ASSISTANT COMMISSIONER OF INCOME-TAX, AURANGABAD vs. MAHARASHTRA WATER CONSERVATION CORPORATION, AURANGABAD

आदेश / ORDER

PER VIKAS AWASTHY, JM

These two appeals have been filed by Revenue assailing the order of Commissioner of Income Tax (Appeals)-1, Aurangabad for the assessment years 2010-11 and 2011-12, respectively. The impugned order for the assessment year 2010-11 is dated 25.03.2015 and for the assessment year 2011-12 is dated 10.09.2015.

2 ITA Nos.883 & 1568/PUN/2015 A.Ys.2010-11 & 2011-12

Since, the issues involved in both the appeals are identical, these appeals

by Revenue are taken up together for adjudication and are disposed of vide this

common order.

a State Government undertaking, formed under Maharashtra Water

Conservation Corporation Act, 2000. The main purpose of assessee is promotion,

operation, development, regulation of watershed, water conservation works

including social forestry and implementation of irrigation projects approved by

the Government of Maharashtra. During the assessment year 2010-11, the

assessee filed its return of income declaring total income as ‘Nil’. The case of the

assessee was selected for scrutiny under CASS. Accordingly, statutory notice

u/s.143(2) was issued on 25.08.2011. During the course of scrutiny assessment

proceedings, the Assessing Officer observed that the assessee had claimed

depreciation on water conservation projects and other assets at

Rs.6,87,34,681/-. The Assessing Officer rejected the assessee’s claim of

depreciation on the premises that the new asset i.e. reservoir has not been put to

use, the assessee is not entitled to claim depreciation on the same. Accordingly,

the Assessing Officer disallowed Rs.6,87,34,681/- claimed by assessee as

depreciation.

Similarly in assessment year 2011-12, depreciation claimed by assessee to

the tune of Rs.8,71,63,811/- was disallowed by the Assessing Officer for

identical reasons.

2010-11 and Rs.77,263/- in assessment year 2011-12 as income from fisheries

under the head ‘Business Income’. The Assessing Officer held that income from

3 ITA Nos.883 & 1568/PUN/2015 A.Ys.2010-11 & 2011-12

fisheries is not a ‘business income’ and held the same to be taxable under the

head ‘income from other sources’.

Against the findings of Assessing Officer, the assessee filed appeals for

respective assessment year before the Commissioner of Income Tax (Appeals).

The Commissioner of Income Tax (Appeals) accepted the contention of assessee

and reversed the findings of Assessing Officer. Now, the Revenue is in appeal

before the Tribunal assailing the order of Commissioner of Income Tax (Appeals).

the findings of Commissioner of Income Tax (Appeals) in accepting both the

claims of assessee. The ld. DR submitted that the main business of assessee is

conservation and supply of water for irrigation purpose. The other activities

relating to irrigation such as fisheries, pisciculture, floriculture, horticulture,

sericulture etc are ancillary activities. Thus, it is not a part of main objects of the

assessee. Income from fisheries is only a miniscule part of earning of assessee.

Therefore, any income arising from such ancillary activities would not form a

part of ‘business income’ but would be assessed under the head of ‘income from

other sources’.

during the period relevant to assessment year 2010-11, the assessee had earned

income from fisheries contract amounting to Rs.2,64,222/-. The ld. AR in

support of his submission referred to Schedule- XIII of the profit & loss account

dated 31.03.2010. The ld. AR submitted that the assessee is a State Government

Corporation with the objects of promotion, execution and finance scheme for

water conservation, irrigation, soil conservation, watershed management and

social forestry etc. Apart from various other objects, the assessee has also

promoted irrigation related activities such as fisheries, pisciculture, floriculture,

4 ITA Nos.883 & 1568/PUN/2015 A.Ys.2010-11 & 2011-12

horticulture, sericulture etc. Thus, income earned by assessee from fisheries is

‘business income’ of the assessee. In both the impugned assessment years, the

Assessing Officer treated income from fisheries as ‘income from other sources’.

In the earlier assessment years, the assessee has been consistently showing

income from fisheries under the head ‘business income’. No objection,

whatsoever, was raised by the Assessing Officer. A change of head of income in

respect of income from fisheries from ‘business income’ to ‘income from other

sources’ has been made for the first time in assessment year 2010-11.

5.1 The ld. AR further submitted that Commissioner of Income Tax (Appeals)

has rightly allowed the assessee’s claim of depreciation on reservoir. The

Assessing Officer has erred in coming to the conclusion that new water reservoir

has not been put to use, therefore, the assessee is not eligible for claiming

depreciation on same. The assessee has shown income from fisheries from the

said reservoir. The assessee allocated contract through tenders for carrying out

fishing activities in the reservoir. Income from allotting license for fishing is one

of the sources of income of assessee. Therefore, it cannot be said that reservoir

was not put to use and no income was earned from use of reservoir during the

period relevant to assessment year under appeal. The ld. AR asserted that

quantum of income earned does not decide whether the asset has been put to

use or not. The ld. AR pointed that in assessment year 2009-10, the assessee

had claimed depreciation and the same was allowed. To support his contentions

that the assessee is eligible to claim depreciation on reservoir, the ld.AR has

placed reliance on the decision of the Co-ordinate Bench of Tribunal in the case

of Tapi Irrigation Development Corporation Vs. ITO in ITA No.2367 to

2369/PN/2012 for assessment years 2006-07, 2008-09 and 2009-10 decided on

29.11.2013 and the decision of Hon'ble Delhi High Court in the case of Capital

Bus Service (P.) Ltd. Vs. Commissioner of Income-Tax reported as 123 ITR 404.

5 ITA Nos.883 & 1568/PUN/2015 A.Ys.2010-11 & 2011-12

have perused the orders of Authorities below. We have also considered the

decisions and documents on which the ld. AR of assessee has placed reliance to

support his submission. Two issues have been raised by the Revenue in its

appeals. The first issue is with respect to head of income under which income

from fisheries is to be assessed i.e. whether it is ‘business income’ or ‘income

from other sources’. The second issue raised by the Revenue is whether the

assessee is eligible to claim depreciation on reservoir when no income has been

declared from new asset acquired by assessee.

In so far as the first issue relating to income from fisheries is concerned,

we find that it would be relevant to refer the objects of assessee. Chapter-IV of

the Maharashtra Water Conservation Corporation Act, 2000 deals with functions

and powers of Corporation. In section 18 of the said Act, functions of the

Corporation are enumerated. In clause-(m) of Section 18, fisheries has been

mentioned as one of the activities promoted by the assessee. The relevant extract

of section 18 is reproduced herein below for ready reference:

“18. The functions of the Corporation shall be as follows, namely:- (a)……………. (b)……………. ……………. ……………. (m) to promote irrigation related activities such as fisheries, pisciculture, floriculture, horticulture, sericulture, etc.”

A perusal of the section 18 reveals that the functions or objects mentioned

are not divided into main functions/objects or ancillary functions/objects.

Thus, any income earned by the assessee from any of the activities/functions

carried out as listed in section 18 would fall within the ambit of activities carried

out by the assessee and income earned from such activities would be ‘business

income’ of the assessee. Therefore, in our considered view, the income earned by

6 ITA Nos.883 & 1568/PUN/2015 A.Ys.2010-11 & 2011-12

assessee from fisheries, howsoever, small it may be, is ‘business income’ of the

assessee. Accordingly, ground No. 1 raised in appeals by Revenue for both

the assessment years is dismissed.

claim of depreciation. The Assessing Officer rejected the assessee’s claim of

depreciation for the following reasons:

(i) The assessee has not earned income from its main business of irrigation

and water supply.

(ii) The income earned from fishing contract is not the main business of

the assessee.

(iii) For the purpose of claiming depreciation the assets must have been

used for the purpose of business. Since no income has been earned from

the assets, therefore, it cannot be said the asset is put to use. Hence,

depreciation on the said asset can be allowed to the assessee.

We find that objections raised by the Assessing Officer to disallow

assessee’s claim of depreciation are not sustainable. The Commissioner of

Income Tax (Appeals) allowed the claim of assessee by following the decision of

Co-ordinate Bench of Tribunal in the case of Tapi Irrigation Development

Corporation Vs. ITO (supra).

In the present case, we find that the assessee has earned income from

allocating contract for fishing at newly created reservoir. While adjudicating

ground No.1 of the appeal, we have held income earned by assessee from

fisheries as ‘Business Income’ of the assessee. Thus, the asset had come into

existence and assessee has earned some income from the said asset. It is not

disputed by the Revenue that income from fisheries is not from reservoir on

7 ITA Nos.883 & 1568/PUN/2015 A.Ys.2010-11 & 2011-12

which depreciation has been claimed by the assessee. The quantum of the income earned from asset would not determine whether the asset has been put to use or not. Once the asset has come into existence and is put to use, the assessee is eligible to claim depreciation on same. We do not find any infirmity in the order of Commissioner of Income Tax (Appeals). Accordingly, the order of Commissioner of Income Tax (Appeals) is upheld and ground No. 2 raised in appeals by Revenue for both the assessment years are dismissed.

Order pronounced on Friday, the 23rd day of March, 2018.

Sd/- Sd/- (डी. क�णाकरा राव/D. KARUNAKARA RAO) (�वकास अव�थी /VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 23rd March, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-1, Aurangabad. 4. The Pr. CIT-1, Aurangabad. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// स�या�पत ��त // True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.