Medical Trust of Seventh Day Adventists, CHENNAI V. DDIT, CHENNAI

ITA 1708/CHNY/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2294 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 24-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R M NARAYANAN
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition
• Section: 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH : CHENNAI . , ! ' # ' $ . %& , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO.1708/CHNY/2015. / ASSESSMENT YEAR : 2010-2011. MEDICAL TRUST OF SEVENTH DAY ADVENTISTS, AA 148, III AVENUE, ANNA NAGAR, CHENNAI 600 040. VS. THE DEPUTY DIRECTOR OF INCOME TAX, EXEMPTION I, CHENNAI [PAN AAATM 5187A] ( ,- / APPELLANT) ( ./,- /RESPONDENT) / APPELLANT BY : SHRI. R.M. NARAYANAN, C.A., /RESPONDENT BY : SHRI. CLEMENT RAMESH KUMAR, ADDL. CIT. /DATE OF HEARING : 03-09-2018 ! /DATE OF PRONOUNCEMENT : 04-09-2018 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE, WHICH IS DIRECTED AGAINST AN ORDER DATED 15.04.2014 OF COMMISSION ER OF INCOME-TAX (APPEALS)-17, CHENNAI, IT HAS TAKEN ALTOGETHER SIXT EEN GROUNDS OF WHICH GROUND NO. 16 IS GENERAL, NEEDING NO SPECIFIC ADJUDICATION. ITA NO.1708 /2015 :- 2 -: 2. VIDE ITS GROUNDS 1 TO 6, ASSESSEE IS AGGRIEVED THAT DEPRECIATION C 64,95,237/- CLAIMED BY IT WAS NOT ALLOWED. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESS EE WAS A TRUST REGISTERED U/S.12AA OF THE INCOME TAX ACT, 19 61 (IN SHORT THE ACT). AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE WAS DENIED DEPRECIATION FOR A REASON THAT COST OF THE ASSETS ON WHICH SUCH DEPRECIATION WAS CLAIMED WAS ALLOWED AS APPLICATIO N OF INCOME. AS PER THE LD. AUTHORISED REPRESENTATIVE, BY VIRTUE OF JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA, (2018) 89 TAXMANN.COM 127 , WHERE AN ASSESSEE IS A CHARITABLE INSTITUTION REGISTERED U/S.12A OF T HE ACT EVEN THOUGH EXPENDITURE CLAIMED FOR ACQUISITION OF CAPITAL ASSE TS WAS TREATED AS APPLICATION OF INCOME, DEPRECIATION WOULD BE ALLOW ABLE ON SUCH ASSETS. 4. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE FAIRLY AGREED THAT QUESTION RAISED WAS COVERED IN FAVOUR OF THE A SSESSEE BY VIRTUE OF HONBLE APEX COURT JUDGMENT CITED SUPRA. 5. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTENTION S. DISALLOWANCE OF DEPRECIATION WAS MADE FOR A SOLE RE ASON THAT COST OF ASSETS ON WHICH DEPRECIATION WAS CLAIMED WAS ALLOW ED AS APPLICATION OF INCOME. HOWEVER, BY VIRTUE OF JUDGMENT OF HONB LE APEX COURT IN ITA NO.1708 /2015 :- 3 -: THE CASE OF RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA (S UPRA) EVEN WHERE COST OF ACQUISITION IS TREATED AS APPLIC ATION OF INCOME, DEPRECIATION HAS TO BE ALLOWED ON SUCH ASSETS. AC CORDINGLY, WE ARE OF THE OPINION THAT ASSESSEE WAS ELIGIBLE FOR CLAIMING SUCH DEPRECIATION. CLAIM OF DEPRECIATION STANDS ALLOWED. GROUNDS 1 TO 6 OF THE ASSESSEE STAND ALLOWED. 6. THROUGH ITS GROUNDS 7 & 8, ASSESSEE IS AGGRIEVED TH AT EXCESS APPLICATION OF INCOME FOR EARLIER YEARS CLAIMED FOR CARRY FORWARD WAS NOT ALLOWED, AND SET OFF DENIED AGAINST THE SURPL US FOR THE IMPUGNED ASSESSMENT YEAR. 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESS EE WAS HAVING EXCESS APPLICATION OVER INCOME AS UNDER F OR VARIOUS YEARS PRIOR TO THE IMPUGNED ASSESSMENT YEAR. A.Y. INCOME APPLICATION EXCESS APPLICATION 100% 85% 2005 - 06 13,14,44,013 11,17,27,411 13,43,90,741 29,46,728 2006 - 07 14,08,30,200 11,97,05,670 15,26,33,163 1,18,02,963 2007 - 08 16,00,04,266 13,60,03,626 16,24,47,030 24,42,764 2008 - 09 11,89,46,495 10,11,04,521 12,05,72,697 16,26,202 2009 - 10 12,94,29,585 1 1,00,15,147 13,04,44,331 10,14,746 ITA NO.1708 /2015 :- 4 -: CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WA S THAT ASSESSEE WAS ELIGIBLE FOR CLAIMING CARRY FORWARD OF SUCH EXC ESS BY VIRTUE OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. MATRISEVA TRUST, 242 ITR 20 . 8. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT INCOME OF THE TRUST WAS NOT TO BE COMPUTED AS PER S ECTION 28 TO 44DB OF THE ACT. ACCORDING TO HIM, THE QUESTION OF SPEN DING MONEY IN EXCESS OF INCOME WOULD ARISE ONLY WHEN THERE WAS RE AL INCOME. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, ASSESSEE COUL D NOT SAY THAT IT HAD SPENT A SUM IN EXCESS OF ITS INCOME. THUS, AC CORDING TO HIM, LOWER AUTHORITIES WERE JUSTIFIED IN DISALLOWING CAR RY FORWARD OF EXCESS APPLICATION OVER INCOME OF THE EARLIER YEARS. 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONT ENTIONS. CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE IS THAT ASSESSEE COULD NOT HAVE HAD EXCESS OF SPENDING OVER ITS INCO ME, SO AS TO CLAIM CARRY FORWARD. HOWEVER, HONBLE APEX COURT HAD ITSE LF HELD IN THE CASE OF RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA (S UPRA) THAT DEPRECIATION ON CAPITAL ASSETS, VALUE OF WHICH WAS ALREADY TREATED AS APPLICATION OF INCOME IS AN ALLOWABLE CLAIM. THUS, THERE COULD BE EXCESS OVER APPLICATION OF INCOME FOR MYRIAD REASO NS LIKE CLAIM OF DEPRECIATION AND/ OR OTHER EXPENDITURE WHICH DID N OT INVOLVE ANY ITA NO.1708 /2015 :- 5 -: IMMEDIATE CASH FLOW. WHAT WAS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MATRISEVA TRUST (SUPRA ) IS REPRODUCED HEREUNDER:- 5. WITH REGARD TO THE SECOND QUESTION, THE TRIBUN AL HAS HELD THAT THE TRUST IS ENTITLED TO SET OFF THE AMOUNT OF EXCESS APPLICATION OF THE LAST YEAR AGAINST THE DEFICIENCY OF RS. 82,516 OF THE PRESENT ASSESSMENT YEAR. WHEN SIMILAR QUESTIONS CAME UP BEFORE THE RAJASTHAN HIGH COURT AND THE GUJARAT HIGH COURT IN THE CASES OF CIT V. MAHARANA OF MEWAR CHARITABLE FOUNDATION [1987] 164 ITR 439 AND CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL [1995] 211 ITR 239 , RESPECTIVELY, BOTH THE RAJASTHAN HIGH COURT AND THE GUJARAT HIGH COURT HAVE ANSWERED THE QUESTIONS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6. FOLLOWING THE AFORESAID DECISIONS OF THE RAJASTH AN AND THE GUJARAT HIGH COURTS, WE ANSWER THE SECOND QUESTION REFERRED TO US IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE. THERE IS NO DISPUTE THAT EXCESS OF APPLICATION CLAI MED BY THE ASSESSEE WAS THE AMOUNT WHICH WAS EXPENDED ABOVE ITS INCOME. IN OTHER WORDS, ASSESSEE ONLY CLAIMED EXCESS APPLICATION WIT HOUT CONSIDERING ACCUMULATION OF 15% ALLOWED TO IT. IN SUCH CIRCUMS TANCES, WE ARE OF THE OPINION THAT ASSESSEE WAS ELIGIBLE FOR CLAIMING THE CARRY FORWARD OF EXCESS OVER APPLICATION OF INCOME PERTAINING TO TH E EARLIER YEARS. ORDERS OF THE LOWER AUTHORITIES IS SET ASIDE. LD. A SSESSING OFFICER IS DIRECTED TO GIVE SET OFF CLAIMED BY THE ASSESSEE. G ROUNDS 7 & 8 OF THE ASSESSEE STAND ALLOWED. ITA NO.1708 /2015 :- 6 -: 10. VIDE ITS GROUNDS 9 TO 11, GRIEVANCE OF THE ASSESSE E IS THAT GRATUITY OF C13,99,817/- PAID TO ITS EMPLOYEES WA S NOT ALLOWED AS APPLICATION OF INCOME. 11. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT CLAIM OF GRATUITY PAYMENT WAS DISALLOWED BY THE LD. ASSESSING OFFICER TAKING A VIEW THAT THERE WAS NO ACTUAL CASH OUTFLOW. HOWEVER, ACCOR DING TO HIM, THE SUM OF C13,99,817/- WAS ACTUAL GRATUITY PAYMENT MAD E BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR AND TH IS HAD TO BE ALLOWED. LD. AUTHORISED REPRESENTATIVE ALSO FILED A LIST OF PERSONS TO WHOM GRATUITY PAYMENTS WERE EFFECTED. 12. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT THE ISSUE COULD BE LOOKED INTO BY THE LD. ASSESSING OFFICER. 13. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTENTION S. EXPENDITURE CLAIMED AS FUND CONTRIBUTION TO EMPLOYE ES BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR WAS AS UNDER:- (I) RETIREMENT FUND CONTRIBUTION : C19,62,734/ - (II) GRATUITY FUND CONTRIBUTION : C10,67,703/- (III) GRATUITY PAYMENT TO EMPLOYEES : C13,99,817/- TOTAL : C44,30,254/- ITA NO.1708 /2015 :- 7 -: CLAIM OF THE ASSESSEE BEFORE US IS THAT GRATUITY PA YMENT OF C13,99,817/- COMPRISED IN THE ABOVE LIST WAS ACTUAL LY PAID DURING THE RELEVANT PREVIOUS YEAR, BUT THE LD. ASSESSING OFFI CER AND LD. COMMISSIONER OF INCOME TAX (APPEALS) TOOK A VIEW TH AT THERE WAS NO ACTUAL CASH OUTFLOW. NOW BEFORE US, ASSESSEE HAS F ILED A LIST SHOWING NAMES OF THE PERSONS TO WHOM GRATUITY PAYMENTS WERE CLAIMED AS EFFECTED DURING THE RELEVANT PREVIOUS YEAR. IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE MATTER NEEDS A FRESH LO OK BY THE LD. ASSESSING OFFICER. WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE QUESTION REGARDING ALLOWABILITY GRATUITY PAYMENT OF C13,99,817/- BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ASSES SEE HAS TO PRODUCE THE LIST OF PERSONS AND SUFFICIENT EVIDENCE TO SHO W THAT THESE PAYMENTS WERE MADE DURING THE PREVIOUS YEAR RELEVAN T TO IMPUGNED ASSESSMENT YEAR. GROUNDS 9 TO 11 OF THE ASSESSEE AR E ALLOWED FOR STATISTICAL PURPOSE. 14. WHEN GROUNDS 12 TO 15 WERE TAKEN UP, LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT HE WAS NOT PRESSING THESE GROUNDS. ACCORDINGLY, GROUNDS 12 TO 15 ARE DISMISSED AS NOT PRESSED. ITA NO.1708 /2015 :- 8 -: 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 4TH DAY OF SEPTE MBER, 2018, AT CHENNAI. SD/- SD/- ( ' # ' $ . %& ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 4TH SEPTEMBER, 2018. KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF