Toiling masses Welfare Trust, CHENNAI V. ADIT, CHENNAI

CO 107/CHNY/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1393 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 16-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 23-09-2014
• Court: TRIBUNAL
• Department Lawyers: J PRABHAKAR; A B KOLI
• Keywords: Business income; Depreciation; Charitable institution; Cost of acquisition; Tax effect; Capital expenditure
• Section: 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 1597/MDS/2014 AND C.O.NO.107/MDS/2014 (IN ITA NO.1597/MDS/2014) / ASSESSMENT YEAR : 2010-11 THE DEPUTY DIRECTOR OF INCOME-TAX,(EXEMPTIONS)-IV, CHENNAI 34. APPELLANT) V. M/S. TOILING MASSES WELFARE TRUST, NO.27, VAIDYARAMAN STREET, T. NAGAR, CHENNAI 600 017. PAN AAATT6230F RESPONDENT) / APPELLANT BY : SHRI A.B.KOLI, JCIT / RESPONDENT BY : SHRI J. PRABHAKAR, CA ! / DATE OF HEARING : 16.10.2015 '# ! / DATE OF PRONOUNCEMENT: 06.11.2015 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. THE APPEAL AND THE CROSS - - ITA 1597 & CO 107/14 2 OBJECTION ARE DIRECTED AGAINST THE ORDER OF THE COM MISSIONER OF INCOME-TAX(APPEALS) DATED 28.2.2014. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ORDER OF THE CIT (A) IS PERVERSE IN AS MUCH AS HE H AS IGNORED RELEVANT FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER AT P . 2 , 3 , 5 & 6 OF HIS ORDER . 1.2 THE ID CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE ASSESSEE IS PRINTING ' THEE KATHIR PRESS ' AND ' YELLOW PAGES ' ON CONTRACT BASIS , FOR THE PUBLISHER , ' THEE KATHIR PRESS OF CPI(M) TAMIL NADU STATE COMMITTEE , MADURAI ', WHICH IS NOT A ' CHARITABLE ' ACTIVITY , BUT A ' COMMERCIA L' ACTIVITY . 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ID . CI T (A) ERRED IN LAW IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 11 OF THE INCOME TAX ACT , AS THE ASSESSEE ' S ACTIVITIES ARE COVERED UNDER ' GENERAL PUBLIC UTILITY ' BUT FAILED TO APPLY THE 1 ST AND 2 N D PROV I SO TO SECTION 2 (15) AND TO THAT EXTENT HIS ORDER IS PER IN CURIUM AS IT IS PASSED IN COMPLETE DISREGARD OF THESE TWO ' PROVISOS ' . 2.2 THE ID CIT(A) ERRED IN HOLD I NG THAT THE ASSESSEE IS EL I GIBLE FOR EXEMPT I ON U/S 1 1, WHEN T HE ASSESSEE HAS BUSINESS INCOME OF ` 2 , 49,15,210/-, WHICH IS COVERED UNDER ' GENERAL PUBLIC UTILITY '. 2.3 RELIANCE IS PLACED ON THE DECISION OF HON'BLE I TAT - - ITA 1597 & CO 107/14 3 PANAJI IN THE CASE O F ENTERTAINMENT SOCIETY OF GOA VS CIT(2013) 34 TAXMANN.COM 210, WHEREIN IT HAS HELD THAT :- ' THE WORDS USED IN THE PROVISO ARE 'CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE , COMMERCE OR BUSINESS' NOT THE WORDS 'CARRYING ON TRADE COMMERCE OR BUSINESS' . USING OF THE WORDS 'ANY ACTIVITY IN THE NATURE OF' PRIOR TO 'TRADE , COMMERCE OR BUSINESS' IN OUR OPINION HAS A SPECIFIC MEANING WHILE INTERPRETING THE PROVISO. 3.1 THE ID CIT(A) ERRED IN HOLDING THAT THE ASSESSE E IS ENTITLED FOR DEPRECIATION ON ASSETS PURCHASED EVEN THOUGH THE COST OF ASSETS WAS CONSIDERED AS APPLICA TION OF INCOME AND ACCORDINGLY DIRECTING THE AO TO ALLOW DEPRECIATION OF ` 1 , 11 , 177/- . 3.2 THE ID CIT (A) ERRED IN ALLOWING THE CLAIM OF DEPRECIATION , WHEN THE COST OF ACQUISITION OF ASSETS WERE TREATED AS APPLICATION OF INCOME; AS HELD BY THE AP EX COURT / HIGH COURTS IN THE FOLLOWING CASES : (I) MLS NECTAR BEVERAGES LIMITED VS CIT, 314 ITR 314. (II) MLS J . K SYNTHETICS LIMITED (65 TAXMAN 420) (III) LISSIE MEDICAL INSTITUTIONS VS CIT, 348 ITR 3 44 (KER). (IV) DIT VS. MS/. CHARANJIV CHARITABLE TRUST (2014) 43 TAXMANN.COM 300(DEL). 3.3 THE LD CIT (A) OUGHT TO HAVE PLACED RELIANCE ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS RAO BAHADUR CUNNAN CHETTY CHARITIES 135 ITR 485(MAD). 3. IN THE CROSS OBJECTION, THE ISSUE RAISED BY THE ASSESSEE IS WITH REGARD TO MAINTAINABILITY OF SEC.260A OF THE A CT AND THE - - ITA 1597 & CO 107/14 4 APPEAL OF THE REVENUE IS NOT MAINTAINABLE AS THE GR OUNDS ARE NOT IN PROPER FORM. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRUST REGISTERED U/S.12A(A) OF THE ACT VIDE ORDER OF THE CIT DATED 5.6.1986. THE TRUST FILED ITS RETURN ON 13.10.2010 FOR THE ASSESSMENT YEAR 2010-11. THE RETURN WAS PROCESSED U/S.143(1) ON 22.9.2011. THE CASE WAS SELECTED FOR SCRUTINY A ND NOTICE U/S.143(2) OF THE ACT WAS ISSUED ACCORDINGLY. THE ASSESSING OFFICER DURING THE COURSE OF SCRUTINY PROCEEDINGS F OUND THAT THE ASSESSEE HAS BEEN RUNNING A PRINTING PRESS AND DER IVING ITS INCOME FROM THE BUSINESS ACTIVITY OF PRINTING. HE OBSERVED THAT THE ASSESSEE ALSO DERIVED INCOME THROUGH SALE OF B OOKS AND NO CHARITABLE ACTIVITIES WERE PERFORMED. THE ASSESSEE WAS ASKED FOR THE AO TO SHOW CAUSE WHY THE AMENDED PROVISIONS OF SEC.2(15) OF THE ACT SHOULD NOT BE APPLIED AS THE A CTIVITIES ARE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. THE ASS ESSEE CONTENDED THAT ITS ACTIVITIES ARE COVERED BY THE MA IN LIMB OF DEFINITION U/S.2(15) OF THE ACT NAMELY EDUCATION. THE ASSESSING OFFICER REJECT THE ARGUMENTS OF THE ASSESSEE BY PLA CING RELIANCE ON DECISIONS OF VARIOUS HIGH COURTS. - - ITA 1597 & CO 107/14 5 4.1 THE ASSESSING OFFICER ALSO DISALLOWED THE CLAIM OF DEPRECIATION ON THE ASSETS PURCHASED DURING EARLIER YEARS AND ALLOWED DEPRECIATION ON THE ASSETS PURCHASED DURING ASSESSMENT YEAR 2010-11. THE ASSESSING OFFICER ALS O HELD THAT THE ASSESSEE IS ONLY PRINTING THE NEWSPAPER THEEKK ATHIR AND NOT PUBLISHING THE SAME. SHE ALSO OBSERVED THAT T HEEKKATHIR IS BEING PUBLISHED BY ANOTHER TRUST AND NO INCOME W AS ADMITTED BY THE ASSESSEE FROM SALE OF NEWSPAPER. THEREFORE, THE ASSESSING OFFICER DENIED EXEMPTION U/S.11 OF THE AC T AND THE ASSESSEE WAS TREATED AS AN AOP AND TAXED ACCORDINGL Y. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFO RE THE COMMISSIONER OF INCOME-TAX(APPEALS). 5. ON APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEAL S) OBSERVED THAT P ERUSAL OF THE TRUST DEED DATED 28.02.1986 REVEALS THAT IT WAS FORMED WITH THE PRINCIPAL OBJEC TIVE 'TO EDUCATE THE TOILING MASSES ON THE PRINCIPLES OF SCI ENTIFIC SOCIALISM AND TO EXPAND AND DEVELOP THE MOVEMENT FO R THEIR COMPLETE EMANCIPATION BY ENDING EXPLOITATION OF MAN BY MAN'. THE OTHER OBJECTS ARE TO PUBLISH NEWSPAPER, MAGAZINE, JOURNAL, BOOKS, ETC., UPLIFTMENT OF WORKI NG CLASS, - - ITA 1597 & CO 107/14 6 SPREAD OF SCIENTIFIC SOCIALISM, SO ON AND SO FORTH. 5.1 THE CIT(APPEALS) FURTHER OBSERVED THAT INDIA TH AT IS BHARAT IS BY ITSELF A SUB-CONTINENT WITH A TEEMING POPULATION OF MORE THAN 120 CRORES. NEARLY HALF OF THE POPULATION LIVES IN RURAL AREAS. AROUND 40% OF THE POPULATION IS ON THE POVERTY LINE. THE DOWNTRODDEN PEOPLE SUCH AS AGRICULTURE LABOURERS, DAILY WAGE EARNERS IN URBAN AREAS, INDUSTRIAL WORKERS, ETC. ARE THE TARGET GROUPS TERM ED AS TOILING MASSES BY THE ASSESSEE TRUST. THE ASSESSEE IS TRYING TO IMPROVE THEIR LOT THROUGH THE MEDIUM OF NEWSPAPE R 'THEEKKATH I R'. THE ACTIVITIES OF THE ASSESSEE CONFORM TO THE OBJECTS OF THE TRUST. THOUGH THE ACTIVITIES OF THE ASSESSEE ARE NOT EXACTLY 'EDUCATION', THEY CAN BE C OVERED DEFINITELY UNDER ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THEREFORE, THE CIT(APPEALS) OBSERVE D THAT THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 11 OF THE ACT. 5.2 REGARDING THE DISALLOWANCE OF DEPRECIATION, TH E CIT(APPEALS) OBSERVED THAT THE CONCEPT OF COMMERCIA L INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIAT ION ON - - ITA 1597 & CO 107/14 7 THE ASSETS OF THE ASSESSEE. HENCE IT HAS TO BE DEDU CTED FOR THE PURPOSE OF CALCULATING INCOME OF THE PERSON. IN COME SO ARR I VED AT IS TO BE APPLIED FOR CHARITABLE PURPOSE. CAP ITAL EXPENDITURE IS ALSO APPLICATION OF INCOME. THE WORKING BY THE ASSESSEE IS THEREFORE IN ORDER AND T HE DISALLOWANCE OF DEPRECIATION BY THE AO IS NOT IN AC CORDANCE WITH THE LAW. PLACING RELIANCE ON VARIOUS HIGH COU RT DECISIONS, THE CIT(APPEALS) HELD THAT WHEN THERE AR E CONFLICTING DECISIONS OF THE HIGH COURTS ON THE SAM E ISSUE, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE GIVEN EFFECT TO AND DIRECTED THE AO TO ALLOW DEPRECIATION AND ACCEPT THE RETURNED INCOME OF THE ASSESSEE. AGAINS T THIS, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE RAISED BY THE ASSESSEE IS SQUARELY COVERED BY THE ORDER OF THE CO CHIN BENCH OF THIS TRIBUNAL IN AI-MADEENA CHARITABLE TRU ST V. ACIT IN ITA NO.407 & 408/MDS/COCH/1995 DATED 1.11.1999(76 ITD 214), WHEREIN IT WAS HELD THAT WHE N AN ASSESSEE HAD NOT CARRIED ON ANY ACTIVITY OF CHARITA BLE - - ITA 1597 & CO 107/14 8 NATURE AS CONTEMPLATED UNDER THE TRUST DEED EXCEPT RUNNING THE BUSINESS OF PRINTING A NEWSPAPER, THE A SSESSEE CANNOT BE CONSIDERED AS CARRYING ON CHARITABLE ACTI VITY SO AS TO GRANT EXEMPTION U/S.11 OF THE ACT. IN VIEW O F THE BINDING PRECEDENT RELIED ON BY THE LD. DR, WE ARE O F THE OPINION THAT THE ASSESSEE IS NOT CARRYING ON ANY CH ARITABLE ACTIVITY AND CANNOT BE GRANTED EXEMPTION U/S.11 OF THE ACT. HOWEVER, WE HAVE TO MAKE IT CLEAR THAT THE CLAIM OF DEPRECIATION TO BE GRANTED ON WRITTEN DOWN VALUE OF THE ASSETS. IN OTHER WORDS, IF THE ASSESSEE HAS ALREADY CLAIMED CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME I N EARLIER YEARS AND THE VALUE OF THE ASSETS ON WHICH DEPRECIATION C LAIMED HAS BEEN FULLY ALLOWED AS EXPENDITURE OR APPLICATION IN THE EARLIER YEARS THAT CANNOT BE ANY CLAIM OF DEPRECIATION ONCE AGAIN. THE PRESENT CLAIM OF DEPRECIATION CANNOT BE A DOUBLE DE DUCTION OVER AND ABOVE THE FULLY VALUE OF THE ASSETS, IF IT WAS GRANTED AS APPLICATION OF INCOME IN EARLIER YEARS. WITH THESE OBSERVATIONS, WE ALLOW THE REVENUES APPEAL. 7. COMING TO THE CROSS OBJECTION FILED BY THE ASSES SEE, THE TAX EFFECT INVOLVED IN THIS APPEAL IS MORE THAN ` 4 LAKHS AND THE - - ITA 1597 & CO 107/14 9 REVENUES CLAIM CANNOT BE ACCEPTED. REGARDING THE MAINTAINABILITY OF APPEAL OF THE REVENUE ON THE REA SONS THAT THE GROUNDS ARE NOT PROPER AND IT IS ALSO DEVOID OF MER IT. WHATEVER MISTAKES POINTED OUT BY THE LD. AR WAS DULY RECTIFI ED BY THE DEPARTMENT AND THE SAME WAS CONSIDERED FOR ADJUDICA TION. ACCORDINGLY, THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. 8. THE OTHER ISSUE IN CROSS OBJECTION IS WITH REGAR D TO ALLOWABILITY OF DEPRECIATION. THIS ISSUE WAS DECID ED AGAINST THE ASSESSEE IN THE REVENUES APPEAL. ACCORDINGLY, TH IS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS ALSO DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 06 TH OF NOV., 2015 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 06 TH NOV., 2015. MPO* - - ITA 1597 & CO 107/14 10 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.