The Assistant Commisioner of Income Tax (Exemptions) Circle-1 , Mangalore V. M/s Sri Jagadguru Murugarajendra Vidyapeeta , Chitradurga

ITA 1639/BANG/2018

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 3897 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 11

Judgement Text

ITA.1639 & 1640/BANG/2018 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NOS.1639 & 1640/BANG/2018 (ASSESSMENT YEAR : 2009-10 AND 2012-13) ASST. COMMISSIONER OF INCOME-TAX (EXEMPTIONS), CIRCLE - 1, MANGALURU .. APPELLANT V. M/S. SRI JAGADGURU MURUGARAJENDRA VIDYAPEETA, MATADA KURUBARAHATTI, CHITRADURGA .. RESPONDENT PAN : AABAS8314B ASSESSEE BY : SHRI. SANDEEP C, CA REVENUE BY : MS. NANDINI DAS, ADDL. CIT HEARD ON : 18.09.2018 PRONOUNCED ON : 28.09.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT TWO APPEALS ARE FILED BY THE REVENUE A GAINST THE SEPARATE ORDERS OF THE CIT (A), DAVANGERE, DT.20.02 .2018, FOR THE ASSESSMENT YEARS 2009-10 AND 2012-13, ON THE FOLLOW ING COMMON GROUNDS OF APPEAL : ITA.1639 & 1640/BANG/2018 PAGE - 2 02. IN THIS REGARD, THE CIT (A) HAS RECORDED IN PAR A 4A AND 4B, AS UNDER : 4A. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS, THE AO RECOMPUTED THE INCOME OF THE ASSESSEE. THE EXCESS A PPLICATION OF FUNDS TOWARDS THE OBJECTIVES OF THE TRUST DURING TH E YEAR WAS RECOMPUTED TO RS.9,16,53,198/- AND THEREBY THE INCO ME OF THE TRUST FOR THE AY 2009-10 WAS NIL. HOWEVER, CARR Y FORWARD OF EXCESS APPLICATION OF FUNDS / DEPRECIATI ON LOSSES TO THE SUBSEQUENT ASSESSMENT YEAR WAS NOT ALLOWED AS T HE ASSESSEE HAD AVAILED THE BENEFIT OF APPLICATION OF FUNDS AND CLAIMED EXEMPTION U/S 11 OF THE ACT. THE AO HELD THAT AS TH E INCOME OF THE ASSESSEE IS NOT COMPUTED UNDER THE HEAD 'BUSINE SS & ITA.1639 & 1640/BANG/2018 PAGE - 3 PROFESSION', WHEREIN THE INCOME-TAX ACT PROVIDES FO R CARRY FORWARD OF DEFICIT/LOSSES/DEPRECIATION AND THEREFORE, THE ASSESSEE'S CLAIM OF EXEMPTION U/S 11 IS NOT IN ACCORDANCE WITH THE PROVISIONS OF ACT W.R.T CARRY F ORWARD OF DEFICIT. STATING THE ABOVE, THE AO DID NOT CONSIDER THE OBJECTION RAISED BY THE ASSESSE AND ACCORDINGLY, DID NOT ALLO W THE EXCESS APPLICATION OF FUNDS AMOUNTING TORS.9,16,53,198/- TO BE CARRIED FORWARD TO SUBSEQU ENT ASSESSMENT YEARS. 4B. DURING THE APPELLATE PROCEEDINGS, THE AR ARGUED AGAINST THE STAND TAKEN BY THE AO AND SUBMITS THAT THE APPLICATION NEED NOT BE MADE IN THE SAME YEAR AS TH AT OF THE INCOME. IT COULD BE THAT THE APPLICATION OF SURPLUS OF THE EARLIER YEARS COULD BE CLAIMED AS SET OFF FOR AN IN COME OF THE SUBSEQUENT YEAR/YEARS. THE AR HAS RELIED ON FOLLOWI NG JUDGEMENTS IN SUPPORT OF HIS CLAIM. A. CIT VS MAHARAJA OF MEWAR CHARITABLE FOUNDATION (198 7) 164 ITR 439 (HC OF RAJASTHAN) B. CIT VS SHRI PLOT SWETAMBAR MURTI PUJAK JAIN MANDAL (1994) 119 CTR 144 (HC OF GUJ) C. CIT VS INSTT.OF BANKING PERSONNEL SELECTION (2003) 185 CTR 492 (HC OF BOMBAY) D. SEVASADAN ORPHANAGE & TRAINING INSTT, BANGALORE VS DCIT, C17(2), BANGALORE (1TAT 'B' BENCH, BENGALURU). I HAVE PERUSED THE DECISIONS RELIED UPON BY THE AR. THE JURISDICTIONAL 1TAT, 'B' BENCH, BENGALURU IN THE CA SE OF SEVASADAN ORPHANAGE & TRAINING INSTT, BANGALORE VS DCIT, C- 17(2) RELYING ON VARIOUS SIMILAR DECISIONS AND HAS HELD AS UNDER: 'IT IS CLEAR FROM THE RELE VAN PORTIONS OF THE AFO RESAID DECISIONS OF HON WE HIGH COURT OF BOMBAY AND THE CO-ORDINATE BENCH O F THE JTA T, BANGALORE IN THE CASE OF BALDWIN METHODIST EDUCATIO NAL SOCIETY EXTRACTED ABOVE THAT THE INCOME OF CHARITABLE TRUST S IS REQUIRED TO BE COMPUTED ON COMMERCIAL PRINCIPLES. THE CONCEPT O F APPLICATION OF THE INCOME FOR THE YEAR IN WHICH THE INCOME HAS ARISEN IS NOT FOUND IN SECTION 11(1) (A) OF THE ACT. NO LIMITATION TO T HE ABOVE EFFECT IS FOUND IN THE LANGUAGE OF THE SECTION. IT MERELY REQ UIRES APPLICATION OF THE INCOME THAT HAS ARISEN FROM THE PROPERTY HELD U NDER THE TRUST. ITA.1639 & 1640/BANG/2018 PAGE - 4 IN THIS VIEW OF THE MATTER, THE PRINCIPLES RELATING TO SET OFF OF LOSSES ETC., IS NOT OF ANY RELEVANCE AND THEREFORE ANY EXC ESS APPLICATION OF INCOME DURING THE YEAR CAN BE REGARDED AS APPLICATI ON OF THE INCOME OF FUTURE YEARS AND CAN BE ADJUSTED. THEREFORE, IN OUR VIEW, THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF EXCESS APPLICA TION IS IN ACCORDANCE WITH THE JUDICIAL PRECEDENTS ON THE ISSUE AND THE S AME IS ALLOWABLE. WE, HOWEVER, FIND THAT THE CO-ORDINATE BENCHES OF THE BANGALORE TRIBUNAL HAVE CONSISTENTLY FOLLOWED THE VIEW OF THE HONBLE BOMBAY HIGH COURT IN WHICH THE APPLICATION HAS BEEN REGARD ED AS ADJUSTABLE AGAINST THE INCOME OF THE FUTURE YEARS. WE ARE, THE REFORE, INCLINED TO FOLLOW THE VIEW TAKEN BY THE COORDINATE BENCHES OF THIS TRIBUNAL, INTER ALIA, IN THE CASE OF BALDWIN METHODIST EDUCAT ION SOCIETY, BASES ON THE VIEW/DECISIONS OF THE HON 'HE BOMBAY HIGH CO URT IN THE CASE OF INSTITUTE OF BANKING AND THE HON WE GUJARAT HIGH COURT IN THE CASE OF CIT VS SHRI PLOT SWETAMBER MURTI FUJAKJAIN MANDAL REPORTED IN 211 ITR 293. IN VIEW OF THE MATTER, THE AO IS DI RECTED TO ALLOW CARRY FORWARD OF THE EXCESS APPLICATION OF ........ FOR THE YEAR TO BE ADJUSTED FROM INCOME FROM PROPERTY HELD UNDER THE T RUST OF THE SUBSEQUENT YEARS.' RESPECTFULLY FOLLOWING THE DECISIONS OF THE JURISDICTIONAL ITAT, BENGALURU AND THE HON'BLE HIGH COURTS, I HOLD THAT THE APPELLANT IS ENTITLED TO CARRY FORWAR D THE EXCESS APPLICATION OF FUNDS FOR SET OFF IN THE FUTURE ASSE SSMENT YEARS. THUS, THE GROUND SUCCEEDS. 03. THE LD. DR VEHEMENTLY OPPOSED THE ORDER OF THE CIT(A) AND RELIES ON AO ORDER . 04. THE LD.AR BROUGHT TO OUR NOTICE THAT THE ISSUE OF CARRY FORWARD OF EXCESS APPLICATION HAS NOW BEEN FINALLY SETTLED BY THE HONBLE SUPREME COURT IN THE MATTER OF CIT V. RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION [(2018) 402 ITR 441], WHEREIN , THE HONBLE SUPREME COURT WHILE ANSWERING THE QUESTION NO.2 HAS HELD AS UNDER: 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTI ON WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUT E [1993] 109 ITA.1639 & 1640/BANG/2018 PAGE - 5 CTR 463 . IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSE SSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE A SSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE AS SETS IN COMPUTING THE INCOME OF THE TRUST. THE ITO HELD THA T DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUS E, FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISI TION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSI STANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. TH E TRIBUNAL, HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THA T FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISI TION OF THE ASSETS, WHAT HE REALLY MEANT WAS THAT THE AMOUNT SP ENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS 'APPLICA TION OF INCOME' OF THE TRUST IN THE YEAR IN WHICH THE INCOM E WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT IN C OMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YEARS, DEPRE CIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUN T. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. HENCE, QUESTION NO. 2 IS COVERE D BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDG MENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED IN THE AFF IRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMEN T.' 2. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE ARE OF THE OPINION THAT THE AFORESAID VIEW TAKEN BY THE BOMBAY HIGH COURT CORRECTLY STATES THE PRINCIPLES OF LAW AND THERE IS NO NEED TO INTERFERE WITH THE SAME. 3. IT MAY BE MENTIONED THAT MOST OF THE HIGH COURTS H AVE TAKEN THE AFORESAID VIEW WITH ONLY EXCEPTION THERETO BY T HE HIGH COURT OF KERALA WHICH HAS TAKEN A CONTRARY VIEW IN 'LISSI E MEDICAL INSTITUTIONS V. CIT [2012] 24 TAXMANN.COM 9/209 TAXMAN 19 (MAG.)/348 ITR 344 (KER.) '. 4. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LE GISLATURE, REALISING THAT THERE WAS NO SPECIFIC PROVISION IN T HIS BEHALF IN THE INCOME TAX ACT, HAS MADE AMENDMENT IN SECTION 11(6) OF THE ACT VIDE FINANCE ACT NO. 2/2014 WHICH BECAME EFFECTIVE FROM THE ASSESSMENT YEAR 2015-2016. THE DELHI HIGH COURT HAS TAKEN THE VIEW AND RIGHTLY SO, THAT THE SAID AMENDMENT IS PRO SPECTIVE IN NATURE. 5. IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPR ECIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. ITA.1639 & 1640/BANG/2018 PAGE - 6 05. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON BLE SUPREME COURT IN RAJASTHAN AND GUJARATI CHARITABLE FOUNDATI ON (SUPRA) AND AFTER APPRECIATING THE FACTS OF THE CASE AS ABOVE I N PARAS 4A AND 4B OF THE ORDER OF THE CIT (A), WE FIND THAT THIS CASE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 06. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH DAY OF S EPTEMBER, 2018. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 28.09.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.