Premium paid by co-operative banks on securities falling in “Held to Maturity” categories must be amortized over the period remaining to maturity:

Assessee, a co-operative bank, is required to deposit certain amount in Government securities as per RBI’s guidelines and is to hold the same till maturity in order to maintain Statutory Liquidity Ratio (SLR). In certain cases, such securities are acquired at a value higher than face value of such securities. Premium so paid by the assessee in acquiring such securities was claimed by the assessee as loss amortised over entire period of security which came to be disallowed by AO. CIT(A) confirmed AO’s order whereas ITAT decided the issue in favour of the assessee. On Revenue’s appeal, Hon’ble High Court observed that the assessee, being a co-operative bank, was bound by RBI’s securities. As per such directives, assessee had to invest certain amount in Government Securities and hold the same till maturity. CBDT’s circular No.17 of 2008 clearly spells out that premium on acquisition of investments classified under HTM (i.e. Held to Maturity) category should be amortized over the period remaining to maturity. Such instructions, having been issued u/s 119(2) of the Act, are binding on the Revenue. Considering the above, Hon’ble High Court was of the view that ITAT had rightly decided the issue in favour of the assessee. Accordingly, Revenue’s appeal was dismissed.

[CIT vs. Rajkot Dist. Co. Op. Bank Ltd. – Tax Appeal No.56 of 2013]

In absence of a relationship as that of “Contractor” and “Sub-contractor”, tax is not to be deducted at source u/s 194C:

AO made disallowance u/s 40(a)(ia) for failure on the part of the assessee to deduct tax at source u/s 194C while making the certain payments and the same came to be confirmed by CIT(A). On further appeal, Hon’ble ITAT deleted such disallowance aggrieved by which, Revenue preferred tax appeal. Hon’ble High Court observed that assessee had entered into a contract with M/s. IPR according to which it was to provide specified no. of vehicles to M/s. IPR and perform the work of transportation of employees of M/s. IPR in lieu of which it shall be paid transportation charges by M/s. IPR. Assessee had, in addition its own vehicles, obtained vehicles of other owners which were used in discharging the aforesaid duty. It was the payment made to such vehicle owners which came to be disallowed u/s 40(a)(ia) for non-deduction of tax at source u/s 194C since AO was of the view that assessee had given sub-contract to such vehicle owners and hence, it was required to comply with TDS provisions. It was further observed that the entire task was performed by the assessee. Contractual arrangement between the assessee and M/s. IPR was such that assessee couldn’t have assigned such work to a sub-contractor without prior permission of M/s. IPR. Assessee had merely hired vehicles from concerned owners for discharging its duties. Further, revenue had not brought on record any material to establish that the owners of the vehicles had performed the task of transportation. Thus, there was no relationship of a contractor and sub-contractor between the assessee and such vehicle owners in absence of which question of deducting tax at source u/s 194C doesn’t arise at all and consequently, disallowance u/s 40(a)(ia) is not called for. Accordingly, Revenue’s appeal was dismissed.

[CIT Vs. Mukesh Travels Co. – Tax Appeal No.937 of 2013]

Non-utilization of the amount of donation by the donee cannot lead to denial of deduction u/s 80G(5) in the hands of the donor:

Assessee claimed deduction u/s 80G(5) in respect of donation made to a Trust a part of which came to be disallowed by AO on the count that the donee had neither fully utilized the funds, nor had it transferred the unutilised fund to Prime Minister’s National Relief Fund before the time permitted. Such claim was allowed by ITAT. On Revenue’s appeal, Hon’ble High Court observed that it was an undisputed fact that donation made by the assessee was deductible u/s 80G(5). It was also not in dispute that it was the donee which neither utilized the funds nor transferred it to Prime Minister National Relief’s Fund as provided u/s 80G(5C). As per Explanation 2 to S.80G, deduction to which an assessee is entitled to in respect of any donation made to an institution or fund to which sub-section (5) applies shall not be denied merely on the count that subsequent to such donation, any part of income of the institution or fund becomes chargeable to tax due to non-compliance with any of the provisions of S.11, 12 or 12A. In the given case, breach of conditions prescribed u/s 80G(5C) by the donee trust shall render the concerned amount taxable in the hands of such donee trust by virtue of S.12(3). However, it will not have any effect on the deduction to which assessee is otherwise entitled to on such donation. Hon’ble High Court was of the view that ITAT had correctly observed that if the donor is also taxed alongwith taxing such amount in the hands of donee, it shall amount to double taxation. In light of the above, Revenue’s tax appeal was dismissed.

[CIT Vs. Gujarat Co. Op. Milk Marketing Federation Ltd. – Tax Appeal No.758 of 2013]

First Proviso to section 2(15) is applicable only to the fourth limb of definition of “Charitable purpose” i.e. advancement of any other object of general public utility:

Assessee is a charitable trust engaged in the activity of breeding milk cattle, improving quality of cows and oxen and other related activities. AO, relying on newly added Proviso to section 2(15) w.e.f. 01.04.10, held that assessee-trust can’t be considered as one created for charitable purposes since considerable income was generated from the activity of milk production and sale. Accordingly, he denied the benefit of Sections 11 & 12 to the assessee. AO’s order came to be confirmed by CIT(A). On further appeal, ITAT decided the issue in favour of the assessee aggrieved by which, Revenue preferred tax appeal. Hon’ble High Court observed that the first Proviso to section 2(15) which provides for exclusion of certain activities from the definition of “Charitable activities” in case if it involves carrying on any activity in the nature of trade, commerce or business is applicable only to the fourth limb of definition of “Charitable purpose” i.e. advancement of any other object of general public utility. From the speech of Finance Minister and Circular No.11 of 2008 dated 19.12.2008 issued by CBDT, it was further observed that the aim was not to exclude genuine charitable trust of general public utility but to exclude activities in the nature of trade commerce or business which are masked as “charitable purpose”. From the objects of the assessee-trust, it was apparent that all the objects were of the general public utility. Profit making was neither the object nor the aim of the assessee-trust. It was also not the principal activity. Merely because while carrying out the activities for achieving the objects of the trust, if certain incidental surplus is generated, that will not render the activity to be in the nature of trade, commerce or business. In light of the above, it was held that ITAT had not committed any error in deciding the issue in favour of the assessee. Accordingly, Revenue’s appeal was dismissed.

[DIT Vs. Sabarmati Ashram Gaushala Trust – Tax Appeal No.1162 of 2013]

Charges paid to electricity board on account of failure to consume contracted amount of electricity is an allowable expenditure:

AO disallowed business expenditure being payment made by the assessee to the electricity board on the count that the same was expended towards penalty. ITAT observed that the assessee had to pay higher charges to the electricity board for failing to consume contracted amount of electricity, which as per the agreement would result into higher rate of electricity charges. Hence, ITAT held that such amount could not have been disallowed. While holding so, ITAT permitted the AO to verify that the charges were levied for the period prior to the sale of property. On Revenue’s appeal, Hon’ble High Court also held that merely because the assessee failed to consume minimum committed electricity and therefore ended up paying higher rate of electricity, such payment cannot be categorised as penalty. ITAT had, therefore, correctly deleted the disallowance. Accordingly, Revenue’s appeal was dismissed.

[CIT Vs. Rajkot Jilla Co. Op. Cotton Marketing Union Ltd. – Tax Appeal No.797 of 2013]

Depreciation on computers installed in factory premises is allowable @ 60%:

Assessee installed certain computers in its factory premises and claimed depreciation available on computers i.e. @ 60%. AO restricted claim of depreciation to 20% after holding that such computers should be treated either as office appliances failing which they would form part of plant and machinery and in either case, depreciation shall be available at 20%. CIT(A) allowed depreciation on such computers @ 60%. On Revenue’s appeal, ITAT, while deciding the issue in assessee’s favour, held that it cannot be said as a universal proposition of law that computers are always used only in offices and not in manufacturing activities. On further appeal, Hon’ble High Court held that had AO shown that computers formed part of integrated manufacturing process, his stand that the same would form part of plant and machinery might have had some basis. In the given case, no such material was there on record. It was not as if computers cannot be installed for direct use in manufacturing activity and thereby forming part of machinery used in such activity. There may be number of ways in which installation of a computer may enhance and improve the efficiency. Also there was nothing on record to suggest that computers were part of plant and machinery. Hence, it was held that decision of CIT(A) and ITAT treating the same as simplicitor computers and granting de[recitation at the rate prescribed under the law calls for no interference. Resultantly, Revenue’s appeal was dismissed.

[CIT Vs. Gujarat Alkalies and Chemicals Ltd. – Tax Appeal No.942 of 2013]

“Chlorine Toners” used for transportation of chlorine gas are essentially “gas cylinders” and are eligible for depreciation @ 60%:

Assessee claimed depreciation @ 60% on chlorine toners used for transportation of chlorine gas generated in its caustic soda plant which came to be restricted to 15% by AO on the count that such toners were part of “Plant and machinery” and cannot be categorized as “Gas cylinders”. CIT(A) allowed depreciation on such toners. On Revenue’s appeal, ITAT observed that such chlorine toners looked exactly like cylinders as was evident from its pictures. Assessee had also filed a certificate signed by Executive Director of the assessee to the effect that such toners were used for transportation of compressed chlorine gas generated in caustic soda plant, were capable of being filled up by 900 kgs. net weight of compressed chlorine gas and such toners were technically gas cylinders. It was further observed that “Gas cylinder” or “Cylinder” has been defined under “Gas Cylinder Rules, 1981” as any closed metal container having a volume exceeding 500 millilitre but not exceeding 1000 litres intended for storage and transport of compressed gas including LPG container fitted to a motor vehicle as its fuel tank but not including any other such container fitted to a transport or under carriage. As per Appendix-I to I.T. Rules, gas cylinders were entitled to depreciation @ 60%. In light of the above, ITAT held that such toners were essentially gas cylinders and accordingly, depreciation is allowable on the same @ 60%. On Revenue’s appeal Hon’ble High Court, relying on the decision in the cases of “CIT vs. Goyal MG Cases Ltd. – 296 ITR 72 (Del)” and “CIT vs. Chemplast Sanmar Ltd. – 296 ITR 81 (Mad)”, upheld the ITAT’s order. Accordingly, Revenue’s appeal was dismissed.

[CIT Vs. Gujarat Alkalies and Chemicals Ltd. – Tax Appeal No.942 of 2013]