TaxTMI 
TaxTMI 
2012 (10) TMI 1126
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.....K. Saxena was orally nominated as the General Secretary/Chairman of the Coordination Committee of SPM since 1979 and was looking after the work of collection and contribution from various employees and the expenditure thereof under various heads like legal exp. etc. since 1988. A total sum of Rs. 4,27,09,595/- was collected during 17.2.99 to 8.5.2002 and was deposited in an account bearing no. 01190050149 held in State Bank of India, Hoshangabad. On these deposits interest income was also earned. The sum of Rs. 4.27 Cr. Was acquired on account of the written consent of the employees of SPM after deduction of a sum of 15% out of the incentive bonus payable. The AO found that the assessee has not furnished its income tax returns within the time period specified under section 139 for the A.Ys. 200-01 to 2003-04 though it was having income chargeable to tax. On the basis of information on record, after recording reasons, notice u/s 148 of the Act was issued for filing of income tax returns. In response to the said notice, the assessee filed returns of income for the A.Ys. 2000-01 to 2003-04 declaring income at nil in the status of AOP. With the various additions made by the AO, the as....
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....d to those services, in my considered view, falls within the purview of this sub-section. For this proposition, the AO correctly placed reliance on the decision in Indian Tea Planter's Association Ltd. V. CIT (1971) 82 ITR 322 (Cal) wherein it was held that: A trade association, rendering specific services to its own members for remuneration will come within section 10(6) of the Indian IT Act, 1922 (now section 28(iii) of the IT Act, 1961). From this, it is evident that income from a trade4 association would be chargeable if the amounts paid by its members are for specific services rendered by the association. The statute, therefore, does not require that before income of such association would be chargeable, it should have been earned because of some trade activity by the association. The ratio laid down by the Calcutta High in the aforementioned decision was followed by the P&H High Court in CIT vs. Hill Goods Truck Owners Union (1980) 124 ITR 224 (P&H). The concept behind section 28(iii) is to cut at the mutuality principle being relied on in support of a claim for exemption, when the appellant was actually deriving income for making profits as a result of rendering specific ser....
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.... Indian Tea Planters Association vs. CIT (1971) 82 ITR 322 (Cal.) 3.5 The AO mentioned that in the case of the assessee, employees of various SPM Unions gave their 15% incentive bonus to the coordination committee and in lieu of that the Coordination Committee made payment towards various expenses through its General Secretary, Shri N.K. Saxena. Thus, as rightly concluded bythe AO, both the conditions laid down in Ismaillia Grain Merchants Association Ltd. V. CIT (1957) 31 ITR 433 (Bom) viz. The association rendered specific services to its members and remuneration was paid by the members for these services, in my considered view, were fulfilled. It is settled position that it is not necessary that business/profession must be carried on by the assessee himself. It could be carried through agent or servant. In its case, professional work of fighting litigated issues before the appellate Forums was got completed through the advocates. 3.6 Shri P.S. Nair was an eminent legal professional, representing the impugned disputes before the MP High Court and Supreme Court. According to Report M. Jackson and John I, Powell, the occupations which are regarded as professions have four cha....
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....missed." 5. The AO also made addition on the plea that the assessee was maintaining books of accounts on mercantile basis. Accordingly, interest income was added under the head 'income from other sources' on the basis of its accrual not-with-standing the fact that the amount was not actually received by the assessee. The action of the AO was confirmed by the CIT(A) after having the following observations :- "The rival submissions have been carefully considered with reference to the facts obtaining from the record. In his depositions recorded on 30.10.2003 and 09.05.2007, Shri N.K. Saxena, General Secretary of the appellant Coordination Committee affirmed in specific terms that whenever he issued cheques for payment, he recorded the same as expenditure incurred and cheques received from SPM management, deposited in bank account, were accounted for and entered as income in the cash book. Since the entries for the income and expenditure, on the basis of issuance and receipt of cheques, without clearance of the same, were made in the so called cash book, it is evident that the appellant regularly followed mercantile system of accounting. Viewed in this perspective, the aforemention....
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....led to make pure guess and make the impugned assessment, without reference to any evidence or material at all. If the Assessing Officer presumed that the appellant had in fact suppressed the impugned income, from being disclosed to the department, then, it was incumbent upon the Assessing Officer, to have conducted the needed investigation to bring corroborative evidence on record, to substantiate such allegations. Record evidences the fact that this needed exercise was not carried out. In Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC), it was held that: The AO is not entitled to make a pure guess and make estimated adhoc additions/disallowances to the income returned, without reference to any evidence or any material at all. The rule of Law on this subject has been fairly and rightly stated by the Lahore HC in Seth Gurmukh Singh v. CIT (1944) 12 ITR 393 (Lah.). It was observed by the SC in Dy. Commissioner of Agricultural Income-tax and Sales Tax v. Travancore Rubber and Tea Co. (1967), 20 STC 520 that "In all cases of taxation the burden of proving necessary ingredients laid down by law to justify taxation is upon the authorities." Since this was not proved against th....
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....not filed returns of income u/s 139 of the Act, the Assessing Officer held that the appellant was not entitled for the benefit of losses. 9. By the impugned order, the CIT(A) deleted the addition after having following observations : "8.2 The rival submissions have been carefully considered with reference to the facts obtaining from the record. There is no dispute with regard to the fact that the MP High Court in WP No.5696/98 directed for payment of 50% of the incentive to the workers and after discussion with employees, all the employees had given in writing to the management to recover 15% of the incentive that was being paid to them to be deposited with the Co-ordination Committee for meeting the expenditure and balance, if any, to be refunded to employees: On the basis of individual applications made by all the employees, management of SPM deducted 15% of incentive and deposited the same with Co-ordination Committee of SPM Union. This amount, in my considered view, was not income of the Co-ordination Committee but the same was a mere deposit. It is undisputed fact that the impugned deposit was meant for meeting expenditure for defending/prosecuting various cases of employee....
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....ame with the Co-ordination Committee of SPM Union, could by no stretch of imagination, be construed and presumed as income of the appellant. In my considered view, that was only a deposit meant for meeting expenditure for defending/prosecuting various disputes of the employees. 10. The disallowance was made by the AO out of expenses claimed : Disallowance of Rs. 9,83,000 for the AY 2000-01; Rs. 10,000/- for the AY 2005-06; Rs. 20,000/- for the A.Y. 2006-07 and Rs. 10,000/- for the A.Y. 2007-08. According to the AO, the expenses claimed to have been incurred under the heads 'miscellaneous expenses' and 'other expenses' was not supported by any details/evidence and since the sums received from the employees were held as professional receipts, received as consideration for the services rendered by the Coordination Committee to the employees for fighting their cases, the said expenditure according to the AO, was not allowable. Hence, the same was disallowed and added to the income of the assessee. 11. By the impugned order, the CIT(A) gave part relief after having the following observations :- "For the reasons extensively enumerated in the immediately preceding paragraph, I have a....
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....ceipts were in respect of deposits made by the members and these deposits were not income; since there was no business income, there could be no question of allowing or disallowing any expenditure. 13. By the impugned order, the learned CIT(A) deleted the addition after having the following observations :- "10.5 As such, I am of the considered view that provisions of section 40(a)(ia) of the Act are not applicable to the impugned payments made by the appellant to the legal professional named in the assessment orders, under consideration. The disallowance, if any, required to be made should have been restricted to the extent of the sum shown in the balance sheet as "payable" at the end of the year i.e. on the balance sheet dates. However, this was not the case in the case of the appellant, under consideration, since the impugned sums were undisputedly paid by the appellant and nothing was shown as payable as on the balance sheet date. For holding as above, I place reliance on the decision in K. Srinivas Naidu v. ACIT (2010) 131 TTJ (Hyd.) (UO) 17. In Jaipur Vidyut Nigam Ltd. V. Dy. CIT (2009) 123 TTJ (Jaipur) 888 also it was held that section 40(a)(ia) applies only when the amoun....
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....income assessable in the hands of the appellant. Section 2(24) of the Act defined the term "income". It included only profits or gains of business or profession and the disallowance provided u/s 40(a)(ia) of the Act is indisputably an expenditure in the hands of the appellant and in the absence of deeming such expenditure as income of the appellant falling under section 2(24) of the Act, no tax liability could be fastened on the appellant." 14. Against the above order of the CIT(A), the revenue is in appeal before us and the assessee is in cross objection. 15. Rival contentions have been considered and record perused. We have also gone through the orders of the lower authorities and find from record that the assessee is an association of registered trade union wherein deduction of 15% of incentive bonus payable to workers of security paper mill was deposited with the assessee. The assessee was coordinating the deposit of the workers and was also incurring expenses of litigation in connection with cases of the management of SPM management Vs. Employees of SPM. The assessee was also distributing the claim of workers in accordance with the directions of M.P. High Court. Thus, we fi....
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....pendency of the disputes, on the basis of settlement in June I 973 and award dated 02.09.1998 several thousand cases were filed before various courts such as under Payment of Wages Act, under 33(c)(1) and 33 (c)(2) of ID Act before various Authorities. Coordination committee used the services of several lawyers and mediators for bringing about the settlement and to lend the disputes. During the pendency of Writ Petition No 5696/98, the MP High Court directed payment of 50% of the incentive. Management flied repeated SLI~s before the Supreme Court. These SLPs were dismissed. The Supreme Court in SLP No. 12189/99 by order dated 08.10.1999 directed that the workmen will have to give an undertaking to refund the amount if the petition of the management of SPM is allowed. On the strength of documentary evidence available on record, the appellant established the fact that various amounts were paid by the management from 1999 as per the direction of the MP High Court and Supreme Court and after hearing the arguments at length, the Supreme Court dismissed the SLP on 08.12.2006. From the sequence of facts enumerated above, the impugned deduction of 15% of the incentive and depositing the sa....
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....sessee in the form of interest from bank deposits as well as other interest from Kachnar Builders will also qualify for exemption u/s 10(24) insofar as interest income is liable to tax under the head "income from other sources". 19. 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. 20. 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 assess....