SAYAJI U-BA KHIN MEMORIAL TRUST, MUMBAI V. ADIT (E)I(*2), MUMBAI

CO 153/MUM/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8565 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-05-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-05-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 30-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 32; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, M UMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND D.KARUNAKAR RAO (AM) . . , . ! , '# '# '# '# ' '' ' $ $ $ $ ./I.T.A. NO. 5646/M/2011 ( & ' / ASSESSMENT YEAR:2007-08 ) ADIT (E) 1(2), R.NO.504, PIRAMAL CHAMBERS, 5 TH FLOOR, PAREL, MUMBAI. & & & & / VS. SAYAJI UBAKHIN MEMORIAL TRUST, 2 ND FLOOR, GREEN HOUSE, GREEN STREET, FORT, MUMBAI. ( '# ./ )* ./PAN/GIR NO. : AAATC 3012 A ( (+ / APPELLANT) .. ( ,-(+ / RESPONDENT) ,-$'/C.O. NO.153/M/2011 (ARISING OUT OF I.T.A. NO.5646/M/2011) SAYAJI UBAKHIN MEMORIAL TRUST, 2 ND FLOOR, GREEN HOUSE, GREEN STREET, FORT, MUMBAI. & & & & / VS. ADIT (E) 1(2), R.NO.504, PIRAMAL CHAMBERS, 5 TH FLOOR, PAREL, MUMBAI. ( '# ./ )* ./PAN/GIR NO. : AAATC 3012 A ,-$'//CROSS OBJECTOR .. ( ,-(+ / RESPONDENT) (+ N ' / APPELLANT BY : SHRI MANOJ KUMAR ,-$'/ CROSS OBJECTOR BY : SHRI R.V.CHENIYARI & P Q# / DATE OF HEARING : 13.5.2013 RS' P Q# /DATE OF PRONOUNCEMENT : 17.5.2013 'T / O R D E R PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 2007-08 AGAINST ORDER DATED 29.3.2011 OF LD CIT(A) -1, MUMBAI ON THE FOL LOWING GROUNDS: 1. WHETHER ON THE FACTS OF THE CASE AND IN LAW TH E LD. CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESEE ON ACCOUNT OF DI SALLOWING DEPRECIATION 2 ON FIXED ASSETS OF RS. 70,19,745/ - IN CONTRAVENTIO N OF THE DECISION OF ESCORTS LTD. V/S. UOI 199 ITR 43 WHEREIN IT WAS HEL D THAT SINCE SECTION 11 OF THE I.T. ACT PROVIDES FOR DEDUCTION CAPITAL EXPE NDITURE INCURRED ON AN ASSET ACQUIRED FOR THE OBJECTS OF THE TRUST AS APPL ICATION AND DOES NOT SPECIFICALLY IT EXPRESSLY PROVIDE FOR DOUBLE DEDUCT ION ON ACCOUNT OF DEPRECIATION ON THE SAME VERY ASSETS ACQUIRED FROM SUCH CAPITAL EXPENDITURE, NO DEDUCTION SHALL BE ALLOWED U/S 32 F OR THE SAME OR ANY OTHER PREVIOUS YEAR IN RESPECT OF THAT ASSET AS IT AMOUNTS TO CLAIMING A DOUBLE DEDUCTION. 2. WHETHER ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE ACCUMULATION OR SETTING APART OF 15% O F INCOME OF RS.49,23,920/-, AS THE ASSESSEE HAS EXPENDED THE EN TIRE INCOME TOWARDS OBJECT OF THE TRUST AS APPLICATION OF INCOME AND TH ERE IS NO SURPLUS LEFT TO BE ACCUMULATED.. 3. WHETHER ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE CARRY FORWARD OF DEFICIT AND ALLOWING SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEARS, AS ALLOWING THE DEF ICIT WILL TANTAMOUNT TO DOUBLE DEDUCTION ON ACCOUNT OF EXPENDITURE OUT OF E XEMPT INCOME. 2. APROPOS GROUND NO.1 OF APPEAL, BRIEFLY STATED TH E RELEVANT FACTS ARE THAT ASSESSEE TRUST CLAIMED AN AMOUNT OF RS.70,19,745/- ON ACCOUNT OF DEPRECIATION ON ASSETS COST OF WHICH HAS BEEN CLAIMED TO BE APPLICA TION WITHIN THE MEANING OF SECTION 11(1)(A) OF THE I.T.ACT FOR THE PURPOSES OF AVAILIN G EXEMPTION U/S.11 OF THE I.T.ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS ASKED TO SHOW CAUSE AS TO WHY CLAIM OF DEPRECIATION TO THE EXTENT OF RS.70 ,19,745 CLAIMED AS APPLICATION OF INCOME U/S.11(1)(A) SHOULD NOT BE REJECTED IN THE L IGHT OF RATIO OF JUDGMENT IN THE CASE OF ESCORTS LTD VS. UNION OF INDIA,. 199 ITR 43. TH E ASSESSEE SUBMITTED ITS REPLY DATED 26.11.2009, WHEREIN, IT WAS STATED THAT A CHARITABL E TRUST CAN CLAIM DEPRECIATION ON ASSETS DEBITED TO INCOME & EXPENDITURE ACCOUNT EVEN IF THE COST OF THE ASSETS HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER SECTIO N 11 IN CURRENT YEAR AS WELL AS IN THE PAST YEARS. ASSESSEE RELIED ON VARIOUS JUDICIAL PR ONOUNCEMENTS TO SUBSTANTIATE ITS PROPOSITION, INTER ALIA, THE DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION, 264 ITR 1 10(BOM). HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND DISALLOWED THE CLAIM OF DEPRECIATION OF RS.70,19,745/-. BEING AGGRIEVED, ASSESSEE FILED AP PEAL BEFORE LD CIT(A). LD CIT(A) RELYING ON THE JUDGMENT OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA) DELETED THE ADD ITION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON ASSETS. HENCE, THIS APPEAL BY THE DEPARTMENT. 3 3. AT THE TIME OF HEARING, LD D.R. DUTIFULLY RELIED ON THE ORDER OF AO AND WHEREAS LD A.R. SUPPORTED THE ORDER OF LD CIT(A). 4. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTAT IVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT THERE IS NO REASON TO INTERFERE WIT H THE ORDER OF LD CIT(A) ON THIS ISSUE AS THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED U/S.11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. LD CIT(A) HAS RIGHTLY OBSERVED THAT THE RELIANCE PLACED BY THE DEPARTMENT IN THE CASE O F ESCORTS LTD (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IT IS ALSO OB SERVED THAT A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 BY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA) ALLOWED THE CLAIM OF DEPRECIATION , WHICH IS FOLLOWED BY LD CIT(A) IN THE IMPUGNED ORDER. HENCE, WE UPHOLD HIS ORDER AND REJ ECT GROUND NO.1 OF APPEAL TAKEN BY DEPARTMENT. 5. WITH REGARD TO GROUND NO.2 OF APPEAL, THE ASSESS ING OFFICER OBSERVED THAT IF THE TRUST HAS NOT LEFT WITH SURPLUS AND THERE IS DEFICI T, THEN THERE CAN BE NO ACCUMULATION MADE. AO HAS STATED THAT ACCUMULATION OR SETTING A PART OF 15% OF INCOME HAS BEEN ALLOWED BY VIRTUE OF PROVISION OF SECTION 11(1)(A) OF THE ACT WHEN ASSESSEE IS NOT ABLE TO SPEND THE ENTIRE AMOUNT AND WHEN THE ENTIRE AMOUNT HAS BEEN SPENT, THERE IS NO SURPLUS LEFT THAT CAN BE ACCUMULATED. AGGRIEVED, AS SESSEE FILED APPEAL BEFORE LD CIT(A). 6. ON BEHALF OF ASSESSEE, IT WAS SUBMITTED THAT AS PER SECTION 11(1)(A), THE EXPENDITURE INCURRED BY A TRUST OR INSTITUTE ON THE OBJECTS OF THE TRUST BY WAY OF APPLICATION OF INCOME DERIVED FROM THE PROPERTY HEL D FOR RELIGIOUS OR CHARITABLE PURPOSES IS DEDUCTIBLE FROM THE INCOME. IT WAS SUBMITTED TH AT THERE IS NO BAR IN LAW AND THERE ARE NO SPECIFIC PROVISIONS IN THE ACT WHICH SAYS TH AT SUCH DEDUCTION OF 15% FOR ACCUMULATION WILL NOT BE ALLOWED IN CASE OF DEFICIT . SUCH 15% ACCUMULATION IS ALLOWABLE IRRESPECTIVE OF WHETHER 85% OF THE INCOME HAVE BEEN APPLIED TO CHARITABLE PURPOSES OR NOT. LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE STATED THAT AO IS NOT JUSTIFIED IN DENYING THE CLAIM OF THE ASSESSEE FOR THE ACCUMULATION OF INCOME AND, ACCORDINGLY, ALLOWED THE CLAIM OF THE ASSESSEE. BE ING AGGRIEVED, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 4 7. WE OBSERVE THAT LD CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE, INTER ALIA, OBSERVING AS UNDER: 6.3 I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE APPELLANTS A/R SUBMISSION. I HAVE ALSO CAREFULLY OBSERVED THE FINDINGS OF THE HONBLE SUPREME COURT IN THE CASE OF PROGRAMME FOR COMMUNITY ORGANIZATION REPORT ED IN 248 ITR I, WHEREIN THE HONBLE SUPREME COURT, WHILE DELIVERING THE SAI D JUDGEMENT HAS STATED THAT HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE P ROVISIONS, IT IS CLEAR THAT A CHARITABLE OR RELIGIOUS TRUST IS ENTITLED TO ACCUMU LATE TWENTY FIVE PERCENT. THUS, TAKING NOTE OF ALL THESE FACTS, I FIND MERITS IN TH E ARGUMENTS OF THE APPELLANT. BESIDES THIS, I ALSO GET STRONG OPINED FROM THE REC ENT JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TRUSTEES O F BHAT FAMILY RESEARCH FOUNDATION, WHEREIN THE HONB!E BOMBAY BOMBAY HIGH COURT STATES THAT IT IS CLEAR FROM CLAUSE (A) OF SUB-SECTION (1) OF SECTION 11 THAT INCOME DERIVED FROM PROPER HELD UNDER TRUST WHOLLY FOR CHARITABLE PURPO SES OR RELIGIOUS PURPOSES SHALL NOT BE INCLUDED IN THE TOTAL INCOME TO THE EXTENT T O WHICH IT IS APPLIED FOR SUCH PURPOSES IN INDIA AND, WHERE IT IS ACCUMULATED FOR SUCH APPLICATION, TO THE EXTENT THAT THE ACCUMULATION IS NOT IN EXCESS OF 25% OF T HE INCOME OF RS. 10, 000/-, WHICHEVER IS HIGHER. THE EXEMPTION OF ACCUMULATED I NCOME TO THE EXTENT OF 25% OR RS. 10,000/-, WHICHEVER IS HIGHER, IS UNQUALIFIE D AND UNCONDITIONAL.. FURTHER TO THAT, I ALSO PLACE RELIANCE TO THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF ADDL. CIT VS. A. I N. RAO CHARITABLE TRUST (1995) 129 CTR 205, WHEREIN IT IS HELD THAT EXEMPTION AVAILABLE U/S 11(1)(A) I. E. 15% OF INCOME IS UNFETTERED AND NOT SUBJECT TO ANY CONDITIONS. 6.4 CONSIDERING ALL THE ABOVE FACTUAL POSITION AS W ELL AS THE CASE LAWS REFERRED AS ABOVE, I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE A.O. WAS ROT JUSTIFIED IN DENYING THE CLAIM OF THE APPELLANT FOR THE ACCUM ULATION OF INCOME. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 8 WE OBSERVE THAT LD CIT(A) HAS RELIED ON THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF A.I.N. RAO CHARITABLE TRUST (SUPRA), WH EREIN , IT IS HELD THAT EXEMPTION AVAILABLE U/S.11(1)(A) I.E. 15% OF INCOME IS UNFETT ERED AND NOT SUBJECT TO ANY CONDITIONS. IN THE CASE BEFORE US, ASSESSEE HAS CL AIMED 15% ACCUMULATION U/S.11(1)(A) OF THE ACT. HENCE, WE DO NOT SEE ANY REASON TO INT ERFERE WITH THE ORDER OF LD CIT(A) AND REJECT GROUND OF APPEAL TAKEN BY DEPARTMENT. 9. IN REGARD TO GROUND NO.3 OF APPEAL, WE HAVE HEAR D LD REPRESENTATIVES OF PARTIES AND PERUSED ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT LD CIT(A) BY ALLOWING THE CLAIM OF THE ASSESSEE HAS RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION (S UPRA), WHEREIN, IT HAS BEEN STATED THAT INCOME DERIVED FROM THE TRUST PROPERTY HAS TO BE CO MPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED, THEN ADJU STMENT OF EXPENSES INCURRED BY THE 5 TRUST FOR CHARITABLE PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE PURPOSES IN SUBSEQUENT YEAR IN WHICH SUC H ADJUSTMENT HAS BEEN MADE. HENCE, THERE IS NO REASON TO INTERFERE WITH THE ORD ER OF LD CIT(A). ACCORDINGLY, WE UPHOLD THE SAME BY REJECTING GROUND NO.3 OF APPEAL TAKEN BY REVENUE. 10. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION BEI NG C.O NO.153/M/2011 11. AT THE TIME OF HEARING, LD A.R. DID NOT PRESS C ROSS OBJECTION FILED BY ASSESSEE. HENCE, CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 12. IN THE RESULT, APPEAL FILED BY REVENUE AND CROS S OBJECTION FILED BY ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MAY , 2013 'T P RS' #' U V&W 17 TH MAY , 2013 S P X SD/- SD/- ( . ! /D.KARUNAKAR RAO ) ( . . /B.R.MITTAL) '# / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; V& DATED 17 / 05/2012 . & . ./ PARIDA , SR. PS 'T 'T 'T 'T P PP P ,Q] ,Q] ,Q] ,Q] ']'Q ']'Q ']'Q ']'Q / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. _ ( ) / THE CIT(A)- 4. _ / CIT 5. ]`X ,Q& , , / DR, ITAT, MUMBAI 6. X A / GUARD FILE. 'T& / BY ORDER, -]Q -]Q -]Q -]Q ,Q ,Q,Q ,Q //TRUE COPY// B ) (ASSTT. REGISTRAR) , / ITAT, MUMBAI