M/s Aishwarya Vignan Educational Society, Hyderabad V. Dy.Director of Income Tax (Exemptions)-II, Hyderabad

ITA 1267/HYD/2014

• Counselvise Citation: 126722514 RSA 2014
• Duration Of Justice: 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 30-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Charitable institution
• Section: 11; 143(3); 12AA

Judgement Text

ITA NO.1267 OF 2014 AISHWARYA VIGNAN EDUCATIONAL SO CIETY HYDERABAD PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1267/HYD/2014 (ASSESSMENT YEAR: 2010-11) M/S. AISHWARYA VIGNAN EDUCATIONAL SOCIETY HYDERABAD PAN- AAATA 8718 K VS. DY. DIRECTOR OF INCOME TAX (EXEMPTIONS)-II HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SHRI RAMAKRISHNA BANDI, DR DATE OF HEARING : 17/03/2015 DATE OF PRO NOUNCEMENT : 20 /03/2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE CIT (A)-IV HYDERABAD DATED 10.04.2014 PASSED U/ S 143(3) OF THE ACT, FOR A.Y 2010-11. 2. THE ASSESSEE IS A SOCIETY REGISTERED U/S 12AA OF THE ACT AND FILED ITS RETURN OF INCOME ON 13.09.2011. AO HE LD THAT SINCE THE ASSESSEE WAS ENGAGED IN RUNNING VARIOUS EDUCATI ONAL INSTITUTIONS, IT WAS ELIGIBLE FOR EXEMPTION U/S 10( 23C)(VI) AND NOT U/S 11 AND SINCE IT HAD NOT OBTAINED REQUISITE APPR OVAL U/S ITA NO.1267 OF 2014 AISHWARYA VIGNAN EDUCATIONAL SO CIETY HYDERABAD PAGE 2 OF 5 10(23C)(VI), ASSESSEE WAS NOT ENTITLED TO ANY EXEMP TION. FURTHER, AO ALSO DISALLOWED THE DEPRECIATION AND ASSESSED TH E TOTAL INCOME AT RS.4,01,49,420. 3. ON FURTHER APPEAL BEFORE THE CIT (A) WITH RESPEC T TO DISALLOWING OF DEPRECIATION OF RS.1,40,72,707, AO N OTED THAT THE COST OF ASSETS HAD EARLIER BEEN CLAIMED AS APPLICAT ION OF INCOME, BUT THAT THE ASSESSEE HAD ALSO CLAIMED DEPRECIATION OF RS.1,91,82,769 ON THAT. AO RELIED ON THE DECISION I N THE CASE OF ESCORTS LTD. VS. UNION OF INDIA (199 ITR 43) AND TH E JURISDICTIONAL ITAT IN THE CASE OF DY. DIRECTOR OF INCOME-TAX(EXEM PTION) HYDERABAD, V/S. EXHIBITION SOCIETY, HYDERABAD FOR T HE ASSESSMENT YEAR 2006-07 VIDE ORDER DATED 22 ND MARCH, 2012 IN ITA NO.1195/HYD/2009, AND HELD THAT SINCE THE ASSES SEE CLAIMED THE TOTAL VALUE OF THE ASSETS BEING APPLIED FOR CHARITABLE PURPOSE IN THE YEAR, THE CLAIM OF DEPRECIATION COUL D NOT BE ALLOWED. AO ALSO NOTED THAT SINCE THE ENTIRE SURPLU S FOR THE CURRENT YEAR WAS BEING BROUGHT TO TAX, THE DEPRECIA TION OF RS.51,10,062 ON THE ASSETS PROCURED DURING THE YEAR WAS ALLOWED. 4. DURING THE PROCEEDINGS BEFORE THE CIT (A), THE L D AR SUBMITTED THAT THE DECISION IN THE CASE OF ESCORTS LTD. VS. UNION ITA NO.1267 OF 2014 AISHWARYA VIGNAN EDUCATIONAL SO CIETY HYDERABAD PAGE 3 OF 5 OF INDIA (199 ITR 43)(SC) WAS DISTINGUISHABLE AND R ELIED ON THE DECISION IN THE CASE OF CIT VS. MARKET COMMITTEE, P IPLI (330 ITR 16) (P&H HC). THE LD CIT (A) HELD AS FOLLOWS: 6.3 I FIND THAT THE ITAT, HYDERABAD HAS CONSIDERE D THIS ISSUE IN THE CASE OF ACIT VS. SRI VENKATA SAI EDUCATIONAL SOCIETY AND OTHERS (ITA NO.1440/HYD/201 1 AND OTHERS, DATED 9.4.2012) AND HELD THAT WHERE THE ENTIRE COST OF THE ASSET STANDS ALLOWED BY WAY OF APPLICATION OF INCOME U/S 11(1), THE DEPRECIATION C LAIMED BY THE ASSESSEE U/S 32(1) IS NOT ALLOWABLE. IN ARRI VING AT THIS DECISION, THE ITAT REFERRED TO AND RELIED ON T HE FOLLOWING DECISIONS: I) JAIPUR STOCK EXCHANGE 108 TTJ 393 (JP) II) MAHILA SIDH NIRMAN YOJANA V IAC 50 ITD 472 (DEL) III) DCIT V. ADI SANKARA TRUST 46 SOT 230 (COCHIN) IN THE APPELLANTS CASE, IT IS UNDISPUTED THAT THE COST OF THE ASSETS HAD ALREADY BEEN CLAIMED AS APPLICATION OF INCOME. UNDER THE CIRCUMSTANCES, RESPECTFULLY FOLLO WING THE VIEW OF THE JURISDICTIONAL BENCH OF THE ITAT, T HE DISALLOWANCE OF DEPRECIATION BY THE AO IS UPHELD. 5. WE HEARD BOTH THE PARTIES. IT HAS BEEN HELD IN C IT VS. GUJRATI SAMAJ (REGD.) 349 ITR 559 (MP H.C) AS FOLLO WS: DEPRECIATION IS NOTHING BUT DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR, DETERIORATION OR OBSOLESCENC E AND ALLOWANCE IS MADE FOR THIS PURPOSE IN BOOK KEEPING, ACCOUNTANCY, ETC. IT IS THE EXHAUSTION OF THE EFFECTIVE LIFE OF A FIXED ASSET OWING TO USE OR OBSOLESCENCE. IT MAY BE COMPUTED AS THAT PART OF TH E COST OF THE ASSET WHICH WILL NOT BE RECOVERED WHEN THE ASSET IS FINALLY PUT OUT OF USE. THE OBJECT OF PROV IDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE, INCU RRED IN ACQUIRING THE ASSET, OVER ITS EFFECTIVE LIFETIME ; THE AMOUNT OF THE PROVISION, MADE IN RESPECT OF AN ACCOUNTING PERIOD, IS INTENDED TO REPRESENT THE ITA NO.1267 OF 2014 AISHWARYA VIGNAN EDUCATIONAL SO CIETY HYDERABAD PAGE 4 OF 5 PROPORTION OF SUCH EXPENDITURE, WHICH HAS EXPIRED DURING THAT PERIOD. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION IN COMPUTING THE INCOME OF A CHARITABLE TRUST, THEN THERE WOULD BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST. A CHARITABLE TRUS T IS, THEREFORE, ENTITLED TO DEPRECIATION IN RESPECT OF T HE ASSETS OWNED BY IT. 6. IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERS ONNEL SELECTION (IBPS) (264 ITR 110 (BOM.) H.C. HAS HELD THAT DEPRECIATION ON ASSETS ARE ALLOWABLE. IN THE CASE OF CIT VS. SETH MANILAL RANCHHODDAS VISHRAM BHVAN TRUST (198 ITR 59 8 THE GUJARAT HIGH COURT HELD AS FOLLOWS: THE INCOME FROM THE PROPERTIES HELD UNDER TRUST HA VE TO BE ARRIVED AT IN THE NORMAL COMMERCIAL MANNER WITHOUT CLASSIFICATION UNDER THE VARIOUS HEADS SET OUT IN SECTION 14 OF THE INCOME TAX ACT, 1961.THE EXPRESSION INCOME HAS TO BE UNDERSTOOD IN THE POPULAR OR GENERAL SENSE AND NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED AT FOR THE PURPOSE OF ASSESSMENT TO TAX BY APPLICATION OF SOME ARTIFICIAL PROVISIONS EITHER GIVING OR DENYING DEDUCTION. THE COMPUTATION UNDER THE DIFFERENT CATEGORIES OR HEADS ARISES ONLY FOR THE PURPOSES OF ASCERTAINING THE TO TAL INCOME FOR THE PURPOSES OF CHARGE. THOSE PROVISIONS CANNOT BE INTRODUCED TO FIND OUT WHAT THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST TO BE EXCLUDED FROM THE TOTAL INCOME IS, FOR THE PURPOSE OF THE EXEMPTIONS UNDER CHAPTER III. THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF THE CHARITA BLE INSTITUTION HAS TO BE DEDUCTED TO ARRIVE AT THE INC OME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIO US PURPOSES. 7. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF CIT V S. MARKET COMMITTEE, PIPLI (330 ITR 16) (P&H H.C), CIT VS. IN STITUTE OF ITA NO.1267 OF 2014 AISHWARYA VIGNAN EDUCATIONAL SO CIETY HYDERABAD PAGE 5 OF 5 BANKING PERSONNEL SELECTION (IBPS) 264 ITR 110 (BOM .)(H.C) AND IN THE CASE OF DIRECTOR OF INCOME-TAX (EXEMPTIONS) VS. G.K. CHARITIES (214 TAXMANN 555 (BOM.). FOLLOWING THE RA TIOS OF THE ABOVE SAID DECISIONS OF THE VARIOUS HIGH COURTS AND RELYING ON THE PRINCIPLES THAT THE COURT HAS TO ADOPT THAT INT ERPRETATION WHICH FAVOURS THE ASSESSEE, AS CITED IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD (88 ITR 192), WE ARE OF THE OPINION THAT THE CIT (A) ERRED IN DISALLOWING THE DEPRECIATION C LAIMED BY THE ASSESSEE. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 20 TH MARCH, 2015. VNODAN/SPS COPY TO: 1. M/S. AISHWARYA VIGNAN EDUCATIONAL SOCIETY, H.NO.8-3 - 164/D/46 FLAT NO.102 SUSHILA SADAN APARTMENTS, KALY AN NAGAR, VENGAL RAO NAGAR, HYDERABAD 2. DY. DIRECTOR OF INCOME TAX (EXEMPTION)-II, 3 RD FLOOR AAYAKAR BHAVAN, BASHEERBAGH,HYDERABAD 3. THE CIT (A)-IV HYDERABAD 4. THE DIRECTOR OF INCOME TAX (EXEMPTIONS) HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER