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2020 (8) TMI 600 - HC - Income TaxDisallowance u/s 36(1) (vii) - contribution to the pension Fund - AO observed that the assesse had not furnished the working of its claim as per the conditions laid down thus 25% of the amount claimed was allowed and 75% of the claim was disallowed - CIT(A) considering that the Gujarat Maritime Board Employees Pension Trust Fund was duly approved by the CIT, Gandhinagar with effect from 28.03.2003 and the contribution was paid in compliance of the terms of the appointment on the respective erstwhile state government employees in the earlier year, which was constantly allowed by the department - Tribunal affirmed the view of the CIT (A) - HELD THAT - The issue relating to the contribution to pension fund under Section 36(1)(iv) of the Income Tax Act read with Rule 87 and 88 of the Income Tax Rules would not constitute a question of law and would be in the realm of factual issue. The ITAT has observed in its order that no evidence was led by the Revenue-Appellant to dispute the correctness of the findings recorded by the CIT (Appeals). Depreciation of assets which were allowed as application of income - HELD THAT - It is pertinent to note that the aforesaid issue is covered against the Revenue in terms of the judgment of the Apex Court RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA 2017 (12) TMI 1067 - SUPREME COURT - The order of the ITAT discusses, after relying on the Judgment of the Apex Court in the Rajasthani and Gujarati Charitable Foundation (supra) that the income of the trust is required to be computed u/s. 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from the gross income of the trust. Exemption u/s 11 - denying the benefits of Sections 11 and 12 by invoking proviso to Section 2(15) r.w. Section 13(8) - Claim of benefit u/s 2(15) - HELD THAT - ITAT has clearly observed that the activities carried out by the Assessee are for the advancement of any other object of general public utility without any intention of making profit after considering the provisions of the Gujarat Maritime Board Act, 1981 and the facts of the case. Therefore, it cannot be said that the activities carried out by the Assessee are in the nature of trade, commerce or business. Decisions of this court in the case of CIT v. Gujarat Industrial Development Corporation (GIDC) 2017 (7) TMI 811 - GUJARAT HIGH COURT and Ahmedabad Urban Development Authority (AUDA) 2017 (5) TMI 1468 - GUJARAT HIGH COURT squarely cover the present issue in favour of the Assessee since the fees collected by the Assessee is incidental to the object and purpose of attainment of the main object for the development of minor ports in the State of Gujarat. This Court has held in the case of AUDA 2017 (5) TMI 1468 - GUJARAT HIGH COURT that merely because the AUDA is charging fees and/or cess, the activities cannot be said to be in the nature of trade, commerce or business. In the case of GIDC (supra), this Court has clearly held that the charitable activities also require operational / running expenses as well as capital expenses to be able to sustain and continue in the long run. Therefore, the ITAT has rightly found that the activity of the assesse is for the advancement of any other object of general public utility and is not hit by the provisio to section 2(15) of the Act, and therefore, the Assessee is entitled to exemption u/s. 11 of the Act. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 36(1)(vii) of the Income Tax Act. 2. Claim of depreciation on assets when their purchase was claimed as an application of funds. 3. Eligibility to claim the benefit under Section 2(15) of the Income Tax Act. Detailed Analysis: First Issue: Disallowance under Section 36(1)(vii) - During the assessment proceedings, the assessing officer noticed that the assessee had claimed ?47,50,00,000 as a contribution to the pension fund. The officer disallowed 75% of the claim, allowing only 25%, citing non-fulfillment of conditions laid down in Section 80CCD. - The CIT(A) reversed this finding, noting that the Gujarat Maritime Board Employees Pension Trust Fund was duly approved and contributions were in compliance with terms of appointment. - The Tribunal affirmed CIT(A)’s view, stating that the Revenue failed to provide evidence to dispute these findings. - The court concluded that the issue of contribution to the pension fund under Section 36(1)(iv) read with Rule 87 and 88 is a factual issue and not a substantial question of law. Second Issue: Claim of Depreciation on Assets - The Revenue contended that the assessee could not claim depreciation on assets whose purchase was already claimed as an application of funds. - The CIT(A) ruled against the Revenue, and the Tribunal upheld this decision, referencing the Supreme Court judgment in Commissioner of Income Tax – III, Pune v. Rajasthani and Gujarati Charitable Foundation. - The court highlighted that the income of the trust should be computed on commercial principles, allowing for normal depreciation deductions from the gross income of the trust. Third Issue: Eligibility to Claim Benefit under Section 2(15) - The assessee, constituted under the Gujarat Maritime Board Act, 1981, argued that its activities were for the advancement of public utility without profit intention. - The ITAT observed that the assessee’s activities were not in the nature of trade, commerce, or business, referencing the Gujarat Maritime Board Act and relevant case laws such as CIT v. Gujarat Industrial Development Corporation and Ahmedabad Urban Development Authority. - The court noted that fees collected were incidental to the main objective of developing minor ports in Gujarat, and such activities did not constitute trade or business. - The court reiterated its previous decision in favor of the assessee, confirming that the assessee’s activities were for public utility and entitled to exemption under Section 11. Conclusion: The court answered the substantial questions of law against the Revenue and in favor of the assessee, leading to the dismissal of the appeals.
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