M/s Paradip Port Trust, Cuttack V. Addl. CIT, Cuttack

ITA 99/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4416 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 15-02-2011
• Court: TRIBUNAL
• Department Lawyers: A K GAUTAM
• Assessee Lawyers: S K TULSIYAN
• Keywords: Capital asset; Depreciation; Charitable institution; Retrospective amendment; Benefit of exemption; Revised return
• Section: 143(3); 12A; 11

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL,CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 099/CTK/2011 (ASSESSMENT YEAR 2007 - 08) PARADIP PORT TRUST, PARADIP, JAGATSING HPUR, CUTTACK, ORISSA PANO.AAALP0055A VERSUS ADDL. COMMISSIONER OF INCOME TAX,RANGE - 1, CUTTACK (APPELLANT) (RESPONDENT) ITA NO. 114/CTK/2011 (ASSESSMENT YEAR 2007 - 08) ADDL. COMMISSIONER OF INCOME TAX,RANGE - 1,CUTTACK VERSUS PARADIP PORT TRUST, PARADIP, JAGATSINGHPUR, CUTTACK, ORISSA PA NO.AAALP0055A (APPELLANT) (RESPONDENT) FOR THE ASSESSEE: SHRI S.K.TULSIYAN FOR THE DEPARTMENT: SHRI A.K.GAUTAM ORDER P E R B E N C H : THESE TWO APPEALS, ONE BY THE ASSESSE AND THE OTHER BY THE DEPARTMENT ARE F ILED AGAINST THE ORDER OF THE CIT (A), CUTTACK, ORISSA DATED 28TH DECEMBER, 2010 FOR THE ASSESSMENT YEAR 2007 - 08. 2. THE ASSESSEE HAS RAISED FOLLOWING ISSUES IN ITS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) ERRED IN LAW IN HOLDING THAT THE AMENDMENT BROUGHT OUT TO SECTION 2(15) OF THE INCOME TAX ACT, 1961, BY THE FINANCE ACT, 2008, WITH EFFECT FROM 1.4.2009, BY ADDING A PROVISO TO THE SAID ACTION AND THEREBY NARROWING THE DEFINITION OF CHARITABLE PURPOSE IS CLARIFICATOR Y IN NATURE AND HENCE, THE AMENDMENT HAS RETROSPECTIVE OPERATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN UPHOLDING THE ACTION OF THE AO IN NOT 2 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) GRANTING EXEMPTION TO THE INCOME OF THE APPELLANT TRUST IN TERMS OF SECTION 11 OF THE ACT, IN VIEW OF THE SAID AMENDMENT. 3. THE LEARNED CIT (A) ALSO ERRED IN OBSERVING THAT THE APPELLANT TRUST WOULD NOT BE ENTITLED TO EXEMPTION U/S.11 OF THE ACT, AS IT HAD NOT FILED NOTICE TO THE AO U/S.11(2) OF THE ACT BEFORE EXPIRY O F THE TIME ALLOWED U/S.139(1) OF THE ACT FOR FURNISHING THE RETURN OF INCOME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN UPHOLDING THE ACTION OF THE AO IN TREATING THE PERMANENT WAY, WHARVES, ROADS AND BOUNDARIES A S ROADS ON AND NOT AS PLANT & MACHINERY AND THEREBY IN ALLOWING LOWER RATE OF DEPRECIATION OF 10% THEREON INSTEAD OF THE CORRECT RATE OF 15%. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN UPHOLDING THE ACTION OF T HE AO IN ADDING BACK A SUM OF RS.42 CRORES AGAINST INTEREST ON INVESTMENT ON CAPITAL ASSET REPLACEMENT RESERVE FUND AND ON INVESTMENT ON DEVELOPMENT REPAYMENT OF LOAN AND CONTINGENCY RESERVE FUND CREATED AS PER THE DIRECTIONS OF GOVERNMENT OF INDIA AND REQ UIRED TO BE UTILIZED FOR SPECIFIC PURPOSES ONLY. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING THE CLAIMS OF THE APPELLANT TRUST IN RESPECT OF CONTRIBUTIONS OF RS.40 CRORES TO P ENSION PROVISION FUND AND OF RS.2,22,524 TOWARDS CPF ON THE GROUND THAT THE FUNDS ARE NOT YET RECOGNIZED ALTHOUGH THE PETITIONS FOR RECOGNITION OF THE FUNDS ARE PENDING FOR A LONG TIME WITH CIT, CUTTACK, FOR NO FAULT OF THE APPELLANT TRUST. 3 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) 7. WITHOUT AN Y PREJUDICE TO THE ABOVE GROUND, THE LD CIT (A) SHOULD HAVE AT LEAST HELD THAT THE AMOUNTS UNDER CONSIDERATION WOULD BE ALLOWED AS DEDUCTIONS ON GRANTING OF THE REQUISITE RECOGNITION TO THE FUNDS. 3. THE FOLLOWING ISSUES HAVE BEEN RAISED IN THE REVENUES APPEAL. UNDER THE FACT AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION ON THE FOLLOWING HEAD S AMOUNTING TO RS. 7,81,49,000 . HEAD OF ACCOUNTS AMOUNT (RS) I) INTEREST FROM SBI MUTUAL FUND 9,64,000 II) NON - ACCOUNT ING OF ELECTRICITY CHARGES 66,82,000 III) NON - INCLUSION OF ESTATE RENTAL 1,02,00,000 IV) INCOME FROM FISHERY HARBOUR 37,47,000 V) UNDERVALUATION OF CLOSING STOCK 63,56,000 VI) EXCESS CLAIM OF EXPENDITURE 5,02,00,000 TOTAL: 7,81,49,000 4 . BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED BOTH BY THE ASSESSEE AS WELL AS THE REVENUE IN THEIR RESPECTIVE APPEALS AND THEIR LEGAL IMPLICATIONS. 5 . DURING THE COURSE OF HEARING, IN SUPPORT OF THE APPEAL FILED BY THE ASSESSEE BEING ITA NO.99/CTK/2011, THE LEARNED REPRESENTATIVE OF THE ASSESSEE VEHEMENTLY ARGUED ASSAILING THE IMPUGNED ORDER PASSED BY THE CIT (A) CONTENDING, INTER ALIA , THAT THE ORDER OF THE CIT (A) IS NOT IN ACCORDANCE WITH LAW APPLICABLE THERETO IN THE LIGHT OF MATERIALS MADE AVAILABLE WITH THE DEPARTMENT. HE FURTHER SUBMITTED THAT BOTH THE LOWER AUTHORITIES HAVE NOT 4 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) UNDERSTOOD THE LEGAL PROVISIONS APPLICABLE TO THE CASE OF THE ASSESSEE IN ITS PROPER PERSPECTIVE. THE FINDINGS OF THE DEPARTMENTAL A UTHORITIES ARE CONTRARY TO THE ESTABLISHED PRINCIPLE S OF LAW AS WELL AS THE JUDICIAL PRONOUNCEMENTS BY THE HONBLE SUPREME COURT AND VARIOUS HIGH COURTS ON THE ASPECT IN DISPUTE. HE FURTHER SUBMITTED THAT UNDISPUTEDLY, THE ASSESSEE TRUST IS ESTABLISHED UN DER THE PROVISIONS OF MAJOR PORT TRUSTS ACT, 1963 AND COMMENCED ITS OPERATION FROM 1 ST NOVEMBER , 1967. IT IS AN AUTONOMOUS STATUTORY BODY ADMINISTERED BY A BOARD OF TRUSTEES, CONSTITUTED BY THE CENTRAL GOVERNMENT. IT IS ENGAGED IN THE ACTIVITIES OF DEVEL OPMENT, MAINTENANCE AND RUN NING OF THE MAJOR PORT AT PARADEE P IN THE STATE OF ORISSA. ITS FUNCTIONS INCLUDE SAFE, EFFICIENT AND CONVENIENT USE OF DOCKS, WHARVES, QUAYS, JETTIES AND ALSO MAINTENANCE OF RIVER BASINS, BANK ETC FOR THE PURPOSE OF ALLOWING SAF E AND EXPEDIENT LANDING AND LOADING OF GOODS FROM VESSELS . THUS, THE ASSESSEE SERVES THE NATIONAL PURPOSE OF ACTING AS A MAJOR PORT OF INDIA AND HELPS IN EARNING SUBSTANTIAL EXPORT REVENUES NECESSARY FOR THE COUNTRY AND ALSO IN IMPORT OF ESSENTIAL GOODS. PREVIOUSLY, THE ASSESSEE TRUST WAS AVAILING EXEMPTION IN RESPECT OF ITS INCOME UNDER SECTION 10(20) OF THE INCOME TAX ACT, 1961 BY BEING A LOCAL AUTHORITY BUT BY VIRTUE OF AN INSERTION OF EXPLANATION TO SECTION 10(20), LIMITING THE DEFINITION OF LOCAL A UTHORITY, THE ASSESSEE TRUST GOT EXCLUDED FROM THE DEFINITION OF LOCAL AUTHORITY AND HENCE, DISENTITLED TO EXEMPTION UNDER THE SAID SECTION. IN SPITE OF THAT, THE ASSESSEE TRUST WAS STILL ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE I.T. ACT, 1961 BY BEING A CHARITABLE TRUST. THE ASSESSEE OPTED FOR REGISTRATION AS A CHARITABLE TRUST UNDER SECTION 12A OF THE ACT AND, ACCORDINGLY, THE DEPARTMENT HAS GRANTED THE SAID REGISTRATION IN PURSUANCE TO THE DIRECTION OF THE ITAT IN ITA NO.346/CTK/06 DATED 5 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) 6.5.20 08. UNDER SECTION 2(15) OF THE I.T. ACT, 1961, CHARITABLE PURPOSE INCLUDES, APART FROM OTHER OBJECTS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE PROVISO WAS ADDED THERETO BY THE FINANCE ACT, 2008 W.E.F. 1.4.2009 TO THE EFFECT THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF GOODS, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE, OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATION IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OR RETENTION OF INCOME FROM SUCH ACTIVITY. IN VIEW OF THIS PROVISO, THE ASSESSEE TRUST WOULD GET EXCLUDED FROM THE DEFINITION OF CHARITABLE TRUST W.E.F. 2009 - 2010 ONLY AS THE AMENDMENT WAS MADE EFFECT IVE TO FROM 1.4.2009. 6 . IN THE PRESENT PERIOD UNDER CONSIDERATION, THE ASSESSEE FILED THE RETURN OF INCOME SHOWING NIL INCOME CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT. TAKING INTO CONSID ERATION THE SCRUTINY ASSESSMENT WHICH RESULTED IN PASSING OF ORDER UNDER SECTION 143(3) DATED 29.12.20909 DENYING EXEMPTION TO THE ASSESSEE THE EXEMPTION UNDER SECTION 11 OF THE ACT TO THE ASSESSEE. THE REASONS GIVEN BY THE ASSESSING OFFICER FOR DENYING T HE EXEMPTION UNDER SECTION 11 ARE THAT THE PRIMARY AND DOMINANT OBJECTS OF THE ASSESSEE TRUST ARE NOT CHARITABLE IN NATURE AND THAT, ON THE OTHER HAND, THEY ARE COMMERCIAL IN CHARACTER. THERE IS NO ELEMENT OF MUTUALITY. THE AMENDMENT OF SUB - SECTION 2(1 5) OF THE ACT BROUGHT IN BY FINANCE ACT, 2008, MAKES THE ASSESSEE ( PARADEEP PORT TRUST) A TAXABLE ENTITY AND THE SAID AMENDMENT BEING CLARIFICATORY IN NATURE HAS GOT RETROSPECTIVE OPERATIONS AND HENCE, WOULD APPLY TO THE PAST YEARS ALSO AND THEREBY, THE ASSESSEE TRUST WOULD LOSE ITS CHARITABLE CHARACTER AS PROVIDED IN SECTION 2(15) OF THE 6 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) ACT AND HENCE, WOULD NOT BE ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT. ACCORDINGLY, IT WAS FOUND NOT ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT. WHILE COMING TO THIS CONCLUSION, LEARNED AO HAS COMPLETELY IGNORED THE FUNDAMENTAL PRINCIPLE IN DETERMINING WHAT IS CHARITABLE IN NATURE. IN SUPPORT OF HIS CONTENTION, HE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF GUJARAT MARITIME BOARD, 295 I TR 562(SC), WHEREIN, IT WAS HELD THAT DEVELOPING AND MAINTAINING OF PORTS FALL UNDER THE OBJECT OF GENERAL PUBLIC UTILITY. AT THE SAME TIME, THE LEARNED A.O HAS ALSO IGNORED THE PREVIOUS ORDER PASSED BY HIM IN THE CASE OF THE ASSESSEE HOLDING THE ACTIVITI ES AS CHARITABLE IN NATURE WITHOUT SHOWING ANY MATERIAL CHANGE IN THE ACTIVITIES OF THE ASSESSEE FOR THE PERIOD UNDER CONSIDERATION FROM THAT OF PREVIOUS OTHER PERIODS. IN SUPPORT OF THAT, HE RELIES ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF RADHSOAMI SATSANG, 193 ITR 321(SC) AND BERGER PAINTS INDIA LTD., VS CIT, 266 ITR 99(SC). 7 . ADVERTING TO THE OBJECTION OF THE ASSESSING OFFICER BEING PRINCIPLE OF MUTUALITY, HE CONTENDED THAT THE ASSESSING OFFICER HAS TOTALLY MISAPPLIED THE PROVI SO AS THE ASSESSEE HAS NOT CLAIMED EXEMPTION ON THE PRINCIPLE OF MUTUALITY. THE ASSESSING OFFICERS ACTION IN CONSIDERING THE AMENDMENT BROUGHT TO SECTION 2(15) BY THE FINANCE ACT, 2008 TO THE PRESENT PERIOD UNDER CONSIDERATION IS CLARIFICATORY IN NATUR E AND HENCE, IT IS HAVING RETROSPECTIVE OPERATION , ALTHOUGH THE AMENDMENT CLEARLY STATED TO BE EFFECTIVE FROM 1.4.2009 ONLY. IN SUPPORT OF THIS CONTENTION, HE RELIES ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF CED VS . M.A.MERCHANT (19 89) 177 ITR 490(SC), WHEREIN, IT WAS HELD THAT PRINCIPLE AGAINST INTERFERENCE WITH VESTED RIGHTS BY SUBSEQUENT LEGISLATION UNLESS THE LEGISLATION HAS BEEN MADE RETROSPECTIVE EXPRESSLY OR BY NECESSARY 7 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) IMPLICATION. THE DEPARTMENTAL AUTHORITIES HAVE ALSO IGN ORED THE ESTABLISHED JUDGMENT OF HONBLE APEX COURT IN THE CASE OF MITHILESH KUMARI VS. PREM BEHARI KHARE (1989) 177 ITR 97(SC), WHEREIN, IT WAS HELD THAT RETROSPECTIVE OPERATION IS NOT TO BE GIVEN TO A STATUTE SO AS TO IMPAIR EXISTING RIGHT OR OBLIGATION, OTHERWISE THAN AS REGARDS MATTER OF PROCEDURE UNLESS THAT EFFECT CANNOT BE AVOIDED WITHOUT DOING VIOLENCE TO THE LANGUAGE OF THE ENACTMENT. BEFORE APPLYING A STATUTE RETROSPECTIVELY, THE COURT HAS TO BE SATISFIED THAT THE STATUTE IS IN FACT RETROSPECTIVE. THIS PRINCIPLE WAS PRONOUNCED BY HONBLE APEX COURT AS EARLY AS 1969 ITSELF IN THE CASE OF J. P. JANI, INCOME TAX OFFICER, CIRCLE IV, WARD G, AHMEDABAD, AND ANOTHER. V. INDUPRASAD DEVSHANKER BHATT, (1969) 72 ITR 595 (SC). THEREFORE, IN THE LIGHT OF THE ABOVE PRINCIPLES MADE BY HONBLE SUPREME COURT, THE DECISIONS CITED BY THE DEPARTMENTAL AUTHORITIES ARE NOT AT ALL SUSTAINABLE UNDER LAW. 8 . HE FURTHER SUBMITTED THAT THE DEPARTMENT HAS ALSO RAISED AN ISSUE THAT EXEMPTION UNDER SECTION 11 IS NOT CONFINED ONLY TO SUCH PORTION OF THE TRUSTS INCOME, WHICH IS APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES OR IS ACCUMULATED FOR APPLYING TO SUCH PURPOSES WITHIN THE LIMITS OF ACCUMULATION PERMITTED UNDER SECTION 11(1) & 11(2) OF THE ACT. THIS PROPOSITION IS NOT AT ALL DISPUTED BUT THE CIT (A) IS REFERRING TO CERTAIN QUALIFYING REMARKS MADE BY THE C & AG OF INDIA IN HIS AUDIT REPORT IN RESPECT OF THE ACCOUNTS OF THE ASSESSEE, IN WHICH, CERTAIN OTHER ITEMS OF OVERSTATEMENT AND CERTAIN OTHER ITEMS OF UNDERSTATEMENT HA VE BEEN MENTIONED. BUT NOWHERE THE SAID REPORT SPEAKS ABOUT ANY RECEIPT OR EXPENDITURE OF THE ASSESSEE TRUST BEING KEPT OUTSIDE THE BOOKS. IT SIMPLY DISCUSSED ABOUT WHY AND IN WHICH WAY SOME OF THE TRANSACTIONS WHICH HAVE BEEN CARRIED FORWARD TO THE NEXT YEAR, SHOULD HAVE BEEN INCORPORATED IN THE ACCOUNTS FOR THIS YEAR AND VICE VERSA. THESE 8 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) OBSERVATIONS OF THE C&AG WILL NOT HAVE ANY IMPACT MORE SO UNDER REVENUE EFFECT OF THE ACTIVITIES OF THE ASSESSEE. 9 . THE OTHER OBJECTION RAISED BY THE LOWER AUTHORI TIES IS THAT THE ASSESSEE HAS FILED THE REVISED RETURN BEYOND THE TIME LIMIT PRESCRIBED IN THE I.T.ACT . ALTHOUGH THE RETURN WAS FILED MUCH AFTER THE EXPIRY OF TIME LIMIT, BUT THE REVISED RETURN WAS FILED DURING ASSESSMENT PROCEEDINGS I.E. BEFORE PASSING O F THE ASSESSMENT ORDER. AS SUCH, FILING IS WELL WITHIN THE LIMITS PROVIDED THEREOF UNDER SECTION 11(2) OF THE INCOME TAX ACT. IN THAT VIEW OF THE MATTER, THE DENIAL OF EXEMPTION UNDER SECTION 11 TO THE ASSESSEE BY THE DEPARTMENTAL AUTHORITIES BELOW IS NO T TENABLE UNDER LAW MORE SO IN THE LIGHT OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DI RECTOR OF INCOME TAX (EXEMPTION ) V DAULAT RAM EDUCATION SOCIETY(2005) 278 ITR260(DEL), WHEREIN, IT WAS HELD THAT SO LONG AS ONE OR MORE OF THE PURPOSE S SPECIFIED IN FORM NO.10 FINDS PLACE IN THE OBJECTS FOR WHICH THE ASSESSEE SOCIETY HAS BEEN INCORPORATED, AND THOSE PURPOSES ARE CHARITABLE, EXEMPTION BENEFIT UNDER SECTION 11 CANNOT BE DENIED. IN THE CASE OF DIRECTOR OF INCOME TAX VS MUTSUI & CO. ENVIRO NMENTAL TRUST(2007) 211 CTE 352(DEL), IT WAS HELD THAT PLURALITY OF PURPOSES FOR ACCUMULATION OF INCOME IS NOT PROHIBITED. IN THE CASE OF BHARAT KALYAN PRATISTHAN V DIRECTOR OF INCOME TAX(2007) 160 TAXMAN 216(DEL), THE HONBLE DELHI HIGH COURT HAS HELD TH AT WHERE THE ASSESSEE HAD MENTIONED THAT ACCUMULATION OF INCOME WAS TOWARDS ALL THE THREE OBJECTS FOR WHICH IT WAS CREATED, EXEMPTION CANNOT BE DENIED MERELY BECAUSE ASSESSEE HAD NOT SPECIFICALLY MENTIONED THE PURPOSE. IN THE CASE OF DIRECTOR OF INCOME TA X VS MAMATA HEALTH INSTITUTE FOR MOTHER & CHILDREN(20076) 162 TAXMAN 235 (DELHI), HONBLE DELHI HIGH COURT HAS HELD THAT WHERE ASSESSEE HAD INDICATED THAT ACCUMULATION OF INCOME WAS FOR THE 9 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) ON - GOING PROJECTS AND THOSE OBJECTS WE FOUND TO BE CHARITABLE, B ENEFIT OF EXEMPTION CANNOT BE DENIED. 10 . IN THE PRESENT CASE AT HAND, THE ASSESSEE TRUST HAS CLEARLY MENTIONED IN THE NOTICE UNDER SECTION 11(2) OF THE I.T.ACT THAT ACCUMULATION OF SURPLUS OF ITS FUNDS WAS MEANT FOR FUTURE INFRASTRUCTURE DEVELOPMENT, WHI CH WAS CLEARLY WITHIN THE CHARITABLE OBJECTS OF THE ASSESSEE TRUST. IN VIEW OF THE ABOVE STATED POSITION OF LAW, THE DENIAL OF EXEMPTION UNDER SECTION 11(2) TO THE ASSESSEE BY THE DEPARTMENTAL AUTHORITIES IS NOT AT ALL SUSTAINABLE UNDER LAW. 11 . ADVERTING TO ISSUE AT SL.4 ABOVE, BEING DEPRECIATION CLAIMED BY THE ASSESSEE, IT IS CONTENDED BY LEARNED A.R. THAT THE PERMANENT WAY, WHARVES, ROADS AND BOUNDARIES , ETC ARE ENTITLED FOR DEPRECIATION AT THE HIGHER RATE OF 15% AS THEY FALL UNDER THE HEAD PLANT & MA CHINERY. ALL THESE EQUIPMENTS OF FIXED ASSETS SERVE SOME SPECIAL PURPOSES IN THE WORKING OF THE ASSESSEE. THEREFORE, THEY SHOULD BE TREATED AS PLANT & MACHINERY IN THE WORKING PROCESS OF THE ASSESSEE. IN SUPPORT OF THIS PROPOSITION, HE RELIES ON THE DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. DR B. VENTATRAO, 243 ITR 82 (SC). HE ALSO RELIES ON HOBLE KARNATAKA HIGH COURTS JUDGMENT IN THE CASE OF CCI(ADMN) VS VISWESARYA ION & STEEL LTD., 199 ITR 98(KARNATAKA) AND HONBLE ORISSA HIG H COURTS JUDGMENT IN THE CASE OF KALINGA TUBES LTD V CIT, 96 ITR 20(ORISSA). ACCORDINGLY, HE SUBMITS THAT THE REASONS GIVEN BY THE DEPARTMENTAL AUTHORITIES ARE NOT AT ALL SUSTAINABLE FOR LEGAL SCRUTINY AND LIABLE TO BE SET ASIDE. 1 2 . THEREAFTER, REFERRIN G TO THE ISSUE RELATING TO SUM OF RS.42 CRORES ON ACCOUNT OF INTEREST ON INVESTMENT ON CAPITAL ASSET REPLACEMENT RESERVE FUND AND ON INVESTMENT ON DEVELOPMENT , REPAYMENT OF LOAN AND CONTINGENCY 10 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) RESERVE FUND, AS INCOME OF THE ASSESSEE TRUST AND CONTRIBUTION S OF RS.40 CRORES AND RS.2,22,524 TO PENSION PROVISION FUND AND CONTRIBUTORY PROVIDENT FUND, RESPECTIVELY., HE SUBMITTED THAT THE ASSESSEE HAS ALREADY APPLIED FOR SANCTION OF THE PROVIDENT FUND BEFORE THE CIT, CUTTACK, WHICH IS PENDING FOR ADJUDICATION. WI THOUT WAITING THE ADJUDICATION, THE DEPARTMENTAL AUTHORITIES HAVE DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THERE IS NO ORDER OF THE CIT. IN RESPECT OF CREATION OF RS.42 CRORES AGAINST INTEREST ON INVESTMENT ON CAPITAL RESERVE FUND, IT WAS SU BMITTED THAT THE DEPARTMENTAL AUTHORITIES HAVE COMPLETELY IGNORED THAT THIS WAS DONE BY THE ASSESSEE AS PER THE GOVERNMENT OF INDIA INSTRUCTION, WHICH IS BINDING ON IT. THEREFORE, UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDERS PASSED BY THE L OWER AUTHORITIES ARE NOT SUSTAINABLE FOR LEGAL SCRUTINY AND REQUIRED TO BE SET ASIDE. 13. CONTRARY TO THIS, THE LEARNED DR HAS VEHEMENTLY ARGUED ASSAILING THE ISSUES RAISED BY THE ASSESSEE AND SUPPORTING THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES CO NTENDING INTER ALIA THAT THE CONTENTIONS RAISED BY THE ASSESSEE ARE UNFOUNDED AND THEY ARE NOT HAVING ANY BASIS, MORE SO IN THE LEGAL SANCTITY UNDER THE LAW. THEREFORE, THE ORDER PASSED BY THE LEARNED CIT(A) ON THESE ISSUES WAS VERY MUCH RIGHT AND IN ACCOR DANCE WITH THE PROVISIONS OF THE ACT APPLICABLE THERETO AND THEREBY IT NEEDS CONFIRMATION BY REJECTING THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND DISMISSING THE APPEAL OF THE ASSESSEE. 14. IN SUPPORT OF THE REVENUES APPEAL BEING ITA NO.114/CTK/2011, THE LEARNED DR ARGUED THAT THE LEARNED CIT(A) IS NOT CORRECT IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER UNDER DIFFERENT HEADS AS STATED IN THE GROUNDS OF APPEAL RAISED BY THE DEPARTMENT IN ITS APPEAL SINCE THE 11 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) REP[ORT GIVEN BY THE COMPTROLLER OF AUDITOR GENERAL OF INDIA (IN SHORT C & AG OF INDIA) ON THE AFFORD OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08, NOW UNDER CONSIDERATION, ITSELF POINTED OUT THAT THESE EXPENDITURES ARE NOT CORRECTLY STATED BY THE ASSESSEE. THEREFORE, THAT PART OF THE CIT(A)S ORDER IN DELETING THE SAID ADDITIONS IS NOT SUSTAINABLE UNDER THE LAW AND REQUIRES TO BE SET ASIDE BY ALLOWING THE DEPARTMENTAL APPEAL. 15. CONTRARY TO THIS, THE LEARNED AR OF THE ASSESSEE VEHEMENTLY ARGUED THAT THE LEARNED CIT(A) WHILE PASSING H IS ORDER ON THE SAID ISSUE RAISED BY THE DEPARTMENT HAS CONSIDERED THE REPORT OF C & AG OF INDIA AND CATEGORICALLY FOUND THAT THERE IS NO OVERALL UNDERSTATEMENT OR OVERSTATEMENT OF INCOME IF THE DIFFERENT YEARS BE TAKEN TOGETHER BUT THAT THERE MIGHT HAVE M ERELY BEEN MISADJUSTMENT OF SOME OF THE ITEMS BETWEEN THE SUCCESSIVE YEARS. THE REST OF THE PERIOD WHEREVER THERE WAS SO CALLED UNDERSTATEMENT, THE SAID AMOUNTS WERE INCLUDED IN THE INCOME OF NEXT YEAR AND IN THE SAME WAY THE OVER STATED AMOUNTS IN THIS YE AR ARE TO BE ADDED BACK TO THE INCOME OF THAT YEAR. THE LEARNED CIT(A) AFTER CONSIDERATION OF THE OVERALL VIEW OF THE MATTER, OBSERVED AT PARAGRAPH 123(PAGE 40) OF HIS ORDER TO THE EFFECT THAT THE NET IMPACT WAS THAT, AS 31 S T MARCH 2007, ASSETS WERE OVERS TATED BY RS. 9.88 CRORES , LIABILI TIES WERE UNDERSTATED BY RS. 1. 72 CRORES AND THEREBY NET SURPLUS FOR THE YEAR WAS OVERSTATED BY RS.11.60 CRORES . IN THE RESULT , THE NET SURPLUS BEI NG OVERSTATED BY RS. 11.60 CRORES . THE ADDITION MA DE BY THE A. 0. OF RS. 9,6 4,000 BEING INTEREST FROM S BI MUTUAL FUND, RS. 66,82,000 BEING NON - ACCOUNTING OF ELECTRICITY CHARGES RECEIVABLE, RS. 1,02,00,000 BEING NON - INCLUSION OF ESTATE RENTA L , RS. 37,47,000 BEING INCOME FROM THE FISHERY HARBOR , RS. 63,56,000 BEING UNDERVALUATION OF STOCK AND RS. 5,02,00,000 BEING EXCESS CLAIM OF EXPENDITURE ARE DELETED. BESIDES THIS, HE SUBMITTED 12 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) THAT THE LEARNED ASSESSING OFFICER TOOK INTO CONSIDERATION A ND ADDED BACK ONLY THOSE ITEMS WHERE UNDER - STATEMENT OF IN COME HAD BEEN REPORTED IN THE C & AG S REPORT. AT THE SAME TIME, HE COMPLETELY NEGLECTED THOSE ITEMS WHERE OVER - STATEMENT OF INCOME HAD BEEN REPORTED. SO, ONE - SIDED ACTION HAS BEEN MADE BY THE ASSESSING OFFICER. IN THAT VIEW OF THE MATER, IF THE C & AGS REPORT HAS GOT TO BE TAKEN INTO CONSI DERATION AT ALL, THEN BOTH THE UNDER - STATEMENTS AS WELL AS THE OVER - STATEMENTS ARE REQUIRED TO BE TAKEN INTO ACCOUNT TO ARRIVE AT THE CORRECT POSITION OF INCOME. IN THAT VIEW OF THE MATTER ALSO, THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITIONS FINDING THAT THE OVER - STATEMENTS OF INCOME EXCEEDED THE UNDER - STATEMENTS. ACCORDINGLY, THE ACTION OF THE LEARNED CIT(A) ON THIS ISSUE IS PERFECTLY IN ACCORDANCE WITH LAW APPLICABLE THERETO. IN THAT VIEW OF THE MATTER, THE ISSUE RAISED BY THE DEPARTMENT IS DEVOID OF MERITS AND DESERVES TO BE REJECTED BY DISMISSING THE APPEAL OF THE DEPARTMENT. 16 . ON CAREFUL ANALYSIS OF THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS OF BOTH THE PARTIES AS WELL AS THE UNDISPUTED FACTUAL ASPECTS STATED SUPRA, IT IS FOUND THAT THE ASSESSEE TRUST IS ESTABLISHED UNDER THE PROVISIONS OF MAJOR PORT TRUSTS ACT, 1963. IT COMMENCED ITS OPERATIONS FROM 1ST NOVEMBER, 1967. IT IS AN AUTONOMOUS STATUTORY BODY ADMINISTERED BY A BOARD OF TRUSTEES, CONSTITUTED B Y THE CENTRAL GOVERNMENT. THE ACTIVITIES OF THE ASSESSEE ARE DEVELOPMENT, MAINTENANCE AND RUNNING OF THE MAJOR PORT AT PARADEEP IN THE STATE OF ORISSA. ITS FUNCTIONS INCLUDE SAFE, EFFICIENT AND CONVENIENT USE OF DOCKS, WHARVES, QUAYS, JETTIES AND ALSO MAIN TENANCE OF RIVER BASINS, BANK ETC. FOR THE PURPOSE OF ALLOWING SAFE AND EXPEDIENT LANDING AND LOADING OF GOODS FROM VARIOUS VESSELS . THE SERVICE IS FOR THE NATIONAL PURPOSE OF ACTING AS A 13 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) MAJOR PORT OF INDIA AND HELPS IN EARNING SUBSTANTIAL EXPORT REVENUES NECESSARY FOR THE COUNTRY AND ALSO IN IMPORT OF ESSENTIAL GOODS. EARLIER TO 2002, THE ASSESSEE TRUST WAS AVAILING OF EXEMPTION IN RESPECT OF ITS INCOME U /S. 10(20) OF THE I.T. ACT, 1961 BEING A LOCAL AUTHORITY. LATER ON DUE TO INSERTION OF AN EXPLANATIO N TO SECTION 10(20), THE ASSESSEE W AS EXCLUDED FROM THE DEFINITION OF LOCAL AUTHORITY. CONSEQUENTLY, IT WAS NOT ENTITLED TO EXEMPTION UNDER THE SAID SECTION BUT THE ASSESSEE WAS STILL ENTITLED TO EXEMPTION U/S.11 OF THE I.T.ACT,1961 BEING A CHARITABLE T RUST. THE ASSESSEE OBTAINED REGISTRATION AS CHARITABLE TRUST U/S.12A OF THE ACT AND ACCORDINGLY REGISTRATION WAS GRANTED TO IT BY THE ORDER OF THE CIT, CUTTACK IN F. NO. CIT/ CTC /TECH/L2A/2008 - 09/ 1571, DT.15/24.07.2008 W.E.F. 01.04.2005 IN PURSUANCE TO THE D IRECTIONS PASSED BY THIS TRIBUNAL IN ITA NO. 346/CTK/06 DATED 06.05 .2008 . 17 . U/S. 2(15) OF THE I.T. ACT, 1961, CHARITABLE PURPOSE INCLUDES, INTER ALIA AMONGST OTHER OBJECTS, ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE PROVISO WAS A DDED THERETO BY THE FINANCE ACT, 2008 W.E.F. 1.4.2009 , WHICH STATES THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUS INESS OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATION IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OR RETENTION OF INCOME FROM SUCH ACTIVITY. AS THE ASSESSEE TRUST REN DERS SERVICES TO ITS CLIENTS FOR FEES ETC, IT IS EXCLUDED FROM THAT DEFINITION AFTER THE INSERTION OF THE PROVISO TO SECTION 2(15 ) OF THE I.T.ACT ,1961 . BUT IT IS EFFECTIVE ONLY FROM THE ASSESSMENT YEAR 2009 - 10. FOR THE PERIOD UNDER CONSIDERATION BEING AS SESSMENT YEAR 2007 - 08, THE 14 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) ASSESSEE FILED ITS RETURN OF INCOME SHOWING NIL INCOME BY CLAIMING EXEMPTION U/S.11 OF THE I.T.ACT. WHILE PASSING ASSESSMENT ORDER U/S.1433) OF THE I.T.ACT, THE LEARNED ASSESSING OFFICER WHILE DENYING EXEMPTION TO THE ASSESSEE U/ S.11 OF THE ACT , 1961, FOR THE REASONS THAT T HE PRIMARY AND DOMINANT OBJECTS OF THE APPELLANT TRUST ARE NOT CHARITABLE IN NATURE AND ON THE OTHER HAND, T HEY ARE COMMERCIAL IN CHARACTER; THAT T HERE IS NO ELEMENT OF MUTUALITY ; THAT T HE AMENDMENT OF SUB - SE CTION 2(15) OF THE ACT BROUGHT IN BY FINANCE ACT, 2008, MAKES THE ASSESSEE A TAXABLE ENTITY; AND THAT AS THE SAID AMENDMENT BEING CLARIFICATORY IN NATURE HAS GOT RETROSPECTIVE OPERATIONS AND HENCE WOULD APPLY TO THE PAST YEARS ALSO . THUS HOLDING HE FOUND T HAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION U/S.1 1 OF THE ACT. THIS DECISION OF THE ASSESSING OFFICER WAS UPHELD BY THE LEARNED CIT(A) AND HENCE, THE ASSESSEE HAS RAISED THE ISSUE AT SL.1 STATED SUPRA. 1 8 . IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESS EE THAT THE OBJECTS AND WORKING OF THE ASSESSEE - TRUST ARE CHARITABLE IN NATURE IN THE LIGHT OF JUDGMENT OF HONBLE APEX COURT6 RENDERED IN THE CASE OF GUJARAT MAR ITIME BOARD [(2007) 295 ITR 562 ] WHEREIN IT WAS HELD THAT DEVELOPING AND MAINTAINING OF PORT S FALL UNDER THE OBJECT OF GENERAL PUBLIC UTILITY. THE ACTIVITIES CARRIED OUT BY THE MAJOR PORTS OF THE COUNTRY INCLUDING THE ASSESSEE - TRUST ARE NOT BUSINESS ACTIVITIES AND ARE NOT GUIDED BY PROFIT MOTIVE. THEY ARE ALL CREATED AND BEING RUN WITH THE SOLE OBJECT OF MAINTAINING AND DEVELOPING THE MAJOR PORTS IN SMOOTH AND EFFECTIVE MANNER. THE SURPLUS WHICH IS BEING GENERATED IN THE PROCESS OF SUCH ACTIVITIES IS NOT APPROPRIATED BY ANY PERSON OR AUTHORITY AND EVEN BY THE CENTRAL GOVERNMENT, AND IT IS TOTALL Y PLOUGHED BACK FOR DEVELOPMENT OF THE INFRASTRUCTURE FACILITIES OF THE PORT. FOR IMMEDIATE PRECEDING YEAR I.E., 15 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) ASSESSMENT YEAR 2006 - 07, THE ASSESSING OFFICER HIMSELF HELD IN HIS ASSESSMENT ORDER DT.31.12.2008 THAT THAT THE ASSESSEE - TRUST IS A CHARITABL E TRUST AND ACCORDINGLY GRANTED EXEMPTION U/S 11 TO THE ENTIRE INCOME OF THE ASSESSEE TRUST. THERE BEING NO CHANGE IN SAME SET OF FACTS POINTED OUT BETWEEN THE AYS 2006 - 07 AND ASSESSMENT YEAR 2007 - 08, THE DEPARTMENT CANNOT NOW SUDDENLY TURN BACK AND CONSI DER THE OBJECTS OF THE A SSESSEE TO BE NOT CHARITABLE INSTITUTION . IN SUPPORT OF THIS PLEA, THE LEARNED AR OF THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF RADHSOAMI SATSANG V. CIT ( 193 ITR 321 ) AND BERGER PAINTS INDIA LTD. V. CIT [2004] 266 ITR 99 (SC) . THEREFORE, IN THE LIGHT OF JUDGMENTS RELIED ON BY THE LEARNED AR OF THE ASSESSEE MORE SO THE STAND OF THE DEPARTMENT TAKEN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E., ASSESSMENT YEAR 2006 - 07 IN THE CASE OF THE SAME ASSESSEE ON THE SAME SET OF FACTS AND CIRCUMSTANCES, THE VIEW TAKEN BY THE DEPARTMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THAT THE ASSESSEE HAS CARRIED ON ACTIVITIES OF COMMERCIAL NATURE IS NOT AT ALL SUSTAINABLE FOR LEGAL SCRUTINY AND HEN CE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS A CHARITABLE INSTITUTION NOT CARRYING ANY COMMERCIAL ACTIVITY DISENTITLING ITSELF FOR EXEMPTION U/S.11 OF THE I.T.ACT,1961. ACCORDINGLY, THE ISSUE RAISED BY THE ASSESSEE IN THIS REGARD IS DECIDED IN FA VOUR OF THE ASSESSEE BY SETTING ASIDE THE FINDINGS OF THE AUTHORITIES BELOW. 19 . NOW COMING TO THE NEXT ISSUE REGARDING PRINCIPLES OF MUTUALITY RAISED BY THE ASSESSEE, WE FOUND THAT THE STAND OF THE DEPARTMENT IS THAT THE ASSESSEE IS NOT ENTITLED HAVING NO T BEEN SATISFIED THE CONDITIONS OF THE PRINCIPLES OF MUTUALITY DOES NOT EFFECT TO THE ASSESSEE INSOFAR AS THE EXEMPTION ENTITLED TO THE ASSESSEE IS U/S.11 OF THE I.T.ACT,1961 AND THE 16 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) PRINCIPLES OF MUTUALITY IS NOT AT ALL APPLICABLE IN THE CASE OF THE ASSES SEE AS THE ASSESSEE HAS NOT BASED ITS STAND ON THAT PRINCIPLE. THEREFORE, IT IS NOT AT ALL RELEVANT FOR CONSIDERATION IN THE CASE OF THE ASSESSEE. 20 . BOTH THE DEPARTMENTAL AUTHORITIES HAVE HELD THAT THE AMENDMENT TO SECTION 2(15) BY THE FINANCE ACT, 2008 MADE W.E.F. 1.4.2009 ONLY CLARIFICATORY IN NATURE AND THEREBY IT HAD RETROSPECTIVE EFFECT. IN THIS CONNECTION, HONBLE SUPREME COURT IN THE CASE OF CEO V. M.A. MERCHANT [ (1989) 177 ITR 490 AT PAGE 494] HELD THAT THERE IS A WELL - SETTLED PRINCIPLE AGAINST I NTERFERENCE WITH VESTED RIGHTS BY SUBSEQUENT LEGISLATION UNLESS THE LEGISLATION HAS BEEN MADE RETROSPECTIVE EXPRESSLY OR BY NECESSARY IMPLICATION. THE SAME ASPECT WAS ALSO DECIDED BY HONBLE SUPREME COURT IN THE CASE OF MITHILESH KUMARI V. PREM BEHARI KHAR E [(1989) 177 ITR 97, AT PAGE 107] TO THE EFFECT THAT R ETROSPECTIVE OPERATION IS NOT TO BE GIVEN TO A STATUTE SO AS TO IMPAIR EXISTING RIGHT OR OBLIGATION, OTHERWISE THAN AS REGARDS MATTER OF PROCEDURE UNLESS THAT EFFECT CANNOT BE AVOIDED WITHOUT DOING VIO LENCE TO THE LANGUAGE OF THE ENACTMENT. BEFORE APPLYING A STATUTE RETROSPECTIVELY, THE COURT HAS TO BE SATISFIED THAT THE STATUTE IS IN FACT RETROSPECTIVE. THE PRESUMPTION AGAINST RETROSPECTIVE OPERATION IS STRONG IN CASES IN WHICH THE STATUTE, IF OPERATED RETROSPECTIVELY, WOULD PREJUDICIALLY AFFECT VESTED RIGHTS OR THE ILLEGALITY OF PAST TRANSACTIONS, OR IMPAIR CONTRACTS, OR IMPOSE A NEW DUTY OR ATTACH A NEW DISABILITY IN RESPECT OF PAST TRANSACTIONS OR CONSIDERATION ALREADY PASSED. A STATUTE IS NOT PROPER LY CALLED A RETROSPECTIVE STATUTE BECAUSE A PART OF THE REQUISITES FOR ITS ACTION IS DRAWN FROM A TIME ANTECEDENT TO ITS PASSING. THE COURT MUST LOOK AT THE GENERAL SCOPE AND PURVIEW OF THE STATUTE AND AT THE REMEDY SOUGHT TO BE APPLIED, AND CONSIDER WHAT WAS THE FORMER STATE OF LAW AND WHAT THE 17 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) LEGISLATION CONTEMPLATED. EVERY LAW THAT TAKES AWAY OR IMPAIRS RIGHTS VESTED AGREEABLY TO EXISTING LAWS IS RETROSPECTIVE AND IS GENERALLY UNJUST AND MAY BE OPPRESSIVE. BUT LAWS MADE JUSTLY AND FOR THE BENEFIT OF IND IVIDUALS AND THE COMMUNITY AS A WHOLE MAY RELATE TO A TIME ANTECEDENT TO THEIR COMMENCEMENT. THE PRESUMPTION AGAINST RETROSPECTIVITY MAY, IN SUCH CASES, BE REBUTTED BY NECESSARY IMPLICATION FROM THE LANGUAGE EMPLOYED IN THE STATUTE . THE QUESTION IS WHETHER , ON A PROPER CONSTRUCTION, THE LEGISLATURE MAY BE SAID TO HAVE SO EXPRESSED ITS INTENTION. HONBLE SUPREME COURT IN THE CASE OF J.P. JANI , ITO V. INDUPRASAD DEVSHANKER BHATTA [(1969) 72 ITR 595 AT PAGE 601] , HAS HELD THAT U NLESS THE TERMS OF THE STATUTE EXPRESSLY SO PROVIDE OR UNLESS THERE IS A NECESSARY IMPLICATION, RETROSPECTIVE OPERATION CANNOT BE GIVEN TO THE STATUTE SO AS TO AFFECT, ALTER OR DESTROY ANY RIGHT ALREADY ACQUIRED OR TO REVIVE ANY REMEDY ALREADY LOST BY EFFLUX OF TIME. IN THE LIGHT OF TH E FINDINGS OF THE HONBLE APEX COURT THE ASPECT OF AMENDING THE LAW IN THE AMENDMENT MADE BY THE FINANCE ACT, 2008 BY INSERTING PROVISO TO SECTION 2(15) OF THE I.T.ACT,1961 WHICH WAS MADE CATEGORICALLY EFFECTIVE FROM 1.4.2009, CANNOT BE CONSIDERED AS CLARI FICATORY NATURE AND THEREBY IT WILL NOT OF RETROSPECTIVE OPERATION. IT IS EFFECTIVE PROSPECTIVE AS MENTIONED IN THE AMENDING ACT I.E., 1.4.2009 ONLY. THEREFORE, THE STAND TAKEN BY THE DEPARTMENT IS NOT AT ALL SUSTAINABLE FOR LEGAL SCRUTINY AND HENCE, THAT STAND OF THE DEPARTMENT IS HEREBY SET ASIDE BY UPHOLDING THE CONTENTION OF THE ASSESSEE TO THE EFFECT THAT THE AMENDMENT IN QUESTION IS EFFECTIVE PROSPECTIVELY FROM 1.4.2009. 21 . NOW CONSIDERING THE PROVISO INTRODUCED BY THE AMENDMENT, IT DOES NOT EXPLAIN WHAT CONSTITUTES OBJECT OF GENERAL PUBLIC UTILITY. ON THE OTHER HAND, IT SIMPLY PUTS A DEEMING PROVISION THAT ADVANCEMENT OF ANY OTHER 18 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN T HE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION OF THE INCOME FR OM SUCH ACTIVITY . FROM THE WORDINGS USED IN THE PROVISO, IT IS CLEAR THAT THE AMENDMENT ACKNOWLEDGES THAT CERTAIN TRUSTS OR INSTITUTIONS WHOSE OBJECTS ARE ORDINARILY OF CHARITABLE NATURE, WOULD, HOWEVER, NOT BE CONSIDERED TO BE CHARITABLE TRUSTS/INSTITUTI ONS IN THE CIRCUMSTANCES AS MENTIONED IN THE PROVISO. IN THAT VIEW OF THE MATTER ALSO THE AMENDMENT CANNOT BE CONSIDERED TO BE CLARIFICATORY OR DECLARATORY IN NATURE. ON THE OTHER HAND, THE SAID AMENDMENT CANNOT BE CONSIDERED AS RETROSPECTIVE ONE AND WILL HAVE ONLY PROSPECTIVE EFFECT. 22 . THE LEARNED LOWER AUTHORITIES HAVE ALSO RAISED THE ISSUE OF CLAIM OF THE ASSESSEE FOR GRANT OF PERMISSION FOR ACCUMULATION OF PROFIT MORE THAN 15% , T HE DEPARTMENT IS OF THE VIEW THAT THE ASSESSEE HAS NOT SUBMITTED THE NECE SSARY APPLICATION FOR CLAIMING ACCUMULATION OF PROFIT WITHIN THE TIME LIMIT ALLOWABLE UNDER LAW. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS NOTICED THAT THE ASSESSEE HAS MENTIONED IN THE NOTICE U/S.11(2) OF THE ACT THAT THE ACCUMULATED SURPLUS FUNDS BY IT WAS MEANT FOR INFRASTRUCTURE DEVELOPMENT WHICH WAS CLEARLY WITHIN THE CHARITABLE OBJECTS OF THE ASSESSEE. HENCE, THE DENIAL OF BENEFIT OF EXEMPTION MADE BY THE DEPARTMENT IS INCORRECT. MERELY BECAUSE IT IS NOT MENTIONED ANY SPECIFIC PURPOSES, THE STAND TAKEN BY THE DEPARTMENT THAT THE ASSESSEE HAS BELATEDLY FILED THE APPLICATION FOR CLAIMING ACCUMULATION OF PROFIT IS NOT TENABLE UNDER LAW FOR THE REASON THAT THE ASSESSEE HAS FILED ITS ORIGINAL 19 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) RETURN ON 12.11.2007 AND LATER ON FILED REVISED RETURN ON 3.2.2009 ENCLOSING THEREWITH FORM NO.10 SPECIFYING ITS INTENTION TO ACCUMULATE THE SURPLUS FUND OVER 15%. SINCE THE ASSESSEE HAS FILED THE SAID FORM NO.10 BELATEDLY BEYOND THE TIME LIMIT AS PER RULE 18 OF THE INCOME - TAX RULES,196 2 THE ASSESSEE IS NOT ENTITLED TO THE PERMISSION FOR UTILIZATION OF ACCUMULATED SURPLUS INCOME OVER THE SAVABLE LIMIT OF 15%. BUT IN THE LIGHT OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF NAGPUR HOTEL OWNERS ASSOCIATION (247 ITR 201), WHEREIN IT W AS HELD THAT NOTICE OF ACCUMULATION U/S.11(2) OF THE ACT MUST BE GIVEN BEFORE THE ASSESSMENT IS CONCLUDED. IN THE PRESENT CASE ON HAND, THE SAID NOTICE U/S.11(2) WAS GIVEN BY THE ASSESSEE BEFORE THE ASSESSMENT IS CONCLUDED. THE DEPARTMENT, THEREFORE , CANNO T SAY THAT THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF PERMISSION HAVING FILED THE APPLICATION BEYOND THE PERIOD PROVIDED UNDER LAW. MORE SO , THE ASSESSEE HAVING BEEN GOVERNED BY A BOARD OF TRUSTEES HAS ALREADY DECIDED THE ABOVE ACCUMULATION OF ITS FUN DS FOR FUTURE UTILIZATION UNDER VALID NOTICE IN THAT REGARD AND ALSO GIVEN TO THE DEPARTMENT IN THAT REGARD, FORMAL APPROVAL OF THE SAID PROPOSAL BY THE BOARD OF TRUSTEES IS AN INTERNAL MATTER OF THE ASSESSEE TRUST ONLY AND THERE IS NO PROVISION IN THE INC OME - TAX LAW ABOUT SUCH RESOLUTION BEING PASSED WITHIN A SPECIFIC TIME LIMIT. IN THAT VIEW OF THE MATTER, THE ASSESSEES CLAIM FOR PERMISSION TO ACCUMULATION OF EXCESS SURPLUS FUND OVER AND ABOVE 15% CANNOT BE REJECTED. THIS PROPOSITION HAS BEEN FORTIFIED BY THE FOLLOWING JUDGMENTS. A ) DIT (EXEMPTION) V. DAULAT RAM EDUCATION SOCIETY (278 ITR 260 (DEL); B ) DIT V. MITSUI & CO. ENVIRNOMENTAL TRUST (211 CTR (DELHI); C ) BHARAT KALYAN PRATISTHAN V. DIT (160 TAXMAN 216 (DELHI); AND D ) DIT V. MAMTA HEALTH INSTITUTE FOR MOTER & CHILDREN (162 TAXMAN 235 (DELHI). 20 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT AS THE ASSESSEE CLEARLY MENTIONED IN THE NOTICE U/S.11(2) THAT THE ACCUMULATED SURPLUS FUNDS WAS MEANT FOR FUTURE DEVELOPMENT WHICH IS CLEARLY WITHIN THE CHARITABLE OBJECTS O F THE ASSESSEE CANNOT BE DENIED OF THE BENEFIT OF EXEMPTION ON THE PLEA THAT NO BASIS OR PURPOSE HAS BEEN MENTIONED IN THE NOTICE. ACCORDINGLY THE ISSUE IS ANSWERED IN FAVOUR OF THE ASSESSEE. 2 3 . ONCE THE ASSESSEE WAS FOUND TO BE EXEMPTED U/S.11 OF THE ACT , THE OTHER CLAIMS MADE BY THE ASSESSEE ARE AVAILABLE TO THE ASSESSEE. HOWEVER , THE ASSESSEE RAISED THE OTHER ISSUES ALSO WHICH ARE CONSIDERED HEREINAFTER. 24 . THE ASSESSEE WAS DENIED OF THE HIGHER RATE OF DEPRECIATION ON THE ASSETS FINDING THAT THEY ARE N OT PLANT AND MACHINERY. BUT AS CAN BE SEEN FROM THE ADMITTED FACTS AND CIRCUMSTANCES OF THE CASE, THE FIXED ASSETS SERVE SOME SPECIAL PURPOSE OF THE WORKING AND THEREBY THEY ARE CONSIDERED AS PLANT AND MACHINERY IN THE WORKING PROCESS OF THE ASSESSEE. THIS CLAIM OF THE ASSESSEE IS FORTIFIED BY THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT V. DR. B.VENKATRAO (243 ITRE 82), CCI(ADMN) V,. VISWESARAYYA IRON & STEEL LTD, KARNATAKA (199 ITR 98) AND KALINGA TUBES LTD V. CIT (96 ITR 20). IN THE LIGHT OF THE DICTUMS STATED SUPRA, THE ASSESSEES CLAIM IS SUBSTANTIATED AND HENCE FOUND ENTITLED TO HIGHER RATE OF DEPRECIATION AT 15% ON THE FIXED ASSETS AS CLAIMED BY THE ASSESSEE. 2 5 . CONSIDERING THE ISSUE OF TREATMENT OF RS.42 CRORES BEING INTERE ST ON INVESTMENT ON CAPITAL ASSET REPLACEMENT RESERVE FUND AND ON INVESTMENT ON DEVELOPMENT REPAYMENT OF LOAN AND CONTINGENCY RESERVE FUND, AS INCOME OF THE ASSESSEE, IT IS FOUND THAT THESE FUNDS WERE CREATED UNDER THE SPECIFIC DIRECTIONS OF THE GOVERNMENT OF INDIA CONTAINED IN ITS MEMO NO. GR - 1 5024/7/93 - PG, DATED 16.06 . 1994 AND NO. P & F - 25/78 DATED 20.03.1978. 21 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) AS PER THE SAID DIRECTIONS, THE INTERESTS ON THE FUNDS ALONG WITH THE CORPUS THEREOF ARE REQUIRED TO BE UTILIZED FOR THE SPECIFIC PURPOSES OF DEVE LOPMENT OF THE PORT AND NOT IN CONNECTION WITH THE REGULAR OPERATIONS OF THE ASSESSEE . IN THAT VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT THIS IS A DIVERSION OF THE INTEREST AMOUNTS AT SOURCE AND THEREBY THE SAID INTEREST AMOUNTS CANNOT BE ADDE D TO THE REVENUE INCOME OF THE ASSESSEE. HENCE, THE CONTENTION TAKEN BY THE DEPARTMENT IS NOT SUSTAINABLE FOR LEGAL SCRUTINY. ACCORDINGLY, THE ADDITIONS MADE BY THE DEPARTMENT ARE HEREBY DIRECTED TO BE DELETED. 2 6 . NOW COMING TO THE OTHER ASPECT OF CLAIM OF THE ASSESSEE OF RS. 40 CRORES AND RS.2,22,524 TO PENSION PROVISION FUND AND CONTRIBUTO RY PROVIDENT FUND RESPECTIVELY, IT IS FOUND THAT THE DISALLOWANCE WAS MADE ON THE GROUND THAT THE FUNDS WERE YET TO BE RECOGNIZED BY THE COMMISSIONER OF INCOME - TAX. BUT IT IS MADE OUT BY THE ASSESSEE THAT THE APPLICATIONS FOR RECOGNITION OF THE FUNDS WAS PENDING BEFORE THE CIT, CUTTACK, FOR A LONG TIME WITHOUT ANY FAULT ON THE PART OF THE ASSESSEE AND ULTIMATELY THE CIT, CUTTACK HAS GIVEN PERMISSION TO THOSE FUNDS W.E .F. 3.2.2009. THEREFORE, THE ACTION OF THE CIT IN GRANTING THE RECOGNISATION TO THE SAID FUNDS FROM 3.2.2009 IS UNFOUNDED AND HENCE, IT IS TO BE RECOGNIZED FROM THE DATE OF APPLICATION MADE BY THE ASSESSEE. CONSEQUENTLY FOR THE CURRENT PERIOD ALSO THE FUND RECOGNISATION IS APPLICABLE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE DEPARTMENT IS NOT SUSTAINABLE UNDER LAW AND IT IS HEREBY DIRECTED TO BE DELETED. 2 7 . IN THE RESULT, THE ASSESSEES APPEAL IS HEREBY ALLOWED. 2 8 . NOW COMING TO THE DEPARTMENTAL APPEAL, THE LEARNED DR HAS VEHEMENTLY ARGUED THAT THE C & AG OF INDIA , AFTER SCRUTINIZING THE ACCOUNTS 22 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) MAINTAINED BY THE ASSESSEE, HAS MADE A CATEGORICAL OBSERVATION THAT THERE ARE UNDERSTATEMENTS IN RESPECT OF CERTAIN ITEMS LIKE INTEREST FROM SBI MUTUAL FUND, NO N - ACCOUNTING OF ELECTRICITY CHARGES, NON - INCLUSION OF ESTATE RENTAL, INCOME FROM FISHERY HARBOR , UNDERVALUATION OF CLOSING STOCK AND EXCESS CLAIM OF EXPENSES AND THESE ADDITIONS WERE MADE BY THE ASSESSING OFFICER WERE ULTIMATE LY DELETED BY THE CIT(A) BY OB SERVING AT PARA 123 IN HIS ORDER THAT THE NET IMPACT WAS THAT, THAT, AS 31 ST MARCH 2007, ASSETS WERE OVERSTATED BY RS. 9.88 CRORES , LIABILI TIES WERE UNDERSTATED BY RS. 1. 72 CRORES AND THEREBY NET SURPLUS FOR THE YEAR WAS OVERSTATED BY RS.11.60 CRORES . IN THE RESULT, THE NET SURPLUS BEI NG OVERSTATED BY RS. 11.60 CRORES. THE ADDITION MA DE BY THE A. 0. OF RS. 9,64,000 BEING INTEREST FROM S BI MUTUAL FUND, RS. 66,82,000 BEING NON - ACCOUNTING OF ELECTRICITY CHARGES RECEIVABLE, RS. 1,02,00,000 BEING NON - INCLUSION OF ESTATE RENTAL, RS. 37,47,000 BEING INCOME FROM THE FISHERY HARBOR, RS. 63,56,000 BEING UNDERVALUATION OF STOCK AND RS. 5,02,00,000 BEING EXCESS CLAIM OF EXPENDITURE ARE DELETED. ON CAREFUL ANALYSIS OF THE FINDINGS OF THE LEARNED CIT(A), IT IS FOUND TH AT THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION ALL THESE AMOUNTS AND ADDED BACK ONLY THOSE ITEMS WHERE UNDERSTATEMENT OF INCOME HAS BEEN REPORTED BY THE C & AG OF INDIA. ON PERUSAL OF THE SAID REPORT OF C & AG OF INDIA, IT IS FOUND THAT THE ASSESSIN G OFFICER HAS COMPLETELY NEGLECTED THOSE ITEMS WHERE OVER - STATEMENT OF INCOME HAD BEEN REPORTED. ACCORDINGLY THE ASSESSING OFFICERS ONE - SIDED ACTION IS NOT SUSTAINABLE UNDER LAW. THE LEARNED CIT(A) HAVING VERY SAME OPINION HAS DIRECTED THE DELETION OF THE ADDITIONS MADE BY THE ASSESSING OFFICER. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE ACTION OF THE CIT(A) IN DOING SO IS NOT 23 ITA NO. 099/CTK/2011 AND ITA NO. 114/CTK/2011 (CROSS AP P EALS) AT ALL INFIRM IN ANY WAY REQUIRING INTERVENTION AND THE SAME IS UPHELD FINDING THE ISSUE RAISED BY THE DEPARTMENT AS DEVOID OF MERITS. 2 9 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. 30 . TO SUM UP, THE APPEAL OF THE ASSESSEE BEING ITA NO.99/CTK/2011 IS ALLOWED AND THAT OF THE DEPARTMENT BEING ITA NO.114/CTK/2011 IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON D T. 20 TH MAY, 2011 SD/ - SD/ - (K.K.GUPTA) ACCOUNTANT MEMBER (K.S.S.PRASAD RAO) JUDICIAL MEMBER DATE: 20 TH MAY, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY . COPY OF THE ORDER FORWARDED TO : 1. THE A SSESSEE PARADIP PORT TR UST, PARADIP, JAGATSINGHPUR, CUTTACK, ORISSA : 2. THE RESPONDENT: ADDL. COMMISSIONER OF INCOME TAX, RANGE - 1,CUTTACK 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.