ESSK Educational Charities, Villupuram V. ITO Ward 1, Villupuram

ITA 1246/CHNY/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6832 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 26-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution
• Section: 32; 28; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH : CHENNAI , . , [BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./ I.T.A. NO.1246/CHNY/2019 . $ $ / ASSESSMENT YEAR : 2010-11 M/S.ESSK EDUCATIONAL CHARITIES , CAMPUS-THEIVANI AMMAL WOMENS COLLEGE, TRICHY TRUNK ROAD, SALAMEDU,VILLUPURAM 605 602. VS. INCOME TAX OFFICER, WARD 1(1), VILLUPURAM. [PAN AAATE 2532 P] ( / APPELLANT) ( /RESPONDENT) ./ I.T.A. NO.1243 & 1244/CHNY/2019 . $ $ / ASSESSMENT YEARS : 2011-12 & 2012-13 M/S.RURAL EDUCATION AND ACTION FOR LIBERTION , ENNAYIRAM VILLAGE & POST, PERIYATHATCHUR, VILLUPURAM 605 651. VS. INCOME TAX OFFICER, WARD 1(1), VILLUPURAM. [PAN AAATR 4366 C] ( / APPELLANT) ( /RESPONDENT) ITA NOS.1246 AND 1243,1244 /CHNY/2019 :- 2 -: ( ) / APPELLANT BY : SHRI D.ANAND,ADVOCATE +,( ) /RESPONDENT BY : SHRI G.N.RAGAVENDRA RAO JCIT D.R ) /DATE OF HEARING : 25-07-2019 ) /DATE OF PRONOUNCEMENT : 26-07-2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THE APPEAL OF THE ASSESSEE IN ITA NO.1246/CHNY/2 019 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), PUDUCHERRY DATED 15.02.2016 FOR ASSESSME NT YEAR 2010-11 AND THE TWO APPEALS FILED BY OTHER ASSESSEE IN ITA NOS.1243 & 1244/CHNY/2019 ARE DIRECTED AGAINST THE CONSOLIDAT ED ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), PUDUCHERRY DA TED 18.05.2016 FOR ASSESSMENT YEARS 2011-12 & 2012-13. 2. SINCE, THE IDENTICAL FACTS AND ISSUES ARE INVOL VED IN THESE APPEALS, WE PROCEED TO DISPOSE THE SAME VIDE THIS C OMMON ORDER. 3. ALL THE THREE APPEALS FILED BY THE ABOVE ASSESS EES IN THE TITLE HAVE BEEN FILED WITH A DELAY OF 1009 DAYS. THE TW O ASSESSEES FILED PETITIONS FOR EACH APPEAL REQUESTING FOR CONDONING THE DELAY BY STATING THAT THE DELAY HAD OCCURRED ON ACCOUNT OF BELATEDLY HANDING OVER THE APPELLATE ORDERS TO AUTHORIZED REPRESENTAT IVE. IT WAS ITA NOS.1246 AND 1243,1244 /CHNY/2019 :- 3 -: PLEADED BY LD.AR THAT THE DELAY IN FILING THESE THR EE APPEALS MAY BE CONDONED 4. PETITIONS FILED BY ALL THE ASSESSEES FOR CONDON ATION OF DELAY ARE PERUSED. WE FIND THAT THE ASSESSEES HAVE VALID AND JUSTIFIABLE REASONS FOR DELAY IN FILING OF THESE TH REE APPEALS. CONSEQUENTLY, THE DELAY IN FILING OF THESE THREE AP PEALS ARE CONDONED AND ALL THE APPEALS FILED BY THE ASSESSEES ARE ADMITTED. 5. FOR THE SAKE OF CONVENIENCE AND CLARITY THE FAC TS RELEVANT TO THE APPEAL IN ITA NO.1246/CHNY/2019 FOR ASSESSMENT YEAR 2010-11 IS STATED HEREIN. 6. THE ISSUE IN THE APPEAL RELATES TO WHETHER DEPR ECIATION CAN BE ALLOWED AS AN APPLICATION OF INCOME WHILE COMPUT ING INCOME OF CHARITABLE TRUST U/S.11 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THIS ISSUE IS NO LONGER RES INTEGRA AS IT IS SETTLED BY THE HONBEL SUPREME COURT IN THE CASE OF CIT VS. RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION IN [2018] 89 TAXMANN.COM 127(SC) AS UNDER : SO FAR AS THE ISSUE REGARDING CLAIM OF DEPRECIATI ON U/S.32 OF THE ACT IS CONCERNED, THE CONTROVERSY IS NO LONGER RES INTE GRA, HAVING BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJASTHAN AND GUJARATI ITA NOS.1246 AND 1243,1244 /CHNY/2019 :- 4 -: CHARITABLE FOUNDATION IN [2018] 89 TAXMANN.COM 127( SC), BY WHICH THE HONBLE SUPREME COURT HAS AFFIRMED THE VIEW TAK EN BY THE BOMBAY HIGH COURT IN CIT VS. INSTITUTE OF BANK ING PERSONNEL SELECTION (IBPS) REPORTED IN [2003] 131 TAXMAN 386 (BOM). THE RELEVANT PORTION OF THE SAID JUDGEMENT O F THE BOMBAY HIGH COURT (402 ITR 445) AS QUOTED BY THE HONBLE SUPREME COURT AND AFFIRMED IS QUOTED BELOW FOR READY REFERENCE: 3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIR ES CONSIDERATION BY THIS COURT IS : WHETHER DEPRECIATI ON WAS ALLOWABLE ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER SECTION 11 I N THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN 1 994 TAX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. T HE ASSESSEE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRUST. IT WAS ALSO REGISTERED WIT H THE COMMISSIONER OF INCOME-TAX, PUNE. THE ASSESSEE DERI VED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS FOR ASSESSMENT YEARS 1977-78, 1978-79 AND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE B UILDING @ 2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITU RE @ 5%. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS : WHETHER DEPRECIA-TION COULD BE DENIED TO THE ASSESSEE, AS EXPENDITURE ON ACQUISITI ON OF THE ASSETS HAD BEEN TREATED AS APPLICATION OF INCOM E IN THE YEAR OF ACQUISITION? IT WAS HELD BY THE BOMBAY HIGH COURT THAT SECTION 11 OF THE INCOME-TAX ACT MAKES PROVISION IN RESPECT OF COMPUTATION OF INCOME OF TH E TRUST FROM THE PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND ACCUMULATI ON OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME -TAX ACT DEALS WITH CHARGEABILITY OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCO ME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTE D IN ACCORDANCE WITH SECTION 30 TO SECTION 43C. THAT, SE CTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPE CT OF BUILDING, PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR THE BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN THAT MATTER ALS O, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVAN CED ON BEHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CA N BE ALLOWED AS DEDUCTION ONLY UNDER SECTION 32 OF THE I NCOME- TAX ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT ITA NOS.1246 AND 1243,1244 /CHNY/2019 :- 5 -: REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDU CTION IN COMPUTING THE REAL INCOME OF THE ASSESSEE ON GEN ERAL PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME- TAX ACT. THE COURT REJECTED THE ARGUMENT ON BEHALF OF THE RE VENUE THAT SECTION 32 OF THE INCOME-TAX ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECI ATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIV ED FROM BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIA BLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER ALTHOUGH TH E TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE A SSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF T HE INCOME-TAX ACT PROVIDING FOR DEPRECIATION FOR COMPU TATION OF INCOME DERIVED FROM BUSINESS OR PROFESSION IS NO T APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQ UIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINC IPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATI ON AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. I N VIEW OF THE AFORESTATED JUDGMENT OF THE BOMBAY HIGH COUR T, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE I.E., I N FAVOUR OF 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 CAWAS JEE 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 I NTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING T HE INCOME OF THE TRUST. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXP ENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSISTANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. TH E TRIBUNAL, HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THAT FULL EXPENDITURE HAD BEEN ALLOWED IN TH E 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 TRUST IN THE YEAR IN WHICH THE INCOME WAS SPENT IN ACQUIRING THOSE AS SETS. THIS DID NOT MEAN THAT IN COMPUTING INCOME FROM THO SE ASSETS IN SUBSEQUENT YEARS, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUNT. THIS VIE W 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 ITA NOS.1246 AND 1243,1244 /CHNY/2019 :- 6 -: ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 5. NOW COMING TO QUESTION NO. 3, THE POINT WHICH AR ISES FOR CONSIDERATION IS : WHETHER EXCESS OF EXPENDITUR E IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLICATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF THE DEPARTMENT THAT EXPENDITURE INCURRED IN THE EARLIER YEARS CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT Y EAR AND THAT UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS P URPOSES. IN THE PRESENT CASE, THE ASSESSING OFFICER DID NOT ALLOW CARRY FORWARD OF THE EXCESS OF EXPENDITURE TO BE SE T OFF AGAINST THE SURPLUS OF THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEIR INCOM E WAS ASSESSABLE UNDER SELF-CONTAINED CODE MENTIONED IN S ECTION 11 TO SECTION 13 OF THE INCOME-TAX ACT AND THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE U NDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' UNDER SECT ION 28 IN WHICH THE PROVISION FOR CARRY FORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE OF A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD OF THE EXCESS OF EXP ENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMME RCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YE ARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSE QUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INC OME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINE D IN SECTION 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER S ECTION 11(1)(A) OF THE ACT. THE ISSUE IN THE PRESENT APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE DECISION OF HONBEL SUPREME COURT (SUPRA). ITA NOS.1246 AND 1243,1244 /CHNY/2019 :- 7 -: RESPECTFULLY FOLLOWING THE ABOVE JUDGEMENT OF HONB EL SUPREME COURT IN CIT VS. RAJASTHAN AND GUJARATI CHARITABLE FOUND ATION (SUPRA) , WE ALLOW THE APPEAL FILED BY ASSESSEE. 7. SINCE, THE FACTS IN THE ABOVE PRESENT APPEAL FO R ASSESSMENT YEAR 2010-11 ARE IDENTICAL TO THE FACTS IN ITA NOS.1243 & 1244/CHNY/2019 FILED BY OTHER ASSESSEE FOR ASSESSMENT YEARS 2011-1 2 & 2012-13, FOR THE REASONS MENTIONED THEREIN, WE ALLOW THE APPEALS FILED BY THE OTHER ASSESSEE ON THE LINES INDICATED IN APPEAL ITA NO.12 46/CHNY/2019. HENCE, THE ABOVE CAPTIONED APPEALS FILED BY THE ASS ESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.1246/CHNY/2019 AND THE TWO APPEALS FILED BY THE OTHER ASSESSEE IN ITA NOS.1243 & 1244/CHNY/2019 ARE ALLOWED. ORDER PRONOUNCED ON 26 TH JULY, 2019, AT CHENNAI. SD/- SD/- ( . ) (DUVVURU RL REDDY) ' $ /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER / CHENNAI 2 / DATED: 26 TH JULY, 2019. K S SUNDARAM ) +45 65 / COPY TO: 1 . ( / APPELLANT 3. 7 () / CIT(A) 5. 5 +< / DR 2. +,( / RESPONDENT 4. 7 / CIT 6. $ / GF