ADIT (E) I(2), MUMBAI V. THE SYNTHETIC & RAYON TEXTILES EXPORT PROMOTION COUNCIL, MUMBAI

ITA 6639/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8977 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 04-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Keywords: Depreciation; Charitable institution; Capital receipt
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLAIYA (A.M.) ITA NO. 6639 & 6640/MUM /2011 ASSESSMENT YEARS : 2007-08 & 2008-09 ASSTT. DIRECTOR OF INCOME-TAX (E)-1(2), ROOM NO. 504, PIRAMAL CHAMBERS, 5 TH FLOOR, PAREL, MUMBAI 400 012. VS. THE SYNTHETIC & RAYON TEXTILES EXPORT PROMOTION COUNCIL, RESHAM BHAVAN, IST FLOOR, 78 VEER NARIMAN ROAD, MUMBAI - 400 020. PAN AAATT 0077 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI JITENDRA JAIN DEPARTMENT BY : SHRI V. KRISHNAMOORTHY DATE OF HEARING 04-9-2012 DATE OF PRONOUNCEMENT 12-09-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THESE TWO APPEALS PREFERRED BY THE REVENUE ARE DIR ECTED AGAINST THE SEPARATE ORDERS DTD. 13-7-2011 AND 27-7-2011 PA SSED BY THE LD. CIT(A) 1, MUMBAI FOR ASSESSMENT YEARS 2007-08 AND 2008-09 RESPECTIVELY. SINCE FACTS ARE IDENTICAL AND COMMON ISSUE IS INVOLVED, BOTH THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE EXTRACTED FROM ITA NO. 6640/MUM/2011 FOR A.Y. 2008-09 ARE THAT THE ASSESSE E TRUST IS AN ITA NO. 6639 & 6640/MUM/2011 2 ASSOCIATION SETUP BY GOVERNMENT OF INDIA, MINISTRY OF TEXTILES. THE MAIN OBJECTS OF THE ASSESSEE ARE TO ESTABLISH, PROMOTE A ND OPERATE, MAINTAIN AND INCREASE THE EXPORT OF SYNTHETIC & RAYON TEXTIL ES AS WELL AS UNDERTAKING MARKET STUDIES IN FOREIGN MARKETS, SEND ING OUT TRADE DELEGATIONS TO FOREIGN COUNTRIES ETC. THE ASSESSEE WAS GRANTED EXEMPTION U/S 11 OF THE INCOME TAX ACT, 1961 (THE ACT) VIDE C ERTIFICATE ISSUED U/S 12A OF THE ACT. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THE A.O. NOTED THAT THE MAJOR SOURCE OF INCOME IS BY WAY OF SUBSCRIPTION AMOUNTING TO RS. 1,48,08,000/-. THIS ENTIRE AMOUNT OF SUBSCRIPTION HAS BEEN CLAIMED AS EXEMPT ON THE GROUND OF PRINCIPLE O F MUTUALITY. THE A.O. HAS NOT ALLOWED THE CLAIM OF THE ASSESSEE ON T HE GROUND THAT THE SURPLUS IS NOT DISTRIBUTABLE AMONGST THE MEMBERS AF TER DISSOLUTION. THE ASSESSEE HAS MADE TRANSACTIONS WITH NON-MEMBERS BY ORGANISING TRADE FAIRS ETC. OUTSIDE INDIA. AS PER ASSESSEES OWN CL AIM, IT EXISTS FOR PROMOTION IN GENERAL. ITS BENEFITS ARE GIVEN TO PU BLIC AT LARGE AND NOT RESTRICTED TO THE MEMBERS ALONE. DUE TO ACTIVITY OF THE ASSESSEE TRUST OTHER THAN MEMBERS ARE ALSO BENEFITED. UNDER THE C IRCUMSTANCES, THE ASSESSEE TRUST IS A NON-MUTUAL BODY FOR PROMOTION F OR TRADE AND EXPORT IN PARTICULAR. THE A.O. FURTHER OBSERVED THAT THE A SSESSEE INCURRED EXPENSES OF RS. 1,03,16,902/- AS PER DETAILS APPEAR ING AT PAGE 8 OF THE ASSESSMENT ORDER. ACCORDING TO THE A.O. AS PER SEC TION 11, THE INCOME IS TO BE APPLIED FOR CHARITABLE PURPOSE IN INDIA WHE REAS THE EXPENSES INCURRED BY THE EXPORT PROMOTION COUNCIL IS OUTSIDE INDIA. THE TOTAL ITA NO. 6639 & 6640/MUM/2011 3 EXPENDITURE INCURRED AMOUNTS TO RS. 2,08,70,104/-. OUT OF THE SAME, AN AMOUNT OF RS. 1,03,16,902/- HAS BEEN INCURRED IN FO REIGN EXCHANGE OUTSIDE INDIA. THIS EXPENDITURE INCURRED OUTSIDE I NDIA CANNOT BE ALLOWED AS APPLICATION IN CHARITABLE OBJECT, IN THE COMPUTA TION OF INCOME, THE ASSESSEE HAS CLAIMED IT AS DIRECT PROMOTION EXPENSE S TOWARDS OBJECT OF THE TRUST. ACCORDING TO THE A.O., IN ANY CASE, THI S IS NOT AN APPLICATION OF INCOME IN INDIA TOWARDS EXPORT PROMOTION. THE A .O. HAS FURTHER NOTED THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION O F THE TRIBUNAL AND FILED AN APPEAL IN BOMBAY HIGH COURT AGAINST THE AD MISSIBILITY OF INTEREST FREE AND EXPORT EXPENSES OUTSIDE INDIA. T HE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 10,84,582/- AND APPLIED AS APPLICATION OF INCOME U/S 11(1)(A) OF THE ACT. ACCORDING TO THE A.O. IT AMOUNTS TO DOUBLE DEDUCTION IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN ESCORTS LTD. VS. UNION OF INDIA (1993)199 ITR 43 (SC) AND J.K. SYNTHETICS LTD. V. UNION OF INDIA (1992) 65 TAXMAN 420 (SC) AND ACCORDINGLY HE DISALLOWED THE CLAIM OF RS. 10,84,582/-. 3. ON APPEAL THE LD. CIT(A) ON THE ISSUE OF DENIAL OF EXEMPTION ON THE GROUND OF MUTUALITY AND THE DISALLOWANCE OF EXPENSE S INCURRED BY THE ASSESSEE OUTSIDE INDIA FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1993-94 AND 1997-98 A ND DELETED THE DISALLOWANCE MADE BY THE A.O. WITH REGARD TO THE DI SALLOWANCE OF DEPRECIATION VIS--VIS DOUBLE DEDUCTION, THE LD. CI T(A) FOLLOWING THE ITA NO. 6639 & 6640/MUM/2011 4 DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N CIT VS. INSTITUTE OF BANKING (2003) 264 ITR 110 (BOM), DELETED THE DISAL LOWANCE MADE BY THE A.O. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US. 5. GROUND NO. 1 READS AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, AND IN LAW, LD. CIT(A) WAS RIGHT IN ALLOWING THE CLAIM OF MUTUA LITY, ENTRANCE FEES AND EXPORT PROMOTION RELYING ON THE DECISION OF THE HON BLE ITAT WHICH WAS NOT ACCEPTED BY THE REVENUE AND PREFERRED APPEAL BE FORE THE HONBLE BOMBAY HIGH COURT. 6. AT THE TIME OF HEARING THE LD. D.R. SUPPORTS THE ORDER OF THE A.O. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) ALSO RELIED ON THE O RDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 5884/MUM/97 FOR A.Y. 1993-94 DTD. 5-5-2003 AND ITA NO. 4150/MUM/2000 FOR A.Y. 1997-98 DTD. 11-2-2004. HE ALSO PLACED ON RECORD THE COPY OF TH E SAID ORDERS OF THE TRIBUNAL. HE, THEREFORE, SUBMITS THAT THE ORDER PAS SED BY THE LD. CIT(A) BE UPHELD. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE RAI SED BY THE REVENUE IN GROUND NO. 1 IS FULLY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF ITA NO. 6639 & 6640/MUM/2011 5 THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) WHEREIN THE TRIBUNAL VIDE PARA 3 OF ITS ORDER DTD. 5-5-2003 (SUPRA) HAS HELD THAT ENTRANCE FEE IS A CAPITAL RECEIPT AND NOT ASSESSABLE AS INCOME FOR TH E PURPOSE OF SECTION 11 OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE APPEAL FOR THE A.Y. 1997-98 (SUPRA). IN THE ABSENCE OF AN Y DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REVENUE, WE RESPEC TFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL, DECLINE TO INTERFE RE WITH THE ORDER OF THE LD. CIT(A) ON THIS ACCOUNT. THE GROUND TAKEN BY TH E REVENUE IS, THEREFORE, REJECTED. 9. THE COMMON GROUND TAKEN BY THE REVENUE IN GROUND NO. 2 FOR ASSESSMENT YEAR 2007-08 AND GROUND NO. 1 FOR THE AS SESSMENT YEAR 2008-09 READS AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, AND IN LAW, LD. CIT(A) WAS RIGHT IN IGNORING THE RATIO OF HONB LE SUPREME COURT JUDGMENTS IN THE CASE OF ESCORTS LTD. V/S UOI 199 I TR 43 WHEREIN HONBLE SUPREME COURT HAS HELD THAT DOUBLE DEDUCTIO N CANNOT BE PRESUMED IF THE SAME IS NOT SPECIFICALLY PROVIDED B Y LAW, IN ADDITION TO NORMAL DEDUCTION. 10. AT THE TIME OF HEARING THE LD. D.R. SUPPORTS TH E ORDER OF THE A.O. 11. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSE SSEE WHILE RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN IN STITUTE OF BANKING (SUPRA) AND THE ORDER OF THE LD. CIT(A) SUBMITS THA T THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. ITA NO. 6639 & 6640/MUM/2011 6 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE. IN THE PRESENT CASE THE ASSESSEE I S NOT CLAIMING DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION AS HAS BEEN HE LD BY THE REVENUE AUTHORITIES. THE INCOME OF THE ASSESSEE BEING EXEM PT, THE ASSESSEE IS ONLY CLAIMING THAT DEPRECIATION SHOULD BE REDUCED F ROM THE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHICH HAVE TO B E APPLIED FOR THE PURPOSE OF TRUST. THUS THERE IS NO DOUBLE DEDUCTIO N CLAIMED BY THE ASSESSEE. RECENTLY THE HONBLE PUNJAB & HARYANA HIG H COURT IN CIT VS. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) AFT ER DISTINGUISHING THE DECISION OF THE HONBLE SUPREME COURT IN ESCORTS LT D. VS. UOI (1993) 199 ITR 43 (SC) WHILE RELYING ON VARIOUS DECISIONS INCL UDING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN INSTITUTE OF B ANKING (SUPRA) HAS HELD VIDE PENULTIMATE PARA 10 AS UNDER:- IN THE PRESENT CASE, THE ASSESSEE IS NOT CLAIMING DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION AS HAS BEEN SUGGESTED BY LE ARNED COUNSEL FOR THE REVENUE. THE INCOME OF THE ASSESSEE BEING EXEMPT, T HE ASSESSEE IS ONLY CLAIMING THAT DEPRECIATION SHOULD BE REDUCED FROM T HE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHICH HAVE TO B E APPLIED FOR THE PURPOSES OF THE TRUST. THERE IS NO DOUBLE DEDUCTION CLAIMED BY THE ASSESSEE AS CANVASSED BY THE REVENUE. THE JUDGMENT OF THE HON'BLE SUPREME COURT IN ESCORTS LTD. CASE [1993] 199 ITR 43 IS DISTINGUISHABLE FOR THE ABOVE REASONS. IT CANNOT BE HELD THAT DOUB LE BENEFIT IS GIVEN IN ALLOWING CLAIM FOR DEPRECIATION FOR COMPUTING INCOM E FOR PURPOSES OF SECTION 11. THE QUESTIONS PROPOSED HAVE, THUS, TO BE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 13. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGH T ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE CONSISTE NT VIEW OF THE HONBLE ITA NO. 6639 & 6640/MUM/2011 7 JURISDICTIONAL HIGH COURT, WHICH IS BINDING ON US, THE RECENT DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT (SUPRA) AND KEE PING IN VIEW THAT THE INTERPRETATION HAS TO BE CONSTRUED IN A MANNER BENEFICIAL TO THE ASSESSEE AS HELD IN CIT VS. VEGETABLE PRODUCTS LTD. [1973] 88 ITR 192 (SC), WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O. THE COMMON GROUND TA KEN BY THE REVENUE FOR THE ASSESSMENT YEARS 2007-08 AND 2008-0 9 IS, THEREFORE, REJECTED. 14. IN THE RESULT, REVENUES APPEALS FOR THE ASSESS MENT YEARS 2007-08 AND 2008-09 STAND DISMISSED. ORDER PRONOUNCED ON 12-09-2012. SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 12-09-2012. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- CONCERNED , MUMBAI 4. COMMISSIONER OF INCOME TAX CONCERNED MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI