DDIT, CHENNAI V. Sri Rangalatchumi Educational Trust, CHENNAI

ITA 1930/CHNY/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7187 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 11-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: R K V SUNDAR
• Keywords: Exemption for trust; Business income; Depreciation; Charitable institution; Cost of acquisition; Capital expenditure
• Section: 32; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 1930/MDS/2014 ( / ASSESSMENT YEAR: 2009-10) DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS)-III, AAYAKAR BHAVAN ANNEXE 3 RD FLOOR, 121 M.G.ROAD, CHENNAI-600 034. VS M/S. SRI RANGALATCHUMI EDUCATIONAL TRUST, 16, MARIAMMAN KOIL STREET WEST KK NAGAR, CHENNAI-600 078. PAN: AABTS8450R ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. GURU BHASHYAM, JCIT /RESPONDENT BY : MR. R.K.V.SUNDAR, ADVOCATE / DATE OF HEARING : 22 ND SEPTEMBER, 2014 /DATE OF PRONOUNCEMENT : 31 ST OCTOBER, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, CH ENNAI DATED 24.03.2014 FOR THE ASSESSMENT YEAR 2009-10. THE ONLY ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLO WING THE CLAIM OF DEPRECIATION WHEN THE COST OF ACQUISITION OF ASSET WAS TREATED AS APPLICATION OF INCOME FOR THE PURPOS E OF CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT. 2 ITA NO.1930/MDS/2014 2. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN APPEAL HAS BEEN DECIDED BY THIS TRIBUNAL IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEARS 2006-07 & 2007-08 IN ITA NOS.681 & 682/MDS/2010 DATED 25 TH MARCH, 2011 AND A COPY OF THE SAID ORDER IS PLACED ON RECORD. 3. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT SIMILAR ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE HONB LE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTIONS) VS. CHARANJIV CHARITABLE TRUST (267 CT R 306). 4. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. ON GOING THROUGH THE O RDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE, THE ISSUE IN APPEAL HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN ASSESSEES OWN CASE IN ITS FAVOUR IN ITA NO.681 & 682/MDS/2010 DATED 25.03.2011HOLDING AS UNDER:- 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, A TRUST HOLDING REGISTRATION UNDER SECTION 12A(A) OF THE AC T, HAD CLAIMED DEPRECIATION WHILE COMPUTING ITS INCOME FOR THE RESPECTIVE ASSESSMENT YEARS. A.O. WAS OF THE OPINI ON THAT WHEN THE COST OF ADDITION TO ASSETS WAS CLAIME D BY THE ASSESSEE AS APPLICATION OF INCOME FOR THE RESPE CTIVE ASSESSMENT YEARS, ASSESSEE COULD NOT FURTHER CLAIM 3 ITA NO.1930/MDS/2014 DEPRECIATION ON THE VERY SAME ASSETS. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V. ESCORTS (199 ITR 43)(SC). APPEALS OF THE ASSESSEE BEFORE THE CIT(APPEALS) WERE UNSUCCESSFUL. ACCORDING TO CIT(APPEALS), THE DECISION OF DELHI BE NCH OF THIS TRIBUNAL IN THE CASE OF MAHILA SIDH NIRMAN YOJNA V. IAC (50 ITD 472) AS WELL AS THE DECISION OF HON' BLE APEX COURT IN THE CASE OF ESCORTS (SUPRA) WENT AGAI NST IT. HE, THEREFORE, UPHELD THE ORDERS OF THE A.O. 3. NOW BEFORE US, THE LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF THE CIT(APPEALS), SUBMITTED THAT THE CLAIM MADE FOR DEPRECIATION WAS FOR USE OF THE ASSETS WHILE CLAIM FOR THE CAPITAL OUTGO AS AN APPLICATION WAS ON A DIFFERENT FOOTING. ACCORDING TO HIM, JUST BECAUS E CAPITAL EXPENDITURE WAS CONSIDERED AS APPLICATION OF INCOME , IT COULD NOT BE SAID THAT ASSESSEE WOULD NOT BE ENTITL ED TO CLAIM DEPRECIATION THEREON. 4. PER CONTRA, THE LEARNED D.R. SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ACCORDING TO HIM, THE CLAIM OF THE ASSESSEE IF ALLOWED, WOULD RESULT IN DOUBLE DEDUCTION. 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. FOR THE PURPOSE OF DETERMINING THE IN COME OF A TRUST ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT, INCOME ARISING FROM PROPERTY HELD UNDER TRUST, CONSTITUTES THE INCOME OF THE TRUST. IT WILL MEAN INCOME FROM PROPERTY, BUSINESS, DIVIDENDS, INTEREST ON SEC URITIES OR OTHER INTEREST. IN OTHER WORDS, THE INCOME 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 SENSE, WITHOUT REFERENCE TO THE HEADS OF INCOME SPECIFIED IN SECTION 14 OF THE ACT, I.E. THE BOOK INCOME AND NOT TOTAL INCOME AS DEFINED IN SECTION 2 (45) OF THE ACT. THIS POSITION IS CONFIRMED IN CIT V. T RUSTEES OF H.E.H. NIZAMS SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST (1981) 127 ITR 378 (A.P.), CIT V. RAO BAHADUR CALAWALA CUNNAN CHETTY CHARITIES (1982) 135 ITR 485 (MAD.) AND CIT V. ESTATE OF V.L. ETHIRAJ (1982) 136 ITR 12 (MAD.). THIS POSITION IS ALSO CONFIRMED BY THE CBDT VIDE ITS CIRCULAR NO.5-P (LXX-6) DATED 19 TH JUNE, 1968. THE CONCEPT OF COMMERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIATION ON ASSETS OF TH E TRUST. DEPRECIATION ON ASSETS OF A TRUST IS TO BE DEDUCTED FOR THE PURPOSE OF CALCULATING INCOME OF A 4 ITA NO.1930/MDS/2014 TRUST. THIS IS BECAUSE OF THE FACT THAT THE CONCEP T OF COMMERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION O F DEPRECIATION ON ASSETS OF THE TRUST. EVEN REASONAB LE DEPRECIATION ON ASSETS AND INTEREST ON SINKING FUND OR REPAIRS RESERVE ARE TO BE DEDUCTED AS HELD BY THE MUMBAI BENCH OF THIS TRIBUNAL IN BALKAN-JI-BARI (19 79) 2 TAXMAN 377(BOM.). HON'BLE BOMBAY HIGH COURT HAD REJECTED A REFERENCE APPLICATION OF THE REVENUE IN THE CASE OF CIT V. FRAMJEE CAWASJEE INSTITUTE (1993) 10 9 CTR 463, HOLDING THAT THE ANSWER TO THE QUESTION WHETHER DEPRECIATION WAS ALLOWABLE TO A CHARITABLE TRUST WAS SELF-EVIDENT, EVEN IF THE CAPITAL VALUE OF THE ASSETS ON WHICH DEPRECIATION WAS CLAIMED HAD BEEN ALLOWED AS A DEDUCTION UNDER SECTION 11, AS AN APPLICATION OF INCOME FOR RELIGIOUS OR CHARITABLE PURPOSES. ONCE AGAIN IN CIT V. INSTITUTE OF BANKING PERSONNEL SELECTION (IBPS) 264 ITR 110, HON'BLE BOMBAY HIGH COURT HELD THAT DEPRECIATION SHOULD BE ALLOWED EVEN ON ASSETS, THE COST OF WHICH HAD BEEN ALLOWED AS EXEMPT UNDER SECTION 1 1 IN THE PRECEDING YEARS. THEIR LORDSHIP ALSO HELD T HAT DEPRECIATION SHOULD BE ALLOWED EVEN ON ASSETS RECEI VED 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 DEPRECIA TION IS DEDUCTIBLE ARE HON'BLE KARNATAKA HIGH COURT IN T HE CASE OF CIT V. SOCIETY OF THE SISTERS OF ST. ANNE ( 1984) 146 ITR 28 AND HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V. RAJPUR PALLOTTINE SOCIETY (1989) 180 ITR 579. IN CIT V. SETH MANILAL RANCHHODDAS VISHRA M BHOVAN TRUST (1992) 105 CTR (GUJ) 303 IT WAS HELD B Y 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 THA T PROVISION OF COMPUTATION OF INCOME UNDER SECTION 1 1 DOES NOT CONTAIN ANY PROVISION WHICH MAY ENTITLE AN ASSESSEE TO CLAIM WEIGHTED DEDUCTION FOR ANY EXPENS ES INCURRED IS NOT ACCEPTABLE AS SECTION 11 PROVIDES THAT THE INCOME OF THE TRUST IS TO BE COMPUTED ON COMMER CIAL BASIS I.E. AS PER NORMAL ACCOUNTING PRINCIPLES. NO RMAL ACCOUNTING PRINCIPLES CLEARLY PROVIDE FOR DEDUCTING DEPRECIATION TO ARRIVE AT INCOME. INCOME SO ARRIVE D 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 DEDUCT ION OR DOUBLE CLAIM OF THE SAME AMOUNT AS APPLICATION. THUS DEPRECIATION IS TO BE DEDUCTED TO ARRIVE AT INCOME AND IT IS NOT APPLICATION OF INCOME. NO DOUBT, DEPARTMENT HAS 5 ITA NO.1930/MDS/2014 RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA). HOWEVER, IN THIS CASE THE ISSUE BEFORE HON'BLE SUPREME COURT WAS THAT WHETHER BOTH DEPRECIATION UNDER SECTION 32 AND CAPITAL EXPENDITU RE ON SCIENTIFIC RESEARCH UNDER SECTION 35(1)(IV) CAN BE CLAIMED AS DEDUCTION. REFERENCE TO THIS DECISION C ANNOT BE DRAWN AS IN THE CASE OF ESCORTS (SUPRA) BOTH WER E DEDUCTIONS UNDER THE HEAD BUSINESS INCOME WHEREAS IN CASE OF A CHARITABLE TRUST DEPRECIATION IS A DEDUCT ION TO ARRIVE AT INCOME AND CAPITAL EXPENDITURE IS APPLICA TION OF SUCH INCOME. THE AFORESAID DECISION IN THE CASE OF ESCORTS LTD. CANNOT BE APPLIED TO DETERMINE TAXABLE INCOME FOR A TRUST AS THE PROVISIONS TO DETERMINE T AXABLE INCOME OF THE TRUST ARE TOTALLY DIFFERENT AND NORMA L PROVISIONS FOR COMPUTING INCOME UNDER FIVE HEADS CA NNOT BE APPLIED. THUS THE ASSESSEE IS ELIGIBLE FOR CLAI MING DEPRECIATION FOR ALL THESE ASSESSMENT YEARS. THE O RDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE A.O. IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION. 5. THE CO-ORDINATE BENCH OF THIS TRIBUNAL WHILE ALL OWING THE CLAIM OF THE ASSESSEE HAS CONSIDERED THE DECISI ONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. IN STITUTE OF BANKING PERSONNEL SELECTION (264 ITR 110), THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST.ANNE (146 ITR 28), THE HONBLE MADHY A PRADESH HIGH COURT IN THE CASE OF CIT VS. RAJPUR PA LLOTTINE SOCIETY (180 ITR 579) AND THE HONBLE GUJRAT HIGH C OURT IN THE CASE OF CIT VS. SETH MANILAL RANCHHODDAS VISHRA M BHOVAN TRUST (105 CTR 303). THE CO-ORDINATE BENCH OBSERVED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF 6 ITA NO.1930/MDS/2014 CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (S UPRA) HELD THAT DEPRECIATION SHOULD BE ALLOWED EVEN ON ASSETS, THE COST OF WHICH HAD BEEN ALLOWED AS EXEMPT UNDER SECTION 1 1 IN THE PRECEDING YEARS. IN THE DECISION RELIED ON BY THE DEPARTMENTAL REPRESENTATIVE, IT APPEARS THAT NONE OF THESE HIGH COURT DECISIONS HAVE BEEN CONSIDERED BY THE DE LHI HIGH COURT. THE HONBLE DELHI HIGH COURT WITHOUT CONSID ERING THE DECISIONS OF OTHER HIGH COURTS ESPECIALLY THE HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA) AND HONBLE KAR NATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF THE SI STERS OF ST.ANNE (SUPRA) WHICH ARE DIRECTLY ON THE ISSUE AND DECIDED IN FAVOUR OF THE ASSESSEE, HAS TAKEN A CONTRARY VIE W IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTIONS) VS. CHA RANJIV CHARITABLE TRUST(SUPRA) FOLLOWING ITS OWN JUDGEMENT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTIONS) VS.VISH WA JAGRATI MISSION IN IT APPEAL NO.140 OF 2012 DATE D 29.03.2012 HOLDING THAT WHERE IN A CASE OF A TRUST COST OF ASSET HAS BEEN ALLOWED AS DEDUCTION BY WAY OF APPLI CATION OF INCOME THEN DEPRECIATION ON THE SAME ASSET CANNOT B E 7 ITA NO.1930/MDS/2014 ALLOWED IN THE COMPUTATION OF THE TRUST. IN VIEW O F THE CONFLICTING DECISIONS OF HIGH COURTS ON THE ISSUE, THE DECISION IN FAVOUR OF THE ASSESSEE IS TO BE FOLLOWED IS THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. VEGETABLE PRODUCTS LTD. (88 ITR 192). THEREFORE , RESPECTFULLY FOLLOWING THE DECISIONS OF HONBLE BOM BAY HIGH COURT AND HONBLE KARNATAKA HIGH COURT IN THE CASES OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA ) AND CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE (SUPRA) RES PECTIVELY AND ALSO THIS TRIBUNAL IN ASSESSEES OWN CASE, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) ON THIS ISSUE AND REJECT THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 3 1 ST DAY OF OCTOBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 31 ST OCTOBER, 2014 SOMU 8 ITA NO.1930/MDS/2014 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .