Sections 2(24) and 4 of ITA, 1961 – Income – Meaning of – Assessee collecting value-added tax on behalf of State Government – Excess over expenditure deposited in State Government Treasury – No income accrued to assessee

34.  Principal CIT vs. H.P. Excise and Taxation
Technical Service Ltd.; 413 ITR 305 (HP)

Date of order: 7^th
December, 2018

A.Ys.: 2007-08 to 2011-12 and
2013-14

Sections 2(24) and 4 of ITA, 1961 –
Income – Meaning of – Assessee collecting value-added tax on behalf of State
Government – Excess over expenditure deposited in State Government Treasury –
No income accrued to assessee

The assessee-society was registered
under the Societies Registration Act, 1860 on 27^th August, 2002.
Under the objects of its formation the assessee was entrusted with the
responsibility of collection of value-added tax. The assessee maintained all
the multi-purpose barriers in the State of Himachal Pradesh from where all
goods entered or left the State in terms of section 4 of the Himachal Pradesh
Value-Added Tax Act, 2005. A form 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^th May, 2009. In terms of the bye-laws, the assessee used
to deposit Re. 1 per declaration  form
with the Government Treasury out of the Rs. 5 received till the year 2009; this
was later enhanced to Rs. 2 after the tax amount was increased from Rs. 5 to Rs
10 per declaration form. The assessee had been showing the surplus of income
over expenditure in its income-expenditure statements. The AO, therefore,
issued notices u/s 148 of the Income-tax Act, 1961 for taxing the excess of
income over expenditure. For the A.Y.s 2007-08 and 2010-11 the assessee
contested the notices stating that all the surplus income was payable to the
State Government and, therefore, it had earned no taxable income. The AO rejected
the assessee’s claim.

The Tribunal considered the
memorandum of association of the 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, organisational structure, funds and
operation of the accounts of the assessee as enumerated in its bye-laws. It
held that the amount was not assessable in the hands of the assessee.

On appeal by
the Revenue, the Himachal Pradesh High Court upheld the decision of the
Tribunal and held as under:

“(i)   The assessee neither created any source of income nor generated
any profit or gain out of such source. The assessee merely performed the
statutory functions under the 2005 Act and collected the tax amount for and on
behalf of the State and transferred such collection to the Government Treasury.
Even if the tax collection remained temporarily parked with the assessee for
some time, it could not be treated as ‘income’ generated by the assessee as the
amount did not belong to it.

(ii)   The Tribunal had rightly concluded that the surplus of income over
expenditure, as reflected in the entries or the returns filed by the assessee,
also belonged to the State Government and was duly deposited in the Government
Treasury. Hence, it did not partake of the character of ‘profit or gain’ earned
by the assessee.