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Income Tax Appellate Tribunal, PANAJI BENCH, PANAJI,
IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 15TH DAY OF OCTOBER, 2019 PRESENT THE HON’BLE MR.JUSTICE ALOK ARADHE
AND
THE HON’BLE MR.JUSTICE P.G.M. PATIL
INCOME TAX APPEAL NO.100098 OF 2015 C/W. INCOME TAX APPEAL NO.100099 OF 2015
IN I.T.A.NO.100098 OF 2015
BETWEEN: 1. THE PRINCIPAL COMMISSIONER OF INCOME TAX, DR.B.R.AMBEDKAR ROAD, BELAGAVI. 2. THE ASSISTANT COMMISSIONER OF
INCOME TAX, CENTRAL CIRCLE-2,
BELGAUM.
...APPELLANTS
(BY SRI.Y.V.RAVIRAJ, ADVOCATE) AND :
M/S.NIRANI SUGARS LTD., 166, KULALI CROSS, JAMAKHANDI ROAD, MUDHOL, DISTRICT BAGALKOT-587 313, PAN : AABCN2166J.
…..RESPONDENT
(BY SRI.ASHOK A.KULKARNI AND SHRI.H.R.KAMBIYAVAR, ADVOCATES FOR RESPONDENT)
THIS I.T.A. IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, AND PRAYED TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI, IN ITA.NO.1242/BANG/2013, DATED 19.02.2015 FOR THE ASSESSMENT YEAR 2009-10 AND CONFIRM THE ORDER PASSED BY THE JOINT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, BELAGAVI AND ETC.,
IN I.T.A.NO.100099 OF 2015 BETWEEN
THE PRINCIPAL COMMISSIONER OF INCOME TAX, DR.B.R.AMBEDKAR ROAD, BELAGAVI. 2. THE ASSISTANT COMMISSIONER OF
INCOME TAX, CENTRAL CIRCLE-2,
BELGAUM. ………..APPELLANTS
(BY SRI.Y.V.RAVIRAJ, ADVOCATE) AND :
M/S.NIRANI SUGARS LTD., 166, KULALI CROSS, JAMAKHANDI ROAD, MUDHOL, DISTRICT BAGALKOT-587 313, PAN : AABCN2166J.
…..RESPONDENT
(BY SRI.ASHOK A.KULKARNI AND SHRI.H.R.KAMBIYAVAR, ADVOCATES FOR RESPONDENT)
THIS I.T.A. IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, AND PRAYED TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI, IN ITA.NO.163/PNJ/2014, DATED 19.02.2015 FOR THE ASSESSMENT YEAR 2010-11 AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, BELAGAVI AND ETC.,
THESE ITAs COMING ON FOR FINAL HEARING THIS DAY, ALOK ARADHE, J, DELIVERED THE FOLLOWING:
JUDGMENT These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), have been filed by the Revenue, which were admitted by a Division Bench of this Court by order dated 13.01.2017 on the following substantial question of law: Whether on facts and circumstances of the case, and inlaw, the tribunal is correct in holding that since under section 32 of the I.T.Act there is no specific provision of exercising of the option within a particular time, therefore to that extent the condition imposed under Rule 5(1A) proviso (ii) is invalid or not?
I.T.A. No.100098/2015 pertains to Assessment Year 2009-10, whereas I.T.A. No.100099/2015 pertains to Assessment Year 2010-11. Since common question of law and fact arise for consideration in these appeals, they are heard
4 analogously and are disposed of by this common judgment.
Facts giving rise to filing of these appeals, briefly stated, are that the assessee is a company which is engaged in production of sugar from sugarcane crushing. For the assessment year 2009-10, the assessee filed the return of income on 01.10.2010 returning ‘nil’ income. The income under the Minimum Alternative Tax was calculated and the tax payable was worked out to Rs.8,15,353/-. The Assessing Authority completed the assessment and assessed the total income of the assessee at Rs.4,10,27,915/- before setting off the carry forward losses. The Book Profit under Section 115JB was assessed at Rs.79,16,052/- as declared by the assessee. The Assessing Authority while completing the assessment made additions under the various heads and disallowed the claim of depreciation in part made by the assessee at Rs.16,79,53,376/-. The
5 Assessing Authority allowed the depreciation under Appendix IA at the rate of 7.69% as per Rule 5(1A) of the Income Tax Rules, 1962 (hereinafter referred to as ‘the Rules’) and excess claim was disallowed and an addition was made to the tune of Rs.16,24,10,101/- towards excess claim of depreciation.
Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), by an order dated 22.05.2013 upheld the disallowance of depreciation. The assessee thereupon approached the Income Tax Appellate Tribunal. The Tribunal, by an order dated 19.02.2015 has allowed the appeal preferred by the assessee and set aside the order of the Commission of Income Tax (Appeals). The Assessing Officer was further directed to allow depreciation as per Appendix I at the higher rates. The Tribunal, inter alia held that, Clause (i) of Section 32(1) of the Act
6 empowers the rule making authority to prescribe the percentage on the actual cost for allowing the depreciation. It was further held that the aforesaid provision does not empower the rule making authority to put any other condition and rule making authority can prescribe time of exercising the option provided such power is entrusted by the provisions of the Act. Accordingly, the Tribunal held that the second proviso to Rule 5(1A) of the Rules is invalid. In the aforesaid factual background the Revenue has filed these appeals.
The learned counsel for the Revenue has invited the attention of this Court to Section 32 of the Income Tax Act and has submitted that in case of assets of an undertaking engaged in generation or generation and distribution of power, the depreciation shall be allowed on the actual cost thereof to the assessee as may be prescribed. Our attention has also been invited to second proviso to Rule 5(1A) of the Rules and it has
7 been submitted that the claim for depreciation has to be filed along with the return of income filed under sub- section (1) of Section 139 of the Act. Admittedly, in the instant case, the assessee has not filed the return of income within the time limit prescribed under Section 139(1) of the Act, therefore, the Tribunal grossly erred in holding that the assessee is entitled to deductions as provided under Section 32 of the Act.
On the other hand, the learned counsel for the assessee has supported the order passed by the Tribunal and has invited the attention of this Court to Section 11 of the Act and Rule 17(1) of the Rules and has submitted that Rule 5 and Rule 17(1) of the Rules are pari materia provisions and controversy involved in these appeals is covered by the decision of Hon’ble Supreme Court in the case of Commissioner of Income-Tax v. Nagpur Hotel Owners’ Association, 2001 ITR (Vol.247) 201.
We have considered the submissions made by the learned counsel for the parties and have perused the records. Before proceeding further, it is apposite to take note of clause (ii)(b) of Explanation 1(2) to Section 11(1) and Section 32(1) of the Income Tax Act as well as Rule 5(1A) and Rule 17(1) of the Income Tax Rules, which read as under: Section 11(1) of the Act 11.
(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income – (a) x x x x x x (b) x x x x x (c) x x x x x (d) x x x x
Explanation 1.- For the purposes of clauses (a) and (b)
(1) x x x x x x x (2) x x x x x x x (i) x x x x x x (ii) for any other reason, then – (a) x x x x (b) in the case referred to in sub-clause (ii), so much of the income applied to
9 such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount,
may, at the option of the person in receipt of the income (such option to be exercised before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income, in such form and manner as may be prescribed) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.
Section 32(1) of the Act 32. (1) In respect of depreciation of – (i) buildings, machinery, plant or furniture, being tangible assets;
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998,
10 Owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed.
Rule 5(1A) of the Rules Rule “5(1A). The allowance under clause (i) of sub-section (1) of section 32 of the Act in respect of depreciation of assets acquired on or after 1st day of April, 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix 1A of these rules on the actual cost thereof to the assessee as are used for the purposes of the business of the assessee at any time during the previous year : Provided that the aggregate depreciation allowed in respect of any asset for different assessment years shall not exceed the actual cost of the said asset : Provided further that the undertaking specified in clause (i) of sub-section (1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read with Appendix I, if such
11 option is exercised before the due date for furnishing the return of income under sub-section (1) of section 139 of the Act.”
Rule 17(1) of the Rules “17(1). The option to be exercised in accordance with the provisions of the Explanation to sub-section (1) of section 11 in respect of income of any previous year relevant to the assessment year beginning on or after the 1st day of April, 2016 shall be in Form No.9A and shall be furnished before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income of the relevant assessment year.”
Thus, from the close scrutiny of Rule 5(1A) as well as Rule 17(1) of the Rules, it is evident that the aforesaid provisions of pari materia provisions. Rule 17(1) of the Rules was subject matter of interpretation in before the Hon’ble Supreme Court in the case of Commissioner of Income Tax (supra). In the aforesaid decision, the Hon’ble Supreme Court has held as under:
“It is abundantly clear from the wording of sub-section (2) of section 11 that it is
12 mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required, under rule 17 in Form No.10 of the Rules. If during the assessment proceedings, the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time he completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed, in our opinion, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee. Therefore, even assuming that there is no valid limitation prescribed under the Act and the Rules even then, in our opinion, it is reasonable to presume that the intimation required under section 11 has to be furnished before the assessing
13 authority completes the concerned assessment because such requirement is mandatory and without the particulars of this income, the assessing authority cannot entertain the claim of the assessee under section 11 of the Act, therefore, compliance with the requirement of the Act will have to be any time before the assessment proceedings.”
In the instant case, admittedly, in the return was filed on behalf of assessee, within the extended period of time provided under Section 139(4) of the Act, and the assessee has claimed depreciation. Thus, the benefit of the aforesaid decision of the Hon’ble Apex Court in the case of Commissioner of Income Tax (supra) would enure to the benefit of the assessee.
However it is pertinent to mention here that the Tribunal while taking into account Section 32 of the Act, has held that since Section 32 of the Act does not provide any specific provision for exercising the option within the time limit, therefore, the condition imposed in
14 the second proviso of Rule 5(1A) of the Rules to the extent that such an option has to be exercised at the time of filing of the return under Section 139(1) of the Act is invalid cannot be upheld. It is trite law that the Tribunal is bound by the provisions of the Act and the Rules and has no power to declare any provisions of either the Act or Rules to be invalid or ultra vires. Therefore, the substantial question of law framed by this Court is answered in favour of the Revenue and it is held that the Tribunal was not correct in holding that in the absence of prescription of any time limit under Section 32 of the Act, the condition mentioned in the second proviso to Rule 5(1A) of the Rules to exercise the option with regard to depreciation at the time of filing of the return under Section 139(1) of the Act is invalid, is not correct.
In the result, the impugned orders passed by the Tribunal insofar as it pertains to the finding that the
15 second proviso to Rule 5(1A) of the Rules are ultra-vires is hereby set aside. Though the substantial question of law has been answered in favour of the Revenue, however in view of the decision of the Supreme Court in the case of Commissioner of Income Tax supra, no relief can be granted in favour of the Revenue.
Accordingly, both the appeals filed by the Revenue are disposed of.
Sd/- JUDGE
Sd/- JUDGE
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