Loading judgment…

ACIT vs Kolkata Port Trust, Kolkata | ITAT Kolkata 2017 | BharatTax

ACIT, CIR-35, KOLKATA, KOLKATA vs. KOLKATA PORT TRUST, KOLKATA

ITA 412/KOL/2014Status: DisposedITAT Kolkata01 March 2017AY 2009-201012 pages

No AI summary yet for this case.

Cases cited in this judgment

Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.

Industrial Area Development Authority v. Union of India
283 ITR 97 · 2006 · SC
37 citing

Income Tax Appellate Tribunal, “B” BENCH: KOLKATA

Before: Shri M. Balaganesh, AM & Shri Partha Sarathi Chaudhury, JM]

Hearing: 01.03.2017Pronounced: 01.03.2017

ORDER

Per Shri M. Balaganesh, AM:

1.

This appeal by revenue is arising out of order of CIT(A)-XX, Kolkata vide appeal No. 392/CIT(A)-XX/Cir-35/2011-12/Kol dated 22.11.2013. Assessment was framed by ACIT, Circle-35, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 30.12.2011.

2.

At the outset, there is a delay of 8 days in filing the appeal by the revenue before us. On going through the reasons stated in the condonation petition and in view of the concession given by the ld AR to condone the delay, we hereby condone the delay and admit the appeal for adjudication.

3.

The first issue to be decided in this appeal of the revenue is that whether the assessee port trust could be assessed in the status of a ‘local authority’ in the facts and circumstances of the case.

3.1. The revised return of income for the Asst Year 2009-10 was filed on 31.3.2011 disclosing loss of Rs. 20,75,54,316/- and assessment was completed u/s 143(3) of the Act on 30.12.2011 on the assessed income of Rs. 12,94,83,754/- assessing the assessee in the status of a ‘company’ rejecting the claim of status of ‘local authority’ and making certain disallowances in depreciation. However, the ld CIT(A) reversed the decision of the ld AO

2 Kolkata Port Trust, AY 2009-10 on merits by holding the assessee trust as a ‘local authority’. Aggrieved, the revenue is in appeal before us on the following ground :- “1. In the facts and circumstances of the case whether CIT(A) has erred in assessing status of Kolkata Port Trust as “Local Authority” instead of “company”.”

3.3. We have heard the ld AR. We find that the issue under dispute is squarely covered by the decision of the co-ordinate bench of this tribunal in favour of the assessee in assessee’s own case vide to 2630/Kol/2013 and ITA Nos. 2868 to 2870/Kol/2013 dated 8.7.2016 for the Asst Years 2003-04 to 2005-06 wherein it was held as under:- “6.4. We hold that the meaning of the expression ‘local authority’ as inserted in the Explanation to section 10(20) of the Act with effect from Asst year 2003-04 is not applicable for determining the status in which the assessee should be assessed nor it is relevant for deciding the rate of tax applicable. Up to assessment year 2002-03, KOPT was exempted from payment of tax under section 10(20) of the Act as it existed up to assessment year 2002- 03. As per section 3(31) of General Clauses Act, Port Trust is a local authority. Local Authority, according to section 3(31) of the General Clauses Act shall mean a municipal committee, District Board, Body of Port Commissioners or other authority legally entitled to, or entrusted by the Government with control or management of municipal or local fund. All Major Port Trusts therefore, fall within the meaning of the expression "local authority" under the General Clauses Act. By the Finance Act 2002 w.e.f. assessment year 2003-04, exemption under section 10(20) of the Act has been restricted to few local authorities viz. Panchayat as referred to in clause (d) of Article 243 of the Constitution, Municipal as referred to in Clause (e) of Article 243P of the Constitution, Municipal Committee & District Board and Cantonment Board as defined in Section 3 of the Cantonment's act, 1924. Thus w.e.f. assessment year 2003-04, only these local authorities continue to claim exemption under section 10(20). However, it may be noted that the definition of "local authority" as per General Clauses Act has not undergone any change. Therefore, KOPT remains as a local authority as per General Clauses Act, but its exemption under section 10(20) of the Act has been withdrawn w.e.f. assessment year 2003-04. In view of that, return has been correctly filed by KOPT in the status of a local authority. KOPT is governed by the Major Port Trusts Act. 6.5. The ld. AR apart from arguing that the assessee’s status should be assessed only as a local authority also objected to the reopening of assessment on the ground that no new information has been brought into record to justify initiation of the proceeding under section 147 of the Act. All information required for the purpose of assessment were provided in the course of assessment u/s 143(3) of the Act. Moreover, in course of rectification proceedings u/s 154 of the Act which was sought by the assessee, a specific query was raised as to why KOPT would be assessed as a local authority. The assessee in reply to the query vide letter dated 20.05.2009 explained why it had filed return of income in the status of a 'local authority'. He argued that the reopening has been made merely on the basis of change of opinion without bringing on record any new facts or materials. He further argued that there was no failure on the part of the assessee to make full and true disclosure of income of the assessee or particulars of income of the assessee. This is more relevant as the reopening was made beyond 4 years from the end of the relevant assessment year. He argued that no material evidence has been brought on record by the ld. AO to prove that there was failure on the part of the assessee from making the full and true disclosure of its income warranting reopening beyond 4 years. We find from page 30 of the paper book that the ld AO had recorded the following reasons for reopening the assessment:- “Sub.: Reasons for re-opening under section 148 of the I. T. Act for A.Y. 2003-04. Ref.: Your letter No. Fin/08/Tax dated 29/04/2010 received by this officer on 03/05/2010. Please refer to the above. Reasons recorded for re-opening for A.Y. 2003-04 in your case stand as under: "The Supreme Court In the case of Adityapur Industrial Area Development Authority v. Union of India [2006] 283 ITR 97 has held that income of an authority, even constituted by a notification under an Act enacted by the Legislature, is not the income of the Government and the Authority cannot claim exemption from Union taxation. The Prime Minister's Council on Trade and Industry in its recommendation on Ports under Infrastructure Development has recommended that 'to ensure that the port trusts start operating along more commercial lines, it is necessary to corporatise them'. Further, section 5 of the Major Port Trust Act, 1963 provides that 'every Board constituted under this Act shall be a body corporate having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold or dispose of property and may by the name by which it is constituted, sue or be sued'. Further, the Ministry of Shipping guidance note provides that 'the format of financial statements prescribed by the Indian Companies Act, 1956 has been used as the basis for developing the accounting format of port trusts together with the requirement of accounting standards' vide Ministry of Shipping [Ports Wing] letter No. PR- 20021/2/98-PG dated 06/11/2002. The port trusts thus follow accrual system of accounting and the identification of revenue and expenditure is based on the principles contained in the Companies Act, 1956. Further, steps have already been taken for corporatisation of JNPT, New Mangalore and Tuticorin port trusts viz. registering with the jurisdictional Registrars of Companies. In view of above, I have the reason to believe that income of the assessee for the relevant assessment year in question has been assessed considering the status of the assessee as Local Authority at a low rate instead of treating the status as Company, due to failure on the part of the assessee to disclose full and true particulars for A.Y. 2003-04 within the meaning of Explanation- 2(c)(ii) of section 147 of Income Tax Act, 1961.

6.6. We find that the assessee had given reply to the assessee objecting to the reasons recorded on merits of the issue also apart from questioning the same on legality of the same. We find that the assessee had given its objections on each and every averment made by the ld AO in the reasons recorded as under:- (i) In the reason for reopening provided by you, you have relied on the Supreme Court's judgement in the case of Adityapur Industrial Area Development Authority Vs. Union of India (283 ITR 97). In the said judgement the Apex Court has held that income of an Authority even though constituted by a notification under an Act enacted by the State legislature, is not income of the State Government and the Authority cannot claim exemption from Union Taxation. Reply - It is submitted that the fact of that case is totally different from that of the assessee. The assessee has not claimed exemption from Union Taxation on the ground of it being 'Government' KoPT is a local authority under the General Clauses Act but its exemption under section 10(20) of the Income Tax Act has been withdrawn. It filed its return of income for the assessment year in question offering its income for tax. In the case cited by you the assessee sought to claim exemption under section 10(20) which is not in the case of KoPT. (ii) In the reason for reopening provided by you, you have also stated that the Prime Minister's Council on trade and industry in its recommendation on Ports has recommended that to ensure that Port Trusts start operating along more commercial lines, it is necessary to corporatise them. You have also commented that steps have already been taken for corporatisation of JNPT, New Mangalore and Tuticorin Port Trusts. Reply - In this connection it may kindly be noted that KoPT has not gone for corporatisation. It is still a local authority. If in the future it is corporatised, it will be filing its return in the status a Company and pay tax at the rate applicable to a company. (iii) Regarding your observation, in the reason for reopening that the format of financial statements prescribed by the Companies Act 1956 has been used as the basis for developing the accounting format of Port Trusts. Reply - It may be noted that the format of financial statements adopted by KoPT is not that prescribed by Companies Act 1956. The format has been designed to make the financial statements more transparent and more useful for the stake holders. Even before withdrawal of exemption under section 10(20) of the Income Tax Act, KoPT was following accrual system of accounting and the same format for preparation of financial statements. Therefore, merely because KoPT follows accrual system of accounting, it cannot be deemed to a company for income tax purposes. (iv) In the reason for reopening, you have referred to Section - 5 of the Major Port Trusts Act which provides that every Board constituted under this Act shall be a body corporate having perpetual succession and a common seal with power, subject to the provisions of this Act to acquire, hold or dispose of property and may by the name by which it is constituted, sue or be sued. Reply- In this connection, it may be noted that body corporate does not always mean a Company. The definition of body corporate as per the Legal Dictionary is as follows: Body Corporate is a legal entity (such as an association, firm, Government, Government Agency, institution) identified by a particular name. It comprises of a collection or succession of individuals who have existence, rights and duties distinct from their existence, rights and duties as individuals and is also called corporate body or-corporate entity. Hence even an association or firm or Government agency may be referred to as a body corporate. (v) Section 2(17) of the Income Tax Act, gives the definition of "Company". The definition of 'Company' is an exhaustive definition. As per the said section 'Company' means -- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a company outside India, or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income Tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company: Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration. Thus, KoPT is not covered by this definition of company as per the Income Tax Act. (vi) Similarly, section 10(26) of the Act gives the definition of 'Indian Company' which is as under --- "Indian Company" means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes --- (i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause) : (ia) a corporation established by or under a Central, State or Provincial Act; (ib) any institution, association or body which is declared by the Board to be a company under clause (17) ; (ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State; (iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Oaman and Diu and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory : Provided that the registered or, as the case may be principal office of the company, corporation, institution, association or body in all cases is in India: Hence, KoPT is not also covered by this definition. (vii) Moreover, it may be noted that the assessee Kolkata Port Trust has registered for Service Tax and VAT purposes as a 'local authority' and not as 'Company' and the same has been accepted by the respective authorities. 6.7. We find that the ld AO had passed an independent order dated 18.11.2010 disposing off the preliminary objections raised by the assessee on reopening of assessment, wherein, he had justified the reopening of assessment by making the following observations:- “The only criteria at this juncture is that, the prime Minister's Council on Trade and Industry in its recommendation on ports, under the Infrastructure Development has recommended that to ensure that the port trusts start operating along more commercial lines, it is necessary to corporatise them and the assessee (Port Trust) does follow accrual system of accounting and the identification of revenue and expenditure is based on the principles contained in the Companies Act, 1956. Further, the Ministry of Shipping guidance note provides that, the format of financial statements prescribed by the Indian Companies Act, 1956 has been used as the basis for developing the accounting format of port trusts together with the requirements of the accounting, standards vide Ministry of Shipping (ports Wing) letter No. PR-20021/2/98-PG dated 06/11/2002. Steps have already been taken for corporatization of JNPT, New Mangalore and Tuticorin port trusts Viz. registering with the jurisdictional Registers of companies. Further, section 5 of the Major Port Trust Act, 1963 not only provides every Board under this Act to be a Body corporate but also common seal with power, subject to the provision of this Act to acquire; hold or dispose of property and may by name by which it is constituted, sue or be sued. Further section 2(17)(i) of the Income tax Act states that Company also means any Indian company and when read with section 2(26)(ia) which states that "Indian Company" means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes a corporation established by or under a Central, State or Provincial Act. The Kolkata Port Trust also comes under the Major Port Trust Act, 1963. In fact the commissioners of the port were responsible for the port till January 1975, after which the responsibility is on Major port Trust Act, 1963 which came into force then. Therefore, the assessee fulfills all the criteria of a company but has been assessed at a lower rate as a Local Authority and not as a company. On examination of the assessment records, it emerged that the above facts was not considered during assessment u/s 143(3) of the income Tax Act after looking into the facts as stated above. The submissions of the assessee were not examined in proper and right perspective and the assessee's explanation and claim in this regard was wrongly accepted. After amendment to section 147 of the Income Tax: Act w.e.f. assessment year 1989-90, the scope and the ambit of provisions of section 147 have been enlarged and therefore if the A.O. is satisfied that any excess deduction or relief has been allowed, then it is permissible for him, to reopen the concluded assessments. In this case the facts on record gathered in course of regular assessment excess relief has been granted by computing the tax at lower rate. I therefore reject the Objections of the assessee to the reassessment proceedings initiated u/s 147 explanation 2(c)(ii) of the Income Tax Act. I, accordingly, propose to proceed with the reassessment proceedings u/s 147 of the Income Tax Act.”

1/94-95/75 dated 23.6.1994 , it was categorically stated that the assessee port trust being a local authority is not liable for income tax u/s 10(20) of the Act and hence no tax need to be deducted on the rental payments made to the assessee trust. 6.9. All these correspondences prove beyond doubt that the assessee’s status to be assessed as a local authority and its income was exempt u/s 10(20) of the Act was accepted by the Income Tax Department upto Asst Year 2002-03. Only pursuant to an amendment made in section 10(20) of the Act with effect from Asst Year 2003-04, the situation has undergone change wherein the activities of the assessee port trust would not fall under the definition of the expression ‘local authority’. At the cost of repetition, we state that the said definition inserted in section 10(20) is only applicable for the purpose of section 10(20) of the Act and for assessee’s claiming exemption under that section. It is not in dispute that the assessee had not claimed any exemption u/s 10(20) of the Act for the impugned assessment years under appeal before us. Hence the amendment in section 10(20) is not at all applicable to the assessee port trust. We also find from the paper book filed by the assessee vide pages 77 to 83 of paper book that major port trusts in India had given confirmation to the assessee port trust that they are being assessed only as a ‘local authority’ and not in the status of a ‘company’ under the Income Tax Act and the same has been accepted by the Income Tax Department as below:- Chennai Port Trust – Vide Ref. Letter No. Income Tax Cell/6/2010/F dated 28.12.2010 Mormugao Port Trust - Vide Ref. Letter No. FA/B.52/2010/176 dated 28.12.2010 Mumbai Port Trust - Vide Ref. Letter No. FA/A/IT/ Misc/1133 dated 3.2.2011 New Mangalore Port Trust- Vide Ref. Letter No. NMPT/FIN/ITA/2010-11 dated 4.1.2011 Cochin Port Trust - Vide Ref.Letter No. CAD/Taxes Cell/Income Tax/ 2010 dated 31.12.2010 Visakhapatnam Port Trust- Vide Ref.Letter No. FA?B&B/Reopening of Asst Dated 24.12.2010 6.10. We find that the Income Tax Act does not define the expression ‘local authority’ other than what is mentioned in the Explanation to section 10(20) of the Act. This definition as clearly stated in the said explanation is only for the purpose of section 10(2) of the Act and does not apply to the definition of the expression ‘person’ contained in section 2(31) of the Act, sub-clause (vi) whereof, also includes a ‘local authority’ as a ‘person’, who is an assessee within the meaning of section 2(7) of the Act. We also find that the definition of the expression ‘local authority’ has to be drawn from the General Clauses Act has been approved by the following decisions:- Buddha Veerinaidu vs State of Andhra Pradesh reported in (1983) 143 ITR 1021 at 1024 (SC) – It was held that the body of ‘port commissioners’ are specifically mentioned in section 3(31) of the General Clauses Act , as ‘Local Authority’. The port commissioners are appointed specifically by the Government to administer the affairs of the ports and they ned not and do not discharge any functions of local self government. Calcutta State Transport Corporation vs CIT reported in (1977) 108 ITR 922 at 929 (Cal) - This was affirmed by the Hon’ble Supreme Court in (1996) 219 ITR 515 (SC) - The definition given in the General Clauses Act, 1897 govern all Central Acts and Regulations made after the commencement of that Act. The definition given in section 3(31) will, therefore, hold good for construing the expression ‘Local Authority’ occurring in the Land Acquisition Act. Union of India vs R.C.Jain reported in (1981) 2 SCC 310 (SC) In this decision, their Lordships of Hon’ble Supreme Court following the definition of the expression ‘Local Authority’ as contained in the General Cluases Act held and observed that the Delhi Development Authority is a local authority for the purposes of Payment of Bonus Act, 1965, which Act also did not contain any definition of the expression ‘Local Authority’. Especially in page 312 para 5, the Hon’ble Supreme Court noted that Delhi Development Authority was constituted by the Central Government under section 3 of the Delhi Development Act, 1957. The said Act inter alia provided that the Delhi Development Authority shall be a body corporate having perpetual succession and a common seal, with the usual corporate attributes. CIT vs U.P.Forest Corporation reported in (1998) 230 ITR 945 at 951 (SC) The Hon’ble Supreme Court in the absence of any definition of the expression ‘Local Authority’ in the Income Tax Act, 1961, adopted and applied the definition of that expression as contained in section 3(31) of the General Clauses Act, 1897 for the purposes of examining whether U.P.Forest Corporation was or was not a Local Authority under the Income Tax Act, 1961. CIT vs Agricultural Marketing Produce Committee reported in (2001) 250 ITR 369 (Del) The Hon’ble Delhi High Court after reiterating the aforesaid decisions of the Hon’ble Apex Court quoted inter alia the following three tests are relevant for determining whether an authority could be held to be a local authority:- (a) It must have a separate legal existence as a corporate body and an autonomous status ; (b) It must not be a mere governmental agency but must be a legally independent entity ; (c) The control or management of the fund must vest in the authority. Krishi Utpanna Bazar Samiti vs ITO reported in (1986) 158 ITR 742 (Bom) The Hon’ble Bombay High Court applied the aforesaid principles in upholding that the said assessee was also a local authority, as defined in section 3(31) of the General Clauses Act, 1897, in the absence of any definition of that expression in the Income Tax Act, 1961. 6.11. We find that the decision of the Hon’ble Supreme Court in Adityapur Industrial Area Development Authority vs Union of India & Ors reported in (2006) 283 ITR 97 (SC), referred to the ld AO in the reasons recorded and in the re-assessment orders dated 30.12.2010, has no application whatsoever in deciding the controversy raised by the ld. AO. In that case, the question for consideration before the Hon’ble Supreme Court was as to whether Adityapur Industrial Area Development Authority governed by the Bihar Industrial Area Development Authority Act, 1974 was part of the state government and / or that its income was the income of the state government entitled to exemption from union taxation under Article 289 of the Constitution. Their Lordships of the Hon’ble Supreme Court held that in view of the insertion of the Explanation u/s 10(20) of the Income Tax Act, 1961, Adityapur Industrial Area Development Authority was not a local authority, as defined for the purposes of section 10(20) of the said Act; and with the further omission of section 10(20A) of the said Act from the statute book, that the assessee was not entitled to claim any tax exemption, particularly in view of the fact that its income could not be said to be the income of the state so as to be exempt from union taxation under Article 289(1) of the Constitution. 6.12. We also find that the ld. AO has accepted the status of the assessee port trust as a local authority even in the recently concluded scrutiny assessment for the Asst Year 2012-13 u/s 143(3) of the Act dated 28.3.2015 which could be evident from pages 101 to 108 of the paper book of the assessee. We find that all the port trusts such as Chennai Port Trust, Mormugao Port Trust, Mumbai Port Trust, New Mangalore Port Trust, Cochin Port Trust and Visakhapatnam Port Trust were being assessed to income tax as ‘Local Authority’.

The respondent assessee became chargeable to Income Tax with effect from the Assessment Year 2003-2004 commencing on 1st April, 2003, the relevant financial Year being 1st April, 2002 to 31st March, 2003. Accordingly, the respondent assessee claimed depreciation on the book-value of all its depreciable assets as appearing in audited books of accounts as on 1st April, 2002, the first day of the relevant previous year corresponding to the Assessment Year 2003-2004. The learned Tribunal has dealt with the issue of depreciation at length in its consolidated order dated 24th January, 2013. Mr. S.N. Dutta, appearing on behalf of the appellant argued that the respondent assessee had repeatedly been changing the figure of the book value of its assets and had failed to furnish details in course of the assessment proceedings. A perusal of question 1 also reveals that the main thrust of the case of the Revenue was that the respondent assessee had, time and again revalued its assets and had failed to provide details at the time of assessment. Mr. Poddar appearing on behalf of the respondent assessee submittd that the learned Tribunal had dealt with these points and referred to the findings of the learned Tribunal extracted hereinbelow:- “The assessee before the AO in response to the above Notice filed necessary details through letters dated 15.12.2008 & 22.12.2008, including, inter alia, the Audit Report dated 20.12.2008, certifying, inter alia, the book value of the depreciable assets held by the assessee as on 01.04.2002, 31.03.2002, 31.03.2003, 31.03.2004 & 31.03.2005 as well as depreciation to be allowed thereon having regard, inter alia, to the new Explanation (6) inserted under section 43(6) of the Act by the Finance Act, 2008 with retrospective effect from 01.04.2003………………..the assessee filed compete details of assets, registers maintained for all its assets and also filed necessary details and clarification as were asked for by the authorities………………We find that the CIT(A) vide his order dated 30.06.2008 for A.Y. 2004-05 has directed the AO to allow depreciation after considering step wise working filed by assessee in accordance with amended law. The relevant findings of CIT (A) are reproduced above in this order at para 4. Even for A.Y. 2005-06 the CIT (A) has also directed similarly vide his order dated 14.12.2009 and revenue has filed no appeal against any of the above stated two appellate orders. Similarly, CIT(A) vide order dated 31.10.2011 for A.Y. 2004-05 and 2005-06 has similarly directed the AO. The assessee has filed step wise working in the form of audit report dated 20.01.2010 given by a Chartered Accountant firm which is even now before us at pages 271 to 785 of the paper book volumes 2 and 3 in respect of ITA No.1041/K/2007. These documents were even filed before the AO……….We are of the view that for calculating depreciation the AO has to consider the retrospective amendment carried out in the statute book by inserting Explanation (6) to Section 43(6) of the Act and to allow depreciation in accordance with law after making fresh calculation with reference to the book value of the assets following the retrospective amendment. The assessee has already filed the detailed statement which have been checked and verified by the auditors and also the AO could have very well checked the same……………… Hence, we direct the AO to accept the book value of assets as on 01.04.2002 and recompute the depreciation as on 31.03.2003, 31.03.2004 and 31.03.2005 on all assets acquired prior to 01.04.2002 and in use on that date on the written down value of the assets as per books of accounts of assessee as on 01.04.2002. Hence, this issue is decided in favour of the assessee and against the revenue. This issue in all these appeals is answered accordingly.”