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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF FEBRUARY, 2021 PRESENT THE HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON’BLE MR. JUSTICE V. SRISHANANDA I.T.A. NO.22/2018 BETWEEN M/S RATO DRATSANG REP. BY ITS SECRETARY SRI KHEDUP LAMA CAMP NO.2 TIBETAN COLONY TATTIHALLI TQ. MUNDAGOD KARWAR, UTTAR KANNADA-581411 PAN: AAAAR8400L
…APPELLANT (BY SRI V.CHANDRASHEKAR, FOR SRI M LAVA, ADVOCATES) AND THE INCOME TAX OFFICER (EXEMPTIONS), WARD NO.1 C R BUILDING, ATTAVARA MANGALURU-575 001
…RESPONDENT (BY SRI K.V.ARAVIND, ADVOCATE) THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 08.09.2017 PASSED IN ITA NOS.1258 & 1261/BANG/2017, FOR THE ASSESSMENT YEARS 2011-2012 AND 2012-2013, PRAYING
2 TO (A)FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT (B) TO ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, "SMC-A" BENCH, BANGALORE IN ITA NOS.1258 & 1267/BANG/2017 DATED 08.09.2017 FOR THE ASSESSMENT YEARS 2011-12 AND 2012-13 RESPECTIVELY. (VIDE ANNEXURE-A). THIS I.T.A. HAVING BEEN HEARD AND RESERVED FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, V. SRISHANANDA. J., DELIVERED THE FOLLOWING: JUDGMENT
This appeal is filed under Section 260-A of the Income Tax Act [hereinafter referred to as ‘the Act’ for short] by the assessee for the assessment years 2011-12 and 2012-13.
The scope of the appeal is very limited inasmuch as a remand order made by the Tribunal to the Commissioner of Tribunal remanding the matter for a fresh consideration by the Commissioner of Income Tax (Appeals) is questioned by the assessee in this appeal.
Brief facts which are necessary for the disposal of this appeal are as under:
Assessee is a Trust registered under the Karnataka Societies Registration Act, 1960, carrying on with charitable activity of imparting education in Tattihalli, Mundgod, Uttara Kannada and also imparting education of tailoring to the needy poor people on charitable lines. The appellant assessee filed its returns of income for the years 2011-12 and 2012-13 on 29.6.2011 and 29.9.2012 declaring nil income. The returns were selected for scrutiny and assessments were completed by the Assessing Officer under Section 143(2) of the Act by order dated 31.3.2014 and 7.8.2014 for the assessment years 2011-12 and 2012-13 respectively disallowing the claim of depreciation for both the years on the ground that the assessee has not earned any income out of the use of the assets. 4. Being aggrieved by the order of the Assessing Officer, the assessee appealed to Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax remanded the matter back for fresh consideration by the Commissioner of Income Tax (Appeals) allowed the appeal filed by the assessee vide order passed in ITA
4 No.104/CIT(A)/HBL/2014-15 and in ITA No.364/CIT(A)/ 2014-15 dated 13.2.2017 holding that it was not necessary to earn any income by use of assets for claiming depreciation. 5. Revenue being aggrieved by the order of the Commissioner of Income Tax (Appeals) filed an appeal before the Appellate Tribunal. The Appellate Tribunal after considering the rival contentions of the parties held as under: "3. I have considered the rival submissions. I find that the AO has rejected the claim of the assessee on the basis that there is no income reported by the assessee out of the user of the assets against which the depreciation was claimed by the assessee. In my considered opinion, on this aspect, the order of CIT(A) is proper that even if no income is earned from user of assets during relevant year for regular business activity of the assessee then depreciation is allowable but whether the assets in question were being used by assessee in relevant years for regular business activity of the assessee is not coming out from the orders of the authorities below. Therefore I set aside the order of CIT(A) for both years and restore the matter back to his file for fresh decision after examination and decision on this factual aspect and he should
5 pass speaking and reasoned order as to whether assets in question were used by the assessee in relevant years for regular business activity of the assessee and thereafter decide this issue as per law after providing reasonable opportunity of being heard to both sides. 4. In the result, both the appeals filed by the revenue are allowed for statistical purposes in the terms indicated above." 6. As could be seen from the order of the Tribunal, the Tribunal held that order of the Commissioner of Income Tax (Appeals) is correct and if no income is earned from the use of the assets during the relevant year for the regular business activity, then depreciation is allowable. But the Tribunal also felt that whether the assets in question were used by the assessee or not in the relevant year is not considered by the Commissioner of Income Tax (Appeals) and therefore remitted the matter back to the Commissioner of Income Tax (Appeals) to decide said factual aspects of whether the actual assets were put to use for the relevant years for the regular business activity and to pass a speaking
6 order. It is that portion of the order which is being questioned in this appeal by the assessee. 7. In the appeal, the learned counsel for the appellant while addressing the arguments in respect of the grounds urged in the appeal by placing reliance on the judgment rendered by the Hon’ble High Court, Delhi, reported in [2017] 88 Taxmann.com 580 (Delhi) in the case of Sony India (P.) Ltd. V. Commissioner of Income Tax and argued that when once the assets are included in the block assets, there is no need to provide proof of use of all assets which were included in the block of assets and therefore, contended that the remand order made by the Tribunal for the Commissioner of Income Tax to enquire into the question of the assets being put to use is a futile exercise and thus sought for allowing the appeal. 8. In the appeal grounds, the following substantial question of law are raised: "1. Whether the Tribunal was justified in law in holding that the use of asset is essential for claiming depreciation under
7 section 32 read with section 13(6)(c) of the Income Tax Act, 1961 on the facts and circumstance of the case. 2. Whether the Tribunal was erred in law in not holding that the use of asset is not a necessary ingredient for allowing depreciation after the introduction of concept of block of assets in the Income Tax Act, 1961 on the facts and circumstance of the case. 3. Whether the Tribunal was justified in law in setting aside the Appellate order of the Commissioner of Income Tax(Appeals), and reversed the proper finding of the commissioner of Income Tax (Appeals) and more so when the authorities below had not disputed the use of the Assets and consequently passed a perverse order on the facts and circumstance of the case."
Per contra, learned counsel for the Revenue Sri K.V. Aravind, vehemently contended that the order passed by the Hon’ble High Court, Delhi is not applicable to the case on hand and relied on the judgment of the Hon'ble Apex Court reported in [2013] 29 taxmann.com 129 (SC)
8 between I.C.D.S. Ltd., and Commissioner of Income Tax, Mysuru and submitted that before the assets could be added to block of assets, it is necessary for the assessee to establish that the assets were actually put to use and then include into block of assets and therefore, the order of the Tribunal is perfectly justified and prayed for dismissal of the appeal. The relevant portion of the judgment relied on by the Revenue is culled out hereunder for ready reference: "15. We would like to dispose of the second contention before considering the first. Revenue argued that since the lessees were actually using the vehicles, they were the ones entitled to claim depreciation, and not the assessee. We are not persuaded to agree with the argument. The Section requires that the assessee must use the asset for the "purposes of business". It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. In the present case before us, the assessee is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(24) of the Act, the income derived from leasing of the trucks would be
9 business income, or income derived in the course of business, and has been so assessed. Hence, it fulfills the aforesaid second requirement of Section 32 of the Act viz. that the asset must be used in the course of business." 10. We have given our anxious consideration to the rival contentions of the parties.
The Tribunal agreed with the contentions urged on behalf of the assessee that if no income is earned from the use of assets during the relevant year for regular business activity of the assessee, then claiming of depreciation is justified. Therefore, the order of the Commissioner of Income Tax to that extent is upheld by the Tribunal also. However, the Tribunal in impugned order, as referred to supra, remitted the matter back to the Commissioner of Income Tax (Appeals) to inquire into the question of whether the assets were put to use in the relevant year before adding the block of assets, or not is a relevant factor to be established by the assessee and thereafter the Commissioner of Income Tax (Appeals) is required to pass a speaking order. There is sufficient force in the arguments of the Revenue in regard to such a finding
10 recorded especially in view of the order passed in I.C.D.S. Ltd. by Hon'ble Apex Court (supra). However, at this stage, the learned counsel for the assessee contended that the Tribunal did not specify the years for which the inquiry should be carried out and the Revenue may take advantage of such an observation and inquire into all years. In our opinion, such an apprehension is uncalled for in view of the fact that the dispute is only with regard to the assessment years 2011-12 and 2012-13. However, we make it clear that the inquiry as ordered by the Tribunal shall be restricted for the years 2011-12 and 2012-13.
With this observation, the substantial questions of law raised in the appeal are answered against the assessee and in favour of the Revenue.
Resultantly, the appeal is dismissed. Sd/-
JUDGE Sd/- JUDGE PL*