Assistant Commissioner of Income Tax, Hyderabad V. St. Martin's Educational Society, Hyderabad

ITA 1445/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59347 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 10-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETER
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SATYAJIT DEY, JUDICI AL MEMBER ITA NO.1443/HYD/11 : A SSTT. YEAR 2005-06 ITA NO.1444/HYD/11 : A SSTT. YEAR 2006-07 ITA NO.1445/HYD/11 : ASSTT. YEAR 20 07-08 ITA NO.1446/HYD/11 : A SSTT. YEAR 2008-09 ITA NO.1447/HYD/11 : A SSTT. YEAR 2009-10 ASSTT. COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE 1, HYDERABAD V/S. ST. MARTIN CHILDREN EDUCATIONAL SOCIETY, HYDERABAD ( PAN - AAAAS 7130 C) (APPELLANT) (RESPONDENT) APPELLANT BY : TH. LUCAS PETER RESPONDENT BY : NONE DATE OF HEARING 13.3.2012 DATE OF PRONOUNCEMENT 22.3.2012 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE APPEALS OF THE REVENUE ARE DIRECTED AGAINST A COMMON ORDER OF THE CIT(A)-I, HYDERABAD DATED 8.6.2011 FOR THE ASSESSME NT YEARS 2005-06 TO 2009-10. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OFF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIE NCE. 2. GROUNDS RAISED BY THE REVENUE IN ALL THESE APP EALS ARE COMMON AND THE SAME READ AS UNDER- 1. WHETHER THE CIT(A) ERRED IN APPRECIATING THE FACT T HAT OBTAINING APPROVAL OF THE PRESCRIBED AUTHORITY IS NOT MANDATORY AS PER THE PL AIN MEANING OF THE PROVISIONS OF 10(23C)(VI) OF THE I.T. ACT AND IT DOES NOT CALL FO R ANY INTERPRETATION. 2. WHETHER THE CIT(A) ERRED IN APPRECIATING THE FACT T HAT WHEN GROSS RECEIPTS EXCEED RS.1 CRORE, APPROVAL U/S. 10(23C(VI) IS MANDATORY AND TH E ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S. 11 OF THE I.T. ACT. 3. WHETHER THE CIT(A) ERRED IN APPRECIATING THE FACT T HAT SECTION 10(23C) AS SUCH IS NOT A REPLACEMENT OF SECTIONS 10(22) AND (22A), BUT ONLY SUB CLAUSES (IIIAD) AND (IIIAC) ARE REPLACEMENTS OF THE ERSTWHILE SECTION 10(22) AND 10 (22A) RESPECTIVELY. 4. WHETHER THE CIT(A) ERRED IN APPRECIATING THE FACT T HAT IS WAS SECTION 10(22) THAT PROVIDED FOR EXEM PTION OF THE EDUCATIONAL INCOME OF THE TRUSTS, SOCI ETIES ETC., AND NOT SECTION 11. ITA NO.1443 TO 1447/ HYD/2011 ST. MARTIN CHILDREN EDUCATIONAL SOCIETY, HYD . 2 5. WHETHER THE CIT(A) ERRED IN APPRECIATING THE FACT T HAT THE PURCHASE OF CAPITAL ASSET THAT COULD BE USED TO PROMOTE THE OBJECTIVES OF THE SYST EMS RUN BY THE TRUST IS ALLOWED AS APPLICATION OF INCOME. THEREFORE THE DEPRECIATION I S NOT ALLOWABLE ON THE CAPITAL ASST WHERE ENTIRE COST OF ACQUISITION IS EITHER WRITTEN OFF IN THE FIRST YEAR ITSELF OF THE COST OF ACQUISITION IS TREATED AS APPLICATION OF INCOME AS HAS BEEN HELD IN RULING OF HBLE SUPREME COURT OF INDIA IN THE CASE OF ESCORTS LTD A ND ANOTHER VS. UNION OF INDIA (199 ITR 44). 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE MAIN ISSUE INVOLVED IN TH E ABOVE GROUNDS IS COVERED BY THE ORDER OF THE HYDERABAD BENCH A OF THE TRIBUNAL DATED 15.4.2009 IN THE CASES OF VASAVI ACADEMY OF EDUCATI ON, HYDERABAD IN ITA NO.1133/HYD/2006 FOR THE ASSESSMENT YEAR 2003-04 AN D ORDER DATED 17.4.2009 IN ITA NO.1206/HYD/2007 FOR THE ASSESSMEN T YEAR 2004-05, WHEREIN IT WAS HELD THAT IF DONATIONS ARE RECEIVED COMPULSORILY FOR THE ADMISSION OF STUDENTS, BY WHATEVER NAME IT MAY BE C ALLED, I.E. DONATION, BUILDING FUND, AUDITORIUM FUND, ETC. OVER AND ABOVE THE PRESCRIBED FEE, FROM THE STUDENTS, THE ASSESSEE WOULD NOT BE ENTITL ED FOR EXEMPTION EITHER UNDER S.10(23C) OR UNDER S.11 OF THE ACT. FURTHER, WE FIND THAT THE CONSTITUTIONAL BENCH OF APEX COURT IN THE CASE OF T .M.A. PAI FOUNDATIONS AND OTHERS VS. STATE OF KARNATAKA & OTHERS (2002) 8 SCC 481 EXAMINED THE ISSUE OF COLLECTION OF CAPITATION FEES FOR THE ADMISSION OF STUDENTS OVER AND ABOVE FEES PRESCRIBED BY THE PRIVATE INSTI TUTION AND HELD THAT THE INSTITUTION WHICH ARE COLLECTING CAPITATION FEES FO R ADMISSION OF STUDENTS OVER AND ABOVE THE FEES PRESCRIBED CANNOT BE CONSTR UED AS CHARITABLE/EDUCATION INSTITUTION. APEX COURT FURTHE R OBSERVED THAT THE FEES COLLECTED OVER AND ABOVE THE PRESCRIBED FEE FOR ADM ISSION OF THE STUDENT HAS TO BE CONSTRUCTED AS CAPITATION FEE. THE APEX COURT, FURTHER OBSERVED THAT THE CONCERNED UNIVERSITY AND REGULATED BODY HA S TO TAKE ACTION FOR WITHDRAWAL OF THE RECOGNITION IN CASE IT IS FOUND T HAT THE EDUCATIONAL INSTITUTION RECEIVED ANY MONEY OVER AND ABOVE THE F EES PRESCRIBED FOR THE COURSES. SAME VIEW WAS TAKEN BY APEX COURT IN THE C ASE OF ISLAMIC ACADEMY OF EDUCATION AND ANOTHER VS. STATE OF KARNA TAKA & ANOTHER (2003) 6 SCC 697. IF THE DONATIONS WERE RECEIVED C OMPULSORILY FOR ADMISSION OF STUDENTS, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION EITHER U/S 10(23C) OR U/S 11 OF THE IT ACT. SINCE THE LOW ER AUTHORITIES HAVE NOT ITA NO.1443 TO 1447/ HYD/2011 ST. MARTIN CHILDREN EDUCATIONAL SOCIETY, HYD . 3 EXAMINED THE COLLECTION OF CAPITATION FEES IN THIS CASE, IN OUR OPINION, THE MATTER REQUIRES TO BE EXAMINED BY THE ASSESSING OFF ICER WHETHER THE ASSESSEE IS COLLECTING THE CAPITATION FEES FROM STU DENTS OR NOT AND IT IS NECESSARY FOR BRINGING THE ACTUAL FACTS ON RECORD F OR DECIDING THE ISSUE EFFECTIVELY. SIMILAR VIEW WAS TAKEN BY US IN THE C ASE OF M/S. JAMIA NIZAMIA IN ITA NO.763/HYD/2007 DATED 30.6.2008, IN THE CASE OF INTERNATIONAL EDUCATIONAL ACADEMY, HYDERABAD IN ITA NO.494/HYD/2007 AND 518/HYD/2008 FOR THE ASSESSMENT YEARS 2002- 200 3 AND 2004-05 AND SRI SAI SUDHIR EDUCATIONAL SOCIETY, HYDERABAD IN IT A NO.999/HYD/20-06 FOR THE ASSESSMENT YEAR 2003-04. THEREFORE, WE S ET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT BACK THE MATTER TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO ASSESSING OFFICER THAT HE SHALL RECONSIDER THE ENTIRE ISSUE IN THE LIGHT OF JUDGMENT OF SUPREME CO URT IN THE CASE OF M/S ISLAMIC ACADEMY OF EDUCATION & ANOTHER VS. STATE OF KARNATAKA AND ANOTHER (SUPRA), AND IN THE CASED OF T.M.A. PAI FOU NDATION AND OTHERS VS. STATE OF KARNATAKA AND OTHERS (SUPRA), AND FIND OUT WHETHER THE ASSESSEE HAS RECEIVED ANY MONEY OVER AND ABOVE THE FEES PRES CRIBED AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTE R GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE MAKE IT CLEAR THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION EITHER U/S 1 1 OR U/S 10(23C) IN CASE IT COLLECTED ANY MONEY BY WHATEVER NAME IT IS CALLE D I.E., DONATION, BUILDING FUND, AUDITORIUM FUND ETC. ETC., OVER AND ABOVE THE PRESCRIBED FEE FOR ADMISSION OF STUDENTS. 4. THE NEXT ISSUE INVOLVED IN THESE APPEAL RELATE S TO THE ADDITIONS MADE ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSE SSEE. THE ASSESSING OFFICER HAS OBSERVED THAT THE TRUST HAD CLAIMED EXP ENDITURE ON ACCOUNT OF DEPRECIATION. HE WAS OF THE VIEW THAT SINCE THE PU RCHASE OF CAPITAL ASSET USED TO PROMOTE THE OBJECTIVE OF THE TRUST IS ALLOW ED AS APPLICATION OF INCOME, DEPRECIATION IS NOT ALLOWABLE ON CAPITAL AS SET WHERE THE ENTIRE COST OF ACQUISITION IS EITHER WRITTEN OFF IN THE FIRST Y EAR ITSELF OR THE COST OF ACQUISITION IS TREATED AS APPLICATION OF INCOME. TH E ASSESSING OFFICER HAS ITA NO.1443 TO 1447/ HYD/2011 ST. MARTIN CHILDREN EDUCATIONAL SOCIETY, HYD . 4 DRAWN SUPPORT FROM THE DECISION OF THE APEX COURT I N THE CASE OF ESCORTS LTD. (199 ITR 44). THE CIT(A), ON APPEAL, HAS ALL OWED THE CLAIM OF THE ASSESSEE. AGAINST THE ORDER OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US FOR ALL THE YEARS UNDER CONSIDERATION. 5. WE HEARD BOTH THE PARTIES ON THIS ISSUE. SIMIL AR ISSUE CAME UP FOR CONSIDERATION BEFORE THE JAIPUR BENCH OF THIS T RIBUNAL IN THE CASE OF JAIPUR STOCK EXCHANGE (108 TTJ 393)(JP), WHEREIN IT WAS HELD THAT DEPRECIATION ON FIXED ASSETS IS AN ALLOWABLE DEDUCT ION, WHICH IS NECESSARY TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION T O CHARITABLE PURPOSE. FURTHER, IN THE CASE OF MAHILA SIDH NIRMAN YOJNA V/ S. IAC (50 ITD 472), IT HAS BEEN HELD BY THE DELHI BENCH OF THE TRIBUNAL TH AT MERELY BECAUSE ENTIRE VALUE OF ASSET IS ALLOWABLE AS EXPENDITURE U NDER S.11, IT IS NOT SUFFICIENT TO DENY CLAIM FOR DEPRECIATION UNLESS TH E VALUE OF ASSET HAS BEEN ACTUALLY ALLOWED AS EXPENDITURE. IF NOT SO ALLOWED IN THE YEAR OF ACQUISITION, ASSESSEE WILL BE ENTITLED TO DEPRECIAT ION. FURTHER, IT WAS HELD BY THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF DY. CIT V/S. ADI SANKARA TRUST (46 SOT 230) THAT WHERE AN ASSESSEE T RUST IS CLAIMING DEPRECIATION ON ASSETS WHERE COST OF THE RELEVANT A SSETS STOOD CLAIMED AS AN APPLICATION OF INCOME FOR A PRECEDING AND/OR THE CURRENT YEAR UNDER S.11(1), ITS CLAIM UNDER S.32(1)IS ELIGIBLE ONLY IN RESPECT OF BUSINESS ASSETS AND WHERE ENTIRE COST OF THE ASSET STANDS AL LOWED BY WAY OF APPLICATION OF INCOME UNDER S.11(1), THE DEPRECIATI ON CLAIMED BY THE ASSESSEE UNDER S.32(1) IS NOT ALLOWABLE AS THE TRUS T IS NOT UNDERTAKING ANY BUSINESS ACTIVITY. IN VIEW OF THE ABOVE, THE ASSES SING OFFICER IS DIRECTED TO VERIFY IN RESPECT OF EACH ASSET ON WHICH DEPRECIATI ON CLAIMED, WHETHER THE VALUE OF SUCH ASSET WAS IN FACT ALLOWED UNDER S.11, AND IF IT WAS SO ALLOWED, THE DEPRECIATION WOULD NOT BE ALLOWED IN R ESPECT OF SUCH ASSET. ONLY IF THE VALUE OF THE ASSET WAS NOT ALLOWED AS E XPENDITURE UNDER S.11, THE ASSESSING OFFICER IS REQUIRED TO ALLOW DEPRECIA TION THEREON, AS PER THE RATE APPLICABLE TO THOSE ASSETS, AS HELD IN THE CAS E OF MAHILA SIDH NIRMAN YOJNA, CITED SUPRA. THIS ISSUE RAISED BY THE REVE NUE IS SET ASIDE TO THE ITA NO.1443 TO 1447/ HYD/2011 ST. MARTIN CHILDREN EDUCATIONAL SOCIETY, HYD . 5 FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATI ON, IN THE LIGHT OF THE ABOVE OBSERVATIONS. THE ASSESSING OFFICER SHALL AC CORDINGLY REDECIDE THE ISSUE IN ACCORDANCE WITH LAW AND AFTER GIVING REASO NABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT, REVENUES APPEALS ARE PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 22.3.2012 SD/- SD/- ( SAKTIJIT DEY ) (CH ANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/- 22ND MARCH, 2012 COPY FORWARDED TO: 1. ST. MARTIN CHILDREN EDUCATIONAL SOCIETY, 4145 GEETH A NAGAR, FEROZGUDA, HYDERABAD 2. ASST. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE -1, HYDERABAD 3 . CIT(A) I, HYDERABAD 4 . COMMISSIONER OF INCOME - TAX CENTRAL HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S