ITO (E) 2(3), MUMBAI V. MAHAVIR JAIN CHARITAKALYAN RATANASHRAM, MUMBAI

ITA 1604/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9250 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 23-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITRA
• Assessee Lawyers: RAJNIKANT CHANIYARI
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 12; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 1604 / MUM/20 17 ( ASSESSMENT YEAR : 2008 - 09 ) ITO (E) 2(3) R.NO.513, PIRAMAL CHAMBER LALBAUG, PAREL MUMBAI 400 012 VS. MAHAVIR JAIN CHARITAKALYAN RATANASHRAM, 2/34, MINERVA BUILDING 19, MADHAVDAS PASTA ROAD DADAR (C.R.) MUMBAI 400 019 PAN/GIR NO. AAATS7929L APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI S.K. MITRA ASSESSEE BY SHRI RAJNIKANT CHANIYARI DATE OF HEARING 06 / 09 /201 7 DAT E OF PRONOUNCEME NT 25 / 09 / 201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 7, MUMBAI DATED 13/12/2016 FOR THE A.Y.2008 - 09 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A CHARITABLE TRUST AND FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. THE MAIN OBJECT OF THE TRUST IS TO EDUCATE THE CHILDREN WHO ARE NEEDY. ASSESSEE HAD FILED ITS RETURN OF INCOME ON 30.09.2008 CLAIMING EXEMPTION U/S.11, DECLARING A DEFICIT OF ( - ) RS.98,22,517/ - ALONGWITH INCOME AND EXPENDITURE ACCOUNT, BALANCE - SHEET AND AUDITED REPORT IN FORM NO.10B WAS FILED BY THE ASSESSEE. ASSESSEES CLAIM OF DEPRECIATION ITA NO. 1604/MUM/2017 MAHAVIR JAIN CHARITAKALYAN RATNASHRAM 2 OF ASS ETS WAS DECLINED BY THE AO ON THE PLEA THAT ASSESSEE HAS CLAIMED ASSETS ASSETS AS APPLICATION OF INCOME U/S.11(1)(A) OF THE IT ACT. 3. BY THE IMPUGNED ORDER CIT(A) DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER: - 4.2 I HAVE CONSIDERED THE AO'S ORDER AND SUBMISSION MADE BY THE APPELLANT. APPELLANT HAD CLAIMED DEPRECIATION O N FIXED ASSETS FOR RS.23,42,566/ - WHICH AO HAD DISALLOWED ON THE GROUND THAT APPELLANT HAD ALREADY CLAIMED EXEMPTION ON THE COST OF CAPITAL EXPENDITURE AS APPLICATION OF INCOME U/S.11 O F THE INCOME - TAX ACT. FURTHER, CLAIMING OF DEPRECIATION AMOUNTS TO DOUBLE DEDUCTION OF TAX. HENCE, AO HAD DISALLOWED THE SAME RELYING ON THE SUPREME COURT DECISION IN THE CASE OF ESCORTS LTD. V/S. UNION OF INDIA 199 ITR 43. FURTHER, AFTER RELYING ON THE AB OVE SUPREME COURT DECISION, HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (IBPS) 131 TAXMANN 386 (BOM.) HAS HELD AS UNDER: - 'IN THE PRESENT CASE, THE ASSESSING OFFICER DID NOT ALLOW CARRY FORWARD OF THE EXCESS OF EXPENDITURE TO BE SET OFF AGAINST THE SURPLUS OF THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEIR INCOME WAS ASSESSABLE UNDER SELF - CONTAINED CODE MENTIONED IN SECTION U TO SECTION 13 OF THE INCOME - TAX ACT THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' UNDER SECTION 28 IN WHICH THE PROVISION FOR CARRY FORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE OF A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD OF T HE EXCESS OF EXPENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COM MERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF T HE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE T RUST UNDER SECTION N(I)(A) OF THE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGEMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL [1995] 211 ITR 293. ACCORDINGLY, WE ANSWER QUESTION NO.3 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' ON EXAMINING THE ABOVE BOMBAY HIGH COURT CASE, IT WAS HELD THAT INCOME OF THE TRUST SHOULD BE COMPUTED U/S.11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE OF NORMAL DEPRECIATION AND DEDUCTIO N THEREOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE DECISION OF BOMBAY HIGH COURT, APPELLANT IS ELIGIBLE FOR DEPRECIATION AS THE HIGH COURT HELD THAT APPELLANT'S INCOME HAS TO BE COMPUTED UNDER NORMAL COMMERCIAL PRINCIPLES. APPELLANT IS ELIGIBLE FOR ITA NO. 1604/MUM/2017 MAHAVIR JAIN CHARITAKALYAN RATNASHRAM 3 D EPRECIATION, HENCE APPELLANT'S CLAIM FOR DEPRECIATION OF RS.23,42,566/ - MAY BE ALLOWED. ACCORDINGLY, THE GROUND OF APPEAL IS ALLOWED. 4. IT IS CLEAR FROM THE ABOVE ORDER OF CIT(A) THAT HE HAS DULY CONSIDERED AND APPLIED THE PROPOSITION OF LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN CASE OF INSTITUTE OF BANKING PERSONNEL, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 5. IN THE NEXT GROUND, REVENUE HAD CHALLENGED ALLOWING CARRY FORWARD OF DEFICIT ON ACCOUNT OF EXCESS EXPENDITURE OVER INCOME OF RS .98,22,5177 - . WHILE FILING RETURN OF INCOME, A SSESSEE HAD DECLARED A DEFICIT OF RS.98,22,517/ - . A SSESSEE 'S INTENTION WAS TO CARRY FORWARD THIS DEFICIT IN THE NEXT YEAR. AO HAD DISALLOWED THE CLAIM OF THE A SSESSEE ON THE GROUND THAT IT AMOUNTS TO DOUBLE DED UCTION AS THE INCOME / FUND EXPENDED HAD ALREADY BEEN ALLOWED EXEMPTION UNDER DIFFERENT PROVISIONS OF SECTION 11 OF THE INCOME - TAX ACT. 6. BY THE IMPUGNED ORDER, CIT(A) DIRECTED TO ALLOW THE CARRY FORWARD AFTER OBSERVING AS UNDER: - 5.2. I HAVE CONSIDERED T HE APPELLANT'S SUBMISSION. IN THIS CASE, APPELLANT HAD FILED RETURN OF INCOME WITH A DEFICIT OF RS.98,22,517/ - . APPELLANT INTENDED TO CARRY FORWARD THIS DEFICIT IN THE NEXT YEAR. AO HAD DISALLOWED THE CLAIM OF THE APPELLANT ON THE GROUND THAT IT WILL BE A DOUBLE DEDUCTION AS CAPITAL EXPENDITURE WAS ALREADY ALLOWED AS EXEMPT U/S.11 OF THE ACT AND HENCE FURTHER ALLOWING CARRY FORWARD OF DEFICIT WILL AMOUNT TO DOUBLE DEDUCTION. FURTHER, AO WAS OF THE VIEW THAT CARRY FORWARD AND SET OFF OF PROVISIONS OF SECTION 72 OF CHAPTER VI WILL NOT BE APPLICABLE TO SECTION 11, 12 AND 13 AND HENCE AO HAD DISALLOWED THE DEFICIT. THIS ISSUE WAS CONSIDERED BY BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION 131 TAXMANN 386 WHEREIN IT WAS HELD AS UNDER: - 'IN THE PRESENT CASE, THE ASSESSING OFFICER DID NOT ALLOW CARRYFORWARD OF THE EXCESS OF EXPENDITURE TO BE SET OFF AGAINST THE SURPLUS OF THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEIR INCOME WAS ASSESSABLE UNDER SELF - CONT AINED CODE MENTIONED IN SECTION N TO SECTION 13 OF THE INCOME - TAX ACT THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' UNDER SECTION 28 IN WHICH THE PROVISION FOR CARRYFORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE OF A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD OF THE EXCESS OF EXPENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF ITA NO. 1604/MUM/2017 MAHAVIR JAIN CHARITAKALYAN RATNASHRAM 4 SUBSEQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 1 1 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION N(I)(A) OF THE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGEMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN M ANDAL [1995] 211 ITR 293. ACCORDINGLY, WE ANSWER QUESTION NO.3 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' IN THE ABOVE CASE, THIS ISSUE WAS DISCUSSED IN DETAIL AND THE HIGH COURT HELD THAT APPELLANT IS ELIGIBLE FOR CARR Y FORWARD OF EXCESS EXPENDITURE TO BE SET OFF AGAINST THE SURPLUS OF SUBSEQUENT YEARS. FOLLOWING THE ABOVE DECISION OF THE HIGH COURT WHERE IT IS HELD THAT INCO ME OF THE TRUST HAS TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APP LIED THEN ADJUSTMENT OF EXPENDITURE INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST INCOME EARNED BY THE TRUST IN SUBSEQUENT YEARS WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST AND IN WHICH ASSESSME NT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED U/S.11 OF THE ACT. SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST U/S.11(L)(A) OF THE ACT. FOLLOWING THE ABOVE DECISION, AO IS DIRECTED TO ALLOW CARRY FORWARD OF D EFICIT ON ACCOUNT OF EXCESS EXPENDITURE OVER INCOME AMOUNTING TO RS.98,22,517/ - , ACCORDINGLY, THE GROUND OF APPEAL IS ALLOWED. 7. IT IS CLEAR FROM THE ORDER OF CIT(A) THAT AFTER DISCUSSING AND RECORDING OF VARIOUS JUDICIAL PRONOUNCEMENTS HAS ALLOWED CARRY FORWARD OF DEFICIT ON ACCOUNT OF EXCESS EXPENDITURE OVER INCOME, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 8. IN THE RESULT APPEAL OF REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 25 / 09 /2017 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 25 / 09 /201 7 KARUNA SR. PS ITA NO. 1604/MUM/2017 MAHAVIR JAIN CHARITAKALYAN RATNASHRAM 5 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD F ILE. //TRUE COPY//