INCOME TAX
151/CBDT, Dated: March 17, 1970
Section(s) Referred: 11 ,41(2)
Statute: Income - Tax Act, 1961
The Cement Allocation Coordination Organisation came into being with effect from 1-1-1966 and its main object was to promote co-operation among the manufacturers of cement in general and in particular to provide for equitable distribution of cement at reasonable prices. The cement manufacturer was allowed to deduct from the F.O.R. destination price charged from the customer, the following destination price charged from the customer, the following amounts:
(i) the retention price of cement;
(ii) actual freight and transportation charged incurred;
(iii) packing charges;
(iv) excise duty;
(v) selling agency commission; and
(vi) extra expenditure incurred, if any, for using oil instead of coal
in the cement factory.
If there was any balance after deducting the above items, this balance had to be remitted by the member cement company to C.A.C.O. On the other hand, if there was a deficit, C.A.C.O. had to reimburse the member to the extent of this difference out of the amount received by it from the other companies. The excess still remaining with C.A.C.O., was then to be distributed among the members in accordance with the provisions of the Scheme constituting C.A.C.O.
2 The C.A.C.O. has contended that its income is exempt from tax u/s.11. Secondly, it is urged that even if section 11 does not apply to the income, it will not be taxable as the amounts were received by it merely on trust and the assesse had no beneficial interest in these amounts. Thus the questions for consideration are:
(i) whether the claim of C.A.C.O. for exemption u/s.11 of the I.T.Act, 1961 is proper.
(ii) whether the contributions of the Member companies to C.A.C.O are admissible as deductions in computation of the income from business of the companies concerned, and
(iii) whether the payments made by C.A.C.O. to the Member companies are taxable as revenue receipts, in the hands of member companies are taxable as revenue receipts, in the hands of member companies or can be assessed in the hands of C.A.C.O. u/s.41(2).
3. The Board have been advised as under:-
(i) The C.A.C.O is not entitled to exemption u/s.11 of the I.T. Act, 1961.
It cannot be described to be a charitable organisation. Neither can it be said to hold its surplus income in Trust. It is, therefore, liable to be assessed like any other commercial organisation.
(ii) The contributions of the member companies to the C.A.C.O are admissible as a deduction in computing their income. The expenditure can be said to have been incurred necessarily for the purposes of their business.
(iii) The payments made by the C.A.C.O to the Cement companies are assessable in their hands as revenue receipts.
This may please be brought to the notice of all Income-tax Officers working in your charge.