TMI Blog2016 (5) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee is a charitable trust carrying on activity of advancement of public utility without any profit motive and is required to be assessed as per the provisions of Section 11(1) of the Income-tax Act, 1961. - Decided in favour of assessee Revenue expenditure as application of income by way of payment to the Gujarat Government towards waterfront/royalty charges - Held that:- the assessee, being a charitable trust u/s 12A, was certainly under legal obligation to make payment to the State Government towards waterfront/royalty charges which was inevitable for the functioning of the assessee-trust and such payment was made towards the object of the trust embedded in the Gujarat Maritime Board Act, 1981 and certainly these payments which have been made to the State Government have been applied for the public welfare projects which in this case is waterfront project. Therefore, the assessee is eligible to claim as application of income against the gross income received and the same should be accounted while calculating 85% of the gross income which needs to be applied for charitable activities by the assessee-trust. Applacabilty of provision of sec 43B - Held that:- As prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(20A) of the Act as a Local Authority upto Assessment Year 2002-03 and the income was exempt under this section and certainly whatever amount which have been received prior to 01.04.2002 gets covered therein. Therefore, in our view, no addition was called for of ₹ 12,92,00,000/- on account of Revenue recognition of the premium received on allotment of plots by way of spreading the revenue for a period of 10/20-25 years on the basis of AG(Audit) Report. Granting deduction for accumulation u/s 11(1) of the Act only on net surplus and not on its gross receipts - Held that:- From going through the decision of the Hon’ble Apex Court in the case of CIT vs. Programme for Community Organization (2000 (11) TMI 4 - SUPREME Court ), it is crystal clear that calculation of 15% as mentioned in provisions of Section 11(1A) have to be applied on the gross income of the assessee and not the net surplus. Therefore, in our view, in the case of the assessee, 15% has to be calculated on gross income for the year, i.e., ₹ 221.19 crores and not on the net surplus of ₹ 64.96 crores. Disallowance of deduction in relation to increase in the fixed assets being application of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT, Gandhinagar Range, Gandhinagar. 2. This appeal was filed on 28.10.2009 raising five grounds of appeal and thereafter the assessee has filed an additional ground of appeal No.6 on 02.01.2012. Thereafter on 13.03.2012, the assessee has submitted the modified grounds of appeal and finally modified grounds of appeal were again filed on 08.04.2015. While adjudicating this appeal, we will deal with modified grounds of appeal filed by the assessee on 08.04.2015, which read as under:- 1. The ld. CIT(A) has erred in framing assessment at an income of ₹ 64,80,62,360/- by clubbing income under two provisions. He has erred in framing the assessment under section 11(1) and also under section 11(4) without appreciating the said income is being assessed twice over. There is no provision under the Income-tax Act, 1961 to have such double assessments of the same income. 2.0 Assessment under section 11(1). 2.1 The ld. CIT(A) has erred in law and on facts in confirming disallowance of ₹ 44,38,23,000/- claimed by the appellant as charges on revenue as application of income by agreeing in principle the same to be allowable expense u/s 37 of the Act but further holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudice to the contentions of the appellant that no disallowance u/s 11(4) is permissible or that it amounts to duplication of the income, the Id. CIT(A) has erred in framing assessment u/s 11(4) inasmuch as he has not granted depreciation amounting to ₹ 36,86,34,716/-. 4. Ld. CIT(A) has erred in law and on facts in confirming the view taken by AO in computing the 15% of income allowed for accumulation u/s. 11(1) on Net Income instead of Gross Receipts 5. Ld. CIT(A) ought to have worked out the deficiency and permitted the same to be carried forward. 6. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 3. Briefly stated facts, as culled out from the assessment records, are that the assessee is a statutory body governed by Gujarat Maritime Board Act, 1981 and engaged in the activity of advancement of the object of general public utility by way of administering, control and managing minor ports in the State of Gujarat. In the instant case, the CIT, Gandhinagar vide his order dated 15.06.2005 has granted the registration u/s 12AA to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r advancement of the object of general public utility. 2. The ld. CIT(A) has erred in law and on facts in confirming the disallowance of ₹ 44,38,23,000/- by not allowing it as application of income without appreciating the fact that this amount of ₹ 44,38,23,000/- has been spent towards waterfront charges/royalty paid to Government of Gujarat. 3. Alternatively, ld. CIT(A) has erred in not appreciating the assessment of the appellant, being a charitable institution, and further applying the provisions of Section 43B of the Income-tax Act on the payment of royalty/waterfront charges paid to Gujarat Government after the due date of filing of return of the Trust. 4. The Ld. CIT(A) has erred in framing assessment at an income of ₹ 64,80,62,360/- by clubbing income under two provisions of Section 22(1) of the Act and also u/s 11(4) of the Act, without appreciating that the said income is being assessee twice. 5. The ld. CIT(A) has erred in confirming the addition made by the Assessing Officer of ₹ 12,92,00,000/- as notional income on account of premium of Alang plots. 6. The ld. CIT(A) has erred in granting deduction for accumulation u/s 11(1) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther observe that the Co-ordinate Bench in ITA No.2842/Ahd/2007 in assessee s own case for Assessment Year 2004-05 has dealt with this issue and has observed as under:- 5. We have heard both the parties and gone through the facts of the case . At the outset we find that the issue raised under ground no.3 of the appeal regarding status of the assessee as a trust is settled by the Hon ble Apex Court in their aforesaid decision in the assessee s own case, wherein the Hon'ble Court observed One of the objections raised on behalf of the Department was that the Gujarat Maritime Board is not entitled to the benefit of section 11 of the 1961 Act as as the said Board was not a trust under the Publc Trusts Act and therefore, it was not entitled to claim registration under section 12A of the 1961 Act. The Department's case was that the Martime Board was a statutory authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a charitable registered as a charitable institution. It was the case of the Department that the Board was performing statutory functions. Develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Gujarat. Therefore, they are entitled to be registered as charitable trust under section 12A of the 1961 Act. 5.1 Thus, in the alight of aforesaid conclusion of the Hon'ble Apex Court, the assessee Board is a charitable trust and is under legal obligation to apply the income which arises directly and substantially from the business field under trust for the development of minor ports in the State of Gujarat. Therefore, first objection of the Revenue in Ground No.3 regarding the assessee being a charitable trust u/s 12A of the Act, no longer survives for adjudication and is therefore, dismissed. 7.5 From going through the above decision of the Co-ordinate Bench which is relied on the decision of Hon ble Apex Court, that too in assessee s own case, i.e., CIT vs. Gujarat Maritime Board, reported in (2007) 295 ITR 561 (SC), wherein the Hon ble Apex Court has observed that the appellant is established for the predominant purposes of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of section 73, 74 and 75 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of income as mentioned in Section 11(1A) of the Act. When the issue came in appeal before the ld. CIT(A), he was of the view that the income of the assessee needs to be calculated u/s 11(4) of the Act, treating it as a business undertaking and disallowed the payment of ₹ 44,38,23,000/- on the ground that levy of waterfront royalty of ₹ 44,38,23,000/- is an allowable revenue expenditure u/s 37 of the Act subject to the condition that claim of the appellant is duty bound to quantity the royalty as per the provisions of Section 22A of the Gujarat Maritime Board Act and Section 74(1)(gg) of the Gujarat Maritime Board Act, 1981 and the amount so quantified will be allowed in the year of payment as per the provisions of Section 43B. The ld. CIT(A) further observed that since in the present situation neither the quantification has taken place nor is there any rationale for even adhoc provision made, the sum of ₹ 44,38,23,000/- is not allowable as a revenue expenditure for the present year. Aggrieved, the assessee is now in appeal before the Tribunal. 8.2 At the outset, ld. Authorized Representative of the assessee submitted that for the Assessment Year 2004-05 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appellant s own case, wherein the Co-ordinate Bench dismissed the Revenue s ground by observing as under:- Now adverting to ground no.1in the appeal regarding disallowance of ₹ 71,87,33,566/-, being waterfront charges/royalty paid to the State Government, the AO disallowed the claim invoking provisions of sec. 13(1)(c) of the Act. Before the AO, the assessee explained in their letter dated 19/9/06 that the above amount has been paid to Government of Gujarat as Waterfront Changes / royalty and are levied essentially for allowing GMB's operation along the coast line of Gujarat which is under the sovereign statutory jurisdiction of State of Gujarat . In this connection, the ld. CIT(A) noted that the Legislature had chosen to levy and collect such charges and the same cannot be treated as a benefit for the Govt. In fact, it is the other way around and the assessee is benefited by getting a commercial right over exploitation of the State's asset for earning income. As such, since there was no benefit accruing directly or indirectly to the Govt. by the payment of royalty, therefore, the provisions of section 13(1)(c) will not apply,-the Id. CIT(A) concluded. The Id. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excluded from exemption. The payment of waterfront charges/royalty paid to the State Government being sine qua non for the functioning of the assessee Board, has to be treated as application of income towards the objects of the Trust enshrined in Gujarat Maritime Board Act, 1981. In view of the foregoing, especially when the Revenue have not placed before us any material in order to controvert the aforesaid findings of the Id. CIT(A), we have no alternative but to uphold his findings. Thus, Ground No.1 is dismissed. We further find that that for Assessment Year 2004-05 Revenue went in appeal before the Hon ble Gujarat High Court being aggrieved by the decision of Co-ordinate Bench, Ahmedabad. The Hon ble Gujarat High Court, vide order dated 30.08.2011 in Tax Appeal No.673 of 2010, dismissed the Revenue s appeal by observing as under with reference to disallowance of ₹ 71,87,33,566/- being Waterfront Royalty Charges paid to the State Government.:- 4. On hearing learned counsel Mrs. Mauna Bhatt for the Revenue and on perusal of the record, it can be noted that in Tax Appeal No.1433 of 2005 the question with regard to this assessee fulfilling the conditions envisage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1981 is towards fulfillment of objection. This was rightly found to have been levied by virtue of statutory provisions for allowing the assessee to explore and exploit asset of the State for commercial purpose. And, so direct or indirect benefit also was found to have accrued to the Government due to such payment of royalty charges and thus, application under Section 13(3) was justifiably denied by the authorities. 7. There are no other aspects pointed out by the Revenue for this Court to take any other stand than already taken, this Tax Appeal therefore, deserves no further consideration. There is no question of law to be decided and hence the same is dismissed. 8.5 We further find that the Revenue went in appeal before the Hon ble Supreme Court of India against the decision of the Hon ble Gujarat High Court dated 30.08.2011 and Special Leave Petition was dismissed by the Hon ble Apex Court vide order dated 27.08.2012. Respectfully following the decision of Hon ble Apex Court, Gujarat High Court and the Co-ordinate Bench in assessee s own case for Assessment Year 2004-05 and applying the ratio of decision, we are of the view that the assessee, being a charitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port filed by the appellant under protest, on the ground that provisions of s. 43B of the IT Act, 1961 are applicable as income of the appellant is assessable as business income. 15.1 These grounds have also become redundant on account of the principle laid down hereinabove that the profits earned by this assessee are not subject to tax being out of the ambit of s. 11(4) of the IT Act because the application of income was not questioned by the AO. The entire income of this organization being held as exempt, therefore, these grounds get automatically allowed. Respectfully applying the ratio of Co-ordinate Bench, we are of the view that, as profit earned by the assessee are not subject to tax being out of the ambit of provisions of Section 11(4) of the Income-tax Act and the income of the organization being exempt as per the provisions of Section 11(1) of the Incometax Act, this ground has become redundant and accordingly the provisions of Section 43B of the Act are not applicable on the payment of ₹ 44,38,23,000/-. Thus, this ground of the assessee is allowed. 9. Now we take-up substantive ground No.4, which reads as under:- 4. The Ld. CIT(A) has erred in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property; (c) income derived from property held under trust- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Section 11(4) of the Act: (4) For the purposes of this section property held under trust includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of appellate proceedings before the ld. CIT(A), the assessee mentioned that accounts of the assessee were being maintained on cash basis upto financial year 2001-02 and the impugned premium amount on allotment of plots were received in previous years and no amount has been received in the year under appeal and upto 31.03.2002 the income of the assessee was exempt as local authority u/s 10(20) of the Incometax Act; all the premium received before this date were also exempt from tax and further, premium received is an upfront payment of capital in nature and was accounted for as such in the year of receipt. However, ld. CIT(A) confirmed the addition by observing that as the appellant is not refunding back the premium at the end of the lease period so as to draw an account of incomings or outgoing to argue about the depletion on this account. Aggrieved the assessee is now in appeal before the Tribunal. 10.2 The ld. Authorized Representative submitted that the appellant-Board was maintaining its books of accounts on cash basis upto Financial Year 2001-02 and the receipt of the impugned premium commenced during the Financial Year 1994-95 and as on 31.03.2002, the same aggregated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a year has to be accounted for and there is no concept of bifurcating or apportioning any advance premium received. Further, it is also undisputed fact that the appellant-Board was covered under the provisions of Section 10(20A) of the Act as a Local Authority upto Assessment Year 2002-03 and the income was exempt under this section and certainly whatever amount which have been received prior to 01.04.2002 gets covered therein. Therefore, in our view, no addition was called for of ₹ 12,92,00,000/- on account of Revenue recognition of the premium received on allotment of plots by way of spreading the revenue for a period of 10/20-25 years on the basis of AG(Audit) Report. Thus, this ground of assessee s appeal is also allowed. 11. Now we take-up substantive ground No.6, which reads as under:- The ld. CIT(A) has erred in granting deduction for accumulation u/s 11(1) of the Act only on net surplus and not on its gross receipts. 11.1 The issue arising in this ground is that the ld. CIT(A) has restricted the benefit of 15% in terms of section 11(1A) of the Act on net income instead of gross receipts. While arguing this ground before the Tribunal, the ld. Authorized Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as mentioned in provisions of Section 11(1A) have to be applied on the gross income of the assessee and not the net surplus. Therefore, in our view, in the case of the assessee, 15% has to be calculated on gross income for the year, i.e., ₹ 221.19 crores and not on the net surplus of ₹ 64.96 crores. The issue is, therefore, decided in favour of the assessee. 12. Next, we deal with the substantive ground Nos. 7 8, which as under:- 7. The ld. CIT(A) has erred in not allowing the deduction in relation to increase in the fixed assets being application of income amounting to ₹ 20,68,73,986/-. 8. The ld. CIT(A) has erred in framing assessment u/s 11(1) without granting depreciation amounting to ₹ 36,86,34,716/-. 12.1 As regards the claim of depreciation as per Income-tax Act, we observe that while framing the assessment order, the ld. Assessing Officer determined the income under the provisions of Section 11(1) of the Act by adding back the depreciation claim in the books of accounts at ₹ 9,83,87,745/- and allowing the application of income towards fixed assets at ₹ 52,67,27,832/- and also again giving credit towards application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 36,86,34,716/- while computing income of appellant-trust has business u/s 11(4) of the Act. From our above observation, one fact which emanates out clearly is that figure of depreciation as per Income-tax Act has changed frequently and there is a variation in the final figure determined by the assessee as well as Department about the depreciation calculated as per Income-tax Act. 12.3 As regards the allowability of addition to fixed assets at ₹ 20,68,73,986/- as application of income, there remains no dispute because the ld. CIT(A), while determining the income u/s 11(1) of the Act, has himself allowed the addition to fixed assets at ₹ 20,68,73,986/- as deduction towards application of income and therefore, this substantive ground needs no further adjudication on this ground relating to allowability of deduction in relation to increase in the fixed assets being application of income amounting to ₹ 20,68,73,968/-, as it has already decided in favour of the assessee by ld. CIT(A) and therefore no interference is called for in the ld. CIT(A) s order for this ground. 12.4 Now the next issue which we have to examine is whether the assessee is eligible for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 11(2) as well as Section 11 (3) of the Act are also relevant. It is also quite clear that the scheme of taxation of chartable/religious trust is quite different from the taxation of other taxable entities under the Act, because the application of income and/or the accumulation of such income for the purposes of the objects of the trust, is relevant. The term used in section 11(1) of the Act, the income and not total income , which is applicable for the purposes of taxation of other taxation of other taxable entities under the Act. The word income should be understood in its commercial sense, i.e., book income, which necessarily envisages deduction of depreciation on the assets of the trust. In the present context, it has to be clearly understood if the depreciation is not allowed as a necessary deduction in computing the income of the charitable/religious trusts, then there would be no way to preserve the corpus of the trust and therefore, a charitable/religious trust is entitled to depreciation in respect of the assets owned by it. 12.5 This view gets further supported by the decision of Hon ble Madhya Pradesh High Court in the case of CIT vs. Raipur Pallottine S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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