The Hon’ble Mr. Justice v. Srishananda

IN THE HIGH COURT OF KARNATAKA AT BENGALURU|DATED THIS THE 23[RD|]DAY OF FEBRUARY, 2021 PRESENT THE HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA| THE HON’BLE MR. JUSTICE V. SRISHANANDA| I.T.A. NO.22/2018 BETWEEN M/S RATO DRATSANGREP. BY ITS SECRETARY SRI KHEDUP.LAMA CAMP NO.2TIBETAN COLONYTATTIHALLI TQ. MUNDAGODKARWAR, UTTAR KANNADA-581411PAN: AAAAR8400L|APPELLANT| (BY SRI V.CHANDRASHEKAR, |FOR SRI M LAVA, ADVOCATES) AND THE INCOME TAX OFFICER.(EXEMPTIONS), WARD NO.1—CR BUILDING, ATTAVARAMANGALURU-5/75 OO1RESPONDENT| (BY SRI K.V.ARAVIND, ADVOCATE) THIS I.7T.A. IS FILED UNDER SEC. 2Z60-A OF INCOMTAX ACT 1961, ARISING OUT OF ORDER DATED 08.09.2017PASSED IN ITA NOS.1258 & 1261/BANG/2017, FOR THEASSESSMENT YEARS 2011-2012 AND 2012-2013, PRAYING TO (A)FORMULATE THE SUBSTANTIAL QUESTIONS OF LAWAS STATED ABOVE AND ANSWER THE SAME IN FAVOUR OFTHE APPELLANT (B) TO ALLOW THE APPEAL AND SET ASIDETHE FINDINGS TO THE EXTENT AGAINST THE APPELLANT INTHE ORDER PASSED BY THE INCOME TAX APPELLATETRIBUNAL, “SMC-A” BENCH, BANGALORE IN ITA NOS.1258 &126/7/BANG/2017 DATED 08.09.2017 FOR THE ASSESSMENTYEARS|AQOL1L-1AND|2017-13.RESPECTIVELY.(VIDEANNEXURE-A). THIS I.T.A. HAVING BEEN HEARD AND RESERVED FOR.JUDGMENT,|COMINGON|FOR.PRONOUNCEMENTOFJUDGMENT, THIS DAY,V. SRISHANANDA. J.,DELIVERED|THE FOLLOWING: JUDGMENT Tnis appeal is filed under Section 260-A of the Income|Tax Act [hereinafter referred to as *the Act’for short] by the.assessee for the assessment years 2011-12 and 2012-13. 2.|Tne scope of the appeal is very limited inasmucnasaremancdOrdermadeDy tneTribunalicotneCommissioner of Tribunal remanding the matter for a freshconsideration by the Commissioner of Income Tax (Appeals)is questioned by the assessee in this appeal. 300Brief facts wnich are necessary for the disposal ofthis appeal are as under: Assessee is a Trust registered under the Karnataka|Societies Registration Act, 1960, carrying on with cnaritableactivity of imparting education in Tattihalli, Mundgod, UttaraKannada and also imparting education of tailoring to theneedy poor people on charitable lines. The appellantassessee filed its returns of income for the years 2011-12and 2012-13 on 29.6.2011 and 29.9.2012 declaring nilincome. The returns were selected for scrutiny andassessments were completed by tne Assessing Officer underSection 143(2) of the Act by order dated 31.3.2014 and7.8.2014 for the assessment years 2011-12 and 2012-13respectively disallowing the claim of depreciation for both theyears on the ground that the assessee nas not earned anyincome out of the use of the assets. 4Being aggrieved by the order of the AssessingOfficer, the assessee appealed to Commissioner of IncomeTax (Appeals) and the Commissioner of Income Taxremanded the matter back for fresh consideration by theCommissioner of Income Tax (Appeals) allowed the appeal|filedDy tneaSSeSsSsevideorderpassedIn|TTA. No.104/CIT(A)/HBL/2014-15 and in ITA No.364/CIT(A)/2014-15 dated 13.2.2017 nolding that it was not necessary|to earn any income by use of assets for claimingdepreciation. 5. Revenue being aggrieved by the order of the|Commissioner of Income Tax (Appeals) filed an appeal beforethe Appellate Tribunal. The Appellate Tribunal afterconsidering tne rival contentions of the parties neld as under: 4Being aggrieved by the order of the AssessingOfficer, the assessee appealed to Commissioner of IncomeTax (Appeals) and the Commissioner of Income Taxremanded the matter back for fresh consideration by theCommissioner of Income Tax (Appeals) allowed the appeal|filedDy tneaSSeSsSsevideorderpassedIn|TTA. No.104/CIT(A)/HBL/2014-15 and in ITA No.364/CIT(A)/2014-15 dated 13.2.2017 nolding that it was not necessary|to earn any income by use of assets for claimingdepreciation. 5. Revenue being aggrieved by the order of the|Commissioner of Income Tax (Appeals) filed an appeal beforethe Appellate Tribunal. The Appellate Tribunal afterconsidering tne rival contentions of the parties neld as under: “3.[ have considered the rival submissions.I find that the AO has rejected the claim of the'assessee on the basis that there Is no Income.reported by the assessee out of tne user of the.assets against which the depreciation was claimedby the assessee. In my considered opinion, on thisaspect, the order of CIT(A) is proper tnat even if noincome is earned from user of assets during|relevant year for regular business activity of the|assessee then depreciation is allowable but wnetnerthe assets in question were being used by assesseein relevant years for regular business activity of theassessee is not coming out from the orders of the|authorities below. Therefore I set aside the order.of CIT(A) for potn years and restore the matterback to his file for fresn decision after examination|and decision on this factual aspect and he should| pass speaking and reasoned order as to whetherassets in question were used by the assessee in.relevant years for regular business activity of the|assessee and thereafter decide this issue as per law|after providing reasonable opportunity of being|heard to botn sides. 4d In the result, both the appeals filed by|the revenue are allowed for statistical purposes in|the terms indicated above. — 6.|As could be seen from the order of the Tribunal,the Tribunal held that order of the Commissioner of IncomeTax (Appeals) is correct and if no income is earned from theuse of the assets during the relevant year for the regularDusiness activity, then depreciation is allowable. But theTribunal also felt that whether the assets in question wereused by the assessee or not in the relevant year is notconsidered by the Commissioner of Income Tax (Appeals)and tnerefore remitted the matter back to the Commissionerof Income Tax (Appeals) to decide said factual aspects ofwnetner the actual assets were put to use for the relevantyears for the regular business activity and to pass a speaking order. It is that portion of tne order which is beingquestioned in this appeal by the assessee. J.In the appeal, tne learned counsel for theappellant while addressing the arguments in respect of thegrounds urged in the appeal by placing reliance on tnejudgment rendered by the Hon'ble High Court, Delni,reported in.12017] 88 Taxmann.com 580 (Dein!)in the.case Of|Sony India (P.) Ltd. V. Commissioner of Income Taxand argued that when once the assets are included in|the block assets, there is no need to provide proof of use ofall assets which were included in the block of assets andtherefore, contended tnat the remand order made by theTribunal for the Commissioner of Income Tax to enquire intothe question of the assets being put to use is a futile exerciseand thus sought for allowing the appeal. 8.)In the appeal grounds, the following substantialquestion of law are raised: “1.Whetner the Tribunal was Justified in lawin holding that the use of asset Isessential for claiming depreciation underin holding that the use of asset Isessential for claiming depreciation under DD. 35. section 32 read witn section 13(6)(c) ofthe Income Tax Act, 1961 on the factsand circumstance of the case. Whether the Tribunal was erred in law In|not nolding that the use of asset is not aNeceSSada[ingreaientforallowingdepreciation after the introduction of|concept of block of assets in the IncomeTaxAct,1961|Of)the|factsandcircumstance of the case. 8.)In the appeal grounds, the following substantialquestion of law are raised: “1.Whetner the Tribunal was Justified in lawin holding that the use of asset Isessential for claiming depreciation underin holding that the use of asset Isessential for claiming depreciation under DD. 35. section 32 read witn section 13(6)(c) ofthe Income Tax Act, 1961 on the factsand circumstance of the case. Whether the Tribunal was erred in law In|not nolding that the use of asset is not aNeceSSada[ingreaientforallowingdepreciation after the introduction of|concept of block of assets in the IncomeTaxAct,1961|Of)the|factsandcircumstance of the case. Whether tne Tribunal was Justified in lawin setting aside the Appellate order of theCommissioner of Income Tax(Appeals),|and reversed tne proper finding of tnecommissioner of Income Tax (Appeals)and more so when the authorities pelownad not disputed the use of the Assetsand consequently passed a _ perversorder on the facts and circumstance ofthe case.” QO Per contra, learned counsel for the Revenue |Sri K.V. Aravind, venemently contended that the orderpassed by the Hon'ble High Court, Delhi is not applicable totne case on hand and relied on the judgment of the Hon bleApex Court reported in12013] 29 taxmann.com 129 (SC) betweenI.C.D.S. Ltd., and Commissioner of Income)Tax, Mysuruand submitted that before the assets could be|added to block of assets, it is necessary for the assessee toestablish that the assets were actually put to use and theninclude into block of assets and therefore, the order of theTribunal is perfectly justified and prayed for dismissal of theappeal. Ihe relevant portion of the judgment relied on bythe Revenue is culled out hereunder for ready reference: “15.We would like to dispose of tne second|contention before considering the first. Revenue|argued that since the lessees were actually using|the venicies, they were the ones entitieda to claimdepreciation, and not the assessee. We are not.persuaded to agree with the argument. The)Section requires that the assessee must use ftneasset for the “purposes of Dusiness’. It does not|mandate usage of the asset by the assessee itself.As long as the asset is utilized for the purpose ofbusiness of tne assessee, the requirement. ofSection 32 will stand satisfied, notwitnstanding|non-usage of the asset itself by the assessee. In|the present case before us, the assessee IS a|leasing company wnhicn leases out trucks that itpurcnases. TIherefore, on a combined reading ofSection 2(13) and Section 2(24) of the Act, the|income derived from leasing of the trucks would be| Dusiness income, or income derived in the course of|Dusiness, and Nas been so assessed. Hence, itfulfills the aforesaid second requirement of Section37 of the Act viz. that the asset must be used in the|course of business.” 10.|We nave given our anxious consideration to tnerival contentions of the parties. | L1.|Tne Tribunal agreed with the contentions urgedon penalf of tne assessee tnat if no income is earned fromtne use of assets during the relevant year for regularpDusiInesactivityoftneaSSeCSSECEthenclaimingofdepreciation is justified. Therefore, the order of theCommissioner of Income Tax to that extent is upneld py theTribunal also. However, the Tribunal in impugned order, asreferred to supra, remitted tne matter back to theCommissioner of Income Tax (Appeals) to inquire into thequestion of whether the assets were put to use in therelevant year before adding tne biock of assets, or not is arelevant factor to be establisned by tne assessee and.tnereafter the Commissioner of Income Tax (Appeals) isrequired to pass a speaking order. There is sufficient force inthe arguments of the Revenue in regard to such a finding recorded especially in view of the order passed in 1.C.D.S.Ltd. by Hon bie Apex Court (supra). However, at this stage,the learned counsel for the assessee contended that theTribunal did not specify the years for whicn the inquiryshould be carried out and the Revenue may take advantageof such an observation and inquire into all years. In ouropinion, such an apprehension is uncalled for in view of tnefact that the dispute is only with regard to the assessmentyears 2011-12 and 2012-13. However, we make it clear tnatthe inquiry as ordered by the Tribunal shall be restricted fortne years 2011-12 and 2012-13. 17)|With this observation, the substantial questionsof law raised in the appeal are answered against tneassessee and in favour of the Revenue. Resultantly, the appeal is dismissed. Sd/-— JUDGE| Sd/-| JUDGE|