Income Tax Officer(Exemptions), Bangalore V. Shradda Trust, Bangalore

ITA 1810/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7276 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 24-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 1 810 /BANG/201 6 ASSESSMENT YEAR : 20 12 - 13 THE INCOME TAX OFFICER (EXEMPTIONS), WARD 3, BANGALORE. VS. M/S. SHRADDHA TRUST, NO. 37/10, YELLAPPA CHETTY LAYOUT, ULSOOR ROAD, BANGALORE 560 042. PAN: AACTS 7373J APPELLANT RESPONDENT ASSESSEE BY : NONE REVENUE BY : SMT. PADMAMEENAKSHI, JCIT (DR) DATE OF HEARING : 07 . 1 1 .201 7 DATE OF PRONOUNCEMENT : 1 0 .1 1 .2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE WHICH IS DIRECT ED AGAINST THE ORDER OF LD. CIT(A)- 14, LTU, BANGALORE DATED 30.08.2016 FOR ASSESSMENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. DISALLOWANCE OF DEPRECIATION: (I). THE CIT(A) HAS FAILED TO APPRECIATE THE FACT T HAT THE HON'BLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INT UITIONS VS. CIT (348 ITR 344) HAS HELD THAT DEPRECIATION CANNOT BE ALLOWED ON ASSETS, WHERE COST OF SUCH ASSETS HAS ALREADY BEEN ALLOWED AS APPLICATION OF INCOME IN THE YEAR OF ACQUISITION/ PURCHASE OF ASSE T. (II). THE CIT(A) HAS FAILED TO APPRECIATE THAT THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNI ON OF INDIA (199 ITR 43), WHILE DEALING WITH THE ISSUE OF ALLOWANCE OF EXPENDITURE ON SCIENTIFIC RESEARCH U/S 35(1)(IV) [CORRESPONDING TO SECTION 10(2) (XIV) OF THE I.T. ACT, 1922] HELD THAT ANY EXPENDITURE OF A CAPITAL NATURE (OR INCURRED TOWARDS PURCHASE OF CAPITAL ASSETS) ON SCI ENTIFIC RESEARCH ALLOWED AS DEDUCTION U/S 35(1)(IV) CANNOT BE ALLOWE D ONCE AGAIN AS DEDUCTION IN THE FORM OF DEPRECIATION ON SUCH CAPIT AL ASSETS. WHILE DOING SO, IT WAS OBSERVED BY THE HON'BLE SUPREME CO URT THAT NO ITA NO. 1810/BANG/2016 PAGE 2 OF 5 LEGISLATURE COULD HAVE AT ALL INTENDED A DOUBLE DED UCTION IN REGARD TO THE SAME BUSINESS OUTGOING AND IF IT IS INTENDED, I T WOULD BE CLEARLY EXPRESSED IN THE STATUTE ITSELF. ACCORDINGLY, IT WA S HELD THAT EVEN IN ABSENCE OF CLEAR STATUTORY INDICATION TO CONTRARY, STATUTE SHOULD NOT BE READ SO AS TO PERMIT AN ASSESSEE TWO DEDUCTIONS I.E . ONCE IN THE FORM OF EXPENDITURE INCURRED TOWARDS PURCHASE OF CAPITAL ASSETS AND SECONDLY, IN THE FORM OF DEPRECIATION ON SUCH CAPIT AL ASSETS. IT WAS ALSO HELD THAT EVEN BEFORE THE AMENDMENT OF THE ACT IN THE FORM OF INSERTION OF CLAUSE (IV) OF SUB SECTION (2) OF SECT ION 35 BY FINANCE ACT, 1980, PROHIBITING ALLOWANCE OF DEPRECIATION, THE AC T DID NOT PERMIT A DEDUCTION FOR DEPRECIATION IN RESPECT OF COST OF CA PITAL ASSET ACQUIRED FOR THE PURPOSE OF SCIENTIFIC RESEARCH TO THE EXTEN T SUCH COST HAD BEEN WRITTEN OFF/ CLAIMED AS DEDUCTION U/S 35(1)(IV) ON THE GROUND THAT THE AMENDMENT ONLY SET OUT MORE CLEARLY AND CATEGORICAL LY WHAT THE PROVISION INTENDED EVEN EARLIER. III). THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ISSUE INVOLVED IN RESPECT OF CAPITAL EXPENDITURE ON SCIEN TIFIC RESEARCH U/S 35(1)(IV) IS SIMILAR TO THAT OF ISSUE INVOLVED IN R ESPECT OF ALLOWANCE OF EXPENDITURE INCURRED TOWARDS PURCHASE OF CAPITAL AS SETS FOR CHARITABLE PURPOSES AS APPLICATION OF INCOME U/S 11(1)(A). AC CORDINGLY, THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IS SQUARELY APPLICABLE TO TAXATION OF CHARITABLE/ RELIGIOUS TRUST OR INSTITUT ION U/S 11, 12 AND 13 OF THE I.T. ACT. (IV) THOUGH THE FINANCE ACT, 2014 HAS AMENDED THE I NCOME TAX ACT, 1961 WITH REGARD TO NON-ALLOWANCE OF DEPRECIATION T O CHARITABLE/ RELIGIOUS TRUST OR INSTITUTION ON THE VALUE OF ASSE TS WHICH HAS ALREADY BEEN ALLOWED AS APPLICATION OF INCOME U/S 11(1) BY INSERTING SUB- SECTION (6) OF SECTION 11, W.E.F 01.04.2015, SUCH A MENDMENT CANNOT BE CONSTRUED AS EFFECTIVE PROSPECTIVELY INASMUCH AS IN ACCORDANCE WITH THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNION OF INDIA (SUPRA), THE AMENDMENT ONLY SET OUT MORE CLEARLY AND CATEGORICALLY WHAT TH E LEGISLATURE HAD INTENDED AND CONVEYED U/S 11(1) EVEN EARLIER TO THE SAID AMENDMENT. AS SUCH, THE AMENDMENT SHALL BE CONSIDERED AS CLARI FICATORY IN NATURE MAKING IT CLEAR THAT THE ASSESSEE IS NOT ENTITLED T O CLAIM DOUBLE DEDUCTION IN RESPECT OF SAME EXPENDITURE U/S 11(1) AS APPLICATION OF INCOME AND ALSO DEPRECIATION SIMULTANEOUSLY. ON NET RECEIPTS VS. GROSS RECEIPTS IN COMPUTATION O F APPLICATION I) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, T HE CIT(A) IS CORRECT IN LAW IN NOT CONSIDERING THE BOARD CIRCULAR ON THI S ISSUE I.E. BOARD CIRCULAR NO. 12-(PXX-7 OF 1968) DATED 26.11.1968, O N WHICH THE AO PLACED RELIANCE FOR DISALLOWANCE OF ACCUMULATION / SET APART OF INCOME U/S 11(1)(A), WHEREIN IT IS CLEARLY EXPLAINED THAT IF A TRUST FAILS TO COMPLY WITH ACCUMULATION PROVISIONS U/S 11(2), THEN THE ENTIRE INCOME ACCUMULATED WOULD BE LIABLE TO ASSESSMENT U/S 11(3) , INCLUDING 15% ITA NO. 1810/BANG/2016 PAGE 3 OF 5 OF INCOME SET APART OR ACCUMULATED U/S 11(1)(A), AN D, THEREFORE, RENDERED A PERVERSE DECISION. II) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW IN HOLDING THAT THE PROVISIONS OF SU B-SECTION (1) AND (2) OF SECTION 11 OPERATE INDEPENDENTLY, AND, THEREFORE , DISALLOWANCE OF ACCUMULATION U/S 11(2) HAS NO EFFECT ON ALLOWANCE O F SET APART/ACCUMULATION U/S 11(1)(A). III) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW IN IGNORING THE FACT THAT IN CASE TH E ASSESSEE IS CLAIMING 15% OF INCOME SET-APART/ ACCUMULATION ON THE BASIS OF GROSS RECEIPTS, THE ASSESSEE SHALL PRODUCE EVIDENCE THAT SUCH AMOUN T IS INVESTED IN THE MODES SPECIFIED U/S 11(5) R.W.S. 13(1)(D)(I). HOWEVER, AS THE NET SURPLUS AVAILABLE IN THE HANDS IS LESS THAN 15% OF GROSS RECEIPTS, THE ASSESSEE WILL NOT BE IN A POSITION TO INVEST HIGHER AMOUNT/ MORE THAN NET SURPLUS IN THE MODES SPECIFIED U/S 11(5). IV) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW IN NOT CONSIDERING THE FACT THAT IF THE GROSS RECEIPTS ARE CONSIDERED AS INCOME WITHIN THE MEANING OF SECTION 11(1)(A), THEN IN THE EVENT OF ASSESSEE LOSING THE EXEMPTION DUE TO V IOLATION OF CONDITIONS STIPULATED U/S 13, THEN THE ENTIRE GROSS RECEIPTS BEING THE INCOME IS LIABLE TO BE TAXED, WHICH IS GROSSLY UNJU STIFIED AND UNVIABLE AND BEYOND THE PURVIEW OF SECTION 11(1)(A). ON THE OTHER HAND, IT IS NOT THE CASE OF THE ASSESSEE TO ARGUE THAT FOR THE PURPOSE OF CLAIMING 15% OF INCOME SET APART/ ACCUMULATION, INCOME TO BE RECKONED ON THE BASIS OF GROSS RECEIPTS, BUT IN THE EVENT OF ASSESS EE LOSING THE EXEMPTION, THE INCOME WILL BE RECOGNIZED ON THE BAS IS OF NET SURPLUS/BOOK PROFITS RATHER THAN GROSS RECEIPTS. 2) ON SET-OFF OF EXCESS EXPENDITURE/APPLICATION/DEF ICIT/LOSS:- A) THE CIT (A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW SET-OFF OF EXCESS EXPENDITURE/APPLICATION PERTAININ G TO CURRENT ASST.YEAR AND EARLIER YEARS AGAINST THE INCOME OF T HE FUTURE ASST.YEAR WITHOUT APPRECIATING THE FACT THAT AS PER THE SCHEM E OF TAXATION OF CHARITABLE OR RELIGIOUS TRUST/ INSTITUTION AS CODIF IED U/S 11, 12 AND 13, THERE IS NO PROVISION FOR COMPUTING LOSS FROM PROPE RTY HELD UNDER TRUST/ INSTITUTION ON ACCOUNT OF EXCESS APPLICATION OF INCOME/FUNDS OF THE TRUST. B) THE CIT (A) HAS FAILED TO APPRECIATE THE FACT TH AT THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENV ISAGED U/S 15 TO 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PURPOSE OF CLA IMING EXEMPTION UNDER SEC. 11, 12 AND 13 AND, THEREFORE, THE PROVIS IONS RELATING TO SET- OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM A NOTHER HEAD AND CARRY FORWARD AND SET-OFF OF LOSS AGAINST THE INCOM E OF SUBSEQUENT ITA NO. 1810/BANG/2016 PAGE 4 OF 5 YEARS AS ENVISAGED U/S 70 TO 79 ARE ALSO NOT APPLIC ABLE TO THE CHARITABLE TRUSTS/INSTITUTIONS. C) THE CIT (A) HAS FAILED TO DISCUSS THE ISSUE IN D ETAIL BRINGING OUT THE FACTS AND APPLYING THE RELEVANT PROVISIONS OF THE A CT, BUT CAME TO A CONCLUSION THAT EXCESS EXPENDITURE/EXCESS APPLICATI ON SHALL BE ALLOWED TO BE CARRIED FORWARD AND SET-OFF AGAINST T HE INCOME OF THE FUTURE ASSESSMENT YEARS AND, THEREBY, RENDERING THE ORDER PERVERSE. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE ON THE A PPOINTED DATE OF HEARING ALTHOUGH NOTICE WAS SENT TO THE ASSESSEE BY RPAD WH ICH HAS BEEN DULY SERVED ON THE ASSESSEE AS PER THE ACKNOWLEDGEMENT A VAILABLE ON RECORD AND HENCE, WE PROCEED TO DISPOSE OF THIS APPEAL EX-PART E QUA THE ASSESSEE. THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT ORDER. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D DR OF THE REVENUE AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE F IND THAT IN RESPECT OF FIRST ISSUE I.E. ALLOWABILITY OF DEDUCTION OF DEPRECIATIO N, THE DECISION OF CIT(A) IS BY FOLLOWING VARIOUS JUDGMENTS INCLUDING THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. SOCIETY OF TH E SISTERS OF ST. ANNE AS REPORTED IN 146 ITR 28(KAR). IN THIS VIEW OF THE M ATTER, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. 5. REGARDING THE SECOND ISSUE I.E. WHETHER THE ACCU MULATION U/S. 11(1)(A) OF IT ACT IS TO BE COMPUTED ON NET RECEIPTS OR GROSS RECE IPTS, THE ISSUE WAS DECIDED BY CIT(A) BY FOLLOWING THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S. JYOTHY CHARITABLE TRUST IN ITA NO. 662/BANG/2015 AS NOTED BY HIM IN PARA NO. 7.12 OF HIS ORDER. IN THIS VIEW OF THE MATTER, WE FIND NO INFIRMITY IN ORDER OF CIT(A) ON THIS ISSUE ALSO. 6. THE THIRD ISSUE IS REGARDING SET-OFF OF EXCESS E XPENDITURE / APPLICATION / DEFICIT / LOSS. ON THIS ISSUE, THE MATTER IS DECIDED BY CIT (A) AS PER PARA NO. 8.7 OF HIS ORDER WHICH IS REPRODUCED HEREINBELOW FOR THE SAKE OF READY REFERENCE. 8.7 HOWEVER, JURISDICTIONAL ITAT ORDER IN THE CASE OF ACIT VS CITY HOSPITAL CHARITABLE TRUST (2015) 42 ITR(TRIB)583 ( BANGALORE) AND DCIT VS MANIPAL ACADEMY OF HIGHER EDUCATION (2015) 44 ITR(TRIB)18 (BANGALORE) HAS CONSIDERED THE ISSUE IN FAVOUR OF THE ITA NO. 1810/BANG/2016 PAGE 5 OF 5 ASSESSEE. HOWEVER, THE DEPARTMENT FILED APPEAL ON S IMILAR ISSUE IN KARNATAKA HIGH COURT AND IS PENDING. RESPECTFULLY FOLLOWING THE JURISDICTIONAL ITAT ORDER IN THE ABOVE CASES, THIS GROUND OF APPEAL IS ALLOWED. 7. FROM THE ABOVE PARA REPRODUCED FROM THE ORDER OF CIT(A), IT IS SEEN THAT THE DECISION OF CIT(A) IS BY FOLLOWING VARIOUS TRIBUNAL ORDERS AND THEREFORE, THERE IS NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE A LSO. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 10 TH NOVEMBER, 2017. /MS/ COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.