Case Law Details
Shri Digamber Jain Bees Panthi Ajmeri Amnay Panchayat Bada Dhada Vs ITO (ITAT Jaipur)
When the income of the assessee has been assessed under the head ‘Income from other sources’ and there is no provision U/s 56 to 58 of the Act to make a disallowance U/s 40(a)(ia) of the Act prior to the amendment vide Finance Act 2017 w.e.f. 1/04/2018 whereby sub-Section (1A) of Section 58 has been amended for the purpose of making a provision for disallowance U/s 40(a)(ia) of the Act. Therefore, in view of the above facts and circumstances of the case, when the amendment is applicable from 01/4/2018, no disallowance can be made U/s 40(a)(ia) of the Act against the income of the assessee assessed under the head “Income from other sources”, hence, we direct to delete the disallowance made U/s 40(a)(ia) of the Act.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is directed against the order dated 09/01/2018 of Id. CIT(A), Ajmer for the A.Y. 2014-15. The assessee has raised following grounds of appeal:
“1. The Id. CIT(A) has erred in law as well as on facts of the case by confirming application of Maximum Margin Rate and not allowing basic exemption limit.
2. The Id. CIT(A) has erred in law as well as on facts of the case by confirming disallowance of a sum of 2,50,000/- U/s 40(a)(ia) of the Income Tax Act, 1961.
3. The appellant craves leave to add, amend, alter, delete or modify any of the above grounds of appeal before or at the time of “
2. At the time of hearing, the ld AR of the assessee has stated at bar that the assessee does not press ground No. 1 of the appeal and the same may be dismissed as not pressed. The ld DR has raised no objection if ground No. 1 of the appeal is dismissed as not pressed. Accordingly, ground No. 1 of the appeal is dismissed being not pressed.
3. Ground No. 2 of the appeal is regarding disallowance of Rs. 2.50 lacs U/s 40(a)(ia) of the Income Tax Act, 1961 (in short the Act) in respect of the payment made by the assessee to the contractor for construction of building. The Assessing Officer noted that in the income and expenditure account for the year under consideration, the assessee society has shown payment of Rs. 2.50 lacs to the contractor M/s Choudhary Sand Stone out of the total construction expenses of Rs. 9,33,802/- on which no TDS was deducted. Accordingly, the Assessing Officer invoked the provisions of Section 40(a)(ia) of the Act and disallowed the said amount of Rs. 2.50 lacs.
4. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) and contended that the assessee society being a religious institution does not carry out any trade of manufacturing activity. The income of the assessee was assessed under the head “income from other sources” and therefore, no disallowance U/s 40(a)(ia) of the Act is called for. The ld. CIT(A) did not accept the contention of the assessee and confirmed the disallowance made by the Assessing Officer.
5. Before us, the ld AR of the assessee has submitted that the disallowance made U/s 40(a)(ia) of the Act in respect of the expenditure incurred for the purpose of computing the income under the head “Profit & Gain” from business or profession is provided and therefore, when the assessee is not doing any activity of business or trading then the provisions of Section 40(a)(ia) of the Act are not attracted for the purpose of disallowance even if the assessee has not deducted the tax at source from the payments made to the contractor. The ld AR has further submitted that the assessee society is a religious institution and engaged only in the religious activity as managing temples. The source of income of the society is donation, rent and interest. These incomes are used to carry out day to day activity of temples maintained by the assessee society and maintenance of property of the institution. These activities of the society cannot be held as any business arrangement or trade activities. Further there was no profit motive behind the activity of the assessee society and the assessee has declared the income in the return of income under the “income from other sources”. The Assessing Officer has computed the income under the head “income from other sources” as per the notice issued U/s 156 of the Act. hence, the ld AR has submitted that the provisions of Section 40(a)(ia) of the Act are not applicable in the case of the assessee. In support of his contention, he has relied upon the decision of Kolkata Benches of the Tribunal dated 24/05/2018 in the case of Pediatric Infectious Diseases Academy Vs ITO in ITA No. 2355/Kol/2017.
6. On the other hand, the ld DR has submitted that once the registration U/s 12A of the Act has been rejected by the competent authority then the assessee cannot claim that these activities are religious and charitable in nature. The income of the assessee society has to be computed on commercial principles and therefore, the provisions of Section 40(a)(ia) of the Act are applicable so far as the assessee has failed to deduct TDS in respect of the payment made to the contractor. He has relied upon the orders of the authorities below.
7. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee is a society and engaged in the activity of maintaining the temple. The application of the assessee U/s 12AA of the Act was rejected and therefore, the income of the assessee was to be computed without the benefit of Sections 11 and 12 of the Act. The Assessing Officer has made a disallowance of Rs. 2.50 lacs by invoking the provisions of Section 40(a)(ia) of the Act for want of deduction of tax at source. Though, the payment in question to the contractor was required deduction of tax at source as per the provisions of Chapter XVII of the Act, however, the assessee has not incurred the said expenditure for its business activity but the activity of the assessee are only religious in nature. Further the Assessing Officer has also accepted the income of the assessee under the “income from other sources” as per the computation of income. The ld AR of the assessee has filed a copy of the computation of the income made by the Assessing Officer wherein the income of Rs. 4,42,080/- has been computed under the head “income from other sources”. The Kolkata Benches of the Tribunal in the case of Pediatric Infectious Diseases Academy Vs ITO (supra) while dealing an identical issue has held in para 4 and 5 as under:
“4. I have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the assessee in the present case is an association of paediatric doctors with the principal object of general public advancement. It is duly registered under the West Bengal Society Registration Act, 1961 as well as under section 12A of the Income Tax Act, 1961. During the year under consideration, it had published journal from the funds received from sponsorship fees and the journals so published were issued to the members free of cost. The surplus from the activity of publishing journal was offered to tax by the assessee under the head ‘income from other sources’ and when the disallowance was sought to be made by the A.O. u/s 40(a)(ia) for non-deduction of tax at source from the payment of printing charges, it was claimed by the assessee that the said provision could be invoked only why computing income under the head ‘profits and gains from business or profession’. The A.O. however treated the surplus of the assessee from the activity of publication of journal as its business income by relying on the proviso to section 2(15) and made a disallowance on account of printing charges u/s 40(a)(ia). As rightly contended on behalf of the assessee before the Ld. CIT(A) as well as before the Tribunal, the activity of publication of journal having been financed from the sponsorship fees and the said journals having been issued to the members free of cost, the same cannot be treated as in the nature trade, commerce or business as envisaged in the proviso to section 2(15) and the income of the assessee from the said activity cannot be treated as its business income. I, therefore, find merit in the contention of the learned counsel for the assessee that the A.O. was not justified in re-classifying the income of the assessee from the activity of publication of journals as business income and in making a disallowance u/s 40(a)(ia)
5. In my opinion, the Ld. CIT(A) is also not justified in holding that the fact of the assessee being the charitable organisation is of no relevance for the applicability of section 40(a)(ia). As pointed out by the learned counsel for the assessee, this view taken by the Ld. CIT(A) is contrary to the decision of the Hon’ble Bombay High Court in the case of Bombay Stock Exchange vs. DDIT 365 ITR 181 wherein it was held that where the income of the assessee was exempt under section 11 and the assessee was not carried on the business, section 40(a)(ia) had no application. Moreover, the insertion of Explanation 3 to Section 11 by the Finance Act, 2018 making inter alia the provisions of Section 40(a) (ia) applicable in case of charitable or religious trust or institution with effect from 1st April, 2019 further shows that section 40(a)(ia) hitherto was not applicable in computing income of entities registration u/s 12A of the Act. I, therefore, hold that the disallowance made by the A.O. under section 40(a)(ia) and confirmed by the Ld. CIT(A) is not sustainable and deleting the same, I allow this appeal of the assessee.”
When the income of the assessee has been assessed under the head “Income from other sources” and there is no provision U/s 56 to 58 of the Act to make a disallowance U/s 40(a)(ia) of the Act prior to the amendment vide Finance Act 2017 w.e.f. 1/04/2018 whereby sub-Section (1A) of Section 58 has been amended for the purpose of making a provision for disallowance U/s 40(a)(ia) of the Act. Therefore, in view of the above facts and circumstances of the case, when the amendment is applicable from 01/4/2018, no disallowance can be made U/s 40(a)(ia) of the Act against the income of the assessee assessed under the head “Income from other sources”, hence, we direct to delete the disallowance made U/s 40(a)(ia) of the Act.
7. In the result, appeal of the assessee is allowed.
