Assistant Commissioner of Income-tax, AURANGABAD V. Maharashtra Water Conservation Corporation, Aurangabad

ITA 1568/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9151 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-02-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 01-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL; NIRUPAMA KOTRU
• Keywords: Business income; Depreciation; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E . , , ! ' , # $ BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NOS. 883 & 1568/PUN/2015 #& ' (' / ASSESSMENT YEARS: 2010-11 & 2011-12 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2, AURANGABAD. ....... / APPELLANT & / V/S. MAHARASHTRA WATER CONSERVATION CORPORATION, NEW ADMINISTRATIVE BUILDING, GROUND FLOOR, COLLECTOR OFFICE, AURANGABAD-431 001. PAN : AAMFM1607K / RESPONDENT REVENUE BY : SMT. NIRUPAMA KOTRU & DR. VIVEK AGGARWAL ASSESSEE BY : SHRI ABHAY SHASTRI / DATE OF HEARING : 21.02.2018 / DATE OF PRONOUNCEMENT : 23.03.2018 ) / ORDER PER VIKAS AWASTHY, JM THESE TWO APPEALS HAVE BEEN FILED BY REVENUE ASSAILING TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-1, AURANGABAD FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12, RESPECTIVELY. THE IMPUGNED ORDER FOR THE ASSESSMENT YEAR 2010-11 IS DATED 25.03.2015 AND FOR THE ASSESSMENT YEA R 2011-12 IS DATED 10.09.2015. 2 ITA NOS.883 & 1568/PUN/2015 A.YS.2010-11 & 2011-12 SINCE, THE ISSUES INVOLVED IN BOTH THE APPEALS ARE IDENTICA L, THESE APPEALS BY REVENUE ARE TAKEN UP TOGETHER FOR ADJUDICATION AND ARE DISPOSED OF VIDE THIS COMMON ORDER. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS A STATE GOVERNMENT UNDERTAKING, FORMED UNDER MAHARASHT RA WATER CONSERVATION CORPORATION ACT, 2000. THE MAIN PURPOSE OF A SSESSEE IS PROMOTION, OPERATION, DEVELOPMENT, REGULATION OF WATERSHED, WATER CONS ERVATION WORKS INCLUDING SOCIAL FORESTRY AND IMPLEMENTATION OF IRRIGATION PROJE CTS APPROVED BY THE GOVERNMENT OF MAHARASHTRA. DURING THE ASSESSMEN T YEAR 2010-11, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AS NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS. ACCORDING LY, STATUTORY NOTICE U/S.143(2) WAS ISSUED ON 25.08.2011. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSE SSEE HAD CLAIMED DEPRECIATION ON WATER CONSERVATION PROJECTS AND OTHER ASSETS AT RS.6,87,34,681/-. THE ASSESSING OFFICER REJECTED THE ASSES SEES CLAIM OF DEPRECIATION ON THE PREMISES THAT THE NEW ASSET I.E. RESERVOIR HAS NOT BEEN PUT TO USE, THE ASSESSEE IS NOT ENTITLED TO CLAIM DEPRECIATION ON THE SAME. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED RS.6,87,34,681/- CLAIMED BY AS SESSEE AS DEPRECIATION. SIMILARLY IN ASSESSMENT YEAR 2011-12, DEPRECIATION CLAIMED BY ASSESSEE TO THE TUNE OF RS.8,71,63,811/- WAS DISALLOWED BY THE ASSESSIN G OFFICER FOR IDENTICAL REASONS. 3. FURTHER, THE ASSESSEE HAD DISCLOSED RS.2,64,222/- IN AS SESSMENT YEAR 2010-11 AND RS.77,263/- IN ASSESSMENT YEAR 2011-12 AS INCOME FROM FISHERIES UNDER THE HEAD BUSINESS INCOME. THE ASSESSING OFFICER HELD THAT INCOME FROM 3 ITA NOS.883 & 1568/PUN/2015 A.YS.2010-11 & 2011-12 FISHERIES IS NOT A BUSINESS INCOME AND HELD THE SAME TO BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. AGAINST THE FINDINGS OF ASSESSING OFFICER, THE ASSESSEE FILED A PPEALS FOR RESPECTIVE ASSESSMENT YEAR BEFORE THE COMMISSIONER OF IN COME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) ACCEPTED THE CON TENTION OF ASSESSEE AND REVERSED THE FINDINGS OF ASSESSING OFFICER. NOW, THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF COMMISSIONER OF INCOME TA X (APPEALS). 4. SMT. NIRUPAMA KOTRU REPRESENTING THE DEPARTMENT VEH EMENTLY OPPOSED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN ACCEP TING BOTH THE CLAIMS OF ASSESSEE. THE LD. DR SUBMITTED THAT THE MAIN BUSIN ESS OF ASSESSEE IS CONSERVATION AND SUPPLY OF WATER FOR IRRIGATION PURPOSE. T HE OTHER ACTIVITIES RELATING TO IRRIGATION SUCH AS FISHERIES, PISCICULTURE, FLORICULTURE , HORTICULTURE, SERICULTURE ETC ARE ANCILLARY ACTIVITIES. THUS, IT IS NOT A PA RT OF MAIN OBJECTS OF THE ASSESSEE. INCOME FROM FISHERIES IS ONLY A MINISCULE PART OF EARNING OF ASSESSEE. THEREFORE, ANY INCOME ARISING FROM SUCH ANCILLARY ACTIVITIES WO ULD NOT FORM A PART OF BUSINESS INCOME BUT WOULD BE ASSESSED UNDER T HE HEAD OF INCOME FROM OTHER SOURCES. 5. SHRI ABHAY SHASTRI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR 2010-11, THE ASSESSEE HAD EARNED INCOME FROM FISHERIES CONTRACT AMOUNTING TO RS.2,64,222/-. T HE LD. AR IN SUPPORT OF HIS SUBMISSION REFERRED TO SCHEDULE- XIII OF T HE PROFIT & LOSS ACCOUNT DATED 31.03.2010. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A STATE GOVERNMENT CORPORATION WITH THE OBJECTS OF PROMOTION, EXECUTION AND FINANCE SCHEME FOR WATER CONSERVATION, IRRIGATION, SOIL CONSERVATION, WATERSHED MANAGEMENT AND SOCIAL FORESTRY ETC. APART FROM VARIOUS OTHER OBJECTS, THE ASSESSEE HAS ALSO PROMOTED IRRIGATION RELATED ACTIVITIES SUCH AS FISHERIES, PISCIC ULTURE, FLORICULTURE, 4 ITA NOS.883 & 1568/PUN/2015 A.YS.2010-11 & 2011-12 HORTICULTURE, SERICULTURE ETC. THUS, INCOME EARNED BY ASSES SEE FROM FISHERIES IS BUSINESS INCOME OF THE ASSESSEE. IN BOTH THE IMPUGNED ASSESSMENT YEARS, THE ASSESSING OFFICER TREATED INCOME FROM FISHERIES AS INCOME FRO M OTHER SOURCES. IN THE EARLIER ASSESSMENT YEARS, THE ASSESSEE HAS BEEN CONSISTENTLY SHOWING INCOME FROM FISHERIES UNDER THE HEAD BUSINESS INCOME. NO OBJECTION, WHATSOEVER, WAS RAISED BY THE ASSESSING OFFICER. A CHANGE OF HEAD OF INCOME IN RESPECT OF INCOME FROM FISHERIES FROM BUSINESS INCOME TO INCOME FROM OTHER SOURCES HAS BEEN MADE FOR THE FIRST TIME IN ASSESSMENT YEAR 201 0-11. 5.1 THE LD. AR FURTHER SUBMITTED THAT COMMISSIONER OF INCOM E TAX (APPEALS) HAS RIGHTLY ALLOWED THE ASSESSEES CLAIM OF DEPRECIATION ON RESERVOIR. THE ASSESSING OFFICER HAS ERRED IN COMING TO THE CONCLUSION THA T NEW WATER RESERVOIR HAS NOT BEEN PUT TO USE, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEPRECIATION ON SAME. THE ASSESSEE HAS SHOWN INCOME FROM FISHERIES FROM THE SAID RESERVOIR. THE ASSESSEE ALLOCATED CONTRACT THROUGH TENDERS FOR CARRYING OUT FISHING ACTIVITIES IN THE RESERVOIR. INCOME FROM ALLOTTING LICENSE FOR FISHING IS ONE OF THE SOURCES OF INCOME OF ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT RESERVOIR WAS NOT PUT TO USE AND NO INCOME WAS EARNED FROM USE OF RESERVOIR DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. THE LD . AR ASSERTED THAT QUANTUM OF INCOME EARNED DOES NOT DECIDE WHETHER THE A SSET HAS BEEN PUT TO USE OR NOT. THE LD. AR POINTED THAT IN ASSESSMENT YEAR 2 009-10, THE ASSESSEE HAD CLAIMED DEPRECIATION AND THE SAME WAS ALLOWED. TO SUPP ORT HIS CONTENTIONS THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON RESER VOIR, THE LD.AR HAS PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH O F TRIBUNAL IN THE CASE OF TAPI IRRIGATION DEVELOPMENT CORPORATION VS. ITO IN ITA N O.2367 TO 2369/PN/2012 FOR ASSESSMENT YEARS 2006-07, 2008-09 AN D 2009-10 DECIDED ON 29.11.2013 AND THE DECISION OF HON'BLE DELHI HIGH COURT IN T HE CASE OF CAPITAL BUS SERVICE (P.) LTD. VS. COMMISSIONER OF INCOME-TAX REPORTED AS 123 I TR 404. 5 ITA NOS.883 & 1568/PUN/2015 A.YS.2010-11 & 2011-12 6. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIV ES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALS O CONSIDERED THE DECISIONS AND DOCUMENTS ON WHICH THE LD. AR OF ASSESSEE H AS PLACED RELIANCE TO SUPPORT HIS SUBMISSION. TWO ISSUES HAVE BEEN RAISED BY T HE REVENUE IN ITS APPEALS. THE FIRST ISSUE IS WITH RESPECT TO HEAD OF INCOME U NDER WHICH INCOME FROM FISHERIES IS TO BE ASSESSED I.E. WHETHER IT IS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. THE SECOND ISSUE RAISED BY THE RE VENUE IS WHETHER THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON RESERVOIR WHEN NO INCOME HAS BEEN DECLARED FROM NEW ASSET ACQUIRED BY ASSESSEE. IN SO FAR AS THE FIRST ISSUE RELATING TO INCOME FROM FISHERIES IS CONCERNED, WE FIND THAT IT WOULD BE RELEVANT TO REFER THE OBJECTS OF ASSESSEE. CHAPTER-IV OF THE MAHARASHTRA WATER CONSERVATION CORPORATION ACT, 2 000 DEALS WITH FUNCTIONS AND POWERS OF CORPORATION. IN SECTION 18 OF THE SAID ACT, FUNCTIONS OF THE CORPORATION ARE ENUMERATED. IN CLAUSE-(M) OF SECTION 18, FISH ERIES HAS BEEN MENTIONED AS ONE OF THE ACTIVITIES PROMOTED BY THE ASSES SEE. THE RELEVANT EXTRACT OF SECTION 18 IS REPRODUCED HEREIN BELOW FOR READY REFERENCE: 18. THE FUNCTIONS OF THE CORPORATION SHALL BE AS FO LLOWS, NAMELY:- (A). (B). . . (M) TO PROMOTE IRRIGATION RELATED ACTIVITIES SUCH A S FISHERIES, PISCICULTURE, FLORICULTURE, HORTICULTURE, SERICULTURE, ETC. A PERUSAL OF THE SECTION 18 REVEALS THAT THE FUNCTIONS O R OBJECTS MENTIONED ARE NOT DIVIDED INTO MAIN FUNCTIONS/OBJECTS OR ANCILLARY FUNC TIONS/OBJECTS. THUS, ANY INCOME EARNED BY THE ASSESSEE FROM ANY OF THE ACTIVITIES/FUNCTIONS CARRIED OUT AS LISTED IN SECTION 18 WOULD FALL WITHIN THE AMBIT OF ACTIVITIES CARRIED OUT BY THE ASSESSEE AND INCOME EARNED FROM SUCH ACTIVIT IES WOULD BE BUSINESS INCOME OF THE ASSESSEE. THEREFORE, IN OUR CONSIDERED VIEW , THE INCOME EARNED BY 6 ITA NOS.883 & 1568/PUN/2015 A.YS.2010-11 & 2011-12 ASSESSEE FROM FISHERIES, HOWSOEVER, SMALL IT MAY BE, IS BUSIN ESS INCOME OF THE ASSESSEE. ACCORDINGLY, GROUND NO. 1 RAISED IN APPEALS BY REVENUE FOR BOTH THE ASSESSMENT YEARS IS DISMISSED . 7. THE SECOND ISSUE RAISED IN THE APPEAL BY THE REVENU E IS WITH RESPECT TO CLAIM OF DEPRECIATION. THE ASSESSING OFFICER REJECTED THE ASS ESSEES CLAIM OF DEPRECIATION FOR THE FOLLOWING REASONS: (I) THE ASSESSEE HAS NOT EARNED INCOME FROM ITS MAIN BUSINE SS OF IRRIGATION AND WATER SUPPLY. (II) THE INCOME EARNED FROM FISHING CONTRACT IS NOT THE MAIN B USINESS OF THE ASSESSEE. (III) FOR THE PURPOSE OF CLAIMING DEPRECIATION THE ASSETS MUS T HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. SINCE NO INCOME HAS BEE N EARNED FROM THE ASSETS, THEREFORE, IT CANNOT BE SAID THE ASSET IS PUT TO USE. HENCE, DEPRECIATION ON THE SAID ASSET CAN BE ALLOWED TO THE ASSESSEE. WE FIND THAT OBJECTIONS RAISED BY THE ASSESSING OFFICER TO DISALLOW ASSESSEES CLAIM OF DEPRECIATION ARE NOT SUSTAINABLE. THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF ASSESSEE BY FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF TAPI IRRIGATIO N DEVELOPMENT CORPORATION VS. ITO (SUPRA). IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS EAR NED INCOME FROM ALLOCATING CONTRACT FOR FISHING AT NEWLY CREATED RESERVOIR. WHILE ADJUDICATING GROUND NO.1 OF THE APPEAL, WE HAVE HELD INCOME EARNED BY ASSESSEE FROM FISHERIES AS BUSINESS INCOME OF THE ASSESSEE. THUS, THE ASSET HAD COME INTO EXISTENCE AND ASSESSEE HAS EARNED SOME INCOME FROM THE SAID ASSET. IT IS NOT DISPUTED BY THE REVENUE THAT INCOME FROM FISHERIES IS NOT FROM RESERVOIR ON 7 ITA NOS.883 & 1568/PUN/2015 A.YS.2010-11 & 2011-12 WHICH DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE. THE QUANTUM OF THE INCOME EARNED FROM ASSET WOULD NOT DETERMINE WHETHER TH E ASSET HAS BEEN PUT TO USE OR NOT. ONCE THE ASSET HAS COME INTO EXISTENCE AND IS PUT TO USE, THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON SAME. WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IS UPHELD AND G ROUND NO. 2 RAISED IN APPEALS BY REVENUE FOR BOTH THE ASSESSMENT YEARS AR E DISMISSED. 8. TO SUM UP, APPEALS OF THE REVENUE FOR ASSESSMENT YEA RS 2010-11 AND 2011-12 ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 23 RD DAY OF MARCH, 2018. SD/- SD/- ( . / D. KARUNAKARA RAO ) ( ! ' /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; !' / DATED : 23 RD MARCH, 2018. SB ) * +#,-! .!(, / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-1, AURANGABAD. 4. THE PR. CIT-1, AURANGABAD. 5. %&' () , * () , + +,- , / DR, ITAT, B BENCH, PUNE. 6. './ 01 / GUARD FILE. // % // TRUE COPY // *2 / BY ORDER, 3 (- / PRIVATE SECRETARY * () , / ITAT, PUNE.