DCIT (E) I(1), MUMBAI V. LOKHANDWALA FOUNDATIONS, MUMBAI

ITA 1683/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0586 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 09-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJESH KUMAR YADAV
• Keywords: Depreciation; Charitable institution; Tax effect; Capital expenditure
• Section: 143(3); 12A; 10B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ITA NO. 1683 / MUM/20 17 ( ASSESSMENT YEAR : 2010 - 11 ) DCIT (E) 1(1), R.NO.506, 5 TH FLOOR PIRAMAL CHAMBERS LALBAUG, PAREL, MUMBAI 400 012 VS. M /S. L OKHANDWALA FOUNDATIONS 48, INDRANARAYAN ROAD SANTACRUZ (WEST) MUMBAI 400 054 PAN/GIR NO. AAATL0068K APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI RAJESH KUMAR YADAV REVENUE BY SHRI RAHUL HAKANI DATE OF HEARING 05 / 12 /2 01 7 DATE OF PRONOUNCEME NT 07 / 02 /201 8 / 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) - 1, MUMBAI DATED 26/12/2016 FOR A.Y.2010 - 11 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE: - 1. THE DECISION OF ESCORTS LTD. VS. UOL 199 ITR 43 WHEREIN IT WAS HELD THAT SINCE SECTION 11 OF THE INCOME TAX ACT PROVIDES FOR DEDUCTION CAPITAL EXPENDITURE INCURRED ON ASSETS ACQUIRED FOR THE OBJECTS OF THE TRUST AS APPLICATION AND DOES NOT SPECIFICALLY & EXPRESSLY PROVIDE FOR DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION ON THE SAME VERY ASSETS ACQUIRED FROM SUCH CAPITAL EXPENDITURE, NO DEDUCTION SHALL HE ALLOWED U/S.32FOR THE SAME OR ANY OT HER PREVIOUS YEAR IN RESPECT OF THAT ASSET AS IT AMOUNTS TO CLAIMING A DOUBLE DEDUCTION.' 2. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT(A) ERRED IN ALLOWING THE APPEAL, WHEN THE DELHI HIGH ITA NO. 1683/MUM/2017 M/S. LOKHANDWALA FOUNDATIONS 2 COURT IN THE CASE OF CHA RANJIV CHARITABLE TRUST AND K ERALA HIGH COURT IN THE CASE O LI SSIE MEDICAL INSTITUTIONS VS C IT 76 DT R (KER) 372 HAS DECIDED THE ISSUE IN THE FAVOUR OF THE DEPARTMENT AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD (199 IT R 43).' 3. 'WHETHER, ON THE FACTS AND IN 'WHETHER ON THE FACTS OF THE CASE AND IN LAW THE ID. CI T(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE ON ACCOUNT OF DISALLOWI NG DEPRECIATION ON FIXED ASSETS OF RS. 30,00,000/ - IN CONTRAVENTION OF T HE CIRCUMST ANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION CLAIM OF THE ASSESSEE T BI/ RELYING UPON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION, IGNORING THE FACT THAT THE DEPARTMEN T HAS NOT ACCEPTED THE SAID DECISION OF THE JURISDICTIONAL HIGH COURT ON MERIT OF THE CASE, BUT DUE TO SMALLNESS OF TAX EFFECT APPEAL WAS NOT FILED BEFORE HON'BLE SUPREME COURT. ALSO, THE ID CIT(A) ERRED IN RELYING UPON THE JUDGMENT OF HON'BLE HIGH COURT I N THE CASE OF CIT VS. SHRI VILE - PARK KELVANI MANDAL, WITHOUT APPRECIATING THE FACT THAT DEPARTMENT HAS NOT ACCEPTED THE DECISION ON MERIT AND FILED SLP, BUT SUBSEQUENTLY WITHDRAWN THE SAME AS THERE WAS NO CLAIM OF DEPRECIATION ON EXEMPTED ASSETS. MOREOVER, THE REVENUE HAS FILED SLPS ON THIS ISSUE IN OTHER CASES INCLUSIVE THE CASE OF C.D. BIRLA MEDICAL RESEARCH & EDUCATIONAL FOUNDATION (S.L.P.(C) NO. 24904 OF 2016(C.A.N0.8294 OF 2016) AND IN THIS CASE LEAVE HAS BEEN GRANTED BY THE HON'BLE APEX COURT AND IN A LL CASES ISSUE IS PENDING FOR ADJUDICATION BEFORE THE HON'BLE APEX COURT. 4. 'WHETHER ON THE FACTS OF THE CASE AND IN LAW THE LD.C IT (A) ERRED IN ALLOWING THE EARN/ FORWARD OF DEFICIT OFRS.2,12,19,590/ - .AND ALLOWING SET OFF AGAINST THE INCOME OF THE SUB SEQUENT YEARS.' 5. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF THE SAID DEFICIT, IGNORING THE FACT THAT THERE WAS NO EXPRESS PROVISION IN THE I T ACT, 1961 PER MITTING ALLOWANCE OF SUCH CLAIM ' 6. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF THE SAID DEFICIT BY RELYING UPON THE JUDGMENT OF H ON'BLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION, IGNORING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE SAID DECISION OF THE JURISDICTIONAL HIGH COURT ON MERIT OF THE CASE, BUT DUE TO SMALLNESS OF TAX EFFECT APPEAL WAS NOT FILED BEFORE HON'BLE SUPREME COURT. HOWEVER, ON THIS ISSUE THE DEPARTMENT HAS FILED SLPS MOTHER CASES BEFORE THE HON'BLE APEX COURT INCLUSIVE THE CASE OF MIDC(SLP (CIVIL) 9891 OF 2014), IN WHICH LEAVE HAS BEEN GRANTED AND THE ISSUE IS PENDING FOR ADJUD ICATION BEFORE THE HON'BLE SUPREME COURT.' ITA NO. 1683/MUM/2017 M/S. LOKHANDWALA FOUNDATIONS 3 7. THE APPELLANT PRAYS THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, MUMBAI BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 8. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A TRUST REGISTERED WITH DIT (E), MUMBAI U/S. 12A AND U/S. 80 G O F THE I.T. ACT, 1961. THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 /9/2 010 ALONG WITH THE INCOME & EXPENDITURE ACCOUNT, BALANCE SHEET AND AUDIT REPORT IN FORM 10B DECLARING TOTAL INCOME AT RS. NIL. THE A.O COMPLETED THE ASSESSMENT VIDE ORDER DATED 29 / 11 / 2012 U/S. 143(3) OF THE I.T. ACT, 1961 AT INCOM E OF RS. NIL BY DISALLOWING DEPRECIATION AND CARRY FORWARD OF DEFICIT . 5. BY THE IMPUGNED ORDER, CIT(A) ALLOWED ASSESSEES CLAIM OF DEPRECIATION AFTER OBSERVING AS UNDER: - 5.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, GONE THROUGH THE ASS ESSMENT ORDER OF THE A.O AND THE SUBMISSIONS OF THE APPELLANT AND ALSO DISCUSSED THE CASE WITH THE AR OF THE APPELLANT. THE CONTENTIONS AND SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED HERE IN UNDER: I. THE ASSESSING OFFICER HAS NOT TREATED THE DEPRECIATION AS APPLICATION OF INCOME ON THE GROUND THAT IT AMOUNTS TO DOUBLE DEDUCTION. APPELLANT HAS SUBMITTED THAT IN A NUMBER OF JUDGMENTS, DEPRECIATION HAD BEEN ALLOWED AS APPLICATION OF INCOME U/S. 11. IN THIS REGARD I FIND THAT THE ISSUE IS DIR ECTLY COVERED IN APPE LL ANT'S FAVOUR BY THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL 264 ITR 110 WHEREIN THE HON'BLE COURT HAS OBSERVED AS UNDER : '4, QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTION W HICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPT/ON) V. FRAMJEE CAWASJEE INSTITUTE (1993) 109 CTR 463 (BO M ). IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIAB LE ASSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOME OF THE ITA NO. 1683/MUM/2017 M/S. LOKHANDWALA FOUNDATIONS 4 TRUST. THE INCOME TAX OFFICER HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE; FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED M THE YEAR OF ACQ UISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSISTANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL, HOWEVER, TOOK THE VIEW THAT WHEN THE INCOME TAX OFFICER STATED THAT FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS, WHAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS 'APPLICATION OF INCOME' OF THE TRUST IN THE YEAR IN WHICH THE INCOME WAS SPENT M ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT IN C OMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YEARS, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT: BE TAKEN INTO ACCOUNT. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY, THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. HENCE, QUESTION NO. 2 IS COVERED B Y THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANS WE RED M THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST, THE DEPARTMENT.' IN A RECENT JUDGEMENT IN CASE OF DIRECTOR OF INCOME - TAX (EXEMPTIONS), MURNBAI V. SHRI VILE PARLE KELAVANI MAN DA I [2015] 58 TAXMANN.COM 288 HON'BLE BOMBAY HIGH COURT HELD : 'AS FAR AS QUESTION NO.4 IS CONCERNED, THIS COURT HAS REPEATEDLY HELD THAT THERE IS NOTHING LIKE DOUBLE DEDUCTION. WHEN THE ASSESSEE HAS ACQUIRED AN AS SET FROM THE INCOME OF THE TRUST AND THEREAFTER THE AMOUNT THAT IS CLAIMED /S THE DEPRECIATION ON THE USE OF THE ASSETS, SUCH DEPRECIATION CLAIM DOE S NOT MEAN DOUBLE DEDUCTION. THE DEDUCTION EARLIER CLAIMED IS TOWARDS TOWARDS APPLICATION OF FUNDS OF THE T RUST FOR ACQUIRING ASSETS. THE LATTER IS DEPRECIATION AND IT IS PERMISSIBLE DEDUCTION CONSIDERING THE USE OF THE ASSETS. THIS HAS BEEN CL ARIFIED REPEATEDLY BY THIS COURT. IF ANY REFERENCE IS REQUIRED THEN THE CASE OF CIT V. INSTITUTION OF BANKING PERSONNEL SELECTION (IBPS) [2003] 264 ITR 110/131 TAXMAN 386 (BOM.) IS ENOUGH . II. RESPECTFULLY FOLLOWING THE ABOVE OBSERVATIONS OF HON'BLE JURISDICTIONAL HIGH COURT, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION AS APPLICATION OF INCOME U /S. 11 OF THE I. T. ACT AFTER DUE VERIFICATION OF FACTS. IV. GROUND OF APPEAL NO. I IS THEREFORE, ALLOWED, 6. ASSESSEES CLAIM OF CARRY FORWARD WAS ALSO ALLOWED BY THE CIT(A) AFTER OBSERVING AS UNDER: - 6.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, GONE THROUGH THE ASSESSMENT ORDER OF THE A.O AND THE SUBMISSIONS OF THE APPELLANT AND ALSO DISCUSSED THE CASE WITH THE AR OF THE APPELLANT. THE ITA NO. 1683/MUM/2017 M/S. LOKHANDWALA FOUNDATIONS 5 CONTENTIONS AND SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED HERE IN UNDER : - I. RE LYING UPON SEVERAL CASE LAWS THE APPELLANT STATED THAT DEFICIT OF THE CURRENT YEAR IS REQUIRED TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS. IN THIS REGARD I FIND THAT THE CASE OF APPELLANT IS SQUARELY COVERED BY THE JUDGEMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL 264 ITR 110 WHEREIN THE HON. JURISDICTIONAL HIGH COURT HAS OBSERVED AS UNDER .......,....'5. NOW COMING TO QUESTION NO. 3, THE POINT WHICH ARISES FOR CONSIDERATION IS: WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLICATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF TNE DEPARTMENT THAT EXPENDITURE INCURRED I N THE EARLIER YEARS CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND THAT UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FO' CHARITABLE OR RELIGIOUS PURPOSES. 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 11 TO SECTION 13 OF THE INCOME TAX ACT AND 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 THE 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 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 B Y THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSE S IN THE SUBSEQUENT - YEAR IN W HICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIO NS CONTAINED IN S E CTION 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL H AVE TO BE EXCLUDED FROM THE INCOME O F THE TRUST UNDER SECTION LL(L)(A) OF THE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. SHRI PLOT SWE TAMBER MURTI PUJAK JAIN MANDAL (1995) 211 ITR 293 (GUJ). ACCORDINGLY, WE ANSWER QUESTION NO. 3 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' II. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON. HIGH COURT AS ABOVE, THE AO IS DIRECTED TO ALLOW THE CARRY FORWARD OF DEFICIT IN THE SUCCEEDING YEARS AFTER DUE VERIFICATION OF FACTS. ITA NO. 1683/MUM/2017 M/S. LOKHANDWALA FOUNDATIONS 6 7. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. 8. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THR OUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS CLEAR FROM THE ORDER OF CIT(A) THAT BOTH THE CLAIMS OF ASSESSEE WERE ALLOWED BY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN CASE OF INSTITUTE OF BANKING PERSONNEL 264 ITR 110. WE FOUND THAT THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL HAVE BEEN AFFIRMED BY THE HONBLE SUPREME COURT VIDE ORDER DATED 13/12/2017. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR ALLOWING CLAIM OF D EPRECIATION AND CARRY FORWARD LOSSES. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 07 / 02 /201 8 SD/ - ( RAVISH SOOD ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 07 /02 /201 8 KARUNA SR. PS 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 FILE. //T RUE COPY//