Date Of Judgment 19-06-2018, Ita v. M/S Agricultural Produce Market Committee

1/17 IN THE HIGH COURT OF KARNATAKA, BENGALURUDATED THIS THE 19 DAY OF JUNE 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.239/2011 C/w. I.T.A. No.107/2017 IN I.T.A.No.239/2011: BETWEEN : 1.|THE COMMISSIONER OF INCOME-TAXPARK VIEW BUILDING, 4 MAIN,PARK VIEW BUILDING, 4 MAIN, P.J EXTENSION, DAVANAGERE oD THE ASSISTANT COMMISSIONEROF INCOME TAX, CIRCLE-1, SHIMOGA_ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s AGRICULTURAL PRODUCEMARKEEI COMMITTEEAPMC YARD, SAGAR ROAD,SHIMOGA__. RESPONDENT. (BY SMT.SHEETAL BORKAR, ADV. FOR SRI S.PARTHASARATHI,ADV.) Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 2/17 THIS ITA FILED UNDER SECTION 260-A OF I.T ACT, 1961ARISING OUT OF ORDER DATED 08.03.2011 PASSED IN [TANO.692/BANG/2010, FOR THE ASSESSMENT YEAR 2005-2006, PRAYING TO (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF)LAW STATED THEREIN, (II) ALLOW THE APPEAL AND SET ASIDE.THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITANO.692/BANG/2010 DATED 08.03.2011 AND CONFIRM THE)ORDER OF THR APPKLLATKE COMMISSIONER CONFIRMING THEORDER PASSBD BY THR ASSISTANT COMMISSIONBR OF)INCOME TAX, CIRCLE-1, SHIMOGA, IN THE INTEREST OFJUSTICE AND EQUITY. | IN I.T.A.No.107/2017: BETWEEN : 1.|THE Pr. COMMISSIONER OF|INCOME TAX, CIT (A)|~ FLOOR, SHREE TOWERS,NO.565/A, Al, |OPPOSTIE TO DRR HOSTEL,HADADI ROAD, DAVANGERE-977004 INCOME TAX, CIT (A)|~ FLOOR, SHREE TOWERS,NO.565/A, Al, |OPPOSTIE TO DRR HOSTEL,HADADI ROAD, DAVANGERE-977004 «|THER DEPUTY COMMISSIONEROF INCOME TAX CIRCLE 1~ FLOOR, SHREE TOWERS,NO.70, 100 FEET ROAD,|GOPALAGOWDA EXTENSION,SHIVAMOGGA-5//201_ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s AGRICULTURAL PRODUCEMARKEEI COMMITTEEAPMC YARD, SAGAR ROAD,SHIMOGA__. RESPONDENT. (BY SMT.SHEETAL BORKAR, ADV. FOR SRI S.PARTHASARATHI,ADV.) Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. 3/17 M/s Agricultural Produce Market Committee THIS INCOMB TAX APPBAL UNDER SKC.260-A OF|INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:|31.08.2016 PASSED IN ITA NO. 1268/BANG/2016, FOR THE.ASSESSMENT YEAR 2005-2006, PRAYING TO (I) FORMULATE.THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. |(II) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSEDBY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU INITA NO.1268/BANG/2016 DATED 31.08.2016 CONFIRMING THEORDER OF THR APPBLLATK COMMISSIONBR AND CONFIRMTHR ORDER PASSED BY THR DEPULY COMMISSIONER OFINCOME TAX, CIRCLE-1, SHIVAMOGGA. — (IJ) TO PASS SUCHOTHRBR SUITABLE ORDERS AS THIS HON'BLE COURT DBEMSKIT TO GRANT IN THR FACTS AND CIRCUMSTANCES OF THRCASE IN THE INTEREST OF JUSTICE AND EQUITY. THESE APPEALS COMING ON FOR ORDERS, THIS DAY,|Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants - RevenueMrs. Sheetal Borkar,Adv. for Respondents - ASsessee | Both these Appeals have been filed by the Revenuein this Court under Section ZJ6O60-A ot the Income TAct, 1961 |'Act' for short} for the Assessment Year2005-06. The Respondent-Assessee is AgriculturalProduce Market Committee, Shimoga, a CharitableTrust, duly registered under Section 12A of the Act. Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. 4/17 M/s Agricultural Produce Market Committee THESE APPEALS COMING ON FOR ORDERS, THIS DAY,|Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants - RevenueMrs. Sheetal Borkar,Adv. for Respondents - ASsessee | Both these Appeals have been filed by the Revenuein this Court under Section ZJ6O60-A ot the Income TAct, 1961 |'Act' for short} for the Assessment Year2005-06. The Respondent-Assessee is AgriculturalProduce Market Committee, Shimoga, a CharitableTrust, duly registered under Section 12A of the Act. Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. 4/17 M/s Agricultural Produce Market Committee ?)In the first round appeal before the learnedTribunal, vide Order Annexure-C dated|8.3.2011, the)learned Tribunal held that the Revisional Order passedby the Commissioner of Income Tax under Section 263of the Act was not sustainable on both grounds onwhich it was passed, namely, |i] to disallow the claim ofDepreciation under Section 32 of the Act in the hands ofthe Assessee, being a Charitable Trust and [ulrequirement to comply with the procedure undersection 11}]2] of the Act, if the accumulated income notspent for charitable purpose exceeded 195% of theincome during the year. 3.ThelearnedTribunalfoundthat.theAssessee was entitled to claim deduction under Section|32 of the Act as the relevant provisions for computingthe income did not discriminate between a Charitable|Trust and other Assessees. Secondly, the learnedTribunal found that accumulation of income of the' Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. 5/17 M/s Agricultural Produce Market Committee Assessee during the relevant Assessment Year did notexceed 15% of its income. The relevant portion in theOrder of the learned Tribunal dated8.3.2Z20arequoted below for ready reference: “10. Theaboveexaminationoftherelevant provisions of the Act brings home thepoint that the:IT Act has not provided any|separate set of Rules for computing the|income of an assessee claiming exemptionu/s.11 of the IT Act, 1961 Il.When the Act has not provided anyset of Rules for computing the income of anassessee, the income has to be computed|according to the generally accepted principles andpracticeofAccountancy.Depreciationbeingdiminution in the value of assets caused becauseof the wear and tear of usage, is an essentialelement of deduction in computing the income of.an assessee under the generally acceptedaccountancy principles and practices.Therefore, so long as an assessee falling u/s.11 is notspectfically prohibited by the IT Act from|claiming depreciation as a deduction, it tspermissible for that assessee to work out tts| Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 6/17 income on the generally accepted principlesand practice of accountancy| Tt as in this!context the Circular No.5-P (LXXVI) of 1968 issuedby the CBDT is relevant. The said circular hasaccepted the principles that even the whole ofcapital expenditure may be treated as applicationtowards charitable activities for the purposes ofsection 11 depending upon the purposes forwhich the funds were applied. Therefore, asrightly argued by the assesseewhen the entirecapital expenditure is permissible to be|allowed as a deduction treated it asapplicationoffundsforcharitableOT|religious purposes, how there could be afetterinclaimingthedepreciationallowance which is only a percentage of the|total capital expenditure incurred by theassessee ?When the entire capital expenditure|itself ts deductible as applied for charitable orreligious DUTFPOSES,therefusalToallow.depreciation allowance which is only a smallportion of the capital expenditure is nothing butan antithesis of the principles laid down by theCBDT in its above mentioned circular.|On this|ground itself find that the view of the|CommissionerofIncomeTax|1snotsustainable in law. Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 7/17 12.We have already stated in paragraph|above the when no specific rule is suggested forcomputing the income of an assessee, thegenerally accepted principles of accountancy has)to be applied for in computing its income.Therefore, the assessee being a _ charitablinstitution is entitled to work out its income as inthe case of any other entity and based ongenerally accepted principles and practices ofaccountancy which provide for deduction ofdepreciation allowance as well. This being thecase, the Commissioner of Income-tax is notjustified in holding that the assessee is notentitled to claim depreciation allowance on theground that section 32 is not applicable to theassessee. We hold that even tf section 32 doesnot apply to the assessee, it is entitled forclaiming depreciation allowance as it is entitled tofollow the generally accepted principles andpractice of accountancy in computing its income. 13.|In his order, the Commissioner ofIncome-tax has mentioned that the assessee 1Sderiving income from other sources like MarketFees, Leave and Licence Fees, Interest on BankDepositsandother|receipts, marketingOf| Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 8/17 agriculturalcommoditiese![c.Thelawhas|prescribed specific rules for computation ofincome from other sources in Part ‘F’ underChapter IV of the IT Act, 1961 running fromsections 56 to 59. Section 5/7 provides fordeduction allowable in computing income underother sources. Clause (iu) of section 57 providesfor depreciation u/s 32(2).It shows that even in|computing the income from other sources,|the assessee is entitled to claim depreciationu/s 32(2). This cructal aspect also was notexamined by the Commissioner of Income-tax|in the right perspective.Therefore, we find thatthe Assessing Officer has rightly allowed thededuction of Rs.2,26,57,/709/- as depreciationallowance in computing the income of assesseeTrust&. 14.NXXXNX XXXX XXX 15.NXXXNX XXXX XXX 16.In result, we cancel the revision orderpassed by the Commissioner of Income-tax andallow the appealfiled by the assessee.” | 4The second and subsequent Income Tax. AppealfiledbytheRevenue,namely,I1.T.A. Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. 9/17 M/s Agricultural Produce Market Committee No.107/2017arises out of the Order passed by thelearnedTribunaldated31.08.2016becausethe.AssessingOfficerhadpassedthe consequential Assessment Order in pursuance of the Order passed bythe Commissioner of Income Tax u/s. 263 of the Act,against which the Commissioner of Income Taxj|Appeals} granted relief to the Assessee and the Revenuetook the matter further before the learned Tribunal,which appeal of Revenue also came to be dismissed. —I.T.A. No.107/2017 has been filed by Revenue in thisCourt. 5.Learned Counsel at the Bar submitted that|so far as the issue regarding claim of Depreciationunder Section 32 of the Act is concerned, the.controversy is no longer|res integra, having been settledby the Hon’ble Supreme Court in the case of‘Commissioner of Income Tax-III, Pune v. Rajasthan & Gujarati Charitable Foundation Poona’ [2018] 89 Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 10/17 taxmann.com 127 , by which the Hon’ble SupremeCourt has affirmed the view taken by the Bombay HighCourt in‘Commissioner of Income Tax v. Institute of. Banking Personnel Selection (IBPS)’ [2003] 131. 5.Learned Counsel at the Bar submitted that|so far as the issue regarding claim of Depreciationunder Section 32 of the Act is concerned, the.controversy is no longer|res integra, having been settledby the Hon’ble Supreme Court in the case of‘Commissioner of Income Tax-III, Pune v. Rajasthan & Gujarati Charitable Foundation Poona’ [2018] 89 Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 10/17 taxmann.com 127 , by which the Hon’ble SupremeCourt has affirmed the view taken by the Bombay HighCourt in‘Commissioner of Income Tax v. Institute of. Banking Personnel Selection (IBPS)’ [2003] 131. Taxman 386 [Bom.|. The relevant portion of the saidJudgment of Bombay High Court as quoted by theHon’ble Supreme Court and affirmed is quoted below forready reference. | “In the said judgment, [Bombay HighCourt] the contention of the Departmentpredicated on double benefit was turneddown in the following manner:| 3As stated above, the first questionwhich requires consideration by thiscourt is : whether depreciation wasallowable on the assets, the cost ofwhich has been fully allowed asapplication of income under section 11in the past years? In the case of CIT v.MunisuvratJain1994|Tax|LAWReporter, 1084 the facts were aswhich requires consideration by thiscourt is : whether depreciation wasallowable on the assets, the cost ofwhich has been fully allowed asapplication of income under section 11in the past years? In the case of CIT v.MunisuvratJain1994|Tax|LAWReporter, 1084 the facts were as Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 11/17 follows. The assessee was a CharitableTrust. It was registered as a PublicCharitable Trust. It was also registeredwith the Commissioner, Pune.|Theassessee derived income from the'temple property which was a Trust|property.Duringthe|COUTSCof|assessment proceedings for assessmentyears 1977-78, 1978-79 and 1979-80,the assessee claimed depreciation|on the value of the building at therate of 2.5 per cent' and they alsoclaimed depreciation on furniture at therate of 5 per cent. The question whicharose before the court for determinationwas: whether depreciation could bedenied to the assessee, as expenditure|on acquisition of the assets had beentreated as application of income in theyear of acquisition? It was held by theBombay High Court that section 11 ofthe Income Tax Act makes provision inrespect of computation of income of theTrustfromthe|properlyheldforcharitable or religious purposes and it Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 12/17 alsoprovides|forapplicationandaccumulation of income. On the otherhand, section 28 of the Income Tax Actdeals with chargeability of income fromprofits and gains of business andsection 29 provides that income fromprofits and gains of business shall becomputed in accordance with section 30to section 43C, That, section 32(1) of theAct provides for depreciation in respectof building, plant and machinery ownedby the assessee and used for thebusiness purposes. It further providesfor deduction subject to section 34. Inthat matter also, a similar argument, asin the present case, was advanced onbehalf of the revenue, namely, thatdepreciationCaNbe.allowedasdeduction only under section 32 of theIncome Tax Act and not under generalprinciples.TheCOUTT|rejectedthisargument. It was held that normaldepreciation can be considered as ailegittmate deduction in computing thereal income of the assessee on general Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 13/17 Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 13/17 principles or under section 11(1)(a) ofthe Income Tax Act. The court rejectedthe argument on behalf of the revenuethat section 32 of the Income Tax Actwas the only section granting benefit ofdeduction on account of depreciation. Itwas held that income of a CharitableTrust derived from building, plant andmachinery and furniture was liable tobe computed in normal commercialmanner although the Trust may not becarrying on any business and theassets in respect whereof depreciationis claimed may not be business assets.In all such cases, section 32 of theIncomeTaxActprovidingfordepreciation for computation of incomederived from business or profession 1snot applicable. However, the income ofthe Trust its required to be computedundersectionI]Orlcommercialprinciples after providing for allowancefor normal depreciation and deductionthereof from gross income of the Trust.In view of the aforestated Judgment of Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. 14/1714/17 M/s Agricultural Produce Market Committee the Bombay High Court, we answerquestion No. 1 in the affirmative 1.e., infavour of the assessee and against thedepartment. 4.Question No. 2 herein is identical to the|question which was raised before theBombay High Court in the case ofDirector of Income Tax (Exemption) v.Framjee Cawasjee Institute (1993) 109CTR 463 (Bom). In that case, the factswere as follows: The assessee was theTrust. It|deriveditsincomefromdepreciable assets. The assessee tookinto account depreciation on thoseassets in computing the income of theTrust.The Income Tax Officer heldthatdepreciationcouldnotbetaken into account because, full'capitalexpenditurehadbeenallowed in the year of acquisition ofthe assets.The assessee went inappeal before the Assistant AppellateCommissioner. The appeal was rejected.The Tribunal, however, took the view| Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 15/17 that when the Income Tax Officer statedthat full expenditure had been allowedin the year of acquisition of the assets,whathe really meant was that theamount spent on acquiring those|assetshadbeentreatedads‘application of income’ of the Trust|in the year in which the income was|spent in acquiring those assets.|Thisdidnot;meay»that.in|computing income from those assets|in subsequent years, depreciation in respect of those assets cannot be|taken into account.This view of theTribunal has been confirmed by, theBombay High Court in the abovejudgment. Hence, Question No. 2 1scovered by the decision of the BombayHigh Court in the above judgment.Consequently,QuestionINO.aD1S|answered in the affirmative Le., infavour of the assessee and against, thedepartment. The Commissioner of Income Tax & another Vs. After hearing learned counsel for the parties, we are of the opinion that the aforesaidview taken by the Bombay High Courtcorrectly states the principles of law andthere is no need to interfere with theSame7 6.Since|theissueregardingclaimoT|Depreciation in the hands of the Charitable Trust is nolonger|res integra, We are of the opinion that nosubstantial question of law now arises in the presentAppeals filed by the Revenue. [.As far as the other issue sought to be raisedbefore us is concerned, from the aforesaid quotesportion of the order of the learned Tribunal, it is clearthat the said finding of the learned Tribunal of theaccumulation of income not exceeding 190% of theincome is concerned, the same is a pure finding of factand does not give rise to any substantial question oflaw. Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 17/17 6.Since|theissueregardingclaimoT|Depreciation in the hands of the Charitable Trust is nolonger|res integra, We are of the opinion that nosubstantial question of law now arises in the presentAppeals filed by the Revenue. [.As far as the other issue sought to be raisedbefore us is concerned, from the aforesaid quotesportion of the order of the learned Tribunal, it is clearthat the said finding of the learned Tribunal of theaccumulation of income not exceeding 190% of theincome is concerned, the same is a pure finding of factand does not give rise to any substantial question oflaw. Date of Judgment 19-06-2018, ITA No.239/2011 c/w ITA No.107/2017 The Commissioner of Income Tax & another Vs. M/s Agricultural Produce Market Committee 17/17 8.Accordingly, We are of the opinion that theAppeals filed by the Revenue are devoid of any meritsand no substantial question of law arises in the presentCAaSe. Both the Appeals filed by Revenue are thereforeliable to be dismissed and the same are accordinglydismissed. No costs. | AN/-| Sd/-.JU DGE Sd/-.JUDGE.