KOLKATA PORT TRUST,KOLKATA vs. A.D.I.T ( EXEMPTION) -II,KOLKATA, KOLKATA

The only issue in this appeal of assessee is against the order of CIT(A) is, whether the amount borrowed by assessee in the AY 2004-05 and used for repayment of “ways and means” during the relevant AY 2007-08 be treated as an application of income u/s. 11 of the Act or not? For this, assessee has raised following five effective grounds: “1. That the learned Commissioner of Income Tax (Appeals) erred in holding that repayment of "Ways and Means" Loan, (borrowed by the Appellant Institution in the financial year ending 31st March, 2004 corresponding to the assessment year 2004-05, and wholly and exclusively used for its objects and purposes in that year itself), in the financial year ending 31st March, 2007 to the tune of Rs.7.33 crores, could not be lawfully treated as an "Application of Income" in the computation of total income of the Appellant Institution under section 11 of the Income Tax Act, 1961 in the assessment year 2007-08, now under appeal.

Briefly stated facts are that the AO during the course of assessment proceedings noticed from the computation of income that the assessee institution has claimed repayment of “ways and means loans” to the extent of Rs.7,33,33,333/- and also claimed the same as an application for charitable purposes. The AO required the assessee to explain as to why this should not be treated as income of the assessee and not an application of income u/s. 11 of the act. The assessee Trust filed details of “ways and means loans”, which revealed that a loan of Rs. 66 cr. was raised during FY 2003-04 relevant to AY 2004-05 for the purpose of payment of pay arrears and compensation consequent to pay revision order in respect to 6th Pay Commission. Assessee claimed that repayment of loan is very much an application of income towards the objective of the institution and they relied on CBDT Circular No.100 dated 24.01.1973. The AO was of the view that the assessee institution has already claimed the expenditure incurred on payment of arrears of pay and pension as expenditure in the year of payment and, therefore, the claim made in the year of repayment of loan is in fact, the double deduction of expenditure, which was incurred and already allowed. Therefore, the AO disallowed the sum of Rs.7,33,33,333/- as an application of income in the year under consideration. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) after considering the submissions of the assessee dismissed the claim of the assessee by observing as under: “I have carefully considered the submissions of the Ld. ARs and also perused the assessment order. I have also gone through the clarification issued by the CBDT in Circular No. 100 dated 24.01.1973. The Board has clarified that the ‘repayment of the loan originally taken to fulfill one of the objects of the trust will amount to an application of the income for charitable and religious purpose.’. The ld. ARs heavily relied on the aforesaid Circular of the CBDT. Therefore, it is necessary to have a close look to the contents of the Circular. i) The Circular made it clear that if the loan originally taken to fulfill one of the objects of the trust, the repayment will be considered as application of income for charitable purpose. Therefore, the original purpose for taking the loan is material to decide the nature of repayment. But in this case, when the loan was taken, there was no trust at all. The status of the assessee was different when the loan was taken. i) The assessee became a trust w.e.f. 01.04.2005. When there was no existence of the trust, the question of utilize the loan for charitable purpose does not arise. iii) The Ld ARs submitted that the loan was taken to make payment to the employees subsequent to the pay revision order. The payment of salary to the employees is not an 3 Kolkata Port Trust AY 2007-08 expenditure incurred for charitable purpose. The Ld ARs failed to substantiate that the conditions laid down in the CBDT's Circular have been fulfilled. The decisions cited by the Ld ARs are different to the facts of the case. At the same time, the AO has allowed the claim in the assessment year 2006-07 cannot be the sole basis of allowability of the claim during the year under consideration. The AO is directed to take suitable remedial action in respect of assessment year 2006-07. In view of the above discussion, it is held that in this case, the repayment of loan is not application of income as envisaged u/s.11 of the Act and the AO has rightly disallowed the claim of the assessee and his action is confirmed. In the result, the appeal is dismissed.”

We have heard rival submissions and gone through facts and circumstances of the case. Before us, Ld. Counsel for the assessee Shri N. K. Poddar drew our attention to the assessment order page 2 wherein AO himself has admitted that the assessee trust is a registered trust u/s. 12AA of the Act for the year under consideration and carrying on activities of general public utility. Ld. Counsel for the assessee also stated that this is not a registered trust but legal entity created by order of legislature. Prior to AY 2003-04, the assessee was not a taxable entity by virtue of exemption granted u/s. 10(20) of the Act and w.e.f. AY 2003-04 exemption u/s. 10(20) of the Act was withdrawn and assessee became a taxable entity. The Ld. Counsel for assessee argued that the assessee was a charitable entity even from AY 2003-04 to 2005-06 before grant of registration u/s. 12AA of the Act as a charitable institution for AY 2006-07 and thereafter by virtue of the status of the assessee created by legislature as an institution carrying on activities of general public utility. For this, Ld. Counsel for the assessee relied on the decision of Hon’ble Supreme Court in the cased of CIT Vs. Gujarat Maritime Board (2007) 295 ITR 561 (SC), wherein Hon’ble Supreme Court has interpreted the expression “any other object of general public utility” in section 2(15) of the Act, is of the widest connotation. That expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be a charitable purpose. Ld. Counsel for the assessee stated that the Kolkata Port Trust is created for that purpose only i.e. to carry out the activities of general public utility and hence, the purpose of this trust is charitable in nature. Ld. Counsel for the assessee narrated the facts that the assessee had taken “ways and means loan” of Rs.66 cr. from Bank of India on 25.07,2003 for the purpose of 4 Kolkata Port Trust AY 2007-08 payment of area pension and area salary and such arrear pension and salary was allowed as deduction as business expenditure u/s. 37(1) of the Act in the computation of income of the assessee for AY 2004-05. The assessee claimed that during the relevant AY 2007-08 it has repaid Rs.7.33 cr. out of the above stated loan and this payment was the last installment and the loan amount was squared up. Ld. Counsel for the assessment drew our attention to assessee’s paper book volume-II wherein copies of assessment order passed u/s. 143(3)/11 of the Act is enclosed whereby in AY 2006-07 the repayment of “ways and means loans” of Rs.22 cr. was allowed to have been made as an application of income and in earlier year also the same was allowed as deduction. Ld. Counsel for the assessee relied on the decision of Hon’ble Madras High court in the case of DIT(E) Vs. Govindu Naicker Estate (2009) 315 ITR 237 (Mad) wherein it has held that repayment of loan taken by the charitable institution for construction of commercial complex so as to augment the resources of the trust would amount to application of income. Ld. Counsel for the assessee also drew our attention to Board Circular No. 100 dated 24.01.1973 which is enclosed in assessee’s paper book Volume-I at page 97 and the relevant para 2 was read out by him, which reads as under: “2. The Board has decided that repayment of the loan originally taken to fulfill one of the objects of the trust will amount to an application of the income for charitable and religious purposes. As regards the loans advanced for higher studies, if the only object of the trust is to give interest-bearing loans for higher studies, it will amount to carrying on of money- lending business. If, however, the object of the trust is advancement of education and granting of scholarship loans as only one of the activities carried on for the fulfillment of the objectives of the trust, granting of loans, even if interest-bearing, will amount to the application of income for charitable purposes. As and when the loan is returned to the trust, it will be treated as income of that year.”

On the other hand, the Ld. Sr. DR heavily relied on the orders of the lower authorities.

We find that that the assessee is a registered trust u/s. 12AA of the Act for the year under consideration and carrying on activities of general public utility and he also clarified that this is not a registered trust but legal entity created by order of legislature. We find from the facts that the assessee had taken “ways and means loan” of Rs.66 cr. from Bank of India on 25.07.2003 for the purpose of payment of area pension and area salary and 5 Kolkata Port Trust AY 2007-08 such arrear pension and salary, pertain to sixth pay commission arrears, was allowed as deduction as business expenditure u/s. 37(1) of the Act in the computation of income of the assessee for AY 2004-05. The assessee claimed that during the relevant AY 2007-08 it has repaid Rs.7.33 cr. out of the above stated loan and this payment was the last installment and the loan amount was squared up. Similar repayment in AY 2006-07 of “ways and means loans” of Rs.22 cr. was allowed to have been made as an application of income by the AO. Even the board circular No.100 dated 24.01.1973 states that the repayment of loan originally taken to fulfill one of the objective s of the trust will amount to an application of the income for charitable purposes. In the present case the assessee is juridical entity created by act of parliament for the object of general public utility and was very much in existence prior to 1st April 2005. Once the object is of general public utility, which is charitable in nature, the assessee’s case is covered by the decision of Hon’ble Supreme Court in the case of CIT V Gujarat Maritime Board, supra. Accordingly, we allow the claim of assessee in respect to repayment of ‘ways and means loan’, borrowed during assessment year 2004-05 and wholly and exclusively used for its objects, as an application of income in the computation of total income of assessee u/s. 11 of the Act.

Another alternative argument of Ld. Counsel for the assessee that the CIT has no jurisdiction, whatsoever, to give any direction in respect of AY 2006-07, which year is not in appeal before him. We are in agreement with the argument of Ld. Counsel and consequently ground no. 5 is allowed and directions of the CIT(A) are reversed and even otherwise on merits also the above issue is decided in favour of the assessee, these directions of CIT(A) are of no consequence. Accordingly, this issue of assessee’s appeal is allowed.

In the result, the appeal of the assessee is allowed.

Order is pronounced in the open court on 05.11.2015 Sd/- Sd/- (Waseem Ahmed) (Mahavir Singh) Accountant Member Judicial Member Dated : 5th November, 2015 Jd. Sr. P.S APPELLANT – Kolkata Port Trust, 15, Strand Road, Kolkata-700 001.

Respondent –ADIT(E-II), Kolkata. 2 The CIT(A), Kolkata 3.