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Issues involved: Challenge to deletion of disallowance for Water Front Royalty Charges paid to State Government u/s 13(1)(c) and 13(3) of Income Tax Act.
Summary: The Revenue challenged the deletion of disallowance for Water Front Royalty Charges paid to the State Government by the assessee Board, which is engaged in managing minor ports in Gujarat. The Assessing Officer applied Section 13(1)(c) and 13(3) to finalize assessment, but the CIT(Appeals) deleted the addition stating that the assessee is a statutory body created by the Legislature, and there is no founder, author, or settler. The Tribunal upheld this decision, noting that the assessee fulfills the conditions for registration under Section 12AA. The Tribunal also emphasized that the assessee's main objective is the development of minor ports in Gujarat, and the income is required to be utilized for this purpose. The Tribunal found that since the assessee was created by an Act of the Legislature and is a statutory body, the provisions of Section 13(3) do not apply. The Court concurred, stating that there is no income to be applied within the meaning of the Act. The payment made to the State Government for Water Front Royalty charges was deemed necessary for the functioning of the trust as per the Gujarat Maritime Board Act, 1981. The Court upheld the Tribunal's decision that no direct or indirect benefit accrued to the Government from this payment, thus justifying the denial of application under Section 13(3). The Court concluded that there were no other aspects raised by the Revenue to warrant a different decision. As there was no question of law to be decided, the Tax Appeal was dismissed.
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