ITO-(Exemptions)-Ward-3, Bangalore V. M/s. Sri Keshava Trust, Bangalore

ITA 1510/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7515 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 19-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRASHEKAR ACIT
• Keywords: Depreciation; Charitable institution
• Section: 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.1510/BANG/2016 ASSESSMENT YEAR : 2007-08 THE INCOME TAX OFFICER (EXEMPTIONS), WARD-3, BENGALURU. VS. M/S. SRI KESHAVA TRUST, NO.504, 4 TH CROSS, 8 TH BLOCK, JAYANAGAR, BENGALURU-560071. PAN : AACTS1012L APPELLANT RESPONDENT REVENUE BY : SHRI. CHANDRASHEKAR, ACIT ASSESSEE BY : NONE DATE OF HEARING : 03.10.2017 DATE OF PRONOUNCEMENT : 10.10.2017 O R D E R PER SUNIL KUMAR YADAV, JM : THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF CIT(A), INTER ALIA , ON THE FOLLOWING GROUNDS: DISALLOWANCE OF DEPRECIATION : (I) THE CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT THE HON'BLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INTUITIONS VS. CIT (348 ITR 344) HAS HELD THAT DEPRECIATION CANNOT BE ALLOWED ON ASSETS, WHERE COST OF SUCH ASSETS HAS ALREADY BEEN ALLOWED AS APPLICATION OF INCOME IN TH E YEAR OF ACQUISITION/ PURCHASE OF ASSET. (II) THOUGH THE FINANCE ACT, 2014 HAS AMENDED THE I NCOME TAX ACT, 1961 WITH REGARD TO NON-ALLOWANCE OF DEPRECIATION T O CHARITABLE/ RELIGIOUS TRUST ITA NO. 1510/BANG/2016 PAGE 2 OF 5 OR INSTITUTION ON THE VALUE OF ASSETS WHICH HAS ALR EADY BEEN ALLOWED AS APPLICATION OF INCOME U/S 11(1) BY INSERTING SUB-SECTION (6) OF SEC. 11, W.E.F 01.04.2015, SUCH AMENDMENT CANNOT BE CONSTRUED AS EFFECTIVE PROSPECT IVELY INASMUCH AS IN ACCORDANCE WITH THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNION OF INDIA (SUPRA), THE AMENDMENT ONLY SET OUT MORE CLEARLY AND CATEGORICALLY WHAT THE LEGISLATURE HAD INTENDED AND CONVEYED U/S 11(1) EVEN EARLIER TO THE SAID AMENDMENT. AS SU CH, THE AMENDMENT SHALL BE CONSIDERED AS CLARIFICATORV IN NATURE MAKING IT CLE AR THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM DOUBLE DEDUCTION IN RESPECT OF SA ME EXPENDITURE U/S 11(1) AS APPLICATION OF INCOME AND ALSO DEPRECIATION SIMULTA NEOUSLY. (III) THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT AS THE EXEMPTION U/S.L 1 AND 12 WERE NOT ALLOWED TO THE ASSESSEE, AND THE INCOME HAS BEEN COMPUTED UNDER THE NORMAL PROVISIONS, THE DEPRECIATION ALSO HAS TO BE WORKED OUT AS PER THE NORMAL PROVISIONS OF THE ACT. 2. THIS APPEAL CAME UP FOR HEARING ON 03.10.2017 BU T NONE APPEARED ON BEHALF OF THE ASSESSEE. THE ASSESSEE HOWEVER FILED THE BR IEF SYNOPSIS, PAPERBOOKS AND CASE LAWS, IN SUPPORT OF ITS CLAIM THAT UNDER SECTI ON 11(1) OF THE ACT, INCOME HAS TO BE COMPUTED AS PER NORMAL PROVISIONS AND THE AMO UNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTABLE WHILE COMPUTING SUCH INC OME. 3. WE HAVE CAREFULLY EXAMINED THE ORDERS OF THE AUT HORITIES BELOW AND THE JUDGMENTS REFERRED TO IN THE PAPERBOOKS AND WE FIND THAT THE IMPUGNED ISSUE IS SQUARELY COVERED BY JUDGMENTS OF HONBLE JURISDICTI ONAL HIGH COURT. THEREFORE, WE DECIDED TO PROCEED WITH THE HEARING. ACCORDINGL Y, THE REVENUE WAS HEARD. 4. ON CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AU THORITIES, WE FIND THAT AO HAS DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSE SSEE ON THE GROUND THAT IT ITA NO. 1510/BANG/2016 PAGE 3 OF 5 AMOUNTS TO BE DOUBLE DEDUCTION AS THE ASSESSEE HAS CLAIMED THE EXEMPTION UNDER SECTION 11 OF THE ACT. THE ASSESSEE PREFERRED AN A PPEAL BEFORE THE CIT(A) AND THE CIT(A) ALLOWED THE DEPRECIATION HAVING RELIED UPON THE JUDGMENT OF CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE (146 ITR 28). T HE RELEVANT OBSERVATION OF THE CIT(A)IS EXTRACTED HEREUNDER: 7.2 CONSIDERING THE FACTS OF THE CASE AND THE RATI ON LAID DOWN BY THE HONBLE COURTS, AS DISCUSSED ABOVE, GRANTING OF DEPRECIATION T THE TRUSTS ON THE SAME ASSETS, THE INVESTMENT ON WH ICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER SECTION 11 O F THE ACT IN THE EARLIER YEARS, IN MY VIEW, WOULD CERTAINLY AMOUNT T O CLAIM OF DOUBLE DEDUCTION. 7.3 HOWEVER, BASED ON THE DECISION OF THE JURISDICT IONAL HIGH COURT RENDERED IN THE CASE OF CIT V/S SOCIETY OF TH E SISTERS OF ST. ANNE, REPORTED IN (1984) 146 ITR 28 (KAR). IN THIS CASE IT WAS HELD THAT THE REVENUE HAD ASSUMED THAT EXPENDITURE SHOULD NECESSARILY INVOLVE ACTUAL DELIVERY OF OR PARTING WITH THE MONE Y. HOWEVER, IT NEED NOT NECESSARILY BE SO. EXPENDITURE SHOULD BE UNDER STOOD AS NECESSARY OUTGOINGS DEPRECIATION IS NOTHING BUT DE CREASE IN THE VALUE OF PROPERTY THROUGH WEAR AND TEAR, DETERIORAT ION OR OBSOLESCENCE AND ALLOWANCE IS MADE FOR THIS PURPOSE IN BOOK-KEEPING, ACCOUNTANCY, ETC. FURTHER, THERE ARE ONLY TWO RECO GNIZED METHODS OF ACCOUNTING, CASH BASIS AND MERCANTILE BASIS, AND IT IS UNDISPUTED THAT IF THE MERCANTILE SYSTEM IS FOLLOWED, DEPRECIATION ALLOWANCE IN RESPECT OF THE TRUST PROPERTY WOULD BE ALLOWED. ALSO NOTWI THSTANDING THE REVENUES CONTENTION T THE CONTRARY, THERE IS NOTHI NG IN SECTION 11 WHICH DEBARS A CHARITABLE INSTITUTION FROM MAINTAIN ING ACCOUNTS ON ITA NO. 1510/BANG/2016 PAGE 4 OF 5 MERCANTILE BASIS. THAT APART, IF DEPRECIATION IS N OT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME OF THE CHARITABLE INSTITUTIONS, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. ACCORDINGLY, THE AMOUNT OF DE PRECIATION DEBITED TO THE EXPENDITURE ACCOUNT SHOULD BE DEDUCTED TO AR RIVE AT THE ASSESSEES INCOME AVAILABLE FOR APPLICATION FOR CHA RITABLE AND RELIGIOUS PURPOSES. 7.4 A SIMILAR VIEW IN THE MATTER WAS ALSO TAKEN BY THE HONBLE ITAT, BANGALORE, IN THE CASE OF KARNATAKA R EDDY JANASANGHA IN ITA NO.220/BANG/2011, KARNATAKA STATE MUSLIM FED ERATION IN ITA NO.37/BANG/2013. IN THE CASE OF DDIT (EXEMPTIONS) V S. CUTCHI MEMON UNION (SUPRA), JYOTHI CHARITABLE TRUST IN 60 TAXMAN . COM 165 BANGALORE, ACIT VS CITY HOSPITAL CHARITABLE TRUST I N 42 ITR (TRIB) 583 BANGALORE AND OTHER CASES STATED ABOVE. THE JU RISDICTIONAL KARNATAKA HIGH COURT ORDER DATED 22.02.2016 IN ITA 62/2010 (67 TAXMAN.COM 160) HAD UPHELD THIS VIEW THAT THE ASSES SEE IS ENTITLED FOR DEDUCTION OF DEPRECIATION EVEN IF IN THE YEAR OF PU RCHASE OF THE ASSET, THE ENTIRE AMOUNT HAS BEEN CONSIDERED AS APPLICATIO N OF INCOME IN THE CASE OF AL-AMEEN CHARITABLE TRUST, ADI CHUNCHANAGIR I TRUST, KARNATAKA REDDY JANASANGHA & KARNATAKA STATE MUSLIM FEDERATION. REPSECTFULLY FOLLOWING THE KARNATAKA HC DECISION, T HE GROUNDS OF APPEAL WITH REGARD TO ISSUE OF CLAIM OF DEPRECIATIO N, ARE ACCORDINGLY ALLOWED. 5. SINCE THE CIT(A) HAS DECIDED THE APPEAL FOLLOWIN G THE JUDGMENT OF JURISDICTIONAL HIGH COURT, WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY, WE CONFIRM HIS ORDER. ITA NO. 1510/BANG/2016 PAGE 5 OF 5 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2017. SD/- (A. K. GARODIA) SD/- (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE. DATED: 10 TH OCTOBER, 2017. /NSHYLU/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.