Tax on Surplus from conducting conference of CSI

ITO Vs 67th Annual Conference of CSI-2015 (ITAT Chennai)

ITAT 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.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-12, Chennai-8 in ITA No.135/CIT(A)-12/18-19 dated 29.07.2019. The assessment was framed by the ITO, Non-Corporate Ward 10(4), Chennai for the assessment year 2016-17 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 14.12.2018.

2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by the AO towards the amount transferred to the society holding the same as application of income. For this, Revenue has raised following Ground No.2:-

“2. The ld.CIT(A) erred in allowing the appeal of the assessee as the society and the AO i.e. the assessee are two different identities, having separate PAN and their income are assessee separately. The amount transferred to the society was only application of money and not a genuine expenditure in the assessee.”

3. Brief facts are that the AO on perusal of income and expenditure account submitted by the assessee for the year ending 31.03.2016, noted that the total receipt of the assessee was to the tune of Rs.14,55,24,282/- and expenditure incurred was Rs.10,22,95,853/- and thereby resulting into excess of income over expenditure of Rs.4,32,28,429/-, being assessed as income of the assessee. The assessee replied that the assessee entity was formed with a specific purpose to conduct Annual Conference at Chennai during the year under consideration and the organizing secretary as well as scientific chairman constituted assessee AOP with the responsibility to conduct the conference as per the bye-laws of the assessee society. The assessee before AO filed bye-laws wherein it is noted that the surplus from the conduct of the above conference should be passed on in the ratio of 35% and 65% to the Cardiological Society of India (CSI), head quarters i.e., Kolkata and Cardiological Society, a regional body at Chennai respectively. Accordingly, the amount of Rs.1,51,29,950/- was transferred to Cardiological Society of India, Headquarters Kolkata and an amount of Rs.2,80,98,478/- transferred to Cardiological Society of India, Chennai chapter. The AO was not convinced with the reply of the assessee and according to him, the constitution of the trust has no rule or control over the AOP, who is having a separate PAN number and assessed separately to income-tax. Therefore, he treated the amount of Rs.4,32,28,429/- as income of the assessee and assessed accordingly. Aggrieved, assessee preferred appeal before CIT(A).

4. The CIT(A) after considering the submissions of the assessee and considering the Hon’ble Supreme Court decision in the CIT vs. Sitaldas Tirathdas, [1961] 41 ITR 367, allowed the claim of assessee by observing in para 8.3 as under:-

“8.3 As relied on by the appellant, SC in its decision in 41 ITR 367 has held that the receipt is not taxable when it is collected on behalf of another person and passed on to the other person. There is no actual income in the hands of the appellant. The appellant was clearly under obligation to pass on the surplus as per the byelaws and the same was done. The entity was constituted for the limited purpose of organizing the conference on behalf the central office (HQ) and the state chapter to make the transactions transparent and auditable. Thus there is no independent taxable income in the hands of the appellant. There is no receipt which is not accounted ultimately. The receipts are shown separately by the respective recipients on whose behalf the appellant conducted the event. The entity, consists of office bearers chosen from the Central office and state office of CSI and has not made any profit out of the above conference. This is clear from the audited accounts. The AO’s argument that the constitution of trust has no role or any control over the appellant is incorrect as the constitution of the appellant entity is specifically for the purpose of conduct of conference and entire affairs are controlled by the CSI and the actions are strictly governed by the byelaws in this regard. The appellant has taken the PAN number only for the purpose of operation of bank account and to do independent auditing of the accounts. Entire surplus has been transferred back to CSI HQ and local unit in the ratio of 65:35 and no profit is retained by appellant. The entity cease to Survive on completion of audit of the conference accounts. There is no logic on taxing the appellant for the above when the entire surplus have been separately accounted and returned by respective trusts.

Aggrieved, now Revenue is in appeal before the Tribunal.

5. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the 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 having its registered office at Kolkatta. The CSI is a premier institution in India providing immense services to the advancement of scientific knowledge and research in relation to cardiovascular system in all its aspect to improve, prevent and treat all types of cardiovascular diseases. The assessee before us filed copies of registration certificate and constitution documents. The assessee every year carried out the annual conference which is major event at various places all over India through its branches and by establishing separate committee for conducting such annual conference. To conduct this 67^th Annual Conference at Chennai, Article VIII of the constitution of CSI was proposed into and as per clause 8, the funds collected and after meeting expenditure of conference what income over expenditure remains, the surplus funds shall be revert back to the parent body namely Central CSI Fund and to the local branch in the ratio of 35:65. The ld.counsel for the assessee now before us drew our attention to relevant clause 15, which reads as under:-

“15. The whole account of income and expenditure should be audited at the end of the conference after getting most of the receipts and the surplus money should be shared as per Constitution (65% by Local Branch and 35% by CSI HQ). The audited account should reach CSI Head Quarters within one year after the conference.”

5.1 In the above background, an AOP i.e., 67^th Annual Conference of CSI 2015 was created and a new PAN number was obtained. The statement of computation of income, audited financials containing statement of affairs, income and expenditure account were prepared and filed along with the return of income. As there was excess of income over expenditure out of the entire conference collection, which are in the nature of delegate fee, donations, grants, stall rents and interest income to the extent of Rs.4,32,28,429/-, which was diverted in term of clause 15 between the CSI Headquarter Kolkata at Rs.1,51,29,950/- and Chennai chapter at Rs.2,80,98,478/-. Before us, the ld.counsel stated that both the entities i.e., CSI Headquarter, Kolkata and Chennai chapter of CSI are respectively assessed to taxed and they have declared these contributions by assessee AOP in their respective return of income and the assessee filed the complete particulars of assessment which reads as under:-

These were filed before AO also.

5.2 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. This issue has been answered by the Hon’ble Supreme Court in the case of Sitaldas Tirathdas,supra, wherein it is held as under:-

“These are the cases which have considered the problem from various angles. Some of them appear to have applied the principle correctly and some, not. But we do Dot propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reaches the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one’s own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable. In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own. The case is one of application of a portion of the income to discharge an obligation and not a case in which by an overriding charge the assessee became only a collector of another’s income. The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case. In our opinion, the case falls outside the rule in Bejoy Singh-Dudhuria’s case (supra) and rather falls within the rule stated by the Judicial Committee in P. C. Mullick’s case (supra).

From the above case laws and the facts of the present case that the assessee has already transferred these receipts to CSI, Headquarter Kolkata and CSI, Chennai chapter in the ratio prescribed as per bye-laws and according to us, as ratio laid down by the Hon’ble Supreme Court in the case of Sitaldas Tirathdas, supra 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.

6. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 6^th July, 2022 at Chennai.