The Dy. Commissioner of Income Tax (Exemptions), Circle-1, Ahmedabad V. The Banaskantha District Kelvani Mandal, Palanpur

ITA 1908/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5798 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 19-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Assessee Lawyers: MANTHAN S KHOKHANI
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 143(3); 12A; 32; 28; 2; 11

Judgement Text

ITA NO. 1908/AHD/2016 DCIT VS/ BANASKANTHA DIST. KELAVANI MANDAL ASSESSMENT YEAR: 2012-13 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND RAJPAL YADAV JM] ITA NO. 1908/AHD/2016 ASSESSMENT YEAR: 2012-13 DY. COMMISSIONER OF INCOME-TAX (EXEMPTIONS) ....... ...........APPELLANT CIRCLE-1, AHMEDABAD VS. THE BANASKANTHA DISTRICT KELVANI MANDAL ...........................RESPONDENT C/O. COLLEGE CAMPUS, OPP. S.T. WORKSHOP, HIGHWAY, PALANPUR (BK) [PAN : AAATB 1553 B ] APPEARANCES BY: SAURABH SINGH FOR THE APPELLANT MANTHAN S. KHOKHANI FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 13.03.2018 DATE OF PRONOUNCING THE ORDER : 22.03.2018 O R D E R PER PRAMOD KUMAR, AM: 1. THIS APPEAL, FILED BY THE REVENUE, IS DIRECTED A GAINST LEARNED CIT(A)-9, AHMEDABADS ORDER DATED 20 TH MAY 2016 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSM ENT YEAR 2012-13. 2. THE GRIEVANCE RAISED BY THE ASSESSING OFFICER IS AS FOLLOWS:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) IS JUSTIFIED IN ALLOWING THE ASSESSEES APPE AL NEGLECTING THE FINDING OF ASSESSING OFFICER REGARDING ADDITION OF RS.66,11,344/- BEING DEPRECIATION.. 3. THE GRIEVANCE RAISED BY THE REVENUE IS NO MORE R ES INTEGRA AS THE SAME IS NOW WELL SETTLED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY THE HON'BLE SUPREME COURT IN A BUNCH OF APPEALS IN CIVIL APPEAL NO. 7186 OF 2014. IT WOULD BE APPROPRIATE TO EXTRACT THE JUDGMENT OF THE HON'BLE SUPREME COURT FOR THE SAKE OF THE COMPLETENESS OF THE ADJUDICATION. 'THESE ARE THE PETITIONS AND APPEALS FILED BY THE I NCOME TAX DEPARTMENT AGAINST THE ORDERS PASSED BY VARIOUS HIGH COURTS GR ANTING BENEFIT OF DEPRECIATION ON THE ASSETS ACQUIRED BY THE RESPONDE NTS-ASSESSEES. IT IS A MATTER OF RECORD THAT ALL THE ASSESSEES ARE CHARITA BLE INSTITUTIONS REGISTERED ITA NO. 1908/AHD/2016 DCIT VS/ BANASKANTHA DIST. KELAVANI MANDAL ASSESSMENT YEAR: 2012-13 PAGE 2 OF 4 UNDER SECTION 12A OF THE INCOME TAX ACT (HEREINAFTE R REFERRED TO AS 'ACT'). FOR THIS REASON, IN THE PREVIOUS YEAR TO THE YEAR WITH WHICH WE ARE CONCERNED AND IN WHICH YEAR THE DEPRECIATION WAS CLAIMED, THE ENT IRE EXPENDITURE INCURRED FOR ACQUISITION OF CAPITAL ASSETS WAS TREATED AS APPLIC ATION OF INCOME FOR CHARITABLE PURPOSES UNDER SECTION 11(1)(A) OF THE A CT. THE VIEW TAKEN BY THE ASSESSING OFFICER IN DISALLOWING THE DEPRECIATION W HICH WAS CLAIMED UNDER SECTION 32 OF THE ACT WAS THAT ONCE THE CAPIT AL EXPENDITURE IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES, THE ASSESSEES HAD VIRTUALLY ENJOYED A 100 PER CENT WRITE OFF OF THE COST OF ASS ETS AND, THEREFORE, THE GRANT OF DEPRECIATION WOULD AMOUNT TO GIVING DOUBLE BENEF IT TO THE ASSESSEE. THOUGH IT APPEARS THAT IN MOST OF THESE CASES, THE CIT (APPEALS) HAD AFFIRMED THE VIEW, BUT THE ITAT REVERSED THE SAME AND THE HI GH COURTS HAVE ACCEPTED THE DECISION OF THE ITAT THEREBY DISMISSING THE APP EALS OF THE INCOME TAX DEPARTMENT. FROM THE JUDGMENTS OF THE HIGH COURTS, IT CAN BE DISCERNED THAT THE HIGH COURTS HAVE PRIMARILY FOLLOWED THE JUDGMEN T OF THE BOMBAY HIGH COURT IN 'COMMISSIONER OF INCOME TAX V. INSTITUTE O F BANKING PERSONNEL SELECTION (IBPS)' [(2003) 131 TAXMAN 386 (BOMBAY)]. IN THE SAID JUDGMENT, THE CONTENTION OF THE DEPARTMENT PREDICATED ON DOUB LE BENEFIT WAS TURNED DOWN IN THE FOLLOWING MANNER: 3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIR ES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATION WAS ALLOWABLE O N THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN 1994 TAX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. THE ASSESSEE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRUST. IT WAS ALSO REGISTERED WITH THE C OMMISSIONER OF INCOME TAX, PUNE. THE ASSESSEE DERIVED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1977-78, 1978-79 A ND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE B UILDING @2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITURE @ 5%. T HE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS : WHET HER DEPRECIATION COULD BE DENIED TO THE ASSESSEE, AS EXPENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN TREATED AS APPLICATION OF INCOME IN THE YEAR OF ACQUISITION? IT WAS HELD BY THE BOMBAY HIGH COURT T HAT SECTION 11 OF THE INCOME TAX ACT MAKES PROVISION IN RESPECT OF CO MPUTATION OF INCOME OF THE TRUST FROM THE PROPERTY HELD FOR CHAR ITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND A CCUMULATION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOM E TAX ACT DEALS WITH CHARGEABILITY OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCOME FROM PROFITS AN D GAINS OF BUSINESS AHLL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO S ECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECI ATION IN RESPECT OF BUILDING, PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTIO N SUBJECT TO SECTION 34. IN THAT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON BEHALF OF THE REVENUE, NAMELY, THAT DEP RECIATION CAN BE ALLOWED AS DEDUCTION ONLY UNDER SECTION 32 OF THE I NCOME TAX ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT REJECTED TH IS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSE SSEE ON GENERAL ITA NO. 1908/AHD/2016 DCIT VS/ BANASKANTHA DIST. KELAVANI MANDAL ASSESSMENT YEAR: 2012-13 PAGE 3 OF 4 PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME TAX ACT THE COURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENUE THAT SECTION 32OF THE INCOME TAX ACT WAS THE ONLY SECTION GRANTING BENEFI T OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FORM BUILDING, PLANT AND MACHINERY AND FURN ITURE WAS LIABLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER ALTHOUGH TH E TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPE CT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME TAX ACT PROVIDING F OR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROF ESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQ UIRED TO BE COMPUTED UNDER SECTION 11ON COMMERCIAL PRINCIPLES A FTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THE REOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFORESTATED JUD GMENT OF THE BOMBAY HIGH CURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMAT IVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTI ON WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTO R OF INCOME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 10 9 CTR 463. IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS T HE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TO OK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOM E OF THE TRUST. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSI STANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL , HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THAT FULL EXPENDI TURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS, W HAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS 'APPLICATION OF INCOME' OF THE TRUST IN THE YEAR IN WHICH THE INCOME WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT M EAN THAT IN COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YE ARS, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACC OUNT. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQ UENTLY, QUESTION NO. 2 IS ANSWERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE A RE OF THE OPINION THAT THE AFORESAID VIEW TAKEN BY THE BOMBAY HIGH COURT CORRE CTLY STATES THE PRINCIPLES OF LAW AND THERE IS NO NEED TO INTERFERE WITH THE S AME. IT MAY BE MENTIONED THAT MOST OF THE HIGH COURTS HA VE TAKEN THE AFORESAID VIEW WITH ONLY EXCEPTION THERETO BY THE HIGH COURT OF KERALA WHICH HAS TAKEN A CONTRARY VIEW IN 'LISSIE MEDICAL INSTITUTIONS V. COMMISSIONER OF INCOME TAX'. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LEG ISLATURE, REALISING THAT THERE WAS NO SPECIFIC PROVISION IN THIS BEHALF IN THE INC OME TAX ACT, HAS MADE AMENDMENT IN SECTION 11(6) OF THE ACT VIDE FINANCE ACT NO. 2/2014 WHICH BECAME EFFECTIVE FROM THE ASSESSMENT YEAR 2015-2016 . THE DELHI HIGH COURT ITA NO. 1908/AHD/2016 DCIT VS/ BANASKANTHA DIST. KELAVANI MANDAL ASSESSMENT YEAR: 2012-13 PAGE 4 OF 4 HAS TAKEN THE VIEW AND RIGHTLY SO, THAT THE SAID AM ENDMENT IS PROSPECTIVE IN NATURE. IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPRE CIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. FOR THE AFORESAID REASONS, WE AFFIRM THE VIEW TAKEN BY THE HIGH COURTS IN THESE CASES AND DISMISS THESE MATTERS. 4. RESPECTFULLY FOLLOWING THE VIEWS SO EXPRESSED BY THE HONBLE SUPREME COURT (SUPRA), WE CONFIRM THE ORDER OF THE CIT(A) AND DEC LINE TO INTERFERE IN THE MATTER. 5. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUN CED IN THE OPEN COURT TODAY ON THE 22 ND MARCH, 2018 SD/- SD/- RAJPAL YADAV PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 22 ND DAY OF MARCH, 2018 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: ..... 22.03.2018....COVERED MATTER...... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: ..... 22.03.2018....... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: 22.03.2018....... . 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: ... 22.03.2018.... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : .. 22.03.2018. 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER : 8. DATE OF DESPATCH OF THE ORDER: ......