Income shall be determined on Net Profit even though Society is not Registered u/s 12A of Income Tax Act: ITAT allows Deduction of Expenditure [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) allowed deduction of expenditure and held that the income shall be determined on net profit even though the society is not registered under Section 12A of the Income Tax Act, 1961.

The assessee is a Society engaged in implementing various Schemes of the Government of India and State Government of Assam on health for which it gets grant-in-aid, Scheme-wise. The assessee had not filed its return of income for which a survey under section 133A was carried out at the premises of the assessee.

A perusal of the assessment order revealed that there are three categories of income in the hands of the assessee, namely- (a) grant-in-aid; (b) interest on the surplus of the above granting-aid deposited in the Banks, etc.; (c) Other income comprising of sale of bidding documents and miscellaneous receipts.

As far as the first two categories of income are concerned, the Assessing Officer observed that this is a grant given by the Government for specific implementation of the projects. Thus, the assessee was required to act upon specific directions of the State Government as well as the Government of India.

There is a third category of income, which has been earned by the assessee through the sale of bidding documents and miscellaneous income. According to the Assessing Officer, this income will fall in the category of other income.

Since the assessee was not having registration under section 12AA of the Income Tax Act. The Assessing Officer has held that beyond 15% of the gross receipts under this head would be taxable.

The Two-bench member comprising of Rajpal Yadav (Vice-President) and Girish Agrawal (Accountant member) held that gross receipts under the third category, namely other income does not deserve to be taxed.

The expenditures are to be set off against gross receipts, even if an assessee is not registered under section 12A, then also, its income is to be determined at net and not on gross.

Therefore, the directions given by the Commissioner of Income Tax (Appeals) are set aside along with the orders of the Assessing Officer. The issue was remitted to the file of the Assessing Officer to re-adjudicate this aspect and allow the deduction of expenditure incurred by the assessee for earning the other income.

Thus, the appeals of the assessee were partly allowed for statistical purposes.

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