Mazdoor Welfare Trust, CHENNAI V. DCIT, Coimbatore

CO 106/CHNY/2015

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2067 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-09-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G BASKAR; A B KOLI
• Keywords: Business income; Depreciation; Charitable institution; Cost of acquisition; Reasonable cause; Capital expenditure
• Section: 143(3); 32; 147; 63

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS.1652 & 1653/MDS/2015 & C.O.NOS.106 & 107/MD S/2015 (IN ITA NOS.1652 & 1653/MDS/2015) ( / ASSESSMENT YEARS: 2008-09 & 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTIONS), 67, RACE COURSE, COIMBATORE-641 018. VS M/S. MAZDOOR WELFARE TRUST, 9, MURUGAN ILLAM, 3 RD MAIN ROAD MUGAPPAIRE WEST GARDEN, CHENNAI-600 037. PAN:AAATM0632Q ( /APPELLANT) (RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : MR. A.B.KOLI, JCIT /RESPONDENT BY : MR. G.BASKAR ADVOCATE /DATE OF HEARING : 11 TH FEBRUARY, 2016 /DATE OF PRONOUNCEMENT : 17 TH FEBRUARY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE TWO APPEALS AND CROSS OBJECTIONS ARE FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY AGGRIEVED BY THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, TIRUCHIRAPALLI DATED 05.02.2015 IN IT A NOS.420/2010-11 & 243, 244, 245 /2011-12 CIT(A)/TRY PASSED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT. 2. BOTH THE APPEALS FILED BY THE REVENUE WERE BARRE D BY LIMITATION OF 59 DAYS. THE REVENUE HAS FILED AN AFF IDAVIT 2 ITA NOS.1652 & 1653 /MDS/2015 & C.O. NOS.106 & 107/MDS/2015 EXPLAINING THE REASON AS REORGANIZATION OF THE DEPA RTMENT, CONSEQUENT TO WHICH THERE WAS DELAY IN OBTAINING ADMINISTRATIVE APPROVAL. IT WAS FURTHER SUBMITTED THAT THE DELAY IN FILING THE APPEALS WAS NEITHER WANTON NOR WILLFUL AND THEREFORE PRAYED FOR CONDONATION OF DELAY. CONSIDER ING THE SUBMISSIONS OF THE REVENUE WE ARE SATISFIED THAT TH ERE WAS REASONABLE CAUSE FOR THE DELAY IN FILING THE APPEAL S. THEREFORE IN THE INTEREST OF JUSTICE, WE HEREBY CON DONE THE DELAY IN FILING BOTH THESE APPEALS AND ADMIT THE SA ME. 3. THE ONLY COMMON GROUND RAISED BY THE REVENUE IN BOTH THESE APPEALS IS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT THE CLAIM OF DEPRECIATION IS AN ALLOWABLE DEDUCTION EVEN THOUGH THE COST OF ACQUISITION OF THE ASSET HAD BEEN CLAIMED AS APP LICATION OF INCOME IN THE EARLIER YEAR WHEN THE ASSET WAS PURCH ASED BY THE ASSESSEE TRUST. BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ONLY IN SUPPORT OF THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 3 ITA NOS.1652 & 1653 /MDS/2015 & C.O. NOS.106 & 107/MDS/2015 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN AOP TRUST ENGAGED IN PROVIDING HIGHER EDUCATION IN THE FIELD OF ENGINEERING. THE ASSESSEE TRUST HAS FILED ITS RETU RNS OF INCOME ON 30.10.2008 & 29.09.2009 FOR THE ASSESSMEN T YEARS 2008-09 AND 2009-10 RESPECTIVELY DECLARING NI L INCOME AFTER CLAIMING EXEMPTION UNDER SECTION 11 OF THE AC T. THEREAFTER SCRUTINY ASSESSMENTS UNDER SECTION 143(3 ) READ WITH SECTION 147 OF THE ACT WERE COMPLETED BY THE L EARNED ASSESSING OFFICER ON 27.12.2010 & 22.12.2012 REJE CTING THE CLAIM OF DEPRECIATION OF ` 1,44,97,912/- & ` 42,64,830/- FOR THE ASSESSMENT YEARS 2008-09 & 2009-10 RESPECTIVELY AS THE DEPRECIATION IS NOT AN ALLOWABLE DEDUCTION SINCE T HE CAPITAL EXPENDITURE INCURRED FOR ACQUIRING THE ASSET WAS AL READY ALLOWED AS APPLICATION OF FUND FOR THE PURPOSE OF S ECTION 11 OF THE ACT AND THEREFORE FURTHER ALLOWANCE OF DEPRECIA TION ON THE SAME WOULD AMOUNT TO DOUBLE DEDUCTION. ON APPEAL, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOLLOW ING THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN THE CA SE OF GKR CHARITIES AND THE DECISION OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION 4 ITA NOS.1652 & 1653 /MDS/2015 & C.O. NOS.106 & 107/MDS/2015 REPORTED IN 264 ITR 110 DIRECTED THE LEARNED ASSESS ING OFFICER TO ALLOW THE CLAIM OF DEPRECIATION FOR BOTH THE ASSESSMENT YEARS AGAINST WHICH THE REVENUE IS IN AP PEAL BEFORE US. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE ARGUED I N SUPPORT OF THE ORDER OF THE LEARNED ASSESSING OFFIC ER AND FURTHER RELIED IN THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. M/S. CHARANJIV CHARITABLE TR UST IN ITA NO.321 TO 323/DEL/2013 DATED 18.03.2014 WHEREIN IT WAS HELD THAT THE DEPRECIATION WOULD NOT BE ALLOWED AS DEDUCTION IN CASES WHERE THE TRUSTS ARE CLAIMING THE COST OF ACQUISITION OF ASSETS AS APPLICATION OF INCOME. WHILE AS THE L EARNED COUNSEL FOR THE ASSESSEE ARGUED IN SUPPORT THE ORDE R OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND FU RTHER STRESSED THAT INCOME OF THE TRUST HAS TO BE ARRIVED ON COMMERCIAL PRINCIPLES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. AT THE OUTSET, WE ARE REMINDED OF THE RECENT DECISION OF THE CHENNAI BENC H OF THE 5 ITA NOS.1652 & 1653 /MDS/2015 & C.O. NOS.106 & 107/MDS/2015 TRIBUNAL IN THE CASE THE ANJUMAN-E-HIMAYATH-E-ISLA M VS. ADITIN ITA NO.2271/MDS/2014 DATED 02.06.2015, WHER EIN THE BENCH FOLLOWING THE DECISION OF THE HONBLE KER ALA HIGH COURT IN THE CASE LISSIE MEDICAL INSTITUTION VS. CI T REPORTED IN [2012] 348 ITR 344(KER.) AND THE DECISION OF HON BLE CALCUTTA HIGH COURT IN THE CASE DCIT VS. GIRDHARILA L SHEWNARAIN TANTIA TRUST REPORTED IN [1993] 199 ITR 15(CAL.) HELD THE ISSUE AGAINST THE ASSESSEE. THE GIST OF TH E DECISION IS REPRODUCED HEREUNDER FOR REFERENCE:- 5.1 GROUND NO.(II) - DISALLOWANCE OF THE DEPRECIATION W HILE COMPUTING THE INCOME OF THE ASSESSEE TRUST . THE ASSESSEE TRUST HAD CLAIMED DEPRECIATION ON TH E ASSETS AS APPLICATION OF INCOME IN THE RETURN OF IN COME. THE LD. ASSESSING OFFICER OPINED THAT THE CLAIM OF DEPRECIA TION BY THE ASSESSEE WOULD AMOUNT TO DOUBLE DEDUCTION BECAUSE T HE ENTIRE COST OF ASSET HAS ALREADY BEEN CLAIMED AS APPLICATI ON OF INCOME IN THE YEAR IN WHICH THE ASSETS WERE PURCHASED. THE REAFTER, THE LD. ASSESSING OFFICER CITING CERTAIN DECISIONS HELD THAT THE CLAIM OF DEPRECIATION CANNOT BE CONSIDERED AS APPLICATION OF INCOME. ON APPEAL, THE LD. CIT (A) WAS ALSO OF THE VIEW OF THE LD. ASSESSING OFFICER AND THEREFORE CONFIRMED LD. ASSES SING OFFICERS ORDER. 5.2 WE FIND THIS ISSUE IS ELABORATELY DISCUSSED IN THE CASE OF LISSIE MEDICAL INSTITUTION VS. CIT REPORTED IN [201 2] 348 ITR 344(KER.) AND HELD THE ISSUE AGAINST THE ASSESSEE. WHILE DOIN G SO, THE HONBLE KERALA HIGH COURT HAD CONSIDERED TH E CIRCULAR NO.5P(LLX-6) DATED 19.06.1968 WHICH HAS NOT BEEN CONSIDERED BY THE OTHER DECISIONS. THE CIRCULAR NO. 5P(LLX-6) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 1. CIRCULAR NO. 5-P (LXX-6) OF 1968, DATED 19-6-196 8. 6 ITA NOS.1652 & 1653 /MDS/2015 & C.O. NOS.106 & 107/MDS/2015 SUBJECT : SECTION 11CHARITABLE TRUSTSINCOME REQUI RED TO BE APPLIED FOR CHARITABLE PURPOSEINSTRUCTIONS REGARDI NG. IN BOARD'S CIRCULAR NO. 2-P(LXX-5) OF 1963, DATED T HE 15TH MAY, 1963, IT WAS EXPLAINED THAT A RELIGIOUS OR CHARITAB LE TRUST CLAIMING EXEMPTION UNDER SECTION 11(1) OF THE INCOME- TAX AC T, 1961, MUST SPEND AT LEAST 75 PER CENT OF ITS TOTAL INCOME, FOR RELIGIOUS OR CHARITABLE PURPOSES. IN OTHER WORDS, IT WAS NOT PER MITTED TO ACCUMULATE MORE THAN 25 PER CENT OF ITS TOTAL INCOM E. THE QUESTION HAS BEEN RECONSIDERED BY THE BOARD AND THE CORRECT LEGAL POSITION IS EXPLAINED BELOW. 2. SECTION 11(1) PROVIDES THAT SUBJECT TO THE PROVI SIONS OF SECTIONS 60 TO 63 'THE FOLLOWING INCOME SHALL NOT BE INCLUDE D IN THE TOTAL INCOME OF THE PREVIOUS YEAR . . . '. THE REFERENCE IN SUB-SECTION (A) IS INVARIABLY TO 'INCOME' AND NOT TO 'TOTAL INCOME'. THE EXPRESSION 'TOTAL INCOME' HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(45) OF THE ACT AS 'THE TOTAL AMOUNT OF INCOME . . . COMPUTED IN THE MANNER LAID DOWN IN THIS ACT'. IT WOULD ACCORDINGLY BE INCORRECT TO ASSIGN TO THE WORD 'INCOME' USED IN SECTION 11(1 )(A), THE SAME MEANING AS HAS BEEN SPECIFICALLY ASSIGNED TO T HE EXPRESSION 'TOTAL INCOME' VIDE SECTION 2(45). 3. IN THE CASE OF A BUSINESS UNDERTAKING HELD UNDER TRUST, ITS 'INCOME' WILL BE THE INCOME AS SHOWN IN THE ACCOUNT S OF THE UNDERTAKING. UNDER SECTION 11(4), ANY INCOME OF THE BUSINESS UNDERTAKING DETERMINED BY THE INCOME-TAX OFFICER IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, WHICH IS IN EXCESS OF THE INCOME AS SHOWN IN ITS ACCOUNTS, IS TO BE DEEMED TO HAVE BEEN APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS, AND HE NCE IT WILL BE CHARGED TO TAX UNDER SUB-SECTION (3). AS ONLY THE I NCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11(1), THE PERMITTED ACCUMULATION OF 25 PER CENT WILL ALSO BE CALCULATED WITH REFERENCE TO THIS INCOME. 4. WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPER TY, INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WO RD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME , AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATIONS THER EOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR TH E PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD BE NOTED, IN THIS CON NECTION, THAT THE AMOUNTS SO ADDED BACK WILL BECOME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUT GOINGS FOR PURPOSES OTHER THAN THOSE OF THE TRUST. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TRUST FROM OUT OF T HE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LES S THAN 75 PER CENT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION UNDER SECTION 11(1). 7 ITA NOS.1652 & 1653 /MDS/2015 & C.O. NOS.106 & 107/MDS/2015 5. TO SUM UP, THE BUSINESS INCOME OF THE TRUST AS DISC LOSED BY THE ACCOUNTS PLUS ITS OTHER INCOME COMPUTED ABOVE, WILL BE THE 'INCOME' OF THE TRUST FOR PURPOSES OF SECTION 11(1) . FURTHER, THE TRUST MUST SPEND AT LEAST 75 PER CENT OF THIS INCOM E AND NOT ACCUMULATE MORE THAN 25 PER CENT THEREOF. THE EXCES S ACCUMULATION, IF ANY, WILL BECOME TAXABLE UNDER SEC TION 11(1). AFTER CONSIDERING THE CIRCULAR, THE HONBLE KERALA HIGH COURT HELD AS FOLLOWS:- HELD, THAT AFTER WRITING OFF THE FULL VALUE OF THE CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME F OR CHARITABLE PURPOSES AND WHEN THE ASSESSEE AGAIN CLAIMED THE SA ME AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL C LAIM BECAME A CASH SURPLUS AVAILABLE WITH THE ASSESSEE, WHICH W AS OUTSIDE THE BOOKS OF ACCOUNT OF THE TRUST UNLESS IT WAS WRI TTEN BACK WHICH WAS NOT DONE BY THE ASSESSEE. IT WAS NOT PERMISSIBL E FOR A CHARITABLE INSTITUTION TO GENERATE INCOME OUTSIDE T HE BOOKS IN THIS FASHION AND THERE WOULD BE VIOLATION OF SECTION 11( 1)(A). IT WAS FOR THE ASSESSEE TO WRITE BACK THE DEPRECIATION AND IF THAT WAS DONE, THE ASSESSING OFFICER WOULD MODIFY THE ASSESS MENT DETERMINING HIGHER INCOME AND ALLOW RECOMPUTED INCO ME WITH THE DEPRECIATION WRITTEN BACK BY THE ASSESSEE TO BE CARRIED FORWARD FOR SUBSEQUENT YEARS FOR APPLICATION FOR CH ARITABLE PURPOSES . FURTHER HONBLE CALCUTTA HIGH COURT HAS HELD IN THE CASE DCIT VS. GIRDHARILAL SHEWNARAIN TANTIA TRUST REPORTED IN [1993] 199 ITR 15(CAL.) THAT THE INCOME CONTEMPLATED BY THE PROVISIONS OF SECTION 11 IS THE REAL INCOME AND NOT THE INCOME AS ASSESSED OR ASSESSABLE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBL E KERALA HIGH COURT AND TAKING CUE FROM THE DECISION OF THE HONBLE CALCUTTA HIGH COURT , WE DO NOT FIND ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT(A) AND ALSO THE VI EWS EXPRESSED BY HIM IN HIS ORDER. ACCORDINGLY THIS APPEAL IS HEL D IN FAVOUR OF THE REVENUE. 7. FOLLOWING THE ABOVE DECISIONS, WE ARE CONSTRAINE D TO HOLD THAT THE ASSESSEE WOULD NOT BE ENTITLED TO CLA IM THE BENEFIT OF DEPRECIATION FOR THE PURPOSE OF SECTION 11 OF THE ACT. FURTHER, IT IS PERTINENT TO MENTION THAT SECT ION 11 IS A 8 ITA NOS.1652 & 1653 /MDS/2015 & C.O. NOS.106 & 107/MDS/2015 SECTION WITH A LEGAL FICTION, WHEREIN, WHEN REGISTR ATION IS GRANTED TO A CHARITABLE INSTITUTION UNDER SECTION 1 2A OF THE ACT, INCOME FROM THE TRUST IS NOT BROUGHT INTO THE AMBIT OF TAX ON FULFILLING CERTAIN CONDITIONS. SIMILARLY, SECTIO N 32 OF THE ACT IS ALSO A PROVISION WITH A LEGAL FICTION WHEREIN NO TIONAL AMOUNT IS DETERMINED ON THE COST/WDV OF THE ASSET BY APPLY ING THE RATE OF DEPRECIATION SPECIFIED IN THE INCOME TAX RU LES AND THAT IS ALLOWED AS DEDUCTION WHILE ARRIVING AT THE BUSINESS OR PROFESSION INCOME OF THE ASSESSEE. THEREFORE, CONSI DERING THE PRINCIPLES OF INTERPRETATION OF FISCAL STATUTES AS ACCEPTED BY VARIOUS HIGHER JUDICIARIES, A PROVISION WITH FI CTION CANNOT BE SUPERIMPOSED ON ANOTHER PROVISION WITH FICTION F OR ARRIVING AT THE INCOME OF THE ASSESSEE. FOR THE AFORESAID RE ASONS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WILL N OT BE ENTITLED TO CLAIM DEPRECIATION UNDER SECTION 32 OF THE ACT FOR ARRIVING AT THE INCOME OF THE ASSESSEE UNDER SECTIO N 11 OF THE ACT. ACCORDINGLY, WE HEREBY CONFIRM THE ORDER PASS ED BY THE LEARNED ASSESSING OFFICER AND SET ASIDE THE ORDER P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 9 ITA NOS.1652 & 1653 /MDS/2015 & C.O. NOS.106 & 107/MDS/2015 8. SINCE WE HAVE ALLOWED THE APPEALS OF THE REVENUE , THE CROSS OBJECTIONS FILED BY THE ASSESSEE WILL NOT SUR VIVE. 9. IN THE RESULT, THE APPEALS OF THE REVENUE ARE AL LOWED AND CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 17 TH FEBRUARY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) ! # / JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! /CHENNAI, & /DATED 17 TH FEBRUARY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF