Sant Baba Rangi Ram Charitable Trust Vs ITO (ITAT Amritsar)
Summary: The Amritsar Bench of the Income Tax Appellate Tribunal allowed the appeal of Sant Baba Rangi Ram Charitable Trust, Hoshiarpur, for Assessment Year 2006-07 and cancelled a penalty of Rs. 26,572 imposed under Section 271B of the Income-tax Act, 1961. The trust operated a hospital and claimed exemption of Rs. 13.59 lakh under Section 11. The Assessing Officer considered its hospital receipts exceeding Rs. 40 lakh to be business receipts requiring a tax audit under Section 44AB. The CIT(A), Jalandhar, upheld the penalty, notwithstanding the trust’s position that it was a charitable institution and had already obtained an audit under Section 12A(b).
The Tribunal noted that the trust’s accounts had been audited under Section 12A(b) and Form 10B had been furnished with its return. It distinguished the requirement to audit business or professional income under Section 44AB from the treatment of income exempt under Section 11. Referring to ACIT v. India Magnum Fund, 81 ITD 295 (Mumbai), it reasoned that Section 44AB operates in the context of computation of business or professional income, whereas the trust’s exempt income fell under Chapter III. It therefore concluded that the tax audit provision did not apply on the facts.
The Tribunal also considered the trust’s bona fide belief that the tax audit requirement did not apply to its charitable activities, along with the penalty authorities cited before it. Holding that the Assessing Officer was not justified in imposing the penalty, the Bench reversed the CIT(A)’s order and directed cancellation of the penalty. The appeal was allowed, and the order was pronounced on 6 August 2012.
Cases Discussed
- ACIT v. India Magnum Fund — 81 ITD 295 (Mumbai) — Exempt mutual fund income and Section 44AB audit obligation.
- Hindustan Steel Ltd. v. State of Orissa — 83 ITR 26 (SC) — Cited on imposition of penalty.
- ITO v. Nanak Singh Guliani — 171 CTR 195 (MP) — Cited on penalty.
- CIT v. Abhyeshwar — 153 CTR 372 (MP) — Cited on penalty.
- CIT v. Tea King — (2000) 158 CTR 413 (Guj) — Cited on penalty.
- R. Wadiwala & Co. v. ACIT — (2001) 72 TTJ (Ahd) 34 — Cited on penalty.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
This appeal of the assessee arises from the order of the CIT(A), Jalandhar, dated 12.03.2012 for the assessment year 2006-07.
2. The assessee has raised following grounds of appeal: “1. That on the facts and circumstances of case, ld. CIT(A) has grossly erred in confirming penalty of Rs.26,572/- imposed u/s 271B of the Act, penalty confirmed is illegal and bad in law.
2. That on the facts and circumstances of case, ld. CIT(A) has grossly erred in rejecting ground of appeal of assessee wherein assessee has claimed that penalty u/s 271B of the Act is not attracted since it is case of charitable trust which got its account audited as provided under section 12A(b) of the Act.
3. That penalty confirmed by ld. CIT(A) is illegal and bad in law since assessee was under bonafide belief that being charitable trust, provisions of Sec. 44AB of the Act are not attracted in case of charitable trusts.
4. That the assessee requests for leave to add or annex any other grounds of appeal before the appeal is heard or disposed of.”
3. The brief facts of the case are that the AO levied penalty amounting to Rs.26,572/- under section 271B of the Income tax Act, for failure to get the accounts of the hospital run by the assessee audited u/s 44AB of the Act. The AO noted that the assessee had claimed exemption of its income of Rs.13.59 lakhs under section 11 of the Act. The AO noted that though the assessee’s receipts from the business of the hospital run by it exceeded Rs. 40 lakhs, it had not obtained the audit report under section 44AB of the Act. The AO rejected the contention of the assessee that the accounts were not required to be audited as the assessee was a charitable organization by noting that the assessee had itself written in the return of income that the income was Business Income. He also held that the assessee was under a bonafide belief not to file the tax audit report was not acceptable since the return had been filed by a competent Chartered Accountant. He distinguished the various judgments relied upon by the assessee and imposed the impugned penalty @ ½% of the gross receipts of the hospital.
3. On appeal, the Ld. CIT(A) confirmed the action of the Assessing Officer.
4. The Ld. counsel for the assessee, Sh. Surinder Mahajan, CA, relied upon the arguments made before the Ld. CIT(A) and prayed to direct the authorities below to cancel the penalty so levied.
5. The Ld. DR, on the other hand, relied upon the orders of the lower authorities.
6. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the assessee had got its accounts audited as provided under section 12A(b) of the Act and report in Form No. 10B duly signed and audited by the auditors’ had been filed alongwith return of income. The objection of the AO was that the assessee was required to get its accounts audited u/s 44AB of the Act since the assessee was carrying out business of hospital. The only dispute before us is that whether the assessee was doing a business when the assessee had been claiming exemption u/s 11A of the Act, being a charitable institution, which has been allowed and is not under dispute, in such situation, whether penalty u/s 271B of the Act can be levied.
6.1. In this regard, we are convinced with the submissions of the Ld. AR that u/s 44AB of the Act audit of accounts of certain persons who were carrying business or profession and whose total sales, turnover or gross receipts, exceeds Rs.40 lakhs have to get their accounts audited by an accountant before the specified date as prescribed. That no tax shall be levied or collected except by authority of law. The legal basis for levy of income tax is given in section 4 of the Act, which is in respect of the total income defined under section 2(45) of the Act, which is computed as per section 5 of the Act, in the manner laid down in the Act. Chapter IV of the Act provides for “computation of total income” and section 44AB is only one of the sections enacted under Chapter IV-D dealing with computation of profits and gains of business or profession. Section 44AB becomes operative when there is computation of profits and gains of business or profession as a part of total income, whereas the income of the assessee trust is admittedly wholly exempt u/s 11 of the Act, which is part of Chapter III of the Act. And heading of Chapter III is “incomes which do not form part of the total income”. Therefore, the assessee is covered under Chapter III and no provisions of Chapter IV can be made applicable in the present case. Hence, provisions of section 44AB cannot be made applicable. The reliance made by the Ld. counsel for the assessee in the case of ACIT vs. India Magnum Fund reported in 81 ITD 295 (Mumbai), where it has been held that income of the assessee was exempt from tax under section 10(23D). However, section 44AB becomes operative when there is computation of profits and gains of business or profession as a part of total income. The assessee being a mutual fund, the income was exempt under section 10(23D). Hence, the assessee was not liable to obtain any audit report within the meaning of section 44AB of the Act. Therefore, cancellation of penalty under section 271B was justified. We, therefore, are convinced with the arguments of the ld. counsel for the assessee before the Ld. CIT(A) and before us that the income of the assessee trust is wholly exempt under section 11 of the Act, which is part of Chapter III of the Act and therefore, provisions of Chapter IV cannot be made applicable and, therefore, the provisions of section 44AB of the Act cannot be applied in the present facts and circumstances of the case. Therefore, the AO is not justified in levying penalty on the assessee. The order of the Ld. CIT(A) is accordingly reversed.
6.2. The arguments of the assessee before the ld. CIT(A) and before us are also taken into consideration. The assessee under bonafide belief that the provisions of section 44AB are not attracted and therefore, in the facts and circumstances of the present case, no penalty can be imposed when the assessee had acted deliberately. The reliance has been placed on the following case laws:
i) Hindustan Steel Ltd. vs. State of Orissa 83 ITR 26(SC)
ii) ITO vs. Nanak Singh Guliani 171 CTR 195 (MP)
iii) CIT vs. Abhyeshwar 153 CTR 372 (MP)
iv) CIT vs. Tea King (2000) 158 CTR 413 (Guj)
v) R. Wadiwala & Co. vs. ACIT (2001) 72 TTJ (Ahd) 34
6.3. In the facts and the circumstances of the case, the AO is not justified in levying the penalty u/s 271B of the Act and he is directed to cancel the penalty so levied and accordingly, the order of the Ld. CIT(A) is reversed. Thus, all the grounds of appeal of the assessee are allowed.
7. In the result, the appeal of the assesse in ITA No.185(Asr)2012 is allowed.
Order pronounced in the open court on 6th August, 2012.
