The Commissioner Of Income Tax, Karnal v. Market Committee, Pipli

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.535 of 2009Date of decision: 5.7.2010 The Commissioner of Income Tax, Karnal. Vs. Market Committee, Pipli. -----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.for 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, Chandigarh dated 19.12.2008 in I.T.A. No.801/Chandi/2008 for the assessment year 2005-06, proposing to raisefollowing substantial questions of law:- 1. “Whether on the facts and in the circumstances of thecase, the Income-tax Appellate Tribunal was justifiedin holding that depreciation was allowable on thecapital assets, when deduction for capital expenditureincurred for acquisition of these capital assets hascase, the Income-tax Appellate Tribunal was justifiedin holding that depreciation was allowable on thecapital assets, when deduction for capital expenditureincurred for acquisition of these capital assets has already been allowed as application of income of thetrust?” 2. “Whether the Ld. ITAT’s decision to allow doublededuction on depreciation when capital expenditureon the asset has already been allowed is justified inthe light of the Apex Court’s decision in Escorts Ltd.Vs. UOI (199 ITR 43) to the effect that in the absenceof clear statutory indication to the contrary, the statuteshould not be read as to permit an assessee twodeductions on the same expenditure?” 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 theMarketing Board, which is a State level authority to supervise theworking of Market Committees, so that the Market Board candischarge its statutory obligations. The assessee was registeredunder Section 12AA of the Act as charitable trust. The AssessingOfficer disallowed the depreciation calculated as per statutoryprovisions on the ground that since income of the assessee wasexempt from tax under Sections 11 to 13, allowing depreciation toascertain whether 85% of funds were applied for purposes oftrust, will amount to conferring double benefit. This view wasaffirmed by the CIT(A). The appeal of the assessee to the Tribunal was allowed on a statement that the matter was coveredin favour of the assessee by another order of the Tribunal. 3. We have heard leaned counsel for the parties. 4. 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 5. Learned counsel for the assessee submits that theTribunal rightly decided the issue in favour of the assessee. Herelied on the judgments inCITv. Seth Manilal RanchhoddasVishram Bhawan Trust[1992] 198 ITR 598 (Guj) and CITv.Institute of Banking Personal Selection (IBPS)(2003) 131TAXMAN 386 (Bom), which have been followed by the Tribunal inits main order which has been impugned in connected I.T.A.No.151 of 2010 and judgments inCITv. Rao Bahadur CalavalaCunnan Chetty Charities[1982] 135 ITR 485 (Mad), CITv.Society of the Sisters of St. Anne[1984] 146 ITR 28 (Kar) andCITv. Raipur Pallottine Society[1989] 180 ITR 579 (M.P.). 6. We have considered the rival submissions. TheMadras High Court in Rao Bahadur Calavala Cunnan ChettyCharities’s case (supra) observed:- 5. Learned counsel for the assessee submits that theTribunal rightly decided the issue in favour of the assessee. Herelied on the judgments inCITv. Seth Manilal RanchhoddasVishram Bhawan Trust[1992] 198 ITR 598 (Guj) and CITv.Institute of Banking Personal Selection (IBPS)(2003) 131TAXMAN 386 (Bom), which have been followed by the Tribunal inits main order which has been impugned in connected I.T.A.No.151 of 2010 and judgments inCITv. Rao Bahadur CalavalaCunnan Chetty Charities[1982] 135 ITR 485 (Mad), CITv.Society of the Sisters of St. Anne[1984] 146 ITR 28 (Kar) andCITv. Raipur Pallottine Society[1989] 180 ITR 579 (M.P.). 6. We have considered the rival submissions. TheMadras High Court in Rao Bahadur Calavala Cunnan ChettyCharities’s case (supra) 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 inconditions of s.11(1)(a) are imposed, it would be clearthat we have to consider the income as arrived at in the 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 expensesnecessary 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.” xxxxxxxxxx“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 Industrial Co. 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 theAct, 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.” 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. The Karnatka High Court in Commissioner ofIncome-Tax, Karnatka vs. Society of the Sisters of St. Anne.)[1984] 146 ITR 28 drawing support from Madras High Court inRao Bahadur Calavala Cunnan Chetty Charities(supra) hadrecorded that if depreciation is not allowed as a necessary deduction for computing the income of a charitable institution thenthe corpus of the trust for deriving the income cannot bepreserved and that the amount of depreciation debited to theaccount of a charitable institution is to be deducted to arrive at theincome available for application to charitable and religiouspurposes. This decision was followed by Madhya Pradesh HighCourt in CITv. Raipur Pallottine Society[1989] 180 ITR 579.Similar view was taken by Gujarat High Court in CITv. SethManilal Ranchhoddas Vishram Bhawan Trust[1992] 198 ITR598 by relying upon the aforesaid decisions. We are in respectfulagreement with the view taken by Madras, M.P., Karnataka,Gujarat and Bombay High Courts referred to above. No contraryview has been brought to our notice. 8. In all fairness to the learned counsel for the Revenue,reference is made to the judgment of the Hon'ble Apex Court inEscort Limited's case(supra), on which reliance has beenplaced by the learned counsel for the Revenue. The Hon'bleSupreme Court in that case was dealing with a case relating totwo deductions both under Sections 10(2)(vi) and 10(2)(xiv) of the1922 Act or both under Sections 32(1)(ii) and 35(1)(iv) of the Act.The assessee therein had incurred expenditure of a capital natureon scientific research relating to the business which resulted intoacquisition of an asset. The assessee had sought to claim aspecified percentage of the written down value of the asset asdepreciation and at the same time claimed deduction, in five consecutive years of the expenditure incurred on the acquisitionof the asset. The apex Court observed:- “Where a capital asset used for scientificresearch related to the business of the assessee isalso ipso facto an asset used for the purpose of thebusiness, it is impossible to conceive of theLegislature having envisaged a double deduction inrespect of the same expenditure, one by way ofdepreciation under section 32 of the Income Tax Act,1961 and other by way of allowance under section 35(1)(iv) of a part of the capital expenditure on scientificresearch, even though the two heads of deduction donot completely overlap and there is some difference inthe rationale of the two deductions......” It was further recorded that:- “There is a fundamental, though unwritten, axiom thatno Legislature could have at all intended a doublededuction in regard to the same business outgoing;and, if it is intended, it will be clearly expressed. Inother words, in the absence of clear statutoryindication to the contrary, the statute should not beread so as to permit an assessee two deductions......” 9. In the present case, the assessee is not claimingdouble deduction on account of depreciation as has beensuggested by learned counsel for the Revenue. The income ofthe assessee being exempt, the assessee is only claiming that It was further recorded that:- “There is a fundamental, though unwritten, axiom thatno Legislature could have at all intended a doublededuction in regard to the same business outgoing;and, if it is intended, it will be clearly expressed. Inother words, in the absence of clear statutoryindication to the contrary, the statute should not beread so as to permit an assessee two deductions......” 9. In the present case, the assessee is not claimingdouble deduction on account of depreciation as has beensuggested by learned counsel for the Revenue. The income ofthe assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determiningthe percentage of funds which have to be applied for thepurposes of the trust. There is no double deduction claimed bythe assessee as canvassed by the Revenue. Judgment of theHon’ble Supreme Court inEscorts Ltd. and another(supra) isdistinguishable for the above reasons. It cannot be held thatdouble benefit is given in allowing claim for depreciation forcomputing income for purposes of Section 11. The questionsproposed have, thus, to be answered against the revenue and infavour of the assessee. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 05, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE