Nitco Logistics Pvt. Limited, Jammu vs Assessee

M/s. Nitco Logistics Pvt. Limited vs. Joint Commissioner of Income Tax, Talab Tillo, Jammu. Range-2, Jammu. (Appellant) (Respondent)

Appellant by:Sh.P.N.Arora, Advocate Respondent by:Smt. Ratinder Kaur, DR

Date of hearing:13/01/2015 Date of pronouncement:16/01/2015

ORDER

PER B.P. JAIN, AM:

This appeal of the assessee arises from the order of the CIT(A),

Jammu dated 31.03.2014 relating to assessment year 2010-11. The assessee

has raised following grounds of appeal:

"1. The Ld. CIT(A) has erred in law and facts of the case in confirming the additions to the returned income.

2. The Ld. CIT(A) has grossly erred in law and facts of the case in confirming addition of Rs.13,35,707/- on account of Dharmarth Receipts.

2 ITA No.344(Asr)/2014 2.2. That Dharmarth collected at the time of booking & delivery is accounted for straight away by crediting to "Dharmarth" account and entire amount is paid to charity by account payee cheques by debiting to "Dharmarth" account.

2.3. That it is ethically wrong to treat the amount collected as dharmarth as an income.

2.4. That as per CBDT Circular No.77-F No.Audit 9/73-79/DIT dated 21.03.1979 & decision of Hon'ble Supreme Court in the case of CIT vs. Bijli Cotton Mills (P) Ltd. 116 ITR 60, it has been clarified that "Dharmardha" amounts could not be regarded as part of the price.

2.5 That charitable trusts to whom payment was made are registered u/s 80G of the Income Tax Act and copies of registration certificates were filed both before the AO and the Ld. CIT(A).

2.6. That proviso existed in the Memorandum and Articles of Association of the company regarding making charity.

2.7. That since Dharmarth is not a trading receipt, it is prayed that addition of Rs.13,35,707/- be deleted.

3. The assessee craves leave to add or amend the grounds of appeal."

2. The brief facts of the case are that the assessee collected an amount of

Rs.13,35,707/- on account of Dharmarth receipts from its customers which

in fact, were not declared in the profit & loss account. It was observed by

the AO that these receipts are collected in lieu of services rendered during

normal course of business of transportation of goods. The explanation of the 3 ITA No.344(Asr)/2014

assessee was not found satisfactory and accordingly the AO on similar

addition made in immediate preceding year in assessee's own case i.e.

assessment year 2009-10 made an addition of Rs.13,35,707/- to the income

of the assessee in the impugned year.

3. The Ld. CIT(A), confirmed the action of the A.O. The Ld. CIT(A),

while confirming the action of the AO observed that the objective of the

Company are commercial in nature and there is no reason to collect

Dharmarth. Any collection of Dharmada or Dharmarth is part of the receipt

and subsequent payment to any charitable institution is the application of

income. The said decision by the Ld. CIT(A) has been taken on the basis of

his decision in assessee's own case in the preceding assessment year i.e.

2009-10.

4. The Ld. Counsel for the assessee, Mr. P.N.Arora, Advocate, at the

outset pointed out at page 3 of AO's order in para 2 and in Ld. CIT(A)'s

order in para 4.2 that the facts in the present case are similar to the facts in

assessee's own case for the assessment year 2009-10 which matter has

travelled to the ITAT, Amritsar Bench and the Tribunal in its order in ITA

No.437(Asr)/2012 vide order dated 05.09.2014 has deleted the addition so

made. The said order of the Tribunal is placed on record PB 12 to 23.

Accordingly, the Ld. AR prayed to allow the appeal of the assessee by 4 ITA No.344(Asr)/2014

following the earlier order of ITAT, Amritsar for the assessment year 2009-

10 being similar on facts.

5. The Ld. DR, on the other hand, relied upon the orders of the

authorities below.

6. We have heard the rival contentions and perused the facts of the case.

The undisputed facts in the impugned order are that the assessee has

collected Dharmarth in GRs and gate passes as part of charity . Dharmarth

is collected every month and is being passed to a charitable trust. The receipt

is neither shown as income nor as expenditure. The payment to the

charitable trust is not claimed as an expenditure. This accounting practice is

being followed consistently since assessment year 2001-02 to assessment

year 2009-10 and also in the impugned year. All the assessments since 2001-

02 to assessment year 2009-10 have been made under section 143(3) of the

Act except for the assessment year 2002-03. The department has never

disputed such receipts as income of the assessee. Once the receipts having

been collected for payment of charity, such receipts cannot be treated as

income. Principle of consistency has to be followed once no change in facts

has been brought on record by any of the authorities below in the impugned

year as compared to earlier years as mentioned hereinabove. Also Dharmarth

receipts are not taxable, has been held by the Hon'ble Supreme Court, in the 5 ITA No.344(Asr)/2014

case of CIT vs. Bijli Cotton Mills (P) Ltd. (1979) 116 ITR 60 (SC). The

issue in the present case is squarely covered by our own decision in

assessee's own case for the assessment year 2009-10 and the addition so

made has been directed to be deleted vide order dated 05.09.2014 in ITA

No.437(Asr)/2012. For the sake of convenience, the facts of the case and our

decision therein in the assessment year 2009-10 is reproduced hereinbelow:

" 3.Apropos ground no. 1, the Assessing Officer made an addition of Rs. 15,99,471/- on account of Dharmarth Receipts collected along with freight receipt, not reflected by the assessee in its profit and loss account.

4. The Assessing Officer observed that the receipts were directly related to the business of the assessee company; that the receipts were received not by a trust created for the purposes of charity in nature, but by a company doing business and trading; and that no evidence had been filed by the assessee that the receipts had been actually spent on charity.

5. The learned CIT(A), while upholding the addition, observed that the assessee had remained unable to establish that the object of the company, as per its memorandum and articles of association, was also to carry out charity; that its objective was commercial and there was no reason to collect Dharmarth from its clients; and that, therefore, the Assessing Officer had rightly treated this receipt as a trade receipt.

6. Before us, the learned counsel for the assessee has contended that similar receipts were allowed in earlier years, which are as follows:

S. No. Asstt. Year Amount Recd. Remarks 1. 2001-02 1834047/- Allowed in assessment u/s 143(3) 2. 2002-03 1846517/- Allowed in assessment u/s 143(1) 3. 2003-04 1730473/- Allowed in assessment u/s 143(3) 6 ITA No.344(Asr)/2014

4. 2004-05 1727683/- Allowed in assessment u/s 143(3) 5. 2005-06 1745350/- Allowed in assessment u/s 143(3) 6. 2006-07 1746854/- Allowed in assessment u/s 143(3) 7. 2007-08 1662338/- Allowed in assessment u/s 143(3) 8. 2008-09 1708967/- Allowed in assessment u/s 143(3)

7. It has been further contended that a summarized copy of the accounts of the Dharmarth Receipt was filed. A copy thereof is at APB -8. It has next been submitted that as per CBDT Circular No. 77- F (copy at APB - 9), dated 21st March, 1979, Dharmarth Receipts are not taxable; that this Circular is binding on the Department and has illegally not been abided by; and that while wrongly holding that the objects of the assessee company were not charitable, the learned CIT(A) has failed to take into consideration Clause no. 30 of the memorandum and articles of association of the assessee company [copy at APB 34, relevant portion at APB 34(d)].

8. The learned DR has placed strong reliance on the impugned order, contending that the objective of the assessee company is commercial and there was no reason to collect Dharmarth from its clients; and that the assessee has not been able to establish that the objective of the assessee company was to carry out charity.

9. It is not disputed that Dharmarth receipts are not taxable. This is as per the CBDT Circular (supra), as also the following decisions:

i. CIT Vs. Bijli Cotton Mills (P) Ltd., (1979) 116 ITR 60 (SC) ii. CIT Vs. Gheru Lal Bal Chand, (1978) 111 ITR 134 (P&H) iii. Addl. CIT Vs. Channoo Lal Damodar Dass, (1978) 113 ITR 759 (All.) iv. Addl. CIT Vs. Dalsukhrai Jaidayal, (1979) 117 ITR 466 (All.) v. Nathu Ram Shiv Narain Vs. CIT, (1982) 134 ITR 625 (P&H) vi. CIT Vs. E.H. Kathawala & Co., (1982) 135 ITR 384 (Bom.) vii. Chunnilal Onkarlal (HUF) Vs. CIT, (1982) 135 ITR 580 (MP) viii. CIT Vs. Ratilal Popatlal Shah, (1984) 43 CTR 4 (Bom.)

10. The only dispute before us is as to whether the receipts were, in fact, Dharmarth receipts. The assessee's stand in this regard is that it was collecting Dharmarth in GRs and gate passes, as part of charity;

7 ITA No.344(Asr)/2014 that this Dharmarth collected every month was being passed on to a charitable trust; and that the receipt was neither shown as income, nor as expenditure. This stand of the assessee is entirely in line with its stand for the earlier years, right from A.Y. 2001-02 to A.Y. 2008-

09. For all these years, in scrutiny assessments framed under Section 143(3) of the Income-tax Act, 1961 (for short "the Act"), but for A.Y. 2002-03, for which year, such assessment was framed under section 143(1) of the Act, the Department has never disputed such collection in GRs and gate passes and the fact that it was being passed on to a charitable trust. The objection of the authorities below in this regard, raised only for the first time, during the year 2009-10, is that the receipt is not by a charitable trust, but by the assessee company, which is doing business and trading. This, according to us, is not at all acceptable. Once the receipts are routed as such to a charitable trust by the assessee company and the nature of that trust has not been questioned, we hold that the receipts are Dharmarth receipts and nothing else. The consistent acceptance of such receipts by the Department itself, for as many as eight earlier assessment years, mandates the acceptance of such receipts of the assessee during the year under consideration also as Dharmarth receipts, when no change in facts has been pointed out by the authorities to have come about during the year under consideration.

11. That Dharmarth receipts are not taxable, has been laid down as law by the Hon'ble Supreme Court, way back in the year 1979, in the case of 'CIT Vs. Bijli Cotton Mills (P) Ltd.' , (1979) 116 ITR 60 (SC). Clause no. 30 of the memorandum and articles of association of the assessee company reads as follows:

"30. To donate or subscribe money for any national, charitable, benevolent or public purchase or to institutions and funds for public benefit or which have any moral and other claim on company or its members, employees or customers and to promote such institutions and funds and to give charities and donations."

12. This clause of memorandum and articles of association of the assessee company clearly shows that one of the objectives of the assessee company is charity. The learned CIT(A) has remained oblivious of this specific clause in the memorandum and articles of association of the assessee company, while holding that 'the appellant could not establish before me that the objectives of the company as 8 ITA No.344(Asr)/2014

per memorandum and articles of association was also to carry out charity.'

13. Therefore, finding merit in this grievance raised by the assessee, the same is hereby accepted. The impugned order in this regard is cancelled and the addition made is deleted."

7. In the facts and circumstances of the present case and our findings

hereinabove and our decision in assessee's own case for the assessment year

2009-10, reproduced hereinabove, Dharmarth Receipts are not taxable.

Accordingly, we cancel the impugned order and direct the AO to delete the

addition so made. Thus, all the grounds of the assessee are allowed.

8 In the result, the appeal of the assessee in ITA No.344(Asr)/2014 is

allowed.

Order pronounced in the open court on 16th January, 2015.

Sd/- Sd/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16th January, 2015 /SKR/ Copy of the order forwarded to:

1. The Assessee:M/s.Nitco Logistics (Pvt.) Ltd. Jammu

2. The JCIT, R-1, Jammu

3. The CIT(A), Jammu

4. The CIT, Jammu

5. The SR DR, ITAT, Amritsar.

True copy By order (Assistant Registrar) Income Tax Appellate Tribunal,