Income Tax Appellate Tribunal - Indore
Krishi Upaj Mandi Samiti , Ratlam vs Department Of Income Tax on 30 January, 2012
1
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No.260/Ind/2011
(A.Y. 2004-05)
ACIT-1(1), Ujjain ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Loharda
PAN - AAALK 0319 A ... Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Agrawal, CA
ITA No.261/Ind/2011
(A.Y. 2004-05)
ACIT-Ratlam ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Ratlam
PAN - AAALK 0365 N ... Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Moonat, CA
2
Cross-objection No. 54/Ind/2011
(Arising out of ITA No.261/Ind/2011)
(A.Y. 2004-05)
Krishi Upaj Mandi Samiti, Ratlam
PAN - AAALK 0365 N ... Objector
Vs.
ACIT-Ratlam ... Respondent
Assessee by : Shri Sanjay Moonat, CA
Department by : Shri Arun Dewan, Sr. DR
ITA No.262/Ind/2011
(A.Y. 2007-08)
ACIT-1(1), Ujjain ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Khategaon
PAN - AAALK 0250 E ... Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Agrawal, CA
ITA No.263/Ind/2011
(A.Y. 2006-07)
ACIT-1(1), Ujjain ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Khategaon
PAN - AAALK 0250 E ... Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Agrawal, CA
3
ITA No.264/Ind/2011
(A.Y. 2006-07)
ACIT-Ratlam ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Mandsaur
PAN - AAAAK 4284 B
Department by : S/Sh. Keshave Saxena & Arun Dewan
Assessee by : Shri Sanjay Agrawal, CA
ITA No.265/Ind/2011
(A.Y. 2007-08)
ACIT-2(1), Ujjain ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Shajapur
PAN - AAALK 0245 K ... Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Agrawal, CA
ITA No.266/Ind/2011
(A.Y. 2003-04)
ACIT-2(1), Ujjain ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Nagda
PAN - AAALK 2286 E ... Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Agrawal, CA
4
ITA No.267/Ind/2011
(A.Y. 2003-04)
ACIT-2(1), Ujjain ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Agar
PAN - AAALK 0159 J ... Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Agrawal, CA
ITA No.268/Ind/2011
(A.Y. 2004-05)
ACIT-1(1), Ujjain ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Agar
PAN - AAALK 0159 J ... Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Agrawal, CA
And,
ITA No.269/Ind/2011
(A.Y. 2007-08)
ACIT-2(1), Ujjain ... Appellant
Vs.
Krishi Upaj Mandi Samiti, Maksi
PAN - AAALK 0361 J .....Respondent
Department by : Shri Arun Dewan, Sr. DR
Assessee by : Shri Sanjay Agrawal, CA
5
Date of hearing : 30.1.2012
Date of pronouncement : 01.2.2012
ORDER
PER BENCH This bunch of ten appeals by the revenue and one cross-
objection by the assessee in cases of different assessees is filed against different orders of the learned Commissioner of Income Tax (Appeals).
In these appeals, the revenue has challenged the direction of ld. CIT(A) that exemption u/s 11 be allowed as registration has been granted to the assessees u/s 12A even though the assessees had not fulfilled the requirements of Section 11(1)(a) & 11(2) of the Act and also directed to delete the additions made by the Assessing Officer on account of disallowances of subsidy to Goshala, Research and Infrastructure Nidhi, Kisan Sadak Nidhi, Adhosaranchana Nidhi, Gausanvardhan Nidhi, Board Shulk, Aarkshit Nidhi and excess claim of depreciation.
2. We have heard the rival submissions of the parties and also perused the material available on the files. The learned respective counsel for the assessees submitted that the impugned issues are covered by the orders of Indore Bench in the case of Krishi Upaj Mandi Samities (copies of the relevant orders are filed in paper books). The ld. Sr. DR, however, relied upon the orders of the Assessing Officer but 6 could not controvert the assertion of the learned counsels for the assessees by bringing any positive material on record.
3. We have considered the rival submissions and perused the material available on file. So far as the issue of Aarakshit Nidhi is concerned, we find that ITAT, Indore has decided this issue in the case of Krishi Upaj Mandi Samiti, Burhanpur in ITA Nos.277 & 278/Ind/2008 vide order dated 24.10.2008 (12 ITJ 12-Indore Tribunal). The relevant portion of the order dated 24.10.2008 (supra) is reproduced hereunder:
"6. Ground No.2 & 9: On ground no.2, assessee challenged the order of ld. CIT(A) in not exempting the income of Rs.38,69,627/- being interest on FDR from Reserve Fund and on ground no.9, in enhancing the income in respect of "Aarakshit Nidhi" of Rs.19,25,785/-. The AO found that assessee claimed exemption of interest of Rs.38,69,627/- received on the funds deposited with the bank for the purpose of pension, gratuity and other retirement benefits of the employees. The AO asked the assessee to show whether the said fund was registered under the superannuation fund u/s 10(25) of the IT Act. It was submitted by the assessee that fund was not a superannuation fund. The AO examined the provisions of sec. 10(25) and held that provisions of sec. 10(25) are not applicable in this case because neither it is related to PF nor the fund was approved superannuation or gratuity fund. The same was therefore, added as interest earned to the income of the assessee. Similar claim was made before ld. CIT(A) however, this ground was rejected on the reasons that the interest in such reserve fund were not exempt since the fund created was not registered u/s 10(25) of the IT Act. As regards Aarakshit Nidhi of Rs.19,25,785/-, the assessee submitted that the contribution was made in view of the provisions of relevant Act and Rules framed therein. It was noted by the ld. CIT(A) that the contribution made to the Aarakshit Nidhi was actually a contribution to a reserve for meeting out the future liabilities of provision, gratuity etc. hence, cannot be allowed as expenditure u/s 36(1)(xii). It was further noted that assessee was following cash system of accounting therefore, on mere provision made in the books, deduction cannot be allowed. Both the additions were accordingly made.7
7. Ld. Counsel for assessee submitted that assessee is created under MP Krishi Upaj Mandi Adhiniyam and rules therein and as per rule 10, reserve fund is to be created @5% which provides "leaving aside farmers road fund and agricultural and infrastructural development fund, @5%, of remaining aggregate receipt Chief Accounts Officer will deposit in separate bank account every three months in the farmer reserve fund. Use of reserve fund shall be made for the payment of pension to the members of the State Board Service, family pension, ex-gratia, gratuity grant, loan and advance as per procedure prescribed by the Board and each member of the service board shall be entitled to receive pension on retirement, gratuity and other benefits as per rules and separate account of reserve fund shall be kept in a bank for the members of service board posted in market committee (PB-31). He has further submitted that Aarakshit Nidhi is likewise to be created @5% of the total receipt of the mandi fees which could enhance up to 10% as per Sec. 7 of MP Krishi Mandi (State Marketing Fund Rules)(PB-33). He has also referred to sec.25A (6) of MP Krishi Mandi Adhiniyam which provides that market committee shall make provision in the budget for crediting the amount into permanent fund @20%. He has submitted that sec. 43 of MP Krishi Upaj Mandi Adhiniyam provides state marketing development fund and the market committee shall pay at such percentage out of the gross receipt licence fee and market fees to the state govt. and all expenditure incurred by the board according to the budget section shall be defrayed. He has therefore, submitted that these are the reasons through which the reserve fund is created as statutorily required which were permanent funds in nature. He has submitted that interest is out of these reserve funds which can be utilized as per direction of the board therefore, no interest accrued to the assessee even if the reserve funds were in the name of the assessee. He has submitted that the said interest and funds can be used only for particular purpose and that assessee does not have any control over the said statutory funds therefore, interest accrued thereon cannot be added to the income of the assessee. In support of his contention, he has relied upon following decisions:
i. CIT vs. New Horison Sugar Mills Ltd. 244 ITR 738 in which, Madras High Court held that the amount set apart by the assessee towards molasses reserve fund and required by molasses control order, should be excluded from its income."
This decision is confirmed by Supreme Court in 269 ITR 397. Similar view is taken by Madras High Court in the case of CIT vs. Salem Cooperative Sugar Mill, 229 ITR 285.
ii. CIT vs. Bhopal Sugar Industries, 221 ITR 449 in which MP High Court held "that the amount credited to create reserve fund govt. order - assessee had no control over the amount credited - amount not includable in the total income of the assessee."
iii. Motilal Chhadamlal vs. CIT, 190 ITR 329 in which, Hon'ble Supreme Court held "execution of deed stating that expenses 8 of the trust will be made from income of certain properties and he will have no right in income - it is a diversion of income and not taxable in the hands of HUF."
iv. Sidheshwar Sahakari Shakkar Kharkhana vs. CIT, 270 ITR 1 in which, Hon'ble Supreme Court referred to other decisions in which, it was observed that the amount was retained by the assessee and utilized according to guidelines issued by the govt. It was a specific legal obligation for spending monies for a specific purpose. Such receipts cannot be treated as assessee's income.
v. Somayya Orgene Chemicals vs. CIT, 216 ITR 291 in which, Bombay High Court held "Manufacture of rectified sprit - portion of sale proceeds credited to a separate fund by statutory order for utilization for a particular purpose - amount diverted at source and required to be excluded u/s 20A of the Act."
8. On the other hand, ld. DR submitted that assessee cannot change its stand in claiming deduction on the above submission because admittedly, the case of the assessee would not fall u/s 10(25) and sec. 36(1)(xii) of the IT Act therefore, claim of the assessee was rightly rejected by the authorities below. He has submitted that the submission of the assessee requires reconsideration by the AO because the MP Krishi Upaj Mandi Adhiniyam and Rules were not referred to before the AO and ld. CIT(A). He has submitted that the above Act is a subordinate legislation and public at large is not benefited and reserve funds can be utilized for giving loans and advances also therefore, assessee cannot claim that it has no control over the same funds. He has submitted that reserve funds are created in the name of the assessee and that assessee was maintaining the accounts on yearly basis therefore, same are not reliable and assessee has control over the funds therefore, additions were rightly made.
9. We have heard rival submissions and material available on record. It is not in dispute that the assessee did not press his claim u/ss 10(25) and 36(1)(xii) of the IT Act before the Tribunal as was the claim made before the authorities below therefore, the claim of the assessee could not be considered under those provisions. The reasoning given by the authorities below are just and proper in rejecting the claim of the assessee u/ss 10(25) & 36(1)(xii) of the IT Act. However, the ld. Counsel for assessee made a claim that since the reserve funds were statutorily created under the MP Krishi Upaj Mandi Adhiniyam and Rules and the funds have been created for specific purposes therefore, assessee would not have control over the said reserve funds therefore, the interest accrued thereon and the deposits could not have been treated as income of the assessee. ON going through the rules referred to by the ld. Counsel for assessee, we are of the view that the reserve fund remained in the name of assessee and that the reserve fund could be used for the purpose of payment of pension to the members of state board of service, family pension, exgratia, gratuity 9 grant, loan and advances as per procedure prescribed by the Board. It would therefore, prove that the reserve funds remained in control, possession and in the name of the assessee and was to be used for the purposes of providing pension, exgratia, loan and advances etc. The procedure is to be provided by the Board only for loan and advances. The above amount shall be spent for the persons connected with the assessee and even loan and advance shall be given to the members of the service posted in market committee. Admittedly, the assessee received interest on the funds deposited with the bank in this regard. Since the reserve funds remained with the assessee therefore, interest earned on such funds shall be income of the assessee. The decisions relied upon by ld. Counsel for assessee are therefore, not applicable to advance the case of the assessee. Ground no.2 of the appeal of the assessee is accordingly dismissed. As regards part of ground no.9 with regard to Aarakshit Nidhi, it is stated to be contribution made for meeting the future liability on account of pension, gratuity etc. The assessee is admittedly maintaining cash system of accounting and as such, authorities below were justified in holding that the provision could not have been allowed unless the liability arose. The authorities below has however not considered the rule referred to by ld. Counsel for assessee in his arguments and have also not given any finding if the assessee spent any actual amount on this hand under the year appeal because on provision basis this year, the assessee might have made claim in earlier year for which, the amount could have been spent by the assessee. Ld. Counsel for assessee has filed copy of the letter dated 9.7.8 (PB-34) through which assessee was directed to keep Aarakshit Nidhi in such a find for the purpose of making the payments. Ld. Counsel for assessee also referred to the procedure for keeping accounts on this issue. However, we find that the same is not considered by the authorities below. This issue therefore, requires reconsideration at the level of the AO. We accordingly set aside the orders of the authorities below on this issue and restore the issue to the file of the AO for reconsideration in the light of the submission made by the ld. Counsel for assessee. The AO shall give reasonable sufficient opportunity of being heard to the assessee. As a result, part of this ground of the appeal of the assessee is allowed for statistical purposes. Assessee may provide adequate material before the AO in support of the contention."
In view of the above, the learned counsels from both sides fairly agreed to the proposition that the issue of Aarkshit Nidhi needs to be examined afresh. It is also seen that the assessees are also following 10 cash system of accounting and the provision of Aarakshi Nidhi for payment of pension/ gratuity to the retiring/ retired employees can only be made when it is actually to be incurred, therefore, we restore this issue to the file of the ld. Assessing Officer to examine the nature and time of incurring such expenditure and then decide in accordance with law after providing due opportunity of being heard to the concerned assessees, consequently, the issue of Aarakshi Nidhi in cases of concerned assessees is allowed for statistical purposes only .
4. So far as the issues of Kisan Sadak Nidhi, Goshala Anudhan, Adhosaranchana Nidhi, Gausanvardhan Nidhi, Board Shulk, Subsidy to Goshala and Research & Infrastructure Nidhi are concerned, the ld.
Counsels for the concerned assessees submitted that these issues are covered by the order dated 24.10.2008 of the ITAT, Indore in the case of Krishi Upaj Mandi Samiti, Burhanpur (12 ITJ 12) wherein identical issues were decided against the Revenue and the reasoning recorded in that order will also apply to the cases of present concerned assessees. On the other hand, the ld. Sr. DR relied upon the orders of the A.O. but could not controvert the assertion made by the ld.
Counsels for the concerned assessees. In view of the above, we note that the facts & circumstances of these issues in the present concerned appeals are identical to the facts and circumstances of the issues in case of Krishi Upaj Mandi Samiti, Burhanpur (supra). We 11 find that the findings recorded in the order dated 24.10.2008 (supra) are also applicable to these issues. The relevant portion of the same is reproduced hereunder:
"13. On ground no.5, assessee challenged the disallowance of Rs.1,73,97,154/- being statutory payments paid under the Mandi Act and was allowable u/s 36(1)(xii) r.w.s. 37 of the IT Act. The assessee claimed the above amount as deduction in the income and expenditure account in the form of board fees. The AO noted that it was a transfer of fund to the mother concern and cannot be allowed. It was submitted by the assessee that board fees is paid as per the Act which is statutory payment. The ld. CIT(A) rejected the claim of the assessee because for claiming the deduction the amount should have been an expenditure but in the case of the assessee, it was not a expenditure but was a contribution therefore, ld. CIT(A) rejected the claim of the assessee and disallowance was confirmed.
14. Ld. Counsel for assessee reiterated the submissions made before authorities below and submitted that as per sec.43(1) of MP Krishi Upaj Mandi Adhiniyam, the assessee has to pay the board fees to the statutory board to which, the assessee is subordinate. Under the same Act, assessee received the receipts and shall have to spend the amount towards achieving the objects of the assessee institution. The receipts of assessee are treated as income therefore, the board fees compulsorily paid to the board should have been considered as an expenditure u/s 36(1)(xii) of the IT Act because it was paid for the objects and purposes of the assessee authorized by the special Act for which, the assessee was constituted under the Act. Ld. Counsel for assessee submitted that this issue was considered by ITAT, Jabalpur Bench in the case of Krishi Upaj Mandi Samiti, Sinhora vs. ITO & others in ITA NO.280/Jab/2006 and vide order dated 12.10.2007, the departmental appeal on this issue has been dismissed. On the other hand, ld. DR submitted that fees is not related to any service rendered by the Board and assessee has no control over the board. He has submitted that one sentence from the order may not be picked as ratio and relied upon decision in the case of Sun Engg., 198 ITR 297 and submitted that it is a case of diversion of income and relied upon 227 ITR 557 and 290 ITR (AT) 344.
15. On consideration of rival submissions, we are of the view that the issue is squarely covered in favour of the assessee by the order of ITAT, Jabalpur Bench in the case of Krishi Upaj Mandi Samiti & Others (Supra) in which, in para 12 the Tribunal held "We have carefully considered the issue. The view of the AO that the payment made to the board for road development and agricultural research was for capital expenditure and hence not allowable u/s 37 of the 12 Act, cannot be considered correct because the payment was made as statutory liability as per sec. 43 of the relevant Act. Similarly, board fees were also made as per provisions of the relevant statute and was allowable expenditure. The AO is therefore, not correct to disallow the same on the ground that the payment in question was in the nature of application of income. In our considered opinion, the order of the ld. CIT(A) deserves no interference. The appeal of the department is therefore, dismissed."
We find that the case of the assessee is on identical facts because the board fees is paid as per sec. 43 of MP Krishi Upaj Mandi Adhiniyam which is statutory liability of the assessee to pay in order to achieve its objectives. It is therefore, allowable deduction as was spent wholly and exclusively for the purpose of business of the assessee. As per sec. 36(1)(xii), any expenditure incurred by the corporation or body corporate by whatever name called constituted or established by Central, State or Provincial Act for the objects and purposes authorized by the Act for which, it was established shall be allowed as deduction. The ld. CIT(A) misunderstood this issue by treating the board fees to be the transfer of funds. In the aforesaid sec. 36(1)(xii), it is specifically mentioned that the expenditure incurred could have any name whatsoever therefore, the ld. CIT(A) should have considered the issue in the broad perspective considering the nature and functioning of the assessee institution under the special Act. In view of the above, the orders of the authorities below are set aside and entire addition is deleted. This ground of appeal of the assessee is allowed."
We find that the case of the present concerned assessees on the issues of Kisan Sadak Nidhi, Goshala Anudhan, Adhosaranchana Nidhi, Gausanvardhan Nidhi, Board Shulk, Subsidy to Goshala and Research & Infrastructure Nidhi is on identical facts and circumstances to that of the case of Krishi Upaj Mandi Samiti, Burhanpur (supra), on which, the abovementioned findings were recorded by the ITAT, Indore whereas the identical issues were decided in favour of the assessee as has been discussed in para 15 of the order dated 24.10.2008(supra). By following the same reasoning, we do not 13 find any infirmity in the orders of the ld. CIT(A) on these issues and decide the same against the Revenue.
5. So far as the issue of excess claim of depreciation in ITA No.268/Ind/2011 in case of Krishi Upaj Mandi Samiti, Agar is concerned, the ld. Counsel for the assessee relied upon the order of the ld. CIT(A) whereas the ld. Sr. DR submitted that this issue is covered in favour of the Revenue by the order of ITAT, Indore in the case of Krishi Upaj Mandi Samiti, Burhanpur (12 ITJ 12). In view of the above, we find that after insertion of Explanation 5 to Section 32(1) of the Act, the assessee has not reduced the original cost of asset by the amount of depreciation for which it was eligible for earlier years, accordingly, ld. CIT(A) was not justified in allowing claim of depreciation without deducting the depreciation of earlier years from the original cost of asset. This issue is also covered in favour of the Revenue by the decision of ITAT, Indore Bench in the case of Krishi Upaj Mandi Samiti, Burhanpur (12 ITJ 12) (supra). The relevant portion of this order is reproduced hereunder:
"20. Ground no.8: On ground no.8, the order of the ld. CIT(A) is challenged in not allowing the depreciation as claimed by the assessee on the basis of actual cost incurred by the assessee without deducting the depreciation which is not claimed and allowed in the earlier years. Ld. representatives of both the parties submitted that the issue is covered against the assessee by the order of ITAT, Indore Bench in the case of Krishi Upaj Mandi etc. in ITA No.42 of 2008 vide order dated 30.9.2008 in which, it was held - "The learned representatives of both the parties have submitted that the identical issue has been decided by the ITAT, Indore Bench, in the case of Krishi Upaj Mandi Samiti, Unhel, v. ITO in ITA No. 457/Ind/06 14 reported in 9 ITJ 593 and the issue is decided in favour of the revenue by dismissing the appeals of the assessee. The submissions of the parties and the findings of the Tribunal in that case from para 9 to 16 are reproduced as under :-
"9. The ld. counsel for the assessee reiterated the submissions made before the authorities below and submitted that the Assessing Officer is not justified in making the disallowance out of depreciation on notional deduction and depreciation and that as per section 43(6), the meaning of written down value means (b) in case of assets acquired before the previous year, the actual cost of assets less all depreciation actually allowed to him under the Act. He submitted that since the assessee has not been allowed depreciation actually in earlier year, the learned CIT(A) was not justified in confirming the order of the Assessing Officer. He has further submitted that Explanation 5 to sec. 32(1)(ii) is applicable with effect from 1.4.2002. Therefore, it is not retrospectively applicable. The ld. counsel for the assessee relied upon the following decisions :-
1. 55 ITR 329 - Decision of the Hon'ble Bombay High Court in the case of Dharampur Leather Cloth Company Ltd. in which it was held that unless and until depreciation has been actually allowed in any assessment of previous years, written down value of the machinery or assets continues to remain the cost price incurred by the assessee in acquiring the machinery or assets.
2. 80 TTJ 539 - order of the ITAT, Pune Bench in the case of G.C. Associates v. DCIT in which it was held that WDV has been defined u/s 43(6) to mean in case of assets acquired in the previous year, actual cost to the assessee and in the case of assets acquired prior to previous year actual cost to the assessee less all the depreciation actually allowed to him under the Act. If the assessee has not filed return of income, the fact it has computed its income or its books of has no relevance so far as computation of WDV under the Act is concerned because what the assessee has done in the books of accounts cannot be equated with depreciation actually allowed under the Incometax Act.
3. 17 ITR 130 - decision of the Hon'ble Calcutta High Court in the case of Kamala Mills Limited v. CIT in which it was held - written down value - actually allowed - meaning of written down value when unabsorbed depreciation is carried forward.
4. 62 ITD 398 - Order of the ITAT, Bangalore Bench, in the case of Triton Values Limited in which it was held that the assessee had not claimed depreciation from the assessment year 1983-84 to 1987-88 but claimed depreciation in the assessment year 1988-89 - whether assessee would be entitled to depreciation on written down value fixed for the year 1982-83 - held yes
5. 204 ITR 719 - decision of the Hon'ble Calcutta High Court in the case of CIT v. Suman Tea & Plywood Industries (P) Limited in which also same legal proposition is held as noted above.15
6. 197 ITR 13 - decision of the Hon'ble Kerala High Court in the case of Jose Kuruvilla in which it was held actual cost of car for calculating depreciation was the price paid in 1978 because the assessee has not claimed depreciation till assessment year 1982-83.
7. 98 ITR 209 - decision of the Hon'ble Supreme Court in the case of Madeva Upendra Sinai v. UOI in which it was held that connotation of the phrase "actually allowed" is thus limited to depreciation actually taken into account or granted and given effect to i.e. debited by the ITO against the incomings of business in computing the taxable income of the assessee but cannot be stretched to mean notionally allowed or merely allowable on notional basis.
8. 146 ITR 28 - decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of the Sisters of Statistical purposes. Anne.
9. 180 ITR 579 decision of the Hon'ble High Court of Madhya Pradesh in the case of Raipur Pallottine Society.
The ld. counsel for the assessee further submitted that ITAT, SMC Bench, Indore, in the case of Krishi Upaj Mandi Samiti, Shajapur, disallowed the claim of the assessee on the identical facts vide order dated 3rd November, 2006 but the above decisions, as relied upon above, were not considered. Therefore, the same is not applicable to this case.
10. On the other hand, the ld. DR relied upon the orders of the authorities below.
11. I have considered the rival submissions and the material available on record including written submissions filed by the ld. counsel for the assessee. Before considering the submissions of the parties it would be relevant to notice certain certain relevant provisions of law.
12. Section 32(1) of the Act provides depreciation in respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets (ii) know-how, patents, copyrights, trade marks, licences,franchise or any other business or commercial rights of similar nature, being intangible assets acquired on or after the Ist day of April, 1998, owned wholly or partly by the assessee and used for the purpose of the business or profession, the following deductions shall be allowed -
(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such per centage on the actual cost thereof to the assessee as may be prescribed
(ii) in case of any block of assets, such percentage on the written down value thereof as may be prescribed :
Provided ................
Explanation 5 to section 32(1)(ii) provides "For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee had claimed the deduction in respect of depreciation in computing his total income."16
The above Explanation 5 is inserted in the Incometax Act by the Finance Act, 2001 with effect from 1.4.2002.
13. Section 43(6) provides the meaning of written down value and reads -
"43 (6) "written down value" means -
(a) in the case of assets acquired in the
previous year, the actual cost to the assessee.
(b) in the case of assets acquired before the
previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Incometax Act, 1922 (11 of 1922) or any Act repealed by that Act, or under any executive orders issued when the Indian Incometax Act, 1886 (2 of 1886), was in force :
Provided that in determining the written down value in respect of buildings, machinery or plant for the purpose of caluse (ii) of sub- section (1) of section 32, "depreciation actually allowed" shall not include depreciation allowed under sub-clauses (a), (b) and (©) of clause (vi) of sub- section (2) of section 10 of the Indian Incometax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause
(vi);
© ...............
Section 10(20) provides the income which do not form part of the total income in respect of local authority. However, by inserting Explanation with effect from 1.4.2003 the definition of local authority is restricted to only 4 items. Therefore, the assessee's case would not fall within the definition of the local authority as per the above amendment in the provisions of section 10(20). The ld. Departmental Representative , therefore, rightly contended that section 10(20) provides exemption of income of the local authority as in the case of the assessee prior to 1.4.2003.
14. Considering the above legal provisions, I am of the view that the learned CIT(A) is justified in rejecting the claim of the assessee with regard to claim of excessive depreciation. The income of the assessee being local authority was exempt prior to 1.4.2003 and as per settled accounting principles and the method of accounting generally adopted, the income is to be computed by reducing the expenditure from the receipts. The assessee while preparing the accounts being in the status of local authority shall have to prepare the accounts as per accounting standards and have to reduce the depreciation on the written down value of the earlier years. The ld. Departmental Representative , therefore, rightly contended that as per section 10(20) the income of local authority was exempt and not the total receipts. Therefore, even if the assessee has not claimed depreciation in earlier year would be of no consequence because ultimately the value of assets would reduce on being the user of the same for business purposes of the assessee. Hon'ble High Court of 17 Madhya Pradesh in the case of CIT v. Raipuir Pallottine Society; 180 ITR 579 held -
"Depreciation is the exhaustion of the effective life of a fixed asset owing to "use" or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure incurred in acquiring the asset over its effective lifetime and the amount of provision made in respect of an accounting period is intended to represent the proportion of such expenditure which has expired during that eriod. If depreciation is not allowed as a necessary deduction in computing the income of a charitable trust, then there would be no way to preserve the cropus of the trust. A charitable trust is , therefore, entitled to depreciation in respect of the assets owned by it."
15. As per section 32(1)(ii) the assessee would be entitled to depreciation on the assets owned by it in case of any block of assets on the written down value and the Explanation 5 to the above section provides that the provision of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of his depreciation in computing the total income. Explanation 5 is applicable with effect from 1.4.2002 and the assessment year involved in appeal is assessment year 2003-04. Therefore, even as per Explanation 5 to section 32(`1)(ii) the assessee shall have to make adjustments with regard to depreciation of the earlier years including the previous assessment year 2002-03. The assessee thus cannot escape from the liability in making proper adjustment entries in the books of accounts and the accounts of the assessee even if income was exempt u/s 10(20) of the Act because the income could be computed only by deducting the expenditure and the statutory deductions allowable to the assessee including the depreciation. section 43(6)(b) is applicable in this case and the meaning of the written down value in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act or under this Incometax Act. If the provisions of Explanation 5 to section 32(1)(ii) are read together with section 43(6)(b) of the Incometax Act, it would make it clear that even if the assessee has not claimed depreciation on the assets while computing the income of the assessee, the depreciation shall have to be deducted while computing the income and written down value. Explanation 5 is mandatory in nature and shall have to give effect whether or not the assessee has claimed deduction in respect of depreciation in computing his total income. Therefore, while interpreting provisions of section 43(6)(b) the word "all depreciation actually allowed" would have to be read as if whether the assessee claimed depreciation or not while claiming the deduction, the Assessing Officer shall have to deduct the depreciation while computing the total income of the assessee. Explanation 5 thus shall have the effect while computing the total income of the assessee and shall have to be applied strictly. The contention of the ld. counsel for the assessee is that unless the actual depreciation is allowed and claimed by the assessee in earlier year, the Assessing Officer cannot deduct notional depreciation and relied upon certain decisions referred to above in support of his contention. However, I find that all 18 the decisions relied upon by the ld. counsel for the assessee are prior to insertion of Explanation 5 in the Act and as such have been given out of the context of Explanation 5 to section 32(1)(ii) of the Act. Therefore, the same are not applicable to the case of the present assessee. The contention of the ld. counsel for the assessee is , therefore, rejected being against the mandatory provisions contained in Explanation 5 to section 32(1)(ii) of the Act. The ITAT, SMC Bench, Indore, in the case of Krishi Upaj Mandi, Shajapur and others in ITA Nos. 524 and 525/Ind/06 for the same assessment year 2003-04 on the identical facts and the submissions, dismissed the appeal of the assessee vide order dated 3.11.2006. Therefore, the decision is squarely applicable to the present case.
16. Considering the above discussion, I do not find any infirmity in the order of the learned CIT(A) in making the disallowance out of depreciation. Thus, the order of the learned CIT(A) to that extent is confirmed and the ground no. 1 of the appeal of the assessee is ,accordingly, dismissed."
6. The learned counsels for the assessees have, however, submitted that certain points were not brought to the notice of the Tribunal while passing the aforesaid decision and they tried to distinguish the cases by making further submissions. The learned counsel for the assessees referred to Explanation 6 to section 43(6) "Explanation 6.- Where an assessee was not required to compute his total income for the purposes of this Act for any previous year or years preceding the previous year relevant to the assessment year under consideration,-
(a) the actual cost of an asset shall be adjusted by the amount attributable to the revaluation of such asset, if any, in books of account
(b) the total amount of depreciation on such asset, provided in the books of account of the assessee in respect of such previous year or years preceding the previous year relevant to the assessment year under consideration shall be deemed to be the depreciation actually allowed under this Act for the purposes of this clause; and
(c) the depreciation actually allowed under clause (b) shall be adjusted by the amount of depreciation attributable to such revaluation of the asset."
which is inserted by the Finance Act, 2008 in the Act with effect from 1.4.2003 and submitted that since the assessees have not claimed depreciation for the earlier years as the income was exempt under section 10(2) of the Act prior to 1.4.2003, therefore, no adjustment was made for claiming depreciation and as such the WDV should not be reduced by reducing the depreciation of the earlier years and the depreciation should have been allowed by the Assessing Officer on the actual cost of the asset. They have also referred to definition of "actual cost" under section 43(1) and submitted that the Assessing Officer was not justified in reducing the depreciation of the earlier years while considering the depreciation of the year under consideration.
197. The learned Departmental Representative, however, objected to the submissions of the learned counsels for the assessees on the ground that the issue is squarely covered against the assessees and that the aforesaid Explanation 6 to section 43(6) was inserted in the Act in order to nullify the effect of the order of the ITAT, Rajkot Bench in the case of Kandla Port Trust v. ACIT; 104 ITD 1.
8. On consideration of the rival submissions of the parties and the material on record, we are of the view that Explanation 6 to section 43(6) would be of no help to the cases of the assessees as rightly pointed out by the ld Departmental Representative because the same was inserted in the Act with a view to nutralise the judgment in the case of Kandla Port Trust (supra). We find that in that case the assessee port trust was exempted from incometax under section 10(2) till 31st March, 2002 and with effect from 1.4.2002 the income became taxable and the assessee filed return of income for the assessment year 2003-04 for the first time. In computation of total income, the assessee claimed depreciation which was computed on the original cost of assets i.e. the assessee has taken opening WDV of assets as on 1.4.2002 as against original cost of assets. The Assessing Officer held that the depreciation could not be allowed on the original cost since in all these years the assets had depreciated for which provision had been made in the books of accounts. He further allowed depreciation on the block value of asset which was arrived at after reducing from the original cost of assets, depreciation provided in the books of accounts till 31st March, 2002. The Tribunal considering this issue held that mere passing of the accounting entry made for depreciation in the books of accounts was not depreciation actually allowed as there was no liability to tax and as there was no assessment till the assessment year 2002-03. Thus, the WDV as on 1.4.2002 would be original cost less nil i.e. original cost. The aforesaid Explanation 6 to section 43(6) was therefore, inserted in the Act in order to untralise the above decision of the Rajkot Bench of the Tribunal in the case of Kandla Port Trust. It would have, therefore, no bearing on the issue which is already decided by this Bench in the case of Krishi Upaj Mandi Samiti, Unhel.
9. The learned counsels for the assessees have referred to the decision of the Hon'ble High Court of Kerala in the case of Kerala Electric Lamp Works Limited; 183 CTR 182 in which it was held that the assessee having not claimed depreciation for the assessment years 1989-90 and 1990-91, the Assessing Officer was not justified in allowing the same by giving Explanation 5 to section 32(1) a retrospective effect. They have also relied upon the decision of the Hon'ble High Court of Madras in the case of Commissioner of Incometax v. Sree Senhavalli Textiles (P) Ltd.; 183 CTR 453 for the assessment year 1988-89 - depreciation could not be computed when the assessee gave up the claim for filing revised return. Explanation 5 to section 32(1) applied only from 1.4.2002.
10. Considering the above decisions, we respectfully note that in all the decisions of the Hon'ble High Courts, the assessment years, under reference, were 1989-90 and 1990-91 and assessment year 1988-89 which were prior to insertion of Explanation 5 to section32(1) of the Incometax Act. The assessment years, under appeal, before us are assessment years 2003-04 and 2004-05 i.e. after insertion of Explanation 5 to section 32(1) in 20 the Act. The ratio of these decisions would thus not be applicable to the matters in issue before the Tribunal. The learned counsels for the assessees have also relied upon the order of the ITAT, Chandigarh Bench in the case of Morepen Laboratories Limited v. JCIT; 95 TTJ 404 in which it was held that in the set aside assessment, the assessee cannot raise the claim of depreciation during the assessment proceedings consequent to the action under section 263 of the Act as the Assessing Officer has to pass the order as per the directions of the CIT. The learned counsels for the assessees have also relied upon the decision of the ITAT, Mumbai Bench in the case of Plastiblends India Ltd. V. ITO; 95 TTJ 1062 in which it was held that the assessee having not claimed depreciation, the same cannot be thrust upon him for the purposes of computing the deduction under section 80IA of the Act. This case pertained to the assessment year prior to insertion of Explanation 5 to section 32 of the Act. Both the decisions are, therefore, clearly distinguishable on facts. The learned counsels for the assessees also relied upon the decision of the Hon'ble High Court of Madhya Pradesh in the case of Commissioner of Incometax v. G.M. Mittal Stainless Steel Limited; 271 ITR 219. However, it is not relevant to the matter in issue.
11. Considering the above discussion, we are of the view that the issue is squarely covered by our earlier order in the case of Krishi Upaj Mandi Samiti, Unhel as agreed by the learned representatives of both the parties. The submissions of the learned counsels for the assessees noted above could not distinguish the earlier decision. We therefore, do not find any merit in all the appeals of the assessees. The same are accordingly dismissed."
21. By following the above order, this ground of appeal of assessee is dismissed."
In view of the above, we, following the order of Krishi Upaj Mandi Samiti, Burhanpur (supra) and findings recorded hereinabove, reverse the order of the ld. CIT(A) on the issue of excess claim of depreciation and decide the same in favour of the Revenue.
6. So far as the issue of direction of ld. CIT(A) that exemption u/s 11 be allowed as registration has been granted u/s 12A to the concerned assessees even though the assessees had not fulfilled the requirements of Section 11(1)(a) & 11(2) of the Act is concerned, the ld.
Counsels for the concerned assessees submitted that the issue is 21 covered against the Revenue by the decision of ITAT, Indore in the case of M/s. Krishi Upaj Mandi Samiti, Dewas (ITA No.248/Ind/2009, order dated 25.3.2010). On the other hand, ld. Sr. DR relied upon the orders of the A.O. but could not controvert the assertion of the ld.
Counsels for the concerned assessees by bringing any positive material on record. In view of the above, we are reproducing the relevant portion of order dated 25.3.2010 (supra) hereunder:
"The first ground raised is that the ld. first appellate authority erred in rejecting the revised return filed by the assessee for claiming exemption u/s 11 of the Act in view of the registration u/s 12A/12AA of the Act received by the assessee on 23.12.2006. During hearing, we have heard the ld. representatives from both sides. At the outset, it was claimed by the ld. Counsel for the assessee that the impugned issue is covered in favour of the assessee by the decision of Tribunal in the case of Krishi Upaj Mandi Samiti, Khategoan vs. ITO (ITA No.250/Ind/2009). This factual matrix was not controverted by the revenue. In view of this assertion, we are reproducing hereunder the relevant portion of the order dated 27.11.2009:
"3.Ground no.1 reads as under :-
"That the Ld. CIT(A) has erred in rejecting revised return filed by the assessee for claiming the exemption u/s 11 of the Income-tax Act, 1961, in view of the registration u/s 12A/12AA received by the assessee on 23.12.2006."
4. The facts, in brief, are that inspite of order of the Tribunal directing the Ld. CIT(A) to grant registration to the assessee under Section 12A being complied with by the Ld. CIT, the A.O. has held that 22 the assessee Samiti was not entitled for exemption u/s 11 in view of the fact that the Department had not accepted the said decision of the Tribunal and appeal had been filed before the Hon'ble High Court u/s 260A and had been admitted also. On a query from us, the ld. Departmental Representative could not produce the copy of stay, if any, granted by the Hon'ble High Court against the said order of the Tribunal. Thus, in our view, the action of the A.O., which has also been confirmed by the CIT(A) is not correct in law, as at the relevant point of time, the order of the Tribunal is binding on both such authorities. Accordingly, we hold that the assessee's income should be computed on the basis that the assessee is entitled to exemption u/s 11of the Act. Thus, ground no.1 of the assessee's appeal is allowed."
In the light of the arguments put forth by the ld.
respective counsel and the aforesaid decision of the Tribunal, and also the fact that the gross receipts of the assessee are to the tune of Rs.5,69,29,352/- out of which the assessee applied the income to the tune of Rs.5,24,50,886/- (92%), therefore, the assessee has applied more than 85% of the income, consequently, the conditions laid down for getting exemption u/s 11 of the Act is fulfilled, therefore, in view of the decision in CIT vs. Programme for Community Organisation (2001) (116 Taxman 608) (SC), the aforesaid decision of the Tribunal wherein both of us are signatory to the order, and in the absence of any contrary decision brought to our notice, this ground of the assessee is allowed."
In view of the above, since the issue of exemption u/s 11 is covered against the Revenue by the order dated 25.3.2010 (supra), we decide this issue against the Revenue.
237. So far as the Cross-objection No.54/Ind/2011, filed by the assessee, is concerned, we find that the same is infructuous in view of the fact that it was merely filed in support of the order of the ld. CIT(A) and the issues arising from the order of the ld. CIT(A) have already been decided hereinabove while disposing of the appeal of the Revenue, therefore, Cross-objection No.54/Ind/2011, filed by the assessee, is dismissed.
Finally, these departmental appeals are disposed of in terms as indicated hereinabove whereas the Cross-objection, filed by the respective assessee, is dismissed, being infructuous.
Order was pronounced in the open Court on 1.2.2012.
Sd sd (R.C. SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: Ist February, 2012
Copy to: Appellant/Respondent/CIT/CIT(A)/DR/Guard File