CIT KARNAL vs. MARKET COMMITTEE, JUNDLA

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ITA/238/2010HC Punjab & HaryanaPHHC01093151201028 July 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that questions (i) to (iii) were covered against the Revenue by its earlier judgment in CIT v. Market Committee, Pipli (ITA No.535 of 2009) dated 5.7.2010. Similarly, question (v) was covered against the Revenue by its judgment in CIT v. Market Committee, Narwana (ITA No.151 of 2009) dated 5.7.2010. Regarding question (iv), concerning the adjustment of excess expenditure of earlier years against the income of the current year, the Court disagreed with the Revenue's submission. It held that exclusion of income from total income under Section 11 is to the extent of its application for charitable purposes, and adjustment against excess expenditure of an earlier year is also considered application of income. The Court respectfully agreed with the Rajasthan High Court's view in CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439, that it is not necessary for income to be applied in the year it arises, and excess expenditure incurred in an earlier year can be adjusted against the income of the following year. The Court found no substantial question of law arising from the ITAT's order.

What were the facts?

The appeals were filed by the Commissioner of Income Tax (Revenue) against the order of the Income Tax Appellate Tribunal (ITAT). The assessee is a Market Committee, registered under Section 12AA of the Income Tax Act, 1961, and operates under the Punjab Agricultural Produce Markets Act, 1961. The Assessing Officer (AO) had rejected the assessee's claims for depreciation on capital assets, deduction for statutory contributions to the Haryana Agriculture Marketing Board, and set-off of brought forward unabsorbed depreciation and losses. The ITAT had reversed these decisions in favor of the assessee. The High Court was hearing multiple appeals with common questions of law.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether depreciation is allowable on capital assets when the capital expenditure for their acquisition was already allowed as application of income of the trust (Section 11). 2. Whether allowing depreciation when capital expenditure has already been allowed constitutes double deduction, contrary to the Apex Court's decision in Escorts India Ltd. v. UOI (199 ITR 43). 3. Whether brought forward unabsorbed depreciation and losses of earlier years can be set off against current year's income, given that depreciation is not allowable on capital assets when capital expenditure was allowed as application of income, and Sections 70 to 80 do not specifically provide for carry forward and set-off in cases assessed under Sections 11 to 13. 4. Whether excess application of income from a previous year can be adjusted in the current year, in the absence of a specific provision in Sections 11 to 13 and when the ratio of Maharana of Mewar Charitable Foundation (164 ITR 439) is not applicable. 5. Whether 30% of market fees paid to the Haryana Agriculture Marketing Board is an application of income for charitable purposes, or a sharing of income by an overriding title. Contentions: Revenue argued that depreciation should not be allowed if capital expenditure was already allowed as application of income, to avoid double deduction. They also argued that Section 11(1) only refers to exemption of income of the previous year, and thus, adjustment of deficits from earlier years is not permissible. They challenged the ITAT's decision on question (iv) regarding adjustment of excess application of income from previous years. Assessee's contentions were not explicitly recorded, but the ITAT had upheld their claims.

Which sections of the Income-tax Act were involved?

Section 11,Section 11(1),Section 12AA,Section 70,Section 80

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.238 of 2010 & other connected cases being ITA Nos.237 & 239 to 245 of 2010 Date of decision: 28.7.2010 The Commissioner of Income Tax. -----Appellant. Vs. Market Committee, Karnal. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Yogesh Putney, Sr.Standing counsel for the Revenue. --- ADARSH KUMAR GOEL, J.

1.

This order will dispose of ITA Nos.237 to 245 of 2010, as common questions of law are involved in all the said appeals.

2.

According to learned counsel for the appellant, I.T.A. No.238 of 2010 is the lead appeal. There is no further question in other appeals. In the said appeal following substantial questions of law have been proposed:- i)

case, the Income Tax Appellate Tribunal was justified in holding that depreciation was allowable on the capital assets, when deduction for capital expenditure incurred for acquisition of these capital assets has already been allowed as application on income of the trust?

ii) “Whether the learned ITAT's decision to allow double deduction on depreciation when capital expenditure on the asset has already been allowed is justified in the light of the Apex Court's decision in Escorts India assessee two deductions on the same expenditure?” iii)

case, the learned ITAT was justified in restoring the issue to the file of the Assessing Officer to allow set off of brought forward unabsorbed depreciation and losses of earlier years, despite the fact that depreciation per se is not allowable on capital assets when deduction for capital expenditure has already been allowed as application of income in earlier years and when the provisions of Sections 70 to 80 of the Income Tax Act have not specifically provided for carry forwarded and set off of losses or unabsorbed depreciation in the case of income assessed ulnder Section 11 to 13 of the Act?” iv)

case, the learned ITAT was justified in directing the AO to consider the excess amount of application of income of previous year to be adjusted in the current year, despite there being no provision in Section 11 to 13 of the Act in this regard and despite the fact that the ratio of the decision of the Hon'ble Rajasthan High Court in Maharazna of Mewar Charitable Foundation (164 ITR 439) is not applicable to this juri iction?” v)

case, the learned ITAT was justified in allowing payment of 30% of market fees earned by it paid to the Haryana Agriculture Marketing Board as application of income for charitable purpose, despite the finding that 30% of the market fee has to be paid to the said Board as a statutory obligation under the Agriculture Marketing Board Act and, therefore, it is not application of income, but it is sharing of income b y an overriding title as per the Act by which the Market Committee is governed?”

3.

The Assessee is a Market Committee and is registered under Section 12AA of the Act as a charitable institution. It has been created under the Punjab Agricultural Produce Markets Act, 1961 for regulating marketing of agricultural produce. The Assessing Officer rejected the claim of the Assessee with regard to depreciation and for deduction claimed in respect of contribution made by the Assessee to its apex body in accordance with statutory requirements. It was also held that the Assessee could not claim set off on excess application of income in an earlier year. This view was reversed by the Tribunal and claim of the Assessee was upheld.

4.

We have heard learned counsel for the Revenue.

5.

Learned counsel for the Revenue fairly states that question Nos.(i) to (iii) are covered against the Revenue by earlier judgment of this Court dated 5.7.2010 in I.T.A. No.535 of 2009 The Commissioner of Income Tax, Karnal. v. Market Committee, Pipli and question No.(v) is covered against the Revenue by the judgment of this Court in dated 5.7.2010 in I.T.A. No.151 of 2009 The Commissioner of Income Tax, Hisar. v. Market Committee, Narwana. He challenged finding of the Tribunal relating to question No. (iv), which is as under:- “.........We hold that deficit arising out of the excess of expenditure over income during any earlier year can be set off against the income of the current year but the relevant facts regarding quantum of such excess of expenditure over income in the earlier year is not available before us and hence, we restore back this issue to the file of AO to find out as to whether there was any excess of expenditure over income in any earlier year and if there is so excess of expenditure over income found in any earlier year, the same can be set off against the income of the current year as per this judgment of Hon'ble Rajasthan High Court......”

6.

Learned counsel for the Revenue submitted that Section 11(1) of the Act only refers to exemption of income of previous year and, therefore, there cannot be any question of adjustment of deficit of excess expenditure of earlier years. The income sought to be exempted must have been applied in the year in question and not earlier.

7.

We are unable to accept the submission.

8.

Exclusion of income from total income under Section 11 of the Act is to the extent of its application for charitable purposes. Adjustment against excess expenditure of an earlier year is also application of income under the said provision. In CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439, it was held that it was not necessary that the income should be applied in the year in which it has arisen. Excess expenditure already incurred could also be adjusted against the income of the following year. Requirement of Section 11 of the Act was only to apply the income which could also cover adjustment of the income for the expenditure for charitable purposes. We are in respectful agreement with the view expressed in the said judgment. No contrary view has been shown.

9.

In view of above, no substantial question of law arises.

The appeals are dismissed. (ADARSH KUMAR GOEL) JUDGE July 28, 2010 ( AJAY KUMAR MITTAL ) ashwani JUDGE 5

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