M/S Hotel Samode Palace Jaipur v. The Commissioner Of Income Tax-Ii, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 105 / 2006 M/S Hotel Samode Palace Jaipur through its partner Shri Reghvendra Singh, R/o Samode Haveli, Gangapole, Jaipur. ----Appellant Versus The Commissioner Of Income Tax-II, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Mahendra GargieyaFor Respondent(s) : Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment Per Hon’ble Jhaveri, J. 02/05/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal haspartly allowed the appeal of the department reversing the viewtaken by the CIT(A). 2.This Court while admitting the appeal on 11.12.2007 hasframed the following substantial questions of law: “(i)Whether on facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was justified in holdingthat there was a preemptive utilization ofthe reverse and, therefore, the appellantwas not eligible to claim deduction underSection 80HHD(1)? (ii)Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was justified in holdingthat no disallowance could be made to theassessee in the year under consideration, even if if assumed that there was noutilization of reserve and thereby notproperly applying Section 80HHDD(4) & (5)of the Income Tax Act?” 3.The brief facts of this case are that the assessee filed thereturn of income on 23.10.2000 declaring income ofRs.21,77,124/-. The case was processed u/s 143(1) on19.12.2000 at total income of Rs.21,77,130/-. Since this wasselected for scrutiny, Notice u/s 143(2) was issued on 31.10.2001to present before the A.O. on 19.11.2001. On the date19.11.2001 the case was adjourned for sine die. Further noticeu/s 143(2) was issued on 2.1.2002 fixing the case for 9.1.2002.Fresh notice u/s 143(2) was issued on 1.11.2002 to presentbefore the AO on 13.11.2002. On the said date adjournment wasgiven for 19.11.2002. On 9.12.2002. Books of accountscomprising cash book, ledger, journal, cash vouchers, bankreconciliation’s statement etc. as and when required forverification. 4.Counsel for the appellant has taken us to sub-clause (4) ofSection 80HHD which reads as under: “(4) The amount credited to the reserveaccount under clause (b) of sub-section(1), shall be utilised by the assessee beforethe expiry of a period of five years nextfollowing the previous year in which theamount was credited for the followingpurposes, namely :— (a) construction of new hotels approved bythe prescribed authority in this behalf orexpansion of facilities in existing hotelsalready so approved; (b) purchase of new cars and new coachesby tour operators already so approved orby travel agents; (c) purchase of sports' equipment formountaineering, trekking, golf, river-raftingand other sports in or on water;(d) construction of conference orconvention centres; (e) provision of such new facilities for thegrowth of Indian tourism as the CentralGovernment may, by notification in theOfficial Gazette, specify in this behalf; (f) subscription to equity shares formingpart of any eligible issue of capital made bya public company: Provided that where any of the activitiesreferred to in clauses (a) to (f) would resultin creation of any asset owned by theassessee outside India, such asset shouldbe created only after obtaining priorapproval of the prescribed authority.” 5.He has contended that the Tribunal has seriously committed an error in interpreting sub-clause (4) which has been wronglyinterpreted by the Tribunal. 5.1He has taken us to the provisions of section 32A whereidentical language is used. Section 32A(4) reads as under: (f) subscription to equity shares formingpart of any eligible issue of capital made bya public company: Provided that where any of the activitiesreferred to in clauses (a) to (f) would resultin creation of any asset owned by theassessee outside India, such asset shouldbe created only after obtaining priorapproval of the prescribed authority.” 5.He has contended that the Tribunal has seriously committed an error in interpreting sub-clause (4) which has been wronglyinterpreted by the Tribunal. 5.1He has taken us to the provisions of section 32A whereidentical language is used. Section 32A(4) reads as under: “(4) The deduction under sub-section (1)shall be allowed only if the followingconditions are fulfilled, namely :— (i) the particulars prescribed in this behalfhave been furnished by the assessee inrespect of the ship or aircraft or machineryor plant; (ii) an amount equal to seventy-five percent of the investment allowance to beactually allowed is debited to the profit andloss account of any previous year in respectof which the deduction is to be allowedunder sub-section (3) or any earlierprevious year (being a previous year notearlier than the year in which the ship oraircraft was acquired or the machinery orplant was installed or the ship, aircraft,machinery or plant was first put to use) andcredited to a reserve account (to be calledthe "Investment Allowance ReserveAccount") to be utilised— (a) for the purposes of acquiring, before theexpiry of a period of ten years nextfollowing the previous year in which theship or aircraft was acquired or themachinery or plant was installed, a newship or a new aircraft or new machinery orplant [other than machinery or plant of thenature referred to in clauses (a), (b) and(d) of the second proviso to sub-section(1)] for the purposes of the business of theundertaking; and (b) until the acquisition of a new ship or anew aircraft or new machinery or plant asaforesaid, for the purposes of the businessof the undertaking other than fordistribution by way of dividends or profits orfor remittance outside India as profits or forthe creation of any asset outside India: Provided that this clause shall have effectin respect of a ship as if for the word"seventy-five", the word "fifty" had beensubstituted. Explanation.—Where the amount debited tothe profit and loss account and credited tothe Investment Allowance Reserve Accountunder this sub-section is not less than theamount required to be so credited on thebasis of the amount of deduction in respectof investment allowance claimed in thereturn made by the assessee under section139, but a higher deduction in respect ofthe investment allowance is admissible onthe basis of the total income as proposed tobe computed by the Assessing Officer undersection 143, the Assessing Officer shall, bynotice in writing in this behalf, allow theassessee an opportunity to credit within thetime specified in the notice or within suchfurther time as the Assessing Officer mayallow, a further amount to the InvestmentAllowance Reserve Account out of theprofits and gains of the previous year inwhich such notice is served on the assesseeor of the immediately preceding previousyear, if the accounts for that year have notbeen made up; and, if the assessee creditsany further amount to such account withinthe time aforesaid, the amount so creditedshall be deemed to have been credited tothe Investment Allowance Reserve Accountof the previous year in which the deductionis admissible and such amount shall not betaken into account in determining the adequacy of the reserve required to becreated by the assessee in respect of theprevious year in which such further credit ismade: adequacy of the reserve required to becreated by the assessee in respect of theprevious year in which such further credit ismade: Provided that such opportunity shall not beallowed by the Assessing Officer in a casewhere the difference in the total income asproposed to be computed by him and thetotal income as returned by the assesseearises out of the application of the provisoto sub-section (1) of section 145or sub-section (2) of that section or the omissionby the assessee to disclose his income fullyand truly.” 6.He has also relied upon the decision of this Court in the case ofCommissioner of Income Tax vs. Hans MarbleIndustries(P) Ltd. (2009) 18 DTR 0250 and the decision ofPunjab and Haryana High Court in the case of Shri. Guru Ram Dass Ji Educational Trust vs. Chief Commissioner of Income Tax, Amritsar, the relevant portion of which reads as under: “Sections 10(23C)(iiiab),10(23C)(iiiad),10(23C)(vi)along with its 1st and 14thproviso, which are relevant for adjudicatingupon the present petition, are reproducedbelow for reference :- "Section 10(23C) - any income received byany person on behalf of - xx xx xx xx(iiiab) any university or othereducational institution existing solely foreducational purposes and not for purposesof profit, and which is wholly orsubstantially financed by the Government ;or xx xx xx xx (iiiad) any university or other educationalinstitution existing solely for educationalpurposes and not for purposes of profit ifthe aggregate annual receipts of suchuniversity or educational institution do notexceed the amount of annual receipts asmay be prescribed ; or xx xx xx xx (vi) any university or other educationalinstitution existing solely for educationalpurposes and not for purposes of profit,other than those mentioned in sub-clause(iiiab) or sub-clause (iiiad) and which maybe approved by the prescribed authority, orxx xx xx xx Provided that the fund or trust or institution[or any university or other educationalinstitution or any hospital or other medicalinstitution] referred to in sub-clause (iv) orsub-clause (v) [or sub- clause (vi) or sub-clause (via) shall make an application in theprescribed form and manner to theprescribed authority for the purpose ofgrant of the exemption, or continuancethereof, under sub-clause (iv) or sub-clause(v) [or sub-clause (vi) or sub-clause (via)] :xx xx xx xx Provided also that in case the fund or trustor institution or any university or othereducational institution or any hospital orother medical institution referred to in thefirst proviso makes an application on orafter the 1st day of June, 2006 for thepurposes of grant of exemption orcontinuance thereof, such application shallbe [made on or before the 30th day ofSeptember of the relevant assessmentyear] from which the exemption is sought: Under Section 10(23C)(iiiad) read withSection 10(23C)(vi) and the 1st proviso toSection 10(23C), an institution, which is notwholly or substantially funded by theGovernment, solely set up for the purposeof education and not for the purpose ofprofit, whose receipts exceed ` 1 crore, toclaim exemption under Section 10(23C), isrequired to make an application in theprescribed manner to the prescribedAuthority. Thus, as soon as the receipts ofsuch institution exceed ` 1 crore, anapplication for grant of exemption can bemade. A plain reading of the 14th proviso toSection 10(23C), as reproduced above,leaves no doubt in our minds that anapplication under the same can be filed onor before 30th September of the relevantAssessment Year, from which the exemptionis sought. The said proviso simply gives anouter date for making the application, which A plain reading of the 14th proviso toSection 10(23C), as reproduced above,leaves no doubt in our minds that anapplication under the same can be filed onor before 30th September of the relevantAssessment Year, from which the exemptionis sought. The said proviso simply gives anouter date for making the application, which is 30th September of the Assessment Year,for which the exemption is sought. Theproviso does not say that the application isto be made between 1st April and 30thSeptember of the Assessment Year, forwhich the exemption is sought. The plainand simple meaning, as made out onreading the proviso, is unambiguous. Noexternal aid is necessary. If the stand of therespondent is to be accepted, then wewould have to necessarily add to the 14thproviso a condition that the application shallbe made after 1st April and before 30thSeptember of the relevant Assessment Year,from which the exemption is sought. Wefind no necessity to do so.” 7.He has also contended that sub-clause (5) provides chargingof the amounts which was utilised even during the same year inwhich the amount was credited to the reserves account and underclause (b) of sub-section (1) even the amount of Rs.42,00,000/-has been disallowed can be taxed after six years and not for theyear it has been taxed. 8.Counsel for the respondent Mr. Mathur has taken us to theorder of the Tribunal and more particularly paras 24 & 31 whichreads as under: “24. The ld. CIT(A) after considering thefacts of the case and taking intoconsideration the arguments of counsel ofthe assessee and remand report of AO haveheld as per para 7 and 7.1 of his order asunder: “I have perused the assessment records,papers and the submission made before meand have also referred the Remand Reportand have found that the contention raisedby the ld. Counsel is having force that outof the reserve created u/s 80HHD if, anyamount is to be put to tax than the same isgoverned by the provisions of Section80HHD(5) and that section does not providecharging of the amount which was utilised even during the same year in which theamount was credited to the reserveaccount. The accounting entries of creation& utilization are only the transfer entriespassed in the boos of accounts on 31[st]March of which the first entry was totransfer of amount out of the profits to thereserve account and the subsequent entrywas of transfer by debiting the reserveaccount to the extent utilised for thepurposes as per section 80HHD(4). even during the same year in which theamount was credited to the reserveaccount. The accounting entries of creation& utilization are only the transfer entriespassed in the boos of accounts on 31[st]March of which the first entry was totransfer of amount out of the profits to thereserve account and the subsequent entrywas of transfer by debiting the reserveaccount to the extent utilised for thepurposes as per section 80HHD(4). Considering the submission made by ld. AR,I have found that the AO had made wronginterpretation of the provisions of section80HHD(4) & (5) which is further against theintention and the objects of that sectionwhen it has been admitted that theassessee had utilised the money for thepurposes as referred in subsection-4 ofsection 80HHD. The only dispute is as tothe amount utilised during the same year asagainst within the period of 5 years. Thecontention raised by the learned Counselthat the words “before” used in subsection-4 is to be constructed “upto” and “Next” as“Form” is logically and legally appears to becorrect. These words have also been giventhe same meaning in the notes on clausesreferred to by the learned counsel. It isalso noticed on the plain reading ofsubsection-4 that it put emphasis onutilization of amount for the purposes asreferred therein within the time limit of 5years/ The chargeability of the reserveamount to tax is as per provisions ofsubsection-5 of sectrion 80HHD and none ofthe conditions as specified in sub clause (a)& (b) of that section 80HHD(5) were foundto be present in the case of the appellantand accordingly the amount of Rs.365910/-treated as chargeable to tax as income forthe Asst. Year under appeal is totally unjustand unreasonable and for away from thelegal pronouncements of the Hon’Ble ApexCourt relied upon by the counsel as tointerpretation and construction of the legalprovisions and therefore is directed to bedeleted. 31.Therefore, in the present case theassessee is allowed to utilize the reservethe extent of Rs.71,23,244/- and not to theextent of Rs.1,07,82,347/- u/s 80HHD(1)(b) read with sub section (4) of section 80HHD of the Act. Therefore, we reversethe decision taken by the Ld. CIT(A) andsustain the order of the Assessing officerwho has rightly allowed the deduction u/s80HHD(1)(b) of the Act read with sub-section (4) to section 80HHD of the Act tothe extent of Rs.71,23,244/-. Thus thisground of the revenue is allowed.” 9.He has contended that the Tribunal has rightly reserved the fund of the previous year and as per sub-clause (4)Rs.21,00,000/- and 42,00,000/- was reserved for the current year. 10.We have heard counsel for both the sides. 11.The sub-clause (4) is very clearly. The reserve of theprevious year as shown on 31[st] March 1999 can be utilised for the benefit of Section 80HHD and reserved amount for the currentyear cannot be utilised for the same year. It has to be utilised inthe subsequent year and before the expiry of the period of fiveyears and sub-clause (4) contemplates for non utilization ofreserve fund which can be taxed only on completion of five yearsof the assessment year. 12.Therefore, the view taken by the Tribunal is just and proper. 13.In that view of the matter, the issues are answered in favourof the department and against the assessee. 14.The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/09