ACIT(E), New Delhi V. Hamdard Laboratories (India), New Delhi

ITA 1846/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9344 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 07-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Assessee Lawyers: R M MEHTA
• Keywords: Depreciation; Charitable institution; Rule of consistency; Source of fund; Capital expenditure
• Section: 143(3); 148; 11

Judgement Text

1 ITA NO. 1846/DEL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE PRESID ENT AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 1846/DEL/2 016 (A.Y 2011-12) ACIT(E) CIERCLE-1(1), ROOM NO. 2418, 24 TH FLOOR, E-2 BLOCK, PRATYAKSH KAR BHAWAN, DR. SHYAMA PRASAD MUKHERJEE CIVIC CENTRE, JAWAHAR LAL NEHRU MARG, NEW DELHI (APPELLANT) VS HAMDARD LABORATORIES (INDIA) 2A/3, HAMDARD BUILDING, ASAF ALI ROAD NEW DELHI AAATH0843G (RESPONDENT) APPELLANT BY SMT. NIDHI SRIVASTAVA, CIT(DR) RESPONDENT BY SH. R. M. MEHTA, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 18/01/2016 PASSED BY CIT(A)-40(E), NEW DELHI FOR ASSESSMENT Y EAR 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN ALLOWING DEPRECIATION BY IGN ORING THE FACT THAT WHERE THE CAPITAL EXPENDITURE HAS BEEN TREATED TO HAVE BE EN APPLIED FOR THE OBJECT OF THE TRUST, ALLOWANCE OF DEDUCTION ON ACCOUNT OF DEP RECIATION WILL AMOUNT TO DOUBLE DEDUCTION. 3. THE ASSESSEE IS GOVERNED BY ITS CONSTITUTION DAT ED 28/8/1948 UNDER WHICH THE PARTNERS OF A BUSINESS KNOWN AS HAMDARD DAWAKHANA DEDICATED DATE OF HEARING 02.04.2019 DATE OF PRONOUNCEMENT 04.04.2019 2 ITA NO. 1846/DEL/2016 THE SAID BUSINESS TO CHARITY. HAMDARD GENERATES IN COME FROM THE MANUFACTURE AND SALE OF UNANI MEDICINES AND OTHER ALLIED PRODUC TS. THE ASSESSEE IS ENJOYING THE BENEFIT OF SECTION 11 SINCE INCEPTION. IT HAD ALSO BEEN ENJOYING EXEMPTION U/S 10(23C)(IV) SINCE 1984-85. THE AFORE SAID POSITION PREVAILS TILL THE ASSESSMENT YEAR 2005-06. THEREAFTER, THE ASSES SING OFFICER VIDE ORDER PASSED U/S 143(3) OF THE ACT OBSERVED THAT THE MAIN ACTIVITY OF THE ASSESSEE IS TO PROVIDE HEALTH CARE IN THE FIELD OF UNANI MEDICI NES. THE PROCEEDS OF THE ASSESSEE ARE GOVERNED BY THE WAKF DEED AND APPLIED TO THE CHARITABLE PURPOSES. THE ACTIVITIES OF THE ASSESSEE ARE WITHI N THE MEANING OF SECTION 2(15) OF THE INCOME TAX ACT AND AS SUCH EXEMPTION W AS ALLOWED TO THE ASSESSEE U/S 11 OF THE ACT AS CLAIMED. THE ASSESSEE APPLIED FOR THE RENEWAL OF THE EXEMPTION U/S 10(23C) (IV) FROM THE ASSESSMENT YEAR 2004-05 ONWARDS AND THE SAME CAME TO BE RENEWED BY THE DGIT(E) VIDE ORD ER DATED 28/12/2007 W.E.F. 2004-05 SUBJECT TO CERTAIN CONDITIONS STIPUL ATED IN THE ORDER. A SHOW CAUSE NOTICE PROPOSING TO RESCIND THE EXEMPTION WAS ISSUED TO THE ASSESSEE. THE ASSESSEE FILED ITS SUBMISSIONS. THE DGIT(E) VID E ORDER DATED 22/2/2012 WITHDREW THE EXEMPTION GRANTED TO HAMDARD WITH RETR OSPECTIVE EFFECT FROM THE ASSESSMENT YEAR 2004-05. AS A CONSEQUENCE OF THE A FORESAID ORDER, THE ASSESSING OFFICER PASSED ASSESSMENT ORDERS IN RESP ECT OF ASSESSMENT YEARS 2006-07 TO 2009-10 REJECTING THE CLAIM FOR EXEMPTIO N U/S 11 READ WITH SECTION 10(23C) (IV) OF THE ACT. THE ASSESSING OFFICER ALS O RE-OPENED THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005-06 BY ISSUING A NOTICE U/S 148 OF THE ACT. THE ASSESSEE BY MEANS OF A WRIT PETITION CHALLENGED THE ORDER DATED 22/2/2012 BEFORE THE HONBLE DELHI HIGH COURT WHEREBY THE HON BLE HIGH COURT VIDE ORDER DATED 11/4/2013 QUASHED THE ORDER AND REMANDED THE MATTER TO THE DGIT(E) TO DECIDE THE ISSUE AFRESH. ON REMAND, THE DGIT(E) VIDE ORDER DATED 21/08/2013 HELD WITH HAMDARD WAS NOT ENTITLED TO T HE EXEMPTION U/S 10(23C)IV) W.E.F. ASSESSMENT YEAR 2004-05. IN THE MEANTIME, THE ASSESSMENT ORDER FOR THE ASSESSMENT YEARS 2006-07 TO 2009-10 C AME UP FOR ADJUDICATION BEFORE THE CIT(A) WHO BY MEANS OF AN IDENTICAL ORDE RS DATED 10/07/2013 HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT O F SECTION 11 OF THE ACT IN THE 3 ITA NO. 1846/DEL/2016 ASSESSMENT YEAR 2011-12. THE ASSESSING OFFICER REJ ECTED THE CLAIM OF EXEMPTION U/S 11 OF THE ACT. AS A SEQUENCE OF THE REJECTION OF THE CLAIM U/S 11, THE ASSESSING OFFICER TAXED THE ASSESSEE AS A N AOP COMPUTING ITS TAXABLE INCOME AT RS.83,66,50,250/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 5. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 6. THE LD. AR POINTED OUT THAT IN THE ASSESSMENT YE AR, THE ASSESSING OFFICER THOUGH ALLOWED DEPRECIATION ON ASSETS PURCH ASED DURING CURRENT YEAR HAS GIVEN A NOTING (THAT DEPRECIATION ON EARLIER YE AR ASSET PURCHASED NOT ALLOWED BECAUSE THOSE ASSETS HAVE BEEN CLAIMED APPL ICATION OF INCOME IN EARLIER YEARS). THE LD. AR FURTHER SUBMITTED THAT THE CIT(A) HAS TAKEN COGNIZANCE OF THE HON'BLE DELHI HIGH COURT DECISION DATED 18/9/2015 WHEREIN THE HON'BLE HIGH COURT QUASHED THE ORDERS OF THE CI T(A) FOR ASSESSMENT YEAR 2006-07 TO 2009-10 WHEREBY EXEMPTION U/S 11 HAD BEE N DENIED TO THE ASSESSEE. THUS, ALLOWED THE APPEAL OF THE ASSESSEE . THE LD. AR SUBMITTED THAT THE ISSUE ON MERIT IN THE PRESENT APPEAL IS ALREADY DECIDED BY THE HON'BLE SUPREME COURT IN CASE OF CIT(A) VS. RAJASTHAN & GUJ ARATI CHARITABLE FOUNDATION, PUNE (2018) 89 TAXMANN.COM 127 (SC). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT IN A SSESSEES OWN CASE BEING W.P. (C) NO. 5711/2013 HAS GIVEN A FOLLOWING CONCLU SION WHICH ARE SUMMARIZED BY THE CIT(A) IN PARA 6 OF THE ORDER AS UNDER:- 6. 1. TO THE EXTENT THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OR THE LAW APPLICABLE THE REVENUE IS BOUND TO FOLLOW THE PRINCIPLE OF CONSISTENCY. (PAGE 31, PARA 55 OF THE JUDGEMENT). 4 ITA NO. 1846/DEL/2016 2. THAT HAMDARDS OBJECTS FALL WITHIN THE HEAD OF EDUCATION, MEDICAL RELIEF AND RELIEF OF THE POOR AND NOT THE RESIDUAL CAT EGORY UNDER SECTION 2(15) (PAGE 36 PARA 63 OF THE JUDGEMENT). 3. A TRUST WHICH DONATES FUNDS TO ANOTHER TRUST WOU LD QUALIFY FOR EXEMPTION SINCE ITS ACTIVITIES WOULD BE CHARITABLE IN NATURE AND WHILE DETERMINING THE HEAD OF CHARITABLE PURPOSE UNDER WHICH IT FALLS I T WOULD BE INHARMONIOUS NOT TO RELATE IT TO THE NATURE OF ACTIVITY CARRIED OUT BY THE DONEE TRUST OR THE FURTHER SET OF TRUSTS/INSTITUTIONS TO WHICH THE DON EE TRUST TRANSFERS ITS SURPLUS (PAGE 38 PARA 66). 4. THAT THE DOMINANT OBJECT TEST LAID DOWN IN THE S URAT ART SILK JUDGEMENT STILL HELD GOOD (PAGES 43 & 44 PARA 71). 5. IN THE CASE OF HAMDARD, IT PROVIDED THE TRUST WI TH THE MEANS OF ACHIEVING THE OBJECTS OF THE TRUST-WHICH WAS EDUCATION, MEDIC AL RELIEF AND RELIEF FOR THE POOR. THAT BUSINESS RUN BY A TRUST WAS PART OF ITS CORPUS AND THUS BUSINESS HELD UNDER TRUST (PAGE 45, PARA 72). 6. THAT HAMDARD IS NOT GUIDED BY A PROFIT MOTIVE AN D ALL PROCEEDS GENERATED FROM ITS ACTIVITIES ARE SOLELY IN FURTHERANCE OF IT S CHARITABLE OBJECTS (PAGE 45 PARA 73). 7. THAT THE APPLICATION OF THE SURPLUS AND ACCUMULA TED INCOME TOWARDS THE ONGOING PROJECTS RELATING TO THE BUSINESS OF HAMDAR D WAS IN ORDER AND CONSEQUENTIAL TO THE VIEW THAT THE BUSINESS CARRIED ON BY HAMDARD WAS ONLY MEANT TO ACT AS A SOURCE OF FUNDS FOR ITS- CHARITAB LE ACTIVITIES AND IT WAS UNDISPUTEDLY A CASE OF A BUSINESS HELD IN TRUST (PA RA 77 AT PAGE 48, PARA 80 AT PAGE 50 AND PARA 81 AT PAGE 51). 8. THAT HAMDARD WAS NOT REQUIRED TO MAINTAIN SEPARA TE BOOKS OF ACCOUNTS SINCE ITS CASE WOULD FALL UNDER SECTION 11(4) AND N OT SECTION 11 (4A) THE LATTER 5 ITA NO. 1846/DEL/2016 STIPULATING THE CONDITION OF MAINTAINING SEPARATE B OOKS OF ACCOUNTS (PARAS 93 AND 94 AT PAGES 61 AND 62). 9. THAT HAMDARDS DOMINANT PURPOSE WAS CHARITABLE I N NATURE AND IT WAS NOT GUIDED BY THE MOTIVE OF PROFIT MAKING AND THAT THE FIRST PROVISO TO SECTION 2(15) DID NOT ALTER THE CHARITABLE STATUS O F THE ORGANIZATION (PARAS 101 & 102 AT PAGES 68 & 69). BESIDES THAT THE DECISION OF THE HON'BLE SUPREME C OURT IN CASE OF RAJASTHAN & GUJARATI CHARITABLE FOUNDATION PUNE (SU PRA) CLEARLY HELD THAT DEPRECIATION IN RESPECT OF COST OF THE ASSETS ARE A LLOWABLE TO THE ASSESSEE AS EXPENDITURE AS IT GIVES RISE TO DOUBLE DEDUCTION. THUS, THE LD. AR SUCCEEDS IN HIS SUBMISSIONS MADE BEFORE THE CIT(A) AND THE CIT( A) HAS GIVEN A PROPER FINDING TO THAT EFFECT. THEREFORE, THE APPEAL OF TH E REVENUE DOES NOT SURVIVE. 9. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH APRIL, 2019 . SD/- SD/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER DATED: 04/04/2019 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 6 ITA NO. 1846/DEL/2016 ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 02.04.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 02.04.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 0 4 .04.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 0 4 .04.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 0 4 .04.2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK