Phaltan Education Society, Satara V. Deputy Commissioner of Income-tax,

ITA 1403/PUN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1633 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 29-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT DUA
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition; Capital expenditure
• Section: 143(3); 12A; 2

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO S . 2 44 & 1403 /PN/201 5 / ASSESSMENT YEAR : 20 0 8 - 0 9 & 2009 - 10 PHALTAN EDUCATION SOCIETY, MUDHOJI HIGH SCHOOL CAMPUS, PHALTAN, DIST. SATARA . / APPELLANT PAN: A A ATP7284M VS. THE DY. COMMISSIONER OF INCOME TAX, SATARA CIRCLE . / RESPONDENT / APPELLANT BY : SHRI KISHORE PHADKE / RESPONDENT BY : SHRI AMIT DUA / DATE OF HEARING : 2 9 . 0 6 .201 6 / DATE OF PRONOUNCEMENT: 30 . 0 6 .201 6 / ORDER PER SUSHMA CHOWLA, J M : BOTH THE APPEAL S FILED BY THE ASSESSEE ARE AGAINST SEPARATE ORDER S OF CIT (A) - III , PUNE , DATED 10 . 11 .20 1 4 AND CIT(A) - 4, PUNE, DATED 20.08.2015 RELATING TO ASSESSMENT YEAR S 20 0 8 - 0 9 AND 2009 - 10 AGAINST RESPECTIVE ORDER S PASSED UNDER SECTION 143(3) OF THE I NCOME - TAX ACT , 1961 (IN SHORT THE ACT) . ITA NO. 244 /PN/20 1 5 ITA NO. 1403 /PN/201 5 2 2 . BOTH T HE APPEALS FILED BY THE ASSESSEE ON IDENTICAL ISSUE RELATING TO TWO DIFFERENT ASSESSMENT YEARS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. T HE ASSESSEE IN ITA NO. 2 44 /PN/201 5 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(APPEALS) - III, PUNE HAS ERRED IN LAW AND IN FACTS IN DISALLOWING THE EXPENSE OF RS.55,84,183/ - ON ACCOUNT OF DEPRECIATION AS APPLICATION OF INCOME. 2. THE LEA RNED CIT(APPEALS) - III, PUNE HAS ERRED IN LAW AND IN FACTS IN CONCLUDING THAT THE AMENDMENT MADE BY INTRODUCING SUB SECTION (6) OF SECTION 11 BY THE FINANCE ACT 2014 IS CLARIFICATORY IN NATURE AND SHOULD BE CONSIDERED RETROSPECTIVE. 4. THE APPEAL IN ITA NO .244/PN/2015 IS FILED BELATEDLY I.E. AFTER DELAY OF 12 DAYS. THE ASSESSEE HAS FILED ON RECORD THE AFFIDAVIT OF CHAIRMAN OF THE SOCIETY, WHERE IT WAS POINTED OUT THAT SINCE THE CHAIRMAN HIMSELF AND SECRETARY WERE ON OFFICIAL TOUR AND WERE TRAVELLING TO VAR IOUS INSTITUTIONS SITUATED IN SATARA WERE ON OFFICIAL TOUR AND WERE TRAVELLING TO VAR IOUS INSTITUTIONS SITUATED IN SATARA DISTRICT, THE APPEAL MEMO COULD NOT BE SIGNED AND SUBMITTED WITHIN PRESCRIBED TIME LIMIT OF 60 DAYS AND HENCE, THE DELAY OF 12 DAYS. A REQUEST WAS MADE FOR CONDONING THE SAID DELAY OF 12 DAYS IN FILING THE APPEAL BEFOR E THE TRIBUNAL. IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DELAY OF 12 DAYS IN FILING THE APPEAL IS CONDONED AND I PROCEED TO DECIDE THE APPEAL. FOR DECIDING THE ISSUE, REFERENCE IS BEING MADE TO THE FACTS IN ITA NO.244/PN/2015. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS AN EDUCATIONAL TRUST, WHICH WAS GRANTED REGISTRATION UNDER SECTION 12A OF THE ACT W.E.F. 01.04.2006. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD DECLARED RECEIPTS OF RS.15,69,28,711/ - AND AFTER DEDUCTING THE AMOUN TS APPLIED TOWARDS OBJECTS OF THE TRUST AMOUNTING TO RS. 15,93,24,991/ - , THE DEFICIT OF RS. 23,96,280/ - WAS ITA NO. 244 /PN/20 1 5 ITA NO. 1403 /PN/201 5 3 DISCLOSED. ON PERUSAL OF EXPENDITURE CLAIMED TO HAVE BEEN INCURRED TOWARDS OBJECTS OF THE TRUST, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CL AIMED DEPRECIATION ALLOWANCE OF RS. 55,84,183/ - AS APPLICATION OF MONEY. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID DEPRECIATION COULD NOT BE CONSIDERED AS APPLICATION OF INCOME SINCE THE SAME WAS NOTIONAL EXPENDITURE AND IT WAS DISALLOWED BY THE ASSESSING OFFICER. 6. THE CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER IN DISALLOWING THE CLAIM OF DEPRECIATION, BUT ON THE SURMISE THAT WHERE THE ASSESSEE WAS CLAIMING CAPITAL EXPENDITURE INCURRED FOR ACQUISITION OF ASSETS AS APPLICATION OF ITS INCOME , FURTHER DEPRECIATION ON SUCH ASSETS WOULD AMOUNT TO DOUBLE DEDUCTION. IN THIS REGARD, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN ESCORTS LTD. VS. UNION OF INDIA REPORTED IN 199 ITR 43 (SC). FURTHER, RELIANCE WAS PLACED O N THE DECISION OF HONBLE KERALA HIGH COURT IN LISSIE MEDICAL INSTITUTION S VS. CIT (2012) 348 ITR 344 (KER) , WHEREIN THE HONBLE HIGH COURT HAD HELD AFTER ALLOWING COST OF ACQUISITION OF ASSET AS APPLICATION OF MONEY FOR CHARITABLE PURPOSE, THE DEPRECIATIO N ON SUCH ASSET WOULD AMOUNT DOUBLE ALLOWANCE. FURTHER, THE CIT(A) REFERRED TO THE INTRODUCTION O F SUB - SECTION 6 TO SECTION 11 OF THE ACT BY FINANCE ACT, 2014, WHICH STATES THAT FOR THE PURPOSE OF APPLICATION OF INCOME BY CHARITABLE TRUST, SUCH INCOME SHA LL BE DETERMINED WITHOUT ANY DEDUCTION OR ALLOWANCE BY WAY OF DEPRECIATION OR OTHERWISE IN RESPECT OF ANY ASSET, WHOSE COST HAS BEEN CLAIMED AS APPLICATION OF MONEY FOR THAT YEAR OR FOR ANY PREVIOUS YEAR. THE CIT(A) WAS OF THE VIEW THAT THOUGH THE AMENDME NT IS EFFECTIVE FROM 01.04.2014 , THE EFFECT OF AMENDMENT WAS RETROSPECTIVE SINCE IT WAS CLARIFICATORY AMENDMENT. IN VIEW THEREOF, THE CIT(A) DISALLOWED THE CLAIM OF ASSESSEE VIS - - VIS DEPRECIATION ON ITA NO. 244 /PN/20 1 5 ITA NO. 1403 /PN/201 5 4 ASSETS, COST OF WHICH HAS ALREADY BEEN ALLOWED AS APPLI CATION OF INCOME BY THE TRUST. 7. THE ASSESSEE IS IN APPEAL AGAINST THE FINDINGS OF CIT(A). 8. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE CLAIM OF ASSESSEE HAS BEEN DISALLOWED ON FOUR ACCOUNTS I.E. FIRST, IT AMOUNTS TO D OUBLE DEDUCTION IN THE HANDS OF ASSESSEE. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE RECENT DECISION OF HONBLE BOMBAY HIGH COURT IN DIT (EXEMPTIONS) VS. SHRI VILE PARLE KELAVANI MANDAL (2015) 378 ITR 593 ( BOM), WHEREIN IT HAS BEEN HELD THAT WHERE THE TRUST CLAIMED DEDUCTION ON ACCOUNT OF COST OF ASSETS AS APPLICATION OF MONEY AND FURTHER IT CLAIMED DEPRECIATION ON THE USE OF SAID ASSETS, THEN SUCH CLAIM OF DEPRECIATION DOES NOT AMOUNT TO DOUBLE DEDUCTION. FURTH ER, RELIANCE WAS PLACED ON THE EARLIER DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (2003) 264 ITR 110 (BOM) AND THE DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN CIT VS. MARKET COMMITTEE, PIPLI (2011) 3 30 ITR 16 (P&H) FOR THIS PROPORTION . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE RECENT DECISION OF HONBLE HIGH COURT OF DELHI IN DIT (EXEMPTION) VS. INDRAPRASTHA CANCER SOCIETY (2014) 112 DTR 345 (DEL) HAS ALSO SI MILARLY HELD THAT THE CLAIM OF DEPRECIATION ON CAPITAL ASSET UTILIZED FOR BUSINESS, COST OF WHICH WAS CLAIMED AS APPLICATION OF INCOME, WOULD NOT AMOUNT TO DOUBLE DEDUCTION. THE HONBLE HIGH COURT FURTHER HELD THAT THE INSERTION MADE BY THE FINANCE ACT, 2 014 BY WAY OF SUB - SECTION 6 TO SECTION 11 OF THE ACT WAS W.E.F. 01.04.2015 AND IS TO BE APPLIED PROSPECTIVELY. FURTHER, THE HONBLE HIGH COURT ALSO REFERRED TO THE RELIANCE PLACED UPON BY THE REVENUE ON THE DECISION OF HONBLE SUPREME ITA NO. 244 /PN/20 1 5 ITA NO. 1403 /PN/201 5 5 COURT IN ESCORTS LTD . VS. UNION OF INDIA (SUPRA ) AND THE HONBLE KERALA HIGH COURT IN LISSIE MEDICAL INSTITUTION VS. CIT (SUPRA), WHICH WAS CONSIDERED BY THE HONBLE HIGH COURT OF DELHI IN DIT VS. VISHWA JAGRITI MISSION (2013) 262 CTR 558 (DEL) AND IT WAS HELD THAT THE RELIAN CE PLACED UPON BY THE REVENUE WAS DISPEL LED AND DISTINGUISH ED . ELABORATE REFERENCE WAS MADE TO THE PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT IN THE SAID DECISION. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THUS SUBMITTED THAT THE ASSESS EE WAS ENTITLED TO THE CLAIM OF DEPRECIATION EVEN ON ASSETS VALUE OF WHICH WAS C LAIMED AS APPLICATION OF INCOME. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 10. ON PERUSAL OF RECORD AND FACTUAL ASP ECTS OF THE CASE AND LEGAL PROPOSITIONS PROPOUNDED BY VARIOUS HONBLE HIGH COURTS, THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED. THE HONBLE BOMBAY HIGH COURT IN A RECENT DECISION IN DIT (EXEMPTIONS) VS. SHRI VILE PARLE KELAVANI MANDAL (SUPR A) HAS HELD THAT IN THE CASE OF TRUST, WHERE THE TRUST ACQUIRES ASSETS FROM ITS INCOME WHICH ARE CLAIMED AS APPLICATION OF INCOME, THEN THE CLAIM OF DEPRECIATION ON SUCH ASSETS WHICH ARE USED BY THE TRUST, DOES NOT AMOUNT TO DOUBLE DEDUCTION AND DEPRECIATI ON IS TO BE ALLOWED. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE ADMITTEDLY HAD CLAIMED THE COST OF ASSETS AS APPLICATION OF INCOME OF TRUST AND HAD FURTHER CLAIMED DEPRECIATION ON SUCH ASSETS, WHICH WAS USED BY IT. THE SAID CLAIM OF DEPRECIATION ON S UCH ASSETS, COST OF WHICH WAS CLAIMED AS APPLICATION OF INCOME, WAS DENIED BY THE AUTHORITIES BELOW AS THE SAME WOULD AMOUNT TO DOUBLE DEDUCTION. HOWEVER, IN VIEW OF THE PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN A RECENT DECISION IN DIT ITA NO. 244 /PN/20 1 5 ITA NO. 1403 /PN/201 5 6 (E XEMPTIONS) VS. SHRI VILE PARLE KELAVANI MANDAL (SUPRA) AND ALSO IN VIEW OF THE EARLIER DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA) AND HONBLE HIGH COURT OF PUNJAB & HARYANA IN CIT VS. MARKET COMMITTEE, PIPLI (SUPRA) , THERE IS NO MERIT IN THE STAND OF AUTHORITIES BELOW IN HOLDING THAT THE CLAIM OF DEPRECIATION ON SUCH ASSETS WOULD AMOUNT TO DOUBLE DEDUCTION. 11. ANOTHER PROPOSITION RAISED BY THE CIT(A) IN THE PRESENT CASE IS THAT THE AMENDMENT BROUGHT I N BY THE FINANCE ACT, 2014, UNDER WHICH SECTION 11(6) OF THE A CT HAS BEEN INSERTED TO THE ACT, W HERE THE COST OF ASSET HAS BEEN ALLOWED AS APPLICATION OF INCOME OF THE TRUST, THEN THE CLAIM OF DEPRECIATION ON SUCH ASSETS IS NOT TO BE ALLOWED. THE SAID AME NDMENT HAS BEEN BROUGHT INTO STATUTE W.E.F. 01.04.2015 AND THE HONBLE HIGH COURT OF DELHI IN DIT (EXEMPTION) VS. INDRAPRASTHA CANCER SOCIETY (SUPRA) HAS HELD THAT THE SAID AMENDMENT IS TO BE APPL IED W.E.F. 01.04.2015 AND NOT TO THE EARLIER ASSESSMENT YEAR S. IN VIEW THEREOF, WHERE THE AMENDMENT IS APPLICABLE FROM 01.04.2015, THE CLAIM OF THE ASSESSEE VIS - - VIS DEPRECIATION ON ASSETS, COST OF WHICH HAS BEEN ALLOWED AS APPLICATION OF INCOME OF THE TRUST, IS TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE IN ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 . FURTHER, THE CIT(A) HAD DISALLOWED THE CLAIM OF ASSESSEE, IN TURN, RELYING ON THE DECISION S OF HONBLE SUPREME COURT IN ESCORTS LTD. VS. UNION OF INDIA (SUPRA) AND HONBLE KERALA HIGH COURT IN LISSIE MEDICAL INSTI TUTION VS. CIT (SUPRA) . THE HONBLE HIGH COURT OF DELHI WHILE DECIDING THE ISSUE OF TRUST VIS - - VIS THE CLAIM OF DEPRECIATION ON SUCH ASSETS, COST OF WHICH HAS BEEN CLAIMED AS APPLICATION OF INCOME OF THE SAID TRUST IN DIT (EXEMPTION) VS. INDRAPRASTHA CAN CER SOCIETY (SUPRA) HAD ELABORATELY CONSIDERED THE ISSUE AT LENGTH AND HAD RELIED ON EARLIER DECISION OF LARGER BENCH OF HONBLE HIGH COURT IN DIT (EXEMPTION) VS. INDIAN ITA NO. 244 /PN/20 1 5 ITA NO. 1403 /PN/201 5 7 TRADE PROMOTION IN ITA NO.7/2013, DATED 27.11.2013 , WHICH HAD CONSIDERED BOTH THE SAID DECISIONS AND DECISION IN DIT VS. VISHWA JAGRITI MISSION (SUPRA) AND CIRCULAR / CLARIFICATION DATED 02.02.2012 ISSUED BY THE CBDT AFTER THE DECISION OF HONBLE KERALA HIGH COURT AND HELD AS UNDER: - 15. KERALA HIGH COURT WAS ALSO CONSCIOUS OF THE SAID DEC ISIONS AND THE FACT THAT SECTION 1 1( 1 )(A) HAD BEEN INTERPRETED IN A DIFFERENT MANNER. IT WAS IN TH ESE CIRCUMSTANCES THAT THE KERALA HIGH COURT IN THE LAST PORTION OF PARAGRAPH 6, AS QUOTED ABOVE, HAS STATED THAT THE ASSESSEE WOULD BE ENTITLED TO WRITE BACK DEPRECIATION AND IF DONE, THE ASSESSING OFFICER WOULD MODIFY THE ASSESSM ENT DETERMINING THE HIGHER INCOME AND ALLOW RECOMPUTATION OF DEPRECIATION WRITTEN BACK FOR THE PURPOSE OF APPLICATION OF INCOME FOR CHARITABLE PURPOSES IN FUTURE OR SUBSEQUENT YEARS. THIS MAY LEAD TO ITS OWN DIFFICULTIES AND PROBLEMS AS SUDDENLY THE ENTIRE DEPRECIATION LEAD TO ITS OWN DIFFICULTIES AND PROBLEMS AS SUDDENLY THE ENTIRE DEPRECIATION WRITTEN OFF WOULD HAVE TO BE ADDED FIRST AND THEN IN ONE YE AR SUBSTANTIAL APPLICATION OF INCOME WOULD BE REQUIRED. THIS MAY BE IMPRACTICAL AND WOULD DISTURB THE, WORKING OF MANY A CHARITABLE INSTITUTIONS. THE LEGAL INTERPRETATI ON WHICH HAS CONTINUED SINCE 1984, IF DISTURBED AND IMPLEMENTED, WOULD NOT APPROPRIATELY RESOLVED. CONSISTENCY AND CERTAINTY IS MORE APPROPRIATE. 16. THE EQUALLY PLAUSIBLE AND CONSISTENT INTERPRETA TION OF CLAUSE (A) OF SE C TIO N 11(1 ) OF THE ACT IS THAT INCOME DERIVED FROM PROPERTY MUST BE CALCULATED AS PER TH E PRINCIPLES OF THE ACT. THE SAID CLAUSE IS NOT A COMPUTATION PROVISION AND DOES N OT DISTURB THE 'INCOME' EARNED OR AVAILABLE BUT POSTULATES THA T THE 'INCOME' A S COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT TO THE EXTENT OF 86% MUST BE APPLIED. APPLICATION THE PROVISIONS OF THE ACT TO THE EXTENT OF 86% MUST BE APPLIED. APPLICATION OF INCOME MAY INCLUDE PURCHASE OF A CAPITAL ASSET. THE SAI D PURCHASE IS VALID AND TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ENSURIN G COMPLIANCE, I.E., APPLICATION OF MONEY OR FUNDS AND IS NOT A FACTOR WHICH DETERMINE S AND DECIDES THE QUANTUM OF INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. COMPUTATION OF INCOME IS SEPARATE 'AND DISTINCT AND HAS TO BE MADE ON COMMERCIAL BASIS BY APPL YING PROVISIONS OF THE ACT.' 12. THE CLAIM OF THE ASSESSEE ON ACCOUNT OF DEPRECIATION ON ASSETS, COST OF WHICH WAS ALREADY ALLOWED AS APPLICATION OF INCOME OF THE TRUST, WAS HELD TO BE ALLOWABLE IN THE HANDS OF ASSESSEE. FOLLOWING THE SAME PARITY OF REA SONING, ALLOWABLE IN THE HANDS OF ASSESSEE. FOLLOWING THE SAME PARITY OF REA SONING, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE AFORESAID CLAIM OF ASSESSEE OF DEPRECIATION ON ASSETS AS APPLICATION OF INCOME IN THE HANDS OF TRUST FOR THE INSTANT ASSESSMENT YEAR , COST OF WHICH HAVE ALREADY BEEN ALLOWED AS DEDUCTION . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. ITA NO. 244 /PN/20 1 5 ITA NO. 1403 /PN/201 5 8 1 3 . THE FACTS AND ISSUE IN ITA NO.1403/PN/2015 ARE IDENTICAL TO THE FACTS AND ISSUE IN ITA NO.244/PN/2015 AND OUR DECISION IN ITA NO.244/PN/2015 SHALL APPLY MUTATIS MUTANDIS TO ITA NO.1403/PN/2015. 1 4 . IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JUNE , 201 6 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 30 TH JUNE , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPO NDENT; 2. / THE RESPO NDENT; 3. ( ) / THE CIT(A) - III & 4 , PUNE ; 4. / THE CIT - III & PR.CIT - III , PUNE ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE