Cess Collected under BOCW Act is Taxable Income, not a Grant, Despite Section 12A Registration: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) denied tax exemption for cess collected under the Building and Other Construction Work Act, 1996 ( BOCW Act ) despite Section 12A registration because the cess collected is taxable income under income derived from property held under trust and not a grant.

Assessee, The Delhi Building and Other Construction Workers Welfare Board is a society registered under Section 12A of the Income Tax Act, 1961 dated 23.03.2009. The assessee received an income of Rs. 559,13,669 during the Financial Year 2009-10, on which tax was deducted at source, but no income tax return was filed.

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The assessing officer issued a notice under Section 148 of the Income Tax Act, and then the assessee filed an income tax return declaring nil on 27.10.2017. It was found that the assessee had transferred cess fees of Rs. 191,61,53,808 from its balance sheet to the income and expenditure account. The AO issued a show cause notice for which the assessee replied that the cess fees received by the board were a capital receipt that was used for construction worker welfare as per Section 60 of the BOWC Act.

The assessing officer held that the amount of Rs. 191,61,53,808 had to be taken to the income and expenditure account and 80% of the amount should be utilized in the year thus, added the amount to the assessee's total income. The assessee appealed before the CIT(A) against the AO’s order.

Before CIT(A), the assessee argued that the cess collected is not income but a capital receipt for a specific purpose (welfare of construction workers as per Section 60 of the Building and Other Construction Works Act, 1996). Therefore, not chargeable under Section 4 of the Income Tax Act. The assessee further argued that the notice issued under section 148 by the ITO (Exemption) is bad in law and out of jurisdiction.

The CIT(A) referred to previous decisions in the assessee’s own cases for earlier assessment years (2007-08 and 2008-09), where the exemption under Section 11 was denied due to the absence of registration under Section 12A of the Income Tax Act.

The CIT(A) upheld the view that since the Board was registered under Section 12A from the assessment year 2009-10 onwards, the receipts should be taxed as income derived from property held under trust.

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The CIT(A) held that the cess collected by the Board was considered income, not a grant. Under the Income Tax Act, this income was to be applied for charitable or religious purposes. The CIT(A) upheld the assessing officer's decision in treating the amount collected as receipts for the year and considering the same to compute the amount to be applied for charitable or religious purposes.

The assessee appealed before the ITAT, Delhi against the CIT(A) order but failed to appear for the proceedings. The tribunal did not find any reason to interfere with the CIT(A) decisions and no assistance was rendered by the assessee. Thus, the ITAT upheld the CIT(A) order and dismissed the assesee’s appeal.

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