Surya Kant, C.J.
1. This order shall dispose of the above captioned Appeals preferred by the Revenue, challenging a common order dated 30.11.2017, passed by the Income Tax Appellate Tribunal, Division Bench 'A' Chandigarh (hereinafter referred to as 'the Tribunal'), whereby the Tribunal has allowed the Assessee's appeals in part whereas Cross-Appeals filed by the Revenue have been dismissed in respect of the Assessment Years 2007-2008 to 2011-2012 and 2013-2014.
2. The substantial question of law sought to be raised in these Appeals is as follows:
"Whether on the facts and in the circumstances of the case, the ITAT is right in law in holding that the income of the assessee, which was paid to the Govt. as per the bye laws of the assessee society, is not taxable, inspite of the fact that the assessee had debited such payment to its P&L Account and had claimed it as a revenue expenditure though the assessee is not registered u/s 12AA of the Act and nor its income is exempt under any of the provisions of the Act"
3. Before adverting to the question formulated above, it would be useful to give a brief synopsis of the facts. The Assessee-Society, hereinafter referred to as 'the respondentAssessee', was registered under the Societies Registration Act, 1860 (hereinafter referred to as 'the 1860 Act') on 27.8.2002. The object of the Society as incorporated in its Memorandum of Association, inter alia, includes:
"To facilitate the general public dealers carrying goods and crossing the barriers established by the State Govt. and also to diffuse awareness amongst the general public/dealers about the sales tax laws.
To utilize the information technology for deeper systematic reforms in tax administration by creation of a separate entity properly geared to provide supportive role to the Department in creation of data bank (dealer wise/commodity wise, Circle wise and Barrier wise), in transmission of information and establishment of client server environment.
To back up the computerization requirement of the Department of Excise & Taxation Department and for this purpose develop infrastructure therefore both in terms of software as well as hardware.
To facilitate adoption of ST-XXVI-A form in a computer friendly format and generate funds by rendering this services to the dealers so as to make it a self sustaining activity.
To carry out all such activities as are envisaged in section 20 of the Society Registration Act 1860, which are in the interest of society.
To derive optimum benefits from fully networked computerization in terms of providing computerized functioning of Multi-purpose Barriers, issuance of computerized receipts, on line networking to facilitate sharing of data between all Offices/Assessing Authorities in the Department and develop other related infrastructures incidental thereto.
The Society shall for this purpose, generate receipts in lieu of providing these services at the Multipurposes Barriers, and utilized the same to fulfill the objectives of the Society.
And in furtherance of the above objectives:
(i) Develop, create, manage and maintain infrastructure for providing such services."
4. The primary funds of the respondent-Assessee were to be augmented by collecting the statutory levy under Section 34 of the Himachal Pradesh VAT Act, 2005 (hereinafter referred to as 'the VAT Act, 2005'), whereunder the State Government was empowered to establish checkpost(s) or erect barriers with a view to preventing or checking evasion of tax under the VAT Act, 2005. Sub-Section (2) of Section 34 of the Act requires the owner or person in-charge of a goods carriage or vessel to carry with him the goods carriage record, a trip sheet or a log-book and tax invoice diary as well as a delivery note containing such particulars as may be prescribed and to produce the same before the officer in-charge of a check-post or barrier and to submit in triplicate a 'Declaration' containing particulars of the goods in the prescribed form. Initially, the cost of 'Declaration', as per Rules set-up by the Government of Himachal Pradesh was Rs.5/-.
The respondent-Assessee, as may be noticed from the object of its formulation, was entrusted with the responsibility of collection of VAT at the above-stated prescribed rate and upon collection of the same, Re.1/- was to be deposited immediately in the Government Treasury and thereafter, in terms of ByeLaw 10.2 of the Society, the remaining amount had to be transferred to the State Government in 'Sales Tax' Head, after meeting out the expenditure incurred by the Society.
5. It would also be relevant to reproduce at this stage the extracts of ST-XXVI-A as prescribed in Clause 8 of the Bye-Laws of the Society read with Clause 10.2 thereof, which are to the following effect:
"8. ACCOUNT OF ST XXVI-A FORM
1. The computer generated STXXVI-A form bearing serial number shall be issued at the Barrier(s) and the E.T.O/In charge Barrier shall maintain proper account of the said forms under the supervision of concerned Assistant Excise and Taxation Commissioner of the District.
2. E.T.O./In charge barrier will deposit Rs. 1/- per form (out of the amount of Rs. 5/- per form as at present or as per rates prescribed from time to time in respect of computerized ST-XXVI-A form/services rendered)/ in the relevant receipt head of the Department as per practice hitherto fore.
3. The balance amount after depositing Rs. 1/- per form will be credited to the Funds of the Society and deposited on day to day basis in a Saving Bank Account to be opened in respect of each barrier(s) with the nearest Scheduled Bank/Cooperative Bank.
4. Keeping in view the requirement of the funds, the Executive Committee can authorize the Assistant Excise and Taxation Officer/In charge Barrier concerned to invest the amount in excess of their requirement in Short Term deposit lest there be any loss of interest.
5. Notwithstanding any thing contained above, the amount collected shall be available for being utilized in the entire State for the purposes set out and as per approval of the Governing Body. xxxxx xxxxxxx xxxxx xxxxx
10.2 After meeting the expenses towards the objectives for the approved purposes listed above and accounting for the liabilities accrued and projected, the surplus amount, if any, shall be deposited in the receipt head 0040 Sales Tax on yearly basis on approval of the Governing Body."
6. The respondent-Assessee, thus, has been maintaining all such multipurpose barriers in the State of Himachal Pradesh from where all goods get in or get out of the State and which are required to be declared at the multipurpose barrier as per Section 34 of the VAT Act, 2005 read with Rules 61 and 62 of Himachal Pradesh VAT Rules, 2005 (hereinafter referred to as 'the VAT Rules, 2005'). A form bearing No. ST-XXVI-A was to be issued to the person declaring the goods at a cost of Rs.5/- per form till the levy was further enhanced to Rs.10/- w.e.f. 18.5.2009.
7. As noticed above, in terms of Clause 8.2 of the Bye-Laws, the respondent-Assessee used to deposit Re.1/- per 'Declaration' with the Government Treasury out of the Rs.5/- till the year 2009 which was later enhanced to Rs.2/- after the tax amount was increased from Rs.5/- to Rs.10/- per 'Declaration'. It is also a matter of record that the respondentAssessee applied for registration under Section 12AA of the Income Tax Act 1961 (hereinafter referred to as 'the IT Act 1961') to the Commissioner of Income Tax, Shimla, who rejected the application on 29.11.2013 holding that the activities carried out by the respondent-Assessee did not benefit the general public rather those were meant to provide the infrastructural facilities to the Excise and Taxation Department of Government of Himachal Pradesh.
8. The respondent-Assessee has, in its Income Expenditure Statements, been showing the surplus of income over expenditure. The Assessing Officer, therefore, issued notice under Section 148 read with Section 147 of the IT Act,1961 on 8.1.2014 for taxing the excess of the income over expenditure, the amount ranging from Rs.64,20,238/- (Assessment Years 2007-2008) to Rs.1,29,37,365/- (Assessment Years 2010-2011) and supplied the copy of reasons recorded for the re-opening of the cases.
9. The respondent-Assessee contested the notice(s) and its precise case was that no surplus income accrued to it as all the surplus income was payable to the State Government and therefore, it had earned no taxable income. The Assessing Officer turned down the plea and 'excess income over expenditure' was computed for the purpose of respondentAssessee's tax liability.
10. The respondent-Assessee filed Appeal before the Commissioner, Income Tax (Appeals), who after going through its activities held that 20% of the tax amount collected and paid to the State Government could not be treated as 'income' of the respondent-Assessee, as it was paid directly to the Government Treasury. As regard to the remaining 80% of the tax collection, it was held to be a part of character of income, as according to the Commissioner, Income Tax (Appeals), the respondent-Assessee had the freedom to utilize the said amount for the objective(s) of the Society.
11. The aggrieved Assessee filed appeals before the Appellate Tribunal against confirmation of 80% of its collection as taxable income whereas the Revenue also filed CrossAppeals against the deletion of 20% of the fee amount. The Tribunal has, vide order under appeals, dismissed the Revenues' Appeals whereas that of the respondent-Assessee's have been allowed in part.
12. The Tribunal has gone in extenso into the Memorandum of Association of the respondent-Assessee as well as the details of its background, functional requirements, operation and model, accounting structure and ultimate payment to the exchequer of the Government. It also went into the composition of the Governing Body, organizational structure, funds and operation of the accounts of the respondent-Assessee, as enumerated in its Bye-Laws and reproduced in the order(s) under appeal.
13. The Tribunal, with an intent to analyze the functioning of the respondent-Assessee viz-a-viz provisions of the VAT Act 2005, has also dwelled upon Section 34 of the said Act read with Rules 61 and 62 of the VAT Rules, 2005 framed there under.
14. The Tribunal has thus concluded that:
"28. On a comprehensive examination of the purpose of registering the society in the name of H.P. Excise and Taxation Technical Service Agency, the organizational structure and conducting of its functions, Rules & Regulations of the society, Receipts & Payment Account of the society, details of the collections on account of tax and amounts paid to Government, relevant provisions of H.P. VAT Act 2005, Establishment of Check Posts of Barrier and inspection of goods in transit, the following points emerged as under:
1. The checkpost or barriers and inspection of goods in transit were established as per the HP VAT Act 2005.
2. The Assessee Society was floated to look after the affairs and tax collection at the check post and barriers.
3. The governing body of the Assessee Society consists of Chairman and six members along with a member secretary who are all from the excise and taxation department except a Technical Director from NIC and MD of Electronic Development Corporation who mainly aid in providing required information technology inputs.
4. The executive committee of the Assessee Society comprise of 8 members along with one Member Secretary who are all officials of Excise and Taxation Department.
5. The Assessee Society is involved in collection and deposit of receipts from STXXVI-A Forms.
6. Out of the collected amount 20% is paid immediately to the Government.
7. The remaining amount is kept in the short term deposits.
8. The surplus amount shall be deposited in the receipt head 0040-Sales Tax Account on yearly basis.
9. The accounts are audited by the IFU of the Sales Tax Department which will compile the final account the Additional Excise and Taxation Commissioner (Head Quarter) is the Authorized Signatory."
15. The Tribunal, on examination of the financial affairs of the respondent-Assessee and after going through its income and expenditure statements for the relevant Assessment Years, has further concluded that:
"32. Thus, after going through the entire affairs of the assessee we hold that the surplus of income over expenditure also belongs to the Government which has been duly deposited in the state exchequer cannot be the income of the assessee.
33. Before us the assessee has submitted statement reflecting the payment of balance amount of the 80% of the fee collected has also been paid to the Treasury of the State Government.
34. The Assessing Officer is hereby directed to examine the Challans paid by the assessee into the Government account under the receipt head 0040 Sales Tax Account as submitted by the assessee and give due benefit for the amounts paid into the Government exchequer."
16. It is in this backdrop, coupled with a firm finding of fact to the effect that the surplus of income over expenditure of the respondent-Assessee belongs to the State Government and has been duly deposited in the public Exchequer that the question which falls for determination iswhether 80% of the balance amount duly deposited by the respondent-Assessee in the Government Treasury, after deducting the expenses incurred by it, amounts to 'taxable income' under the IT Act, 1961, more so when the respondentAssessee is not registered under Section 12AA of the said Act?
17. We have heard Mr. Vinay Kuthiala, learned Senior Advocate, on behalf of the appellant-Revenue and Mr. Vishal Mohan, Advocate, on behalf of the respondent-Assessee at a considerable length and gone through the record.
18. It was urged on behalf of the appellant-Revenue that the respondent-Assessee is a 'juristic person' falling within the ambit of Section 2 (31) of the IT Act, 1961. The respondent-Assessee has been formed for manning all the multipurpose barriers to charge the goods which cross the barriers whether coming into or going out of the State of Himachal Pradesh. All such goods have to be declared at the multipurpose barriers in accordance with Section 34 of the VAT Act, 2005 read with VAT Rules, 2005 for which the assessee sells the 'Declaration Form' and derives 'income' therefrom.
19. The respondent-Assessee applied for exemption under Section 12AA of the IT Act, 1961 but its application was rejected as the activities that it carried out were not of general public utility but were for providing infrastructural facilities to the Excise and Taxation Department of the State of Himachal Pradesh. On this premise, it was urged that the respondentAssessee was 'earning income' at the multipurpose barriers by sale of Forms etc., and was preparing the income and expenditure statements in which it has been showing surplus of income over expenditure in its Returns. The respondentAssessee was depositing excess of income over expenditure in the Government Treasury for payment to the State Government and was debiting these amounts in the income and expenditure statements and claiming it as revenue expenditure. This payment, according to the learned Senior Counsel for the Revenue, is only a diversion of income and is not related to any business activity of the respondentAssessee.
He argued that under Section 14 of the Himachal Pradesh Societies Registration Act, 2006, a Society is a body corporate and a separate legal entity and in view of Section 8 of the said Act, the Society can have neither profit motive nor its profit can be distributed amongst the Members. Thus, it was apparent that the mandate of law prohibits distribution of income of the Society and the excess revenue over expenditure therefore, constitutes as 'income of the Society' and is liable to be taxed as envisaged by Section 4 read with Section 2 (24) of the IT Act, 1961.
20. Learned Senior Counsel for the Revenue relied upon CIT versus Sunil J. Kinariwala, (2003) 259 ITR 10 (SCC) wherein the Hon'ble Supreme Court has ruled as follows:
"When a third person becomes entitled to receive the amount under an obligation of an assessee even before he could lay a claim to receive it as his income there would be a diversion by overriding title, but when after receipt of the income by the assesse it is passed to on a third person in discharge of the obligation of the assessee, it will be case of application of income by the assesse and not of diversion of income by overriding title."
21. Learned counsel for the respondent-Assessee, on the other hand, countered the appellant's claim urging that the concept of taxation under the IT Act, 1961 is relatable to the 'real income' which actually belongs to the Assessee.
22. In the instant case, 'statutory levy' under the VAT Act, 2005 is being collected by virtue of the powers entrusted by the State Government to the respondent-Assessee. Since the entire collection is deposited in the Government Treasury of the State after deducting the actual expenditure incurred by the respondent-Assessee, no 'real income' accrues to the Society.
23. Learned counsel has relied upon the decision in Commissioner of Income Tax Bombay City-II versus Sitadas Tirathdas, (1961) 41 ITR 367 (SC), in which Hon'ble Supreme Court has ruled that what is to be subjected for taxation is only and only real income over which the assessee possesses a right and not any other thing. He cited Somiaya Orgeno Chemicals Ltd. versus CIT, (1995) 216 ITR 291, Bombay, where the issue considered was-whether the cess collected and kept in a separate bank-account as per the statutory order and to be utilized for a particular purpose, was 'income' in the hands of assessee? It was held that the 'statutory levy' could not be equated as the 'real income' of the assessee. Rajkot District Gopalak Co-operative Milk Producers Union ltd. versus CIT, (1993) 204 ITR 590, Gujarat, was cited where the question which fell for consideration was-whether income of the project assigned to a Co-operative Society on lease and license basis and profits of which were to be paid to the State Government, could be treated as 'income' of the assessee? It was held that the entire income belonged to the Government and it could not be treated as the income of the assessee and was thus not taxable. Similarly, in Commissioner of Income Tax versus Pepsu Road Transport Corporation, 253 ITR 303 (P&H), the Court considered the question as to whether the amount forfeited by the employer out of the provident fund where it was categorically mentioned that the said amount belonged to the Trust, was income of the assessee. Invoking the concept of 'real income', the High Court held the same not to be the income of the assessee. A somewhat similar view was taken in Gujarat Municipal Finance Board versus Deputy Commissioner of Income Tax (Assessment), (1996) 221 ITR 317, Gujarat.
24. As regard to the facts highlighted on behalf of the appellant-Revenue that the respondent-Assessee had, in its Returns of income shown surplus as payable to the Government, it was argued that the entries in the books of account cannot, by any stretch of imagination, amount to earning of the income, as held by the Hon'ble Supreme Court in CIT Bombay City versus Surji Ballabh Dass, 46 ITR 144.
25. On an objective analysis of the rival submissions, the question which eventually arises for determination is whether the retention of a part of the VAT collected by the respondent-Assessee till the process of determination of its actual expenditure incurred on the collection, followed by deposit of balance surplus amount in the Government Treasury for onward transmission to the State Government, can be treated as the 'real income' in the hands of the respondent-Assessee for the purpose of IT Act, 1961?
26. It is true that 'income' has not been defined in Section 2 (24) of the IT Act, 1961 but with the addition of expression 'includes', the scope and ambit of 'income' stands enlarged. Various components illustrated in the definition Clause including 'profits and gains' are part of the 'income'. In view of the comprehensive definition chosen by the Legislature, something which is not expressly included in Section 2 (24), can also form part of the 'income'. If the dictionary meaning of the word 'income' is to be logically and liberally construed, the 'income' shall include all those benefits, whether in terms of money or otherwise, which are to be taken into consideration for the purpose of payment of income tax or professional tax. None of the receipts illustrated in Section 2 (24) except 'profits and gains' have been cited or applied by the Revenue to adjudge the 'income' of the respondent-Assessee. The 'profits and gains', as ruled by the Hon'ble Supreme Court in CIT versus Gold Coin Health Food (P) Ltd., (2008) 9 SCC 622, refers to positive income only.
27. The word 'profit' means the gross proceeds of a business transaction minus the costs of transaction. 'Profits' imply a comparison of the value of an asset when the asset is acquired with the value of the asset when such asset is transferred and the difference between the two values is the amount of 'profit' or 'gain' made by a person [See: Topman Exports versus CIT, (2012) 3 SCC 593].
28. To say it differently, the word 'profit' connotes the idea of pecuniary gain. If there is an actual gain, its quantum or amount would not be material; but such amount would be component of 'income' in terms of Section 2 (24) (i) of the IT Act, 1961.
29. The expression 'gain', on the other hand, is not synonymous with the word 'profit', for it is not restricted to pecuniary or commercial profits only as it includes other considerations of value gained also. For example, any advantage or benefit acquired or value addition made by some activities would amount to gain, even though the activities are not profit motivated.
30. Applying these principles to the facts of the cases in hand, it may be seen that the respondent-Assessee continued to
Please Login To View The Full Judgment!
receive Rs.5/- per Form till May, 2009 out of which Re.1/- was straightaway deposited in the Government Treasury and out of the balance of Rs.5/-, only the actual expenditure incurred by it on collection process was deducted and the balance amount (80% as assessed by the authorities) was duly deposited in the Government Treasury to be paid to the Excise and Taxation Department of the State Government. In this entire process, the respondent-Assessee neither gained anything nor earned any profit. The VAT amount recovered by the respondent-Assessee was/is an entrustment of the statutory function of the State which alone is competent to levy VAT under Section 34 of the VAT Act, 2005. The respondent-Assessee thus neither created any source of income nor generated any profit or gain out of such source. The Assessee merely performs the statutory functions under the VAT Act, 2005 and collects the tax amount for and on behalf of the State and transfers such collection to the Government Treasury. Even if the tax collection remains temporarily parked with the Assessee for some time, it cannot be treated as 'income' generated by the Assessee as the said amount does not belong to it. 31. The Tribunal has thus rightly concluded that the surplus of income over expenditure, as reflected in the entries or the Returns filed by the respondent-Assessee, also belonged to the State Government which was duly deposited in the Government Treasury. Hence, it does not partake the character of 'profit or gain' earned by the respondentAssessee. 32. The non-registration of the respondent-Assessee, under Section 12AA of the IT Act, 1961 is inconsequential, for an occasion to seek exemption from payment of tax on the income by a Trust or Institution serving the cause of general public utility would arise only when some actual income is derived. The respondent-Assessee though is a 'juristic person' but in the absence of any income having been earned by it through 'profits or gains' within the meaning of Section 2 (24) of the IT Act, 1961, the respondent-Assessee is indeed not obliged to seek exemption under Section 12AA of the IT Act, 1961, for it does not have any taxable income. 33. For the reasons afore-stated, the substantial question of law is answered in negative against the appellant-Revenue and in favour of the respondentAssessee. 34. As a necessary corollary, all the appeals must fail and are accordingly dismissed alongwith pending applications, if any.