Deputy Commissioner of Income Tax (Exemption) Circle-1 , Bangalore V. M/s National Education Foundation , Bangalore

ITA 1685/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5050 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 14-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, BENGALURU BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI LALI E T KUMAR, JUDICIAL MEMBER ITA NO.1685/BANG/ 201 7 (ASSESSMENT YEAR : 201 2 - 13) DEPUTY COMMISSIONER OF INCOME - TAX (EXEMPTION), CIRCLE 1, APPELLANT BENGALURU. VS. NATIONAL EDUCATION FOUNDATION , NO.11/2, IBH PRAKASHANA, 2 ND FLOOR, NEW JHC COMPLEX, 5 TH MAIN ROAD, GANDHINAGAR, BENGALURU - 560009. PAN: AAATN 2782 J ... RESPONDENT AND ITA NO.1686/BANG/ 201 7 (ASSES SMENT YEAR: 2012 - 13) (BY THE ASSESSEE) REVENUE BY SHRI B.R.RAMESH, JCIT(DR) ASSESSEE BY SHRI NARENDRA SHARMA, ADVOCATE DATE OF HEARING : 01/08/2018 DATE OF PRONOUNCEMENT : 03 /08/2018 O R D E R PER INTURI RAMA RAO, AM : THESE ARE CR OSS APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX(APPEALS) - 14, LTU, BENGALURU, DATED 19/05/2017 FOR THE ASSESSMENT YEAR 2012 - 13. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC CHARITABLE TRUST REGISTERED UNDER THE PROVISIONS OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT ]. THE ASSESSEE - TRUST HAS ESTABLISHED AND RUNNING VARIOUS EDUCATIONAL INSTITUTIONS. THE ITA NO S . 1685 & 1686 /BANG/201 7 PAGE 2 O F 6 RETURN OF INCOME FOR THE ASSESSMENT YEAR 2 013 - 14 WAS FILED ON 28/09/2012 DECLARING NIL INCOME AFTER CLAIMING EXEMPTION U/S 11 OF THE ACT . AFTER PROCESSING THE RETURN OF INCOME UNDER THE PROVISIONS OF SECTION 143(1) OF THE ACT, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 31/03/2015 . WHILE DOING SO, THE AO HAD NOT ALLOWED CARRY FORWARD OF EXCESS APPLICATION OF INCOME TO FUTURE YEARS AND HAS ALSO NOT ALLOWED DEPRECIATION AS APPLICATION OF INCOME AND ALLOWED ACCUMULATION OF INCOME AT 15% OF NET RECEIPTS AS AGAINST THE CLAIM OF THE ASSESSEE THAT IT SHOULD BE ON GROSS RECEIPTS. 3. BEING AGGRIEVED, AN APPEAL WAS FILED BEFORE THE LD.CIT(A), WHO VIDE IMPUGNED ORDER, DIRECTED THE AO TO ALLOW CARRY FORWARD OF EXCESS APPLICATION TO SUBSEQUENT YEARS AND HAD ALLOWED DEPRECIATION AS APPLICATION OF INCOME FOLLOWING THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST.ANNE (146 ITR 28) AND THE DECISION OF THE TRIBUNAL IN THE CASE OF JYOTHI CHARITABLE TRUST (60 TAXMANN.COM 165)(BANG - TRIB.). THE LD.CIT(A) AFFIRMED THE ACTION OF THE AO IN ALLOWING ACCUMULATION OF INCOME AT 15% OF NET RECEIPTS AS AGAINST THE CLAIM OF THE ASSESSEE THAT IT SHOULD BE ON GROSS RECEIPTS. 4 . THE REVENUE IS IN APPEAL BEFORE US AGAINST THAT PART OF THE ORD ER OF THE LD.CIT(A) ALLOWING DEPRECIATION AS APPLICATION OF INCOME AND THE ASSESSEE IS IN APPEAL AGAINST RESTRICTION OF ACCUMULATION ON NET RECEIPTS. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO S . 1685 & 1686 /BANG/201 7 PAGE 3 O F 6 5 . WE HEARD RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL ON RECORD. THE ISSUE RAISED BY THE REVENUE IN THE PRESENT APPEAL IS COVERED AGAINST THE REVENUE BY THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA (2018)(89 TAXMAN.COM127)(SC) WHEREIN IT WAS HELD AS UNDER: 1 ......................................................... 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTION WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF IN COME - TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 109 CTR 463 . IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM D EPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOME OF THE TRUST. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITIO N 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 ITO 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 IN ACQUIRING THOSE ASSETS. THIS DID ITA NO S . 1685 & 1686 /BANG/201 7 PAGE 4 O F 6 NOT MEAN THAT IN COMPUTING INCOME FROM THOSE A SSETS 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 BY THE DECISION OF THE BOMBAY HIG H COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' 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 HAVE TAKEN THE AFORESAID VIEW WITH ONLY EXCEPTION THERETO BY THE HIGH COURT OF KERALA WHICH H AS TAKEN A CONTRARY VIEW IN ' LISSIE 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 ST AGE THAT THE LEGISLATURE, REALISING THAT THERE WAS NO SPECIFIC PROVISION IN THIS 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 H IGH COURT HAS TAKEN THE VIEW AND RIGHTLY SO, THAT THE SAID AMENDMENT IS PROSPECTIVE IN NATURE. 5. IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPRECIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. 6. FOR THE AFORESAID REASONS, WE A FFIRM THE VIEW TAKEN BY THE HIGH COURTS IN THESE CASES AND DISMISS THESE MATTERS. SINCE T HE DECISION OF THE LD. CIT(A) IS IN CONSONANCE WITH THE LAW LAID BY THE HON BLE APEX COURT IN THE CASE OF RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA (SUPRA), WE DO NOT FIND ANY FALLACY IN THE REASONING ADOPTED BY THE LD.CIT(A) AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 6. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO S . 1685 & 1686 /BANG/201 7 PAGE 5 O F 6 ITA NO S . 1685 & 1686 /BANG/201 7 PAGE 6 O F 6 7. THE ISSUE RAISED IN THE ASSESSEE S APPEAL RELA TES TO WHETHER ACCUMULATION OF INCOME SHOULD BE ON GROSS RECEIPT OR NET INCOME AFTER DEDUCTING THE EXPENDITURE, IS COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. PROGRAMME FOR COMMUNITY ORGANISATION (248 ITR 1)(SC) WHEREIN IT W AS HELD THAT 25% SHOULD BE CALCULATED ON THE GROSS RECEIPTS OF INCOME AND NOT ON THE NET INCOME. THEREFORE, THESE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED WHEREAS THE APPEAL FIL ED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD AUGUST, 2018. SD/ - SD/ - ( LALIE T KUMAR) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BENGALURU D A T E : 03/ 08/2018 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE