Raja Muthiah Chettiar Charitable and Educational Trust, CHENNAI V. DDIT, CHENNAI

ITA 1473/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6048 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 25-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAVI J
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Charitable institution; Retrospective amendment
• Section: 6; 10; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! '# , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ I.T.A.NO.1472 & 1473/MDS./2016 / ASSESSMENT YEARS : 2011-12 & 2012-13 M/S. RAJA MUTHIAH CHETTIAR CHARITABLE AND EDUCATIONAL TRUST , RANI SEETHAI HAL, V FLOOR, 603,ANNA SALAI, CHENNAI 600 006. VS. THE DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS), CHENNAI CIRCLE, CHENNAI 600 034. {PAN AAATR 3208 F) ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : MR.R.VIJAYARAGHAVAN,ADVOCATE /RESPONDENT BY : MR.K.RAVI, JCIT,DR ! ' #$% / DATE OF HEARING : 25 - 09 - 201 7 &' #$% / DATE OF PRONOUNCEMENT : 26 - 09 - 201 7 ' / O R D E R PER BENCH THESE TWO APPEALS OF THE ASSESSEE ARE DIRECTED A GAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS)-17, CHENNAI, DATED 30.03.2016 PERTAINING TO ASSESSMEN T YEARS 2011-12 & 2012-13. ITA NOS.1472 & 1473/MDS./16 :- 2 -: 2. THE ASSESSEE IN ITS APPEALS RAISED THE FOLLOWIN G COMMON GROUNDS FOR ADJUDICATION. 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED I N CONFIRMING THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION ON THE GR OUND THAT THE SAME AMOUNT WAS CLAIMED AS APPLICATION OF INCOME IN THE EARLIER YEARS. 2.1 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT APPRECIATING THE DIFFERENCE BETWEEN COMPUTATION OF INCOME AND AP PLICATION OF INCOME IN CASE OF CHARITABLE TRUST ULS.11 OF THE AC T. 2.2 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION ON OPENING BALANCE OF FIXED ASSETS ON WHICH DEPRECIATION WAS CLAIMED AND ALLOWED BY ASSES SING OFFICER IN EARLIER YEARS. 2.3 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION ON FIXED ASSETS PURCHA SED DURING THE YEAR. 2.4 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE INSERTION OF SUB SECTION 6 TO SECTION 11 BY FINANCE ACT 2014 WITH EFFECT FROM 1.4.2015 WAS CLARIFICATORY AND REMEDIAL IN NATURE AND WOULD HAVE RETROSPECTIVE EFFECT. 2.5 THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT AN AMENDMENT WHICH CREATES A LIABI LITY IS SUBSTANTIVE IN NATURE AND WILL APPLY PROSPECTIVELY. 2.6 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT FOLLOWING THE RATIO LAID DOWN IN THE FOLLOWING DECISIONS HOLD ING THAT DEPRECIATION IS ALLOWABLE IN RESPECT OF ASSETS, THE COST OF WHIC H HAS BEEN ALREADY ALLOWED AS APPLICATION OF INCOME U/S.11 IN THE PAST YEARS CIT VS. INSTITUTE OF BANKING 264 ITR 119 (BOM) CIT VS MARKETING COMMITTEE, PIPLI 330 ITR 16( P& H) CIT VS TINY TOTS EDUCATIONAL SOCIETY 330 ITR 21 (P& H) CIT VS VISHWA JAGRITI MISSION 73 ITR 91 (DEL) ITA NOS.1472 & 1473/MDS./16 :- 3 -: 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE CLAIMED DEPRECIATION OF AN AMOUNT OF ` 290,67,043/- AND ` 2,90,67,044/- FOR THE A.Y. 2011-12 AND FOR A.Y. 2012-13 RESPECTIVELY BUT THE A.O WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED FULL COST OF ADDITIONS TO ASSETS AS APPLICATION OF INCOME IN THE EARLIER ASSESSMENT YEARS. FURTHER, THE AO FOUND THAT THE ASSESSEE WAS ALSO CLAIMING DEPREC IATION ON THE SAME ASSETS IN BOTH THE ASSESSMENT YEARS IN THE INS TANT APPEALS. ACCORDING TO LD. ASSESSING OFFICER, SINCE ADMITTED LY THE FULL COST OF ASSETS HAD ALREADY BEEN CLAIMED FULLY AS APPLICATIO N OF INCOME TOWARDS THE OBJECTS OF THE TRUST IN THE EARLIER PREVIOUS YE ARS, DEPRECIATION ON THE SAME ASSETS AGAIN WOULD TANTAMOUNT TO DOUBLE DE DUCTION AND WAS THEREFORE NOT ALLOWABLE. THE AO FURTHER NOTICED THA T IN THE CASE OF TRUSTS CLAIMING EXEMPTION U/S. 11, THE COMPUTATION OF INCOME AS PER THE SPECIAL PROVISIONS UNDER SECTION 11 TO 13 AND N ORMAL WORKING AS PER I.T. ACT WOULD NOT APPLY (I.E. FROM SEC. 14 TO 80 VVGA OF THE ACT) AND THAT UNDER THE PROVISIONS OF SECTION 11, THE AC TUAL EXPENDITURE INCURRED / SPENT ONLY IS CONSIDERED AS APPLICATION AND NOTIONAL EXPENDITURE / ALLOWANCES WERE NOT TO BE CONSIDERED AS APPLICATION AND SINCE DEPRECIATION IS NOTIONAL IN NATURE AND CONSID ERED TO BE AN ALLOWANCE GRANTED TO RECOUP TOWARDS WEAR AND TEAR O F ASSETS AND FURTHER SINCE ADMITTEDLY THE COST OF THE ASSET ITSE LF WAS FULLY ALLOWED IN ITA NOS.1472 & 1473/MDS./16 :- 4 -: THE FORM OF APPLICATION OF INCOME IN THE INSTANT CA SE, THERE WAS NOTHING REMAINING AS PART OF THE COST OF THE CAPITA L ASSET TO BE CONSIDERED FOR FURTHER ALLOWANCE BY WAY OF DEPRECIA TION ON THE SAME ASSETS WHICH, IF ALLOWED, WOULD AMOUNT TO DOUBLE DE DUCTION. HENCE, THE LD. ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE ON THE GROUND THAT THE SAME AMOUNT WAS CL AIMED AS APPLICATION OF INCOME IN THE EARLIER YEARS. AGGRIEVED BY THE ORDE R OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THESE APPEALS BEFORE THE LD.CI T(A). 3.1 ON APPEAL, THE LD.CIT(A) PLACED RELIANCE ON T HE FOLLOWING JUDGEMENTS. I) DDIT(EXEMPTION) VS. ADI SANKARA TRUST REPORTED IN (2011) 12 TAXMANN.COM 105 (COCHIN TRIBUNAL). II) J.K.SYNTHETICS LTD. VS. UOI REPORTED IN (1992) 65 TAXMAN 420(SC) III) CIT VS. RAO BAHADUR CALAVALA CUNNAN CHETTY CHA RITIES REPORTED IN135 ITR 485(MAD.) ACCORDINGLY, LD.CIT(A) OBSERVED THAT SECTION 11(6) HAS BEEN INSERTED BY FINANCE ACT, 2014 WITH EFFECT FROM 01.04.2015. F URTHER, LD.CIT(A) WAS OF THE OPINION THAT SINCE SEC.11(6) IS OF CLARI FICATORY NATURE, IT WOULD HAVE RETROSPECTIVE EFFECT, THEREFORE TO BE AP PLICABLE TO THESE ASSESSMENT YEARS. ACCORDINGLY, LD.CIT(A) CONFIRMED THE ORDER OF LD. ASSESSING OFFICER AND DISMISSED THE APPEALS OF ASSE SSEE. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEALS BEFORE US. ITA NOS.1472 & 1473/MDS./16 :- 5 -: 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOTICED THAT SIMILAR ISSUE CAME FOR C ONSIDERATION BEFORE THE JURISDICTIONAL HIGH COURT IN THE CASE OF DIT(EX EMPTION)-III, CHENNAI VS. M/S.MEDICAL TRUST OF THE SEVENTH DAY AD VENTISTS, CHENNAI IN TCA NO.949 OF 2015 AND 771 OF 2016 ASSESSEES A PPEAL & TAX CASE (APPEAL) NO.844 OF 2010 DEPARTMENTAL APPEAL VIDE O RDER DATED 08.08.2017 WHEREIN IT WAS HELD THAT:- 34.THE SHORT POINT THAT ARISES FOR DECISION IS WHE THER THE PROVISIONS OF SECTION 11(6) INSERTED BY FINANCE (NO.2) ACT, 2014 W.E.F. 1.4.2015, OPERATE PROSPECTIVELY WITH EFFECT FROM ASSESSMENT YEAR 2015 -16 OR RETROSPECTIVELY WITH RESPECT TO EARLIER YEARS AS WELL. IN THIS REGA RD, M/S.PUSHYA SITARAMAN, LEARNED SENIOR COUNSEL AND OTHER LEARNED COUNSELS A PPEARING FOR THE ASSESSES REFER TO THE PROVISIONS OF CIRCULAR 1 OF 2 015 DATED 21.1.2015 (371 ITR (ST) 0022) CONTAINING EXPLANATORY NOTES TO THE PROVISIONS OF FINANCE (NO 2) ACT, 2014 THE RELEVANT PORTION OF THE CIRCULAR R EADS AS FOLLOWS: 7 3. SEVERAL ISSUES HAD ARISEN IN RESPECT OF THE AP PLICATION OF EXEMPTION REGIME TO TRUSTS OR INSTITUTIONS IN RESPE CT OF WHICH CLARITY IN LAW WAS REQUIRED. 7.4 THE FIRST ISSUE WAS REGARDING THE INTERPLAY OF THE GENERAL PROVISION OF EXEMPTIONS WHICH ARE CONTAINED IN SECT ION 10 OF THE INCOME-TAX ACT VIS-A-VIS THE SPECIFIC AND SPECIAL E XEMPTION REGIME PROVIDED IN SECTIONS 11 TO 13 OF THE SAID AC T. AS INDICATED ABOVE, THE PRIMARY OBJECTIVE OF PROVIDING EXEMPTION IN CASE OF CHARITABLE INSTITUTION IS THAT INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST SHOULD BE APPLIED AND UTILIZED FOR THE OBJECT OR PURPOSE FOR WHICH THE INSTITUTION OR TRUST HAS BEEN ESTABLISHED. IN MANY CASES IT HAD BEEN NOTED THAT TRUSTS OR INST ITUTIONS WHICH ARE REGISTERED AND HAVE BEEN AVAILING BENEFITS OF T HE EXEMPTION REGIME TO NOT APPLY THEIR INCOME, WHICH IS DERIVED FROM PROPERTY HELD UNDER TRUST, FOR CHARITABLE PURPOSES. IN SUCH CIRCUMSTANCES, WHEN THE INCOME BECOMES TAXABLE, A CLAIM OF EXEMPTI ON UNDER GENERAL PROVISIONS OF SECTION 10 IN RESPECT OF SUCH INCOME IS PREFERRED AND TAX ON SUCH INCOME IS AVOIDED. THIS D EFEATS THE VERY OBJECTIVE AND PURPOSE OF PLACING THE CONDITION S OF APPLICATION OF INCOME, ETC., IN RESPECT OF INCOME D ERIVED FROM PROPERTY HELD UNDER TRUST IN THE FIRST PLACE. 7.4.1 SECTIONS 11,12 AND 13 OF THE INCOME-TAX ACT ARE SPECIAL PROVISIONS GOVERNING INSTITUTIONS WHICH ARE BEING G IVEN BENEFIT OF ITA NOS.1472 & 1473/MDS./16 :- 6 -: TAX EXEMPTION. IT IS THEREFORE IMPERATIVE THAT ONCE A PERSON VOLUNTARILY OPTS FOR THE SPECIAL DISPENSATION IT SH OULD BE GOVERNED BY THESE SPECIFIC PROVISIONS AND SHOULD NO T BE ALLOWED FLEXIBILITY OF BEING GOVERNED BY OTHER GENERAL PROV ISIONS OR SPECIFIC PROVISIONS AT WILL. ALLOWING SUCH FLEXIBIL ITY HAS UNDESIRABLE EFFECTS ON THE OBJECTS OF THE REGULATIONS AND LEADS TO LITIGATION. 7.6 APPLICABILITY. THESE AMENDMENTS TAKE EFFECT FROM 1 ST APRIL, 2015 AND WILL, ACCORDINGLY, APPLY IN RELATIO N TO THE ASSESSMENT YEAR 2015-2016 AND SUBSEQUENT ASSESSMEN T YEARS. 35. PARA 7.6 OF THE CIRCULAR STATES THAT THE AMENDM ENT WOULD APPLY TO ASSESSMENT YEAR 2015-16 AND SUBSEQUENT ASSESSMENT YEARS. RELIANCE WAS PLACED ONTHEJUDGMENT OF THE SUPREME COURT IN CIT VS .ALOMEXTRUSIONS LTD., (2009) AND CIT VS. VATIKA TOWNSHIPS (367 1TR 466) F OR THE PROPOSITION THAT AN AMENDMENT THAT INCREASES THE LIABILITY OF AN ASS ESSEE IS LIABLE TO BE APPLIED ONLY PROSPECTIVELY. MR. NARAYANASWAMY WOULD OBJECT STATING THAT THE AMENDMENT HAD BEEN INSERTED TO A CORRECT AN EXISTIN G ANOMALY AND THUS WAS CLEARLY CLARIFICATORY, AND CONSEQUENTLY RETROSP ECTIVE IN OPERATION. 36. WE DO NOT AGREE WITH THE REVENUE. THE AMENDMENT , INSERTED SPECIFICALLY WITH EFFECT FROM ASSESSMENT YEAR 2015- 2016 SEEKS TO DISTURB A VESTED RIGHT THAT HAS ACCRUED TO THE ASSESSEE. THE AMENDMENT DOES NOT PURPORT TO BE CLARIFICATORY, ON THE OTHER HAND THE EXPLANATORY MEMORANDUM MAKES IT APPLICABLE ONLY W.E.F. A Y 2015-16 AND A PPLICATION OF THE AMENDMENT RETROSPECTIVELY WOULDCERTAINLY LEAD TO A GREAT DEAL OF HARDSHIP TO THE ASSESSEE. WE ARE THUS OF THE VIEW THAT THE PROVISIONS OF SECTION 11(6) OF THE ACT INSERTED WITH EFFECT FROM 1.4.2015 SHALL OPERATE PROSPECTIVELY WITH RESPECT TO ASSESSMENT YEAR 2015- 2016 ONLY. 5. IN VIEW OF THE ABOVE JUDGEMENT OF JURISDICTIONA L HIGH COURT, WE ARE OF THE OPINION THAT THE LOWER AUTHORITIES IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF DEPRECIATION AS APPLICATIO N OF INCOME WHILE GRANTING EXEMPTION U/S.11 OF THE ACT AND IT CANNOT BE ITA NOS.1472 & 1473/MDS./16 :- 7 -: SAID THAT WHEN THE EXPENDITURE IS ALLOWED IN ITS EN TIRETY ON THE ACQUISITION OF THE FIXED ASSETS AS APPLICATION, THE GRANTING OF DEPRECIATION AS AN APPLICATION WHILE ALLOWING EXEMP TION U/S.11 OF THE ACT, WILL NOT AMOUNT TO DOUBLE DEDUCTION. HENCE, TH IS GROUND OF APPEALS OF ASSESSEE IS ALLOWED. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEARS 2011-12 & 2012-13 ARE ALLOWED. ORDER PRONOUNCED ON 26 TH SEPTEMBER, 2017, AT CHENNAI. SD/ - SD/ - ( ! '# ) (GEORGE MATHAN) ( / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( ' / CHENNAI ) / DATED: 26 TH SEPTEMBER, 2017. K S SUNDARAM * #+, - ,# / COPY TO: 1 . / APPELLANT 3. ! .# () / CIT(A) 5. ,12 #3 / DR 2. / RESPONDENT 4. ! .# / CIT 6. 24 5' / GF