Tribunal rules corpus receipt not income, reopening assessment invalid, revenue appeal dismissed, expenditure allowed.

Commissioner of Income Tax, Chennai. Versus M/s. Pentafour Software Employees' Welfare Foundation

Commissioner of Income Tax, Chennai. Versus M/s. Pentafour Software Employees' Welfare Foundation - [2019] 418 ITR 427 (Mad) Issues Involved:
1. Whether the amount received by the assessee towards corpus from the employer can be treated as income.
2. Whether there is escapement of income to invoke jurisdiction to reopen under Section 147 of the Income-tax Act, 1961.
3. Whether the Tribunal was right in dismissing the appeal of the revenue as infructuous.
4. Whether the Tribunal was right in dismissing the Department's appeal regarding the CIT(A)'s direction to allow proportionate expenditure against corpus receipt as revenue expenditure.

Issue-wise Detailed Analysis:

1. Treatment of Corpus Fund as Income:
The Tribunal upheld that the amount received by the assessee towards corpus from the employer cannot be treated as income. The assessee received voluntary contributions from companies with a specific direction to invest in shares and securities, using only the income from such investments for its objectives. The contributions were considered capital receipts, not income, as per the decision in CIT vs. Shaw, Wallace & Co. The Assessing Officer’s contention that the corpus fund is taxable under Section 11(1)(d) of the Act was rejected as the assessee did not claim exemption under this section, nor was it required to be registered under Section 12A of the Act.

2. Validity of Reopening under Section 147:
The reopening of assessments under Section 147 was held invalid. The original assessments were completed under Section 143(3) after full disclosure by the assessee. The reasons for reopening, primarily the lack of registration under Section 12A, were found to be based on a change of opinion by the Assessing Officer and not on any new tangible material. The Tribunal emphasized that reassessment cannot be justified on mere change of opinion, as established in CIT vs. Kelvinator of India Ltd.

3. Dismissal of Revenue's Appeal as Infructuous:
The Tribunal dismissed the revenue's appeal as infructuous because the reassessment proceedings were invalidated. Since the reassessment itself was void, there was no need to address the appeal concerning the CIT(A)'s direction on proportionate expenditure against the corpus receipt.

4. Proportionate Expenditure Against Corpus Receipt:
The Tribunal upheld the CIT(A)'s direction to allow proportionate expenditure against the corpus receipt as revenue expenditure. The original assessments treated the corpus as non-taxable, and the expenditure incurred was considered revenue expenditure. The Tribunal found no reason to interfere with this finding, as the reassessment proceedings were invalidated.

Conclusion:
The appeals filed by the Revenue were dismissed, and the substantial questions of law were answered against the Revenue and in favor of the assessee. The reopening of assessments was deemed invalid due to the absence of new tangible material and was based on a change of opinion. Consequently, the original assessments treating the corpus as non-taxable were sustained, and the proportionate expenditure against the corpus receipt was allowed as revenue expenditure.