Date Of Judgment 30-08-2018 I.t.a v. M/S.karnataka Food & Civil Supplies Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 30 DAY OF AUGUST 2018. PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| 1.T.A.No.3Q05 OF 201 BETWEEN: 1.|Commissioner of Income Tax-(Exemptions), Unity Building Annexe, Mission Road, Bangalore-27. 2.|Deputy Commissioner of Income Tax, (Exemptions), Circle-17(1), | Bangalore. ...Appellant (By Mr.Sanmathi E I, Adv.) AND: M/s.Karnataka Food & Civil Supplies Ltd.,No.16/1, Miller Tank Bed Area,|Vasanthanagar,Bangalore-S60052.PAN: AAACK8&)23E ...Responden (By Mr.S.Parthasarathi, Adv.) Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 2/12 This Income Tax Appeal is filed under Section 260-A ofIncome Tax Act 1961, arising out of order dated 20.10.2015 |passed in ITA No.124/Bang/2014, for the Assessment Year2010-11, praying to decide the foregoing question of lawand/or such other questions of law as may be formulated bythe Hon'ble Court as deemed fit and set aside the appellateorder dated 20.10.2015 passed by the Income Tax AppellateTribunal, ‘A’ Bench, Bengaluru, as sought for, in therespondent assessee’s case, in appeal proceedings in ITA No.124/Bang/2014 for A.Y.2010-11 and grant such other reliefas deemed fit, in the interest of justice. This1.T.A.comingOT]forAdmission, thisdayS.SUJATHA J. delivered the following:- JUDGMENT Mr.Sanmathi E.I.,Adv. for Appellants —RevenueMr.S.Parthasarathi, Adv. for Respondent -—Assessee 1.Revenue has filed this appeal raising purported substantial questions of law under|Section 260-Aot theIncome Tax Act, 1961 arising from the order of learned|Tribunal dated20.10.20151n |ITA No.124/Bang/2014forthe Assessment Year 2ZO1O-2ZJO11Deputy Director ofIncome-tax(E) vs. Karnataka Food and Civil Supplies Ltd. Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 3/12 oD The suggested substantial question of law in thememo of appeal of Revenue is quoted below for readyreference:-. “1.WhetherOrlthefactsandin|thecircumstances of the case, the Tribunal was|right in setting aside the disallowance of|claim of assessee for carry forward of broughtforward losses of Rs.16,62,77,393/- forA. Y.2005-06andRs.23,54,61,542/-|forA.Y.2006-07 and set off against its income forA.Y.2010-11 by _ thassessingauthoritywithout appreciating that the same is not|permitted under the provisions of section11,12 and 13 of the Act and the it is a self|contained code and nothing can be added nor|deleted from the computation set out in those|provisions?” 3.|The learned counsel for Revenue submits that thecontroversy raised in the present appeal is covered by adecision oT|thisCourtin.ITANo.231/2018(D.D|14.08.2018), In the case ofPr. Commissioner of Income- Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 4/12 Tax (Exemptions) and Another vs. M/s Green Wood High| School. The relevant portion of the said order is extracted|hereunder for ready reference: aeaeThis Court in the case of‘Commissioner ofIncome Tax-III, Pune v. Rajasthan & GujaratiCharitableFoundationPoona’[2018]|8&9taxmann.com 127 [SC)with regard to allowabilityand Depreciation in the hands of Religious andCharitable Trust held as under: 65LearnedCounselatthe|Barsubmitted that so far as_ the _ issregarding claim of Depreciation undersection 32 of the Act is concerned, thecontroversy is no longer res integra, havingbeen settled by the Hon’ble Supreme Courtin the case of‘Commisstoner of Income|Tax-III, Pune v. Rajasthan & GujaratiCharitable Foundation Poona’ [2018]89 taxmann.com 127 » by which the|Hon’ble Supreme Court has affirmed the|view taken by the Bombay High Court in“CommissionerofIncomeTaxVU. School. The relevant portion of the said order is extracted|hereunder for ready reference: aeaeThis Court in the case of‘Commissioner ofIncome Tax-III, Pune v. Rajasthan & GujaratiCharitableFoundationPoona’[2018]|8&9taxmann.com 127 [SC)with regard to allowabilityand Depreciation in the hands of Religious andCharitable Trust held as under: 65LearnedCounselatthe|Barsubmitted that so far as_ the _ issregarding claim of Depreciation undersection 32 of the Act is concerned, thecontroversy is no longer res integra, havingbeen settled by the Hon’ble Supreme Courtin the case of‘Commisstoner of Income|Tax-III, Pune v. Rajasthan & GujaratiCharitable Foundation Poona’ [2018]89 taxmann.com 127 » by which the|Hon’ble Supreme Court has affirmed the|view taken by the Bombay High Court in“CommissionerofIncomeTaxVU. Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 5/12 Instituteof|BankingPersonnelSelection (IBPS)’ [2003] 131 Taxman 386 /Bom.|. Ihe relevant portion of thesaid Judgment of Bombay High Court asquoted by the Hon'ble Supreme Court andaffirmed1Squotedbelow|forreadyreference. “In the said Judgment, [Bombay|High Court] the contention of the)Department predicated on double|benefit was turned down in thefollowing manner: 3. AS.Statedabove,the|first,questionwhichrequiresconsideration by this court 1s :)whether|depreciationWasallowable on the assets, the cost ofwhich has been fully allowed as|application of income under section)11 in the past years? In the case of|CIT v. Munisuvrat Jain 1994 Tax)Law Reporter, 1084 the facts wereas follows. The assessee was ai Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 6/12 Charitable Trust. It was registered|as qa Public Charitable Trust. It wasalsoregisteredwiththe|Commussioner, Pune.The assesseederived income from the templeproperty which was a Trustproperty.During the course ofassessmentproceedingsforassessment years 1977-785, 197679 and 1979-80,|the assesseeclaimeddepreciationO©Mthevalue of the building at the rateof 2.5 per cent' and they alsoclaimed depreciation on furniture at)the rate of 5 per cent. The question|which arose before the court for'determinationLUaASwhetherdepreciation could be denied to the)ASSESSEE, LS|expenditureOrlacquisition of the assets had been)treated as application of income in|the year of acquisition? It was held|by the Bombay High Court that)section 11 of the Income Tax Act Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 7/12 makesprovisionin|respectof|computation of income of the Trust)from the properly held for charitableor religious purposes and it also)providesforapplicationandaccumulation of income. On_ theother hand, section 28 of theIncomeTax|Actdeals.withchargeability of income from profits|and gains of business and section)29 provides that income from profits:and gains of business shall be)computedin|accordancewithsection 30 to section 43C, That,|section 32(1) of the Act provides fordepreciation in respect of building,|plant and machinery owned by theassessee and used for the business|purposes. It further provides fordeduction subject to section 34. In|thatmatteralso,asimularargument, as in the present case,|was advanced on behalf of the|revenue, namely, that depreciation| Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 8/12 Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 8/12 can be allowed as deduction only|under section 32 of the Income Tax)Actandnot.undergeneralprinciples. The court rejected thisargument. It was held that normal)depreciation can be considered as a)legittmate deduction in computing|the real income of the assessee on'general principles or under section11(1)(a) of the Income Tax Act. The|court rejected the argument onbehalf of the revenue that section)32 of the Income Tax Act was theonly section granting benefit of|deductionOnaccountof|depreciation.It|Was heldthatincome|of|FICharitable|Trust|derived from building, plant and)machinery and furniture was liable|tobe.computedin|normal|commercial manner although theTrust may not be carrying on any|business and the assets in respectwhereof depreciation is_ claimed Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 9/12 may not be business assets. In all|such cases, section 32 of theIncomeTaxActprovidingfordepreciationforcomputationof|income derived from business or)profession1S not.applicable.However, the income of the Trust is.required to be computed wundersection 11 on commercial principles|after providing for allowance fornormal depreciation and deduction|thereof from gross income of the|Trust. In view of the aforestated|Judgment of the Bombay HighCourt, we answer question No. 1 in)the affirmative t.e., in favour of the|aSsSSCSSCandagainstthedepartment.” 4With regard to carrying forward of thelosses for being set off against the income of thecharitable trust for the present Assessment Year, Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 10/12 the controversy is covered by the Judgment inCommissioner of Income Tax (Exemptions) and|another Vs. Ohio University Christ College|rendered on17.07.2018IN|ITA.No.312/2016and ITA No.313/2016, In which this Court held as|under:| 18. In view of the aforesaid findingsof the learned Tribunal, allowing anyexpenditure of the earlier year which hasbeen brought forward and set off in theyear under consideration, is a Justified|finding of fact based on the_ correctinterpretation of law and the judgmentrelied upon by it rendered by the cognateBench. Therefore, the same does not call|for interference. A similar view was also|taken by the Division Bench of BombayHigh Court inCommissioner of Income-tax v. Institute of Banking (2003) 264ITR 110,wherein the Division Bench ofBombay High Court held that the income|derived from the trust property has also Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 11/12 got|tobe.computedOncommercialprinciples and if commercial principles are|applied, then adjustment of expensesincurred by the trust for charitable andreligijouS purposes in the earlier yearsagainst the income earned by the trust inthe subsequent year will have to beregarded as application of income of the)trust for charitable and religious purposes|in the subsequent year. In view of the controversy covered by theabove decisions of this Court, we are of the opinionthat the substantial question of law as suggestedby the appellants does not now arise for ourfurtherconsideration in the present appeal.” 4In view of the aforesaid, we are of the opinion thatno substantial question of law arises for our furtherconsideration in the present case also. Date of Judgment 30-08-2018 I.T.A.No.305/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. M/s.Karnataka Food & Civil Supplies Ltd.,. 12/12 5The appeal filed by the Revenue is accordingly dismissedin terms of the aforesaid judgments of this Court. No costs. dn/- Sd/-.JUDGE Sd/-.JUDGE|