ITO, Coimbatore V. M/s. Sri Ranganathar Trust, Coimbatore

ITA 1954/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0977 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 05-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Business income; Depreciation; Charitable institution; Earning of tax free income; Capital expenditure
• Section: 12AA; 32; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENN AI BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER .. ITA NO.1954/MDS./2012 ASSESSMENT YEAR:2009-10 INCOME-TAX OFICER, COMPANY WARD-I, 1 ST FLOOR, 63, RACE COURSE, COIMBTORE 641 018. VS. M/S.SRI RANGANATHAR TRUST, 12/45,THADAGAM MAIN ROAD, EDAYARPALAYAM, COIMBATORE 641 025. PAN AAGTS 9410 E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P JACOB, ADDL. CIT D.R. RESPONDENT BY : SHRI S.SRIDHAR, ADVOCATE DATE OF HEARING : 28.01.13 DATE OF PRONOUNCEMENT : 28 . 01.13 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVAN CE IS THAT CIT HELD ASSESSEE TO BE ELIGIBLE FOR CLAIMING DEPRECIAT ION AS A PART OF THE APPLICATION OF ITS INCOME WHILE CONSIDERING ITS CLAIM FOR EXEMPTION UNDER SECTIONS 11 & 12 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ITA. 1954/MDS/12 2 2. FACTS APROPOS ARE THAT ASSESSEE TRUST HAVING RE GISTRATION UNDER SECTION 12AA OF THE ACT HAD CLAIMED CAPITAL EXPENDITURE OF ` 12,13,81,530/- AS WELL AS DEPRECIATION OF ` 10,22,644/- AS PART OF ITS APPLICATION FOR CHARITABLE PURPOSES. A .O. WAS OF THE OPINION THAT SINCE ASSESSEE HAD CLAIMED FULL VALUE OF THE ASSETS AS APPLICATION FOR CHARITABLE PURPOSES, IT COULD NO T THEREAFTER AGAIN CLAIM DEPRECIATION WHILE COMPUTING ITS INCOME . FOR COMING TO THIS CONCLUSION, RELIANCE WAS PLACED ON THE DECI SION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RA O BAHADUR CALAVALA CUNNAN CHETTY CHARITIES (135 ITR 485) AND THAT OF HONBLE APEX COURT IN THE CASE OF ESCORTS INDIA LTD . VS. UOI IN 199 ITR 43. 3. ASSESSEE MOVED IN APPEAL BEFORE THE CIT(A) ARGU ING THAT BY THE PROCESS OF CHARGING DEPRECIATION, THERE WAS NO CLAIM FOR DOUBLE DEDUCTION. RELIANCE WAS PLACED ON THE DECISI ON OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MARKET COMMITTEE, PIPLI IN 330 ITR 16. CIT(A) WAS APPRECIA TIVE OF THIS CONTENTION. ACCORDING TO HIM, HONBLE PUNBAJ & HAR YANA HIGH COURT IN THE CASE OF MARKET COMMITTEE, PIPLI AND IN A LATER DECISION IN THE CASE OF CIT VS. M/S.TINY TOTS EDU CATION SOCIETY IN (2012) 330 ITR 21(P&H) HAD HELD IN FAVOUR OF THE ASSESSEE ITA. 1954/MDS/12 3 AFTER CONSIDERING THE DECISION OF HONBLE APEX COUR T IN THE CASE OF ESCORTS INDIA LTD.,(SUPRA). 4. NOW BEFORE US, LD. D.R. STRONGLY ASSAILING THE ORDER OF THE CIT(A) SUBMITTED HONBLE KERALA HIGH COURT IN THE C ASE OF LISSIE MEDICAL INSTITUTIONS V .CIT IN 348 ITR 344 HAD HELD THAT THAT NOTIONAL CLAIM OF DEPRECIATION ON AN ASSET, THE VAL UE OF WHICH WAS CLAIMED AS APPLICATION OF INCOME WAS NOT PERMISSIBL E. ACCORDING TO LD.D.R, HONBLE KERALA HIGH COURT HAD CONSIDERED THE DECISIONS INCLUDING THAT OF HONBLE P&H HIGH COURT IN THE CASE OF M/S.TINY TOTS EDUCATION SOCIETY (SUPRA) BEFORE COMI NG TO THIS CONCLUSION. 5. PER CONTRA, LD. A.R SUBMITTED THAT WHEN THERE W AS A CLEAVAGE OF OPINION BETWEEN THE VARIOUS HIGH COURTS THAT IN FAVOUR OF THE ASSESSEE HAD TO BE FOLLOWED. RELIANCE WAS ALSO PLACED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF G.K.R. CHARITIES VS.DDIT(E) IN [2012] 51 SOT 538 . 6. WE HAVE PERUSED THE ORDERS AND HEARD RIVAL CONT ENTIONS. NO DOUBT, HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS V .CIT(SUPRA), AFTER CONSIDERING THE D ECISION OF ITA. 1954/MDS/12 4 HONBLE P&H HIGH COURT IN THE CASE OF M/S.TINY TOTS EDUCATION SOCIETY (SUPRA), WHICH HAD IN TURN FOLLOWED ITS OWN DECISION IN THE CASE OF MARKET COMMITTEE, PIPLI (SUPRA), HAS HELD T HAT NOTIONAL CLAIM OF DEPRECIATION ON AN ASSET, THE VALUE OF WH ICH WAS CLAIMED AS AN APPLICATION OF INCOME COULD NOT BE AL LOWED WHILE COMPUTING THE INCOME OF A CHARITABLE INSTITUTION. THEIR LORDSHIPS HELD SO, FOR A REASON THAT BY MAKING SUCH AN ALLOWA NCE, A CHARITABLE INSTITUTION GOT A PERMISSION TO GENERATE INCOME OUTSIDE THE BOOKS. AS AGAINST THIS, HONBLE P&H HIGH COURT IN THE DECISIONS OF MARKET COMMITTEE, PIPLI(SUPRA) AND OF M/S.TINY TOTS EDUCATION SOCIETY (SUPRA) HAD HELD CLEARLY IN FAVOU R OF THE ASSESSEE THAT DEPRECIATION WAS ALLOWABLE AS UTILIZ ATION FOR THE PURPOSE OF COMPUTING EXEMPT INCOME UNDER SECTIONS 1 1 & 12 OF THE ACT. DECISIONS RELIED ON BY THE ASSESSING OFF ICER FOR DISALLOWING THE CLAIM OF THE ASSESSEE WERE ALL CONS IDERED BY HONBLE P&H HIGH COURT IN THE ABOVE CASE. IN FACT , THIS ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF G.K. R. CHARITIES VS.DDIT(E) (SUPRA) WHERE IT WAS HELD AS UNDER:- 7 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE TR IBUNAL IN THE ABOVE MENTIONED CASE, WHILE DECIDING THE SIMILAR IS SUE, HAS ITA. 1954/MDS/12 5 ALLOWED THE CLAIM OF DEPRECIATION TO THE ASSESSEE BY OBSERVING AS UNDER: 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVA L CONTENTIONS. FOR THE PURPOSE OF DETERMINING THE INCOME OF A TRUS T ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT, INCOME ARISI NG FROM PROPERTY HELD UNDER TRUST, CONSTITUTES THE INCOME OF THE TRU ST. IT WILL MEAN INCOME FROM PROPERTY, BUSINESS, DIVIDENDS, INTEREST ON SECURITIES OR OTHER INTEREST. IN OTHER WORDS, THE INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT IS THE INCOME AS PER THE ACCOUNTS OF THE TRUST. IT MEANS, INCOME IN THE COMMERCIAL SENSE, WITHOUT REFE RENCE 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. TRUSTEES OF H. E.H. NIZAMS SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST (1981) 127 I TR 378 (A.P.), CIT V. RAO BAHADUR CALAWALA CUNNAN CHETTY C HARITIES (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 DEDUCTIO N OF DEPRECIATION ON ASSETS OF THE TRUST. DEPRECIATION ON ASSETS OF A TRUST IS TO BE DEDUCTED FOR THE PURPOSE OF CALCULAT ING INCOME OF A TRUST. THIS IS BECAUSE OF THE FACT THAT THE CONCEP T OF COMMERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIAT ION ON ASSETS OF THE TRUST. EVEN REASONABLE DEPRECIATION ON ASSE TS AND INTEREST ON SINKING FUND OR REPAIRS RESERVE ARE TO BE DEDUCT ED AS HELD BY ITA. 1954/MDS/12 6 THE MUMBAI BENCH OF THIS TRIBUNAL IN BALKAN-JI-BARI (1979) 2 TAXMAN 377(BOM.). HON'BLE BOMBAY HIGH COURT HAD RE JECTED A REFERENCE APPLICATION OF THE REVENUE IN THE CASE OF CIT V. FRAMJEE CAWASJEE INSTITUTE (1993) 109 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 O F THE ASSETS ON WHICH DEPRECIATION WAS CLAIMED HAD BEEN ALLOWED AS A DEDUCTION UNDER SECTION 11, AS AN APPLICATION OF INCOME FOR R ELIGIOUS OR CHARITABLE PURPOSES. ONCE AGAIN IN CIT V. INSTITUT E OF BANKING PERSONNEL SELECTION (IBPS) 264 ITR 110, HON'BLE BOM BAY HIGH COURT HELD THAT DEPRECIATION SHOULD BE ALLOWED EVEN ON ASSETS, THE COST OF WHICH HAD BEEN ALLOWED AS EXEMPT UNDER SECT ION 11 IN THE PRECEDING YEARS. THEIR LORDSHIP ALSO HELD THAT DEP RECIATION SHOULD BE ALLOWED EVEN ON ASSETS RECEIVED 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 TH AT DEPRECIATION 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 2 8 AND HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V. RAJ PUR PALLOTTINE SOCIETY (1989) 180 ITR 579. IN CIT V. SETH MANILAL RANCHHODDAS VISHRAM BHOVAN TRUST (1992) 105 CTR (GUJ) 303 IT WA S HELD BY 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 THAT PROVISION OF COMPUT ATION OF INCOME UNDER SECTION 11 DOES NOT CONTAIN ANY PROVISION WH ICH MAY ENTITLE AN ASSESSEE TO CLAIM WEIGHTED DEDUCTION FOR ANY EXP ENSES INCURRED ITA. 1954/MDS/12 7 IS NOT ACCEPTABLE AS SECTION 11 PROVIDES THAT THE I NCOME OF THE TRUST IS TO BE COMPUTED ON COMMERCIAL BASIS I.E. AS PER N ORMAL ACCOUNTING PRINCIPLES. NORMAL ACCOUNTING PRINCIPLE S CLEARLY PROVIDE FOR DEDUCTING DEPRECIATION TO ARRIVE AT INCOME. IN COME SO ARRIVED AT (AFTER DEDUCTING DEPRECIATION) IS TO BE APPLIED FOR CHARITABLE PURPOSE. CAPITAL EXPENSE IS APPLICATION OF THE INCOME SO DET ERMINED. SO THERE IS NO DOUBLE DEDUCTION OR DOUBLE CLAIM OF THE SAME AMOUNT AS APPLICATION. THUS DEPRECIATION IS TO BE DEDUCTED T O ARRIVE AT INCOME AND IT IS NOT APPLICATION OF INCOME. NO DOUBT, DEP ARTMENT HAS RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA). HOWEVER, IN THIS CASE THE ISSUE BEFORE HO N'BLE SUPREME COURT WAS THAT WHETHER BOTH DEPRECIATION UNDER SECT ION 32 AND CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH UNDER SE CTION 35(1)(IV) CAN BE CLAIMED AS DEDUCTION. REFERENCE TO THIS DEC ISION CANNOT BE DRAWN AS IN THE CASE OF ESCORTS (SUPRA) BOTH WERE D EDUCTIONS UNDER THE HEAD BUSINESS INCOME WHEREAS IN CASE OF A CHA RITABLE TRUST DEPRECIATION IS A DEDUCTION TO ARRIVE AT INCOME AND CAPITAL EXPENDITURE IS APPLICATION OF SUCH INCOME. THE AFO RESAID DECISION IN THE CASE OF ESCORTS LTD. CANNOT BE APPLIED TO DETER MINE TAXABLE INCOME FOR A TRUST AS THE PROVISIONS TO DETERMINE T AXABLE INCOME OF THE TRUST ARE TOTALLY DIFFERENT AND NORMAL PROVISIO NS FOR COMPUTING INCOME UNDER FIVE HEADS CANNOT BE APPLIED. THUS TH E ASSESSEE IS ELIGIBLE FOR CLAIMING DEPRECIATION FOR ALL THESE AS SESSMENT YEARS. THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE A ND THE A.O. IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION. ITA. 1954/MDS/12 8 NO DOUBT, THE DECISION OF HONBLE KERALA HIGH COURT WAS NOT CONSIDERED BY THE CO-ORDINATE BENCH. NEVERTHELESS, AS POINTED OUT BY LD. A.R. AT THE BEST, THE DECISION OF HONB LE KERALA HIGH COURT BRINGS IN A CLEAVAGE OF OPINION ON THE ISSUE WHERE THERE WAS OTHERWISE A UNITY AMONG OTHER HIGH COURTS ON TH IS ISSUE. IT IS TRITE LAW WHEN THERE IS A CLEAVAGE OF OPINION ON AN ISSUE BETWEEN VARIOUS HIGH COURTS, TILL SUCH TIME THE JURISDICTIO NAL HIGH COURT HAS TAKEN AN ADVERSE VIEW, THIS TRIBUNAL CAN ELECT TO FOLLOW THE VIEW IN FAVOUR OF THE ASSESSEE. WE ARE OF THE OPIN ION THAT LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO CONSI DER THE CLAIM OF DEPRECIATION AS A PART OF UTILIZATION OF THE ASSESS EE. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 28 TH JANUARY, 2013. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED 28 TH JANUARY, 2013. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA. 1954/MDS/12 9 ITA. 1954/MDS/12 10