9. The respondent Assessee contested the notice(s) and its precise case was that no surplus income accrued to it as all the surplus income was payable to the State Government and therefore, it had earned no taxable income. The Assessing Officer turned down the plea and 'excess income over expenditure' was computed for the purpose of respondent Assessee's tax liability. 10. The respondent Assessee filed Appeal before the Commissioner, Income Tax (Appeals), who after going through its activities held that 20% of the tax amount collected and paid to the State Government could not be treated as 'income' of the respondent Assessee, as it was paid directly to the Government Treasury. As regard to the remaining 80% of the tax collection, it was held to be a part of character of income, as according to the Commissioner, Income Tax (Appeals), the respondent Assessee had the freedom to utilize the said amount for the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cials of Excise and Taxation Department. 5. The Assessee Society is involved in collection and deposit of receipts from STXXVI A Forms. 6. Out of the collected amount 20% is paid immediately to the Government. 7. The remaining amount is kept in the short term deposits. 8. The surplus amount shall be deposited in the receipt head 0040 Sales Tax Account on yearly basis. 9. The accounts are audited by the IFU of the Sales Tax Department which will compile the final account the Additional Excise and Taxation Commissioner (Head Quarter) is the Authorized Signatory. 15. The Tribunal, on examination of the financial affairs of the respondent Assessee and after going through its income and expenditure statements for the relevant Assessment Years, has further concluded that: 32. Thus, after going through the entire affairs of the assessee we hold that the surplus of income over expenditure also belongs to the Government which has been duly deposited in the state exchequer cannot be the income of the assessee. 33. Before us the assessee has submitted statement reflecting the payment of balance amount of the 80% of the fee collected has also been paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me over expenditure in the Government Treasury for payment to the State Government and was debiting these amounts in the income and expenditure statements and claiming it as revenue expenditure. This payment, according to the learned Senior Counsel for the Revenue, is only a diversion of income and is not related to any business activity of the respondent Assessee. He argued that under Section 14 of the Himachal Pradesh Societies Registration Act, 2006, a Society is a body corporate and a separate legal entity and in view of Section 8 of the said Act, the Society can have neither profit motive nor its profit can be distributed amongst the Members. Thus, it was apparent that the mandate of law prohibits distribution of income of the Society and the excess revenue over expenditure therefore, constitutes as 'income of the Society' and is liable to be taxed as envisaged by Section 4 read with Section 2 (24) of the IT Act, 1961. 20. Learned Senior Counsel for the Revenue relied upon CIT versus Sunil J. Kinariwala, 259 ITR 10 (SCC) wherein the Hon'ble Supreme Court has ruled as follows: When a third person becomes entitled to receive the amount under an obligation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feited by the employer out of the provident fund where it was categorically mentioned that the said amount belonged to the Trust, was income of the assessee. Invoking the concept of 'real income', the High Court held the same not to be the income of the assessee. A somewhat similar view was taken in Gujarat Municipal Finance Board versus Deputy Commissioner of Income Tax (Assessment) 221 ITR, 317 Gujarat. 24. As regard to the facts highlighted on behalf of the appellant Revenue that the respondent Assessee had, in its Returns of income shown surplus as payable to the Government, it was argued that the entries in the books of account cannot, by any stretch of imagination, amount to earning of the income, as held by the Hon'ble Supreme Court in CIT Bombay City versus Surji Ballabh Dass, 46 ITR 144. 25. On an objective analysis of the rival submissions, the question which eventually arises for determination is whether the retention of a part of the VAT collected by the respondent Assessee till the process of determination of its actual expenditure incurred on the collection, followed by deposit of balance surplus amount in the Government Treasury for onward transm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motivated. 30. Applying these principles to the facts of the cases in hand, it may be seen that the respondent Assessee continued to receive ₹ 5/ per Form till May, 2009 out of which Re.1/ was straightaway deposited in the Government Treasury and out of the balance of ₹ 5/ , only the actual expenditure incurred by it on collection process was deducted and the balance amount (80% as assessed by the authorities) was duly deposited in the Government Treasury to be paid to the Excise and Taxation Department of the State Government. In this entire process, the respondent Assessee neither gained anything nor earned any profit. The VAT amount recovered by the respondent Assessee was/is an entrustment of the statutory function of the State which alone is competent to levy VAT under Section 34 of the VAT Act, 2005. The respondent Assessee thus neither created any source of income nor generated any profit or gain out of such source. The Assessee merely performs the statutory functions under the VAT Act, 2005 and collects the tax amount for and on behalf of the State and transfers such collection to the Government Treasury. Even if the tax collection remains temporari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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