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2011 (3) TMI 1797 - AT - Income TaxEntitlement to exemption u/s 011 - it is found that the assessee trust is established under the provisions of Major Port Trusts Act 1963. It commenced its operations from 1st Nov. 1967.The service is for the national purpose of acting as a major port of India and helps in earning substantial export revenues necessary for the country and also in import of essential goods. Earlier to 2002 the assessee trust was availing of exemption in respect of its income u/s 010(20) being a local authority . Later on due to insertion of an Explanation to s 010(20) the assessee was excluded from the definition of local authority . Consequently it was not entitled to exemption under the said section but the assessee was still entitled to exemption u/s 011 being a charitable trust . The assessee obtained registration as charitable trust u/s 012A and accordingly registration was granted to it by the order of the CIT Cuttack. higher rate of depreciation - from the admitted facts and circumstances of the case the fixed assets serve some special purpose of the working and thereby they are considered as plant and machinery in the working process of the assessee. This claim of the assessee is fortified by the decision of Hon ble Supreme Court rendered in the case of CIT v. Dr. B. Venkata Rao 1999 (2) TMI 11 - SUPREME COURT Chief CIT (Admn.) Ors. v. Visveswarayya Iron Steel Ltd. 1991 (9) TMI 21 - KARNATAKA HIGH COURT and Kalinga Tubes Ltd. v. CIT 1973 (5) TMI 18 - ORISSA HIGH COURT . In the light of the cases the assessee s claim is substantiated and hence found entitled to higher rate of depreciation at 15 per cent on the fixed assets as claimed by the assessee. revenue income of the assessee - Considering the issue of treatment of 42 crores being interest on investment on capital asset replacement reserve fund and on investment on development repayment of loan and contingency reserve fund as income of the assessee. we are of the considered view that this is a diversion of the interest amounts at source and thereby the said interest amounts cannot be added to the revenue income of the assessee. Hence the contention taken by the Department is not sustainable for legal scrutiny. Accordingly the additions made by the Department are hereby directed to be deleted. Disallowance of fund recognition - claim of the assessee of 40 crores and 2, 22, 524 to pension provision fund and contributory provident fund respectively it is found that the disallowance was made on the ground that the funds were yet to be recognized by the CIT. the action of the CIT in granting the recognition to the said funds from 3rd Feb 2009 is unfounded and hence it is to be recognized from the date of application made by the assessee. Consequently for the current period also the fund recognition is applicable. Accordingly the disallowance made by the Department is not sustainable under law and it is hereby directed to be deleted. In the result the assessee s appeal is hereby allowed. it is found that the AO has taken into consideration all the amounts and added back only those items where understatement of income has been reported by the C AG of India. On perusal of the said report of C AG of India it is found that the AO has completely neglected those items where overstatement of income had been reported. Accordingly the AO s one-sided action is not sustainable under law. The learned CIT(A) having very same opinion has directed the deletion of the additions made by the AO. Hence we are of the considered view that the action of the CIT(A) in doing so is not at all infirm in any way requiring intervention and the same is upheld finding the issue raised by the Department as devoid of merits. In the result the appeal of the Department is dismissed.
Issues Involved:
1. Retrospective application of the amendment to Section 2(15) of the IT Act, 1961. 2. Denial of exemption under Section 11 of the IT Act. 3. Requirement of notice under Section 11(2) of the IT Act. 4. Classification of assets for depreciation purposes. 5. Addition of interest on investment to income. 6. Disallowance of contributions to pension provision fund and CPF. 7. Deletion of additions made by the AO under various heads by CIT(A). Detailed Analysis: 1. Retrospective Application of the Amendment to Section 2(15): The primary issue raised by the assessee was whether the amendment to Section 2(15) by the Finance Act, 2008, effective from 1st April 2009, should be applied retrospectively. The Tribunal held that the amendment is prospective and not clarificatory in nature. Citing Supreme Court judgments, it was determined that retrospective operation cannot be given to a statute unless expressly provided or necessarily implied. Therefore, the amendment does not apply to the assessment year 2007-08. 2. Denial of Exemption under Section 11: The AO denied the exemption under Section 11, asserting that the assessee's activities were commercial in nature. The Tribunal found that the assessee's activities, such as developing and maintaining ports, fall under the "object of general public utility" as per the Supreme Court's decision in Gujarat Maritime Board. The Tribunal noted that there was no change in the nature of activities from the previous assessment year, where the exemption was granted. Therefore, the denial of exemption was not justified, and the assessee was entitled to exemption under Section 11. 3. Requirement of Notice under Section 11(2): The AO also denied exemption on the grounds that the assessee did not file the notice under Section 11(2) within the prescribed time. The Tribunal held that the notice was filed before the assessment was concluded, and as per Supreme Court rulings, this satisfies the requirement. The Tribunal emphasized that the assessee's intention to accumulate funds for future infrastructure development was within its charitable objects, and thus, the exemption could not be denied. 4. Classification of Assets for Depreciation: The assessee claimed a higher rate of depreciation (15%) on certain assets, which the AO classified as "roads" eligible for only 10% depreciation. The Tribunal agreed with the assessee, stating that the assets served special purposes in the assessee's operations and should be classified as "plant and machinery." This classification was supported by Supreme Court and High Court judgments, granting the higher depreciation rate. 5. Addition of Interest on Investment to Income: The AO added Rs. 42 crores as income from interest on investments in specific reserve funds. The Tribunal found that these funds were created under government instructions and were to be used for specific development purposes, not regular operations. Thus, the interest was a diversion at source and should not be added to the assessee's income. 6. Disallowance of Contributions to Pension Provision Fund and CPF: The AO disallowed contributions to the pension provision fund and CPF, citing lack of recognition by the CIT. The Tribunal noted that the application for recognition was pending without fault of the assessee, and recognition was eventually granted. Therefore, the disallowance was unjustified and was directed to be deleted. 7. Deletion of Additions Made by the AO: The Revenue's appeal contested the deletion of various additions by the CIT(A), based on a C&AG report. The Tribunal found that the AO had only considered understatements and ignored overstatements reported by the C&AG. The CIT(A) had correctly accounted for both, leading to the deletion of the additions. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's appeal. Conclusion: The Tribunal allowed the assessee's appeal, granting exemption under Section 11 and higher depreciation on assets, and directed the deletion of disallowed contributions and added interest. The Revenue's appeal was dismissed, upholding the deletion of various additions made by the AO.
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