The Music Academy Madras, CHENNAI V. DDIT, CHENNAI

ITA 1098/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9468 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Depreciation; Charitable institution; Scheme of amalgamation; Capital expenditure
• Section: 12AA; 32; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1098/MDS/2015 ' (' / ASSESSMENT YEAR : 2010-11 THE MUSIC ACADEMY MADRAS, NO.168 (OLD NO.306), TTK ROAD, ROYAPETTAH, CHENNAI - 600 014. PAN : AAATT 0256 B V. THE DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS), CHENNAI - 600 034 . (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE ,-*+ . / / RESPONDENT BY : SH. P. RADHAKRISHNAN, JCIT 0 . 1$ / DATE OF HEARING : 31.03.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 22.04.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 17, CHEN NAI, DATED 13.03.2015 AND PERTAINS TO ASSESSMENT YEAR 2010-11. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF DEPRECIATION. 2 I.T.A. NO.1098/MDS/15 3. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE WAS REGISTERED AS CHARI TABLE INSTITUTION UNDER SECTION 12AA OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE C LAIMED DEPRECIATION OF ` 63,14,533/- ON THE CAPITAL ASSET. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON THE GROUND THAT ALLOWING THE CLAIM OF DEPRECIATION WOUL D AMOUNT TO DOUBLE DEDUCTION WHICH IS NOT PERMISSIBLE UNDER THE PROVISIONS OF INCOME-TAX ACT. ACCORDING TO THE LD. COUNSEL, DEPR ECIATION IS ALLOWABLE WHILE COMPUTING INCOME UNDER THE HEAD BU SINESS OR PROFESSION. REFERRING TO SECTION 11 OF THE ACT, T HE LD.COUNSEL SUBMITTED THAT SECTION 11 PROVIDES FOR EXEMPTION OF INCOME OF THE TRUST ON APPLICATION. HOWEVER, THE INCOME OF THE T RUST HAS TO BE COMPUTED ON COMMERCIAL PRINCIPLES. THE LD.COUNSEL PLACED HIS RELIANCE ON VARIOUS CASE LAWS TO SUPPORT THE CLAIM OF DEPRECIATION, INCLUDING SOME OF THE ORDERS OF THIS TRIBUNAL. PLA CING RELIANCE ON THE DECISION CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITO V. SAKTHI FOUNDATION IN I.T.A. NO.2219/MDS/2014 DATED 12.12.2 014, THE LD.COUNSEL SUBMITTED THAT ON IDENTICAL SET OF FACTS , THIS TRIBUNAL BY FOLLOWING ITS OWN EARLIER ORDER IN CMS EDUCATIONAL & CHARITABLE 3 I.T.A. NO.1098/MDS/15 TRUST IN I.T.A. NO.2261/MDS/2012 DATED 17.04.2013, DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION. THE LD. COUNSEL HAS ALSO FILED A LIST OF VARIOUS JUDGMENTS AND SUBMITTED THA T IN ALL THESE CASES, THE CLAIM OF DEPRECIATION WAS ALLOWED EVEN T HOUGH THE INCOME OF THE TRUST WAS ALLOWED AS EXEMPTED ON ITS APPLICATION. THEREFORE, AT NO STRETCH OF IMAGINATION, THE CLAIM OF DEPRECIATION CAN BE SAID THAT IT WOULD AMOUNT TO DOUBLE DEDUCTION. 4. ON A QUERY FROM THE BENCH WHETHER SECTION 32 OF THE ACT PROVIDES FOR ALLOWING DEPRECIATION FOR BUSINESS ASS ET OR OTHER ASSET, THE LD.COUNSEL FOR THE ASSESSEE VERY FAIRLY SUBMITT ED THAT SECTION 32 OF THE ACT PROVIDES FOR ALLOWING DEPRECIATION ON LY ON BUSINESS ASSET. THE LD.COUNSEL FURTHER CLARIFIED THAT THE A SSESSEE IS NOT DOING BUSINESS, THE ASSESSEE IS CLAIMING AS CHARITA BLE INSTITUTION. ACCORDING TO THE LD. COUNSEL, WHILE COMPUTING INCOM E ON COMMERCIAL PRINCIPLE, IRRESPECTIVE OF THE PROVISION S OF SECTION 32 OF THE ACT, THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION. THE LD.COUNSEL FURTHER SUBMITTED THAT THERE IS NO CONFLICT BETWEEN COMPUTATION OF INCOME ON COMMERCIAL PRINCIPLE AND THE PROVISIONS O F SECTION 32 WHICH ALLOWS DEPRECIATION ONLY ON THE COMMERCIAL AS SET, WHICH IS USED FOR BUSINESS. 4 I.T.A. NO.1098/MDS/15 5. ON THE CONTRARY, SH. P. RADHAKRISHNAN, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT SECTION 32 OF THE AC T PROVIDES FOR ALLOWING DEPRECIATION IN RESPECT OF THE ASSET WHICH USED FOR BUSINESS OR PROFESSION. IN THIS CASE, THE ASSESSEE ADMITTEDLY REGISTERED AS A CHARITABLE INSTITUTION UNDER SECTIO N 12AA OF THE ACT. THE ASSESSEE IS NOT DOING ANY BUSINESS OR PROFESSIO N. IF THE ASSESSEE CLAIMS THAT IT IS DOING BUSINESS OR PROFES SION, THEN THE REGISTRATION HAS TO BE CANCELLED UNDER SECTION 12AA (3) OF THE ACT AND THE ASSESSEE WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. THE LD. D.R. HAS ALSO CLARIFIED THAT T HE ASSESSEE IS NOT DOING ANY BUSINESS OR PROFESSION. THEREFORE, THE P ROVISIONS OF SECTION 32 IS NOT AT ALL APPLICABLE TO THE CHARITAB LE INSTITUTION. THE LD. D.R. FURTHER POINTED OUT THAT SECTION 32 FALLS IN CHAPTER IV OF THE ACT WHICH PROVIDES FOR COMPUTATION OF BUSINESS INCO ME. THE CLAIM OF THE ASSESSEE UNDER SECTION 11 FALLS IN CHAPTER I II OF THE ACT WHICH SAYS THAT CERTAIN KIND OF INCOME DO NOT FORM PART OF TOTAL INCOME. THE LD. D.R. FURTHER POINTED OUT THAT IT I S NOT THE CASE OF THE ASSESSEE THAT ANY BUSINESS WAS HELD AS PROPERTY UNDER THE TRUST. THE MATTER WOULD STAND IN A DIFFERENT FOOTI NG IF THE ASSESSEE CLAIMS DEPRECIATION ON THE BUSINESS WHICH WAS HELD AS PROPERTY 5 I.T.A. NO.1098/MDS/15 UNDER TRUST UNDER SECTION 11(4) OF THE ACT. IN THE CASE BEFORE US, ACCORDING TO THE LD. D.R., THE ASSESSEE IS CLAIMING DEPRECIATION ON THE ASSET WHICH IS USED FOR CHARITABLE PURPOSE. IN FACT, THE ASSET WAS USED AS A TOOL FOR CARRYING OUT OBJECT OF THE T RUST. THEREFORE, SECTION 32 OF THE ACT IS NOT APPLICABLE AT ALL. HE NCE, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION UNDER SECTION 32 O F THE ACT. THE LD. D.R. PLACED HIS RELIANCE ON THE DECISION OF THIS BE NCH OF THE TRIBUNAL IN THE ANJUMAN-E-HIMAYATH-E-ISLAM V. ADIT( EXEMPTION) IN I.T.A. NO. 2271/MDS/2014 DATED 02.06.2015 AND AL SO THE JUDGMENT OF KERALA HIGH COURT IN LISSIE MEDICAL INS TITUTION V. CIT (2012) 348 ITR 344. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE ARISES FOR CONSIDERATION IS WHETHER A CHARITABLE INSTITUTI ON IS ELIGIBLE FOR DEPRECIATION IN RESPECT OF ITS ASSET, WHICH WAS USE D AS A TOOL FOR CARRYING OUT ITS OBJECT. DEPRECIATION IS PROVIDED UNDER SECTION 32 OF THE ACT, WHICH READS AS FOLLOWS:- DEPRECIATION 32 (1) IN RESPECT OF DEPRECIATION OF-- (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE BEING TANGIBLE ASSETS ; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1 998, 6 I.T.A. NO.1098/MDS/15 OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION THE FOLLOWING DEDUCTIONS SHA LL BE ALLOWED-- (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTA GE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED. (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCE NTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED: PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED UNDER THIS CLAU SE IN RESPECT OF--(A) ANY MOTOR CAR MANUFACTURED OUTSIDE INDIA, W HERE SUCH MOTOR CAR IS ACQIRED BY THE ASSESSEE AFTER THE 28TH DAY OF FE BRUARY, 1975 5BUT BEFORE THE 1ST DAY OF APRIL, 2001, UNLESS IT IS USE D--(I) IN A BUSINESS OF RUNNING IT ON HIRE FOR TOURISTS; OR(II) OUTSIDE IND IA IN HIS BUSINESS OR PROFESSION IN ANOTHER COUNTRY ; AND (B) ANY MACHINERY OR PLANT IF THE ACTUAL COST THEREOF IS ALLOWED AS A DEDUCTION IN ON E OR MORE YEARS UNDER AN AGREEMENT ENTERED INTO BY THE CENTRAL GOVERNMENT UNDER SECTION 42: PROVIDED FURTHER THAT WHERE ANY ASSET REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) OR THE FIRST PROVISO TO CLAUSE (IIA), AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR A ND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTR ICTED TO FIFTY PER CENT. OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIB ED FOR AN ASSET UNDER CLAUSE (I) 6OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE: PROVIDED ALSO THAT WHERE AN ASSET REFERRED TO IN CLAUSE (IIA) OR THE FIRST PROVISO TO CLAUSE (IIA), AS THE CASE MAY BE, IS ACQ UIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DA YS IN THAT PREVIOUS YEAR, AND THE DEDUCTION UNDER THIS SUB-SECTION IN R ESPECT OF SUCH ASSET IS RESTRICTED TO FIFTY PER CENT. OF THE AMOUNT CALCULA TED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (IIA) FOR THAT PREVIOUS YEAR, THEN, THE DEDUCTION FOR THE BALANCE FIFTY PER CENT. OF TH E AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR SUCH ASSET UNDER CLAU SE (IIA) SHALL BE ALLOWED UNDER THIS SUB-SECTION IN THE IMMEDIATELY S UCCEEDING PREVIOUS YEAR IN RESPECT OF SUCH ASSET : PROVIDED ALSO THAT WHERE AN ASSET BEING COMMERCIAL VEHICLE IS AC QUIRED BY THE ASSESSEE ON OR AFTER THE 1ST DAY OF OCTOBER, 19 98, BUT BEFORE THE 1ST DAY OF APRIL, 1999, AND IS PUT TO USE BEFORE TH E 1ST DAY OF APRIL, 1999, FOR THE PURPOSES OF BUSINESS OR PROFESSION, THE DED UCTION IN RESPECT OF 7 I.T.A. NO.1098/MDS/15 SUCH ASSET SHALL BE ALLOWED ON SUCH PERCENTAGE ON T HE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. EXPLANATION FOR THE PURPOSES OF THIS PROVISO,-- (A) THE EXPRESSION 'COMMERCIAL VEHICLE' MEANS 'HEAV Y GOODS VEHICLE', 'HEAVY PASSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHIC LE', 'MEDIUM GOODS VEHICLE' AND 'MEDIUM PASSENGER MOTOR VEHICLE' BUT D OES NOT INCLUDE 'MAXI CAB', 'MOTOR-CAB', 'TRACTOR' AND 'ROAD-ROLLER' ; (B) THE EXPRESSIONS 'HEAVY GOODS VEHICLE', 'HEAVY P ASSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHICLE', 'MEDIUM GOODS VEHI CLE', 'MEDIUM PASSENGER MOTOR VEHICLE', 'MAXI-CAB', 'MOTOR-CAB', 'TRACTOR' AND 'ROAD- ROLLER' SHALL HAVE THE MEANINGS RESPECTIVELY AS ASS IGNED TO THEM IN SECTION 2 OF THE MOTOR VEHICLES ACT, 1988 (59 OF 1988). PROVIDED ALSO THAT, IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1991, THE DEDUCTION IN RELATION TO ANY BLOCK OF ASSETS UNDER THIS CLAUS E SHALL, IN THE CASE OF A COMPANY, BE RESTRICTED TO SEVENTY-FIVE PER CENT. OF THE AMOUNT CALCULATED AT THE PERCENTAGE, ON THE WRITTEN DOWN VALUE OF SUC H ASSETS, PRESCRIBED UNDER THIS ACT IMMEDIATELY BEFORE THE COMMENCEMENT OF THE TAXATION LAWS (AMENDMENT) ACT, 1991. PROVIDED ALSO THAT THE AGGREGATE DEDUCTION, IN RESPECT OF DEPREC IATION OF BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TAN GIBLE ASSETS OR KNOW- HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRA NCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BE ING INTANGIBLE ASSETS ALLOWABLE TO THE PREDECESSOR AND THE SUCCESSOR IN T HE CASE OF SUCCESSION REFERRED TO IN CLAUSE (XIII), CLAUSE (XIIIB) AND CL AUSE (XIV) OF SECTION 47 OR SECTION 170 OR TO THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY IN THE CASE OF AMALGAMATION, OR TO THE DEME RGED COMPANY AND THE RESULTING COMPANY IN THE CASE OF DEMERGER, AS T HE CASE MAY BE, SHALL NOT EXCEED IN ANY PREVIOUS YEAR THE DEDUCTION CALCU LATED AT THE PRESCRIBED RATES AS IF THE SUCCESSION OR THE AMALGA MATION OR THE DEMERGER, AS THE CASE MAY BE, HAD NOT TAKEN PLACE, AND SUCH DEDUCTION SHALL BE APPORTIONED BETWEEN THE PREDECESSOR AND TH E SUCCESSOR, OR THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY, O R THE DEMERGED COMPANY AND THE RESULTING COMPANY, AS THE CASE MAY BE, IN THE RATIO OF THE NUMBER OF DAYS FOR WHICH THE ASSETS WERE USED B Y THEM. EXPLANATION 1. WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RE SPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PUR POSES OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK, IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR E XTENSION OF, OR 8 I.T.A. NO.1098/MDS/15 IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDIN G OWNED BY THE ASSESSEE. EXPLANATION 2. FOR THE PURPOSES OF THIS SUB-SECTIO N 'WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS' SHALL HAVE THE SAME MEANING AS IN CLAUSE (C) OF SUB-SECTION (6) OF SECTION 43; EXPLANATION 3. FOR THE PURPOSES OF THIS SUB-SECTIO N, 10THE EXPRESSIONS 'ASSETS' SHALL MEAN-- (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PL ANT OR FURNITURE ; (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE. EXPLANATION 4. FOR THE PURPOSES OF THIS SUB-SECTIO N, THE EXPRESSION 'KNOW-HOW' MEANS ANY INDUSTRIAL INFORMATION OR TECH NIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL- WELL OR OTHER SOURCES OF MINERAL DEPOSITS (INCLUDIN G SEARCHING FOR DISCOVERY OR TESTING OF DEPOSITS FOR THE WINNING OF ACCESS THERETO) ; EXPLANATION 5. FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT THE PROVISIONS OF THIS SUB-SECTION SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCOME ; (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AF TER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM E QUAL TO TWENTY PER CENT. OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II) : PROVIDED THATWHERE AN ASSESSEE, SETS UP AN UNDERTAKING OR E NTERPRISE FOR MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, ON OR AFTER THE 1ST DAY OF APRIL, 2015 IN ANY BACKWARD AREA NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF, IN THE STATE OF ANDHRA PRADESH OR IN T HE STATE OF BIHAR OR IN THE STATE OF TELANGANA OR IN THE STATE OF WEST BENG AL, AND ACQUIRES AND INSTALLS ANY NEW MACHINERY OR PLANT (OTHER THAN SHI PS AND AIRCRAFT) FOR THE PURPOSES OF THE SAID UNDERTAKING OR ENTERPRISE DURI NG THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 2015 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2020 IN THE SAID BACKWARD AREA, THEN, THE PR OVISIONS OF CLAUSE (IIA) SHALL HAVE EFFECT, AS IF FOR THE WORDS TWENTY PER CENT., THE WORDS THIRTY-FIVE PER CENT. HAD BEEN SUBSTITUTED : PROVIDED FURTHER NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F- (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTAL LATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHE R PERSON ; OR 9 I.T.A. NO.1098/MDS/15 (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE ; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLE S ; OR (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIAT ION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR ; (III) IN THE CASE OF ANY BUILDING, MACHINERY, PLANT OR FURNITURE IN RESPECT OF WHICH DEPRECIATION IS CLAIMED AND ALLOWED UNDER CLA USE (I) AND WHICH IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED IN THE PRE VIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHICH IT IS FIRST BROUGHT INTO USE), THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF SUCH BUILDIN G, MACHINERY, PLANT OR FURNITURE, TOGETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY, FALL SHORT OF THE WRITTEN DOWN VALUE THEREOF : PROVIDED THAT SUCH DEFICIENCY IS ACTUALLY WRITTEN OFF IN TH E BOOKS OF THE ASSESSEE. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE,-- (1) 'MONEYS PAYABLE' IN RESPECT OF ANY BUILDING, MA CHINERY, PLANT OR FURNITURE INCLUDES-- (A) ANY INSURANCE, SALVAGE OR COMPENSATION MONEYS P AYABLE IN RESPECT THEREOF ; (B) WHERE THE BUILDING, MACHINERY, PLANT OR FURNITU RE IS SOLD, THE PRICE FOR WHICH IT IS SOLD, SO, HOWEVER, THAT WHERE THE ACTUAL COST OF A MOTOR CAR IS, IN ACCORDANCE WITH THE PROVISO TO CLAUSE (1) OF SECTION 43, TAKEN TO BE TWENTY-FIVE THOUSAND RUPEES, THE MONEYS PAYABLE IN RESPECT OF S UCH MOTOR CAR SHALL BE TAKEN TO BE A SUM WHICH BEARS TO THE AMOUNT FOR WHICH THE MOTOR CAR IS SOLD OR, AS THE CASE MAY BE, THE AMOUNT OF ANY I NSURANCE, SALVAGE OR COMPENSATION MONEYS PAYABLE IN RESPECT THEREOF (INC LUDING THE AMOUNT OF SCRAP VALUE, IF ANY) THE SAME PROPORTION AS THE AMO UNT OF TWENTY-FIVE THOUSAND RUPEES BEARS TO THE ACTUAL COST OF THE MOT OR CAR TO THE ASSESSEE AS IT WOULD HAVE BEEN COMPUTED BEFORE APPL YING THE SAID PROVISO (2) 'SOLD' INCLUDES A TRANSFER BY WAY OF EXCHANGE O R A COMPULSORY ACQUISITION UNDER ANY LAW FOR THE TIME BEING IN FOR CE BUT DOES NOT INCLUDE A TRANSFER, IN A SCHEME OF AMALGAMATION, OF ANY ASS ET BY THE AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY WHE RE THE AMALGAMATED COMPANY IS 8AN INDIAN COMPANY OR IN A S CHEME OF AMALGAMATION OF A BANKING COMPANY, AS REFERRED TO I N CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949), WITH A BANKING INSTITUTION AS REFERRED TO IN SUB-SECTION (15) OF S ECTION 45 OF THE SAID ACT, SANCTIONED AND BROUGHT INTO FORCE BY THE CENTR AL GOVERNMENT UNDER 10 I.T.A. NO.1098/MDS/15 SUB-SECTION (7) OF SECTION 45 OF THAT ACT, OF ANY A SSET BY THE BANKING COMPANY TO THE BANKING INSTITUTION. (2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVI OUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVI OUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SEC TION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHAL L BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FO LLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THER E IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWAN CE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. A BARE READING OF SECTION 32 OF THE ACT CLEARLY SAY S THAT DEPRECIATION HAS TO BE ALLOWED WHILE COMPUTING THE TAXABLE INCOME ON BUILDING, MACHINERY, PLANT, ETC. WHICH IS OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINES S. DEPRECIATION IS NOTHING BUT AN INHERENT DECLINE IN THE VALUE OF THE ASSET FROM WEAR AND TEAR. IN RESPECT OF THE BUSIN ESS ASSETS, THE PARLIAMENT THOUGHT IT FIT IN THEIR WISDOM TO ALLOW DEPRECIATION FOR WEAR AND TEAR OF THE BUILDING, MACHINERY, PLANT, ET C. DEPRECIATION IN CERTAIN CASES IS TREATED AS EXPENDITURE LAID OUT OV ER THE YEARS DURING THE LIFE TIME OF THE MACHINERY. IN OTHER WO RDS, THE VALUE OF THE ASSET, MACHINERY, ETC. REDUCED PRO TANTO . THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DEPRECIATION IS SPREAD OVER DURING THE EFFECTIVE LIFE TIME OF THE MACHINERY OR ASSET, ETC. USED FOR BUSINESS BY ALLOWING THE SAME AS DEDUCTION ON NOTIONAL BASIS . THE AMOUNT 11 I.T.A. NO.1098/MDS/15 OF DEPRECIATION ALLOWED IN A PARTICULAR YEAR IS INT ENDED TO REPRESENT THE LIFE OF THE MACHINERY SUCH AS EXPENDITURE DURIN G THE ABOVE SAID PERIOD. IN OTHER WORDS, THE VALUE OF THE MACHINERY WAS SPREAD OVER FOR THE EFFECTIVE LIFE TIME OF THE ASSET AND A PROV ISION WAS MADE BY WAY OF NOTIONAL DEDUCTION TO REPLACE THE MACHINERY AFTER EXPIRY OF ITS ENTIRE LIFE TIME. THEREFORE, THE LEGISLATURE PROVI DED DEPRECIATION UNDER SECTION 32 OF THE ACT AS AN INCENTIVE/ALLOWAN CE TO THE ASSET WHICH WAS USED FOR THE BUSINESS OR PROFESSION. THI S CAN BE CONSTRUED AS REDUCTION IN VALUE IN THE BALANCE SHEE T WHILE COMPUTING THE INCOME FROM BUSINESS OR PROFESSION. 7. SECTION 32(1) OF THE ACT CLEARLY SAYS THAT THE A SSET OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. IN VIEW OF THE LANGUAGE E MPLOYED BY THE PARLIAMENT, THE ASSET USED FOR THE PURPOSE OF BUSIN ESS OR PROFESSION ALONE ELIGIBLE FOR DEPRECIATION. THE IN COME-TAX ACT DOES NOT PROVIDE FOR DEPRECIATION IN RESPECT OF THE ASSE T OTHER THAN THE ONE WHICH IS USED FOR BUSINESS OR PROFESSION. THERE FORE, IT IS FOR THE ASSESSEE TO ESTABLISH THAT THE ASSESSEE IS CARRYING ON ANY BUSINESS OR PROFESSION. IN THE CASE BEFORE US, THE ADMITTED CASE OF THE ASSESSEE IS THAT THE ASSESSEE IS NOT CARRYING ON AN Y BUSINESS OR 12 I.T.A. NO.1098/MDS/15 PROFESSION. THEREFORE, WHATEVER BE THE NATURE OF T HE ASSET, WHICH WAS USED AS A TOOL FOR CARRYING OUT THE OBJECT OF T HE CHARITABLE INSTITUTION, CANNOT BE CONSTRUED AS AN ASSET WHICH IS USED FOR THE BUSINESS OR PROFESSION OF THE ASSESSEE. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION UNDER SECTION 32 OF T HE INCOME-TAX ACT. 8. THE LD.COUNSEL FOR THE ASSESSEE HAS ALSO CLARIFI ED THAT THE ASSESSEE IS NOT CLAIMING DEPRECIATION UNDER SECTION 32 OF THE ACT. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE IS CLAIM ING DEPRECIATION ON THE COMMERCIAL PRINCIPLE. ON A QUERY FROM THE B ENCH WHAT IS MEANT BY COMMERCIAL PRINCIPLE?, HE CLARIFIED THAT COMPUTATION OF INCOME OF THE TRUST IN A CUSTOMARY METHOD OF ACCOUN TANCY. ON A QUERY FROM THE BENCH, THE LD.COUNSEL HAS ALSO CLARI FIED THAT THERE IS NO CONFLICT BETWEEN THE CUSTOMARY WAY OF COMPUTATIO N OF INCOME AND PROVISIONS OF SECTION 32 OF THE ACT. THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT SECTION 32 PROVIDES FOR DEP RECIATION ONLY IN RESPECT OF THE ASSET WHICH IS USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE COMMERCIAL PRINCIPLE OF COMPUTING INCOME OR THE CUSTOMARY PRACTICE OF COMPUTING INCOME MAY ALSO PRO VIDE FOR DEPRECIATION ONLY IN RESPECT OF COMPUTING BUSINESS OR PROFESSIONAL INCOME. 13 I.T.A. NO.1098/MDS/15 9. INCOME-TAX ACT PROVIDES FOR PROCEDURE AND METHOD FOR COMPUTING INCOME UNDER DIFFERENT HEADS. DEPRECIATI ON IS PROVIDED UNDER SECTION 32 OF THE ACT WHEN COMPUTING INCOME U NDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. IN RESPECT O F OTHER HEADS, NO DEPRECIATION IS PROVIDED UNDER THE SCHEME OF THE AC T. THE INCOME OF THE TRUST IS EXEMPTED ON APPLICATION AND ACCUMUL ATION AS PROVIDED UNDER THE ACT. IF ANY VIOLATION, THE INCO ME OF THE TRUST IS LIABLE FOR TAXATION, IN SUCH A CASE, IF THE INCOME IS ASSESSED AS INCOME FROM BUSINESS OR PROFESSION, THE ASSESSEE MA Y BE ELIGIBLE FOR DEPRECIATION. THE ASSESSEE IS CERTAINLY NOT EN TITLED FOR DEPRECIATION, WHEN THE INCOME WAS EXEMPTED ON APPLI CATION OR ACCUMULATION AS PROVIDED UNDER THE SCHEME OF THE AC T. THE CHARITABLE INSTITUTION UNDER THE SCHEME OF INCOME-T AX ACT IS ON A DIFFERENT FOOTING. THE ENTIRE INCOME OF THE ASSESS EE-TRUST FROM THE PROPERTY HELD UNDER TRUST DO NOT FORM PART OF TOTAL INCOME UNDER SECTION 11 OF THE ACT PROVIDED THE SAME IS APPLIED FOR CHARITABLE OBJECT. SECTION 11 OF THE ACT ALSO PROVIDES FOR AC CUMULATION OF 15% OF INCOME FOR FUTURE APPLICATION FOR THE OBJECT OF THE TRUST. THEREFORE, THE BUSINESS AND CHARITABLE INSTITUTION ARE TWO DIF FERENT CATEGORIES IN THE SCHEME OF INCOME-TAX ACT. THIS TRIBUNAL IS OF THE CONSIDERED 14 I.T.A. NO.1098/MDS/15 OPINION THAT THE CUSTOMARY WAY OF COMPUTING INCOME OR THE COMMERCIAL PRINCIPLE OF COMPUTING INCOME CANNOT OVE RRIDE THE SPECIFIC PROVISION OF INCOME-TAX ACT. THE INCOME-T AX ACT DOES NOT PROVIDE FOR ALLOWING DEPRECIATION OTHER THAN THE AS SET WHICH WAS USED FOR BUSINESS OR PROFESSION. THERE IS NO OTHER PROVISION IN THE INCOME-TAX ACT OTHER THAN SECTION 32 OF THE ACT FOR ALLOWING DEPRECIATION. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE DEPRECIATION HAS TO BE ALLOWED ON COMMERCIAL PRINCI PLE OR CUSTOMARY PRINCIPLE OF COMPUTATION OF INCOME IS CON TRARY TO THE SPECIFIC PROVISION, NAMELY, SECTION 32 OF THE ACT. 10. THE NEXT QUESTION ARISES FOR CONSIDERATION IS W HEN THERE IS A CONFLICT BETWEEN CUSTOMARY PRACTICE, COMMERCIAL PRI NCIPLE AND PROVISIONS OF SECTION 32, WHICH ONE WILL PREVAIL? THE OBVIOUS ANSWER TO THIS QUESTION IS THE STATUTORY PROVISION, NAMELY, SECTION 32 OF THE ACT WILL PREVAIL OVER THE CUSTOMARY PRACT ICE AND COMMERCIAL PRINCIPLE. THEREFORE, EVEN ON CUSTOMARY PRACTICE OR COMMERCIAL PRINCIPLE WHEREBY THE ASSESSEE CLAIMS DE PRECIATION WHILE COMPUTING THE INCOME, SECTION 32 OF THE ACT I S A SPECIFIC PROVISION UNDER INCOME-TAX ACT, WHICH IS CONTRARY T O COMMERCIAL PRINCIPLE OR CUSTOMARY PRACTICE. THEREFORE, THIS T RIBUNAL IS OF THE 15 I.T.A. NO.1098/MDS/15 CONSIDERED OPINION THAT SECTION 32 WILL PREVAIL OVE R THE CUSTOMARY PRACTICE OR COMMERCIAL PRINCIPLE. HENCE, THE ASSES SEE IS NOT ELIGIBLE FOR DEPRECIATION IN RESPECT OF BUILDING, P LANT, MACHINERY, ETC. WHICH ARE NOT USED FOR THE PURPOSE OF BUSINESS OR P ROFESSION. 11. EVEN ASSUMING FOR ARGUMENT SAKE THAT THE ASSESS EE WAS DOING BUSINESS, THEN THE ASSESSEE IS NOT ELIGIBLE F OR EXEMPTION UNDER SECTION 11 OF THE ACT AND AS RIGHTLY SUBMITTE D BY THE LD. DEPARTMENTAL REPRESENTATIVE, THE REGISTRATION UNDER SECTION 12AA OF THE ACT HAS TO BE CANCELLED UNDER SECTION 12AA(3 ) OF THE ACT. MOREOVER, THE ASSESSEE WILL NOT BE ELIGIBLE FOR EXE MPTION UNDER SECTION 11 OF THE ACT IF IT IS CARRYING ON ANY BUSI NESS ACTIVITY. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION. 12. AS RIGHTLY SUBMITTED BY THE LD. DEPARTMENTAL RE PRESENTATIVE, IN VIEW OF SECTION 11(4) & (4A) OF THE ACT, IF THE PROPERTY HELD UNDER TRUST IS A BUSINESS UNDERTAKING, THEN THE INCOME OF THE BUSINESS UNDERTAKING, WHICH WAS SO HELD AS PROPERTY HELD UND ER TRUST, HAS TO BE COMPUTED BY APPLYING THE PROVISIONS OF INCOME-TA X ACT UNDER CHAPTER IV. WHILE COMPUTING INCOME OF THE BUSINESS UNDERTAKING, ALL EXPENDITURE, INCLUDING DEPRECIATION, HAS TO BE ALLOWED AND THE 16 I.T.A. NO.1098/MDS/15 INCOME OF SUCH BUSINESS UNDERTAKING WHICH WAS HELD UNDER TRUST HAS TO BE ALLOWED AS EXEMPTION UNDER SECTION 11 ON APPLICATION AND ACCUMULATION. IN THIS CASE, AS RIGHTLY SUBMITT ED BY THE LD. D.R., NO BUSINESS UNDERTAKING WAS HELD UNDER TRUST AS PRO VIDED UNDER SECTION 11(4) & (4A) OF THE ACT. THE ASSESSEE IS C LAIMING DEPRECIATION IN RESPECT OF ASSET WHICH WAS USED AS TOOL FOR CARRYING OUT CHARITABLE OBJECT OF THE INSTITUTION. WHEN THE ASSET WAS USED AS TOOL FOR CARRYING OUT THE OBJECT OF THE CHARITABLE INSTITUTION, SUCH ACTIVITY CANNOT BE CONSTRUED AS A BUSINESS OR PROFE SSION OF THE ASSESSEE. THEREFORE, SECTION 32 OF THE ACT IS NOT APPLICABLE IN THIS CASE. 13. WE HAVE CAREFULLY GONE THROUGH ALL THE JUDGMENT S AND DECISIONS CITED BY THE LD.COUNSEL FOR THE ASSESSEE, WHICH ARE AS UNDER:- 1. DIT V. VISHWA J AGRITI MISSION (2012) 73 DTR (DEL) 195 2. CIT V. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) 3. CIT V. SOCIETY OF SISTERS OF ST.ANNE (1984) 146 ITR 28 (KAR) 4. CIT V. BHORUKA PUBLIC WELFARE TRUST (1999) 240 ITR 513 (CAL) 5. CIT V. TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 21 (P&H) 6. CIT V. SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRUST (1992) 198 ITR 598 (GUJ) 7. CIT V. RAIPUR PALLOTTINE SOCIETY (1989) 180 ITR 579 (MP) 8. CIT V. INSTITUTE OF BANKING PERSONNEL SELECTION (2003) 264 ITR 110 (BOM) 9. DIT(E) V. FRAMJEE CAWASJEE INSTITUTE (1993) 109 CTR (BOM) 463 17 I.T.A. NO.1098/MDS/15 10. DDIT V. LAKSHMI SARASWATHI EDUCATIONAL TRUST ITA NO.452/MDS/2014 CHENNAI ITAT 11. APOLLO HOSPITALS EDUCATIONAL TRUST V. DCIT ITA NO.2090/MDS/2012 CHENNAI ITAT 12. SERVICES ASSOCIATION OF SEVENTH DAY ADVENTISTS PVT. LTD. V. ITO ITA NO.1853/MDS/2011 CHENNAI ITAT 13. SERVICES ASSOCIATION OF SEVENTH DAY ADVENTISTS PVT. LTD. V. ITO ITA NO.427/MDS/2012 CHENNAI ITAT 14. ACIT V. MAMALLAN EDUCATIONAL TRUST ITA NO.180 8/MDS/2012 CHENNAI ITAT 15. DCIT V. MAMALLAN EDUCATIONAL TRUST ITA NO.91/MDS/2013 CHENNAI ITAT 16. ITO V. SRI RANGANATHAR TRUST ITA NO.1954/MDS/2012 CHENNAI ITAT 17. ITO V. KGISL TRUST ITA NO.1813/MDS/2012 CHENNAI ITAT 18. CIT V. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES (1982) 135 ITR 485 (MAD) 19. DEVI KARUMARIAMMAN EDUCATIONAL TRUST V. DCIT (EXEMPTIONS) (2015) 60 TAXMANN.COM 439 (MADRAS) 20. ITO V. THE GRD TRUST ITA NO.2537/MDS/2014 CHENNAI ITAT AFTER GOING THROUGH ALL THE JUDGMENTS / DECISIONS, WE FIND THAT THE CONFLICT BETWEEN THE COMMERCIAL PRINCIPLE OR CUSTOM ARY PRACTICE IN COMPUTING INCOME AND THE PROVISIONS OF SECTION 32 W ERE NOT BROUGHT TO THE NOTICE OF THE COURTS / TRIBUNAL. TH EREFORE, THOSE JUDGMENTS / DECISIONS ARE NOT APPLICABLE TO THE FAC TS OF THE CASE. 14. IN VIEW OF THE ABOVE DISCUSSION, WE FIND NO MER IT IN THE APPEAL OF THE ASSESSEE. ACCORDINGLY, THE SAME IS D ISMISSED. 18 I.T.A. NO.1098/MDS/15 ORDER PRONOUNCED ON 22 ND APRIL, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 22 ND APRIL, 2016. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-17, CHENNAI-34 4. DIT (EXEMPTIONS), CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.