The ITO(Exemption), Ward-1, RAJKOT-GUJARAT V. Agriculture Produce Market Committee, GONDAL

ITA 134/RJT/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6665 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 13-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: MJ RANPURA
• Keywords: Capital asset; Rule of consistency; Capital receipt
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE SHRI S.V. MEHROTRA , ACCOUNTANT MEMBER AND SHRI K. NAR A SIMHA CHARY , MEMBER ITA NO. 134 / RJT /201 5 ASS T. YEAR : 2008 - 09 ITO (EXEMPTION) - 1, RAJKOT (APPELLANT) VS AGRICULTURE PRODUCE MARKET COMMITTEE, SARDAR MARKET YARD, NATIONAL HIGHWAY - 8B, GONDAL. PAN : AAALA0083H (RESPONDENT) APPELLANT BY : SHRI AVINASH KUMAR, DR RESPONDENT BY : SHRI M.J. RANPURA, C.A DATE OF HEARING : 2 1 /0 3 /201 7 DATE OF PRONOUNCEMENT : 22 /0 3 /201 7 O R D E R PER K. NAR A SIMHA CHARY, MEMBER, JM : THIS IS AN APPEAL CHALLENGING ORDER DATED 19.01.2015 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 1, RAJKOT (FOR SHORT HEREINAFTER REFERRED TO AS LD. CIT(A) ). 2. BRIEFLY STATED THE FACTS ARE THAT T HE ASSESSEE IS A COMMITTEE FORMED UNDER GUJARAT AGRICULTURE PRODUCE MARKETS ACT, 1963 FOR PROVIDING FACILITIES FOR MARKETING OF AGRICULTURAL PRODUCES AND WAS GRANTED REGISTRATION U/S 12A OF THE INCOME TAX ACT, 1961 (FOR SHORT HEREINAFTER REFERRED TO AS TH E ACT) BY CIT - I, RAJKOT VIDE CERTIFICATE DATED 18.5.2004 WHICH WAS MODIFIED BY ANOTHER CERTIFICATE DATED 2 ITA NO. 134/RJT/2015 AGRICULTURE PRODUCE MARKET COMMITTEE 25.10.2005. EVER SINCE THE INCOME OF ASSESSEE IS CLAIMED AS EXEMPT U/S 11(2) OF THE ACT. FOR ASSESSMENT YEAR 2008 - 09, THE RETURN OF INCOME WAS FILED ON 30.9.2008 DECLARING INCOME AS NIL AND DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE RECEIVED A SUM OF RS.1,21,82,180/ - TOWARDS SUKHADI (GOODWILL) AND ISSUED SHOW CAUSE NOTICE CALLING UPON THE ASSESSEE TO EXPLAIN AS TO WH Y THIS GOODWILL OF RS.1,21,82,180/ - SHOULD NOT BE TREATED AS CAPITAL GAINS CHARGEABLE TO TAX. IN SPITE OF THE RESISTANCE MADE BY ASSESSEE ON THE GROUND THAT ASSESSEE HAD INCURRED MORE EXPENSES IN ACQUIRING NEW CAPITAL ASSETS AS COMPARED TO THE AMOUNT OF SUKHADI RECEIVED, THE ASSESSING OFFICER PROCEEDED TO HOLD THAT THE PROVISIONS OF SEC. 11(1) EXEMPTING INCOME OF TRUST WILL NOT BE APPLICABLE TO THE INCOME OF THE NATURE MENTIONED IN SUB - SECTION (1A) OF THE ACT, I.E. INCOME DERIVED FROM TRANSFER OF PROPERTY . HE HELD THAT T HE PROVISIONS OF SEC. 11(1A) OF THE ACT ARE ANALOGOUS TO THE PROVISIONS OF CAPITAL GAINS UNDER CHAPTER IV - E OF THE ACT, AS SUCH ASSESSEE WAS UNDER OBLIGATION TO TREAT THE INCOME EARNED FROM TRANSFER OF PROPERTY AS CAPITAL GAINS AND OUGHT T O HAVE WORKED OUT ITS INCOME ACCORDINGLY. ON THIS PREMISE, THE ASSESSING OFFICER ADDED BACK THE SUKHADI AMOUNT. AGGRIEVED BY THE SAME, ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT(A) AND THE LD. CIT(A) BY WAY OF THE IMPUGNED ORDER ALLOWED THE APPEAL AND DELETED THE ADDITIONS MADE ON THIS ACCOUNT. 3. CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A), REVENUE IS IN APPEAL BEFORE US ON THE GROUND THAT THE LD. CIT(A) ERRED IN NOT TREATING THE SUKHADI AMOUNT AS CAPITAL GAINS AND DELETING THE SAM E INSTEAD OF UPHOLDING THE FINDINGS OF ASSESSING OFFICER UNDER THE PROVISIONS OF 3 ITA NO. 134/RJT/2015 AGRICULTURE PRODUCE MARKET COMMITTEE CLAUSE (II) OF EXPLANATION BELOW SUB - SECTION (1A) OF SEC. 11 R.W.S. 55(1)(B) OF THE ACT. 4. IT IS THE ARGUMENT OF THE LD. DR THAT THERE IS NO REASON FOR THE LD. CIT(A) TO DIS TURB THE FINDINGS OF THE ASSESSING OFFICER THAT THE PROVISIONS OF SEC. 11(1A) OF THE ACT ARE ANALOGOUS TO THE PROVISIONS OF CAPITAL GAINS UNDER CHAPTER IV - E OF THE ACT AND BY READING THE SAID PROVISIONS WITH SEC. 55(1)(B) OF THE ACT, THE ASSESSING OFFICER HAS RIGHTLY MADE THE ADDITIONS TO THE INCOME OF THE ASSESSEE, AS SUCH THE ORDER OF ASSESSING OFFICER HAS TO BE RESTORED. 5. HOWEVER, THE LD. AR ARGUED THAT THE LD. CIT(A) WAS RIGHT IN HOLDING THAT SINCE THE ISSUE FOR ASSESSMENT YEAR 2007 - 08 WAS DECIDED I N APPEAL BY THE LD. CIT(A) IN FAVOUR OF THE ASSESSEE AND IT HAS BECOME FINAL, THE RULE OF CONSISTENCY SHOULD BE FOLLOWED. FURTHER, FOR THE YEAR 2007 - 08, THE LD. CIT(A) RECORDED COGENT REASONS FOR ANSWERING THE ISSUE IN FAVOUR OF THE ASSESSEE AND MORE PART ICULARLY, WITH REFERENCE TO THE CBDT CIRCULAR NO. 72. HE PRAYED TO DISMISS THE APPEAL. 6. WE HAVE CAREFULLY GONE THROUGH THE RECORD IN THE LIGHT OF THE ARGUMENTS ADVANCED BEFORE US. VIDE PARAGRAPH 3.5 OF THE ORDER DATED 29.2.2012 IN APPEAL NO. CIT(A) - I/ RJT/0105/09 - 10 IN ASSESSEES OWN CASE, THE APPELLATE AUTHORITY HAS OBSERVED AS FOLLOWS : - 3.5 SO FAR AS AO'S FINDING THAT THE PROVISIONS OF SECTION 11 (1) AND SECTION 11(1A) ARE NOT SIMILAR BECAUSE THE WORDINGS OF SECTION 11 (1A) STARTS WITH 'FOR THE PUR POSE OF SUB SECTION (1)'. HOWEVER, I DECLINE TO ACCEPT THE FINDING OF THE AO BECAUSE THE VERY FACT THAT SECTION 11 (1A) WAS INSERTED BENEATH SECTION 11 (1) SHOWS THAT THE SAME ARE NOT INDEPENDENT TO EACH OTHER, BUT SHOULD BE READ TOGETHER. THE AO HAS MISDI RECTED IN APPRECIATING THE 4 ITA NO. 134/RJT/2015 AGRICULTURE PRODUCE MARKET COMMITTEE PROVISIONS OF SECTION 11 (1A). THIS SECTION WAS NOT INTRODUCED TO LAY DOWN A PRINCIPLE IN COMPUTING THE TOTAL INCOME OF ASSESSEE ELIGIBLE FOR EXEMPTION BUT IT WAS INTRODUCED TO ELIMINATE THE DISADVANTAGE TO CHARITABLE OR RELIGIOU S TRUSTS IN BEING FORCING TO SPEND AWAY THE CAPITAL GAINS ARISING FROM THE TRANSFER OF ASSETS CONSTITUTING THE CORPUS OF THE TRUST. THEREFORE BY INSERTION OF SECTION 11 (1A), A CLARIFICATION WAS BROUGHT TO THE STATUTE THAT, CAPITAL GAIN ARISING ON SALE OF CAPITAL ASSET HELD BY A TRUST FOR MEETING ITS OBJECTIVES, SUCH CAPITAL GAIN SHALL BE 'APPLICATION' OF INCOME TO MEET ITS OBJECTIVE. PRIOR TO THIS CLARIFICATION, TRUSTS THAT HAD INCOME FROM CAPITAL GAINS, HAD TO TREAT IT AS REGULAR INCOME AND EXPEND 85% OUT OF SUCH TOTAL INCOME AND THUS HURTING ITS CORPUS. NOW WITH INSERTION OF SECTION 11 (1A), TRUSTS CAN TREAT APPLICATION OF CAPITAL RECEIPT IN ACQUIRING ANOTHER ASSET, AS APPLICATION OF FUND TOWARDS MEETING ITS OBJECTIVE. THIS IS CLEAR FROM PLAIN READING OF BOARD'S CIRCULAR NO. 72. ON THE ABOVE BACK GROUND OF THE FACTS AND POSITION OF LAW AS ALSO CONSIDERING THE BOARD'S CIRCULAR ON THE ISSUE, I FIND THAT THE AO HAS ERRONEOUSLY INTERPRETED THE PROVISIONS OF SECTION 11 (1A) WITHOUT APPRECIATING ITS ESSENCE. THE AO IS ACCORDINGLY DIRECTED TO ACCEPT THE COMPUTATION AS PER RETURN OF INCOME. THE ABOVE GROUND OF APPEAL STANDS ALLOWED. 7. WE DO NOT FIND ANY ILLEGALITY OR IRREGULARITY IN THE ABOVE REASON OF THE APPELLATE AUTHORITY AND THE LD. CIT( A) WAS RIGHT IN HIS CONCLUSION THAT WITH THE INSERTION OF SEC. 11(1A) A TRUST CAN TREAT THE APPLICATION OF CAPITAL RECEIPT IN ACQUIRING ANOTHER ASSET AS APPLICATION OF FUND TOWARDS MEETING ITS OBJECTIVE AND THIS IS CLEAR FROM THE PLAIN READING OF THE BOARD S CIRCULAR NO. 72. THE LD. CIT(A) IS PERFECTLY RIGHT IN HOLDING THAT THE ASSESSING OFFICERS INTERPRETATION OF PROVISIONS OF SEC. 11(1A) OF THE ACT WAS ERRONEOUS AND WITHOUT PROPERLY APPRECIATING THE PROVISIONS OF THE STATUTE. THERE IS NOTHING WRONG IN THE LD. CIT(A) FOLLOWING THE SAME LINE OF REASONING FOR THE CURRENT YEAR ALSO. REVENUE FAILED TO DEMONSTRATE BEFORE US AS TO HOW THE ABOVE REASONING OF THE LD. CIT(A) WAS WRONG. APPROACH OF THE LEARNED CIT(A) IS PERFECTLY LEGAL AND IMPECCABLE. WE, THERE FORE, DO NOT PROPOSE TO INTERFERE WITH THE CONCLUSION REACHED BY THE APPELLATE AUTHORITY IN RESPECT OF THE CURRENT YEAR BY FOLLOWING THE LOGIC ADOPTED IN RESPECT OF ASSESSMENT YEAR 2007 - 5 ITA NO. 134/RJT/2015 AGRICULTURE PRODUCE MARKET COMMITTEE 08. ADMITTEDLY, THERE IS NO CHANGE OF CIRCUMSTANCES FROM ASSESSMENT Y EAR 2007 - 08 TO THE YEAR UNDER CONSIDERATION. WE, THEREFORE, ANSWER THIS GROUND IN FAVOUR OF THE ASSESSEE AND FIND THAT THE IMPUGNED ORDER DOES NOT REQUIRE ANY INTERFERENCE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE O PEN COURT ON 2 2 N D MARCH, 2017. SD/ - SD/ - ( S.V. MEHROTRA ) ACCOUNTANT MEMBER ( K. NAR A SIMHA CHARY ) JUDICIAL MEMBER MUMBAI, DATE : 2 2 N D MARCH , 201 7 *SSL* 6 ITA NO. 134/RJT/2015 AGRICULTURE PRODUCE MARKET COMMITTEE COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, RAJKOT 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, RAJKOT