Commissioner Of Income Tax, Hisar v. Market Committee, Narwana

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.151 of 2010Date of decision: 5.7.2010 Commissioner of Income Tax, Hisar. Vs. Market Committee, Narwana. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTALHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Yogesh Putney, Sr. Standing Counselfor the revenue.for the revenue. Mr. Rajesh Garg, Advocatefor the assessee. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (for short, “the Act”)against the order of Income Tax Appellate Tribunal, ChandigarhBench “B” Chandigarh dated 22.5.2009 in I.T.A. No.358/CHD/2009 for the assessment year 2006-07, proposing to raisefollowing substantial questions of law:- “1. Whether on the facts and in the circumstances of thecase, the learned ITAT was justified in holding that theexpenditure of Rs.92,98,533/- was justified to havecase, the learned ITAT was justified in holding that theexpenditure of Rs.92,98,533/- was justified to have been contributed to HSAM Board under statutoryobligation by virtue of Section 27 of the PunjabAgricultural Produce Market Act, 1961 is allowablewithout appreciating that no evidence could beproduced by the assessee to prove that suchexpenditure was actually incurred and whether suchcontribution can be treated to fall within the ambit ofapplication of income for charitable purposes asdefined in section 2(15) of the Income-tax Act?”Whether on the facts and in the circumstances of thecase, the learned ITAT was justified in holding that thedepreciation on fixed asset is allowable in the case ofcharitable trust/institution particularly when the incomeis computed as per provisions of sections 11 to 13 ofthe Income Tax Act, 1961 as question of depreciationdoes not arise when capital expenditure is alsoconsidered as application of income of the assesseeand there remains to assets/WDV for claim ofdepreciation?” 2. The assessee has been constituted under theprovisions of the Punjab Agricultural Marketing Produce Act, 1961to regulate the marketing of agricultural produce. Under thescheme of the Act, certain amounts are required to be paid to theHaryana State Agricultural Marketing Board (in short, “the Marketing Board), which is a State level authority to supervise theworking of Market Committees, so that the Marketing Board candischarge its statutory obligations. The assessee was registeredunder Section 12AA of the Act as charitable trust. The AssessingOfficer disallowed the amount of contribution paid to theMarketing Board on the ground that proof of expenditure of theamount given as contribution to the Marketing Board was notprovided. Claim of depreciation calculated as per statutoryprovisions was also disallowed on the ground that since incomeof the assessee was exempt from tax under Sections 11 to 13,allowing depreciation to ascertain whether 85% of funds wereapplied for purposes of trust, will amount to conferring doublebenefit. This view was reversed by the CIT(A). It was held that forcomputation of income, depreciation had to be allowed. Asregards payments made to the Marketing Board, it was held thatthe same were as per statutory requirement of the Statute inquestion. Reference was also made to judgment of this Court inHaryana Dal &General Millsv. State AIR 1986 (P&H) 1 as toScheme of the said Statute. The appeal of the assessee wasfinally allowed to the extent of proof of utilization of funds.Relevant observations made by CIT(A) are:- “5.2The issue involved and the submissions madeby the appellant have been considered. by the appellant have been considered. (a) The case law referred to by the appellant is notapplicable in its case keeping in view the facts andcircumstances, the appellant and HSAMB areapplicable in its case keeping in view the facts andcircumstances, the appellant and HSAMB are “5.2The issue involved and the submissions madeby the appellant have been considered. by the appellant have been considered. (a) The case law referred to by the appellant is notapplicable in its case keeping in view the facts andcircumstances, the appellant and HSAMB areapplicable in its case keeping in view the facts andcircumstances, the appellant and HSAMB are governed by the PAPMC Act, 1961; the funds are tobe utilized by the HSAMB as well as by the appellantfor the specific purposes mentioned in the Act. TheMarket Development Fund at the disposal of HSAMBhas to be utilized for the purposes mentioned u/s 26of PAPMC Act, 1961 and the Market Committee areto be expended for the purposes mentioned u/s 28 ofPAPMC Act, 1961. The appellant cannot voluntarilytransfer the funds without any consideration toHSAMB. (b) ‘Application of funds’ does not mean justtransferring the funds, it means utilization of themoney for the purposes already specified. Theappellant has himself submitted, as noted by the AOin the assessment order, that amount ofRs.16384536/- in aggregate was spent on link roads,mandi roads and annual repairs on account ofdevelopment works through HSAMB. Therefore, onlyRs.16384536/- can be treated as application of fundsout of total amount of Rs.3,70,00,000/- transferred bythe appellant to the Board. (c)The application of funds for charitable purposesworks is below 85% of the income of the appellant(this is after taking into account the relief given inrespect of ground of appeal no.1). Even if thedepreciation of Rs.233472/- is included in theapplication of funds (otherwise it is not application offunds), the appellant does not fulfill the condition of85% of the utilization of money for charitablepurposes. Therefore, the AOs version is correct andthe ground of appeal is dismissed.” The Tribunal affirmed the order of the CIT(A). 4. We have heard leaned counsel for the parties. 5. Learned counsel for the revenue submits thatdepreciation could not be allowed when income itself was exemptas it will confer double benefit which is not permissible as held bythe Hon’ble Supreme Court in Escorts Ltd. and anotherv.Union of India and others[1993] 199 ITR 43. 6. Learned counsel for the assessee submits that theTribunal rightly decided the issues in favour of the assessee. Herelied on the judgments inCITv. Seth Manilal RanchhoddasVishram Bhawan Trust[1992] 198 ITR 598 (Guj), CITv. RaoBahadur Calavala Cunnan Chetty Charities[1982] 135 ITR 485(Mad),CITv. Society of the Sisters of St. Anne[1984] 146 ITR28 (Kar), CITv. Raipur Pallottine Society[1989] 180 ITR 579(M.P.) and CITv. Institute of Banking Personal Selection(IBPS)(2003) 131 TAXMAN 386 (Bom), which have beenfollowed by the Tribunal, and judgment of Madras High Court inRao Bahadur Calavala Cunnan Chetty Charities(supra)wherein it was observed:- “.......Taking into account the purpose for which theconditions of s.11(1)(a) are imposed, it would be clearthat we have to consider the income as arrived at inthe context of what is available in the hands of theassessee, subject of course to any adjustment forexpenses extraneous to the trust. If the expression“income” is so understood, then we have to take theaccounts of the assessee with reference to thereceipts and deduct therefrom the expenses “.......Taking into account the purpose for which theconditions of s.11(1)(a) are imposed, it would be clearthat we have to consider the income as arrived at inthe context of what is available in the hands of theassessee, subject of course to any adjustment forexpenses extraneous to the trust. If the expression“income” is so understood, then we have to take theaccounts of the assessee with reference to thereceipts and deduct therefrom the expenses necessary for earning or looking after that income.The net amount that remains would be available fordistribution or application for charitable purpose. Inapplying the income for charitable purposes, evencapital expenditure may be incurred. Therefore, thenature of the expenditure in the hands of the entitywhich receives the money is not the criterion. So longas the assessee disburses the amount for charitablepurposes, whether the amounts are utilised for capitalor revenue purposes by the charity concerned, theassessee would have complied with that part of therequirement of s.11, namely, application of the incomefor charitable purposes. The authorities will have tofind out as to whether they are really charitablepurposes or not. Subject to such examination, theapplication of the income for charitable purposes willhave to be excluded and it is only the balance thatwould require examination for finding out whether theassessee has complied with the rule of accumulationto the extent of Rs.10,000 or 25 per cent of theincome, whichever is higher.” “In fact wherever the statute contemplated theincome being computed in the manner set out in theprovisions of the Act, appropriate words are used.For instance, in s.80E, which was considered by theSupreme Court in Cambay Electric Supply IndustrialCo. Ltd. v. CIT [1978] 113 ITR 84, after theexpression “total income” the following words areadded in brackets: “as computed in accordance withthe other provisions of this Act”. This emphasises thatwherever Parliament considered that the computationshould be in accordance with the provisions of the Act, it introduced the concept by using appropriatelanguage. In the absence of any such language ins.11(1), we consider that the computation asenvisaged by the other provisions of the Act cannotbe imported into s.11(1). The Tribunal has in a way mixed up the notionof total income in understanding the expression“income from property held under trust”. Section 14occurs in the chapter “Computation of total income”. Itprovides that all income for the purposes of charge ofincome-tax and computation of total income beclassified under certain heads. Therefore, thecomputation under the different categories or headsarises only for the purposes of ascertaining the totalincome for the purposes of charge. Those provisionscannot be introduced to find out what the incomederived from the property held under trust to beexcluded from the total income is, for the purpose ofthe exemptions under Chap.III.” 7. We have considered the rival submissions. We are inagreement with the view taken by Madras, M.P., Gujarat,Karnataka and Bombay High Courts referred to above. Judgmentof the Hon’ble Supreme Court in Escorts Ltd. and anotherisdistinguishable. Moreover, in I.T.A. No.535 of 2009 TheCommissioner of Income Tax, Karnalv. Market Committee,Pipli,decided today dealing with similar matter, we have upheldthe view taken by the Tribunal. In this view of the matter,questions proposed have, thus, to be answered against therevenue and in favour of the assessee. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 05, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE