2022 (7) TMI 596 - AT - Income Tax

Tribunal rules surplus funds transferred to society not taxable income, deemed trust funds

The Tribunal upheld the decision of the CIT(A) and dismissed the Revenue's appeal, ruling that the surplus funds transferred to the society were not ... Assessment of trust - addition made by the AO towards the amount transferred to the society holding the same as application of income - amount transferred to the society was only application of money and not a genuine expenditure in the assessee - assessee is an AOP of Cardiological Society of India (CSI), which is a registered society under the Societies Registration Act XXI of 1961 of West Bengal - HELD THAT:- We noted that the payments made by the assessee entity in accordance with bye-laws / specific purpose for which it was constituted and the AO has not disputed the nature of contribution made by assessee or the receipts transferred being directly in nexus with the income earned during the assessment year under consideration and the amount transferred. In our view, the surplus generated from conducting conference of the CSI would not become income in the hands of the assessee because this was a tool created by the CSI society and it in no way can be called application of income on diversion. As the assessee has already transferred these receipts to CSI, Headquarter Kolkata and CSI, Chennai chapter in the ratio prescribed as per byelaws and according to us, as ratio laid down by the Hon’ble Supreme Court in the case of Sitaldas Tirathdas [1960 (11) TMI 17 - SUPREME COURT] the amount collected by assessee AOP for organizing conference on behalf of these two entities, the excess amount can be held as the amount in trust and in no way that can be held as the income of the assessee. Hence, we agree with the findings of the CIT(A) and the same is confirmed. The appeal of Revenue is dismissed. Issues:1. Whether the addition made by the AO towards the amount transferred to the society holding the same as application of income is justified.Analysis:The appeal before the Appellate Tribunal ITAT Chennai arose from the order of the Commissioner of Income Tax (Appeals)-12, Chennai-8 regarding an assessment framed by the ITO, Non-Corporate Ward 10(4), Chennai for the assessment year 2016-17 under section 143(3) of the Income Tax Act, 1961. The main issue in this appeal was against the CIT(A) deleting the addition made by the AO towards the amount transferred to the society, considering it as application of income. The AO treated the amount as income of the assessee, leading to the appeal. The assessee entity was formed for conducting an Annual Conference, and the surplus funds were to be passed on to specific entities as per the bye-laws. The CIT(A) allowed the claim of the assessee based on a Supreme Court decision, stating that the surplus was not taxable as it was collected on behalf of another person and passed on to them. The AO's argument that the constitution of the trust had no control over the assessee was rejected by the CIT(A), leading to the appeal by the Revenue.The Tribunal noted that the assessee was an AOP of the Cardiological Society of India (CSI) and conducted the annual conference as per the society's constitution. The surplus funds were to be reverted back to the parent body and the local branch as per the constitution. The AOP obtained a new PAN number for the specific purpose of the conference and transferred the surplus funds to the CSI entities. The Tribunal observed that the surplus generated from the conference would not be considered income of the assessee as it was a tool created by the CSI society. The Tribunal referred to the Supreme Court's decision in Sitaldas Tirathdas, emphasizing that if the income was diverted before reaching the assessee, it could not be considered as the assessee's income. The Tribunal agreed with the CIT(A)'s findings and confirmed that the excess amount collected by the assessee AOP for organizing the conference on behalf of the CSI entities could be held as trust funds and not as the income of the assessee. Therefore, the appeal of the Revenue was dismissed by the Tribunal.In conclusion, the Tribunal upheld the decision of the CIT(A) and dismissed the appeal of the Revenue, confirming that the surplus funds transferred to the society were not to be considered as income of the assessee but as trust funds in line with the bye-laws and purpose for which the assessee entity was formed.