TaxTMI 
TaxTMI 
2016 (5) TMI 1131
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....judicating this appeal, we will deal with modified grounds of appeal filed by the assessee on 08.04.2015, which read as under:- "1. The ld. CIT(A) has erred in framing assessment at an income of Rs. 64,80,62,360/- by clubbing income under two provisions. He has erred in framing the assessment under section 11(1) and also under section 11(4) without appreciating the said income is being assessed twice over. There is no provision under the Income-tax Act, 1961 to have such double assessments of the same income. 2.0 Assessment under section 11(1). 2.1 The ld. CIT(A) has erred in law and on facts in confirming disallowance of Rs. 44,38,23,000/- claimed by the appellant as charges on revenue as application of income by agreeing in principle the same to be allowable expense u/s 37 of the Act but further holding that the appellant was duty bound to quantity the same as per newly introduced provisions of section 22a of the Gujarat Maritime Board Act. Ld. CIT(A) has erroneously held the same to be allowable under the provision of section 43B of the Act and only in the year of payment. 2.2 Alternatively, ld. CIT(A) has erred in not appreciating the assessm....
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....taken by AO in computing the 15% of income allowed for accumulation u/s. 11(1) on "Net Income" instead of "Gross Receipts" 5. Ld. CIT(A) ought to have worked out the deficiency and permitted the same to be carried forward. 6. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 3. Briefly stated facts, as culled out from the assessment records, are that the assessee is a statutory body governed by Gujarat Maritime Board Act, 1981 and engaged in the activity of advancement of the object of general public utility by way of administering, control and managing minor ports in the State of Gujarat. In the instant case, the CIT, Gandhinagar vide his order dated 15.06.2005 has granted the registration u/s 12AA to the assessee with retrospective effect from 01.04.2002. 4. The assessee filed its return of income on 29.11.2003 showing the total taxable income at Rs. Nil. The processing u/s 143(1)(a) of the Act was completed on 27.0.2004. Thereafter, the case was selected for scrutiny and assessment order u/s 143(3) was passed on 31.03.2006 at returned inco....
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....arat. 3. Alternatively, ld. CIT(A) has erred in not appreciating the assessment of the appellant, being a charitable institution, and further applying the provisions of Section 43B of the Income-tax Act on the payment of royalty/waterfront charges paid to Gujarat Government after the due date of filing of return of the Trust. 4. The Ld. CIT(A) has erred in framing assessment at an income of Rs. 64,80,62,360/- by clubbing income under two provisions of Section 22(1) of the Act and also u/s 11(4) of the Act, without appreciating that the said income is being assessee twice. 5. The ld. CIT(A) has erred in confirming the addition made by the Assessing Officer of Rs. 12,92,00,000/- as notional income on account of premium of Alang plots. 6. The ld. CIT(A) has erred in granting deduction for accumulation u/s 11(1) of the Act only on net surplus and not on its gross receipts. 7. The ld. CIT(A) has erred in not allowing the deduction in relation to increase in the fixed assets being application of income amounting to Rs. 20,68,73,986/-. 8. The ld. CIT(A) has erred in framing assessment u/s 11(1) without granting depreciation amounting t....
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....garding status of the assessee as a trust is settled by the Hon'ble Apex Court in their aforesaid decision in the assessee's own case, wherein the Hon'ble Court observed "One of the objections raised on behalf of the Department was that the Gujarat Maritime Board is not entitled to the benefit of section 11 of the 1961 Act as as the said Board was not a trust under the Publc Trusts Act and therefore, it was not entitled to claim registration under section 12A of the 1961 Act. The Department's case was that the Martime Board was a statutory authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a charitable registered as a charitable institution. It was the case of the Department that the Board was performing statutory functions. Development of minor ports in the State of Gujarat cannot be termed as the work undertaken for charitable purposes and in the circumstances the Commissioner rejected the Board's application under section 12A of the 1961 Act. In the light of the above case of the Department, we are required to consider the expression "any other o....
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....table trust and is under legal obligation to apply the income which arises directly and substantially from the business field under trust for the development of minor ports in the State of Gujarat. Therefore, first objection of the Revenue in Ground No.3 regarding the assessee being a charitable trust u/s 12A of the Act, no longer survives for adjudication and is therefore, dismissed. 7.5 From going through the above decision of the Co-ordinate Bench which is relied on the decision of Hon'ble Apex Court, that too in assessee's own case, i.e., CIT vs. Gujarat Maritime Board, reported in (2007) 295 ITR 561 (SC), wherein the Hon'ble Apex Court has observed that the appellant is established for the predominant purposes of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of section 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in the State of Gujarat and therefore, they are entitled to be registered as charitable trust u/s 12A of the Income-tax Act, 1961. Therefore, respectf....
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....lowed the payment of Rs. 44,38,23,000/- on the ground that levy of waterfront royalty of Rs. 44,38,23,000/- is an allowable revenue expenditure u/s 37 of the Act subject to the condition that claim of the appellant is duty bound to quantity the royalty as per the provisions of Section 22A of the Gujarat Maritime Board Act and Section 74(1)(gg) of the Gujarat Maritime Board Act, 1981 and the amount so quantified will be allowed in the year of payment as per the provisions of Section 43B. The ld. CIT(A) further observed that since in the present situation neither the quantification has taken place nor is there any rationale for even adhoc provision made, the sum of Rs. 44,38,23,000/- is not allowable as a revenue expenditure for the present year. Aggrieved, the assessee is now in appeal before the Tribunal. 8.2 At the outset, ld. Authorized Representative of the assessee submitted that for the Assessment Year 2004-05 the Revenue was in appeal before the Coordinate Bench against the disallowance of Rs. 71,87,33,566/- as being hit by provisions of Section 13(1)(c) of the Act and the same was decided against the Revenue and further, Revenue went in appeal before the Hon'ble Gujarat H....
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....lowed the claim invoking provisions of sec. 13(1)(c) of the Act. Before the AO, the assessee explained in their letter dated 19/9/06 that the above amount has been paid to Government of Gujarat as Waterfront Changes / royalty and are levied essentially for allowing GMB's operation along the coast line of Gujarat which is under the sovereign statutory jurisdiction of State of Gujarat . In this connection, the ld. CIT(A) noted that the Legislature had chosen to levy and collect such charges and the same cannot be treated as a benefit for the Govt. In fact, it is the other way around and the assessee is benefited by getting a commercial right over exploitation of the State's asset for earning income. As such, since there was no benefit accruing directly or indirectly to the Govt. by the payment of royalty, therefore, the provisions of section 13(1)(c) will not apply,-the Id. CIT(A) concluded. The Id. CIT(A) further observed that the assessee could not have conducted its activities without payment of royalty to the Govt. As such, the expenditure shall be considered as legitimate and incurred for the purposes of earning income. Such payment shall be equated with payments of prop....
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....981. In view of the foregoing, especially when the Revenue have not placed before us any material in order to controvert the aforesaid findings of the Id. CIT(A), we have no alternative but to uphold his findings. Thus, Ground No.1 is dismissed." We further find that that for Assessment Year 2004-05 Revenue went in appeal before the Hon'ble Gujarat High Court being aggrieved by the decision of Co-ordinate Bench, Ahmedabad. The Hon'ble Gujarat High Court, vide order dated 30.08.2011 in Tax Appeal No.673 of 2010, dismissed the Revenue's appeal by observing as under with reference to disallowance of Rs. 71,87,33,566/- being Waterfront Royalty Charges paid to the State Government.:- "4. On hearing learned counsel Mrs. Mauna Bhatt for the Revenue and on perusal of the record, it can be noted that in Tax Appeal No.1433 of 2005 the question with regard to this assessee fulfilling the conditions envisaged in Section 12AA for its registration under Section12A of the Act, has been decided in favour of the assessee. The Tribunal has also taken note of this fact. It also has referred to the judgment of the Apex Court which confirmed that the assessee being a charitable Trust under ....
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....to have accrued to the Government due to such payment of royalty charges and thus, application under Section 13(3) was justifiably denied by the authorities. 7. There are no other aspects pointed out by the Revenue for this Court to take any other stand than already taken, this Tax Appeal therefore, deserves no further consideration. There is no question of law to be decided and hence the same is dismissed." 8.5 We further find that the Revenue went in appeal before the Hon'ble Supreme Court of India against the decision of the Hon'ble Gujarat High Court dated 30.08.2011 and Special Leave Petition was dismissed by the Hon'ble Apex Court vide order dated 27.08.2012. Respectfully following the decision of Hon'ble Apex Court, Gujarat High Court and the Co-ordinate Bench in assessee's own case for Assessment Year 2004-05 and applying the ratio of decision, we are of the view that the assessee, being a charitable trust u/s 12A, was certainly under legal obligation to make payment to the State Government towards waterfront/royalty charges which was inevitable for the functioning of the assessee-trust and such payment was made towards the object of the trust embedded in the Gu....
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....n hereinabove that the profits earned by this assessee are not subject to tax being out of the ambit of s. 11(4) of the IT Act because the application of income was not questioned by the AO. The entire income of this organization being held as exempt, therefore, these grounds get automatically allowed." Respectfully applying the ratio of Co-ordinate Bench, we are of the view that, as profit earned by the assessee are not subject to tax being out of the ambit of provisions of Section 11(4) of the Income-tax Act and the income of the organization being exempt as per the provisions of Section 11(1) of the Incometax Act, this ground has become redundant and accordingly the provisions of Section 43B of the Act are not applicable on the payment of Rs. 44,38,23,000/-. Thus, this ground of the assessee is allowed. 9. Now we take-up substantive ground No.4, which reads as under:- 4. The Ld. CIT(A) has erred in framing assessment at an income of Rs. 64,80,62,360/- by clubbing income under two provisions of Section 22(1) of the Act and also u/s 11(4) of the Act, without appreciating that the said income is being assessee twice. 9.1 The ld. CIT(A) while framing the appellate ....
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....reated on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India:" Section 11(4) of the Act: "(4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes." From going through the above referred provisions of Section 11(1) and Section 11(4) of the Act, we are able to understand that Section 11(4) of th....
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....nder appeal and upto 31.03.2002 the income of the assessee was exempt as local authority u/s 10(20) of the Incometax Act; all the premium received before this date were also exempt from tax and further, premium received is an upfront payment of capital in nature and was accounted for as such in the year of receipt. However, ld. CIT(A) confirmed the addition by observing that as the appellant is not refunding back the premium at the end of the lease period so as to draw an account of incomings or outgoing to argue about the depletion on this account. Aggrieved the assessee is now in appeal before the Tribunal. 10.2 The ld. Authorized Representative submitted that the appellant-Board was maintaining its books of accounts on cash basis upto Financial Year 2001-02 and the receipt of the impugned premium commenced during the Financial Year 1994-95 and as on 31.03.2002, the same aggregated to Rs. 131.18 crores and the said comment of AG (Audit), which has been relied on heavily by the ld. Assessing Officer and further ld. CIT(A), has appeared only for the Financial Year 2002-03 even though the amount of premium was received since 1994-95 and they had never raised the issue of spreadin....
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....as exempt under this section and certainly whatever amount which have been received prior to 01.04.2002 gets covered therein. Therefore, in our view, no addition was called for of Rs. 12,92,00,000/- on account of Revenue recognition of the premium received on allotment of plots by way of spreading the revenue for a period of 10/20-25 years on the basis of AG(Audit) Report. Thus, this ground of assessee's appeal is also allowed. 11. Now we take-up substantive ground No.6, which reads as under:- The ld. CIT(A) has erred in granting deduction for accumulation u/s 11(1) of the Act only on net surplus and not on its gross receipts. 11.1 The issue arising in this ground is that the ld. CIT(A) has restricted the benefit of 15% in terms of section 11(1A) of the Act on net income instead of gross receipts. While arguing this ground before the Tribunal, the ld. Authorized Representative submitted that the gross income of the appellant- Board for the year under appeal is Rs. 221.19 crores and as mentioned in Section 11(1)(a) of the Act if an assessee can accumulate or set apart the income in excess of 15% of the income from such profit, then the excess shall be treated as incom....
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.... decided in favour of the assessee. 12. Next, we deal with the substantive ground Nos. 7 & 8, which as under:- 7. The ld. CIT(A) has erred in not allowing the deduction in relation to increase in the fixed assets being application of income amounting to Rs. 20,68,73,986/-. 8. The ld. CIT(A) has erred in framing assessment u/s 11(1) without granting depreciation amounting to Rs. 36,86,34,716/-. 12.1 As regards the claim of depreciation as per Income-tax Act, we observe that while framing the assessment order, the ld. Assessing Officer determined the income under the provisions of Section 11(1) of the Act by adding back the depreciation claim in the books of accounts at Rs. 9,83,87,745/- and allowing the application of income towards fixed assets at Rs. 52,67,27,832/- and also again giving credit towards application of income by allowing depreciation as per books at Rs. 9,83,87,745/-; whereas while determining income as per the provisions of Section 11(4) of the Income-tax Act, treating assessee-charitabletrust, as a business undertaking, firstly added the depreciation as per books at Rs. 9,83,87,745/- to the net profit shown in the Annual Audit Report and the....
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....s regards the allowability of addition to fixed assets at Rs. 20,68,73,986/- as application of income, there remains no dispute because the ld. CIT(A), while determining the income u/s 11(1) of the Act, has himself allowed the addition to fixed assets at Rs. 20,68,73,986/- as deduction towards application of income and therefore, this substantive ground needs no further adjudication on this ground relating to allowability of deduction in relation to increase in the fixed assets being application of income amounting to Rs. 20,68,73,968/-, as it has already decided in favour of the assessee by ld. CIT(A) and therefore no interference is called for in the ld. CIT(A)'s order for this ground. 12.4 Now the next issue which we have to examine is whether the assessee is eligible for deduction of depreciation as per Income-tax Act while determining the income under the provisions of Section 11(1) of the Act. In this regard it will be appropriate to refer the provisions of Section 11(1) of the Act and further for the sake of ready reference, Section 11(1) is reproduced hereunder:- "11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included ....
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....(1) of the Act, the "income" and not "total income", which is applicable for the purposes of taxation of other taxation of other taxable entities under the Act. The word "income" should be understood in its commercial sense, i.e., book income, which necessarily envisages deduction of depreciation on the assets of the trust. In the present context, it has to be clearly understood if the depreciation is not allowed as a necessary deduction in computing the income of the charitable/religious trusts, then there would be no way to preserve the corpus of the trust and therefore, a charitable/religious trust is entitled to depreciation in respect of the assets owned by it. 12.5 This view gets further supported by the decision of Hon'ble Madhya Pradesh High Court in the case of CIT vs. Raipur Pallottine Society, reported in [1989] 180 ITR 579 (MP), wherein it has held that the charitable trust is entitled to depreciation in respect of asset owned by it. It was further held that depreciation is the exhaustion of the effective life of a fixed asset owing to "use" or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally....