HIMT Educational Trust, CHENNAI V. ADIT, CHENNAI

CO 64/CHNY/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8667 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T BANUSEKAR
• Assessee Lawyers: T N BETGIRI JT
• Keywords: Depreciation; Charitable institution; Non-deduction of tax; Benefit of exemption; Capital expenditure
• Section: 12AA; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER] I.T.A.NO.389/MDS/2013 ASSESSMENT YEAR : 2009-10 THE ASST. DIRECTOR OF INCOME-TAX (EXEMPTIONS)-IV CHENNAI VS M/S HIMT EDUCATIONAL TRUST NO.11, MILLERS ROAD KILPAUK, CHENNAI 600 010 [PAN AAATH 3381 F] (APPELLANT) (RESPONDENT) C.O.NO.64/MDS/2013 ASSESSMENT YEAR : 2009-10 M/S HIMT EDUCATIONAL TRUST NO.11, MILLERS ROAD KILPAUK, CHENNAI 600 010 VS THE ASST. DIRECTOR OF INCOME- TAX (EXEMPTIONS)-IV CHENNAI (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI T. BANUSEKAR, CA ASSESSEE BY : SHRI T.N.BETGIRI, JT.CIT DATE OF HEARING : 27-05-2013 DATE OF PRONOUNCEMENT : 19-06-2013 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER THE APPEAL HAS BEEN FILED BY THE REVEN UE AGAINST THE ORDER OF THE CIT(A)-XII, CHENNAI, DATED 29.11.2012. THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE AFORESAID ORDER OF THE CIT(A). I.T.A.NO.389/13 C.O.64/13 :- 2 -: 2. THE ASSESSEE IS A PUBLIC CHARITABLE TRUST REGISTER ED U/S 12AA OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFER RED TO AS THE ACT]. THE ASSESSEE-TRUST IS RUNNING AN INSTITUTE UNDER TH E NAME HINDUSTAN INSTITUTE OF MARITIME TECHNOLOGY WHICH IS PROVIDIN G POST SEA TRAINING/REFRESHER COURSES TO SHIP CREW, INCLUDING CHIEF ENGINEERS AND CAPTAINS OF SHIPS. FOR THE ASSESSMENT YEAR 2009-10 , THE ASSESSEE FILED ITS RETURN OF INCOME ON 8.9.2009 DECLARING IT S INCOME TO BE NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE ON 17 .9.2010. DURING THE PERIOD UNDER REFERENCE, THE ASSESSEE MADE FOLL OWING PAYMENTS WHICH WERE QUESTIONED BY THE ASSESSING OFFICER DURI NG ASSESSMENT PROCEEDINGS: (I) DIRECTORS REMUNERATION ` 90,66,667/- (II) HIRE/LEASE CHARGES ` 97,00,056/- (III) PROFESSIONAL CHARGES ` 68.06,603/- THE AFORESAID DIRECTORS REMUNERATION WAS PAID TO S HRI SANJEEV S. VAKIL ` 62,56,667/- AND ` 28,10,000/- WAS PAID TO SMT. TARANGINI S. VAKIL. THE CHARGES IN THE NATURE OF HIRE /LEASE CH ARGES WERE ALSO PAID TO SHRI SANJEEV S. VAKIL AND SMT. TARANGINI S. VAKI L ON ACCOUNT OF LEASE OF LAND, BUILDING, EQUIPMENT, GENERATOR, JETTY AND BOAT WORK, SOFTWARE AND SIMULATOR ETC. THE ASSESSING OFFICER HELD THAT THE DIRECTORS REMUNERATION PAID TO SHRI SANJEEV S. VAKIL AND SMT. TARANGINI S. VAKIL WERE ON HIGHER SIDE AND SINCE THEY BEING INTEREST ED PERSONS AS PER I.T.A.NO.389/13 C.O.64/13 :- 3 -: THE PROVISIONS OF SECTION 13(3) OF THE ACT, THE AS SESSEE IS NOT ENTITLED TO THE BENEFITS GRANTED U/S 11 OF THE ACT. THE ASSE SSING OFFICER FURTHER HELD THAT SINCE THE ASSESSEE HAS LOST THE BENEFIT OF THE PROVISIONS OF SECTION 11 OF THE ACT, THE ASSESSEE IS BEING TREAT ED AS AOP. THE ASSESSING OFFICER DISALLOWED THE FOLLOWING EXP ENDITURE : (I) REMUNERATION PAID TO DIRECTORS ` 52,35,833/- (II) DONATIONS TO OTHER ORGANIZATIONS ` 16,21,582/- (III) DISALLOWANCE U/S 40(A)(IA) ON ` 4,06,800/- ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE (IV) DISALLOWANCE OF THE CLAIM OF ` 15,82,469/- DEPRECIATION THUS, THE ASSESSING OFFICER, VIDE ASSESSMENT ORDER DATED 23.12.2011, MADE A TOTAL ADDITION OF ` 88,46,684/- IN THE INCOME RETURNED (PRIOR TO CLAIMING EXEMPTION) BY THE ASSESSEE. 3. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A), VIDE IMPUGNED ORDER, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE CIT(A) HELD THAT THE PAYMENTS MADE TO SHRI SANJEEV S. VAKIL AND SMT. TARANGINI S. VAKIL ARE NOT HIT BY THE PROVISIONS OF SECTION 13(3 ) OF THE ACT. THE CIT(A) OBSERVED THAT THE DIRECTORS AND FAMILY MEMBE RS ARE NOWHERE CONNECTED TO THE TRUSTEES AND AS SUCH, DO NOT CONST ITUTE THE PERSONS SPECIFIED U/S 13(3) OF THE ACT, AND THUS, THE ASS ESSEE IS ENTITLED TO CLAIM EXEMPTION U/S 11 OF THE ACT. THE CIT(A) FUR THER HELD THAT THE I.T.A.NO.389/13 C.O.64/13 :- 4 -: SALARY PAID TO SHRI SANJEEV S. VAKIL AND SMT. TARAN GINI S. VAKIL ARE REASONABLE AND COMPETITIVE IN THE MARKET TAKING INT O CONSIDERATION THEIR QUALIFICATION AND EXPERIENCE. THE CIT(A) ALSO DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DONATIONS MADE TO OTHER ORGANIZATIONS AND THE DISALLOWANCE MADE U /S 40(A)(IA) OF THE ACT. AS REGARDS DEPRECIATION, THE CIT(A) HELD THA T THE DEPRECIATION IS NOT THE ACTUAL OUTGOINGS, BUT A NOTIONAL EXPENDITU RE PROVIDED U/S 32 OF THE ACT AND THEREFORE, CANNOT FORM PART OF THE A LLOWABLE APPLICATION WHILE COMPUTING THE INCOME OF THE TRUST FOR THE PUR POSES OF SECTION 11 OF THE ACT. THE CIT(A) HELD THAT THE INCOME OF THE TRUST IS TO BE COMPUTED AS PER THE ORDINARY COMMERCIAL PRINCIPLES AND IT IS NOT POSSIBLE FOR THE TRUST TO APPLY 85% OF THE INCOME F OR THE PURPOSES OF SECTION 11(1) OF THE ACT AND AS SUCH, THE ASSESSEE IS NOT ENTITLED TO CLAIM DEPRECIATION WHILE COMPUTING APPLICATION OF 8 5% OF THE INCOME OF THE ASSESSEE-TRUST. 4. AGGRIEVED AGAINST THE ORDER OF THE LD. CIT(A), THE REVENUE HAS COME IN APPEAL AND THE ASSESSEE HAS FILED CROS S OBJECTION BEFORE THE TRIBUNAL. 5. SHRI T.N.BETGIRI, JT.CIT, APPEARING ON BEHALF OF TH E REVENUE, VEHEMENTLY OPPOSING THE ORDER OF THE CIT(A), SUBMIT TED THAT BOTH, SHRI SANJEEV S. VAKIL AND SMT. TARANGINI S. VAKIL A RE RELATED TO SHRI JAYESH KUMAR, FOUNDER OF THE TRUST. THE LD. DR REF ERRED TO SCHEDULE-L I.T.A.NO.389/13 C.O.64/13 :- 5 -: OF THE RETURN OF INCOME WHEREIN IT HAS BEEN STATED THAT SHRI SANJEEV S. VAKIL IS THE FOUNDERS BROTHER AND SMT. TARANGINI S . VAKIL IS FOUNDERS BROTHERS WIFE. THE LD. DR VEHEMENTLY SUPPORTING THE ORDER OF THE ASSESSING OFFICER, STATED THAT ACCORDING TO THE PRO VISIONS OF SECTION 13(3)(D), THE PAYMENTS HAVE BEEN MADE TO THE PERSON S INTERESTED. EXCESSIVE PAYMENTS HAVE BEEN MADE TO THE RELATIVES OF THE FOUNDERS OF THE TRUST AND AS SUCH, THE ASSESSEE-TRUST IS NO T ENTITLED TO CLAIM EXEMPTION U/S 11 OF THE ACT. THE LD. DR FURTHER POINTED OUT THAT THE ASSESSING O FFICER HAD MADE COMPARISON OF REMUNERATIONS PAID BY SIMILAR ORGANIZ ATIONS ENGAGED IN MARITIME EDUCATION WHICH WERE ALSO CHARITABLE INSTI TUTIONS AND AS PER THE COMPARATIVE STUDY MADE BY THE ASSESSING OFFICER , EXCESSIVE PAYMENTS WERE BEING MADE TO SHRI SANJEEV S. VAKIL A ND SMT. TARINGINI S. VAKIL. 6. ON THE OTHER HAND, SHRI T. BANUSEKAR, ADVOCATE, APP EARING ON BEHALF OF THE ASSESSEE-TRUST, ASSAILING THE ORD ER OF THE CIT(A,) SUBMITTED THAT THE CIT(A) HAS ERRED IN NOT TREATIN G THE ASSESSEES CLAIM OF DEPRECIATION IN RESPECT OF ASSETS BROUGHT FORWARD FROM THE EARLIER YEARS AS AN APPLICATION OF INCOME. THE LD. A.R CONTENDED THAT NO DOUBLE BENEFIT HAS BEEN GRANTED TO THE ASSESSE E WHILE CALCULATING DEPRECIATION, BUT THE CIT(A) HAS DISALLOWED THE CLA IM OF DEPRECIATION IN RESPECT OF THE ASSETS ACQUIRED IN THE FINANCIAL YEAR 2008-09. THERE I.T.A.NO.389/13 C.O.64/13 :- 6 -: IS NO QUESTION OF DOUBLE BENEFIT AS HAS BEEN PORTRA YED BY THE CIT(A). IN ORDER TO SUPPORT HIS SUBMISSIONS, THE LD. A.R RE LIED ON THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F SERVICES ASSOCIATION OF SEVENTH DAY ADVENTISTS PVT. LTD VS I TO(EXEMPTIONS) IN I.T.A.NO.1853/MDS/2011, DECIDED ON 11.5.2002 WHICH WAS SUBSEQUENTLY FOLLOWED IN THE SAME APPELLANTS CASE IN I.T.A.NO. 427/MDS/2012, FOR THE ASSESSMENT YEAR 2005-06 DECI DED ON 18.7.2012. SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF ACIT VS MAMALLAN EDUCATIONAL TRUST IN I.T.A.NO. 1808/MDS /2013, ORDER DATED 14.12.2012. 7. THE LD. A.R STRONGLY SUPPORTED THE ORDER OF THE CI T(A) ON THE OTHER ISSUES RELATING TO ALLOWABILITY OF THE A SSESSEES CLAIM OF EXEMPTION U/S 11 AND CERTAIN OTHER DISALLOWANCES M ADE BY THE ASSESSING OFFICER WHICH WERE SUBSEQUENTLY DELETED B Y THE LD. CIT(A). THE LD. A.R CONTENTED THAT BOTH SHRI SANJEEV S. VAK IL AND SMT. TARANGINI S. VAKIL ARE WELL QUALIFIED AND EXPERIENC ED PERSONS. SHRI SANJEEV S. VAKIL IS A QUALIFIED MARINE ENGINEER AND HAD RECEIVED OFFER FOR EMPLOYMENT AS DIRECTOR TRAINING FROM M/S COMMAN DER ALIS ACADEMY OF MERCHANT NAVY, FOR A MONTHLY SALARY OF ` 5 LAKHS. HE HAD ALSO RECEIVED AN EMPLOYMENT OFFER FROM M/S GOOD EAR TH MARITIME LIMITED ON ANNUAL SALARY OF ` 37,60,000/-. SMT TARANGINI S. VAKIL IS A QUALIFIED B. PHARMA AND IS LOOKING AFTER THE ADMINI STRATIVE WORK OF THE I.T.A.NO.389/13 C.O.64/13 :- 7 -: ASSESSEE-TRUST. SHE IS TAKING CLASSES FOR MOST CRI TICAL SUBJECTS I.E MEDICAL CARE ON BOARD THE SHIP, FIRST AID AND PHARM ACOLOGY. COURSES LIKE PERSONAL SAFETY AND SOCIAL RESPONSIBILITIES AR E MANDATORY TO BE DONE BY ALL SEAFARERS. TO SUPPORT HIS CONTENTIONS THAT SMT. TARANGINI S. VAKIL IS DRAWING SALARY AT THE MOST COMPETITIVE RATES, THE LD. A.R PLACED ON RECORD A SCHEDULE SHOWING THE SALARY DRAW N BY OTHER INSTRUCTORS AND SMT. TARANGINI S. VAKIL DURING THE FINANCIAL YEAR 2008- 09. HE POINTED OUT THAT SMT. TARANGINI S. VAKIL I S GETTING MORE SALARY FOR THE REASON THAT SHE IS PUTTING IN MORE HOURS IN TRAINING. THE SALARY IS PAID ON HOURLY BASIS. THE LD. A.R POINTED THA T IF PER HOUR SALARY IS COMPARED, IT IS SAME FOR ALL THE INSTRUCTORS. 8. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDERS RELIED UPON BY THE LD. A.R OF THE ASSESSEE. THE FIRST ISSUE WHICH IS TO BE ADJUDICAT ED IS WHETHER THE ASSESSEE IS ENTITLED TO CLAIM THE BENEFIT OF EXEMPT ION U/S 11 OF THE ACT IN VIEW OF THE FACT THAT THE ASSESSEE HAS MADE PAY MENTS TO THE RELATIVES OF THE FOUNDER OF THE TRUST. THE LD. DR HAS POINTED OUT THAT BOTH SHRI SANJEEV S. VAKIL AND SMT. TARANGINI S. VA KIL ARE RELATED TO SHRI JAYESH KUMAR, FOUNDER OF THE TRUST. SHRI SANJ EEV S VAKIL IS THE BROTHER OF THE FOUNDER OF THE TRUST AND SMT TARANGI NI S. VAKIL IS THE SISTER-IN-LAW OF THE FOUNDER. THIS FACT HAS BEEN A DMITTED BY THE LD. I.T.A.NO.389/13 C.O.64/13 :- 8 -: A.R OF THE ASSESSEE. FURTHER, THE ASSESSMENT ORDER SHOWS THAT SUBSTANTIAL PAYMENTS HAVE BEEN MADE TO BOTH THESE P ERSONS IN THE FORM OF REMUNERATION AND HIRE LEASE CHARGES. THE D ETAILS OF THE TOTAL AMOUNT PAID AND THEIR PERCENTAGE TO THE TOTAL INCOM E OF THE TRUST ARE GIVEN HEREIN BELOW: S. NO. NATURE OF PAYMENT AMOUNT PAID ( ` ) % TO INCOME 1. DIRECTORS REMUNERATION 90,66,667 14.96 2. HIRE/LEASE RENT 90,00,056 15.99 3. PROFESSIONAL FEES PAID TO SHRI JAYESH S. VAKIL 7,49,000 01.24 4. AMOUNT PAID TO SURESH S VAKIL 1,21,700 00.20 5. AMOUNT PAID TO SREELATHA VAKIL 58,180 00.10 TOTAL 1,96,95,603 32.49 9. THE PAYMENTS TO SHRI SANJEEV S. VAKIL AS WELL AS SM T. TARANGINI S. VAKIL ARE BEING MADE ON ACCOUNT OF HOL DING ADMINISTRATIVE POSTS AS WELL AS INSTRUCTORS IN THE INSTITUTE. THE ASSESSING OFFICER HAS MADE COMPARATIVE ANALYSIS OF THE SALARY STRUCTURE I N SIMILAR INSTITUTIONS. ON THE OTHER HAND, THE LD. CIT(A) H AS PLACED RELIANCE ON THE DOCUMENTS PLACED ON RECORD BY THE ASSESSEE TO SHOW THAT EARLIER SHRI SANJEEV S. VAKIL WAS SERVING ON HIGH REMUNERAT ION AND IS STILL BEING OFFERED SALARIES COMPETITIVE TO THE ONE HE IS GETTING FROM THE ASSESSEE, FROM OTHER MARITIME ACADEMIES. THE ASSE SSEE HAS PLACED I.T.A.NO.389/13 C.O.64/13 :- 9 -: ON RECORD SCHEDULE OF PAYMENTS MADE TO INSTRUCTORS INCLUDING SMT. TARANGINI S VAKIL. THE SCHEDULE SHOWS THAT THE INS TRUCTORS ARE BEING PAID ON HOURLY BASIS AND SMT. TARANGINI S. VAKILS TOTAL REMUNERATION IN ASSESSMENT YEAR 2009-10 IS ` 28,10,000/- AGAINST 2342 WORKING HOURS. THE OTHER INSTRUCTORS G. SEKHAR RECEIVED REMUNERATI ON OF ` 7,80,095/- FOR 650 HOURS, S. JANAK RECEIVED ` 7,39,301/- FOR 616 HOURS, AND VIVEK RECEIVED ` 7,55,879/- FOR 630 HOURS. A PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW SHOW THAT THESE DETAILS WERE NOT SUBMITTED BEFORE THEM. THE CIT(A) HAS REFERRED TO THE OFFERS BE ING RECEIVED BY SHRI SANJEEV S. VAKIL FOR SIMILAR POSTS. BUT THE CIT(A ) HAS NOT MENTIONED WHETHER THE VERACITY OF THE STATEMENTS MADE BY THE ASSESSEE WERE VERIFIED OR NOT. WE FIND THERE IS A HUGE DIFFERENC E IN THE COMPARATIVE STUDY MADE BY THE ASSESSING OFFICER IN THE SALARY S TRUCTURE OF THE OTHER INSTITUTIONS OF SIMILAR STATURE IMPARTING MA RITIME EDUCATION. IN OUR CONSIDERED OPINION, THE MATTER NEEDS TO BE RE-E XAMINED BY THE ASSESSING OFFICER. IN CASE THE STATEMENTS MADE BY THE ASSESSEE ARE FOUND TO BE GENUINE, THE ASSESSEE IS SURELY ENTITL ED FOR THE BENEFIT OF EXEMPTION U/S 11 OF THE ACT. SINCE THE DISALLOWAN CE OR ALLOWABILITY OF THE OTHER ISSUES VIZ. DONATIONS MADE TO OTHER ORGAN IZATIONS AND DISALLOWANCE U/S 40(A)(IA) OF THE ACT ARE DIRECTLY RELATED TO THE OUTCOME OF THE ASSESSEES ENTITLEMENT FOR EXEMPTIO N U/S 11, WITHOUT EXPRESSING OUR VIEW ON MERITS, WE REMIT ALL THESE I SSUES TO THE FILE OF I.T.A.NO.389/13 C.O.64/13 :- 10 -: THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND AFTER TAKING INTO CONSIDERATION ALL THE DOCUMENTS SUBMITTED BY T HE ASSESSEE. THE ASSESSING OFFICER SHALL VERIFY THE AUTHENTICITY OF THE CLAIM OF THE ASSESSEE WITH REGARD TO THE COMPETITIVE SALARIES BE ING PAID IN THE MARKET TO EQUALLY QUALIFIED AND EXPERIENCED PERSONS . 10. AS REGARDS THE DISALLOWANCE OF CLAIM OF DEPRECIATIO N IS CONCERNED, WE FIND THAT THE ISSUE IS SQUARELY COVER ED BY THE EARLIER ORDERS OF THE TRIBUNAL IN THE CASE OF SERVICES ASSO CIATION OF SEVENTH DAY ADVENTISTS PVT. LTD (SUPRA) AND MAMALLAN EDUCAT IONAL TRUST (SUPRA). THIS ISSUE WAS ALSO SUBJECT MATTER OF DISP UTE IN THE CASE OF SRI MARIAMMAN EDUCATIONAL HEALTH AND CHARITABLE TRUST V S ACIT IN I.T.A.NOS. 142 TO 144/MDS/2010 DECIDED ON 2 ND FEBRUARY, 2011. IN THE DECISIONS CITED BY THE LD. A.R, THE TRIBUNAL HA S FOLLOWED ITS OWN ORDER IN THE CASE OF SRI MARIAMMAN EDUCATIONAL HEAL TH AND CHARITABLE TRUST. THE RELEVANT EXTRACT OF THE ORDER OF TRI BUNAL IN ABOVESAID CASE IS REPRODUCED HEREIN BELOW: 5. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE MATERIAL ON RECORD AS WELL AS PRECEDENTS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE AND FIND THAT SIMILAR ISSUE AROSE IN THE A PPEALS OF THE DEPARTMENT, WHICH HAS BEEN DISCUSSED, CONSIDERED AN D DECIDED BY THE B BENCH OF THE TRIBUNAL (IN WHICH ONE OF US I S PARTY) AND VIDE ORDER DATED 18.10.2010 IN THE CASE OF DDIT (EXEMPTI ONS) V. M/S. ST. JOHNS EDUCATIONAL TRUST (SUPRA), THE SAME HAS BEEN CONSIDERED AND DISCUSSED TO DETERMINE FROM PARA 3 ONWARDS TO TAKE DECISION IN FAVOUR OF THE ASSESSEE AND RELEVANT PORTION OF THE ORDER IS REPRODUCED AS UNDER: I.T.A.NO.389/13 C.O.64/13 :- 11 -: 3. BRIEFLY, THE FACTS ARE THAT THE ASSESSEE IS A T RUST RUNNING EDUCATIONAL TRUST AND REGISTERED U/S. 12A(A) OF THE INCOME TAX ACT, 1961. 4. THE GROSS RECEIPTS, AMOUNTS OF DEPRECIATION CLA IMED AND REASONS FOR DISALLOWANCE FOR RESPECTIVE YEARS ARE G IVEN AS UNDER: (A) THE RETURN OF INCOME FILED FOR (I) ASSESSMENT YEAR 2004-05 DECLARES NIL INCOME AND GROSS RECEIPTS OF ` .18,95,45,440/- IN WHICH THE CLAIM OF DEPRECIATION MADE AT ` .2,72,85,356/- WHICH WAS COMPLETED AS NO DEMAND WHILE DISALLOWING THE DEPR ECIATION CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER HAS STATED T HAT WHEN THE ASSESSEE HAD CLAIMED THE COST OF ADDITION TO ASSETS AS APPLICATION OF FUNDS, CLAIM OF DEPRECIATION ON THE SAME ASSETS COU LD NOT BE ALLOWED. (B) THE RETURN OF INCOME FILED FOR (I) ASSESSMENT YEAR 2005-06 DECLARES NIL INCOME AND GROSS RECEIPTS OF ` . 22,17,53,309/- IN WHICH THE CLAIM OF DEPRECIATION MADE AT ` .2,82,17,782/- WHICH WAS COMPLETED AS NO DEMAND WHILE DISALLOWING THE DEPR ECIATION CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER HAS STATED T HAT WHEN THE ASSESSEE HAD CLAIMED THE COST OF ADDITION TO ASSETS AS APPLICATION OF FUNDS, CLAIM OF DEPRECIATION ON THE SAME ASSETS COU LD NOT BE ALLOWED. (C) THE RETURN OF INCOME FILED FOR (I) ASSESSMENT YEAR 2006-07 DECLARES NIL INCOME AND GROSS RECEIPTS OF ` .21,71,47,737/- IN WHICH THE CLAIM OF DEPRECIATION MADE AT ` . 2,64,72,392/- WHICH WAS COMPLETED AS NO DEMAND WHILE DISALLOWING THE DEPR ECIATION CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER HAS STATED T HAT WHEN THE ASSESSEE HAD CLAIMED THE COST OF ADDITION TO ASSETS AS APPLICATION OF FUNDS, CLAIM OF DEPRECIATION ON THE SAME ASSETS COU LD NOT BE ALLOWED. (D) THE RETURN OF INCOME FILED FOR (I) ASSESSMENT YEAR 2007-08 DECLARES NIL INCOME AND GROSS RECEIPTS OF ` .23,53,18,947/- IN WHICH THE CLAIM OF DEPRECIATION MADE AT ` .2,49,35,874/- WHICH WAS COMPLETED AS NO DEMAND WHILE DISALLOWING THE DEPR ECIATION CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER HAS STATED T HAT WHEN THE ASSESSEE HAD CLAIMED THE COST OF ADDITION TO ASSETS AS APPLICATION OF FUNDS, CLAIM OF DEPRECIATION ON THE SAME ASSETS COU LD NOT BE ALLOWED. 5. ASSESSEE TOOK UP THE MATTERS IN APPEAL AND IT W AS CONTENDED BEFORE THE FIRST APPELLATE AUTHORITY THAT ORDERS OF THE ASSESSING OFFICER ARE NOT LEGALLY CORRECT BECAUSE HE HAS ERRE D IN HOLDING THAT DEPRECIATION ON ASSETS SHOULD NOT BE TAKEN INT O ACCOUNT FOR DETERMINING THE TOTAL INCOME OF THE ASSESSEE TRUS T, THAT LD. ASSESSING OFFICER OUGHT TO HAVE FOLLOWED BOMBAY HIG H COURT DECISION IN THE CASE OF CIT VS. INSTITUTE OF BANKIN G PERSONAL SOLUTION ( 264 ITR 110), AND PRAYED THAT APPEAL BE ALLOWED. I.T.A.NO.389/13 C.O.64/13 :- 12 -: 6. DURING THE APPELLATE PROCEEDINGS, THE LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THE DETAILED WRITTEN SUB MISSION WHOSE SALIENT FEATURES WERE REPRODUCED BY THE LD. CIT(A) IN HIS ORDER IN PARA-5 OF HIS ORDER AND WHILE CONSIDERING THE FA CTS AND CIRCUMSTANCES OF THE CASE, IMPUGNED ORDER, RIVAL SUBMISSIONS AND CASE LAWS RELIED UPON BY THE ASSESSEE AS WELL A S BY THE ASSESSING OFFICER, THE ISSUE INVOLVED IN THIS CASE WAS DISCUSSED FROM PARA-7 & 8 IN APPEAL FOR ASSESSMENT YEAR 2004- 05 AND CIT(A) HAS CONCLUDED TO DECIDE THE APPEAL IN FAVOU R OF THE ASSESSEE AS PER PARAS 9 TO 11 OF HIS ORDER FOR THE YEAR 2004-05 AS UNDER:- 9. IT COULD BE SEEN FROM THE JUDGEMENT OF THE HON BLE HIGH COURT OF BOMBAY, REPORTED IN 264 ITR 110, WHER EIN THE ASSESSEE WAS THE TRUST AND IT DERIVED ITS INCOME FR OM DEPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOM E OF THE TRUST. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE FULL CAPITAL EXPENDITURE HAD BEEN A LLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSE E WENT IN APPEAL BEFORE THE APPELLATE ASSISTANT COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL, HOWEVER, TOOK T HE VIEW THAT WHEN THE ITO STATED THAT FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS, W HAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS APPLICATION OF INCOME OF THE TRUST IN THE YEAR IN WHICH THE INCOME WAS SPENT IN ACQUIRING THO SE ASSETS. THIS DID NOT MEAN THAT IN COMPUTING INCOME FROM THO SE ASSETS IN SUBSEQUENT YEARS, DEPRECIATION IN RESPECT OF THO SE ASSETS CAN NOT BE TAKEN INTO ACCOUNT. THIS VIEW OF THE TR IBUNAL HAS BEEN CONFIRMED BY THE BOMBAY HIGH COURT IN THE ABOV E JUDGEMENT I.E. DIRECTOR OF INCOME-TAX(EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 109 CTR 463. HENCE, THIS ISSUE WAS COVERED BY THE DECISION OF THE BOMBAY HIGH COUR T IN THE ABOVE JUDGEMENT. CONSEQUENTLY, THIS ISSUE WAS ANSW ERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 10. THE RATIO OF THE ABOVE MENTIONED DECISION REPO RTED IN 264 ITR 110 (2003) IN THE CASE OF CIT VS. INSTITUTE OF BANKING, WHEREIN THE BOMBAY HIGH COURT HAS HELD THAT THE TRI BUNAL WAS RIGHT IN LAW IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE ASSETS THE COST OF WHICH HAS BE EN FULLY ALLOWED AS APPLICATION OF INCOME U/S.11 IN THE PAST YEARS SQUARELY COVERED IN THE INSTANT CASE. 11. IN THE ADVENT OF THE ABOVE DISCUSSIONS AND RESP ECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH C OURT, CITED SUPRA, THE APPELLANT TRUST IS ELIGIBLE FOR CL AIM OF I.T.A.NO.389/13 C.O.64/13 :- 13 -: DEPRECIATION ON THE ASSETS THE COST OF WHICH HAD BE EN FULLY ALLOWED AS APPLICATION OF INCOME U/S. 11 IN THE PAS T YEARS. THE ASSESSING OFFICER IS THEREFORE, DIRECTED TO DELETE THE DISALLOWANCE OF ` .2,49,35,874/- MADE IN THE IMPUGNED ORDER AND REVISE THE ASSESSMENT ACCORDINGLY. THUS, THE A PPELLANT SUCCEEDS IN THE APPEAL. THE SAID ORDER WAS FOLLOWED IN THE SUBSEQUENT YEARS IN IDENTICAL MANNER WHEREIN CLAIM OF DEPRECIATION WAS DISALLOWED . 7. AGGRIEVED BY THESE ORDERS OF CIT(A), THE DEPART MENT HAS COME UP IN APPEAL FOR ALL THE YEARS AND WHILE RELYING UP ON ANOTHER SUPREME COURT DECISION IN THE CASE OF ESCORT LTD., (199 ITR 43 ), IT WAS CONTENDED THAT DOUBLE TAXATION CAN NOT BE ALLOW ED, UNLESS THERE IS EXPRESS PROVISION FOR THE SAME IN THE STATUTE AN D WHILE REFERRING TO CIT(A)S ORDER IN THE CASE OF M/S.RANGALETCHURNI EDUCATIONAL TRUST, CHENNAI, WHICH HAS BEEN DECIDED IN FAVOUR OF THE DEPARTMENT, IT WAS PLEADED FOR REVERSAL OF THE ORD ER OF LD. CIT(A) FOR ALL THE FOUR YEARS AND TO UPHOLD THE ORDER OF T HE ASSESSING OFFICER IN THIS REGARD. 8. LD. DR WHILE ARGUING THE APPEALS OF THE DEPARTM ENT HAS MAINLY RELIED UPON HONBLE SUPREME COURT IN THE CASE OF M/ S.ESCORT LTD., (SUPRA) TO PLEAD THAT WHEN INCOME OF THE ASSESSEE I S BEING ALLOWED AS APPLICATION OF FUND, SO ALLOWANCE OF DEPRECIATIO N ON THE SAME WOULD TANTAMOUNT TO DOUBLE DEDUCTION, WHICH IS NOT PERMISSIBLE, THEREFORE THE ORDER OF THE LD. CIT(A) FOR ALL THE F OUR YEARS SHOULD BE REVERSED AND THAT OF ASSESSING OFFICER MAY BE RE STORED. 9. LD. COUNSEL FOR THE ASSESSEE WHILE RELYING UPON THE BASIS AND REASONING AS GIVEN BY THE LD.CIT(A) IN ALLOWING TH E FIRST APPEALS OF THE ASSESSEE, HAS PLEADED THAT THE SOLITARY ISSUE I N THESE APPEALS IS FULLY COVERED BY BOMBAY HIGH COURT DECISION AND LD. CIT(A) WHILE CONSIDERING ALL THE ASPECTS OF THE CASE AS WELL AS CASE LAWS CITED, HAS RIGHTLY FOLLOWED THE VIEW OF THE HONBLE BOMBAY HIGH COURT, WHICH WAS THE ONLY VIEW AVAILABLE AT THE TIME OF DE CIDING THE APPEALS AND NOW ALSO HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S.TINY TOTS EDUCATION SOCIETY AS REPORTED IN 2010-TIOL-550-HIGH COURT-P&H-IT VIDE ORDER DT.28 TH JULY, 2010, UNDER SIMILAR FACTS, HAS DECIDED THE IDENTICAL ISSU E IN FAVOUR OF THE ASSESSEE AND WHILE ENCLOSING THE COPY OF THE JUDGEM ENT OF HONBLE BOMBAY HIGH COURT AS WELL AS HONBLE PUNJAB & HARYA NA HIGH COURT, LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY PL EADED THAT SINCE THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE, NOT BY ONE HIGH COURT BUT BY SECOND HIGH COURT ALSO IN WHICH S UPREME COURT DECISIONS CASE OF ESCORT LTD. VS. UOI AND OTHERS HAS BEEN DISCUSSED, HAS CONCLUDED TO HOLD THE QUESTION PROPO SED IN FAVOUR OF I.T.A.NO.389/13 C.O.64/13 :- 14 -: THE ASSESSEE, THEREFORE BEING COVERED THE MATTER, O RDER OF THE CIT(A) FOR ALL THE YEARS ARE LIABLE TO BE UPHELD. IT WAS THUS URGED FOR UPHOLDING THE IMPUGNED ORDERS AND FOR DISMISSIN G ALL THE APPEALS OF THE REVENUE. 10. AFTER HEARING BOTH THE SIDES, CONSIDERING THE MATERIAL AS WELL AS CASE LAWS CITED BY THE RIVAL SIDE, WE FIND THAT IN THE RECENT JUDGEMENT OF THE HONBLE HIGH COURT OF PUNJAB & HAR YANA IN THE CASE OF CIT VS. M/S.TINY TOTS EDUCATION SOCIETY (SU PRA) HAS CONCLUDED TO DECIDE THE ISSUE IN FAVOUR OF THE ASSE SSEE AS PER PARAS 4 TO 7 AS UNDER:- 4. LD. COUNSEL FOR THE REVENUE SUBMITS THAT IN VIE W OF JUDGEMENT OF THE HONBLE SUPREME COURT IN ESCORTS LTD. AND AN OTHER V. UNION OF INDIA AND OTHERS [1993] 199 ITR 43, THE AS SESSEE COULD NOT CLAIM DEDUCTION WHEN ITS INCOME WAS EXEMPT, AS IT WILL AMOUNT TO GETTING DOUBLE BENEFIT. 5. WE ARE UNABLE TO ACCEPT THE SUBMISSION. 6. THE MATTER WAS DISCUSSED IN OUR RECENT JUDGEMEN T DATED 5.7.2010 IN ITA NO.535 OF 2009, THE CIT,KARNAL V. M ARKET COMMITTEE,PIPLI. AFTER REFERRING TO JUDGMENTS IN C IT V. SETH MANILAL RANCHHODDAS VISHRAM BHAWAN TRUST [1992] 198 ITR 598 (GUJ.) AND CIT V. INSTITUTE OF BANKING PERSONAL SELECTION (IBPS) (2003) 131 TAXMAN 386 (BOM.), CIT V. RAO BAH ADUR CALAVALA CUNNAN CHETTY CHARITIES [1982] 135 ITR 485 (MAD.), CIT V. SOCIETY OF THE SISTERS OF ST. ANNE [1984] 14 6 ITR 28 (KAR) AND CIT V. RAIPUR PALLOTTINE SOCIETY [1989] 180 ITR 579 (M.P.), THE JUDGMENT OF THE HONBLE SUPREME COURT IN ESCORT S LTD., (SUPRA), WAS HELD NOT TO BE APPLICABLE TO THE SITUA TION WHERE DEPRECIATION WAS CLAIMED BY A CHARITABLE INSTITUTIO N IN DETERMINING PERCENTAGE OF FUNDS APPLIED FOR THE PUR POSES OF CHARITABLE OBJECTS. IT WAS OBSERVED:-9. IN THE PR ESENT CASE, THE ASSESSEE IS NOT CLAIMING DOUBLE DEDUCTION ON ACCOUN T OF DEPRECIATION AS HAS BEEN SUGGESTED BY LD. COUNSEL F OR THE REVENUE. THE INCOME OF THE ASSESSEE BEING EXEMPT, THE ASSESSEE IS ONLY CLAIMING THAT DEPRECIATION SHOULD BE REDUCE D FROM THE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHIC H HAVE TO BE APPLIED FOR THE PURPOSES OF THE TRUST. THERE IS NO DOUBLE DEDUCTION CLAIMED BY THE ASSESSEE AS CANVASSED BY T HE REVENUE. JUDGMENT OF THE HONBLE SUPREME COURT IN ESCORTS LT D AND ANOTHER (SUPRA) IS DISTINGUISHABLE FOR THE ABOVE RE ASONS. IT CAN NOT BE HELD THAT DOUBLE BENEFIT IS GIVEN IN ALLOWIN G CLAIM FOR DEPRECIATION FOR COMPUTING INCOME FOR PURPOSES OF S EC.11. THE QUESTIONS PROPOSED HAVE, THUS, TO BE ANSWERED AGAIN ST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 7. IN VIEW OF ABOVE, WE ARE UNABLE TO HOLD THAT T HE QUESTIONS PROPOSED BY THE REVENUE ARE SUBSTANTIAL QUESTIONS O F LAW. I.T.A.NO.389/13 C.O.64/13 :- 15 -: SINCE THE ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE AND DEPARTMENT HAS NOT BROUGHT ANY CONTRARY MATERIAL OR ANY HIGHER COURTS ORDER IN ITS FAVOUR, THEREFORE, WE DO NOT FI ND ANY INFIRMITY OR FLAW IN THE ORDERS OF THE CIT(A) IN THIS REGARD AS SUCH WHILE CONCURRING WITH THE CONCLUSION AS DRAWN BY THE CIT( A), WE UPHOLD HIS ORDERS AND DISMISS THE APPEALS OF THE REVENUE B EING DEVOID OF ANY MERITS. 6. SINCE THE ISSUE IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE AND DEPARTMENT HAS NOT BROUGHT ANY CONTRARY MATERIA L OR ANY HIGHER COURTS ORDER IN ITS FAVOUR, THEREFORE, WHILE FOLLOW ING THE SAID DECISION, WE ACCEPT ALL THE APPEALS OF THE ASSESSEE AN DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE IN THIS REGARD. 11. THE LD. DR HAS NOT BROUGHT BEFORE US ANY DECISION C ONTRARY TO THE ONE CITED BY THE LD. A.R. RESPECTFULLY FOLL OWING THE ABOVE QUOTED DECISIONS OF THE CO-ORDINATE BENCH OF THE TR IBUNAL, WE SET ASIDE THE ORDER OF THE CIT(A) ON THE ISSUE AND DI RECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEPRECIATION TO THE ASSESSEE. THUS, THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 19 TH OF JUNE, 2013 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (VIKAS AWASTHY) JUDICIAL MEMBER DATED: 19 TH JUNE, 2013 RD COPY TO: ASSESSEE/A.O/CIT(A)/CIT/DR