Valliammai Society, CHENNAI V. ACIT, CHENNAI

CO 48/CHNY/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3664 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 05-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Sham transactions; Capital expenditure
• Section: 12A; 32; 12; 28; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A. NO. 440/CHNY/2017 & C.O. NO.48/CHNY/2017 ( IN ITA NO.440/CHNY/2017 ) / ASSESSMENT YEAR : 2012-2013 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(3) CHENNAI 600 034. VS. M/S. VALLIAMMAI SOCIETY, NO.68, THAMBIAH ROAD, WEST MAMBALAM, CHENNAI 600 033. [PAN AAATV 2451J] ( )* / APPELLANT) (RESPONDENT/CROSS OBJECTOR) DEPARTMENT BY : MRS. RUBY GEORGE, IRS, CIT ASSESSEE BY : SHRI. B. S. PURUSHOTTAM, C.A. /DATE OF HEARING : 15-03-2018 /DATE OF PRONOUNCEMENT : 05-04-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEAL AND CROSS OBJECTION OF THE REVE NUE AND ASSESSEE RESPECTIVELY DIRECTED AGAINST AN ORDER DA TED 21.11.2016 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-18, CHENNA I. 2. APPEAL OF THE REVENUE IS TAKEN UP F IRST FOR DISPOSAL. REVENUE HAS ALTOGETHER TAKEN FOUR GROUNDS OF WHICH GROUND NO.1 & 4 ARE GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDICAT ION. ITA NO. 440/2017 & CO 48/2017 :- 2 -: 3. VIDE ITS GROUND NO.2, GRIEVANCE OF THE R EVENUE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED A DISA LLOWANCE OF C8,27,35,673/- MADE BY THE LD. ASSESSING OFFICER AG AINST REPAIRS AND MAINTENANCE CLAIMED BY THE ASSESSEE. 4. FACTS APROPOS ARE THAT ASSESSEE A TRUST R EGISTERED U/S.12AA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), RUNNING A NUMBER OF EDUCATIONAL INSTITUTIONS, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING NIL INCOME AFTER CLA IMING EXEMPTION UNDER SECTION 11 & 12 OF THE ACT. DURING THE COURSE OF ASSESSMENT, IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSE E HAD CLAIMED REPAIRS AND MAINTENANCE AGGREGATING TO C12,56,16,86 9/- AS UNDER:- NAME OF THE INSTITUTION AMOUNT HEAD OFFICE C8,27,35,673/- HOSTEL C2,36,15,792/- OTHERS VALLIAMMAI ENGINEERING COLLEGE C31,05,392 VALLIAMMAI POLYTECHNIC C4,26,460/- SRM POLYTECHNIC C94,739/- SRM ARTS & SCIENCE COLLEGE C7,83,283/- ESWARI ENGINEERING COLLEGE C93,20,468/- INSTITUTE OF HOTEL MANAGEMENT C43,80,744/- IHM HMC TECH C1,91,368/- SRM NIGHTINGALE SCHOOL C9,62,950/- TOTAL 512,56,16,869/- ITA NO. 440/2017 & CO 48/2017 :- 3 -: ASSESSEE WAS REQUIRED TO PRODUCE PROOF FOR THE ABOV E EXPENDITURE. ASSESSEE THEREUPON PRODUCED BILLS/INVOICES/VOUCHERS WHICH WERE VERIFIED BY THE LD. ASSESSING OFFICER, WITH THE BOO KS OF ACCOUNTS OF THE ASSESSEE. HE FOUND THAT THERE WERE FOLLOWING SUB-C ATEGORIES OF REPAIRS AND MAINTENANCE WORK IN VARIOUS INSTITUTIONS RUN BY THE ASSESSEE :- ANNUAL MAINTENANCE CONTRACT (AMC) R & M AIR CONDITIONER R & M FURNITURE R & M COMPUTERS R & M ELECTRICAL R & M BUILDING R & M LIFT R & M EQUIPMENTS R & M OFFICE R & M OTHERS SIMILAR CATEGORIES WERE THERE IN THE ACCOUNTS OF HO STEL AS WELL. 5. LD. ASSESSING OFFICER AFTER EXAMINATION OF EVIDE NCE PRODUCED BY THE ASSESSEE FOR ITS CLAIM OF REPAIRS AND MAINTENAN CE FOR HOSTEL AND INSTITUTIONS RUN BY IT, NOTED THAT SUCH EXPENDITURE CLAIMED IN THE HEAD OFFICE BOOK CONSISTED OF THE FOLLOWING ITEMS:- PARTY AMOUNT SRM ENGINEERING CONSTRUCTION CORP LTD (SRMECC) 7,21,95,731/- SRM INFRASTRUCTURES 85,76,518/- OTHERS 19,60,424/- TOTAL 8,27,35,673/- ITA NO. 440/2017 & CO 48/2017 :- 4 -: AS PER THE LD. ASSESSING OFFICER FOR THE SUM OF C,7 ,21,95,731/- OUT OF RS.8,27,35,673/- CLAIMED AS REPAIRS AND MAINTENANCE IN THE BOOKS OF THE HEAD OFFICE, ASSESSEE HAD SUBMITTED INVOICES RA ISED BY ONE M/S. SRMECC. ACCORDING TO HIM, SUCH INVOICES DID NOT SHO W THE NATURE OF THE REPAIRS CARRIED OUT BY THE SAID M/S. SRMECC. A NOTICE U/S.133(6) OF THE ACT WAS ISSUED BY THE LD.AO TO THE M/S. SRME CC, REQUIRING THEM TO FILE COPIES OF THE WORK ORDERS, INVOICES, A GREEMENTS ETC. IN RESPONSE TO THIS, ONE SHRI. K. RAMADOSS FROM THE SA ID ENTITY APPEARED AND FILED COPIES OF INVOICES AS WELL AS AN MOU DATE D 02.06.2008. LD. ASSESSING OFFICER FOUND THE INVOICES PRODUCED BY M/ S. SRMECC WERE TALLYING WITH WHAT WERE PRODUCED BY THE ASSESSEE BE FORE HIM. HOWEVER, ACCORDING TO THE LD. ASSESSING OFFICER AGR EEMENT DATED 02.06.2008 PRODUCED BY M/S. SRMECC WAS ENTERED WITH ONE M/S. SRM UNIVERSITY AND NOT WITH THE ASSESSEE. 6. FROM THE BILL OF QUANTITY PRODUCED BY SRMECC, LD. A SSESSING OFFICER CATEGORIZED THE WORK DONE BY THEM INTO THR EE HEADS NAMELY (I) CAMPUS DEVELOPMENT (II) MAINTENANCE AND (III) REPAI RS. OF THESE, CAMPUS DEVELOPMENT RELATED TO CAMPUS CLEANING, PARK ING AND MAINTENANCE OF GARDEN. MAINTENANCE WAS FOR WATER SU PPLY, SANITARY AND ROADS. REPAIRS PERTAINED TO PAINTING, FLOORING, FALSE CEILING ETC., AS PER THE LD. ASSESSING OFFICER, SIMILAR EXPENDITURE WERE BOOKED BY THE ASSESSEE IN THE BOOKS OF THE HOSTEL RUN BY IT. ACCO RDING TO THE LD. ITA NO. 440/2017 & CO 48/2017 :- 5 -: ASSESSING OFFICER, EXPENDITURE INCURRED BY THE HEAD OFFICE WAS ALSO RELATED TO THE INSTITUTIONS RUN BY THE ASSESSEE AND THEREFORE THERE WERE DUPLICATION OF CLAIM OF EXPENDITURE BETWEEN W HAT WAS BOOKED IN THE BOOKS OF THE HOSTEL AND WHAT WAS BOOKED IN THE BOOKS OF THE HEAD OFFICE. HE SUMMARIZED SUCH DUPLICATION AS UNDER:- SUB CATEGORY OF REPAIRS & MAINTENANCE AS PER ANNEXURE A TO THE ASSESSMENT ORDER AS PER ANNEXURE B TO THE ASSESSMENT ORDER (HOSTEL BUILDINGS) REPAIRS & MAINTENANCE PAINTING 12,28,491/- C42,33,272/- REPAIRS & MAINTENANCE FURNITURE 18,52,134/- (C10,75,545/- + C7,76,589/- ) C19,65,000/- REPAIRS & MAINTENANCE BUILDING C18,15,995/- C62,35,000/- HOUSE KEEPING SERVICES - HOSTEL C54,09,315/- C91,39,932/- THE EXPENDITURE RELATING TO HOSTEL WAS COMPILED FRO M THE GROUP SUMMARIES AVAILABLE IN THE BOOKS OF THE ACCOUNTS, W HICH HAD SPECIFIC HEADS FOR ANNUAL MAINTENANCE, HOUSEKEEPING SERVICES AND REPAIRS AND MAINTENANCE. ACCORDING TO HIM, THE BILL OF QUANTIT Y PRODUCED BY M/S. SRMECC ALSO CARRIED SIMILAR ITEMS. THUS, AS PER TH E LD.AO, EXPENDITURE FOR REPAIRS AND MAINTENANCE CLAIMED BY THE ASSESSEE, BASED ON THE INVOICES RAISED BY M/S. SRMECC WERE SH AM. HE DISALLOWED THE CLAIM OF SUCH EXPENDITURE MADE IN T HE BOOKS OF THE HEAD OFFICE AGGREGATING TO C8,27,35,673/-. ITA NO. 440/2017 & CO 48/2017 :- 6 -: 7. ASSESSEES APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE WAS SUCCESSFUL. LD. C OMMISSIONER OF INCOME TAX (APPEALS) HELD THAT NOTHING STOPPED THE ASSESSEE FROM BOOKING ITS EXPENDITURE FOR REPAIRS AND MAINTENANCE BOTH IN ITS HEAD OFFICE ACCOUNT AS WELL AS IN THE ACCOUNTS OF THE IN STITUTIONS RUN BY IT. ACCORDING TO THE LD. COMMISSIONER OF INCOME TAX (AP PEALS), JUST BECAUSE EXPENDITURE FOR REPAIRS AND MAINTENANCE WER E BOTH CLAIMED IN THE HEAD OFFICE ACCOUNT AS WELL IN THE ACCOUNTS OF THE INSTITUTIONS, IT WOULD NOT MEAN THAT THERE WERE ANY DUPLICATION OF S UCH EXPENDITURE. HE DELETED THE DISALLOWANCE MADE BY THE LD. ASSESSI NG OFFICER. 8. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STRONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT ASSESSEE HAD MADE EXCESSIVE CLAIM FO R REPAIRS AND MAINTENANCE. ACCORDING TO HER, ANNEXURES TO THE AS SESSMENT ORDER CLEARLY INDICATE THAT ASSESSEE HAD BOOKED REPAIRS AND MAINTENANCE EXPENDITURE INCURRED IN ITS INSTITUTIONS, BOTH IN THE ACCOUNTS OF SUCH INSTITUTIONS AS WELL AS IN THE ACCOUNTS OF HEAD OFF ICE. THUS ACCORDING TO HER, THERE COULD HAVE BEEN DUPLICATION OF SUCH E XPENDITURE. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, WHEN REPAIRS A ND MAINTENANCE WERE DIRECTLY MET BY THE INSTITUTIONS, THERE WAS N O REASON WHY SIMILAR EXPENDITURE WAS INCURRED FROM THE HEAD OFFICE ALSO, THAT TOO FOR THE VERY SAME INSTITUTIONS. AS PER THE LD. DEPARTMENTA L REPRESENTATIVE, ITA NO. 440/2017 & CO 48/2017 :- 7 -: M/S. SRMECC WAS A RELATED PARTY AND AGREEMENT ENTE RED WITH THE SAID PARTY WAS SHAM. CONTENTION OF THE LD. DEPARTME NTAL REPRESENTATIVE WAS THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) FELL IN ERROR IN ALLOWING A CLAIM ARISING FROM SHAM TRANSACTIONS. 9. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONG LY SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE ORDERS OF THE AUTHORITIES BELOW. ANNEXURES A AND B OF THE ASSESSMENT ORDER DEPICTS THE REPAIRS AND MAINTENANCE EXPENDITU RE BOOKED BY THE ASSESSEE UNDER THE HEAD REPAIRS AND MAINTENANCE IN ITS HOSTEL AND IN ITS HEAD OFFICE. NO DOUBT IT IS TRUE THAT THE REPAI RS AND MAINTENANCE CLAIMED AT HEAD OFFICE INCLUDED THEREIN EXPENDITURE FOR CLEANING THE BUILDING, APPROACH ROADS, MAINTENANCE OF WATER SUPP LY, SANITARY ARRANGEMENT, MAINTENANCE OF TREATMENT PLANT, PAINTI NG, PATCH WORK, PAVEMENT FLOORING, REPAIRS OF FALSE CEILING, FURNIT URE AND ALSO SUPPLY OF ITEMS LIKE COTS, STAFF TABLE, FABRICATION AND FIXI NG OF ALUMINUM PARTITION. THESE WORK WHICH WERE DONE BY M/S. SRMEE C WAS FOR THE VARIOUS INSTITUTIONS RUN BY THE ASSESSEE. MAJOR PA RT OF THE WORK WAS INCURRED FOR THE HOSTEL. LD. AO HAD CONSIDERED IN VOICES RAISED BY M/S. SRMEEC FOR THE ABOVE WORK TO BE BOGUS STATING THAT THE LATTER WAS A RELATED PARTY. SECTION 13 OF THE ACT DENIES EXEMPT ION UNDER SECTION ITA NO. 440/2017 & CO 48/2017 :- 8 -: 11 & 12 OF THE ACT, TO A TRUST IF ANY INCOME THERE OF DIRECTLY OR INDIRECTLY BENEFITS ANY PERSON REFERRED IN SUB SECT ION (3) OF THE SAID SECTION. SUB SECTION (3) OF SECTION 13 IS REPRODUC ED HEREUNDER:- (3) THE PERSONS REFERRED TO IN CLAUSE (C) OF SUB- SECTION (1) AND SUB-SECTION (2) ARE THE FOLLOWING, NAMELY :- (A) THE AUTHOR OF THE TRUST OR THE FOUNDER OF THE INSTITUTION ; (B) ANY PERSON WHO HAS MADE A SUBSTANTIAL CONTRIBUTION TO THE TRUST OR INSTITUTION, THAT IS T O SAY, ANY PERSON WHOSE TOTAL CONTRIBUTION UP TO THE END O F THE RELEVANT PREVIOUS YEAR EXCEEDS FIFTY THOUSAND RUPEES ; (C) WHERE SUCH AUTHOR, FOUNDER OR PERSON IS A HINDU UNDIVIDED FAMILY, A MEMBER OF THE FAMILY ; (CC) ANY TRUSTEE OF THE TRUST OR MANAGER (BY WHATEV ER NAME CALLED) OF THE INSTITUTION ; (D) ANY RELATIVE OF ANY SUCH AUTHOR, FOUNDER, PERSO N, MEMBER, TRUSTEE OR MANAGER AS AFORESAID ; (E) ANY CONCERN IN WHICH ANY OF THE PERSONS REFERR ED TO IN CLAUSES (A), (B), (C), (CC) AND (D) HAS A SUBSTANTIAL INTEREST. IN OUR OPINION THE LD. ASSESSING OFFICER BEFORE CO MING TO A CONCLUSION THAT M/S. SRMEEC WAS A RELATED PARTY, SHOULD HAVE POINTED THE PROVISION, UNDER WHICH IT COULD BE CONSIDERED SO. EXPLANATION 3 TO SECTION 13 OF THE ACT SETS OUT THE CONDITIONS UNDER WHICH A PERSON CAN BE DEEMED TO HAVE SUBSTANTIAL INTEREST IN A CON CERN. SAID EXPLANATION 3 IS ALSO REPRODUCED HEREUNDER:- ITA NO. 440/2017 & CO 48/2017 :- 9 -: EXPLANATION 3. FOR THE PURPOSES OF THIS SECTION, A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTERE ST IN A CONCERN,- (I) IN A CASE WHERE THE CONCERN IS A COMPANY, IF IT S SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A FURTHER RIGHT TO PARTICIPATE IN PROFITS) CARRYING NOT LESS THAN TWEN TY PER CENT. OF THE VOTING POWER ARE, AT ANY TIME DURING T HE PREVIOUS YEAR, OWNED BENEFICIALLY BY SUCH PERSON OR PARTLY BY SUCH PERSON AND PARTLY BY ONE OR MORE OF THE OTHER PERSONS REFERRED TO IN SUB-SECTION (3) ; (II) IN THE CASE OF ANY OTHER CONCERN, IF SUCH PERS ON IS ENTITLED, OR SUCH PERSON AND ONE OR MORE OF THE OTH ER PERSONS REFERRED TO IN SUB-SECTION (3) ARE ENTITLED IN THE AGGREGATE, AT ANY TIME DURING THE PREVIOUS YEAR , TO NOT LESS THAN TWENTY PER CENT. OF THE PROFITS OF SUCH CONCERN. LD. ASSESSING OFFICER HAS NOT ESTABLISHED HOW THE A BOVE THE EXPLANATION APPLIED TO M/S. SRMEEC FOR IT TO BE CON SIDERED A RELATED PARTY. AUTHORISED REPRESENTATIVE OF M/S. SRMEEC HA D APPEARED BEFORE THE LD. ASSESSING OFFICER AND PRODUCED THE INVOICES RAISED BY THEM ON THE ASSESSEE FOR REPAIRS AND MAINTENANCE. L D. ASSESSING OFFICER MADE A VERIFICATION OF INVOICES AND FOUND I T TO BE THE SAME AS THOSE PRODUCED BY THE ASSESSEE. IN SUCH A SITUATI ON, IN OUR OPINION THERE WAS NOTHING WHICH WOULD SHOW THAT CLAIM OF RE PAIRS AND MAINTENANCE MADE BY THE ASSESSEE THROUGH BOOKS OF ITS HEAD OFFICE, BASED ON INVOICES RAISED BY THE M/S. SRMEEC WAS SHA M. EVEN THE BILLS ITA NO. 440/2017 & CO 48/2017 :- 10 -: OF QUANTITY WERE PRODUCED BY M/S. SRMEEC, AND NO EN TRIES THEREIN WERE FOUND TO BE ARTIFICIAL OR INFLATED. 11. NOW COMING TO THE OBSERVATION OF THE LD. ASSES SING OFFICER THAT THERE COULD HAVE BEEN DUPLICATION OF EXPENDITU RE IN THE BOOKS OF THE ASSESSEE, IN OUR OPINION, NOTHING STOPPED THE ASSESSEE FROM CARRYING OUT THE REPAIRS AND MAINTENANCE OF VARIOU S INSTITUTIONS RUN BY IT, FROM THE HEAD OFFICE, THOUGH SOME PART OF SUCH REPAIRS WERE DONE DIRECTLY BY SUCH INSTITUTIONS. IT IS NOT THE CASE OF THE REVENUE THAT THE SAME BILLS WERE ACCOUNTED BY THE ASSESSEE BOTH IN THE BOOKS OF THE HOSTEL AS WELL AS IN THE BOOKS OF THE HEAD OFFICE. JUST BECAUSE A PART OF THE EXPENDITURE FOR REPAIRS AND MAINTENANCE WAS MET BY THE HEAD OFFICE AND A PART MET BY THE INSTITUTIONS RUN BY T HE ASSESSEE, WOULD NOT IPSO FACTO MEAN THAT THERE WERE DUPLICATION OF EXPENDITURE AS SUCH. BILLS PRODUCED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM FOR REPAIRS AND MAINTENANCE FOR EXPENDITURE BOOKED IN HOSTEL WE RE VERIFIED BY THE LD. ASSESSING OFFICER AND WERE FOUND SATISFACTORY. RELEVANT PARA OF THE ASSESSMENT ORDER IS REPRODUCED HEREUNDER:- THE BILLS/ INVOICES/ VOUCHERS RELEVANT TO HOSTE LS AND OTHERS WERE COMPLETELY SUBMITTED BY THE ASSESSE E TRUST FOR VERIFICATION. THE SAME WERE VERIFIED AND FOUND THAT THE SAID EXPENSES WERE INCURRED FOR REPAIRS & MAINTENANCE RE LEVANT TO COLLEGE (INSTITUTION) AND HOSTEL BUILDINGS THROUGH VARIOUS PARTIES. ITA NO. 440/2017 & CO 48/2017 :- 11 -: THERE IS NO FINDING BY THE LD. ASSESSING OFFICER, THAT THERE WERE ANY DUPLICATION IN THE BILLS RAISED BY THE M/S. SRMEEC. IN SUCH A SITUATION, WE ARE OF THE OPINION THAT LD. COMMISSIONER OF INC OME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER. WE DO NOT FIND ANY REASON TO INTERFERE WIT H THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 12. VIDE ITS GROUND NO.3, REVENUE IS AGGRIEVED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE A O TO ALLOW DEPRECIATION OF C24,00,58,318/- ON COST OF ASSETS WHICH WERE EARLIER CLAIMED AS APPLICATION OF INCOME. 13. THE ISSUE IN OUR OPINION IS FULLY COVERED IN FA VOUR OF THE ASSESSEE BY VIRTUE OF JUDGMENT OF HONBLE APEX COUR T IN THE CASE OF CIT VS. RAJASTHAN AND GUJARATI CHARITABLE FOUNDATI ON POONA (CIVIL APPEAL NO.7186 OF 2014, DATED 13.12.2017 ). THEIR LORDSHIPS HAD HELD AS UNDER:- THESE ARE THE PETITIONS AND APPEALS FILED BY THE INCOME TAX DEPARTMENT AGAINST THE ORDERS PASSED BY VARIOUS HIG H COURTS GRANTING BENEFIT OF DEPRECIATION ON THE ASSETS ACQU IRED BY THE RESPONDENTS-ASSESSEES. IT IS A MATTER OF RECORD THA T ALL THE ASSESSEES ARE CHARITABLE INSTITUTIONS REGISTERED UNDER SECTIO N 12A OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS 'ACT'). FOR THIS REASON, IN THE PREVIOUS YEAR TO THE YEAR WITH WHICH WE ARE CON CERNED AND IN WHICH YEAR THE DEPRECIATION WAS CLAIMED, THE ENTIRE EXPENDITURE INCURRED FOR ACQUISITION OF CAPITAL ASSETS WAS TREA TED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES UNDER SECTION 11( 1)(A) OF THE ACT. THE VIEW TAKEN BY THE ASSESSING OFFICER IN DISALLOW ING THE DEPRECIATION WHICH WAS CLAIMED UNDER SECTION 32 OF THE ACT WAS THAT ITA NO. 440/2017 & CO 48/2017 :- 12 -: ONCE THE CAPITAL EXPENDITURE IS TREATED AS APPLICAT ION OF INCOME FOR C.A. NO. 7186/ 2014 ETC. CHARITABLE PURPOSES, T HE ASSESSEES HAD VIRTUALLY ENJOYED A 100 PER CENT WRITE OFF OF THE C OST OF ASSETS AND, THEREFORE, THE GRANT OF DEPRECIATION WOULD AMOUNT T O GIVING DOUBLE BENEFIT TO THE ASSESSEE. THOUGH IT APPEARS THAT IN MOST OF THESE CASES, THE CIT (APPEALS) HAD AFFIRMED THE VIEW, BUT THE IT AT REVERSED THE SAME AND THE HIGH COURTS HAVE ACCEPTED THE DECISION OF THE ITAT THEREBY DISMISSING THE APPEALS OF THE INCOME TAX DE PARTMENT. FROM THE JUDGMENTS OF THE HIGH COURTS, IT CAN BE DISCERN ED THAT THE HIGH COURTS HAVE PRIMARILY FOLLOWED THE JUDGMENT OF THE BOMBAY HIGH COURT IN 'COMMISSIONER OF INCOME TAX V. INSTITUTE O F BANKING PERSONNEL SELECTION (IBPS)' [(2003) 131 TAXMAN 386 (BOMBAY)].IN THE SAID JUDGMENT, THE CONTENTION OF THE DEPARTMENT PREDICATED ON DOUBLE BENEFIT WAS TURNED DOWN IN THE FOLLOWING MAN NER: 3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIR ES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATIO N WAS ALLOWABLE ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN 1994 TAX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. THE ASSESSEE WAS A CHARITABL E TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRU ST. IT WAS ALSO REGISTERED WITH THE COMMISSIONER OF INCOME TAX, PUNE. THE ASSESSEE DERIVED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY.DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1977-78, 1978-79 AND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE BUILDING @2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITURE @ 5%. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS : WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSEE, AS EXPENDITURE ON ACQUISITI ON OF THE ASSETS HAD BEEN TREATED AS APPLICATION OF INCOME IN THE YEAR OF ACQUISITION? IT WAS HELD BY T HE BOMBAY HIGH COURT THAT SECTION 11 OF THE INCOME TAX ACT MAKES PROVISION IN RESPECT OF C.A. NO. 7186 / 2014 ETC. COMPUTATION OF INCOME OF THE TRUST FROM THE PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPO SES AND IT ALSO PROVIDES FOR APPLICATION AND ACCUMULATION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME TAX ACT DEALS WITH CHARGEABILITY O F INCOME FROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCOME FROM PROFITS AN D GAINS OF BUSINESS AHLL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPECT OF ITA NO. 440/2017 & CO 48/2017 :- 13 -: BUILDING, PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN THAT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, W AS ADVANCED ON BEHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTION ONLY UNDER SECTION 32 OF THE INCOME TAX ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTIN G THE REAL INCOME OF THE ASSESSEE ON GENERAL PRINCIPL ES OR UNDER SECTION 11(1)(A) OF THE INCOME TAX ACT THE COURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENU E THAT SECTION 32OF THE INCOME TAX ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITAB LE TRUST DERIVED FORM BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME TAX ACT PROVIDING FOR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROFESSION IS NO T APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFORESATA TED JUDGMENT OF THE BOMBAY HIGH CURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE I.E., IN FAVOUR O F THE ASSESSEE AND AGAINST THE DEPARTMENT. 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTI ON WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 109 CTR 463. IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOME OF THE TRUS T. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXPENDITURE HAD C.A. NO. 7186/ 2014 ETC. BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE WEN T IN APPEAL BEFORE THE ASSISTANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL, HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THAT FULL ITA NO. 440/2017 & CO 48/2017 :- 14 -: EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS, WHAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS 'APPLICATION OF INCOME' OF THE TRUS T IN THE YEAR IN WHICH THE INCOME WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT IN COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YEARS, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUNT. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE A RE OF THE OPINION THAT THE AFORESAID VIEW TAKEN BY THE BOMBAY HIGH COURT C ORRECTLY STATES THE PRINCIPLES OF LAW AND THERE IS NO NEED TO INTERFERE WITH THE SAME. IT MAY BE MENTIONED THAT MOST OF THE HIGH COURTS HA VE TAKEN THE AFORESAID VIEW WITH ONLY EXCEPTION THERETO BY THE H IGH COURT OF KERALA WHICH HAS TAKEN A CONTRARY VIEW IN 'LISSIE MEDICAL INSTITUTIONS V. COMMISSIONER OF INCOME TAX'. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LEG ISLATURE, REALISING THAT THERE WAS NO SPECIFIC PROVISION IN THIS BEHALF IN T HE INCOME TAX ACT, HAS MADE AMENDMENT IN SECTION 11(6) OF THE ACT VIDE FIN ANCE ACT NO. 2/2014 WHICH BECAME EFFECTIVE FROM THE ASSESSMENT YEAR 201 5-2016. THE DELHI HIGH COURT HAS TAKEN THE VIEW AND RIGHTLY SO, THAT THE SAID AMENDMENT IS PROSPECTIVE IN NATURE. IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPR ECIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. FOR THE AFORESAID REASONS, WE AFFIRM THE VIEW TAKEN BY THE HIGH COURTS IN THESE CASES AND DISMISS THESE MATTERS. THE VIEW TAKEN BY THE LD. COMMISSIONER OF INCOME TA X (APPEALS) BEING IN CONSONANCE WITH THE JUDGMENT OF HONBLE AP EX COURT, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). GROUND NO.3 OF THE REVENUE ST ANDS DISMISSED. ITA NO. 440/2017 & CO 48/2017 :- 15 -: 14. CROSS OBJECTION OF THE ASSESSEE SUPPORTS THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN SO FAR AS I T WENT IN ITS FAVOUR. 15. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED WHEREAS CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS INF RUCTUOUS. ORDER PRONOUNCED ON THURSDAY, THE 5TH DAY OF APR IL, 2018, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER / CHENNAI / DATED:5TH APRIL, 2018. KV ! ' #$ %$ / COPY TO: 1 . &' / APPELLANT 3. ( () / CIT(A) 5. $+, ' - / DR 2. '.&' / RESPONDENT 4. ( / CIT 6. ,/ 0 / GF