ITO, Coimbatore V. Coimbatore Welfare Association, Coimbatore

ITA 1756/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68836 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 13-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: S SRIDHAR
• Keywords: Business income; Depreciation; Charitable institution; Earning of tax free income; Capital expenditure
• Section: 12A; 32; 6

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHENNAI. BEFORE DR.O.K. NARAYANAN, VICE-PRESIDENT & SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 1756/MDS/2013 ASSESSMENT YEAR 2010-11 THE INCOME TAX OFFICER, COMPANY WARD I, 1 ST FLOOR, 63, RACE COURSE, COIMBATORE 641 018. VS. M/S. COIMBATORE WELFARE ASSOCIATION, SHRI NEHRU VIDYALAYA CAMPUS, BHAGWAN MAHAVEER BUILDING, ROBERTSON ROAD, COIMBATORE 641 002. [PAN:AAATC1760F] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.N. BETGERI, JCIT RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 20.11.2013 DATE OF PRONOUNCEMENT : 20.11.2013 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I, COIMBATORE DATED 28.06.2013 RELEVANT TO THE ASSESSMENT YEAR 2010-11. 2. THE APPEAL FILED BY THE REVENUE IS TIME BARRED BY 1 2 DAYS IN FILING. THE DEPARTMENT HAS FILED A CONDONATION PETITION BY WAY OF AN AFFIDAVIT TO CONDONE THE DELAY OF 09 DAYS ONLY. AT THE TIME OF H EARING, THE LD. DR HAS SUBMITTED THAT THERE IS ACTUALLY 12 DAYS DELAY IN FILING THE APPEAL BY I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1756 756756 756/M/ /M/ /M/ /M/13 1313 13 2 THE REVENUE AND THE REASON FOR THE DELAY IS THAT TH E MISCELLANEOUS RECORDS OF THE SAID CASE WERE MISPLACED AND NOT ABL E TO TRACE OUT WITHIN TIME. IT WAS THUS, PRAYED FOR CONDONING THE DELAY AND ADMITTING THE APPEAL FOR HEARING. 3. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE HAS NO OBJECTION TO CONDONE THE DELAY OF 12 DAYS IN FILING THE APPEAL. IN VIEW OF THE ABOVE, WE CONDONE THE DELAY AND ADMIT THE AP PEAL FOR HEARING. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A SOCIETY REGISTERED AS CHARITABLE TRUST UNDER SECTION 12A OF THE INCOME TAX ACT. THE ASSESSEE, WHILE COMPUTING EXEMPTION OF INC OME UNDER SECTION 11 OF THE ACT, HAD CONSIDERED DEPRECIATION ON ASSETS ALSO AS AN APPLICATION OF INCOME. THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER, BY CONSIDERING CIRCULAR OF CBDT AND THE JUDG EMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF M/S. LISSI E MEDICAL INSTITUTIONS, DISALLOWED THE CLAIM OF DEPRECIATION. 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(APPEALS). 6. THE LD. CIT(APPEALS), AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISIONS OF CHENNAI ITAT IN ITA I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1756 756756 756/M/ /M/ /M/ /M/13 1313 13 3 NO.1773/MDS/2013 DATED 22.02.2013 AND IN THE CASE O F ITO V. BANNARI AMMAN EDUCATIONAL TRUST IN I.T.A. NO. 2262/MDS/12, DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION AS CLAIMED BY THE ASSESSEE TRUST. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE TRIB UNAL. 8. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ISSUE INVOLVED IN THIS IS SQUARELY C OVERED BY THE DECISION OF THE ITAT CHENNAI BENCHES IN THE CASE OF ITO V. M/S. COIMBATORE STOCK EXCHANGE LTD. IN I.T.A. NO. 1812/M DS/2012 VIDE ORDER DATED 03.06.2013. 9. ON THE OTHER HAND, THE LD. DR HAS FAIRLY ACCEPT ED THAT THE ISSUE HAS BEEN COVERED BY THE DECISION OF THE TRIBUNAL AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE. 10. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE CHENNAI BENCHES OF THE TRIBUNAL IN CASE OF ITO V. M /S. COIMBATORE STOCK EXCHANGE LTD. (SUPRA) HAS CONSIDERED THE VERY SIMILAR ISSUE BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF SRI RANGANATHAR I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1756 756756 756/M/ /M/ /M/ /M/13 1313 13 4 TRUST IN I.T.A. NO. 1954/MDS/2012 VIDE ORDER DATED 28.01.2013 AND RELEVANT PARA OF THIS TRIBUNAL ORDER IS REPRODUCED HEREUNDER: 6. WE HAVE PERUSED THE ORDERS AND HEARD RIVAL CO NTENTIONS. NO DOUBT, HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS V .CIT(SUPRA), AFTER CONSIDERING THE D ECISION OF HONBLE P&H HIGH COURT IN THE CASE OF M/S.TINY TOTS EDUCATION SOCIETY (SUPRA), WHICH HAD IN TURN FOLLOWED ITS OWN DECISION IN THE CASE O F MARKET COMMITTEE, PIPLI (SUPRA), HAS HELD THAT NOTIONAL CLAIM OF DEPR ECIATION ON AN ASSET, THE VALUE OF WHICH WAS CLAIMED AS AN APPLICATION OF INCOME COULD NOT BE ALLOWED WHILE COMPUTING THE INCOME OF A CHARITABLE INSTITUTION. THEIR LORDSHIPS HELD SO, FOR A REASON THAT BY MAKING SUCH AN ALLOWANCE, A CHARITABLE INSTITUTION GOT A PERMISSION TO GENERATE INCOME OUTSIDE THE BOOKS. AS AGAINST THIS, HONBLE P&H HIGH COURT IN T HE DECISIONS OF MARKET COMMITTEE, PIPLI(SUPRA) AND OF M/S.TINY TOTS EDUCATION SOCIETY (SUPRA) HAD HELD CLEARLY IN FAVOUR OF THE ASSESSEE THAT DEPRECIATION WAS ALLOWABLE AS UTILIZATION FOR THE PURPOSE OF COMPUTI NG EXEMPT INCOME UNDER SECTIONS 11 & 12 OF THE ACT. DECISIONS RELIED ON BY THE ASSESSING OFFICER FOR DISALLOWING THE CLAIM OF THE ASSESSEE W ERE ALL CONSIDERED BY HONBLE P&H HIGH COURT IN THE ABOVE CASE. IN FACT, THIS ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF G.K.R. CHARIT IES VS. DDIT(E) (SUPRA) WHERE IT WAS HELD AS UNDER:- 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE TRI BUNAL IN THE ABOVE MENTIONED CASE, WHILE DECIDING THE SIMILAR IS SUE, HAS ALLOWED THE CLAIM OF DEPRECIATION TO THE ASSESSEE B Y OBSERVING AS UNDER: 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. FOR THE PURPOSE OF DETERMINING THE INCOME OF A TRUS T ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT, INCOME ARISI NG FROM PROPERTY HELD UNDER TRUST, CONSTITUTES THE INCOME O F THE TRUST. IT WILL MEAN INCOME FROM PROPERTY, BUSINESS, DIVIDENDS , INTEREST ON SECURITIES OR OTHER INTEREST. IN OTHER WORDS, THE I NCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT IS THE INCOME AS P ER THE ACCOUNTS OF THE TRUST. IT MEANS, INCOME IN THE COMMERCIAL SE NSE, WITHOUT REFERENCE TO THE HEADS OF INCOME, SPECIFIED IN SECT ION 14 OF THE ACT, I.E. THE BOOK INCOME AND NOT TOTAL INCOME AS D EFINED IN SECTION 2(45) OF THE ACT. THIS POSITION IS CONFIRM ED IN CIT V. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1756 756756 756/M/ /M/ /M/ /M/13 1313 13 5 TRUSTEES OF H.E.H. NIZAMS SUPPLEMENTAL RELIGIOUS E NDOWMENT TRUST (1981) 127 ITR 378 (A.P.), CIT V. RAO BAHADUR CALAWALA CUNNAN CHETTY CHARITIES (1982) 135 ITR 485 (MAD.) A ND CIT V. ESTATE OF V.L. ETHIRAJ (1982)136 ITR 12 (MAD.). THI S POSITION IS ALSO CONFIRMED BY THE CBDT VIDE ITS CIRCULAR NO.5-P (LXX-6) DATED 19TH JUNE, 1968. THE CONCEPT OF COMMERCIAL IN COME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIATION ON ASSETS OF THE TRUST. DEPRECIATION ON ASSETS OF A TRUST IS TO BE D EDUCTED FOR THE PURPOSE OF CALCULATING INCOME OF A TRUST. THIS IS B ECAUSE OF THE FACT THAT THE CONCEPT OF COMMERCIAL INCOME NECESSAR ILY ENVISAGES DEDUCTION OF DEPRECIATION ON ASSETS OF THE TRUST. E VEN REASONABLE DEPRECIATION ON ASSETS AND INTEREST ON SINKING FUND OR REPAIRS RESERVE ARE TO BE DEDUCTED AS HELD BY THE MUMBAI BE NCH OF THIS TRIBUNAL IN BALKAN-JI-BARI (1979) 2 TAXMAN 377(BOM. ). HON'BLE BOMBAY HIGH COURT HAD REJECTED A REFERENCE APPLICAT ION OF THE REVENUE IN THE CASE OF CIT V. FRAMJEE CAWASJEE INST ITUTE (1993) 109 CTR 463, HOLDING THAT THE ANSWER TO THE QUESTIO N WHETHER DEPRECIATION WAS ALLOWABLE TO A CHARITABLE TRUST WA S SELF-EVIDENT, EVEN IF THE CAPITAL VALUE OF THE ASSETS ON WHICH DE PRECIATION WAS CLAIMED HAD BEEN ALLOWED AS A DEDUCTION UNDER SECTI ON 11, AS AN APPLICATION OF INCOME FOR RELIGIOUS OR CHARITABLE P URPOSES. ONCE AGAIN IN CIT V. INSTITUTE OF BANKING PERSONNEL SELE CTION (IBPS) 264 ITR 110, HON'BLE BOMBAY HIGH COURT HELD THAT DE PRECIATION SHOULD BE ALLOWED EVEN ON ASSETS, THE COST OF WHICH HAD BEEN ALLOWED AS EXEMPT UNDER SECTION 11 IN THE PRECEDING YEARS. THEIR LORDSHIP ALSO HELD THAT DEPRECIATION SHOULD BE ALLO WED EVEN ON ASSETS RECEIVED ON TRANSFER FROM ANOTHER CHARITABLE TRUST ON WHICH NO COST WAS BORNE BY THE ASSESSEE TRUST. OTHER HIGH COURTS WHICH HAVE ALSO TAKEN THE VIEW THAT DEPRECIATION IS DEDUC TIBLE ARE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF THE SISTERS OF ST. ANNE (1984) 146 ITR 28 AND HON'BLE M ADHYA PRADESH HIGH COURT IN THE CASE OF CIT V. RAJPUR PAL LOTTINE SOCIETY (1989) 180 ITR 579. IN CIT V. SETH MANILAL RANCHHODDAS VISHRAM BHOVAN TRUST (1992) 105 CTR (GUJ) 303 IT WA S HELD BY HON'BLE GUJARAT HIGH COURT THAT DEPRECIATION SHOULD BE ALLOWED WHILE COMPUTING SUCH INCOME UNDER SECTION 11(I)(A) OF THE ACT. ASSESSING OFFICERS STAND THAT PROVISION OF COMPUT ATION OF INCOME UNDER SECTION 11 DOES NOT CONTAIN ANY PROVISION WH ICH MAY ENTITLE AN ASSESSEE TO CLAIM WEIGHTED DEDUCTION FOR ANY EXPENSES INCURRED IS NOT ACCEPTABLE AS SECTION 11 PROVIDES THAT THE INCOME OF THE TRUST IS TO BE COMPUTED ON COMMERCIAL BASIS I.E. AS PER NORMAL ACCOUNTING PRINCIPLES. NORMAL ACCOUNTING PRI NCIPLES CLEARLY PROVIDE FOR DEDUCTING DEPRECIATION TO ARRIV E AT INCOME. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1756 756756 756/M/ /M/ /M/ /M/13 1313 13 6 INCOME SO ARRIVED AT (AFTER DEDUCTING DEPRECIATION) IS TO BE APPLIED FOR CHARITABLE PURPOSE. CAPITAL EXPENSE IS APPLICATION OF THE INCOME SO DETERMINED. SO THERE IS NO DOUBLE DED UCTION OR DOUBLE CLAIM OF THE SAME AMOUNT AS APPLICATION. THU S DEPRECIATION IS TO BE DEDUCTED TO ARRIVE AT INCOME AND IT IS NOT APPLICATION OF INCOME. NO DOUBT, DEPARTMENT HAS REL IED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF ESCORT S LTD.(SUPRA). HOWEVER, IN THIS CASE THE ISSUE BEFORE HON'BLE SUPR EME COURT WAS THAT WHETHER BOTH DEPRECIATION UNDER SECTION 32 AND CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH UNDER SECTION 35 (1)(IV)CAN BE CLAIMED AS DEDUCTION. REFERENCE TO THIS DECISION CA NNOT BE DRAWN AS IN THE CASE OF ESCORTS (SUPRA) BOTH WERE DEDUCTI ONS UNDER THE HEAD BUSINESS INCOME WHEREAS IN CASE OF A CHARITA BLE TRUST DEPRECIATION IS A DEDUCTION TO ARRIVE AT INCOME AND CAPITAL EXPENDITURE IS APPLICATION OF SUCH INCOME. THE AFOR ESAID DECISION IN THE CASE OF ESCORTS LTD. CANNOT BE APPLIED TO DE TERMINE TAXABLE INCOME FOR A TRUST AS THE PROVISIONS TO DETERMINE T AXABLE INCOME OF THE TRUST ARE TOTALLY DIFFERENT AND NORMAL PROVI SIONS FOR COMPUTING INCOME UNDER FIVE HEADS CANNOT BE APPLIED . THUS THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEPRECIATION FOR ALL THESE ASSESSMENT YEARS. THE ORDERS OF THE AUTHORITIES BEL OW ARE SET ASIDE AND THE A.O. IS DIRECTED TO ALLOW THE CLAIM OF DEPR ECIATION. NO DOUBT, THE DECISION OF HONBLE KERALA HIGH COURT WAS NOT CONSIDERED BY THE CO-ORDINATE BENCH. NEVERTHELESS, AS POINTED OUT BY LD. A.R. AT THE BEST, THE DECISION OF HONBLE KERALA HIGH COURT BRI NGS IN A CLEAVAGE OF OPINION ON THE ISSUE WHERE THERE WAS OTHERWISE A UN ITY AMONG OTHER HIGH COURTS ON THIS ISSUE. IT IS TRITE LAW WHEN THERE IS A CLEAVAGE OF OPINION ON AN ISSUE BETWEEN VARIOUS HIGH COURTS, TILL SUCH TIM E THE JURISDICTIONAL HIGH COURT HAS TAKEN AN ADVERSE VIEW, THIS TRIBUNAL CAN ELECT TO FOLLOW THE VIEW IN FAVOUR OF THE ASSESSEE. WE ARE OF THE O PINION THAT LD.CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO CONSIDER THE CLAIM OF DEPRECIATION AS A PART OF UTILIZATION OF THE ASSESSEE. 11. THE REVENUE COULD NOT CONTROVERT THE ABOVE FIN DINGS OF THE TRIBUNAL AND THE LD. DR HAS FAIRLY ACCEPTED THE DEC ISION OF THE TRIBUNAL. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE O RDER PASSED BY THE LD. CIT(APPEALS) AND DISMISS THE GROUNDS RAISED BY THE REVENUE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1756 756756 756/M/ /M/ /M/ /M/13 1313 13 7 12. IN THE RESULT, THE APPEAL OF THE REVENUE STAND S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON WEDNESDAY, THE 20 TH OF NOVEMBER, 2013 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 20.11.2013 VM/- TO: THE ASSESSEE/A.O./CIT(A)/CIT/D.R.