Kolkata Port Trust, Kolkata V. A.D.I.T ( Exemption) -II,kolkata, Kolkata

ITA 199/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99997 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-01-2013
• Court: TRIBUNAL
• Department Lawyers: S S ALAM
• Assessee Lawyers: N K AGARWAL
• Keywords: Business expenditure; Charitable institution
• Section: 37(1); 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI WASEEM AHMED , AM] I.T.A NO.199/KOL/2013 ASSESSMENT YEAR: 2007-08 KOLKATA PORT TURST. VS. ASSISTANT DIRECTOR OF INCOME-TAX (PAN: AAAJK0361L) (EXEMPTION-II), KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 29.10.2015 DATE OF PRONOUNCEMENT: 05.11.2015 FOR THE APPELLANT: SHRI N. K. AGARWAL, SR. ADVOC ATE & SHRI AMIT AGARWAL, ADVOCATE FOR THE RESPONDENT: SHRI S. S. ALAM, JCIT, SR. DR ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A), JALPAIGURI IN APPEAL NO.360/CIT(A)-XIV/09-10 DATED 20.11.2012. ASSESSME NT WAS FRAMED BY ADIT(E)-II, KOLKATA U/S. 143(3)/11 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007-08 VIDE HIS ORDER DATED 18 .12.2009. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) IS, WHETHER THE AMOUNT BORROWED BY ASSESSEE IN THE AY 2004-05 A ND USED FOR REPAYMENT OF WAYS AND MEANS DURING THE RELEVANT AY 2007-08 BE TREATED AS AN APPLICATION OF INCOME U/S. 11 OF THE ACT OR NOT? FOR THIS, ASSESSEE HAS RAISED FOLLO WING FIVE EFFECTIVE GROUNDS: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) ERRED IN HOLDING THAT REPAYMENT OF 'WAYS AND MEANS' LOAN, (BORROWED BY TH E APPELLANT INSTITUTION IN THE FINANCIAL YEAR ENDING 31ST MARCH, 2004 CORRESPONDIN G TO THE ASSESSMENT YEAR 2004-05, AND WHOLLY AND EXCLUSIVELY USED FOR ITS OBJECTS AND PURPOSES IN THAT YEAR ITSELF), IN THE FINANCIAL YEAR ENDING 31ST MARCH, 2007 TO THE TUNE OF RS.7.33 CRORES, COULD NOT BE LAWFULLY TREATED AS AN 'APPLICATION OF INCOME' IN T HE COMPUTATION OF TOTAL INCOME OF THE APPELLANT INSTITUTION UNDER SECTION 11 OF THE INCOM E TAX ACT, 1961 IN THE ASSESSMENT YEAR 2007-08, NOW UNDER APPEAL. 2. THAT THE LEARNED CIT(A) ERRED IN ALLEGING AND/OR HOLDING THAT THE APPELLANT INSTITUTION WAS NOT IN EXISTENCE PRIOR TO 1ST APRIL, 2005, WHEN THE SAID LOAN HAD BEEN BORROWED BY IT FOR ITS OBJECTS AND PURPOSES. 3. THAT THE LEARNED CIT(A) ERRED IN ALLEGING AND/OR HOLDING THAT THE PAYMENT OF SALARY TO THE EMPLOYEES WAS NOT AN EXPENDITURE INCURRED FOR C HARITABLE PURPOSES. 4. THAT THE LEARNED CIT(A) ERRED IN ALLEGING AND/OR HOLDING THAT THE APPELLANT INSTITUTION FAILED TO SUBSTANTIATE THAT IT SATISFIED THE CONDIT IONS LAID DOWN IN THE CIRCULAR NO.100 DATED 24TH JANUARY, 1973 ISSUED BY THE CENTRAL BOAR D OF DIRECT TAXES. 2 ITA NO.199/K/2013 KOLKATA PORT TRUST AY 2007-08 5. THAT WITHOUT PREJUDICE TO THE ABOVE THE LEARNED CIT(A) HAD NO JURISDICTION WHATSOEVER TO GIVE ANY DIRECTION IN RESPECT OF THE ASSESSMENT YEAR 2006-07, WHICH YEAR WAS NOT IN APPEAL BEFORE HIM. 3. BRIEFLY STATED FACTS ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM THE COMPUTATION OF INCOME THAT THE ASS ESSEE INSTITUTION HAS CLAIMED REPAYMENT OF WAYS AND MEANS LOANS TO THE EXTENT O F RS.7,33,33,333/- AND ALSO CLAIMED THE SAME AS AN APPLICATION FOR CHARITABLE PURPOSES. THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THIS SHOULD NOT BE TREATED AS INC OME OF THE ASSESSEE AND NOT AN APPLICATION OF INCOME U/S. 11 OF THE ACT. THE ASSE SSEE TRUST FILED DETAILS OF WAYS AND MEANS LOANS, WHICH REVEALED THAT A LOAN OF RS. 66 CR. WAS RAISED DURING FY 2003-04 RELEVANT TO AY 2004-05 FOR THE PURPOSE OF PAYMENT O F PAY ARREARS AND COMPENSATION CONSEQUENT TO PAY REVISION ORDER IN RESPECT TO 6 TH PAY COMMISSION. ASSESSEE CLAIMED THAT REPAYMENT OF LOAN IS VERY MUCH AN APPLICATION OF IN COME TOWARDS THE OBJECTIVE OF THE INSTITUTION AND THEY RELIED ON CBDT CIRCULAR NO.100 DATED 24.01.1973. THE AO WAS OF THE VIEW THAT THE ASSESSEE INSTITUTION HAS ALREADY CLAIMED THE EXPENDITURE INCURRED ON PAYMENT OF ARREARS OF PAY AND PENSION AS EXPENDITUR E IN THE YEAR OF PAYMENT AND, THEREFORE, THE CLAIM MADE IN THE YEAR OF REPAYMENT OF LOAN IS IN FACT, THE DOUBLE DEDUCTION OF EXPENDITURE, WHICH WAS INCURRED AND ALREADY ALLO WED. THEREFORE, THE AO DISALLOWED THE SUM OF RS.7,33,33,333/- AS AN APPLICATION OF INCOME IN THE YEAR UNDER CONSIDERATION. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DISMISSED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E LD. ARS AND ALSO PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE CLA RIFICATION ISSUED BY THE CBDT IN CIRCULAR NO. 100 DATED 24.01.1973. THE BOARD HAS C LARIFIED THAT THE REPAYMENT OF THE LOAN ORIGINALLY TAKEN TO FULFILL ONE OF THE OBJECTS OF T HE TRUST WILL AMOUNT TO AN APPLICATION OF THE INCOME FOR CHARITABLE AND RELIGIOUS PURPOSE.. THE LD. ARS HEAVILY RELIED ON THE AFORESAID CIRCUL AR OF THE CBDT. THEREFORE, IT IS NECESSARY TO HAVE A CLOSE LOOK TO THE CONTENTS OF T HE CIRCULAR. I) THE CIRCULAR MADE IT CLEAR THAT IF THE LOAN ORIG INALLY TAKEN TO FULFILL ONE OF THE OBJECTS OF THE TRUST, THE REPAYMENT WILL BE CONSIDERED AS APPL ICATION OF INCOME FOR CHARITABLE PURPOSE. THEREFORE, THE ORIGINAL PURPOSE FOR TAKING THE LOAN IS MATERIAL TO DECIDE THE NATURE OF REPAYMENT. BUT IN THIS CASE, WHEN THE LOAN WAS TAKE N, THERE WAS NO TRUST AT ALL. THE STATUS OF THE ASSESSEE WAS DIFFERENT WHEN THE L OAN WAS TAKEN. I) THE ASSESSEE BECAME A TRUST W.E.F. 01.04.2005. W HEN THERE WAS NO EXISTENCE OF THE TRUST, THE QUESTION OF UTILIZE THE LOAN FOR CHARITABLE PUR POSE DOES NOT ARISE. III) THE LD ARS SUBMITTED THAT THE LOAN WAS TAKEN T O MAKE PAYMENT TO THE EMPLOYEES SUBSEQUENT TO THE PAY REVISION ORDER. THE PAYMENT O F SALARY TO THE EMPLOYEES IS NOT AN 3 ITA NO.199/K/2013 KOLKATA PORT TRUST AY 2007-08 EXPENDITURE INCURRED FOR CHARITABLE PURPOSE. THE LD ARS FAILED TO SUBSTANTIATE THAT THE CONDITIONS LAID DOWN IN THE CBDT'S CIRCULAR HAVE BE EN FULFILLED. THE DECISIONS CITED BY THE LD ARS ARE DIFFERENT TO THE FACTS OF THE CASE. AT THE SAME TIME, THE AO HAS ALLOWED THE CLAIM IN THE ASSESSMENT YEAR 200 6-07 CANNOT BE THE SOLE BASIS OF ALLOWABILITY OF THE CLAIM DURING THE YEAR UNDER CON SIDERATION. THE AO IS DIRECTED TO TAKE SUITABLE REMEDIAL ACTION IN RESPECT OF ASSESSMENT Y EAR 2006-07. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT IN THIS CASE, THE REPAYMENT OF LOAN IS NOT APPLICATION OF INCOME AS ENVISAGED U/S.11 OF THE AC T AND THE AO HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE AND HIS ACTION IS CONFIRMED. IN THE RESULT, THE APPEAL IS DISMISSED. AGGRIEVED, NOW ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SHRI N. K. PODDAR DREW OUR ATTENTION TO THE ASSESSMENT ORDER PAGE 2 WHEREIN AO HIMSELF HAS ADMI TTED THAT THE ASSESSEE TRUST IS A REGISTERED TRUST U/S. 12AA OF THE ACT FOR THE YEAR UNDER CONSIDERATION AND CARRYING ON ACTIVITIES OF GENERAL PUBLIC UTILITY. LD. COUNSEL F OR THE ASSESSEE ALSO STATED THAT THIS IS NOT A REGISTERED TRUST BUT LEGAL ENTITY CREATED BY ORDER OF LEGISLATURE. PRIOR TO AY 2003-04, THE ASSESSEE WAS NOT A TAXABLE ENTITY BY VIRTUE OF EXEM PTION GRANTED U/S. 10(20) OF THE ACT AND W.E.F. AY 2003-04 EXEMPTION U/S. 10(20) OF THE ACT WAS WITHDRAWN AND ASSESSEE BECAME A TAXABLE ENTITY. THE LD. COUNSEL FOR ASSESSEE ARGU ED THAT THE ASSESSEE WAS A CHARITABLE ENTITY EVEN FROM AY 2003-04 TO 2005-06 BEFORE GRANT OF REGISTRATION U/S. 12AA OF THE ACT AS A CHARITABLE INSTITUTION FOR AY 2006-07 AND THER EAFTER BY VIRTUE OF THE STATUS OF THE ASSESSEE CREATED BY LEGISLATURE AS AN INSTITUTION C ARRYING ON ACTIVITIES OF GENERAL PUBLIC UTILITY. FOR THIS, LD. COUNSEL FOR THE ASSESSEE RE LIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASED OF CIT VS. GUJARAT MARITIME BOAR D (2007) 295 ITR 561 (SC), WHEREIN HONBLE SUPREME COURT HAS INTERPRETED THE EXPRESSIO N ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IN SECTION 2(15) OF THE ACT, IS OF THE WID EST CONNOTATION. THAT EXPRESSION WOULD PRIMA FACIE INCLUDE ALL OBJECTS WHICH PROMOTE THE W ELFARE OF THE GENERAL PUBLIC. IT CANNOT BE SAID THAT A PURPOSE WOULD CEASE TO BE CHARITABLE EVEN IF PUBLIC WELFARE IS INTENDED TO BE SERVED. IF THE PRIMARY PURPOSE AND THE PREDOMINANT OBJECT ARE TO PROMOTE THE WELFARE OF THE GENERAL PUBLIC THE PURPOSE WOULD BE A CHARITABL E PURPOSE. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE KOLKATA PORT TRUST IS CREATED FOR T HAT PURPOSE ONLY I.E. TO CARRY OUT THE ACTIVITIES OF GENERAL PUBLIC UTILITY AND HENCE, THE PURPOSE OF THIS TRUST IS CHARITABLE IN NATURE. LD. COUNSEL FOR THE ASSESSEE NARRATED THE FACTS THAT THE ASSESSEE HAD TAKEN WAYS AND MEANS LOAN OF RS.66 CR. FROM BANK OF INDIA ON 25.07,2003 FOR THE PURPOSE OF 4 ITA NO.199/K/2013 KOLKATA PORT TRUST AY 2007-08 PAYMENT OF AREA PENSION AND AREA SALARY AND SUCH AR REAR PENSION AND SALARY WAS ALLOWED AS DEDUCTION AS BUSINESS EXPENDITURE U/S. 37(1) OF THE ACT IN THE COMPUTATION OF INCOME OF THE ASSESSEE FOR AY 2004-05. THE ASSESSEE CLAIMED THAT DURING THE RELEVANT AY 2007-08 IT HAS REPAID RS.7.33 CR. OUT OF THE ABOVE STATED L OAN AND THIS PAYMENT WAS THE LAST INSTALLMENT AND THE LOAN AMOUNT WAS SQUARED UP. LD . COUNSEL FOR THE ASSESSMENT DREW OUR ATTENTION TO ASSESSEES PAPER BOOK VOLUME-II WHEREI N COPIES OF ASSESSMENT ORDER PASSED U/S. 143(3)/11 OF THE ACT IS ENCLOSED WHEREBY IN AY 2006-07 THE REPAYMENT OF WAYS AND MEANS LOANS OF RS.22 CR. WAS ALLOWED TO HAVE BEEN MADE AS AN APPLICATION OF INCOME AND IN EARLIER YEAR ALSO THE SAME WAS ALLOWED AS DEDUCT ION. LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF DIT(E) VS. GOVINDU NAICKER ESTATE (2009) 315 ITR 237 (MAD) WHEREIN IT HAS HELD THAT REPAYMENT OF LOAN TAKEN BY THE CHARITABLE INSTITUTION FOR CONSTRUCTION OF COMMERCI AL COMPLEX SO AS TO AUGMENT THE RESOURCES OF THE TRUST WOULD AMOUNT TO APPLICATION OF INCOME. LD. COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTENTION TO BOARD CIRCULAR NO. 100 DATED 24.01.1973 WHICH IS ENCLOSED IN ASSESSEES PAPER BOOK VOLUME-I AT PAGE 97 AND THE RELEVANT PARA 2 WAS READ OUT BY HIM, WHICH READS AS UNDER: 2. THE BOARD HAS DECIDED THAT REPAYMENT OF THE LOA N ORIGINALLY TAKEN TO FULFILL ONE OF THE OBJECTS OF THE TRUST WILL AMOUNT TO AN APPLICATION OF THE INCOME FOR CHARITABLE AND RELIGIOUS PURPOSES. AS REGARDS THE LOANS ADVANCED FOR HIGHER STUDIES, IF THE ONLY OBJECT OF THE TRUST IS TO GIVE INTEREST-BEARING LOANS FOR HIGHER STUDIES, IT WILL AMOUNT TO CARRYING ON OF MONEY- LENDING BUSINESS. IF, HOWEVER, THE OBJECT OF THE TR UST IS ADVANCEMENT OF EDUCATION AND GRANTING OF SCHOLARSHIP LOANS AS ONLY ONE OF THE AC TIVITIES CARRIED ON FOR THE FULFILLMENT OF THE OBJECTIVES OF THE TRUST, GRANTING OF LOANS, EVE N IF INTEREST-BEARING, WILL AMOUNT TO THE APPLICATION OF INCOME FOR CHARITABLE PURPOSES. AS A ND WHEN THE LOAN IS RETURNED TO THE TRUST, IT WILL BE TREATED AS INCOME OF THAT YEAR. LD. COUNSEL FOR THE ASSESSEE EXPLAINED THAT THE REP AYMENT OF LOAN ORIGINALLY TAKEN TO FULFILL ONE OF THE OBJECTS OF THE TRUST WILL AMOUNT TO AN A PPLICATION OF INCOME FOR CHARITABLE AND RELIGIOUS PURPOSES. ACCORDING TO HIM, THE CIRCULAR FULLY SUPPORTS THE CASE OF THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. SR. DR HEAVILY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE FIND THAT THAT THE ASSESSEE IS A REGISTERED T RUST U/S. 12AA OF THE ACT FOR THE YEAR UNDER CONSIDERATION AND CARRYING ON ACTIVITIES OF G ENERAL PUBLIC UTILITY AND HE ALSO CLARIFIED THAT THIS IS NOT A REGISTERED TRUST BUT LEGAL ENTIT Y CREATED BY ORDER OF LEGISLATURE. WE FIND FROM THE FACTS THAT THE ASSESSEE HAD TAKEN WAYS AN D MEANS LOAN OF RS.66 CR. FROM BANK OF INDIA ON 25.07.2003 FOR THE PURPOSE OF PAYMENT O F AREA PENSION AND AREA SALARY AND 5 ITA NO.199/K/2013 KOLKATA PORT TRUST AY 2007-08 SUCH ARREAR PENSION AND SALARY, PERTAIN TO SIXTH PA Y COMMISSION ARREARS, WAS ALLOWED AS DEDUCTION AS BUSINESS EXPENDITURE U/S. 37(1) OF THE ACT IN THE COMPUTATION OF INCOME OF THE ASSESSEE FOR AY 2004-05. THE ASSESSEE CLAIMED THAT DURING THE RELEVANT AY 2007-08 IT HAS REPAID RS.7.33 CR. OUT OF THE ABOVE STATED L OAN AND THIS PAYMENT WAS THE LAST INSTALLMENT AND THE LOAN AMOUNT WAS SQUARED UP. SIM ILAR REPAYMENT IN AY 2006-07 OF WAYS AND MEANS LOANS OF RS.22 CR. WAS ALLOWED TO HAVE BEEN MADE AS AN APPLICATION OF INCOME BY THE AO. EVEN THE BOARD CIRCULAR NO.100 DA TED 24.01.1973 STATES THAT THE REPAYMENT OF LOAN ORIGINALLY TAKEN TO FULFILL ONE O F THE OBJECTIVE S OF THE TRUST WILL AMOUNT TO AN APPLICATION OF THE INCOME FOR CHARITABLE PURP OSES. IN THE PRESENT CASE THE ASSESSEE IS JURIDICAL ENTITY CREATED BY ACT OF PARLIAMENT FOR T HE OBJECT OF GENERAL PUBLIC UTILITY AND WAS VERY MUCH IN EXISTENCE PRIOR TO 1 ST APRIL 2005. ONCE THE OBJECT IS OF GENERAL PUBLIC U TILITY, WHICH IS CHARITABLE IN NATURE, THE ASSESSEES CASE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V GUJARAT MARITIME BOARD, SUPRA. ACCORDINGLY, WE ALLOW THE CLAIM OF ASSESSEE IN RESPECT TO REPAYMENT OF WAYS AND MEANS LOAN, BORROWED DURING ASSESSMENT YEAR 2004-05 AND WHOLLY AND EXCLU SIVELY USED FOR ITS OBJECTS, AS AN APPLICATION OF INCOME IN THE COMPUTATION OF TOTAL I NCOME OF ASSESSEE U/S. 11 OF THE ACT. 7. ANOTHER ALTERNATIVE ARGUMENT OF LD. COUNSEL FOR THE ASSESSEE THAT THE CIT HAS NO JURISDICTION, WHATSOEVER, TO GIVE ANY DIRECTION IN RESPECT OF AY 2006-07, WHICH YEAR IS NOT IN APPEAL BEFORE HIM. WE ARE IN AGREEMENT WITH THE ARGUMENT OF LD. COUNSEL AND CONSEQUENTLY GROUND NO. 5 IS ALLOWED AND DIRECTIONS OF THE CIT(A) ARE REVERSED AND EVEN OTHERWISE ON MERITS ALSO THE ABOVE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE, THESE DIRECTIONS OF CIT(A) ARE OF NO CONSEQUENCE. ACCORD INGLY, THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 9. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05.11.2 015 SD/- SD/- (WASEEM AHMED) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 5 TH NOVEMBER, 2015 JD. SR. P.S 6 ITA NO.199/K/2013 KOLKATA PORT TRUST AY 2007-08 COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT KOLKATA PORT TRUST, 15, STRAND ROAD, KO LKATA-700 001. 2 RESPONDENT ADIT(E-II), KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .