IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1064 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/- and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Sd/- 1 Whether Reporters of Local Papers may be allowed to No see judgment ? 2 To be referred to Reporter or not ? Yes 3 Whether their Lordships wish to see fair copy of No judgment ? 4 Whether this case involves substantial question of law No as to interpretation of Constitution of India or any order made thereunder ? GUJARAT RAJYA KAMDAR SABHA UNION MACHIWADI Versus INCOME TAX OFFICER Appearance: MR MANISH J SHAH(1320) for Appellant(s) No. 1 MRS KALPANAK RAVAL(1046) for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 07/01/2020 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This tax appeal under Section 260A of Income Tax Act, 1961 (for short Act, 1961 ) is at instance of Page 1 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT assessee (a Trade Union) and is directed against order passed by Income Tax Appellate Tribunal dated 21st March, 2018 in ITA No.251/Srt/2017 for A.Y.2009-10. 2. facts, giving rise to this tax appeal, may be summarized as under; 2.1 assessee is registered trade union bearing Registration No.G2221 issued by Registrar of Trade Union, State of Gujarat dated 14th August, 1981. On 10th April, 2008, Managing Committee of Union passed unanimous resolution that as result of compromise arrived at between Gujarat Rajya Kamdar Sabha and Perstop Chemical (I) Pvt. Ltd. in Court, whatever amount is received from Company, would be fully distributed to workers of Perstop Chemical (I) Pvt. Ltd., Vapi. 2.2 In such circumstances, referred to above, settlement was arrived at on 15th May, 2008 which was reduced into writing in form of memorandum of settlement between Company, i.e, employer and assessee-Union. By virtue of memorandum of settlement, all disputes pending before Industrial Tribunal, Surat including individual disputes pending before Labour Court, Valsad came to be settled. Clause-40 of Settlement Deed reads thus; 40) it is agreed by and between parties that on authorized resolution of committed and written authorization of individual workmen, company will deduct 20% as union contribution to be deducted from all amount of arrears back wages, legal dues and strike wages, as case may be payable to workmen as result of this settlement. Such deducted/recovered amount shall be remitted by cheque in name of union within period of 15 days from payment made to Page 2 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT workmen. 2.3 In view of aforesaid settlement, Union received payment of Rs.60,96,818/-, and same came to be credited in separate Bank Account No.10868677243 maintained with State Bank of India, Chikhli Branch. amount which came to be credited by four different cheques is as under; DATE AMOUNT 22.05.2008 Rs.4,88,66/- 15.09.2008 Rs.24,63,400/- 26.11.2008 Rs.3,50,442/- 12/12/08 Rs.27,94,315/- Total Rs.60,96,818/- 2.4 It appears that, thereafter, notice under Section 148 of Act for A.Y. 2009-10 came to be issued for reopening of assessment of assessee-Union based on some information received from Investigating Wing. basis for reopening of assessment was receipt of Rs.60,96,818/- by Union, as referred to above. Assessing Officer, in assessment order, observed in paras- 3,4 and 5 as under; 3. I have carefully gone through reply filed by assessee. assessee AOP accept that sum of Rs.60,96,818/- has been received by them however, facts remained that(as it is discussed in show cause notice) amount lying with Chikhli branch of SBI has not been shown by assessee (para 2.1 and 2.2 of show cause) moreover, it is fact that out of amount received nothing has been paid to workers during Financial Year. Assessee claims itself as custodian of amount received. However, assessee does not disclose that why disbursement is not made as per terms of agreement. Page 3 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT 4. amount received is revenue receipt and not capital receipt because no capital assets has came in to existence revenue receipts is liable to tax if terms of settlement is not complied with. Once said amount is received assessee AOP is in complete command and control as if income belonging to them. controversial amount is distributed to workers at later date is application of income. application of income is diversion of income and therefore, entire income of Rs.60,96,818/-is liable to be charge to taxed u/s. 4 r.w.s. 2(24) and 56 of IT. Act as income from other sources. Penalty proceedings u/s. 271(1)(c) of I.T. Act are separately initiated for concealment of income. 5. On verification of bank statement of assessee, bank account no. 10868677243 of Chikhli branch of SBI it is seen that interest amount of Rs.34,050/was credited. On verification of computation of income of assessee it is seen that assessee has not shown said interest income from bank, which is undisclosed income and therefore requires to be added to total income of assessee for year under consideration. Penalty proceedings u/s.271(1)(c) of I.T. Act are separately initiated for concealment of income. 2.5 Ultimately, assessment was undertaken under Section 143(3) of Act and order was passed to calculate tax and interest payable under Section 234B of Act. Income Tax Officer issued demand notice including penalty notice under Section 271(1)(c) of Act for concealment of income. 2.6 assessee carried assessment order in appeal before Commissioner of Income Tax. Commissioner of Income Tax (Appeals), vide order dated 17 th October, 2017, dismissed appeal. While dismissing appeal, Commissioner of Income Tax (Appeals), observed as under; In appellate proceedings, appellant has objected Page 4 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT to reopening of assessment vide ground of appeal No.1. AR of appellant contended that reopening was bad in law as no income escaped assessment and it was further contended that A.O. did not properly dispose of specific objections raised at time of re-assessment proceedings. From copy of order dated 21.11.2016 disposing of objections against reopening by A.O., I find that A.O. has passed speaking order against objections raised by appellant. In said order, A.O has mentioned that receipts of Rs.60,96,818/- was not disclosed in books of account of appellant union. Considering these facts, it is apparent that reopening of current case is fully in accordance with provisions of Act and therefore ground of appeal No.1 challenging reopening is hereby dismissed. Vide ground of appeal No.2, appellant has contended that addition of Rs.60,96,818/- is not justified on ground that payment of 20% of employees dues as union contribution cannot be taxed as amount received by union had direct nexus and settlement arrived at between parties. contribution from employer received is incidental to activities of services rendered by union in resolving dispute between member workers and employer with intention of welfare of member workers. It was also claimed that appellant union had passed resolution to give amount so received from employer to employees and employees had overriding charge on this amount. appellant has also relied on judgment of Mumbai ITAT in case of Mambai Mazdoor Sabha 75 taxmann.com 134. From facts brought out in assessment order and submissions made in appellate proceedings, there is no documentary evidence filed to support appellant s claim of overriding charge of employees neither there were any evidences furnished to indicate that appellant union had incurred expenses pertaining to employees towards negotiation and settlement of disputes with employer. Even though settlement was reached on 16.05.2008, there was no evidence of incurrence of any expenditure and distribution of surplus to member employees. This finding of A.O in assessment order, was not controverted by appellant either during assessment or during current appellate proceedings. Thus, Page 5 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT amount of Rs.60,96,818/- becomes receipt which is not in form of contributions from member neither voluntary contributions received from employer towards expenses incurred on behalf of member s welfare. Such receipts cannot be tax exempt on principle of mutuality neither these receipts can be treated as income from house property or other sources which is exempt u/s. 10(24) of Act for registered trade union. In absence of any evidences of incurrence of any expenditure for welfare of member workers or expenses for pursuing dispute on behalf of member workers, these receipts take form of professional fee of union in facilitating dispute resolution between employees and employer. Almost whole receipts were found lying idle in bank account till 31.03.2009 which further corroborate fact that said receipts were outright income of appellant trade union. appellant has relied on decision of Mumbai ITAT in case of Mumbai Mazdoor Sabha wherein Hon ble Bench had allowed voluntary contribution deducted by employer and paid to union as exempt income on principle of mutuality. In said case, Hon ble Bench had found that union had incurred expense for welfare of member workers as well as expenses for pursuing legal disputes in courts and other forums. Hon ble Bench also found that after incurrence of various expenses on behalf of member workers pertaining to disputes, remaining voluntary contributions received from employer were payable to member workers. In current case, there is no such incurrence of expenses shown by appellant union even receipts were duly accounted in books of account of union. Thus, decision of Hon ble ITAT Mumbai in case of Mumbai Mazdoor Sabha is not applicable to facts of current case. Therefore, addition of Rs.60,96,818/- as taxable receipts/income of appellant union is hereby confirmed. Ground of appeal No. 2, is thus dismissed. 2.7 assessee, being dissatisfied with order passed by Commissioner of Income Tax (Appeals), carried matter further by preferring appeal before Income Tax Appellate Tribunal, Surat. Income Tax Appellate Tribunal, Page 6 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT vide order dated 21st March, 2018, dismissed appeal. While dismissing appeal, Appellate Tribunal observed as under; 9. We have considered facts and heard rival submissions. We find that assessee AOP has not filed any return of income whereas specific information received from investigation wing has revealed that assessee has received amount of Rs.60,96,818/-, hence, assessment was reopened by issue of notice u/s. 148 of Act. Further, information collected from SBI, Chikhli u/s. 133(6) showed amount credit in Bank Account No.1068677243 as credit of receipt amount Rs.60,96,818/by way of 4 cheques on various dates. It is seen that this amount was received by assessee by 12.12.2008. However, this bank account was not shown in audited balance sheet as on 31.03.2009 which were audited and signed by CA M/s. M.S. Chokshi & Co., 29.07.2009. It is further seen that assessee has furnished annual report for financial year 2008-09 relevant to assessment year2009-10 to office of Labour Commissioner, Gandhinagar in which also balance appearing aforesaid account at Rs.56,09,737/- was not also disclosed. We further find that settlement was reached on 16.05.2008 and amount of Rs.60,96,818/- was received till 12.12.2008, but there was no evidence of incurring any expenditure and distribution of surplus to member employees. Thus, we find that findings recorded by Assessing Officer and CIT (A) were not controverted by Id. Authorised Representative of assessee. Therefore, receipts under consideration becomes receipt which is not in form of contributions from members, neither voluntary contributions received from employer towards expenses incurred on behalf of members welfare. Therefore, such receipts cannot be treated as exempted u/s. 10(24) of Act. 10. It is further noticed that almost whole receipts were lying idle in bank account till 31.03.2009 which corroborates fact that said receipts were not professional income of assessee trade union. Therefore, decision relied in case of Mumbai Majdur Sabha (supra) is rightly distinguished by Id. Page 7 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT CIT(A). Since amount claimed to have been received on behalf of union was not shown in books of accounts. Therefore, concept of principle of mutuality between members does not supply to present facts of case. Hence, decision relied in CIT vs. Bus Operators Association (supra) and CIT vs. Standing Conference of Public Enterprises of case are not applicable to present facts of case. In light of these facts and considering finding of lower authorities, we do not find any infirmity in order of ld. ClT (A). Accordingly, no inference is called for. Therefore, ground No. II(1) to (4) is devoid of merit, hence, therefore dismissed. 2.8 Being dissatisfied with order passed by Tribunal, assessee is here before this Court with present appeal. 3. This tax appeal came to be admitted on following substantial question of law; Whether on facts and in circumstances of case, Tribunal was right in law in holding that receipt of Rs.60,96,818/- is taxable income in handsof assessee? Submissions on behalf of assessee 4. Mr. Manish Shah, learned counsel appearing for assessee vehemently submitted that Income Tax Appellate Tribunal committed serious error in dismissing appeal thereby affirming two orders passed by Lower Authorities, i.e, Assessing Officer as well as CIT (A). According to Mr. Shah, amount received by Union by way of settlement with Company cannot be termed as income as defined under Section 2(24) of Act, 1961. Mr. Shah would further submit by inviting our attention to Section Page 8 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT 10(24) of Act that any income chargeable under heads Income from house property and Income from other sources of registered Union within meaning of Trade Union Act, 1926 formed, primarily, for purpose of regulating relations between workmen and employer or between workmen and workmen cannot be included in toto. As provided under Section 10 of Act, in computing total income of previous year of any person, any income falling within any of clauses under Section 10 of Act shall not be included. 5. Mr. Shah pointed out very palpable inconsistency in findings recorded by Assessing Officer and Appellate Tribunal. Mr. Shah pointed out that what weighed with Appellate Tribunal is fact that settlement was reached on 16th May, 2008 and amount was received by 12th December, 2008, but there was no materials of such amount being credited or distributed amongst employees. On other hand, Mr. Shah pointed out that Assessing Officer, in assessment order, in para-4, in clear terms, has noted that amount has been distributed amongst workers at later date. Mr. Shah further submitted that finding recorded by Assessing Officer is that income could be termed as one from other sources and once income is termed to be from other sources, same would be covered by Section 10(24) of Act and assessee would be exempt from paying any tax on same. 6. In such circumstances, referred to above, Mr. Shah prays that there being merit in his appeal, same be allowed and substantial question of law, as formulated by this Court, Page 9 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT may be answered in favour of assessee and against Revenue. Submissions on behalf of Revenue 7. On other hand, this appeal has been vehemently opposed by Ms. Raval, learned standing counsel appearing for Revenue. Ms. Raval would submit that no error, not to speak of any error of law, could be said to have been committed by Tribunal in dismissing appeal and thereby affirming two orders passed by subordinate authorities. 8. Ms. Raval very fairly submitted that it is not in dispute that amount has been disbursed amongst employees. According to Ms. Raval, factum of settlement is also not in dispute. However, only issue in dispute is with regard to distribution of amount amongst employees. In such circumstances, referred to above, Ms. Raval prays that there being no merit in this appeal, same be dismissed. ANALYSIS 9. Section 2(24) of Act defines term income . Section 2(24) of Act reads thus; 2(24) " income" includes- (i) profits and gains; (ii) dividend; (iia) voluntary contributions received by trust created wholly or partly for charitable or religious purposes or by institution established wholly or partly for such Page 10 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT purposes or by association or institution referred to in clause (21) or clause (23), or by fund or trust or institution referred to in subclause (iv) or sub- clause (v) of clause (23C) of section 10]. Explanation.- For purposes of this sub- clause," trust" includes any other legal obligation;] (iii) value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17; (iiia) any special allowance 2 or benefit, other than perquisite included under sub- clause (iii), specifically granted to assessee to meet expenses wholly, necessarily and exclusively for performance of duties of office or employment of profit; (iiib) any allowance granted to assessee either to meet his personal expenses at place where duties of his office or employment of profit are ordinarily performed by him or at place where he ordinarily resides or to compensate him for increased cost of living;] (iv) value of any benefit or perquisite, whether convertible into money or not, obtained from company either by director or by person who has substantial interest in company, or by relative of director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by director or other person aforesaid; (iva) value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub- section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by representative assessee (such person being hereafter in this sub- clause referred to as the" beneficiary") and any sum paid by representative assessee in respect of any obligation which, but for such payment, would have been payable by beneficiary;] (v) any sum chargeable to income- tax under clauses (ii) and (iii) of section 28 or section 41 or section 59; (va) any sum chargeable to income- tax under clause Page 11 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT (iiia) of section 28;] (vb) any sum chargeable to income- tax under clause (iiib) of section 28; 6 (VC) any sum chargeable to income- tax under clause (iiic) of section 28;] (vd) value of any benefit or perquisite taxable under clause (iv) of section 28; (ve) any sum chargeable to income- tax under clause (v) of section 28;] (vi) any capital gains chargeable under section 45; (vii) profits and gains of any business of insurance carried on by mutual insurance company or by co- operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in First Schedule; (viii) Omitted by Finance Act, 1988 , with effect from April, 1988 . It was inserted by Finance Act, 1964 , w. e. f 1- 4- 1964 .] (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever;] (x) any sum received by assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under provisions of Employees' State Insurance Act, 1948 (34 of 1948 ), or any other fund for welfare of such employees;] interest in company or relative of director or other person. 4 word' income' is of widest amplitude and it must be given its natural and grammatical meaning. definition of income in section 2 (24) is inclusive. purpose of definition is not to limit meaning of' income' but to widen its net and several clauses therein are not exhaustive of meaning of income; even if receipt did not fall within ambit of any of those clauses, it might still be income if it partook nature of income. words" other Page 12 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT games of any sort' were of wide amplitude and their meaning was not confined to mere gambling or betting activities. Assuming that expression" winnings" had acquired particular meaning viz. receipts from activities of gambling or betting nature only, it did not follow that monies received from non- gambling or non- betting activities were not included within ambit of income. assessee participated in car rally and won prize. car rally was contest, if not race and assessee entered contest to win it. What he got was return for his skill and endurance. It was" income" construed in its widest sense. Though it was casual in nature, it was nevertheless income. 10. Once factum of settlement is not disputed couple with factum of receipt of particular amount from Company, and as observed by Assessing Officer in assessment order that amount has been distributed amongst employees, case would squarely stand covered under Section 10(24) of Act. Though contribution from employer is received as per settlement agreement, it is only incidental to activities of services of assessee in resolving dispute between member workers and employer with intention of advancement of welfare of members. We take notice of decision of Tribunal referred to and relied upon on behalf of assessee before Appellate Tribunal in present case. We are referring to decision in case of Mumbai Mazdoor Sabha vs. Assistant Commissioner of Income Tax, (2016) 75 taxmann.com 134. facts of said case are almost identical with case on hand. We are quite convinced with line of reasoning assigned by Tribunal with respect to exemption under Section 10(24) of Act. We quote relevant portion of said judgment. It is not case of receiving any amount or income by Page 13 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT doing activity which is not for achieving objects of assessee. amount received by assessee from employers has direct nexus with negotiation and settlement arrived between parties. role of assessee of negotiating on behalf of workers for settlement of disputes between worker and employers is limited only in respect of disputes between member workers and employers. Therefore, activity of assessee cannot be generalized in nature of professional service or occupational service open to general public but it is, otherwise, permitted under by-laws and constitution of assessee as well as Trade Union Act. Though contribution from employer is received as per tripartite agreement, however, it is only incidental to activity of services of assessee in resolving disputes between member workers and employers with intention of advancement of welfare of members. negotiation and settlement of disputes between workers and employers is composite activity and contribution received from employer cannot be taken as separate activity of assessee but it is part and parcel of activity of achieving object as per constitution/by-laws of assessee. Therefore, when predominant object of activity of assessee is to arrive at settlement of disputes between workers and management in interest and welfare of workers and not to earn any income or profit then contribution received from employers on account of settlement between workers and employers cannot be said to be business/professional or occupational income of assessee. Therefore, said amount of contribution received from employers at most would be income of assessee as income from other sources and cannot be regarded as business income and accordingly exempt u/s 10(24) of Income Tax Act. Apart from contribution received by assessee from workers, fund received by assessee from employers is otherwise for purpose of achieving objects being welfare body of workers and excess fund if any after meeting out expenses incurred on account of activity performed by assessee, are refunded to members as bonus then said consideration received on account of settlement cannot be treated as business income earned by assessee. Page 14 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 C/TAXAP/1064/2018 JUDGMENT 11. We are in complete agreement with aforesaid observations of Tribunal. We take notice of fact that decision of Tribunal in Mumbai Mazdoor Sabha (supra) has been referred to by Appellate Tribunal in para-8 of its impugned order. only reason for Tribunal in not following dictum of said order of Tribunal is that amount credited into Bank Account of State Bank of India, Chikhli Branch was not shown in audited books of account and balance-sheet as on 31st March, 2009. According to Appellate Tribunal, as assessee failed to show receipts in its audited books of account, dictum of law as laid in Mumbai Mazdoor Sabha would not be applicable. 12. We are afraid, we are not in agreement with such finding recorded by Appellate Tribunal. In fact, in entire impugned order passed by Appellate Tribunal, there is no worthy discussion of Section 10(24) of Act. 13. In overall view of matter, we are convinced that Appellate Tribunal committed error in dismissing appeal preferred by assessee. 14. In result, this appeal succeeds and is hereby allowed. impugned order passed by Appellate Tribunal is hereby quashed and set aside. substantial question of law, formulated by this Court, is answered in favour of assessee and against Revenue. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) Vahid Page 15 of 15 Downloaded on : Fri Jan 10 10:55:11 IST 2020 Gujarat Rajya Kamdar Sabha Union Machiwadi v. Income-tax Officer