MAHANADI EDUCATION SOCIETY, RAIPUR V. ASSISTANT COMMISSIONER OF INCOME (EXEMPTION) - I, RAIPUR

ITA 14/RPR/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3190 (ITAT-RAIPUR)
• Duration Of Justice: 4 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 11-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P. K SHARMA
• Keywords: Capital asset; Depreciation; Cost of acquisition; Capital expenditure; CHAPTER IV
• Section: 6; 12; 11; 143(3); 142(1); 12AA; 10B; 250; 43; 13

Judgement Text

ITAT-Raipur Page 1 of 10 आयकर अपीलीय Ɋायािधकरण, रायपुर Ɋायपीठ, रायपुर मŐ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR (Through Virtual Court at Raipur) BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI JAMLAPPA D BATTULL, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 14/RPR/2018 कर िनधाŊरण वषŊ / Assessment Year : 2013-2014 Mahanadi Education Society Nalghar Chowk, Kalibadi, Raipur – 493111 (C.G.) PAN: AAATM 5971 A . . . . . . .अपीलाथŎ / Appellant बनाम / V/s Asst. Commissioner of Income Tax-(E), Civil Lines Raipur- 4920001 (C.G.) . . . . . . .Ĥ×यथȸ / Respondent }kjk / Appearances Assessee by : Shri Praveen Jain Revenue by : Shri P. K Sharma सुनवाई की तारीख / Date of conclusive Hearing : 26/04/2022 घोषणा की तारीख / Date of Pronouncement : 29/04/2022 आद े श / ORDER PER JAMLAPPA D BATTULL, AM; The present appeal filed by the appellant assessee is assailed against the order of the Commissioner of Income Tax- Appeal-I, Raipur [for short “CIT(A)”] dt. 15/12/2017 passed u/s 250 of the Income-tax Act, 1961 [for short “the Act”], which in turn arose out of order of assessment passed by Asstt. Commissioner of Income Tax (Exemption), Raipur [for short “AO”] dt. 23/03/2016 u/s 143(3) of the Act, for assessment year [for short “AY”] 2013-2014. Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 2 of 10 2. The solitary controversy under the present appeal encircles around the allowability of depreciation on the value of assets, where the full acquisition cost such assets claimed as application u/s 11 of the Act. 3. Before pulling the facts from the records, it is necessary to replicate the grounds assailed by the appellant assessee before Income Tax Appellate Tribunal [for short “Tribunal”] as; 1. Ground 1: That on the facts and on the circumstances of the case the Ld. CIT(A) erred in sustaining disallowance of claim of depreciation of Rs2,91,37,194/- made by Ld. AO. Disallowance is unjustified and uncalled for and may kindly be deleted.” 2. Ground 2: That on the facts and on the circumstances of the case the Ld. CIT(A) erred in sustaining disallowance of claim to carry forward of excess application of fund of Rs.4,91,59,159/- made by Ld. AO. Disallowance is unjustified and uncalled for, carry forward of excess application of fund may kindly be allowed.” 3. The assessee craves leave to add, urge, alter or withdraw any ground/s before or at the time of hearing of this appeal.” (Emphasis Supplied) 4. Succinctly stated the facts of the case are; 5.1 The assessee is a Society registered under the Madhya Pradesh Government Registration Act, 1973 and has registered as Charitable Trust / institution u/s 12AA of the Act, and whereas it has engaged in charitable activities like support and promotion for the advancement of educational activities etc, and has for AY 2013-2014 filed its return of income [for short “ROI/ITR”] on 16/09/2013 declaring total income of Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 3 of 10 ₹NIL after giving effect to provisions of section 11 of the Act. The case of the assessee Society was selected for scrutiny under Computer Assisted Scrutiny Scheme [for short “CASS”] by service of statutory notice dt. 26/09/2014 u/s 143(2). On a change of incumbent, an intimation u/s 129 of the Act along-with questionnaire through notice u/s 142(1) dt. 05/08/2015 & 12/02/2016 were served on the Society. The appellant in response to aforestated notice, through the authorised representative [for short “AR”] filed written submissions accompanying evidential documents inter alia Copy of Memorandum, Copy of Bye- laws, bank statements, Copy of Audit report in Form No. 10B certificate of no change in object vis-à-vis constitution of the Society etc. After examining the submissions and causing test check of bills, vouchers and books of accounts produced by the Society, the Ld. AO called upon the assessee to justify the entitlement to the claim of depreciation on the assets, wherein the cost of entire assets was in the preceding assessment year(s) were allowed as application. In reply thereof, the assessee Society submitted before Ld. AO that, the Trust in engaged not in commercial activities but in the charitable activities, and for the purpose of computation of income/surplus in giving effect to the provisions of section 11 of the Act, the income/surplus is required to be computed applying the normal commercial principle, hence while doing so, the claim of depreciation on assets deployed in earning income is must, consequently the society’s claim for depreciation deserves to be allowed. The Ld. AO however rebutting the contention of the Trust, and placing strong reliance on the decision of Hon’ble Kerala High Court in Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 4 of 10 the case of “Lessie Medical Institution Vs CIT” reported at 348 ITR 344 (Kel) dislodging the claim of depreciation for the reason of leading to or amounting to double deduction, as the entire acquisition cost / value of assets on a previous occasion claimed & allowed as application of income in the hands of the assessee and same can be witnessed form the relevant part of the para 4 of the assessment order, which is reproduced as under; “It would be worthwhile to mention here that, in the case of Lessie Medical Institution Vs Commissioner of Income Tax reported in 348 ITR 344 Kerala (2012), the Hon’ble Court has decided the matter in favour of the revenue. In the case of Lessie Medical Institutions (Supra), which is a long judgement, passed by the divisional bench of Hon’ble Kerala High Court dealt the issue of double deduction in detail taking into consideration of almost all the judgements on this issue. In this case Hon’ble Kerala High Court have categorically decided that depreciation cannot be allowed when the full cost has been treated as application in any year. The Hon’ble High Court also observed that the other judgments were made per incuriam they did not consider the judgement of the apex court in the case of Escorts Ltd. ( J.K. Synthetics Ltd.) Vs. Union of India 199 ITR 43 (SC)[1993]” 5.2 To fortify the action of disallowance of depreciation, the Ld. AO articulated the applicability of newly inserted provision of subsection 6 to section 11 of the Act by the Finance Act, 2014 with a strong conviction that, through the provision of section 11(6) is effective from AY 2015-2016, it is indeed enacted as clarificatory in nature to restrain opening of concluded assessments, and holding applicable for the year Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 5 of 10 under consideration has finally culminated the assessment with a disallowance of depreciation and assessed the total income of the assessee Society at ₹NIL after giving effect to the provisions of section 11 and 12 of the Act. 5.3 The appellant society aggrieved with the order of Ld. AO moved an appeal before Ld. CIT(A) challenging the rejection of claim of depreciation. During the course of first appellate proceedings the Society reiterated its like submissions, as it was laid before Ld. AO during the course of original assessment proceedings and contended that, the light of judicial precedents, the society is entitled to depreciation irrespective of the cost of entire asset was on a previous occasion was allowed as application of income. It was further contended that, the amended provisions of section 11(6) are prospective in nature and are invariably application for & from the AY 2015-2016. The submission of the assessee did not impress the FAA, consequently the Ld. CIT(A) prima facie opined that, charitable Society being a non-commercial establishment should resort to prepare only Receipt and Payment Account to avoid any claim for notional expenditure like depreciation, which is otherwise available for commercial entity to arrive at taxable profit. Ld. CIT(A) further was of the view that, depreciation being a charge against the profit is only allowed in computing the income under the provisions of chapter IV-D and such allowance cannot be permitted in computing income u/s 11 to 13 of the Act. Consequently the Ld. CIT(A) echoed with the view of his subordinate in holding that, when the full and entire cost of asset is allowed as application of income while Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 6 of 10 computing the income u/s 11 of the Act, further allowance of depreciation on the value of such assets, would amount to double deduction which is contra legem, and therefore confirmed the disallowance concurrently placing reliance on equi judicial precedents including the decision of Hon’ble Karnataka High Court in the case of “Lissie Medical Institution Vs CIT” (Supra). 5.4 Aggrieved by the order of tax authorities below, the appellant Society is in appeal before us with the grounds of appeal laid in foregoing para 3. 6. After hearing the rival contentions of both the parties; perused material placed on records and duly considered the facts of the case in the lights of settled legal position and case laws relied upon both the parties to the appeal. 7. When the appeals is taken up in the course of virtual hearing, at the outset the Ld. AR adverting to the grounds of appeal filed, stated that, ground number 2 being not emanating out of impugned assessment order, hence is not pressed for adjudication, ergo the solitary ground of impugned disallowance stands for adjudication. 8. During the course of adjudication, the Ld. AR in support of claim for depreciation, made twofold submission, one; as to the income of the Society although liable to be computed in accordance with the provisions of section 11 to 13 of the Act, however before giving effect to the provisions of section 11 of the Act, income must first needs to be Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 7 of 10 computed applying the commercial principle and in doing so, the claim of depreciation is must and secondly; the provision of newly inserted section 11(6) although is clarificatory in nature, but it is applicable from the AY 2015-2016, and to reinforcement the contention, the Ld. AR heavily relied on the decision of Hon’ble Apex Court in “CIT Vs Rajasthan & Gujarati Charitable Foundation” reported in 402 ITR 441 (SC). Adverting to the aforestated judicial precedent, it is submitted that, the Hon’ble Lordship have therein held that, the claim of depreciation is allowable to charitable Society even if the entire expenditure incurred for acquisition of capital asset has been treated as application of income. Au contraire, the learned departmental representative [for short “DR”] without rebutting the facts claimed by the appellant, supported the order of lower tax authorities and our drawn attention to the decision of Lessie Medical Institution (Supra). 9. In our considered view, the issue is no more res integra, the Hon'ble Supreme Court in the case of “CIT Vs Rajasthan and Gujarati Charitable Foundation Poona”(Supra) as settled the issue in favour of assessee, wherein the Hon'ble Lordships while answering the question on the subject matter have categorically held that; “4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee Cawasjee 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 into account depreciation on those assets in computing the income of the Trust. The ITO held that depreciation could not be taken into account Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 8 of 10 because, full capital expenditure 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. The Tribunal, however, took the view that when the ITO stated that full expenditure had been allowed in the 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 assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view 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 above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department." 10. Ad litem, The Ld. AO while carrying out the disallowance of depreciation found to have also relied on decision of Hon’ble Apex Court in “Escorts Ltd. Vs UOI” (supra), however it shall be mindful to make a mention that, the question before the Hon’ble Supreme Court in the matter of “Escorts Ltd Vs UOI” (supra) was related to duel claims of the assessee u/s 35 of the Act in relation to an item of same asset for weighted deduction and the secondly claim for depreciation. Thus, two benefits were claimed in respect of the very same asset, per contra the issue before us is entirely different and a distinct position in the present appeal is that, it involves a claim for exemption in respect of income earned from property held for charitable or religious purposes, consequently the views of Ld. AO to the given facts and circumstance being are contra legem, Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 9 of 10 hence deserves reversal. Our view has been fortified by the plethora of judicial pronouncement of various High Courts, such as the Hon’ble Bombay High Court in the case of “CIT Vs Munisuvrat Jain (1994 Tax Law Reporter 1084) and “DIT (Exemption) Vs Framjee Cawasjee Institute” (109 CTR 463); Hon’ble Karnataka High Court in “CIT Vs Society of the Sisters of St. Anne” (146 ITR 28); Hon’ble Madhya Pradesh High Court in “CIT Vs Raipur Pallottine Society” (180 ITR 579); Hon’ble Gujarat High Court in “CIT Vs Sheth Manilal Ranchhoddas Vishram Bhavan Trust” (198 ITR 598); Hon’ble Punjab and Haryana High court in “CIT Vs Market Committee Pipli” (330 ITR 16) and “CIT Vs Tiny Tots Education Society” (330 ITR 21); Hon’ble Madhya Pradesh High Court in “CIT Vs Devi Sakuntala Tharal Charitable Foundation” (358 ITR 452) and of Hon’ble Calcutta High Court in “CIT Vs. Silluguri Regulated Market Committee” (366 ITR 51). In addition, the decision of Hon’ble Delhi High Court in “DIT Vs Vishwa Jagriti Mission” 262 CTR 558 and the Hon’ble Karnataka High Court in “DIT (Exemption) Vs Al-Ameen Charitable Fund Trust” (supra) have accepted the claim of the assessee distinguishing both the judgment of the Supreme Court in Escorts as well as that of the Kerala High Court. 11. Before we depart, insofar as the allowability of depreciation on assets where the full value of assets was on the previous occasion claimed as “application of income”, we are mindful to elucidate that, even in the present case, the assessee had claimed the cost of asset as application of income u/s 11 of the Act in any of the previous year or years up to AY 2014-15 and is allowed in the light of judicial precedents, the claim of depreciation thereagainst for the year under consideration is not hit by Mahanandi Education Society, AY :2013-2014 ITA No :14/RPR/2018, PAN : AAATM5971A ITAT-Raipur Page 10 of 10 the amended provision of section 11(6) of the Act, as the amended provision of section 11(6) de future prospective in nature and effective from AY 2015-2016 as held by Hon’ble Karnataka High Court in the case of “DIT V/s Al-Ameen Charitable Fund Trust” reported at 383 ITR 517 (Kar). Ergo, in the light of judicial precedents stated herein above hold that, the appellant Society is eligible for depreciation up to the AY 2014-2015, consequently we direct the Ld. AO to delete the disallowance of depreciation. 12. Resultantly, the appeal of the assessee society is allowed in above terms. Order pronounced in the open court on this Friday 29 th day of April, 2022. -S/d- -S/d- RAVISH SOOD JAMLAPPA D BATTULL JUDICIAL MEMBER ACCOUNTANT MEMBER रायपुर/ RAIPUR; िदनांक / Dated : 29 th day of April, 2022 आदेश की Ůितिलिप अŤेिषत / Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant. 2. ŮȑथŎ / The Respondent. 3. The CIT (Appeals), Raipur(C.G.) 4. The Pr. CIT, Raipur(C.G.) 5. िवभागीयŮितिनिध, आयकर अपीलीय Ɋायािधकरण, रायपुर / DR, ITAT, Raipur Bench, Raipur. 6. गाडŊफ़ाइल / Guard File. आदेशानुसार / BY ORDER, िनजीसिचव / Private Secretary आयकर अपीलीय Ɋायािधकरण, रायपुर