2023 (10) TMI 397 - AT - Income Tax

Revenue's Appeal Dismissed: Receipts Classified as Commissions, Not Income Under Section 2(24) of Income Tax Act 1961

The Revenue's appeal against the CIT(A)'s order was dismissed by the bench, which found the AO's conclusion regarding the nature of the receipts to be ... Determination of status of assessee - AO was of the view that assessee is not a local authority for the purpose of Section 10(20) - AO being dissatisfied about the status of the assessee as registered u/s 12AA thereafter being dissatisfied considered the status of assessee as of juridical person - All receipts, for purposes of developmental work were considered as income u/s 2(24) of the Act. Therefore, in the absence of evidence, the expenses claimed were disallowed - HELD THAT:- The bench is of considered view that the conclusion of ld. AO was erroneous as with regard to the nature of receipts. The same were commissions received from various sugar mills in the hands of assessee for specific purpose of being used in the developmental activity so Ld CIT(A) has rightly held them to be not falling in the category of income for purpose of Section 2(24) of the Act and that being the case the status of assessee being local authority or otherwise was not of consequence. The grounds raised by the Revenue have no substance and the appeal of the Revenue is dismissed. Issues involved:The appeal by Revenue against CIT(A)'s order under Section 143(3) of the Income Tax Act, 1961, regarding the status of the assessee as a local authority for the purpose of Section 10(20) of the Act.Issue 1: Status of Assessee as a Local AuthorityThe Assessing Officer (AO) had added income under Section 2(24) of the Act, considering the assessee as not a local authority. The AO examined if the assessee was registered under Section 12AA of the Act and deemed the assessee as a juridical person. The expenses claimed were disallowed due to lack of evidence. However, the CIT(A) benefitted the assessee based on judicial pronouncements. The CIT(A) noted that the appellant was established under the U.P. Sugar Cane Act, 1953 by the U.P. State Govt. to carry out specific development activities. Funds were provided by the State Govt. and contributions were received from sugar mills for approved activities. The surplus funds were carried over for future use as per rules. The AO's conclusion was deemed erroneous by the bench as the receipts were commissions for specific developmental activities, not income under Section 2(24) of the Act. Therefore, the status of the assessee as a local authority was irrelevant. The Revenue's appeal was dismissed, and cross objections were deemed superfluous.Final Decision:The appeal by Revenue against the CIT(A)'s order was dismissed as the bench found the AO's conclusion regarding the nature of receipts to be erroneous. The receipts were considered commissions for specific developmental activities, not income under Section 2(24) of the Act. Therefore, the status of the assessee as a local authority was deemed inconsequential. The cross objections were also dismissed.