C/TAXAP/157/2020 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 157 of 2020 With R/TAX APPEAL NO. 158 of 2020 With R/TAX APPEAL NO. 159 of 2020 With R/TAX APPEAL NO. 160 of 2020 With R/TAX APPEAL NO. 161 of 2020 With R/TAX APPEAL NO. 162 of 2020 With R/TAX APPEAL NO. 163 of 2020 With R/TAX APPEAL NO. 164 of 2020 FOR APPROVAL AND SIGNATURE: HONOURABLE CHIEF JUSTICE MR. VIKRAM NATH Sd/ and HONOURABLE MR. JUSTICE J.B.PARDIWALA Sd/ 1 Whether Reporters of Local Papers may be allowed No to see judgment ? 2 To be referred to Reporter or not ? No 3 Whether their Lordships wish to see fair copy No of judgment ? 4 Whether this case involves substantial question No of law as to interpretation of Constitution of India or any order made thereunder ? COMMISSIONER OF INCOME TAX (EXEMPTIONS) Versus GUJARAT MARITIME BOARD Page 1 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT Appearance: MRS MAUNA M BHATT(174) for Appellant(s) No. 1 G H VIRK(7392) for Opponent(s) No. 1 CORAM: HONOURABLE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 29/07/2020 COMMON ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. As issues raised in all captioned tax appeals are same and parties are also same, those were heard analogously and are being disposed of by this common judgment. 2. This batch of Tax Appeals under Section 260A of Income Tax Act, 1961 (for short Act, 1961 ) is at instance of Revenue and are directed against order passed by Income Tax Appellate Tribunal, C Bench, Ahmedabad, dated 30th July 2020 in ITA Nos. 361/Ahd/2014, 1662/Ahd/2014, 829/Ahd/2017, 803/Ahd/2017, 91/Ahd/2014, 330/Ahd/2014, 2283/Ahd/2014, 752/Ahd/2017, 753/Ahd/2017 and 2321/Ahd/2017 respectively for Assessment Years 2009-2010 to 2014-2015. 3. Revenue has proposed following substantial questions of law for consideration of this Court: Page 2 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT In Tax Appeal No. 157 of 2020 (A) Whether on facts and in circumstances of case, Appellate Tribunal is justified in negating findings of CIT(A) as well as Assessing Officer denying benefits of Sections 11 and 12 of Act by invoking proviso to Section 2(15) r.w. Section 13(8) of Act? (C) Whether on facts and in circumstances of case, Appellate Tribunal is justified in allowing accumulation of 15% without appreciating fact that once provision of Section 2(15) r.w. Section 13(8) is applicable, assessee forfeits all exemptions under Sections 11 and 12 of Act? (D) Whether on facts and in circumstances of case, Appellate Tribunal is justified in deleting deduction in fixed assets of Rs.34,49,94,135/- without appreciating fact that once provision of Section 2(15) r.w. Section 13(8) is applicable, assessee forfeits all exemptions under Sections 11 and 12 of Act? In Tax Appeal No. 158 of 2020 Whether, on facts and in circumstances of Page 3 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT case, Hon ble ITAT is justified in confirming view of Ld. CIT(A) in allowing claim of contribution to pension fund, without appreciating that assesse has not fulfilled conditions laid down in section 36(1)(iv) w.r. to Rule 87 and 88 of I.T. Rules, 1962? Whether, on facts and in circumstances of case, Hon ble ITAT is right in allowing depreciation on assets, full cost of which was already allowed as application in earlier years. ratio of decision of Supreme Court in Rajasthan and Gujarati Charitable Foundation is not applicable in present case as in that case exemption under section 11 and 12 was available to assesse, whereas in present case, exemption under section 11 and 12 is not available to assesse as per stand of department. Therefore AOP cannot be granted benefit of both depreciation and capital expenditure in accordance with normal business provisions of Act? Whether, on facts and in circumstances of case, Hon ble ITAT is right in allowing claim of depreciation to assessee by ignoring fact that allowance of depreciation on fixed assets, acquisition of which has been allowed as application of income in earlier years, will tantamount to double deduction particularly when benefit of section 11 & 12 has not been allowed and proviso to section 2(15) has Page 4 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT been held to be applicable? In Tax Appeal No. 159 of 2020 (A) Whether on facts and in circumstances of case, Appellate Tribunal is justified in negating findings of CIT(A) as well as Assessing Officer denying benefits of Sections 11 and 12 of Act by invoking proviso to Section 2(15) r.w. Section 13(8) of Act? (B) Whether on facts and in circumstances of case, Appellate Tribunal is justified in allowing assessee's appeal without appreciating that Revenue has filed Tax Appeal No.408 of 2012 before this Hon'ble Court against decision of Appellate Tribunal restoring registration under Section 12AA of Act cancelled by CIT? (C) Whether on facts and in circumstances of case, Appellate Tribunal is justified in allowing accumulation of 15% without appreciating fact that once provision of Section 2(15) r.w. Section 13(8) is applicable, assessee forfeits all exemptions under Sections 11 and 12 of Act? (D) Whether on facts and in circumstances of case, Appellate Tribunal is justified in deleting Page 5 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT deduction in fixed assets of Rs.34,49,94,135/- without appreciating fact that once provision of Section 2(15) r.w. Section 13(8) is applicable, assessee forfeits all exemptions under Sections 11 and 12 of Act? In Tax Appeal No. 160 of 2020 Whether, on facts and in circumstances of case, Hon ble ITAT is right in allowing depreciation on assets, full cost of which was already allowed as application in earlier years. ratio of decision of Supreme Court in Rajasthan and Gujarati Charitable Foundation is not applicable in present case as in that case exemption under section 11 and 12 was available to assesse, whereas in present case, exemption under section 11 and 12 is not available to assesse as per stand of department. Therefore AOP cannot be granted benefit of both depreciation and capital expenditure in accordance with normal business provisions of Act? Whether, on facts and in circumstances of case, Hon ble ITAT is right in allowing claim of depreciation to assessee by ignoring fact that allowance of depreciation on fixed assets, acquisition of which has been allowed as application of Page 6 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT income in earlier years, will tantamount to double deduction particularly when benefit of section 11 & 12 has not been allowed and proviso to section 2(15) has been held to be applicable? In Tax Appeal No. 161 of 2020 [A], [B], [C], [D] and Whether Hon ble ITAT has erred in allowing claim of exemptions u/s. 11 & 12 to assesse, without appreciating findings of CIT (Appeals) that assesse has also violated provision of section 11(2)(b) r.w.s. 11(5) of Act and thereby making it ineligible for claim of exemption u/s. 11 & 12, in view of provisions of section 13(1)(d) of Act? Whether, on facts and in circumstances of case, Hon ble ITAT is justified in deleting dividend income without appreciating that in case assesse is not entitled for exemption u/s. 11 & 12 of Act, therefore, disallowance as per Rule 8D r.w.s. 14A will be applicable? In Tax Appeal No. 162 of 2020 Whether, on facts and in circumstances of case, Hon ble ITAT is right in allowing depreciation on assets, full cost of which was already allowed as application in earlier years. ratio of decision of Page 7 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT Supreme Court in Rajasthan and Gujarati Charitable Foundation is not applicable in present case as in that case exemption under section 11 and 12 was available to assesse, whereas in present case, exemption under section 11 and 12 is not available to assesse as per stand of department. Therefore AOP cannot be granted benefit of both depreciation and capital expenditure in accordance with normal business provisions of Act? Whether, on facts and in circumstances of case, Hon ble ITAT is right in allowing claim of depreciation to assessee by ignoring fact that allowance of depreciation on fixed assets, acquisition of which has been allowed as application of income in earlier years, will tantamount to double deduction particularly when benefit of section 11 & 12 has not been allowed and proviso to section 2(15) has been held to be applicable? In Tax Appeal No. 163 of 2020 [A], [B], [D] and Whether Hon ble ITAT has erred in allowing claim for exemption u/s. 11 & 12 to assesse, without appreciating findings of CIT (Appeals) that assesse has also violated provisions of Page 8 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT section 11(2)(b) r.w.s. 11(5) of Act and thereby making it in-eligible for claim of exemption u/s. 11 & 12, in view of provisions of section 13 (1)(d) of Act? Whether on facts and in circumstances of case, Hon ble Tribunal is justified in allowing accumulation of 15% without appreciating fact that once provisions of section 2(15) is applicable to assesse, assesse forfeits all exemptions u/s. 11 and 12 of Act in view of provisions of section 13(8) of Act? Whether, on facts and in circumstances of case, Hon ble ITAT is justified in deleting dividend income without appreciating that in case assesse is not entitled for exemption u/s. 11 & 12 of Act, therefore, disallowance as per Rule 8D r.w.s. 14A will be applicable? In Tax Appeal No. 164 of 2020 Whether, on facts and in circumstances of case, Hon ble ITAT is right in allowing depreciation on assets, full cost of which was already allowed as application in earlier years. ratio of decision of Supreme Court in Rajasthan and Gujarati Charitable Foundation is not applicable in present case as in that case exemption under section 11 and 12 was Page 9 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT available to assesse, whereas in present case, exemption under section 11 and 12 is not available to assesse as per stand of department. Therefore AOP cannot be granted benefit of both depreciation and capital expenditure in accordance with normal business provisions of Act? Whether, on facts and in circumstances of case, Hon ble ITAT is right in allowing claim of depreciation to assessee by ignoring fact that allowance of depreciation on fixed assets, acquisition of which has been allowed as application of income in earlier years, will tantamount to double deduction particularly when benefit of section 11 & 12 has not been allowed and proviso to section 2(15) has been held to be applicable? 3. We have heard Mrs. Mauna M. Bhatt, learned Senior Standing Counsel appearing for Revenue and Mr. Saurabh N. Soparkar, learned Senior Counsel with Mr. Gursharan H. Virk, Advocate for Respondent. 4. FIRST ISSUE: DISALLOWANCE UNDER Sec. 36(1) (vii) (Being Question in Tax Appeal nos. 161 & 163 of 2020) 4.1 During assessment proceedings, assessing officer noticed that assesse had claimed Rs. Page 10 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT 47,50,00,000/- as contribution to pension Fund in income and expenditure account. assessing officer took view that any sum paid by assesse as employer by way of contribution towards pension scheme as referred to in section 80CCD on account of employee to extent it does not exceed 10% of salary of employee in previous year is not liable to be deducted and is not exempt from tax. assessing officer observed that assesse had not furnished working of its claim as per conditions laid down and, in such circumstances, 25% of amount claimed by assesse was allowed and 75% of claim was disallowed. This was carried in appeal before CIT(A) by Assessee. 4.2 CIT(A), after due consideration of fact that Gujarat Maritime Board Employees Pension Trust Fund was duly approved by CIT, Gandhinagar with effect from 28.03.2003 and contribution was paid in compliance of terms of appointment on respective erstwhile state government employees in earlier year, which was constantly allowed by department, reversed finding of assessing officer and allowed Assessee s appeal since those findings could not be controverted by Revenue before CIT(A). 4.3 Tribunal affirmed view of CIT (A) after holding that Revenue has not been able to controvert findings of CIT(A). Page 11 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT 4.4 issue relating to contribution to pension fund under Section 36(1)(iv) of Income Tax Act read with Rule 87 and 88 of Income Tax Rules would not constitute question of law and would be in realm of factual issue. ITAT has observed in its order that no evidence was led by Revenue-Appellant to dispute correctness of findings recorded by CIT (Appeals). 5. SECOND ISSUE: WHETHER ASSESSEE CAN CLAIM DEPRECIATION ON ASSETS WHEN THEIR PURCHASE WAS CLAIMED AS APPLICATION OF FUNDS (Being Question in Tax Appeals nos. 158, 160, 162 and 164 respectively of 2020) 5.1 As regards claim of Appellant that Assessee cannot claim depreciation of such assets which were allowed as application of income, case of Revenue is that same is not admissible because Assessee had claimed very purchase as application of fund by charitable institution. 5.2 CIT (A) held against Revenue and Tribunal dismissed appeals of Revenue on this ground following judgment of Supreme Court in case of Commissioner of Income Tax III, Pune v. Rajasthani and Gujarati Charitable Foundation, Poona, reported in (2018) Page 12 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT 402 ITR 441 : (2018) 7 SCC 810. 5.3 It is pertinent to note that aforesaid issue is covered against Revenue in terms of judgment of Apex Court in Commissioner of Income Tax III, Pune (supra), referred to above. order of ITAT discusses, after relying on Judgment of Apex Court in Rajasthani and Gujarati Charitable Foundation (supra) that income of trust is required to be computed u/s. 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of trust. 6. THIRD ISSUE: WHETHER ASSESSEE IS INELIGIBLE TO CLAIM BENEFIT OF SEC. 2(15) OF ACT (Being Question in Tax Appeal nos. 157, 158, 159, 160, 162, 163 and 164 respectively of 2020) 6.1 return of income declaring loss of 94,15,94,712/- was filed by Assessee on 30.09.2009. Subsequently, on case being taken up u/s. 143(2), Assessee submitted that it was constituted under Gujarat Maritime Board Act, 1981 and was engaged in activity of administering, controlling and managing minor ports in State of Gujarat. 6.2 ITAT has clearly observed that activities Page 13 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT carried out by Assessee are for advancement of any other object of general public utility without any intention of making profit after considering provisions of Gujarat Maritime Board Act, 1981 and facts of case. Therefore, it cannot be said that activities carried out by Assessee are in nature of trade, commerce or business. Furthermore, decisions of this court in case of CIT v. Gujarat Industrial Development Corporation (GIDC), 83 taxmann.com 366 (Guj) and Ahmedabad Urban Development Authority (AUDA), 83 taxman.com 78, squarely cover present issue in favour of Assessee since fees collected by Assessee is incidental to object and purpose of attainment of main object for development of minor ports in State of Gujarat. This Court has held in case of AUDA (supra) that merely because AUDA is charging fees and/or cess, activities cannot be said to be in nature of trade, commerce or business. In case of GIDC (supra), this Court has clearly held that charitable activities also require operational / running expenses as well as capital expenses to be able to sustain and continue in long run. Therefore, ITAT has rightly found that activity of assesse is for advancement of any other object of general public utility and is not hit by provisio to section 2(15) of Act, and therefore, Assessee is entitled to exemption u/s. 11 of Act. 6.3 aforesaid issue has already been decided by this Page 14 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 C/TAXAP/157/2020 JUDGMENT Court against Revenue in Tax Appeal No. 18 of 2020, in case of Assessee itself. 7. In view of above, substantial questions of law, as proposed by Revenue are answered against Revenue and in favour of assessee 8. Appeals, therefore, fail and are hereby dismissed. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) Vahid Page 15 of 15 Downloaded on : Tue Aug 11 08:31:41 IST 2020 Commissioner of Income-tax (Exemptions) v. Gujarat Maritime Board