2012 (10) TMI 1126 - AT - Income Tax

ITAT exempts Coordination Committee's income under Section 10(24), rejecting AO's disallowances.

Asstt. Commissioner of Income Tax 1 (1) Bhopal Versus Coordination Committee of SPM Unions Hoshangabad and Vice-Versa

The ITAT concluded that the Coordination Committee was not engaged in any business or profession but was coordinating receipts and payments for registered ... Application of provisions of section 40a(ia) - eligibility to exemption u/s 10(24) - Interest income was added under the head ‘income from other sources’ on the basis of its accrual - Held that:- As we have already held that the interest income earned by the assessee is also liable for exemption u/s 10(24) of the Act, we are not going in deep with regard to interest income earned by the assessee from Kachnar Builders which has been partly brought to tax by the CIT(A) to certain extent. From the record we find that 15% of incentive bonus payable to workers was contributed by them to the association. This amount was deposited with the association to meet all sorts of expenditure including lawyers’ fee, TA/DA, typing, stenographic charges, court fee and all other incidental expenses. The balance out of such contribution was to be refunded to the deserving employees. From record we find that substantial amount received from the employees was refunded to them in the years 1999 and 2000 after meeting the expenditure. Thus, the 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 Issues Involved:1. Exemption under Section 10(24) of the Income Tax Act.2. Assessability of income under the head 'business/profession'.3. Taxation of interest income.4. Addition of interest income from M/s Kachnar Builders.5. Addition of estimated undisclosed income.6. Disallowance of expenses claimed.7. Disallowance under Section 40(a)(ia) for non-deduction of TDS.Detailed Analysis:1. Exemption under Section 10(24) of the Income Tax Act:The core issue was whether the Coordination Committee of Security Paper Mill Unions was entitled to exemption under Section 10(24) of the Income Tax Act. The CIT(A) and the ITAT both concluded that registration under the Trade Union Act is mandatory for claiming exemption under Section 10(24). The Coordination Committee was not registered, hence not entitled to the exemption.2. Assessability of Income under the Head 'Business/Profession':The AO and CIT(A) concluded that the income derived by the Coordination Committee from specific services performed for its members is chargeable to tax under the head 'income from business or profession' as per Section 28(iii). The ITAT upheld this view, noting that the Coordination Committee was rendering specific services to its members for remuneration, fulfilling the conditions laid down by various judicial pronouncements.3. Taxation of Interest Income:The AO added interest income under 'income from other sources' based on mercantile accounting. The CIT(A) upheld this, rejecting the assessee's claim of following the cash system of accounting. The ITAT agreed, confirming that the interest income was taxable.4. Addition of Interest Income from M/s Kachnar Builders:The CIT(A) partly confirmed the addition of interest income from M/s Kachnar Builders, directing the AO to restrict the addition to the sums credited by the debtor. The ITAT upheld this decision, noting that the interest income was taxable to the extent credited by the debtor.5. Addition of Estimated Undisclosed Income:The AO made an addition based on presumed undisclosed income from professional receipts. The CIT(A) deleted this addition, stating that the AO's assessment was based on pure guesswork without any evidence. The ITAT upheld this deletion, emphasizing that the AO must have corroborative evidence to justify such additions.6. Disallowance of Expenses Claimed:The AO disallowed certain expenses claimed by the assessee, which were not supported by evidence. The CIT(A) gave partial relief, holding that since the receipts were deposits and not income, the related expenses were not disallowable. The ITAT agreed, noting that the expenses were incidental to the professional services rendered and thus allowable.7. Disallowance under Section 40(a)(ia) for Non-deduction of TDS:The AO disallowed payments made to legal professionals under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) deleted this disallowance, citing that the provisions of Section 40(a)(ia) apply only to amounts payable, not paid. The ITAT upheld this, referencing judicial precedents and a CBDT circular clarifying that tax cannot be recovered from the payer if the recipient has already paid the tax.Conclusion:The ITAT concluded that the Coordination Committee was not engaged in any business or profession but was merely coordinating receipts and payments on behalf of registered trade unions. The income earned by the Coordination Committee, including interest income, was exempt under Section 10(24). The disallowances and additions made by the AO were largely deleted or modified, providing relief to the assessee. The grounds taken by the Revenue were dismissed, and those by the assessee were allowed.Order pronounced in open Court on 25th October, 2012.