ITO, SURATGARH V. Krishi Upaj Mandi Samiti, SRIBIJAYNAGAR

ITA 249/JODH/2010

• Counselvise Citation: 24923314 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Business income; Depreciation; Charitable institution
• Section: 12A; 6; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR (BEFORE SHRI R.K. GUPTA AND SHRI .N.L. KALRA ) ITA NO.249/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0474 F THE ITO VS. KRISHI UPAJ MANDI SAMITI SURATGARH SRI BIJAYNAGAR (APPELLANT) (RESPONDENT) ITA NO.245/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0476 H THE ITO VS. KRISHI UPAJ MANDI SAMITI SURATGARH ANUPGARH (APPELLANT) (RESPONDENT) ITA NO.246/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0473 C THE ITO VS. KRISHI UPAJ MANDI SAMITI SURATGARH RAWLA (APPELLANT) (RESPONDENT) ITA NO.247/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0466 B THE ITO VS. KRISHI UPAJ MANDI SAMITI SURATGARH GHARSANA (APPELLANT) (RESPONDENT) ITA NO.248/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0475 E THE ITO VS. KRISHI UPAJ MANDI SAMITI SURATGARH JETSAR (APPELLANT) (RESPONDENT) 2 ITA NO.250/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0467 AE THE ITO VS. KRISHI UPAJ MANDI SAMITI SURATGARH SURATGARH (APPELLANT) (RESPONDENT ITA NO.99/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0296 R THE ITO VS. KRISHI UPAJ MANDI SAMITI WARD- 2, SRIGANGANAGAR PADAMPUR (APPELLANT) (RESPONDENT) ITA NO.101/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0293 L THE ITO VS. KRISHI UPAJ MANDI SAMITI WARD- 2, SRI GANGANAGAR GAJSINGPUR (APPELLANT) (RESPONDENT) ITA NO.102/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0300 Q THE ITO VS. KRISHI UPAJ MANDI SAMITI WARD- 2, SRI GANGANAGAR SRI GANGANAGAR (APPELLANT) (RESPONDENT) ITA NO.103/JU/2010 ASSESSMENT YEAR : 2007-08 PAN: AABTK 0298 B THE ITO VS. KRISHI UPAJ MANDI SAMITI WARD- 2, SRI GANGANAGAR RAISINGHNAGAR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI SUBHASH CHANDRA ASSESSEE BY : SHRI RAKESH GUPTA DATE OF HEARING: 12-12-2011 DATE OF PRONOUNCEMENT: 16-12-2011 3 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD.CIT (A), BIKANER DATED 12-02-2010 FOR THE ASSESSMENT YEAR 2007-08. F IRST OF ALL, WE TAKE UP THE GROUNDS OF APPEAL PERTAINING TO ITA NO. 249/JU/2010 IN THE CAS E OF ITO, SURATGARH VS KRISHI UPAJ MANDI SAMITI, SRI BIJAYNAGAR 2.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 58.00 LACS MADE U/S 40(A)(IA) OF HE ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 2.2 THE LD.CIT(A) HAS DECIDED THE ISSUE AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE S UBMISSIONS MADE. FROM THE PERUSAL OF DETAILS ON RECORD, IT IS SEEN THAT THE THE HON'BLE ANDDRA PRADESH HIGH COURT IN THE CASE OF IS A CHAR ITABLE TRUST REGISTERED U/S 12A OF THE IT ACT VIDE CIT, BIKANERS ORDER DAT ED 17-12-2007. FROM THE PLAIN READING OF THE PROVISIONS OF SECTION 40( A)(IA), IT IS SEEN THAT IT WOULD BE APPLICABLE ONLY WHEN THE INCOME IS CHARGEA BLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESSION. I N THE INSTANT CASE, THE INCOME OF THE INCOME OF THE APPELLANT TRUST IS NOT CHARGEABLE TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSIO N. SECONDLY, THE PROVISIONS OF SECTION 40(A)(IA) WOULD BE ATTRACTED ONLY IF THERE EXISTED A CONTRACTUAL RELATIONSHIP BETWEEN THE APPELLANT AND RSAMB. IT IS ONLY THE RSAMB WHICH IS THE EXECUTING AGENCY FOR CONSTRUCTI ON/ REPAIR WORK AND NOT THE APPELLANT. THE APPELLANT IS ONLY PROVIDING FUNDS TO THE RSAMB AND NOT EXECUTING CONSTRUCTION/ REPAIR WORK ITSELF. THIRDLY, THE ISSUE IS COVERED BY THE DECISION OF HON'BLE ITAT, JODHPUR ST ATED ABOVE. THE ONLY DIFFERENCE BEING THAT IN THAT CASE THE ISSUE OF THE ASSESSEE HAVING BEEN REGISTERED U/S 12A WAS NOT ESTABLISHED AND THE MATT ER WAS SET ASIDE FOR 4 FRESH CONSIDERATION. IN THE INSTANT CASE THAT IS NO T THE POSITION BECAUSE THE APPELLANT TRUST IS ALREADY REGISTERED U/S 12A. IN V IEW OF THE FOREGOING, IT IS HELD THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) A RE NOT APPLICABLE IN THE APPELLANTS CASE AND CONSEQUENTLY THE ADDITION MADE THEREUNDER DESERVES TO BE DELETED. 2.3 WE HAVE HEARD BOTH THE PARTIES. THE HON'BLE JUR ISDCTIONAL HIGH COURT IN THE CASE OF CIT VS KRISHI UPAJ MANDI SAMITI, GAJSINGHPUR & O RS, 227 CTR 79 HAD AN OCCASION TO CONSIDER AS TO WHETHER THE CONTRIBUTIONS PAID BY TH E SAMITI TO THE AGRICULTURAL MARKETING BOARD IS AN APPLICATION OF INCOME. KRISHI UPAJ MAND I SAMITI IS ESTABLISHED BY THE GOVT. OF RAJASTHAN UNDER THE PROVISIONS OF SECTION 6 OF R AJASTHAN AGRICULTURAL PRODUCE MARKET ACT, 1961(HEREINAFTER REFERRED TO ACT OF 1961). TH E AGRICULTURAL MARKETING PRODUCE BOARD WAS ESTABLISHED BY THE STATE GOVT. U/S 22A O F THE ACT OF 1961 TO CARRY OUT THE PURPOSE SPECIFIED IN SECTION 22J OF THE ACT OF 1961 . SECTION 22H PROVIDES FOR CREATION OF THE MARKETING DEVELOPMENT FUND TO BE ADMINISTERED B Y THE BOARD. SECTION 22J SPECIFIES THE PURPOSE FOR WHICH MARKETING DEVELOPMENT FUND SH ALL BE UTILIZED BY THE BOARD WHICH INTER ALIA INCLUDES CONSTRUCTION OF THE MARKET, ROA DS AND APPROACH ROADS TO THE MARKETS, CONSTRUCTION OF MARKET YARDS AND THE SUB-YARDS AND LEASING OR TRANSFERRING THESE TO THE MARKET COMMITTEE. AFTER CONSIDERING THE PROVISIONS OF RAJASTHAN AGRICULTURAL PRODUCE MARKET ACT, 1961, THE HON'BLE JURISDCTIONAL HIGH CO URT OBSERVED THAT BOTH THE STATUTORY BODIES I.E. MARKET COMMITTEE AND THE BOARD CONTROLL ING AND MANAGING THE MARKET COMMITTEE FUND ARE UNDER AN OBLIGATION TO UTILIZE T HE SAME FOR CARRYING OUT THE PURPOSES OF THE ACT IN ACCORDANCE WITH THE GUIDELINES PRESCR IBED. THE FUNDS SO PROVIDED BY THE KUMS TO AGRICULTURAL PRODUCE MARKETING BOARD ARE N OT REFUNDABLE BUT ARE TO BE UTILIZED FOR THE SPECIFIC PURPOSES. IT WAS THEREFORE, HELD B Y JURISDICTIONAL HIGH COURT THAT THE 5 CONTRIBUTION MADE BY KUMS TO THE AGRICULTURAL PRODU CE MARKETING BOARD IS AN APPLICATION OF INCOME. THE CONTRACTS IF ANY ARE MAD E BY THE AGRICULTURAL PRODUCE MARKETING BOARD WITH THE PARTIES, THEREFORE, THERE IS NO CASE OF ANY DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE, MOREOVER, IN THE CASE OF TH E TRUST OR SOCIETY REGISTERED U/S 12A OF THE ACT, THE PROFIT IS TO BE COMPUTED ON THE BASIS OF THE COMMERCIAL PRINCIPLES. THE INCOME IS NOT BE COMPUTED UNDER DIFFERENT HEADS. HE NCE THE PROVISIONS OF SECTION 40A(IA) ARE NOT APPLICABLE. IT WILL BE USEFUL TO REPRODUCE RELEVANT PARAS FROM THE ORDER OF JAIPUR BENCH IN THE CASE OF ITO VS KUMS, BARAN (ITA NO. 56 0 &561/JP/2010 DATED 06-01- 2011. 6. THE HONBLE GUJRAT HIGH COURT IN THE CASE OF Z AVERCHAND LAXMI CHAND & CO. V CIT 55 ITR 486 HAS CONSIDERED T HE DIFFERENCE BETWEEN ASSESSABLE PROFIT UNDER I.TAX AC T AND PROFIT BASED ON COMMERCIAL PRINCIPLES AND OBSERVED AS UNDE R :- THE COMPANY HAS BEEN ALLOWED DEPRECIATION OF RS.2,32,234 OF WHICH THE NORMAL DEPRECIATION IS ONL Y RS.1,86,143 ACCORDING TO THE DEPARTMENT REPRESENTAT IVE. THE DEPRECIATION IN EXCESS OF THE NORMAL DEPRECIATI ON IS NOT STRICTLY DEPRECIATION BUT AN INDUCEMENT TO SET UP NEW MACHINERY. WE CONSIDER THAT NORMAL DEPRECIATION IS ALONE ALLOWABLE IN THE COMPUTATION OF PROFITS. IN OUR VIEW, THE TRIBUNAL WAS NOT CORRECT IN THE WA Y IT LOOKED AT THIS QUESTION, AND THE ERROR WAS IN NO T APPRECIATING THE DISTINCTION BETWEEN THE DEPRECIATI ON CALCULATED ON THE BASIS OF THE STATUTORY PROVISIONS OF THE INCOME-TAX ACT FOR THE PURPOSE OF COMPUTING ASSESSA BLE PROFITS ON THE ONE HAND AND DEPRECIATION COMPUTED B Y A BUSINESS CONCERN FOR PURPOSE OF ARRIVING AT ITS TRU E COMMERCIAL PROFITS. IT IS THE LATTER WHICH HAS TO B E TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTING DIVISIBLE PROFITS, AND NOT THE FORMER. THIS DISTINCTION HAS BEEN WELL BROUGHT OUT IN COMMISSIONER OF INCOME-TAX V. BIPINCHANDRA MAGANLAL AND CO. LTD., WHERE IT HAS BEEN OBSERVED T HAT THERE IS NO DEFINABLE RELATION BETWEEN ASSESSABLE I NCOME AND PROFITS OF A BUSINESS CONCERN IN A COMMERCIAL S ENSE AND THAT THE COMPUTATION OF INCOME FOR THE PURPOSES OF 6 ASSESSMENT OF INCOME TAX IS BASED ON A VARIETY OF A RTIFICIAL RULES AND TAKES INTO ACCOUNT SEVERAL FICTIONAL RECE IPTS, DEDUCTIONS AND ALLOWANCES; COMMERCIAL PROFITS, ON THE OTHER HAND, AS STATED IN COMMISSIONER OF INCOME-TA X V. AHMEDABHAI UMARBHAI AND CO., ARE PROFITS OF A TRADE OR BUSINESS GAINED BY THE BUSINESS. THEY ARE ARRIVED A T BY A COMPARISON BETWEEN THE STATE OF BUSINESS AT TWO SPE CIFIC DATES SEPARATED BY AN INTERVAL OF AN YEAR AND THE FUNDAMENTAL MARGIN IS THE AMOUNT OF GAIN MADE BY TH E BUSINESS DURING THE YEAR AND CAN ONLY BE ASCERTAINE D BY A COMPARISON OF THE ASSETS OF THE BUSINESS AT THE TWO DATES; ANY INCREASE GENERALLY AT THE LATTER DATE, COMPARED TO THE EARLIER DATE, REPRESENTS THE PROFITS OF A BUSINESS. THEREFORE, DEPRECIATION CALCULATED FOR THE PURPOSE OF DIVIDEND WOULD BE THE ONE SHOWN IN THE BALANCE-SHEET OF THE BUSINE SS CONCERN AND THAT IS NOT TO BE CONFUSED WITH DEPRECI ATION PERMISSIBLE UNDER THE ARTIFICIAL AND STATUTORY RULE S CONTAINED IN THE INCOME-TAX ACT WHICH RULES ARE RES ORTED TO BY THE DEPARTMENT FOR ARRIVING AT THE TRUE ASSESSAB LE PROFITS. IT IS THE DEPRECIATION SHOWN IN THE BALANC E-SHEET FOR COMPUTING COMMERCIAL PROFITS ARRIVED AT BY A PARTIC ULAR SYSTEM FOLLOWED BY THE BUSINESS CONCERN WHICH WOULD BE THE STANDARD FOR DETERMINING WHETHER THE MANAGED COMPANY SUFFERED ANY LOSS OR WAS OTHERWISE NOT ABLE IN ANY PARTICULAR YEAR TO DISTRIBUTE RS.58,390 AS DIVIDEND AND WHETHER THE ASSESSES SHOULD BE CALLED UPON TO FORGO THEIR CLAIM TO THE EXTENT OF THAT DEFICIENCY BY VIRTUE OF CLAUSE 3 OF THE MANAGING AGENCY AGREEMENT. 7. ACCOUNTING STANDARD AS-6 IS FOR THE DEPRECIATION ACCOUNTING. IN THIS ACCOUNTING STATEMENT IT IS MENT IONED AS UNDER : 4. DEPRECIATION HAS A SIGNIFICANT EFFECT IN DETERMINING AND PRESENTING THE FINANCIAL POSITION A ND RESULTS OF OPERATIONS OF AN ENTERPRISE. DEPRECIATIO N IS CHARGED IN EACH ACCOUNTING PERIOD BY REFERENCE TO T HE EXTENT OF THE DEPRECIABLE AMOUNT, IRRESPECTIVE OF A N INCREASE IN THE MARKET VALUE OF THE ASSETS. 8.. THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CA SE OF CIT V TRUSTEE OF H.E.H. THE NIZAM SUPPLEMENTAL RELIGIOU S ENDORSEMENT TRUST 127 ITR 378 HAD AN OCCASION TO CONSIDER AS TO HOW T HE INCOME OF THE TRUST IS TO BE COMPUTED. IT WAS STATED THAT THE COMMERCIA L OR AMOUNTING PROFITS 7 OR ACTUAL PROFITS EARNED BY THE ASSESSEE ARE TO BE CALCULATED ON COMMERCIAL PRINCIPLES. IT IS NOT THE TOTAL INCOME AS WOULD BE ASSESSED BY THE A.O. IS NOT RELEVANT FOR THE PURPOSE OF INVESTING THE FUNDS OF THE TRUST OR ASSESSING THE INCOME OF THE TRUST. IT IS THE ACCOUNTS OF THE TRUST ALONE WILL HAVE TO BE CONSIDERED. PAYMENT OF INCOME TAX AND WEALTH TAX WE RE EXPENSES INCIDENTAL TO THE CARRYING OUT OF CHARITABLE PURPOS E OF THE TRUST. UNDER NORMAL PROVISIONS OF COMPUTATION OF BUSINESS INCOME , INCOME TAX IS TO BE ADDED WHILE COMPUTING TOTAL INCOME. 9. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V RAO BAHADUR CALAVALA CUNNAN CHETLY CHARITIES 135 ITR 48 5 HAS HELD THAT IN CASE OF TRUST, INCOME IS TO BE ARRIVED AT IN COMMER CIAL MANNER WITHOUT REFERENCE TO SECTION 14. ACCUMULATION TO BE DETERM INED OUT OF SUCH INCOME. THE HONBLE MADRAS HIGH COURT AT PAGE 492 O BSERVED AS UNDER :- SECTION 11 CONTEMPLATES AN APPLICATION OF THE INCO ME FOR CHARITABLE PURPOSE. THE CHARITY CAN ACCUMULATE 25 P ER CENT. OF THE INCOME. THE APPLICATION AS WELL AS THE ACCUMULATION HAS NECESSARILY TO BE THE INCOME AS ACCOUNTED FOR IN TH E ACCOUNTS, AND NOT AS COMPUTED UNDER THE I.T.ACT, SUBJECT OF COURS E TO WHAT IS PROVIDED IN SUB-S. (4) OF S. 11. THIS IS BECAUSE THE ACT SOMETIMES DEALS WITH INCOME ATTRIBUTED BY SOME STATUTORY FICTION. THERE CAN BE NO DISTRIBUTION OR ACCUMULATION OF WHAT IS TAXED UNDER SOME FICTION . THE SUPREME COURT IN CIT V. BIPINCHANDRA MAGANLAL & CO. LTD. [1 961] 41 ITR 290 (SC) CONSIDERED THE QUESTION WHETHER THE EXPRES SION SMALLNESS OF PROFITS HAS TO BE UNDERSTOOD IN THE SENSE OF SMALLNESS OF ASSESSABLE INCOME. IT WAS POINTED OUT THAT A COMPANY NORMALLY DISTRIBUTES DIVIDENDS OUT OF ITS BUSINESS PROFITS AND NOT OUT OF ITS ASSESSABLE INCOME AND THAT EVEN THOUGH T HE ASSESSABLE INCOME OF A COMPANY MAY BE MUCH, THE COMMERCIAL PRO FITS MAY BE SO SMALL THAT COMPELLING DISTRIBUTION OF THE DIFFER ENCE BETWEEN THE BALANCE OF THE ASSESSABLE INCOME REDUCED BY THE TAX ES PAYABLE AND THE AMOUNT DISTRIBUTED AS DIVIDEND WOULD REQUIRE TH E COMPANY TO FALL BACK EITHER UPON ITS RESERVES OR UPON ITS CAPI TAL WHICH IN LAW IT COULD NOT DO. APPLYING THE SAME REASONING, THE EXPR ESSION INCOME HAS TO BE UNDERSTOOD IN THE POPULAR OR GEN ERAL SENSE AND NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED AT FOR PURPOSE OF ASSESSEEMENT TO TAX BY THE APPLICATION OF SOME ARTI FICIAL PROVISIONS EITHER GIVING OR DENYING DEDUCTION. THAT INCOME CAN NOT BE 8 UNDERSTOOD IN THE SENSE OF WHAT IS ARRIVED AT FOR T HE PURPOSE OF INCOME-TAX WOULD BE CLEAR IF WE PAY SOME ATTENTION TO S. 10. FOR INSTANCE, S. 10(1) EXEMPTS AGRICULTURAL INCOME. IT IS NOT NECESSARY TO FIND OUT WHAT THE AGRICULTURAL INCOME IS. IT IS ENOUGH IF THE AGRICULTURAL INCOME AS A CATEGORY IS EXCLUDED. THER E IS NO NEED OR SCOPE TO ARRIVE AT THE INCOME IN THE MANNER CONTEMP LATED BY TH I.T.ACT. OTHER INSTANCES CAN BE MULTIPLIED. TAKING INTO ACCOUNT THE PURPOSE FOR WHICH THE CONDITIONS OF S. 11(1)(A) ARE IMPOSED, IT WOULD BE CLEAR THAT WE HAVE TO CONSIDER THE INCOME AS ARRIVED AT IN THE CONTEXT OF WHAT IS AVAILABLE IN THE HANDS OF TH E ASSESSEE, SUBJECT OF COURSE TO ANY ADJUSTMENT FOR EXPENSES EX TRANEOUS TO THE TRUST. IF THE EXPRESSION INCOME IS SO UNDERSTOOD, THEN WE HAVE TO TAKE THE ACCOUNTS OF THE ASSESSEE WITH REFERENCE TO THE RECEIPTS AND DEDUCT THEREFROM THE EXPENSES NECESSARY FOR EARNING OR LOOKING AFTER THAT INCOME. THE NET AMOUNT THAT REMAINS WOUL D BE AVAILABLE FOR DISTRIBUTION OR APPLICATION FOR CHARITABLE PURP OSE. IN APPLYING THE INCOME FOR CHARITABLE PURPOSES, EVEN CAPITAL EX PENDITURE MAY BE INCURRED. THEREFORE, THE NATURE OF THE EXPENDITU RE IN THE HANDS OF THE ENTITY WHICH RECEIVES THE MONEY IS NOT THE C RITERION. SO LONG AS THE ASSESSEE DISBURSES THE AMOUNT FOR CHARITABLE PURPOSES, WHETHER THE AMOUNTS ARE UTILIZED FOR CAPITAL OR REV ENUE PURPOSES BY THE CHARITY CONCERNED, THE ASSESSEE WOULD HAVE C OMPLIED WITH THAT PART OF THE REQUIREMENT OF S. 11, NAMELY APPLI CATION OF THE INCOME FOR CHARITABLE PURPOSES. THE AUTHORITIES WIL L HAVE TO FIND OUT AS TO WHETHER THEY ARE REALLY CHARITABLE PURPOS ES OR NOT. SUBJECT TO SUCH EXAMINATION, THE APPLICATION OF THE INCOME FOR CHARITABLE PURPOSES WILL HAVE TO BE EXCLUDED AND IT IS ONLY THE BALANCE THAT WOULD REQUIRE EXAMINATION FOR FINDING OUT WHETHER THE ASSESSEE HAS COMPLIED WITH THE RULE OF ACCUMULA TION TO THE EXTENT OF RS.10,000 OR 25 PER CENT. OF THE INCOME, WHICHEVER IS HIGHER. 10. THE HONBLE MADRAS HIGH COURT IN THE CASSE OF C IT VS.ESTATE OF V.L.ETHIRAJ 136 ITR 12 HAD AN OCCASION TO CONSIDER AS TO WHETHER FOR THE PURPOSE OF COMPUTING THE ACCUMULATI ON IN EXCESS OF 25% OF THE TOTAL INCOME AS LAID DOWN IN SECTION 11(1)(A ) OF THE I.T.ACT IS TO BE DONE UNDER THE APPROPRIATE HEADS OF INCOME OF THE A CT. THE HONBLE HIGH COURT HELD THAT COMPUTATION SHOULD BE IN THE NORMAL COMMERCIAL MANNER AND NOT IN ACCORDANCE WITH SECTION 14 OF THE ACT. 13. THE HONBLE GUJRAT HIGH COURT IN THE CASE OF CI T V GANGA CHARITY TRUST FUND 162 ITR 612 HAS AN OCCASION TO C ONSIDER AS TO WHETHER 9 INCOME TAX LIABILITY IS TO BE ALLOWED AS DEDUCTION UNDER SECTION 11(1)(A) OF THE I.T.ACT. THE HONBLE HIGH COURT TOOK THE VIEW T HAT DETERMINING THE INCOME WHICH COULD BE ACTUALLY APPLIED OR ACCUMULAT ED FOR THE PURPOSE OF THE TRUST UNDER SECTION 11(1)(A) OF THE ACT, ALL OU TGOINGS INCLUDING THE OUTGOING IN THE NATURE OF PAYMENT OF INCOME TAX MU ST BE DEDUCTED. FOR THIS THE HONBLE HIGH COURT REFERRED TO THE DECISIO NS OF HONBLE ANDHRA PRADESH HIGH COURT AND MADRAS HIGH COURT IN WHICH I T HAS BEEN HELD THAT PROFIT IS TO BE ASCERTAINED ON COMMERCIAL MANNER. 15. THE HONBLE GUJRAT HIGH COURT IN THE CASE OF CI T V SHETH MANILAL RANCHODDAS VISHRAM BHAVAN TRUST 198 ITR 598 HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF DEPRECIATION AND TH E DIFFERENCE BETWEEN TOTAL INCOME CHARGED AND INCOME TO BE COMPUTED UNDE R CHAPTER-III. THE HONBLE HIGH COURT OBSERVED AS UNDER :- WHETHER DEPRECIATION HAS TO BE ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME OF A CHARITABLE INSTITUTION WAS THE QUESTION WHICH CAME UP BEFORE THE KARNATAKA HIGH COURT IN CIT V. SOCIETY O F THE SISTERS OF ST.ANNE [1984] 146 ITR 28. NOTICING THE DIFFERENCE BETWEEN THE WORD INCOME AND THE EXPRES SION TOTAL INCOME AND THE NECESSITY FOR PROVIDING DEPRECIATION IN ORDER TO MAINTAIN CORRECT ACCOUNTS, THE HIGH COURT HELD THAT THE AMOUNT OF DEPRECIATION DEB ITED TO THE ACCOUNTS OF THE CHARITABLE INSTITUTION HAS TO B E DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION T O CHARITABLE AND RELIGIOUS PURPOSES. SAME VIEW HAS BE EN TAKEN BY THE MADHYA PRADESH HIGH COURT IN CIT V. RA IPUR PALLOTTINE SOCIETY [1989] 180 ITR 579. IN CIT V. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES [1992] 135 ITR 485, THE MADRAS HIGH COURT WAS REQUIRED TO CONSIDER WHETHER, FOR THE PURPOSE OF CO MPUTING ACCUMULATION IN EXCESS OF 25 PER CENT, AS LAID DOWN IN SECTION 11(I)(A) OF THE ACT, INCOME HAS TO BE COM PUTED UNDER THE VARIOUS HEADS ENUMERATED IN THE INCOME-TA X ACT. IT HELD THAT THE INCOME FROM THE PROPERTIES HELD UN DER TRUST WOULD HAVE TO BE ARRIVED AT IN THE NORMAL COMMERCIA L MANNER WITHOUT CLASSIFICATION UNDER THE VARIOUS HEA DS SET OUT IN SECTION 14. IT HELD THAT THE EXPRESSION INC OME HAS TO BE UNDERSTOOD IN THE POPULAR OR GENERAL SENSE AN D NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED AT FOR THE PURPOSE 10 OF ASSESSMENT TO TAX BY APPLICATION OF SOME ARTIFIC IAL PROVISIONS EITHER GIVING OR DENYING DEDUCTION. IT OBSERVED THAT THE COMPUTATION UNDER THE DIFFERENT CATEGORIES OR HEADS ARISES ONLY FOR THE PURPOSES OF ASCERTAINING THE TOTAL INCOME FOR THE PURPOSES OF CHARGE. THOSE PROVISIONS D CANNOT BE INTRODUCED TO FIND OUT WHAT THE INCOME DE RIVED FROM THE PROPERTY HELD UNDER TRUST TO BE EXCLUDED F ROM THE TOTAL INCOME IS, FOR THE PURPOSE OF THE EXEMPTIONS UNDER CHAPTER III. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW TAKEN BY THE KARNATAKA, MADHYA PRSDESH AND MADRAS HIGH COURTS. WE, THEREFORE, ANSWER BOTH THE QUESTIONS RE FERRED TO US IN THE AFFIRMATIVE AND AGAINST THE REVENUE. 16. THE HONBLE KERALA HIGH COURT IN THE CASE OF CI T V PROGRAMME FOR COMMUNITY ORGANIZATION 228 ITR 620 HE LD THAT 25% AS MENTIONED IN SECTION 11(1)(C) SHOULD BE AMOUNTS DIS CLOSED IN ACCOUNTS OF ASSESSEE AND NOT TOTAL INCOME COMPUTED U/S 2(45) OF THE I.T.ACT. 2.4 LOOKING TO THE ABOVE DISCUSSIONS, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 58.00 LACS MADE U/S 40 (A)(IA) OF THE ACT. 3.1 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 49,36,880/- MADE BY THE AO ON GROUN D THAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 3.2 BEFORE THE LD.CIT(A), IT WAS SUBMITTED THAT THE EXPENDITURE INCURRED BY WAY OF PAYMENT OF TAX IS TO BE CONSIDERED AS APPLICATION F OR CHARITABLE PURPOSES. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS. 1. CIT VS JANAKI AMMAL AYYA NADAR TRUST,23 TAXMAN 416 (MAD.) 2. CIT VS TRUSTEES OF H.E.H. THE NIZAMS SUPPLEMENTAL RELIGIOUS ENDOWNMENT TRUST, 127 ITR 378 (AP) 3. CIT VS APOSTOLOS RAPTAKOS TRUST, 83 TAXMAN 422 (BOM .) 4. CIT VS JAYSHREE CHARITY TRUST 1985 TAX LR 247 (CAL. ) 11 5. CIT VS BARODA INDUSTRIAL DEVELOPMENT CORPN. LTD. 24 TAXMAN 36 (GUJ.) 3.3 THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSIONS DELETED THE ADDITION AFTER OBSERVING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE. ON THE PERUSAL OF JUDICIAL DECISI ONS CITED BY THE A/R IT IS EVIDENT THAT THE PREPONDERANT JUDICIAL TH INKING IS THAT PAYMENT OF INCOME TAX IS TO BE CONSIDERED AS APPLIC ATION FOR CHARITABLE PURPOSES BECAUSE SUCH PAYMENT IS MADE TO PRESERVE THE CORPUS OF THE TRUST AND IT IS IMMATERIAL WHETHER TH E TAX LIABILITY PERTAINS TO CURRENT YEAR OR EARLIER YEARS. IN THE C ASE LAW RELIED UPON BY THE AO, IT IS SEEN THAT THE SAME DEALT WITH THE ISSUE OF SURTAX WHICH THE HON'BLE HIGH COURT HELD THAT WAS AN EXPEN DITURE INCURRED FOR THE PURPOSE OF BUSINESS BUT AN APPLICA TION OF PROFITS AND GAINS EARNED BY THE BUSINESS. IN THE INSTANT CA SE, THE PAYMENT OF TAX WAS TO PRESERVE TO THE CORPUS OF TRUST AND H AS TO BE TREATED AS APPLICATION FOR CHARITABLE PURPOSES. IN VIEW OF THE FOREGOING, THE ADDITIONS MADE BY THE AO IS DELETED. 3.4 WE HAVE HEARD BOTH THE PARTIES. WE HAVE REFERRE D TO ORDER OF THE JAIPUR BENCH IN THE CASE OF ITO VS KUMS, BARAN (SUPRA). IN THAT CAS E, IT HAS BEEN HELD THAT PAYMENT OF TAX IS APPLICATION OF INCOME. HENCE, WE HOLD THAT T HE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. ITA NO. 245/JU/2010 KUMS , ANUPGARH 4.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,71,07,719/- MADE U/S 40(A)(IA) OF HE ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 12 4.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. 4.3 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 45,33,798/- MADE BY THE AO ON GROUN D THAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 4.4 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF T HE ASSESSEE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR. FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ITA NO. 246/JU/2010 KUMS , RAWLA 5.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 22,40,000/- MADE U/S 40(A)(IA) OF H E ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 5.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. 5.3 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 13,79,000/- MADE BY THE AO ON GROUN D THAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 5.4 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF T HE ASSESSEE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR. FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION 13 ITA NO. 247/JU/2010 KUMS , GHARSANA 6.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 58,57.000/- MADE U/S 40(A)(IA) OF T HE ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 6.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. ITA NO. 248/JU/2010 KUMS , JETSAR 7.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 8,50,000/- MADE U/S 40(A)(IA) OF HE ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 7.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. 7.3 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 31,81,354/- MADE BY THE AO ON GROUN D THAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 7.4 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF T HE ASSESSEE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR. FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ITA NO. 250/JU/2010 KUMS , SURATGARH 14 8.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,03,11,194/- MADE U/S 40(A)(IA) OF HE ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 8.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. 8.3 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 39,66,760/- MADE BY THE AO ON GROUN D THAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 8.4 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF T HE ASSESSEE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR. FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ITA NO. 99/JU/2010 KUMS , PADAMPUR 9.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,30,00,000/- MADE U/S 40(A)(IA) OF HE ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 9.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. 9.3 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 80,000/- MADE BY THE AO ON GROUND T HAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 15 9.4 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF T HE ASSESSEE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR. FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ITA NO. 101/JU/2010 KUMS , GAJSINGPUR 10.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 53,05,000/- MADE U/S 40(A)(IA) OF H E ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 10.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENU E WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. 10.3 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6,25,000/- MADE BY THE AO ON GROUND THAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 10.4 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR. FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ITA NO. 102/JU/2010 KUMS , SRI GANGANAGAR 11.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,76,48,145/- MADE U/S 40(A)(IA) OF HE ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 11.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENU E WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. 16 11.3 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,64,82,000/- MADE BY THE AO ON GROU ND THAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 11.4 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR. FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ITA NO. 103/JU/2010 KUMS , RAISINGHNAGAR 12.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 48,45,000/- MADE U/S 40(A)(IA) OF H E ACT HOLDING THAT THE PROVISIONS OF SECTION U/S 40(A)(IA) ARE NOT APPLICABLE IN THE INS TANT CASE. 12.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENU E WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR . FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION. 12.3 THE SECOND GROUND OF ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 44,59,789/- MADE BY THE AO ON GROUN D THAT THE EXPENDITURE WAS NOT FOR THE OBJECTS OF THE TRUST. 12.4 THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE WHILE DISPOSING OFF THE APPEAL IN THE CASE OF KRISHI UPAJ MANDI SAMIT, SRI VIJAYNAGAR. FOLLOWING OUR FINDINGS IN THAT CASE, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION 17 13 IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16- 12-2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JODHPUR DATED: 16/12/2011 MISHRA COPY TO: 1. THE ITO, CONCERNED 2. KRISHI UPAJ MANDI SAMITI, CONCERNED 3.THE LD. CIT (A) BY ORDER 4.THE CIT 5.THE D/R 6.THE GUARD FILE (ITA NO. 249/JU/10) A.R.. ITAT : JODHPUR 18 19 20 21