Income Tax Appellate Tribunal - Amritsar
Punjab Khadi Mandal, Jalandhar vs Assessee on 29 June, 2016
1 ITA No.265(Asr)/2016
A.Y.2011-12
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
(CAMP AT JALANDHAR)
BEFORE SH. A.D. JAIN, JUDICIAL MEMBER
AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER
ITA No.265(Asr)/2016
Assessment Year:2011-12
PAN: AAATP7010P
M/s. Punjab Khadi Mandal, vs. Income Tax Officer,
Adampur Doaba. Range IV(1),
Jalandhar. Jalandhar.
(Appellant) (Respondent)
Appellant by: S/Sh.Aditya Sharma & Inderjit Sharma, CAs.
Respondent by: Sh. A.N. Mishra, DR
Date of hearing: 24/06/2016
Date of pronouncement: 29/06/2016
ORDER
PER A.D. JAIN, JM:
This is the assessee's appeal for the assessment year 2011-12, against the action of the ld. CIT(A) in confirming the disallowance of exemption of the Society under section 10(23B) of the Income Tax Act, 1961.
2. The brief facts of the cases are that the assessee society, which derived income from the objects as specified in the memorandum of association apart from rental income and interest income, filed its return of income for the year under consideration on 25.09.2011 declaring therein loss of Rs.21,80,430/-. 2 ITA No.265(Asr)/2016
A.Y.2011-12 The declared loss had been arrived at after taking into consideration the interest income and rental income declared by the assessee society at Rs.6,84,461/- and Rs.8,26,324/-, respectively. The income of the assessee society is stated to be exempt under section 10(23B) of the Act, which fact had not been disputed by the AO. As the AO, income derived by the assessee society by way of interest on its surplus funds parked with banks and income derived by way of letting out its buildings on rent does not form part of the activities of the Mandal and as such, the income by way of interest and rent does not qualify for exemption u/s 10(23B) of the Act. The AO asked the assessee society as to why exemption u/s 10(23B) of the Act should not be restricted to the extent of income derived by the assessee society from its activities as a unit of Khasi and Gramudyog Mandal. In response, the assessee society reiterated its stand that the income earned by the assessee society from all sources is exempt u/s 10(23B) of the Act, as the assessee society is solely existing for the development of khadi or village industries and not for the purposes of profit. It has also been submitted that its entire income is attributable to the business of production, sale, or marketing of khadi products or products of village industries. However, the explanation submitted by the assessee society did not find favour with the A.O. The AO, therefore, treated interest income and rental income from the sources other than that of the business of production, sale, or marketing of khadi products or products of village industries. As per the AO, the interest income is assessable under the head 'Income from other sources' and rental income is assessable under the 3 ITA No.265(Asr)/2016 A.Y.2011-12 head 'Income from House property' and cannot be said to be attributable to the business of production, sale, or marketing of khadi products and products of village industries, which is the main source of income of the assessee-society. The AO, therefore, assessed interest income earned by the assessee society under the head 'Income from other sources' and rental income under the head 'Income from house property' and computed the business loss at Rs.36,91,215/-. The income of the assessee was assessed at an income of Rs.12,62,888/-, as against the declared loss of Rs.21,80,430/-.
3. By virtue of the impugned order, the ld. Dismissed the assessee's appeal, observing as follows:
"5.2. I have considered the observations of the AO as made by him in the assessment order. I have also considered the written submissions filed by the assessee vide letter dated 19.01.2016 on the issue under reference. I have further considered various judicial pronouncements relied upon by the assessee as well as other material brought by the assessee society on record. On careful consideration of the rival contentions I am of the opinion that the interest income and rental income earned by the assessee society cannot be said to be attributable to main activity of the assessee society i.e. business of production, sale, or marketing of khadi products or products of village industries. I am also of the opinion that the interest income and rental income earned by the assessee society have correctly been brought to tax by the A.O. under the heads 'Income from other sources" and Income from House property respectively. I am further of the opinion that the business loss incurred by the assessee society in this case can also not to adjusted against income under other heads as there is no such provision in the Act due to the fact that the assessee society is claiming exemption u/s 10(23b) of the Act is not allowable to the assessee in respect of interest income and income from house property as these incomes have been held to be not attributable to main business activity of the assessee society, i.e., business of production, sale, or marketing of khadi products or village industries. Under such circumstances, the action of the AO in not treating interest and rental income attributable to the main activities of the assessee society, i.e., business of production, sale, or marketing of khadi products or village industries, is not allowing set off of business loss against income under other heads and thereafter assessing 4 ITA No.265(Asr)/2016 A.Y.2011-12 the income of the assessee society at Rs.12,62,888/- as against declared loss of Rs.21,80,430/- cannot be said to be unjustified.
5.3. In view of the above stated facts and circumstances of the case, I am of the considered opinion that the AO is fully justified in not treating interest and rental income attributable to the main activities of the assessee society, i.e. business of production, sale, or marketing of khadi products or village industries, is not allowing set off of business loss against income under other heads and thereafter assessing the income of the assessee society at Rs.12,62,888/- as against declared loss of Rs.21,80,430/-. The entire action of the AO is, therefore, upheld in this case."
4. Before us, on behalf of the assessee, it has been contended that denying exemption available to the assessee society u/s 10(23B) of the Act is incorrect. It was further submitted that charging the amount received from let out shops of the society as income from house property is wrong. The ld. Counsel submitted that as per the provisions of law, treating interest earned by the assessee from banks as chargeable to tax under income from other sources is wrong and unjustified.
5. The ld. DR, on the other hand, strongly relied on the impugned order.
6. Having heard the rival contentions in the light of the material available on record, it is seen that the assessee is a Society registered under the Societies Registration Act, 1860, carrying on the business of production and sale of khadi and sale of Gramudyog (Village Industry). It claimed exemption from tax under section 10(23B) of the Act. Section 10(23B) of the Act reads as follows:
"(23B) any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of 5 ITA No.265(Asr)/2016 A.Y.2011-12 India, and existing solely for the development of khadi or village industries or both, and not for purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries:
Provided that--
(i) the institution applies its income, or accumulates it for application, solely for the development of khadi or village industries or both; and
(ii) the institution is, for the time being, approved for the purpose of this clause by the Khadi and Village Industries Commission:
Provided further that the Commission shall not, at any one time, grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted:
Provided also that where the institution has been approved by the Khadi and Village Industries Commission and subsequently that Commission is satisfied that--
(i) the institution has not applied or accumulated its income in accordance with the provisions contained in the first proviso; or
(ii) the activities of the institution are not being carried out in accordance with all or any of the conditions subject to which such institution was approved, it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned institution, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such institution and to the Assessing Officer.
Explanation.--For the purposes of this clause,--
(i) "Khadi and Village Industries Commission" means the Khadi and Village Industries Commission established under the Khadi and Village Industries Commission Act, 1956 (61 of 1956);
(ii) "khadi" and "village industries" have the meanings respectively assigned to them in that Act. "6 ITA No.265(Asr)/2016
A.Y.2011-12
7. The AO treated the interest on deposits with bank and rent received from letting out the shops to be income earned by the assessee, which was taxable. The ld. CIT(A) confirmed this action of the A.O.
8. The reason for the Authorities below having taken the said view was that the income of the assessee is not attributable to the business of the assessee. Remarkably, whereas the AO says that it is not deprived from 'such business', the ld. CIT(A) observed that it is not attributable to the same.
9. The ld. CIT(A) restricted the exemption of income under section 10(23B) of the Act only to that portion of the income of the assessee, as was derived from the business of production and sale of khadi and sale of Gramudyog.
10. The stand of the assessee is that the legislature has provided exemption to any income of the society which is attributable to the business of production, sale, or marketing, of khadi or products of village industries.
11. As per section 10(23B) of the Act, exemption has been provided to any income of the assessee which is attributable to the business of production, sale, or marketing of khadi or products of village industries, provided that the institution concerned applies its income, or accumulates it for application, solely for the development of khadi or village industries, or both. 7 ITA No.265(Asr)/2016
A.Y.2011-12
12. It is trite that 'attributable to' is wider in amplitudue than 'derive from'. This distinction requires to be highlighted, since the expression employed in the provisions of section 10(23C) is 'attributable to' and not 'derived from'.
13. In 'Cambay Electric Supply Industrial Company Limited vs. CIT, Gujrat', 113 ITR 84 (SC), the Hon'ble Supreme Court has held that:
"As regards the aspect emerging from the expression "attributable to"
occurring in the phrase "profits and gains attributable to the business of"
the specified industry (here generation and distribution of electricity) on which the ld. Solicitor-General relied, it will be pertinent to observed that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression "derived from", as, for instance, in section 80J. in our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business or generation and distribution of electricity."
14. In 'CIT vs. Meghalaya Steels Limited', recently rendered by the Hon'ble Supreme Court in Civil Appeal No.7622 of 2014, the Hon'ble Supreme Court has, again, held to the effect that an analysis of all the decisions cited on behalf of the Revenue becomes necessary, that in the case of 'Cambay Electric Supply Industrial Company Limited vs. CIT, Gujrat' (supra), the Supreme Court held that since an expression of wider import had been used, namely "attributable to", instead of "derived from", the legislature intended to cover 8 ITA No.265(Asr)/2016 A.Y.2011-12 receipts from sources other than the actual conduct of the business of generation and distribution of electricity; that in short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression "attributable to"; that since in that case (Amitabh Bachan), the Court was directly concerned with the expression "derived from" , this judgment was relevant only insofar as it makes a distinction between the expression "derived from", as being something directly from, as opposed to "attributable to", which can be said to include something which is indirect as well.
15. In the light of the above, clearly, the assessee is entitled to the exemption claimed under section 10(23B) of the Act. It needs to be emphasized here that the provisions of section 10(23B) call for accumulation and application solely for the promotion of khadi or village industries, or both. Further, the scope of exemption by allowing accumulation of income and stipulates that the accumulated funds should be used for development of khadi and village Industries. The intention of the legislature is clear when it allows 'any income' of the assessee to be exempt. In the present case, the vacant space available, which was earlier used for khadi related activities, were employed to generate the revenue for the assessee society to support its flagging financial position. The letting out was solely to generate income, which was to be and was invested in the business of promotion of Khadi and Village Industries. Thus, there was no utilization of funds beyond the objects specified in the Income Tax 9 ITA No.265(Asr)/2016 A.Y.2011-12 Act, 1961. Too, the assessee is duly registered with the Khadi & Village Industries commission, ensuring the carrying on of the objects of development of khadi and village Industries and also ensuring that no other activities are pursued. In this direction, it is relevant that the assessee has received approval of KVIC.
16. In view of the above, in our considered opinion, the exemption claimed is available to the assessee and the assessee is wholly entitled for such exemption under section 10(23B) of the Act. The same is allowed to the assessee. The order under appeal is reversed and the grievance of the assessee is accepted.
17. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 29th June, 2016.
Sd/- Sd/-
(T. S. KAPOOR) (A.D. JAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 29/06/2016.
/skr/
Copy of the order forwarded to:
(1) The Assessee:Punjab Khadi Mandal, Adampur Doaba, Distt. HSPR. (2) The ITO, Range IV(1), Jalandhar.
(3) The CIT(A), JLR (4) The CIT, JLR (5) The SR DR, I.T.A.T. True copy By order