2014 (2) TMI 79 - HC - Income Tax

Depreciation on temporary structures of amul parlours Held that - As per the agreement between the assessee and AUDA - The assessee had a limited right to use the land for the limited purpose and the limited period Relying upon the decision in Commissioner of Income tax v. Madras Auto Service (P) ltd. 1998 (8) TMI 1 - SUPREME Court - The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully - The expenditure on such asset should be looked upon as revenue expenditure. Whether the assessee is entitled to deduction under section 80G(2)(d) even if the conditions under section 80G(5C)(iii) have not been fulfilled by the trust Held that - The donee did not utilise the funds or transfer it to the Prime Minister Relief s Fund as provided in subsection (5C) of section 80G - By virtue of combined reading of section 80G (5C) read with explanation 2 read with subsection( 3) of section 12, a situation would arise where if any breach of conditions contained in subsection (5C), the effect thereof would be on the donee trust not fulfilling those conditions - As provided in subsection( 3) of section 12, in terms of clause(1) of explanation 2, it would not have any effect on the deduction to which the assessee is otherwise entitled to on such donation - The tribunal has held in the impugned judgement that if the donor is also taxed (along with taxing the same amount in the hands of donee), there would be a case of double taxation Decided against Revenue.

Summary

Issues:
1. Whether the ITAT was justified in allowing 100% depreciation on temporary structures for A.Y. 2002-03.
2. Whether the ITAT was justified in holding that the assessee is entitled to deduction under section 80G(2)(d) of the Act for A.Y. 2002-03.

Issue 1:
The High Court considered the appeal against the ITAT's judgment allowing 100% depreciation on temporary structures for A.Y. 2002-03. The respondent, a cooperative milk marketing federation, claimed full depreciation on structures for running parlours. The Assessing Officer reduced depreciation to 10%, stating the parlours were in a pukka constructed building. However, the tribunal granted full depreciation, noting the temporary nature of the structures as they could be demolished anytime by the landowners. The High Court analyzed the agreement between the respondent and the landowners, highlighting the temporary nature of the arrangement. The Court referred to relevant legal precedents, including the Supreme Court's decision in a similar case, where expenditure for temporary business advantages was treated as revenue expenditure. Considering the limited rights of the respondent over the land and subsequent demolition of the structure, the Court concluded that scrutinizing the temporary nature of the structures for depreciation purposes would be revenue neutral.

Issue 2:
Regarding the second issue, the assessee made donations to a trust for the Kutch Earthquake Relief Fund during the relevant assessment year. The Assessing Officer disallowed a significant portion of the deduction claimed under section 80G due to the donee's non-utilization of funds within the stipulated time. The tribunal ruled in favor of the assessee, citing explanation 2 to section 80G and the potential for double taxation if the donor was also taxed. The High Court examined the relevant provisions of the Income Tax Act concerning donations and charitable trusts. It highlighted section 12(3) and explained the implications of non-compliance with section 80G(5C) conditions on the donee trust's income. By interpreting the combined effect of section 80G(5C), explanation 2, and section 12(3), the Court affirmed the tribunal's decision, emphasizing that taxing the donor along with the donee would result in double taxation. Consequently, the High Court dismissed the tax appeal, ruling against the Revenue on both issues.

This detailed analysis of the judgment from the Gujarat High Court provides a comprehensive understanding of the legal reasoning and conclusions reached by the Court on the issues raised in the appeal.