Subject: AO came to conclusion that, merely because incidental income was earned by assessee society,
Referred Sections:
Section 143(2) of Income Tax Act,
Section 142(1) of the Act.
Section 12 A/12 AA of the Act.
Section 142 (1)
Section 2 (24) of the Act
Section 2 (15) of the Act
Section 12 A/12 AA of the Act.
Referred Cases / Judgments:
Dehradun vs. DCIT, Circle 1(4),
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: `B', NEW DELHI
BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER
AND SMT. BEENA A PILLAI, JUDICIAL MEMBER
ITA No. 4485/Del/2018
AY: 2015-16
Civil Services Institute vs. DCIT, Circle-1(4)
Near Moravian School Rishikesh
Rajpur Road
Dehradun
PAN: AABTC6000B
(Appellant) (Respondent)
Appellant by : Sh. Ashwani Taneja, Adv.
Sh. Hemant Arora, CA and Sh. Sourabh Goyal, CA
Respondent by : Sh. Vijay Kr. Jiwani, Sr.D.R.
Date of Hearing : 31.07.2018
Date of Pronouncement: 24.09.2018
ORDER
PER BEENA A PILLAI, JUDICIAL MEMBER
The present appeal has been filed by Assessee against order
dated 18.05.2018 passed by Ld. Commissioner of Income-Tax
(Appeals), Dehradun for Assessment Year 2015-16 on the
following grounds of appeal.
"1. That having regard to the facts and circumstances of the case,
Ld. CIT(A) has erred in law and on facts in confirming the action of
Ld. AO in making addition of Rs.5 crores on account of corpus fund
received front Director Sports, Govt, of Uttarakhand by treating it
as alleged income of the appellant society and that too by
ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
recording incorrect facts and findings and without observing the
principles of natural justice.
2. That having regard to the facts and circumstances of the case,
Ld. CIT(A) ought to have treated the 'corpus fund' as 'capital
receipt' irrespective of the fact that appellant society was not
registered u/s 12A/12AA of Income Tax Act, 1961 and Ld. CIT(A)
ought to have deleted the addition.
3. That in any case and in any view of the matter, action of Ld.
CTT(A) in confirming the action of Ld. AO in making addition of
Rs.5 crores on account of corpus fund as alleged income of
assessee, is bad in law and against the facts and circumstances of
the case.
4. That having regard to the facts and circumstances of the case,
Ld. CIT(A) has erred in law and on facts in confirming the action of
Ld. AO in making disallowance of Rs.94,66,932/- on account of
depreciation claimed by assessee on the ground that
grant/subsidy received from Govt. of Uttarakhand should not be
included in the actual cost of asset and that too by recording
incorrect facts and findings and in violation of principles of natural
justice.
5. That in any case and in any view of the matter, action of Ld.
CIT(A) in confirming the action of Ld. AO in making disallowance of
Rs.94,66,932/- on account of depreciation, is bad in law and
against the facts and circumstances of the case.
6. That having regard to the facts and circumstances of the case,
Ld.CIT(A) has erred in law and on facts in confirming the action
of Ld. AO in making addition of Rs.55,21,641/- on account of
interest income by treating it as alleged `income from other sources'
and that too by recording incorrect facts and findings and in
violation of principles of natural justice.
7. That in any case and in any view of the matter, action of Ld.
CIT(A) in confirming the action of Ld. AO in making addition of
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
Rs.55,21,641/- on account of interest income, is bad in law and
against the facts and circumstances of the case.
8. That having regard to the facts and circumstances of the case,
Ld. CIT(A) has erred in law and on facts in not reversing the
action of Ld. AO in taking the profit & gains from business at NIL
instead of loss while computing the assessed income.
9. That having regard to the facts and circumstances of the
case, Ld. CIT(A) has erred in law and on facts in not holding
the impugned assessment order as bad in law as having been
passed by an officer who was not having jurisdiction on the
appellant.
10. That having regard to the facts and circumstances of
the case, Ld. CIT(A) has erred in law and on facts in not
reversing the action of Ld. AO in charging interest u/s 234A, 234B
and 234C of Income Tax Act, 1961.
11. That the appellant craves the leave to add, modify, amend or
delete any of the grounds of appeal at the time of hearing and all
the above grounds are will each other."
2. Facts of the case in brief are as under.
Assessee filed its return of income on 06/09/15 declaring total
income of Rs.(-)46,62,283/-. Subsequently case was selected for
limited scrutiny and notice was issued to assessee under section
143(2) of Income Tax Act,1961 (the Act) along with questionnaire,
and notice under section 142(1) of the Act. In response to
statutory notices, representative of assessee appeared before Ld.
AO and furnished information/documents/explanation from time
to time.
2.1. Ld. AO observed that assessee is a Society/AOP registered
with Registrar of Societies, Uttarakhand vide registration No.
39/2013-14 on 06/05/2013, and declared its income from "Profit
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Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
and Gains from Business and Profession". From details filed by
assessee, Ld.AO observed that assessee earned interest of
Rs.55,21,641/-, on which no tax was paid. It was also observed
that assessee was not granted exemption under section 12 A/12
AA of the Act. Under these circumstances, case of assessee was
converted into complete scrutiny, based on which notice under
section 142 (1) along with questionnaire was issued calling upon
assessee to file various details/information regarding
organisation and its objects. From details so filed, Ld.AO
observed that assessee received grant from Government of
Uttarakhand amounting to Rs.5 crores, on which assessee
earned interest of Rs.55,21,641/-. Ld.AO accordingly called upon
assessee to show cause, as to why, grant received from Director
of Sports, should not be taxed as income of society, in view of
definition of income under section 2 (24) of the Act and, why,
interest income earned on FDs should not be treated as "Income
from Other Sources".
2.2. In response to query raised, assessee submitted that
money received by Society from Government of Uttarakhand was
towards corpus, as is evident from letter of approval issued in
respect of the same. It was submitted by assessee that these
funds were to be expended only after budget, and not to be used
for day-to-day activities of society, therefore, did not fall under
purview of section 2 (24) (iia) of the Act. After considering
submissions of assessee, Ld. AO came to conclusion that, merely
because incidental income was earned by assessee society, for
achieving its dominant object from providing hostel and catering
activities, it cannot be said that assessee was doing trade or
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
business as contemplated under Proviso to Section 2 (15) of the
Act and, therefore, amount received do not fall within the ambit
of `charitable purpose' as defined under section 2 (15) of the Act.
Ld. AO thus treated amount received from Government of
Uttarakhand as revenue receipt. Assessing Officer also denied
depreciation claimed on capital asset, on the ground that, it has
been acquired by others, and assessee was not eligible for claim
of depreciation. Ld. AO also treated interest income earned by
assessee as `Income from Other Sources'.
2.3. Aggrieved by order of Ld. A.O., assessee preferred appeal
before Ld. CIT (A), who upheld additions made by Ld. AO.
3. Aggrieved by order of Ld. CIT (A), assessee is in appeal before
us now.
4. Ground No. 1-3 has been raised by assessee, against
addition of Rs. 5 crores made by Ld.AO in respect of alleged
capital corpus fund granted by Government of Uttarakhand as
revenue receipt on the ground that, assessee is not registered
under section 12 A/12 AA of the Act.
4.1. Ld.AR submitted that assessee society was formed with
certain Objects, to promote welfare of Officers of Civil Services.
The Society was formed under directives of Director Sports, and
the services are exclusively for its members, whose names can be
entered in Register of Members, as per eligibility. Ld.AR
submitted that assessee received a sum of Rs. 5 crores towards
"corpus fund' vide letter No. 563/VI-2/2014-4(5) 2004/T.C.,
dated 04/12/2014 from `The Secretary, Uttarakhand'. Ld.AR
referred to and relied upon page 30 of paper book, wherein copy
of letter sanctioning funds has been placed, and translated
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
version of the same has been placed at page 104-105 of paper
book. Ld.AR submitted that said letter very categorically remarks
said fund to be `corpus fund' which shall be utilised as per the
terms and condition mentioned therein. He thus submitted that
these corpus funds were not taxable, by relying upon decision of
Co-Ordinate Bench of this Tribunal, Mumbai Benches, in
Chandraprabhu Jain Swetamber Mandir vs ACIT, reported in
(2017) 82 Taxmann.com 245. Ld.AR submitted that Ld. CIT (A)
rejected assessee's claim only for the reason that word "corpus " is
not mentioned in letter specifically.
4.2. Ld.AR further submitted that taxability of contributions
towards `corpus fund' of an Institution is de hors registration,
under section 12 A/12 AA of the Act, and therefore authorities
below erred in treating the amount received towards `corpus
fund' as `revenue receipt' in the hands of assessee. He submitted
that assessee received said fund from Government of
Uttarakhand, with specific directions in the manner it has to be
applied towards specific purpose. He thus submitted that
amount received from State Government cannot be regarded as
income under section 2 (24) (iia) of the Act, which applies only to
voluntary contributions.
4.3. On the contrary Ld.Sr.DR placed reliance upon orders of
authorities below, and submitted that funds received by
assessee falls under the purview of section 2 (24) (iia) of the Act.
It has been submitted that assessee is not carrying out any
charitable activity as defined under section 2 (15) of the Act, and
assessee benefits only a small set of individuals. Further it has
been submitted by Ld.Sr.DR that assessee has neither obtained
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
any registration under section 10(23C)(iv), or registration under
section 12 A/12 AA of the Act. He thus submitted that Ld. CIT (A)
was right in disallowing the claim of assessee
5. We have perused submissions advanced by both sides in
light of records placed before us.
6. It is observed from communication between assessee and
Government of Uttarakhand Department of Culture, Tourism and
Games, Dehradun, dated 01/12/14, that funds were released, as
`corpus fund' for operation of Civil Services Institute construction
at Dehradun. It is also observed that only reason for
disallowance of claim of assessee is because, phrase "Corpus
Fund" has not been mentioned in letter dated 23/03/11, issued
by Principal Secretary, Government of Uttarakhand to Director of
Sports, Uttarakhand Culture, Tourism and Games. However it is
observed that in Minutes of meeting by Government of
Uttarakhand Department of Culture, Tourism and Games, dated
31/05/13 presided over by Chief Secretary, there is a specific
reference regarding budget allocation of Rs. 5 crore as "corpus
fund" from Sports Department to assessee, for its daily
functioning in clause (vii). For sake of convenience said clause(vii)
is reproduced herein:
"(vii) but detailed discussion was made in respect of daily
functioning of the institution. This year one-time budget allocation
of Rs. 5 crores as corpus funds from sports Department has been
made. During the discussion it was also felt that there is a need
for further of additional fund, so that there is no hindrance in the
functioning. It was directed that for sanction of additional corpus
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
fund the file to be submitted to Hon'ble Chief Minister through
proper channel."
6.1. We therefore do not have any doubt on nature of funds to
be towards `corpus'. Further assessee has been able to prove
that corpus fund was received for meeting out capital
expenditure which according to explanation of assessee have
been used actually to meet the capital expenditure. Thus, in our
considered opinion, corpus fund which is meant for specific
purpose to meet out capital expenditure could not be part of
annual receipts of the Society, even if no registration u/s
12AA has been granted.
6.2. Accordingly ground nos. 1 to 3 raised by assessee
stand allowed.
7. Ground No. 4-5 has been raised by assessee on disallowance
of depreciation claimed amounting to Rs. 94, 66, 932/-.
7.1. Ld.AR submitted that Ld.AO disallowed depreciation
claimed, in light of Explanation 10 to section 43 (1) of the Act. He
submitted that disallowance made by Ld. AO is on the ground
that, above funds received from Secretary Sports Department,
Uttarakhand, was treated by Ld.AO as subsidy and construction
having owned by Sports department, Uttarakhand. Ld.AR
emphasised that Principal Secretary, Sports Department,
Uttarakhand is Chairperson for regulating and monitoring
construction of civil works of assessee. He is in the capacity of a
trustee for assessee and any sum received for purposes of
construction, would be towards `corpus'. It is also submitted
that any construction so made would be included in assets of
assessee on which depreciation cannot be denied.
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
7.2. Ld. Sr. DR placed reliance upon the orders of authorities
below.
8. We have perused submissions advanced by both the sides in
the light of records placed before us.
8.1. It is observed that Principal Secretary, Uttarakhand on
29/03/11 directed Sports Department, Uttarakhand to bring
assessee into existence. He nominated budget fund to meet
planned cost for construction of building for assessee. It is
observed that Ld. A.O. relied upon the view that the building
owned by assessee has been constructed by the grant sanctioned
by Government of Uttarakhand and, therefore, in view of
Explanation 10 to Section 43(1), depreciation could not be
allowed on such construction.
8.2 As we have already held in preceding paragraphs that the
money received by assessee from Government of Uttarakhand
was in the nature of corpus which was to be utilised for capital
expenditure of assessee, we differ to follow the view taken by
Ld.CIT(A). Further it is observed that objects of society works on
principle of mutuality and has been created for benefit of its
members.
8.3. We therefore direct Ld. AO to allow the depreciation on
such building as claimed by assessee.
8.4. Accordingly ground nos. 4 & 5 raised by assessee stand
allowed.
9. Ground No. 6 & 7 are in respect of treatment of interest
earned by assessee as "Income from Other Sources".
9.1. Ld.AR submitted that assessee had deposited funds
received towards corpus with bank, on which interest was
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
earned to an extent of Rs.55,21,641/-. Assessee treated interest
income as business income, which was disallowed by Ld.AO, by
treating it as "Income from other sources". Ld.AR submitted that
the ratio laid down by Hon'ble Supreme Court in case of
Bangalore Club reported in 350 ITR 509 is squarely applicable to
facts of present case.
9.2. On the contrary Ld.Sr.DR placed reliance upon orders
passed by authorities below.
10. We have perused submissions advanced by both the sides
in the light of records placed before us.
10.1. In our considered opinion, amount on which interest has
been earned by assessee, itself is exempt from tax under
`doctrine of mutuality'. Further it has been observed from objects
of the society that treatment of excess funds must be in
furtherance of objects of society. In the instant case, surplus
funds were to be used for any specific service, infrastructure,
maintenance or for any other direct benefit for members. Further
from submissions of assessee before Ld. CIT (A) it is observed
that bank with whom fixed deposits are maintained are not its
members and assessee did not claim for any exemption of
interest income on the basis of `doctrine of mutuality', instead
has considered for taxability under head `Income from
Business'. We therefore do not find any reason to change the
head of interest income to "income from other sources".
10.2. Accordingly Ground nos. 6 and 7 raised by assessee
stands allowed.
11. Ground No. 8, 9 and 11 are general in nature and do not
require any adjudication.
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
12. Ground No. 10 is in respect of interest under section
234 B, C of the Act, which is consequential in nature.
Accordingly all grounds raised by assessee stand allowed.
13. In the result appeal filed by assessee stands allowed.
Order pronounced in the Open Court on 24/09/2018.
Sd/- Sd/-
(R.K.PANDA) (BEENA A PILLAI)
Accountant Member Judicial Member
Dated: the 24th September, 2018.
· Gmv
Copy of the Order forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
6. Guard File
By Order
Asst. Registrar
ITAT, Delhi Benches, New Delhi
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ITA No.4485/Del/2018 A.Y.:2015-16
Civil Services Institute, Dehradun vs. DCIT, Circle 1(4),Rishikesh
S.No. Details Date
1. Draft dictated on 20.09.18
2. Draft placed before author
Draft proposed & placed before the
3.
Second Member
Draft discussed/approved by Second
4.
Member
Approved Draft comes to the Sr.
5.
PS/PS
6. Kept for pronouncement
7. Order uploaded on
8. File sent to Bench Clerk
Date on which the file goes to Head
9.
Clerk
10. Date on which file goes to A.R.
11. Date of Dispatch of order
12
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