M/s Sunnah Education & Charitable Trust, V. DCIT,

ITA 1794/BANG/2013

• Counselvise Citation: 179421114 RSA 2013
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 19-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 143(3); 12AA; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.1794/BANG/2013 ASSESSMENT YEAR : 2009-10 M/S. SUNNAH EDUCATIONAL & CHARITABLE TRUST, # 6, JAYANAGARA, SHIKARIPURA. SHIMOGA DIST. PAN: AAGTS 4265F VS. THE COMMISSIONER OF INCOME TAX, DAVANGERE. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, C.A. RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) DATE OF HEARING : 27.10.2014 DATE OF PRONOUNCEMENT : 31.10.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDE R DATED 23.10.2013 OF THE LD. COMMISSIONER OF INCOME-TAX [CIT], DAVA NGERE PASSED U/S. 263 OF THE ACT. ITA NO.1794/BANG/2013 PAGE 2 OF 6 2. THE ASSESSEE IS A CHARITABLE TRUST WHICH HAS BE EN GRANTED REGISTRATION U/S. 12AA(A) OF THE ACT VIDE ORDER DA TED 27.3.2007 OF CIT, MANGALORE. REGISTRATION IS GRANTED W.E.F. 7.12.200 6. 3. FOR THE A.Y. 2009-10, ASSESSEE FILED RETURN OF INCOME DECLARING NIL INCOME. THE ASSESSING OFFICER PASSED THE ORDER OF ASSESSMENT U/S. 143(3) OF THE ACT, WHEREIN THE ASSESSEE HAS GIVEN A NOTE T HAT IT HAD APPLIED THE ENTIRE RECEIPTS DURING THE PREVIOUS YEAR FOR CHARIT ABLE PURPOSES AND THEREFORE TAXABLE INCOME IS NIL. ORDER U/S. 143(3 ) OF THE ACT DATED 15.12.2011 WAS PASSED BY THE AO TO THE ABOVE EFFECT . 4. THE CIT, IN EXERCISE OF HIS POWERS U/S. 263 OF T HE ACT, WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE AO WAS ERRONEO US INSOFAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE FOLLOWING TWO REASONS:- (1) AS PER THE AIMS & OBJECTS OF THE ASSESSEE TRUST , IT WAS CATERING TO THE BENEFIT OF A PARTICULAR COMMUNITY VIZ., MUSLIM COMMUNITY AND THEREFORE THE ASSESSEE CANNOT BE SAID TO BE A CHARI TABLE TRUST. (2) ASSESSEE HAD CLAIMED DEPRECIATION OF RS.25,09, 849 ON FIXED ASSETS. AT THE TIME WHEN THE FIXED ASSETS WERE ACQUIRED BY THE ASSESSEE, THE ENTIRE COST/INVESTMENT IN FIXED ASSETS WAS CONS IDERED AS APPLICATION OF FUND IN THE YEAR OF INVESTMENT AND T HEREFORE ALLOWING DEPRECIATION ON THE SAME FIXED ASSETS WOULD BE CONF ERRING A DUAL BENEFIT TO THE ASSESSEE. ITA NO.1794/BANG/2013 PAGE 3 OF 6 ACCORDING TO THE LD. CIT, THE AO WHILE COMPLETING T HE ASSESSMENT HAS NOT EXAMINED BOTH THE AFORESAID ASPECTS, RENDERING HIS ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 5. IT APPEARS THAT SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE FIXING THE HEARING ON 8.10.2013. BUT NEITHER THE ASSESSEE NOR HIS AR APPEARED BEFORE THE LD. CIT OR FILED ANY OBJECTIONS. IN THE CIRCUMSTANCES, THE CIT PRESUMED THAT ASSESSEE HAS NO OBJECTION FOR SETTING ASIDE THE ASSESSMENT. HE ACCORDINGLY SET ASIDE THE ORDER OF THE AO AND DI RECTED THE AO TO REDO THE ASSESSMENT IN ACCORDANCE WITH LAW IN RESPECT OF THE AFORESAID TWO ISSUES. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT, THE ASSES SEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE LD. DR. THE LD. COUNSEL FOR THE ASS ESSEE BROUGHT TO OUR NOTICE THAT THAT CIT IN EXERCISE OF HIS POWERS U/S. 12AA(1)(B)(II) OF THE ACT HAS ACCEPTED THE ASSESSEE TO BE A PUBLIC CHARITABLE TRUST BY HIS ORDER DATED 27.3.2007 AND CONTENDED THAT THE AO CANNOT IN AN ORDER OF ASSESSMENT SEEK TO COME TO THE CONCLUSION CONTRARY TO THAT OF THE CIT IN THE AFORESAID ORDER. IN OTHER WORDS, IT IS BEYOND THE POWERS OF THE AO TO CONSIDER WHETHER THE ASSESSEE IS A PUBLIC CHARITABL E TRUST OR NOT WHILE COMPLETING THE ASSESSMENT. ITA NO.1794/BANG/2013 PAGE 4 OF 6 8. IT WAS NEXT CONTENDED BY THE LD. COUNSEL FOR TH E ASSESSEE THAT THE ISSUE WITH REGARD TO ALLOWING DEPRECIATION ON FIXED ASSETS, WHEN IN THE YEAR OF ACQUISITION OF FIXED ASSETS, COST/INVESTMENT IN FIXED ASSETS WAS CONSIDERED AS APPLICATION OF INCOME AND THEREFORE A LLOWING DEPRECIATION WOULD AMOUNT TO DOUBLE BENEFIT TO A PUBLIC CHARITAB LE TRUST IS NO LONGER RES INTEGRA AND THE ISSUE HAS BEEN SETTLED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. SISTERS OF ST. ANNE 146 ITR 28 (KAR) . 9. IT WAS THUS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ORDER OF THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THEREFORE EXERCISE OF JURISDICTION U/S. 263 OF THE ACT BY THE LD. CIT WAS NOT PROPER. THE LD. DR RELIED ON THE ORDE R OF THE LD. CIT. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS RIGH TLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, IT IS NOT POSSIBL E FOR THE AO TO TAKE A VIEW WHILE COMPLETING THE ASSESSMENT THAT THE OBJECTS OF A PUBLIC CHARITABLE TRUST WHICH HAS BEEN GRANTED RECOGNITION U/S. 12AA OF THE ACT, IS NOT CHARITABLE. WITH REGARD TO THE ISSUE OF ALLOWING DEPRECIATION O N FIXED ASSETS WHEN INVESTMENT IN FIXED ASSETS WAS ALREADY CONSIDERED A S APPLICATION OF INCOME FOR CHARITABLE PURPOSE, WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE. ONE OF THE ISSUE WHICH THE DEPARTMENT OFT EN RAISES IS AS TO WHETHER ALLOWING DEPRECIATION AS DEDUCTION WHILE C OMPUTING INCOME OF A ITA NO.1794/BANG/2013 PAGE 5 OF 6 CHARITABLE TRUST WHEN AT THE TIME OF ACQUISITION OF THE CAPITAL ASSET THE COST IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE. ACCORDING TO THE REVENUE DOING SO WOULD BE GIVING BENEFIT OF DOUBLE DEDUCTION. DEPRECIATION HAS BEEN DEFINED AS THE EXHAUSTION OF THE EFFECTIVE LIFE OF A FIXED ASSET OWING TO USE OR OBSOLESCENCE AND SUCH E XHAUSTION CAN BE FINANCIALLY SPREAD OVER ITS EFFECTIVE LIFETIME. THI S NON-CASH EXPENSE ENSURES TRUE RECORD OF REVENUE OR CAPITAL SO THAT THE BALAN CE SHEET PRESENTS A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS. THE SAME TRE ATMENT HOLDS GOOD FOR CHARITABLE TRUSTS ALSO. THE DEPARTMENT OF REVENUE, IN ITS CIRCULAR NO.5- P(LXX-6) OF 1968, HAS CLARIFIED THAT THE WORD INCO ME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, THAT IS, BOOK I NCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATIONS THEREOF TOWARDS THE PURPOSE OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE FOR THE PURPOSES OF THE TRUST OR OTHERW ISE. THE HONBLE KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME TAX VS SOCIETY OF THE SISTERS OF ST. ANNE (SUPRA) , AFTER CONSIDERING THE DEFINITION OF DEPRECIATION, HAS HELD IF THE DEPRECIATION IS NOT ALLOWED AS NECESSARY DEDUCTION FOR COMPUTING THE INCOME OF A CHARITABLE INSTITUTION, THEN THERE CAN BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST F OR DERIVING THE INCOME. THEREFORE, THE AMOUNT OF DEPRECIATION DEBITED TO TH E ACCOUNTS OF A CHARITABLE INSTITUTION IS TO BE DEDUCTED TO ARRIVE AT THE INCOME FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSES. ITA NO.1794/BANG/2013 PAGE 6 OF 6 11. THUS, ON BOTH COUNTS ON WHICH THE LD. CIT EXERC ISED JURISDICTION U/S. 263 OF THE ACT, THERE WAS NO CASE FOR THE REVENUE. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE IMPUGNED ORDER U/S. 263 OF THE ACT DESERVES TO BE QUASHED AS THE ORDER OF THE ASSESSING OFFICER WA S NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. W E DO SO. ACCORDINGLY, APPEAL OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER , 2014 . SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE, DATED, THE 31 ST OCTOBER, 2014 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.