9911796707
TMI Blog2011 (3) TMI 1797X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the action of the AO in not granting exemption to the income of the appellant trust in terms of s. 11 of the Act, in view of the said amendment. 3. The learned CIT(A) also erred in observing that the appellant trust would not be entitled to exemption under s. 11 of the Act, as it had not filed notice to the AO under s. 11(2) of the Act before expiry of the time allowed under s. 139(1) of the Act for furnishing the return of income. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the action of the AO in treating the permanent way, wharves, roads and boundaries as 'roads' and not as 'plant and machinery' and thereby in allowing lower rate of depreciation of 10 per cent thereon instead of the correct rate of 15 per cent. 5. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the action of the AO in adding back a sum of ₹ 42 crores against interest on investment on capital asset replacement reserve fund and on investment on development repayment of loan and contingency reserve fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of Major Port Trusts Act, 1963 and commenced its operation from 1st Nov., 1967. It is an autonomous statutory body administered by a board of trustees, constituted by the Central Government. It is engaged in the activities of development, maintenance and running of the major port at Paradeep in the State of Orissa. Its functions include safe, efficient and convenient use of docks, wharves, quays, jetties and also maintenance of river basins, bank, etc. for the purpose of allowing safe and expedient landing and loading of goods from vessels. Thus, the assessee serves 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. Previously, the assessee trust was availing exemption in respect of its income under s. 10(20) of the IT Act, 1961 by being a 'local authority' but by virtue of an insertion of Explanation to s. 10(20), limiting the definition of 'local authority', the assessee trust got excluded from the definition of 'local authority' and hence, disentitled to exemption under the said section. In spite of that, the assessee trust w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has completely ignored the fundamental principle in determining what is charitable in nature. In support of his contention, he relied on the decision of Hon'ble apex Court in the case of CIT v. Gujarat Maritime Board [2008] 214 CTR (SC) 81/[2008] 1 DTR (SC) 1/[2007] 295 ITR 561 (SC), wherein, it was held that developing and maintaining of ports fall under the object of general public utility. At the same time, the learned AO has also ignored the previous order passed by him in the case of the assessee holding the activities as charitable in nature without showing any material change in the activities of the assessee for the period under consideration from that of previous other periods. In support of that, he relies on the decisions of Hon'ble Supreme Court rendered in the cases of Radhasoami Satsang v. CIT [1991] 100 CTR (SC) 267/[1992] 193 ITR 321 (SC) and Berger Paints India Ltd. v. CIT [2004] 187 CTR (SC) 193 /[2004] 266 ITR 99 (SC). 7. Adverting to the objection of the AO being principle of mutuality, he contended that the AO has totally misapplied the proviso as the assessee has not claimed exemption on the 'principle of mutuality'. The AO's action in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions which have been carried forward to the next year, should have been incorporated in the accounts for this year and vice versa. These observations of the C&AG will not have any impact more so under revenue effect of the activities of the assessee. 9. The other objection raised by the lower authorities is that the assessee has filed the revised return beyond the time-limit prescribed in the IT Act. Although the return was filed much after the expiry of time-limit, but the revised return was filed during assessment proceedings i.e. before passing of the assessment order. As such, filing is well within the limits provided thereof under s. 11(2) of the IT Act. In that view of the matter, the denial of exemption under s. 11 to the assessee by the Departmental authorities below is not tenable under law more so in the light of the decision of the Hon'ble Delhi High Court in the case of Director of IT (Exemptions) v. Daulat Ram Education Society [2005] 278 ITR 260 (Del.), wherein, it was held that so long as one or more of the purposes specified in Form No. 10 finds place in the objects for which the assessee society has been incorporated, and those purposes are charitable, exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the reasons given by the Departmental authorities are not at all sustainable for legal scrutiny and liable to be set aside. 12. Thereafter, referring to the issue relating to sum of ₹ 42 crores on account of 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 trust and contributions of ₹ 40 crores and ₹ 2,22,524 to pension provision fund and contributory provident fund, respectively, he submitted that the assessee has already applied for sanction of the provident fund before the CIT, Cuttack, which is pending for adjudication. Without waiting the adjudication, the Departmental authorities have disallowed the claim of the assessee on the ground that there is no order of the CIT. In respect of creation of ₹ 42 crores against interest on investment on capital reserve fund, it was submitted that the Departmental authorities have completely ignored that this was done by the assessee as per the Government of India instruction, which is binding on it. Therefore, under these facts and circumstances of the case, the orders passed by the lower au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were understated by ₹ 1.72 crore and thereby net surplus for the year was overstated by ₹ 11.60 crores. In the result, the net surplus being overstated by ₹ 11.60 crores. The addition made by the AO of ₹ 9,64,000being interest from SBI Mutual Fund, ₹ 66,82,000 being non-accounting of electricity charges receivable, ₹ 1,02,00,000 being non-inclusion of estate rental, ₹ 37,47,000 being income from the fishery harbour, ₹ 63,56,000 being undervaluation of stock and ₹ 5,02,00,000 being excess claim of expenditure are deleted. Besides this, he submitted that the learned AO took into consideration and added back only those items where understatement of income had been reported in the C&AG's report. At the same time, he completely neglected those items where overstatement of income had been reported. So, one-sided action has been made by the AO. In that view of the mater, if the C&AG's report has got to be taken into consideration at all, then both the understatements as well as the overstatements are required to be taken into account to arrive at the correct position of income. In that view of the matter also, the learned CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proviso was added thereto by the Finance Act, 2008 w.e.f. 1st April, 2009, which states that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of income from such activity. As the assessee trust renders services to its clients for fees etc., it is excluded from that definition after the insertion of the proviso to s. 2(15) of the IT Act,1961. But it is effective only from the asst. yr. 2009-10. For the period under consideration being asst. yr. 2007-08, the assessee filed its return of income showing nil income by claiming exemption under s. 11 of the IT Act. While passing assessment order under s. 143(3) of the IT Act, the learned AO while denying exemption to the assessee under s. 11 of the Act, 1961, for the reasons that the primary and dominant objects of the appellant trust are not 'charitable' in nature and on the other hand, they are com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., asst. yr. 2006-07 in the case of the same assessee on the same set of facts and circumstances, the view taken by the Department for the assessment year under consideration that the assessee has carried on activities of commercial nature is not at all sustainable for legal scrutiny and hence, we are of the considered view that the assessee is a charitable institution not carrying any commercial activity disentitling itself for exemption under s. 11 of the IT Act, 1961. Accordingly, the issue raised by the assessee in this regard is decided in favour of the assessee by setting aside the findings of the authorities below. 19. Now coming to the next issue regarding principles of mutuality raised by the assessee, we found that the stand of the Department is that the assessee is not entitled having not been satisfied the conditions of the principles of mutuality does not affect the assessee insofar as the exemption entitled to the assessee is under s. 11 of the IT Act,1961 and the principle of mutuality is not at all applicable in the case of the assessee as the assessee has not based its stand on that principle. Therefore, it is not at all relevant for consideration in the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de or unless there is a necessary implication, retrospective operation cannot be given to the statute so as to affect, alter or destroy any right already acquired or to revive any remedy already lost by efflux of time. In the light of the findings of the Hon'ble apex Court the aspect of amending the law in the amendment made by the Finance Act, 2008 by inserting proviso to s. 2(15) of the IT Act, 1961 which was made categorically effective from 1st April, 2009, cannot be considered as clarificatory in nature and thereby it will not have retrospective operation. It is effective prospectively as mentioned in the Amending Act i.e., w.e.f. 1st April, 2009 only. Therefore, the stand taken by the Department is not at all sustainable for legal scrutiny and hence, that stand of the Department is hereby set aside by upholding the contention of the assessee to the effect that the amendment in question is effective prospectively from 1st April, 2009. 21. Now considering the proviso introduced by the amendment, it does not explain what constitutes 'object of general public utility'. On the other hand, it simply puts a deeming provision that advancement of any other object of gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Nagpur Hotel Owners' Association [2001] 165 CTR (SC) 1 /[2001] 247 ITR 201 (SC), wherein it was held that notice of accumulation under s. 11(2) of the Act must be given before the assessment is concluded. In the present case on hand, the said notice under s. 11(2) was given by the assessee before the assessment is concluded. The Department, therefore, cannot say that the assessee is not entitled to the benefit of permission having filed the application beyond the period provided under law. More so, the assessee having been governed by a board of trustees has already decided the above accumulation of its funds for future utilization under valid notice in that regard and also given to the Department in that regard formal approval of the said proposal by the board of trustees is an internal matter of the assessee trust only and there is no provision in the IT law about such resolution being passed within a specific time-limit. In that view of the matter, the assessee's claim for permission to accumulation of excess surplus fund over and above 15 per cent cannot be rejected. This proposition has been fortified by the following judgments : (a) Director of IT (Exemptions) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that view of the matter, 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. 26. Now coming to the other aspect of 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. But it is made out by the assessee that the application for recognition of the funds was pending before the CIT, Cuttack, for a long time without any fault on the part of the assessee and ultimately the CIT, Cuttack has given permission to those funds w.e.f. 3rd Feb., 2009. Therefore, 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 reco ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
