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2017 (5) TMI 291 - AT - Income TaxAddition on account of interest earned on deposits - whether interest earned on deposits with banks and miscellaneous income earned by the assessee are eligible for exemption under section 10(20)- Held that:- The assessee being engaged in the activity of promotion and development of market committees and in the process engaging in undertaking capital projects of the market committees, the income from sale of tender forms and enlistment fees of contractors has direct nexus with the main activity carried out by the assessee and therefore is to be treated as having been earned in the course of carrying out its activities. Further the activities of the assessee having been held to be falling in the purview of section 10(20) of the Act by the Income-tax Appellate Tribunal these incomes are also exempt under section 10(20) of the Act. The rest of the income, being miscellaneous in character is assessable as income from other sources, which is also exempt under section 10(20) of the Act. Therefore the entire miscellaneous income is held to be exempt under section 10(20) of the Act. Disallowance on account of contribution to pension fund - Disallowance on account of repair of godowns/boundary walls/roads - Held that:- Where entire income of the assessee has been held to be exempt under section 10(20) of the Act, there is no case for making disallowance of any expenses at all. Any disallowance made will only result in enhancing the income of the assessee which in any case has been held to be exempt from tax. Further the entire income earned from rendering services has been held to be exempt at the threshold itself and, therefore, there is no requirement of resorting to computational provision relating to income under the head business and provision stipulated under sections 28 to 44 of the Income-tax Act, 1961. In view of the above, the disallowances are deleted and the ground raised by the assessee is allowed. Entitlment to exemption under sections 11 and 12 - Held that:- Disallowance made on account of contribution of unapproved pension and gratuity funds, relate to the computational provisions of the income assessable under the head "Income from business and profession" more specifically under section 36 of the Act. Since the income of the assessee has been held to be exempt under sections 11 and 12 of the Act at the threshold itself, we hold that there is no occasion to apply the computational provision provided under Chapter IV of the Act running from sections 28 to 44, in computing the income since the same is attracted only if the income is brought to tax under the head "Income from business and profession". Even the Central Board of Direct Taxes vide its Circular No. 5P(LXX-6) dated June 19, 1968 has stated that the word "income" for the purpose of claiming exemption under sections 11 and 12 of the Act should be understood in its commercial sense. In view of the above we hold that in the present case, the assessee being entitled to exemption under sections 11 and 12 of the Act, no disallowance on account of contribution to unapproved pension and gratuity funds can be made and the addition made on account of the same is, therefore, directed to be deleted.
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