The ACIT,GNR Circle, Gandhinagar V. Institute for Plasma Research, Gandhinagar

ITA 1506/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2064 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Charitable institution
• Section: 143(1); 32; 12; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' BEFORE SHRI BHAVNESH SAINI,JM & SHRI A N PAHUJA,AM ITA NO.1506/AHD/2009 (ASSESSMENT YEAR:-2006-07) ASSISTANT COMMISSIONER OF INCOME-TAX, GANDHINAGAR CIRCLE, BLOCK NO.14,4 TH FLOOR, UDHYOG BHAVAN, SECTOR-11,GANDHINAGAR V/S INSTITUTE FOR PLASMA RESEARCH, VILLAGE BHAT, TAL.& DIST, GANDHINAGAR PAN: AAAAI 0348 C [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI R K DHANESTA, SR. DR RESPONDENT BY:- SHRI RAHUL PATEL, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 05- 02-2009 OF THE LD. CIT(APPEALS), GANDHINAGAR FOR TH E ASSESSMENT YEAR (AY) 2006-07,RAISES THE FOLLOWING GROUNDS:- 1 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEPRECIATION ON THE ASSETS PURCHASE D OUT OF INCOME WHICH IS ALREADY BEEN EXEMPTED U/S 11 OF THE IT ACT , 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN REFLECTING DEFICIT OF RS.10,42,17,110/- FILED BY THE ASSESSEE- TRUST ON 15-12- 2006, AFTER BEING PROCESSED U/S 143(1) OF THE INCOM E-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT], WAS SELECTE D FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 14 -12-2007. THE ASSESSEE TRUST IS AN INSTITUTE ESTABLISHED TO CARRY OUT EXPERIMENTAL AND THEORETICAL RESEARCH IN PLASMA SCIENCES WITH EM PHASIS ON THE PHYSICAL AND MAGNETICALLY CONFINED PLASMAS AND CERT AIN ASPECT OF NON-LINEAR PHENOMENA. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NO TICED THAT THE ASSESSEE CLAIMED, INTER ALIA, DEPRECIATION OF RS.1 0,58,99,584/- BY ITA NO.1506/AHD/09 2 WAY OF APPLICATION OF INCOME FOR THE OBJECTS OF TH E TRUST,EVEN THOUGH THE ENTIRE CAPITAL VALUE OF ASSETS ADDED/PU RCHASED DURING THE PREVIOUS YEAR WAS CLAIMED AS AN APPLICATION OF INCOME .SINCE THIS AMOUNTED TO DOUBLE DEDUCTION, THE ASSESSEE HA VING CLAIMED EXEMPTION U/S 11 OF THE ACT IN RESPECT OF ENTIRE CO ST OF THE ASSETS, PURCHASED OUT OF THE VOLUNTARY CONTRIBUTIONS RECEIV ED FROM THE GOVERNMENT, RELYING UPON THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF ESCORTS LTD. VS UNION OF INDIA [1993] 199 ITR 43 (S C), THE AO CONCLUDED THAT DEPRECIATION IS NOT ADMISSIBLE ON THOSE ASSETS ON W HICH 100% DEDUCTION HAS ALREADY BEEN TAKEN. ACCORDINGLY ,CLAIM FOR DEDUCTIO N OF RS.10,58,99,584/- WAS DISALLOWED. 3. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION IN THE FOLLOWING TERMS:- 2.3. THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. TO START WITH, THE ASSESSING OFFICER'S REFERENCE THAT THE COST OF ASSETS ACQUIRED BY THE APPELLANT AS 'NIL' IS OBVIOUSLY NOT CORRECT. TH E APPELLANT IS AN INSTITUTE COVERED BY DEDUCTION U/S. 11, 12 & 13 AND IF GRANTS RECEIVED BY APPELLANT FORM INCOME OF THE ASSESSEE, CLEARLY THE APPLICATION OF ITS INCOME FOR THE PURPOSES OF THE T RUST, WHICH INCLUDES APPLICATION OF INCOME FOR ACQUIRING CAPITA L GOODS ALSO, WILL NOT LEAD TO THE CONCLUSION THAT THE ASSETS HAVE 'NI L' VALUE. BEYOND THIS ARGUMENT, THERE CAN BE TWO VIEWS ON THE ISSUE AS TO WHETHER THE ACQUISITION OF CAPITAL GOODS FOR THE PURPOSE OF TRUST HAVING BEEN TREATED AS AN APPLICATION OF INCOME ELIGIBLE FOR DE DUCTION U/S. 11, IN THE SUBSEQUENT YEARS WHETHER THE DEPRECIATION PERTA INED TO THESE GOODS IS ALSO AN APPLICATION FOR THE PURPOSES OF TH E TRUST IN THE RELEVANT YEARS. THIS WOULD STILL BE MORE PERTINENT IN THE SITUATION WHETHER THE APPELLANT'S CASE IS NOT COVERED BY SECT ION 11(4), I.E. IT IS NOT DERIVING BUSINESS INCOME FROM THE PROPERTY H ELD BY THE TRUST. HOWEVER, THE BOMBAY HIGH COURT, IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION, 264 ITR 100, HAS, ON S IMILAR FACTS, DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE RELEVA NT PARAGRAPH OF THE DECISION HAS BEEN REPRODUCED IN THE SUBMISSION OF THE AUTHORIZED REPRESENTATIVE, AT PAGES 4 & 5. THE COUR T HAS VERY CLEARLY DISTINGUISHED THE APPLICATION OF INCOME IN EARLIER YEAR AND THE SUBSEQUENT DEPRECIATION ALLOWABLE IN THE SUBSEQ UENT YEARS TO WORK OUT INCOME ON COMMERCIAL PRINCIPLES. THEREFORE , FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA), I HOLD THAT TH E ASSESSING ITA NO.1506/AHD/09 3 OFFICER'S ACTION IN DENYING THE CLAIM OF DEPRECIATI ON AMOUNTING TO RS.10,58,99,584/- IS INCORRECT AND THE SAME BE ALLO WED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A) IN THE LIGHT OF DECISIONS IN CIT VS. SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRUST [1992) 198 ITR (GUJ) AND CIT VS. MARKET COMMITTEE, PIPLI [2010] 45 DTR (P&H) 381. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. WE FIND THAT THE LD. CIT(A) WHILE ALLOWING THE CLAIM OF THE ASSESSEE REL IED UPON DECISION OF THE HONBLE BOMBAY HIGH COURT IN INSTITUTE OF BA NKING PERSONNEL SELECTION(SUPRA)WHEREIN WHILE FOLLOWING THEIR EARLIER DECISION IN CIT V. MUNISUVRAT JAIN [1994] TAX LR 1084 (BOM), HONBLE HIGH COURT HELD AS UNDER: AS STATED ABOVE, THE FIRST QUESTION WHICH REQ UIRES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATION WAS ALLOWABLE ON THE ASSET S, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION. OF INCOME UNDER SECTI ON 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN [1994] TAX LR 1084 ( BOM), THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS A CHARITABLE TRUST. IT WA S REGISTERED AS A PUBLIC CHARITABLE TRUST. IT WAS ALSO REGISTERED WITH THE C OMMISSIONER OF INCOME-TAX, PUNE. THE ASSESSEE DERIVED INCOME FROM TEMPLE PROPE RTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS FOR THE ASSESSMENT YEARS 1977-78, 1978-79 AND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE BUILDING AT 2 1/2 PER CENT. AND THEY ALSO CL AIMED DEPRECIATION ON FURNITURE AT 5 PER CENT. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS: WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSE E, AS EXPENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN. TREATED AS APPL ICATION OF INCOME IN THE YEAR OF ACQUISITION? IT WAS HELD BY THE BOMBAY HIGH COURT T HAT SECTION 11 OF THE INCOME- TAX ACT MAKES A PROVISION IN RESPECT OF COMPUTATION OF INCOME OF THE TRUST FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND ACCUMULATION OF INCOME. ON THE OTHE R HAND, SECTION 28 OF THE INCOME-TAX ACT DEALS WITH CHARGEABILITY OF INCOME F ROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCOME FROM P ROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 43C THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPE CT OF BUILDING, PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR BUSINE SS PURPOSES. IT FURTHER ITA NO.1506/AHD/09 4 PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN TH AT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON B EHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTI ON ONLY UNDER SECTION 32 OF THE INCOME-TAX ACT AND NOT UNDER GENERAL PRINCIPLES . THE COURT REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSES SEE ON GENERAL PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME-TAX ACT. THE C OURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENUE THAT SECTION 32 OF THE INCOME -TAX ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECI ATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FROM BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED IN A NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPE CT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CAS ES, SECTION 32 OF THE INCOME- TAX ACT PROVIDING FOR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROFESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERC IAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFORESTATED JUD GMENT OF THE BOMBAY HIGH COURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 5.1 IN THE CONTEXT OF ISSUE BEFORE US, HONBLE JU RISDICTIONAL HIGH COURT IN CIT V. SHETH MANILAL RAN CHHODDAS VISHRAM BHAVAN TRUST, 198 ITR 598(GUJ) HELD AS UNDER: WHETHER DEPRECIATION HAS TO BE ALLOWED AS A NECESSA RY DEDUCTION FOR COMPUTING THE INCOME OF A CHARITABLE INSTITUTION WAS THE QUES TION WHICH CAME UP BEFORE THE KARNATAKA HIGH COURT IN CIT V. SOCIETY OF THE SISTE RS OF ST. ANNIE (1984] 146 ITR 28 . NOTICING THE DIFFERENCE BETWEEN THE WORD ' INCOME ' AND THE EXPRESSION ' TOTAL INCOME ' AND THE NECESSITY FOR PROVIDING DEPRECIATI ON IN ORDER TO MAINTAIN CORRECT ACCOUNTS, THE HIGH COURT HELD THAT THE AMOUNT OF DE PRECIATION DEBITED TO THE ACCOUNTS OF THE CHARITABLE INSTITUTION HAS TO BE DE DUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIO US PURPOSES. SAME VIEW HAS BEEN TAKEN BY THE MADHYA PRADESH HIGH COURT IN CIT V. RAIPUR PALLOTTINE SOCIETY [1989] 180 ITR 579 . IN CIT .V RAO BAHADUR CALAVALA CUNNAN CHETTY CHARIT IES [1982] 135 ITR 485 , THE MADRAS HIGH COURT WAS REQUIRED TO CONSIDER WHETHER, FOR THE PURPOSE OF COMPUTING ACCUMULATION IN EXCESS OF 25 PER CENT AS LAID DOWN IN SECTION 11(1)(A) OF THE ACT, ' INCOME ' HAS TO BE COMPUTED UNDER THE VARIOUS HEADS ENUMERATED IN THE INCOME-TAX ACT. IT HELD THAT THE INCOME FROM TH E PROPERTIES HELD UNDER TRUST WOULD HAVE TO BE ARRIVED AT IN THE NORMAL COMMERCIA L MANNER WITHOUT CLASSIFICATION UNDER THE VARIOUS HEADS SET OUT IN S ECTION 14. IT HELD THAT THE EXPRESSION ' INCOME HAS TO BE UNDERSTOOD IN THE POP ULAR 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. IT OBSERVED THAT THE COMPUTATION UNDER T HE DIFFERENT CATEGORIES OR ITA NO.1506/AHD/09 5 HEADS ARISES ONLY FOR THE PURPOSES OF ASCERTAINING THE TOTAL INCOME FOR THE PURPOSES OF CHARGE. THOSE PROVISIONS CANNOT BE INTR ODUCED TO FIND OUT WHAT THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST T O BE EXCLUDED FROM THE TOTAL INCOME IS, FOR THE PURPOSE OF THE EXEMPTIONS UNDER CHAPTER III. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW TAKEN BY THE KARNATAKA, MADHYA PRADESH AND MADRAS HIGH COURTS. WE, THEREFORE, ANSW ER BOTH THE QUESTIONS REFERRED TO US IN THE AFFIRMATIVE AND AGAINST THE R EVENUE. NO ORDER AS TO COSTS 5.2 SIMILAR VIEW HAS BEEN TAKEN BY HONBLE PUNJA B AND HARYANA HIGH COURT IN CIT VS. MARKET COMMITTEE, PIPLI [2010 ] 45 DTR (P&H) 381 WHEN IT WAS HELD THAT DEPRECIATION IS ALLOWABLE ON CAPITAL ASSETS FROM THE INCOME OF CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUND WHICH HAVE TO BE APPLIED FOR THE PURPOSES OF THE TRUST IN TERMS O F SECTION 11. 5.3 IN THE LIGHT OF VIEW TAKEN IN THE AFORECIT ED DECISIONS, ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US EITHER ANY CONTRARY DECISION NOR ANY OTHER MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO.1 IN THE APPEAL IS DISMISSED. 6. GROUND NO.2 BEING MERE PRAYER, DOES NOT REQUIR E ANY SEPARATE ADJUDICATION AND IS THEREFORE, DISMISSED. 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 21 -02-2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATES : 21-02-2011 COPY OF THE ORDER FORWARDED TO: 1. INSTITUTE FOR PLASMA RESEARCH, VILLAGE BHAT, T AL.& DIST, GANDHINAGAR 2. THE ACIT, GANDHINAGAR CIRCLE, GANDHINAGAR ITA NO.1506/AHD/09 6 3. CIT CONCERNED 4. CIT(A)-GANDHINAGAR 5. DR, ITAT, AHMEDABAD BENCH-B, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD