DDIT, CHENNAI V. Thiru Vi Ka Mu Va Educational Trust, CHENNAI

ITA 1191/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81287 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 05-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: N DEVANATHAN
• Keywords: Business income; Depreciation; Charitable institution; Revenue expenditure; Capital expenditure
• Section: 143(3); 32; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , , !' # , $ % BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.1191/MDS./2014 ( / ASSESSMENT YEAR :2009-10) DY. DIRECTOR OF INCOME-TAX (EXEMPTIONS)-III, ANNEXE BUILDING, AYAKAR BHAVAN, CHENNAI 600 034. VS. M/S.THIRU VIKA MU VA EDUCATIONAL TRUST , NO.38/39,FIRST MAIN ROAD(WEST),CHENNAI 600 030. PAN AAATT 5652 M ( &' / APPELLANT ) ( #(&' / RESPONDENT ) / APPELLANT BY : MR.GURU BHASHYAM, JCIT D.R / RESPONDENT BY : MR.N.DEVANATHAN,ADVOCATE / DATE OF HEARING : 07.10.2014 ! /DATE OF PRONOUNCEMENT : 28.11.2014 ) / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-VII, CHEN NAI DATED ITA NO.1191 /MDS/14 2 28.01.2014 IN ITA NO.248/11-12 PASSED U/S 143(3) R EAD WITH SECTION 250 OF THE ACT. 2. THE REVENUE AGGRIEVED BY THE ORDER OF THE LD. LD . CIT (A) HAS TAKEN UP THREE GROUNDS BEFORE US; HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD. LD. CIT (A) HAD ERRED IN HOLDING TH AT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON ASSETS PURCHASED EVEN THOUGH THE COST OF ASSETS WAS CONSIDERED AS APPLICATION OF INCOME AND ACCORDINGLY DIRECTING THE AO TO ALLOW DEPRECIATION OF ` 10,06,430/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A TRUST REGISTERED UNDER SECTION 12A(A) OF THE ACT, FILED I TS RETURN OF INCOME ON 29.03.2011 ADMITTING NIL INCOME. THE CASE WAS T AKEN UP FOR SCRUTINY UNDER CASS. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE LD.ADIT(EXEMPTION) DISALLOWED DEPRECIATION OF ` 10,06,430/- CLAIMED BY THE ASSESSEE WHILE PASSING ASSESSMENT OR DER DATED 08.11.2011. AGGRIEVED BY THE ORDER OF LD.ADIT(EXEM PTION), THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). WHEN THE MATTER ITA NO.1191 /MDS/14 3 CROPPED UP BEFORE THE LD. CIT (A), THE LD. CIT (A) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS FOLLOWS:- THOUGH THE AO DID NOT DISCUSS THE ISSUE OF DEPRECI ATION IN THE ASSESSMENT ORDER, THE ORDER SHEET ENTRY REVEALS THAT DEPRECIATION WAS NOT ALLOWED IN COMPUTING THE TOTAL INCOME/LOSS. THE AO ARRIVED AT NIL SHORTFALL AGAI NST THE RETURNED LOSS OF RS.25,74,747/-. FOR THE PURPOSE O F SEC.11 OF THE ACT, INCOME OF THE TRUST IS TO BE COMPUTED. IT MEANS INCOME IN THE COMMERCIAL SENSE. THE CONCEPT OF COM MERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIAT ION ON THE ASSETS OF THE TRUST. DEPRECIATION ON ASSETS OF A TRUST IS TO BE DEDUCTED FOR THE PURPOSE OF CALCULATING INCOME O F A TRUST. NORMAL ACCOUNTING PRINCIPLES CLEARLY PROVIDE FOR DE DUCTING DEPRECIATION TO ARRIVE AT INCOME. INCOME SO ARRIVED AT IS TO BE APPLIED FOR CHARITABLE PURPOSE. CAPITAL EXPENDITURE IS ALSO APPLICATION OF INCOME. THE ASSESSEE CLAIMED REVENUE EXPENDITURE INCLUDING DEPRECIATION AND CAPITAL EXPE NDITURE AND ARRIVED AT LOSS I.E EXCESSIVE EXPENDITURE. THE WORKING BY ITA NO.1191 /MDS/14 4 THE APPELLANT IS IN ORDER AND THE DISALLOWANCE OF D EPRECIATION BY THE AO IS NOT IN ACCORDANCE WITH THE LAW. RELIAN CE IS ALSO PLACED ON THE ABOVE CASE LAWS QUOTED BY THE APPELLA NT. THUS THE APPELLANT IS ELIGIBLE FOR CLAIMING DEPRECIATION AND THE AO IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION. 4. THE LD. D.R RELIED ON THE ORDERS OF THE LD.ADIT (E) AND ARGUED IN SUPPORT OF THE SAME. HE SUBMITTED A PAPER BOOK C ONSISTING OF 17 PAGES, WHICH CONTAINED THE FOLLOWING CASE LAWS IN R EVENUES FAVOUR:- HOWEVER IT IS PERTINENT TO MENTION THAT THE DECISIO N CITED BY THE LD. D.R VIZ. IN THE CASE NETCAR BEVERAGES P. LTD, J.K.S YNTHETICS AND CIT VS. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITI ES (SUPRA) ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSE SSEE. 1 NECTAR BEVERAGES P. LTD VS. DCIT 314 ITR 314(SC) 2 LISSIE MEDICAL INSTITUTIONS VS.CIT,KOCHI, 348 ITR 344 (KERALA) 3 DIT(EXEMPTION) VS. CHARANJIV CHARITABLE TRUST 267 CTR 305(DELHI) 4 J.K.SYNTHETICS VS.UOI 199 ITR 43 (SC) 5 DDIT(EXEMPTION) VS. ADI SANKARA TRUST, 143 TTJ 23 4(COCHIN) 6 CIT VS.RAO BAHADUR CALAVALA CUNNAN CHETTY CHAIRIT ES, 135 ITR 485 (MAD.) ITA NO.1191 /MDS/14 5 5. ON THE OTHER HAND THE LD. A.R. REITERATED HIS SUBMISSION MADE BEFORE THE REVENUE. HE FURTHER RELIED ON THE FOLLOW ING CASE LAWS IN SUPPORT OF HIS ARGUMENTS AND THE GIST OF THE SAME I S REPRODUCED HEREIN BELOW:- I) THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S.SRI RENGALATCHUMI EDUCATIONAL TRUST IN ITA NOS. 689 & 682/MDS./2010 ASSESSMENT YEARS 2006-07 & 2007-08 VI DE ORDER DATED 25.03.2011HELD THAT:- 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. FOR THE PURPOSE OF DETERMINING THE INCOME OF A TRUS T ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT, INCOME ARISI NG FROM PROPERTY HELD UNDER TRUST, CONSTITUTES THE INCOME OF THE TRUST. IT WILL MEAN INCOME FROM PROPERTY, BUSINESS, DIVIDENDS, INTEREST ON SEC URITIES OR OTHER INTEREST. IN OTHER WORDS, THE INCOME FOR THE PURPO SE OF SECTION 11 OF THE ACT IS THE INCOME AS PER THE ACCOUNTS OF THE TRUST. IT MEANS, INCOME IN THE COMMERCIAL SENSE, WITHOUT REFERENCE TO THE HEAD S OF INCOME SPECIFIED IN SECTION 14 OF THE ACT, I.E. THE BOOK I NCOME AND NOT TOTAL INCOME AS DEFINED IN SECTION 2(45) OF THE ACT. THI S POSITION IS CONFIRMED IN CIT V. TRUSTEES OF H.E.H. NIZAMS SUPPLEMENTAL R ELIGIOUS ENDOWMENT TRUST (1981) 127 ITR 378 (A.P.), CIT V. RAO BAHADUR CALAWALA CUNNAN CHETTY CHARITIES (1982) 135 ITR 485 (MAD.) AND CIT V. ESTATE OF V.L. ETHIRAJ (1982) 136 ITR 12 (MAD.). THIS POSITION IS ALSO CONFIRMED BY THE ITA NO.1191 /MDS/14 6 CBDT VIDE ITS CIRCULAR NO.5-P (LXX-6) DATED 19 TH JUNE, 1968. THE CONCEPT OF COMMERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIATION ON ASSETS OF THE TRUST. DEPRECIATION ON ASSETS OF A TRUST IS TO BE DEDUCTED FOR THE PURPOSE OF CALCULATING INCOM E OF A TRUST. THIS IS BECAUSE OF THE FACT THAT THE CONCEPT OF COMMERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIATION ON ASSETS OF TH E TRUST. EVEN REASONABLE DEPRECIATION ON ASSETS AND INTEREST ON S INKING FUND OR REPAIRS RESERVE ARE TO BE DEDUCTED AS HELD BY THE M UMBAI BENCH OF THIS TRIBUNAL IN BALKAN-JI-BARI (1979) 2 TAXMAN 377(BOM. ). HON'BLE BOMBAY HIGH COURT HAD REJECTED A REFERENCE APPLICATION OF THE REVENUE IN THE CASE OF CIT V. FRAMJEE CAWASJEE INSTITUTE (1993) 10 9 CTR 463, HOLDING THAT THE ANSWER TO THE QUESTION WHETHER DEPRECIATIO N WAS ALLOWABLE TO A CHARITABLE TRUST WAS SELF-EVIDENT, EVEN IF THE CAPI TAL VALUE OF THE ASSETS ON WHICH DEPRECIATION WAS CLAIMED HAD BEEN ALLOWED AS A DEDUCTION UNDER SECTION 11, AS AN APPLICATION OF INCOME FOR R ELIGIOUS OR CHARITABLE PURPOSES. ONCE AGAIN IN CIT V. INSTITUTE OF BANKIN G PERSONNEL SELECTION (IBPS) 264 ITR 110, HON'BLE BOMBAY HIGH COURT HELD THAT DEPRECIATION SHOULD BE ALLOWED EVEN ON ASSETS, THE COST OF WHICH HAD BEEN ALLOWED AS EXEMPT UNDER SECTION 11 IN THE PRECEDING YEARS. TH EIR LORDSHIP ALSO HELD THAT DEPRECIATION SHOULD BE ALLOWED EVEN ON AS SETS RECEIVED ON TRANSFER FROM ANOTHER CHARITABLE TRUST ON WHICH NO COST WAS BORNE BY THE ASSESSEE TRUST. OTHER HIGH COURTS WHICH HAVE ALSO TAKEN THE VIEW THAT DEPRECIATION IS DEDUCTIBLE ARE HON'BLE KARNATAKA HI GH COURT IN THE CASE OF CIT V. SOCIETY OF THE SISTERS OF ST. ANNE (1984) 146 ITR 28 AND HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CI T V. RAJPUR PALLOTTINE SOCIETY (1989) 180 ITR 579. IN CIT V. S ETH MANILAL RANCHHODDAS VISHRAM BHOVAN TRUST (1992) 105 CTR (GU J) 303 IT WAS HELD BY HON'BLE GUJARAT HIGH COURT THAT DEPRECIATIO N SHOULD BE ALLOWED WHILE COMPUTING SUCH INCOME UNDER SECTION 11(I)(A) OF THE ACT. ITA NO.1191 /MDS/14 7 ASSESSING OFFICERS STAND THAT PROVISION OF COMPUT ATION OF INCOME UNDER SECTION 11 DOES NOT CONTAIN ANY PROVISION WHICH MA Y ENTITLE AN ASSESSEE TO CLAIM WEIGHTED DEDUCTION FOR ANY EXPENS ES INCURRED IS NOT ACCEPTABLE AS SECTION 11 PROVIDES THAT THE INCOME O F THE TRUST IS TO BE COMPUTED ON COMMERCIAL BASIS I.E. AS PER NORMAL ACC OUNTING PRINCIPLES. NORMAL ACCOUNTING PRINCIPLES CLEARLY PROVIDE FOR DE DUCTING DEPRECIATION TO ARRIVE AT INCOME. INCOME SO ARRIVED AT (AFTER D EDUCTING DEPRECIATION) IS TO BE APPLIED FOR CHARITABLE PURPOSE. CAPITAL EXPE NSE IS APPLICATION OF THE INCOME SO DETERMINED. SO THERE IS NO DOUBLE DE DUCTION OR DOUBLE CLAIM OF THE SAME AMOUNT AS APPLICATION. THUS DEPR ECIATION IS TO BE DEDUCTED TO ARRIVE AT INCOME AND IT IS NOT APPLICAT ION OF INCOME. NO DOUBT, DEPARTMENT HAS RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA). HOWEVER, IN THIS CAS E THE ISSUE BEFORE HON'BLE SUPREME COURT WAS THAT WHETHER BOTH DEPRECI ATION UNDER SECTION 32 AND CAPITAL EXPENDITURE ON SCIENTIFIC RE SEARCH UNDER SECTION 35(1)(IV) CAN BE CLAIMED AS DEDUCTION. REFERENCE T O THIS DECISION CANNOT BE DRAWN AS IN THE CASE OF ESCORTS (SUPRA) BOTH WER E DEDUCTIONS UNDER THE HEAD BUSINESS INCOME WHEREAS IN CASE OF A CHA RITABLE TRUST DEPRECIATION IS A DEDUCTION TO ARRIVE AT INCOME AND CAPITAL EXPENDITURE IS APPLICATION OF SUCH INCOME. THE AFORESAID DECISION IN THE CASE OF ESCORTS LTD. CANNOT BE APPLIED TO DETERMINE TAXABLE INCOME FOR A TRUST AS THE PROVISIONS TO DETERMINE TAXABLE INCOME OF THE T RUST ARE TOTALLY DIFFERENT AND NORMAL PROVISIONS FOR COMPUTING INCOM E UNDER FIVE HEADS CANNOT BE APPLIED. THUS THE ASSESSEE IS ELIGIBLE F OR CLAIMING DEPRECIATION FOR ALL THESE ASSESSMENT YEARS. THE O RDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE A.O. IS DIR ECTED TO ALLOW THE CLAIM OF DEPRECIATION. ITA NO.1191 /MDS/14 8 II) THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS.SILIGUI REGULATED MARKET COMMITTEE IN [2014] 366 ITR 51 (CAL.) HELD THAT:- THE OBJECTS OF SECTION 11 OF THE INCOME-TAX ACT,196 1, IS TO FEED PUBLIC CHARITY. BY PERMITTING COMPUTATION OF INCOME IN A COMMERCIAL MANNER, THE OBJECT OF FEEDING PUBLIC CHARITY IS ACHIEVED. T HE AMOUNT DEDUCTED BY WAY OF DEPRECIATION IS IN THAT CASE PLOUGHED BAC K FOR USER ON ACCOUNT OF CHARITY. IT CANNOT BE DISPUTED THAT A B UILDING USED FOR THE PURPOSE OF CHARITY DIMINISHES IN VALUE OVER TIME LI KE ANY OTHER BUILDING. THEREFORE, PROVIDING FOR SUCH DIMINUTION OF VALUE W OULD KEEP THE CORPUS OF THE TRUST INTACT OTHERWISE THE CORPUS OF THE TRU ST ITSELF IN COURSE OF TIME MAY GET DISSIPATED. DEPRECIATION IS DEDUCTIBLE WHIL E COMPUTING THE INCOME OF THE CHARITABLE TRUST. 6. AFTER HEARING BOTH SIDES AND CONSIDERING THE FA CTS AND CIRCUMSTANCE OF THE CASE BEFORE US WHICH IS IDENTIC AL TO THE CASE DISCUSSED HEREIN ABOVE WE FIND IT APPROPRIATE TO FO LLOW THE DECISION OF THE CHEANNI BENCH OF THE TRIBUNAL IN THE CASE OF M/S.SRI RENGALATCHUMI EDUCATIONAL TRUST (SUPRA) WHICH IS IN CONCURRENCE TO THE ORDER OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT ITA NO.1191 /MDS/14 9 VS.SILIGUI REGULATED MARKET COMMITTEE (SUPRA) WHERE IN IT WAS HELD THAT THE DEPRECIATION IS AN ALLOWABLE DEDUCTION WH ILE COMPUTING THE INCOME OF A CHARITABLE TRUST. ACCORDINGLY WE HEREBY DIRECT THE LD.A.O TO GRAND THE BENEFIT OF DEPRECIATION WHILE COMPUTIN G THE INCOME OF THE ASSESSEE TRUST. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ORDER PRONOUNCED ON 28 TH NOVEMBER, 2014 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD ) (A.MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 28 TH NOVEMBER, 2014. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE