O/TAXAP/758/2013
JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 758 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
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1
Whether Reporters of Local Papers may be allowed to see
the judgment ?
2
To be referred to the Reporter or not ?
3
Whether their Lordships wish to see the fair copy of the
judgment ?
4
Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5
Whether it is to be circulated to the civil judge ?
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COMMISSIONER OF INCOME TAX II....Appellant(s)
Versus
GUJARAT CO.OP. MILK MARKETING FEDERATION LTD....Opponent(s)
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Appearance:
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
MS SN SOPARKAR, SR COUNSEL WITH MR B S SOPARKAR, ADVOCATE
for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
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JUDGMENT
Date : 23/01/2014
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal (“the tribunal” for short) dated 22.3.2013. Following questions have been raised for our consideration :
“(1) (i) Whether the ITAT was justified in law in allowing depreciation @100% on temporary structures of Amul Parlours for A.Y. 2002­03 without appreciating the fact that Amul parlours had sturdy structures due to use of concrete and tiles and cannot be said to be having useful life of one year only and further without appreciating the fact that the assessee itself had considered the same as capital asset for A.Y. 2002­03 and had claimed depreciation @10%?
(ii)
Whether the ITAT was justified in law in relying on the decision of Hon’ble Madras High Court in the case of CIT v. TVS Lean Logistics Ltd. (2007) 293 ITR 432(Mad) wherein the issue dealt with is regarding capital and revenue expenditure and not regarding issue of permanent/temporary structures leading to allowability of higher depreciation and hence the case is clearly distinguishable?
(2)
Whether the ITAT was justified in holding that the assessee is entitled to deduction under section 80G(2)(d) of the Act for A.Y. 2002­03, without appreciating the fact that the conditions laid down in sub­clause(iii) and (iv) of section 80G(5C) have not been fulfilled by the trust?
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2. The respondent assessee is Gujarat Cooperative Milk Marketing Federation LTD (‘GCMMFL’ for short). First question pertains to 100% deduction claimed by the assessee on the structures created for running their parlours. Respondent assessee and Ahmedabad Urban Development Authority (‘AUDA’ for short) entered into lease agreements broadly providing for license to the assessee to run its parlours in the properties of AUDA where the assessee would maintain a small garden and would permit access to the public. We would advert to such lease agreements at a later stage. 3. On such structures put up, the assessee claimed 100% depreciation in terms of Appendix I to the Income Tax Rules, 1962. Part A of the said Appendix pertains to tangible assets. Item­I pertains to building. Clause(4) thereof provides for 100% deduction on “purely temporary erections such as wooden structures.” 4. The Assessing Officer questioned the assessee with respect to such depreciation. After hearing the assessee, the Assessing Officer held that the parlour was being run in a pukka constructed building. He therefore, reduced depreciation to 10%. Ultimately in the appeal, the tribunal granted full depreciation making the following observations:
“6. We have heard the rival contentions and gone through the paper book. The lands belong to Auda/AMC. The land use right given by them temporary fur running Amul Parlour, on which the parlours were constructed by the assessee, which can be any time demolished by them. Page 3 of 10
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There is no right created by them as per the terms and conditions of the agreement. By following the decision of Hon’ble Madras High Court, the appellant did not have any right on the land of perpetually. Therefore, we reverse the order of the CIT(A). Accordingly the assessee’s appeal on this ground in both years is allowed.”
5. Having heard the learned counsel for the parties, we have prima facie doubt about such structure qualifying for 100% depreciation. The words used are “purely temporary erections such as wooden structures.” The question therefore, was whether the parlour was housed in a purely temporary erection. The contention of the assessee that the AUDA could have demolished the structure at any point of time in our opinion would not be germane to decide whether the structure itself was temporary or not since the later portion of the expression used the term ‘such as wooden structure’. The Assessing Officer had noted that the structure was a pukka structure without much elaboration. Had this been the sole question, we would have perhaps required further information on the nature of structure. However, the issue can be tackled in a slightly different manner. As pointed out by the learned counsel for the assessee, the arrangement between the assessee and AUDA was purely temporary in nature. The assessee did not derive any enduring benefit from putting up such construction. He therefore, contended that in view of the decision of the Supreme Court in case of Commissioner of Income­tax v. Madras Auto Service (P) ltd. reported in 233 ITR 468, in any case the expenditure would be revenue in nature.
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6. We notice that under an agreement dated 16.9.2002, the assessee was given certain rights by the AUDA to use land on the terms and conditions set out therein. Conditions of the said agreement relevant for our purpose read as under :
“1. The second part shall be permitted access to the garden plot for the purpose of beautifying, maintaining and using them for storing selling their products from the booth in the garden to the public. This permission shall not create any tenancy or proprietary rights or any other interest in the garden, which shall continue to be of the exclusive ownership, control and possession of the AUDA.
2.
The second part shall submit a detailed plant construction of Milk Booth and maintenance of the garden and get the same approved by the AUDA. The second part shall keep in mind the existing facilities available and prepare a report of what further steps will be taken to maintain the garden in an aesthetic manner. 4.
The second part shall be exclusively responsible for the complete construction of Milk Booth and maintenance of the garden and will bear all the capital and recurring expenses as may be required. 9.
The second part shall not claim any right of ownership or any other right of any kind over the whole or any part of the garden and the garden continues to be the sole property of the first part, and the second part is simply carrying out the activity of its maintenance, beautification and sales of its products as per approval of the first part.
10. The agreement shall be for a period of five years. At the end of the fifth year, the same can be extended, if mutually agreed.
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12. If at any point of time, AUDA comes to the conclusion that there is a breach of this agreement or that for any other reason, it is expeditious in public interest to revoke this arrangement, it will be entitled to do so without paying any compensation whatsoever in the second part.
17. The party of the second part will not implement any development or construction in the assignment area without taking into confidence of AUDA.”
7. Combined reading of the said conditions would establish that the assessee had the right to use the land for putting up its parlours for a period of five years. Thereafter, only upon mutual agreement between the assessee and the AUDA, the period could be extended. During currency of the period of the agreement, the assessee had to maintain the garden and permit full access to the members of the public. The assessee did not have any right to develop any part of the land or put up construction without the permission of AUDA. 8. Such conditions would establish that the assessee had a limited right to use the land for the limited purpose and the limited period. We are informed that in the next year because of non renewal of the agreement, the assessee’s structure was demolished. In this context, we may refer to the decision of the Supreme Court in case of Madras Auto Service (P) ltd.(supra). It was a case in which the assessee entered into a lease agreement with the lessor for a period of 39 years. On the leased land, new premises were constructed by the assessee at its own cost. The building belonged to the lessor and the assessee had the right to use it at a low rent. It was in this background the Supreme Page 6 of 10
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Court held that the assessee did not acquire capital asset but only a business advantage, and therefore, the amount spent on construction was deducted as revenue expenditure. The observations of the Supreme Court were as under :
“All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure.”
9. We may also refer to the decision of Madras High Court in case of Commissioner of Income­tax v. TVS Lean Logistics Ltd. reported in (2007) 293 ITR 432 (Mad) in which also the Court held that construction of building on a leasehold land resulted into assessee only a business advantage and the assessee cannot be stated to have acquired any capital asset.
10.
In view of such decisions and in particular looking to Page 7 of 10
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the nature of agreement and the fact that from subsequent year the structure itself was demolished, in our opinion, it would be futile to have closer scrutiny whether structure was purely temporary erection as referred to in Part I of Appendix I to the Income Tax Rules, 1962, qualifying for 100% deduction or not. This issue connecting to this question would be revenue neutral. 11.
Coming to the second question, the facts are that the assessee during the previous year relevant to the assessment year 2002­2003 made donations to the tune of Rs.5.25 crores to a trust in Kutch Earthquake Relief Fund and claimed deduction under section 80G of the Income Tax Act. Subsequently, it was found that the donee had not made full utilisation of the funds within the time limit set out in the statute nor had transferred the unutilised fund in the Prime Minister’s Relief Fund before the time permitted. On such premise, the Assessing Officer disallowed a sum of Rs.4.48 crores, restricting the deduction to Rs.76.95 crores. Ultimately, when the issue reached the tribunal, the tribunal in the impugned judgement held in favour of the assessee basing reliance on explanation 2 to section 80G and further observed that any tax in the hands of assessee donor would amount to double taxation. 12.
We notice at the outset that donation was made and the same was deductible under section 80G of the Act. To this there is no dispute. It is also not in dispute that the donee did not utilise the funds or transfer it to the Prime Minister Relief’s Fund as provided in sub­section (5C) of Page 8 of 10
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section 80G. In such a situation, section 12(3) of the Act inserted by the Amending Act 2001 with effect from 3.2.2001 provides as under :
“12. Income of trusts or institutions from contributions.­ (3) Notwithstanding anything contained in section 11, any amount of donation received by the trust or institution in terms of clause (d) of sub­section (2) of section 80G in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub­section (5C) of that section, in the manner specified in that clause, or which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub­section (5C) of section 80G and not transferred to the Prime Minister’s National Relief Fund on or before the 31st day of March, 2004 shall be deemed to be the income of the previous year and shall accordingly be charged to tax.”
13.
Sub­section(5) of section 80G pertains to donations to any institute or fund referred to in sub­clause(iv) of clause(a) of sub­section(2), only if it is established in India for a charitable purpose and if it fulfills the conditions mentioned therein.
14.
Explanation 2 to section 80G provides inter­alia that the deduction to which the assessee is entitled in respect of any donation made to an institution or fund to which sub­
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non compliance with any of the provisions of section 11, section 12 or section 12A.”
15.
By virtue of combined reading of section 80G (5C) read with explanation 2 read with sub­section(3) of section 12, a situation would arise where if any breach of conditions contained in sub­section (5C), the effect thereof would be on the donee trust not fulfilling those conditions. As provided in sub­section(3) of section 12, in terms of clause(1) of explanation 2, it would not have any effect on the deduction to which the assessee is otherwise entitled to on such donation. This is precisely what the tribunal has held in the impugned judgement and correctly observed that if the donor is also taxed (along with taxing the same amount in the hands of donee), there would be a case of double taxation. 16.
In the result, both the questions fail. Tax appeal is therefore, dismissed.
(AKIL KURESHI, J.)
(MS SONIA GOKANI, J.)
raghu
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