M/s. Sakthi Foundation, CHENNAI V. DCIT, CHENNAI

ITA 2076/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8155 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 08-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MDS; B SAHADEVAN JCIT I T A NOS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Charitable institution; Scheme of amalgamation; Capital expenditure
• Section: 12AA; 32; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . . !' , # $% BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO. 2075/MDS/2016 & '& /ASSESSMENT YEAR : 2011-12 M/S.SOUTHERN INDIA MILLS ASSOCIATION, 41, SHANMUGAMANDRAM, RACE COURSE ROAD, COIMBATORE 641 018. PAN: AAAA S0957 M V. THE INCOME TAX OFFICER, COMPANY WARD -1, COIMBATORE. (PRESENTLY: THE DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTIONS), COIMBATORE. ( () /APPELLANT) ( *+() /RESPONDENT) ./ ITA NO. 2076/MDS/2016 & '& / ASSESSMENT YEAR : 2011-12 M/S.SAKTHI FOUNDATION, 180, RACE COURSE ROAD, COIMBATORE 641 018. PAN: AABTS 4026 M V. THE INCOME TAX OFFICER, COMPANY WARD -1, COIMBATORE. (PRESENTLY: THE DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTIONS), COIMBATORE. ( () /APPELLANT) ( *+() /RESPONDENT) () , - /APPELLANT BY : SHRI R.VIJAYARAGHAVAN, ADVOCATE *+(),- /RESPONDENT BY : SHRI B.SAHADEVAN, JCIT 2 I.T.A. NOS.2075 & 2076/ MDS/2016 ,.# /DATE OF HEARING : 27.09.2016 /0' ,.# /DATE OF PRONOUNCEMENT : 28.10.2016 /O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE TWO INDEPENDENT ASSESSEES A RE DIRECTED AGAINST THE ORDER OF CIT(A)-2, COIMBATORE DATED 28. 03.2016 AND PERTAINS TO ASSESSMENT YEAR 2011-12. SINCE COMMON I SSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS, WE HEARD THE SAM E TOGETHER AND DISPOSING OFF THE SAME BY THIS COMMON ORDER. 2. SHRI R.VIJAYARAGHAVAN, THE LEARNED COUNSEL FOR T HE ASSESSEE SUBMITTED THAT IN BOTH THE APPEALS, ONLY ONE ISSUE ARISES FOR CONSIDERATION IS DEPRECIATION CLAIMED BY THE ASSESS EE ON THE ASSET IN WHICH THE COST WAS ALREADY ALLOWED AS APPLICATION O F INCOME UNDER SECTION 11 OF THE INCOME TAX ACT. THE LEARNED COUNS EL FOR THE ASSESSEE VERY FAIRLY SUBMITTED THAT THIS ISSUE WAS CONSIDERE D BY THIS TRIBUNAL IN THE CASE OF THE MUSIC ACADEMY MADRAS VS. THE DEPUTY DIRECTOR OF INCOME TAX IN ITA NO.1098/MDS/2015 DATED 22.04.2016 . THIS TRIBUNAL FOUND THAT WHEN THE INCOME WAS ALLOWED AS AN APPLIC ATION OF INCOME UNDER SECTION 11 OF THE INCOME TAX ACT, THE ASSESSE E CANNOT CLAIM ONCE AGAIN DEPRECIATION IN RESPECT OF THE VERY SAME ASSET. ACCORDING TO 3 I.T.A. NOS.2075 & 2076/ MDS/2016 THE LEARNED COUNSEL, THE ISSUE IS COVERED AGAINST T HE ASSESSEE IN BOTH THE APPEALS. 3. WE HEARD SHRI B.SAHADEVAN , THE LEARNED DEPARTMENT REPRESENTATIVE ALSO. ACCORDING TO THE DEPARTMENT RE PRESENTATIVE, ONCE THE COST OF ASSET WAS ALLOWED AS APPLICATION OF INC OME UNDER SECTION 11 OF THE ACT, THE DEPRECIATION ON THE VERY SAME ASSET WOULD AMOUNT TO DOUBLE DEDUCTION. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. DEPRECIAT ION ON THE ASSET IN WHICH THE COST WAS ALREADY ALLOWED AS APPLICATION O F INCOME UNDER SECTION 11 OF THE INCOME TAX ACT WAS CONSIDERED BY THIS TRIBUNAL ELABORATELY IN T HE CASE OF THE MUSIC ACADEMY MADRAS (SUPRA). THIS TRIBUNAL FOUND THAT SECTION 32 OF THE INCOME TAX AC T IS APPLICABLE ONLY IN RESPECT OF BUSINESS OF THE ASSESSEE. SINCE ADMIT TEDLY THE ASSESSEE IS NOT ENGAGED IN ANY BUSINESS AND CLAIMING ITSELF CAR RYING ON THE CHARITABLE ACTIVITY, THIS TRIBUNAL FOUND THAT THE A SSESSEE IS NOT ENTITLED FOR DEPRECIATION. IN FACT THIS TRIBUNAL OBSERVED AS FOLLOWS: 4 I.T.A. NOS.2075 & 2076/ MDS/2016 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE ARISES FOR CONSIDERATION IS WHETHER A CHA RITABLE INSTITUTION IS ELIGIBLE FOR DEPRECIATION IN RESPECT OF ITS ASSET, WHICH WAS USED AS A TOOL FOR CARRYING OUT ITS OBJEC T. DEPRECIATION IS PROVIDED UNDER SECTION 32 OF THE AC T, WHICH READS AS FOLLOWS:- DEPRECIATION 32 (1) IN RESPECT OF DEPRECIATION OF-- (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE BEING TANGIBLE ASSETS ; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1 998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION THE FOLLOWING DEDUCTIONS SHA LL BE ALLOWED-- (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTA GE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED. (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCE NTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED: PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED UNDER THIS CLAU SE IN RESPECT OF--(A) ANY MOTOR CAR MANUFACTURED OUTSIDE INDIA, W HERE SUCH MOTOR CAR IS ACQIRED BY THE ASSESSEE AFTER THE 28TH DAY OF FE BRUARY, 1975 5BUT BEFORE THE 1ST DAY OF APRIL, 2001, UNLESS IT IS USE D--(I) IN A BUSINESS OF RUNNING IT ON HIRE FOR TOURISTS; OR(II) OUTSIDE IND IA IN HIS BUSINESS OR PROFESSION IN ANOTHER COUNTRY ; AND(B) ANY MACHINER Y OR PLANT IF THE ACTUAL COST THEREOF IS ALLOWED AS A DEDUCTION IN ONE OR MO RE YEARS UNDER AN AGREEMENT ENTERED INTO BY THE CENTRAL GOVERNMENT UN DER SECTION 42: PROVIDED FURTHER THAT WHERE ANY ASSET REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) OR THE FIRST PROVISO TO CLAUSE (IIA), AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR A ND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ONE 5 I.T.A. NOS.2075 & 2076/ MDS/2016 HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTR ICTED TO FIFTY PER CENT. OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIB ED FOR AN ASSET UNDER CLAUSE (I) 6OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE: PROVIDED ALSO THAT WHERE AN ASSET REFERRED TO IN CLAUSE (IIA) OR THE FIRST PROVISO TO CLAUSE (IIA), AS THE CASE MAY BE, IS ACQ UIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DA YS IN THAT PREVIOUS YEAR, AND THE DEDUCTION UNDER THIS SUB-SECTION IN R ESPECT OF SUCH ASSET IS RESTRICTED TO FIFTY PER CENT. OF THE AMOUNT CALCULA TED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (IIA) FOR THAT PREVIOUS YEAR, THEN, THE DEDUCTION FOR THE BALANCE FIFTY PER CENT. OF TH E AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR SUCH ASSET UNDER CLAU SE (IIA) SHALL BE ALLOWED UNDER THIS SUB-SECTION IN THE IMMEDIATELY S UCCEEDING PREVIOUS YEAR IN RESPECT OF SUCH ASSET : PROVIDED ALSO THAT WHERE AN ASSET BEING COMMERCIAL VEHICLE IS AC QUIRED BY THE ASSESSEE ON OR AFTER THE 1ST DAY OF OCTOBER, 19 98, BUT BEFORE THE 1ST DAY OF APRIL, 1999, AND IS PUT TO USE BEFORE TH E 1ST DAY OF APRIL, 1999, FOR THE PURPOSES OF BUSINESS OR PROFESSION, THE DED UCTION IN RESPECT OF SUCH ASSET SHALL BE ALLOWED ON SUCH PERCENTAGE ON T HE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. EXPLANATION FOR THE PURPOSES OF THIS PROVISO,-- (A) THE EXPRESSION 'COMMERCIAL VEHICLE' MEANS 'HEAV Y GOODS VEHICLE', 'HEAVY PASSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHIC LE', 'MEDIUM GOODS VEHICLE' AND 'MEDIUM PASSENGER MOTOR VEHICLE' BUT D OES NOT INCLUDE 'MAXI CAB', 'MOTOR-CAB', 'TRACTOR' AND 'ROAD-ROLLER' ; (B) THE EXPRESSIONS 'HEAVY GOODS VEHICLE', 'HEAVY P ASSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHICLE', 'MEDIUM GOODS VEHI CLE', 'MEDIUM PASSENGER MOTOR VEHICLE', 'MAXI-CAB', 'MOTOR-CAB', 'TRACTOR' AND 'ROAD- ROLLER' SHALL HAVE THE MEANINGS RESPECTIVELY AS ASS IGNED TO THEM IN SECTION 2 OF THE MOTOR VEHICLES ACT, 1988 (59 OF 1988). PROVIDED ALSO THAT, IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1991, THE DEDUCTION IN RELATION TO ANY BLOCK OF ASSETS UNDER THIS CLAUS E SHALL, IN THE CASE OF A COMPANY, BE RESTRICTED TO SEVENTY-FIVE PER CENT.OF THE AMOUNT CALCULATED AT THE PERCENTAGE, ON THE WRITTEN DOWN VALUE OF SUC H ASSETS, PRESCRIBED UNDER THIS ACT IMMEDIATELY BEFORE THE COMMENCEMENT OF THE TAXATION LAWS (AMENDMENT) ACT, 1991. 6 I.T.A. NOS.2075 & 2076/ MDS/2016 PROVIDED ALSO THAT THE AGGREGATE DEDUCTION, IN RESPECT OF DEPREC IATION OF BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TAN GIBLE ASSETS OR KNOW- HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRA NCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BE ING INTANGIBLE ASSETS ALLOWABLE TO THE PREDECESSOR AND THE SUCCESSOR IN T HE CASE OF SUCCESSION REFERRED TO IN CLAUSE (XIII), CLAUSE (XIIIB) AND CL AUSE (XIV) OF SECTION 47 OR SECTION 170 OR TO THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY IN THE CASE OF AMALGAMATION, OR TO THE DEME RGED COMPANY AND THE RESULTING COMPANY IN THE CASE OF DEMERGER, AS T HE CASE MAY BE, SHALL NOT EXCEED IN ANY PREVIOUS YEAR THE DEDUCTION CALCU LATED AT THE PRESCRIBED RATES AS IF THE SUCCESSION OR THE AMALGA MATION OR THE DEMERGER, AS THE CASE MAY BE, HAD NOT TAKEN PLACE, AND SUCH DEDUCTION SHALL BE APPORTIONED BETWEEN THE PREDECESSOR AND TH E SUCCESSOR, OR THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY, O R THE DEMERGED COMPANY AND THE RESULTING COMPANY, AS THE CASE MAY BE, IN THE RATIO OF THE NUMBER OF DAYS FOR WHICH THE ASSETS WERE USED B Y THEM. EXPLANATION 1. WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RE SPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PUR POSES OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK, IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR E XTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDIN G OWNED BY THE ASSESSEE. EXPLANATION 2. FOR THE PURPOSES OF THIS SUB-SECTIO N 'WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS' SHALL HAVE THE SAME MEANING AS IN CLAUSE (C) OF SUB-SECTION (6) OF SECTION 43; EXPLANATION 3. FOR THE PURPOSES OF THIS SUB-SECTIO N, 10THE EXPRESSIONS 'ASSETS' SHALL MEAN-- (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PL ANT OR FURNITURE ; (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE. EXPLANATION 4. FOR THE PURPOSES OF THIS SUB-SECTIO N, THE EXPRESSION 'KNOW-HOW' MEANS ANY INDUSTRIAL INFORMATION OR TECH NIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL- WELL OR OTHER SOURCES OF MINERAL DEPOSITS (INCLUDIN G SEARCHING FOR DISCOVERY OR TESTING OF DEPOSITS FOR THE WINNING OF ACCESS THERETO) ; EXPLANATION 5. FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT THE PROVISIONS OF THIS SUB-SECTION SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCOME ; 7 I.T.A. NOS.2075 & 2076/ MDS/2016 (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AF TER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM E QUAL TO TWENTY PER CENT. OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II) : PROVIDED THATWHERE AN ASSESSEE, SETS UP AN UNDERTAKING OR EN TERPRISE FOR MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, ON OR AFTER THE 1ST DAY OF APRIL, 2015 IN ANY BACKWARD AREA NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF, IN THE STATE OF ANDHRA PRADESH OR IN T HE STATE OF BIHAR OR IN THE STATE OF TELANGANA OR IN THE STATE OF WEST BENG AL, AND ACQUIRES AND INSTALLS ANY NEW MACHINERY OR PLANT (OTHER THAN SHI PS AND AIRCRAFT) FOR THE PURPOSES OF THE SAID UNDERTAKING OR ENTERPRISE DURI NG THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 2015 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2020 IN THE SAID BACKWARD AREA, THEN, THE PR OVISIONS OF CLAUSE (IIA) SHALL HAVE EFFECT, AS IF FOR THE WORDS TWENTY PER CENT., THE WORDS THIRTY-FIVE PER CENT. HAD BEEN SUBSTITUTED : PROVIDED FURTHER NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F- (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTAL LATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHE R PERSON ; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE ; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLE S ; OR (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIAT ION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR ; (III) IN THE CASE OF ANY BUILDING, MACHINERY, PLANT OR FURNITURE IN RESPECT OF WHICH DEPRECIATION IS CLAIMED AND ALLOWED UNDER CLA USE (I) AND WHICH IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED IN THE PRE VIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHICH IT IS FIRST BROUGHT INTO USE), THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF SUCH BUILDIN G, MACHINERY, PLANT OR FURNITURE, TOGETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY, FALL SHORT OF THE WRITTEN DOWN VALUE THEREOF : PROVIDED THAT SUCH DEFICIENCY IS ACTUALLY WRITTEN OFF IN TH E BOOKS OF THE ASSESSEE. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE,-- (1) 'MONEYS PAYABLE' IN RESPECT OF ANY BUILDING, MA CHINERY, PLANT OR FURNITURE INCLUDES-- 8 I.T.A. NOS.2075 & 2076/ MDS/2016 (A) ANY INSURANCE, SALVAGE OR COMPENSATION MONEYS P AYABLE IN RESPECT THEREOF ; (B) WHERE THE BUILDING, MACHINERY, PLANT OR FURNITU RE IS SOLD, THE PRICE FOR WHICH IT IS SOLD, SO, HOWEVER, THAT WHERE THE ACTUAL COST OF A MOTOR CAR IS, IN ACCORDANCE WITH THE PROVISO TO CLAUSE (1) OF SECTION 43, TAKEN TO BE TWENTY-FIVE THOUSAND RUPEES, THE MONEYS PAYABLE IN RESPECT OF S UCH MOTOR CAR SHALL BE TAKEN TO BE A SUM WHICH BEARS TO THE AMOUNT FOR WHICH THE MOTOR CAR IS SOLD OR, AS THE CASE MAY BE, THE AMOUNT OF ANY I NSURANCE, SALVAGE OR COMPENSATION MONEYS PAYABLE IN RESPECT THEREOF (INC LUDING THE AMOUNT OF SCRAP VALUE, IF ANY) THE SAME PROPORTION AS THE AMO UNT OF TWENTY-FIVE THOUSAND RUPEES BEARS TO THE ACTUAL COST OF THE MOT OR CAR TO THE ASSESSEE AS IT WOULD HAVE BEEN COMPUTED BEFORE APPL YING THE SAID PROVISO (2) 'SOLD' INCLUDES A TRANSFER BY WAY OF EXCHANGE O R A COMPULSORY ACQUISITION UNDER ANY LAW FOR THE TIME BEING IN FOR CE BUT DOES NOT INCLUDE A TRANSFER, IN A SCHEME OF AMALGAMATION, OF ANY ASS ET BY THE AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY WHE RE THE AMALGAMATED COMPANY IS 8AN INDIAN COMPANY OR IN A S CHEME OF AMALGAMATION OF A BANKING COMPANY, AS REFERRED TO I N CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949), WITH A BANKING INSTITUTION AS REFERRED TO IN SUB-SECTION (15) OF S ECTION 45 OF THE SAID ACT, SANCTIONED AND BROUGHT INTO FORCE BY THE CENTR AL GOVERNMENT UNDER SUB-SECTION (7) OF SECTION 45 OF THAT ACT, OF ANY A SSET BY THE BANKING COMPANY TO THE BANKING INSTITUTION. (2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVI OUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVI OUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SEC TION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHAL L BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FO LLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THER E IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWAN CE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. A BARE READING OF SECTION 32 OF THE ACT CLEARLY SAY S THAT DEPRECIATION HAS TO BE ALLOWED WHILE COMPUTING THE TAXABLE INCOME ON BUILDING, MACHINERY, PLANT, ETC. WHICH IS OWNED 9 I.T.A. NOS.2075 & 2076/ MDS/2016 WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE P URPOSE OF BUSINESS. DEPRECIATION IS NOTHING BUT AN INHERENT DECLINE IN THE VALUE OF THE ASSET FROM WEAR AND TEAR. IN RES PECT OF THE BUSINESS ASSETS, THE PARLIAMENT THOUGHT IT FIT IN T HEIR WISDOM TO ALLOW DEPRECIATION FOR WEAR AND TEAR OF THE BUIL DING, MACHINERY, PLANT, ETC. DEPRECIATION IN CERTAIN CA SES IS TREATED AS EXPENDITURE LAID OUT OVER THE YEARS DURI NG THE LIFE TIME OF THE MACHINERY. IN OTHER WORDS, THE VALUE O F THE ASSET, MACHINERY, ETC. REDUCED PRO TANTO . THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DEPRECIATION IS SPREAD OVER DURING THE EFFECTIVE LIFE TIME OF THE MACHINERY OR ASSET, ETC. USED FOR BUSINESS BY ALLOWING THE SAME AS DEDUCTION ON NOTIONAL BASIS. THE AMOUNT OF DEPRECIATION ALLOWED IN A PARTICULAR YEAR IS INTENDED TO REPRESENT THE LIFE O F THE MACHINERY SUCH AS EXPENDITURE DURING THE ABOVE SAID PERIOD. IN OTHER WORDS, THE VALUE OF THE MACHINERY WAS SPRE AD OVER FOR THE EFFECTIVE LIFE TIME OF THE ASSET AND A PROV ISION WAS MADE BY WAY OF NOTIONAL DEDUCTION TO REPLACE THE MA CHINERY AFTER EXPIRY OF ITS ENTIRE LIFE TIME. THEREFORE, T HE LEGISLATURE PROVIDED DEPRECIATION UNDER SECTION 32 OF THE ACT A S AN INCENTIVE/ALLOWANCE TO THE ASSET WHICH WAS USED FOR THE 10 I.T.A. NOS.2075 & 2076/ MDS/2016 BUSINESS OR PROFESSION. THIS CAN BE CONSTRUED AS R EDUCTION IN VALUE IN THE BALANCE SHEET WHILE COMPUTING THE I NCOME FROM BUSINESS OR PROFESSION. 7. SECTION 32(1) OF THE ACT CLEARLY SAYS THAT THE A SSET OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FO R THE PURPOSE OF BUSINESS OR PROFESSION. IN VIEW OF THE LANGUAGE EMPLOYED BY THE PARLIAMENT, THE ASSET USED FOR THE PURPOSE OF BUSINESS OR PROFESSION ALONE ELIGIBLE FOR DEPREC IATION.THE INCOME-TAX ACT DOES NOT PROVIDE FOR DEPRECIATION IN RESPECT OF THE ASSET OTHER THAN THE ONE WHICH IS USED FOR B USINESS OR PROFESSION. THEREFORE, IT IS FOR THE ASSESSEE TO ES TABLISH THAT THE ASSESSEE IS CARRYING ON ANY BUSINESS OR PROFESS ION. IN THE CASE BEFORE US, THE ADMITTED CASE OF THE ASSESS EE IS THAT THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS OR PRO FESSION. THEREFORE, WHATEVER BE THE NATURE OF THE ASSET, WHI CH WAS USED AS A TOOL FOR CARRYING OUT THE OBJECT OF THE C HARITABLE INSTITUTION, CANNOT BE CONSTRUED AS AN ASSET WHICH IS USED FOR THE BUSINESS OR PROFESSION OF THE ASSESSEE. THEREF ORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION UNDER SEC TION 32 OF THE INCOME-TAX ACT. 11 I.T.A. NOS.2075 & 2076/ MDS/2016 8. THE LD.COUNSEL FOR THE ASSESSEE HAS ALSO CLARIFI ED THAT THE ASSESSEE IS NOT CLAIMING DEPRECIATION UNDER SEC TION 32 OF THE ACT. ACCORDING TO THE LD. COUNSEL, THE ASSE SSEE IS CLAIMING DEPRECIATION ON THE COMMERCIAL PRINCIPLE. ON A QUERY FROM THE BENCH WHAT IS MEANT BY COMMERCIAL PRINCIPLE?, HE CLARIFIED THAT COMPUTATION OF INCOM E OF THE TRUST IN A CUSTOMARY METHOD OF ACCOUNTANCY. ON A Q UERY FROM THE BENCH, THE LD.COUNSEL HAS ALSO CLARIFIED T HAT THERE IS NO CONFLICT BETWEEN THE CUSTOMARY WAY OF COMPUTATIO N OF INCOME AND PROVISIONS OF SECTION 32 OF THE ACT. TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SECTION 32 PROVIDES FOR DEPRECIATION ONLY IN RESPECT OF THE ASSET WHICH IS USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE COMMERC IAL PRINCIPLE OF COMPUTING INCOME OR THE CUSTOMARY PRAC TICE OF COMPUTING INCOME MAY ALSO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF COMPUTING BUSINESS OR PROFESSIONAL INCOM E. 9. INCOME-TAX ACT PROVIDES FOR PROCEDURE AND METHOD FOR COMPUTING INCOME UNDER DIFFERENT HEADS. DEPRECIATI ON IS PROVIDED UNDER SECTION 32 OF THE ACT WHEN COMPUTING INCOME UNDER THE HEAD INCOME FROM BUSINESS OR 12 I.T.A. NOS.2075 & 2076/ MDS/2016 PROFESSION. IN RESPECT OF OTHER HEADS, NO DEPRECI ATION IS PROVIDED UNDER THE SCHEME OF THE ACT. THE INCOME O F THE TRUST IS EXEMPTED ON APPLICATION AND ACCUMULATION A S PROVIDED UNDER THE ACT. IF ANY VIOLATION, THE INCO ME OF THE TRUST IS LIABLE FOR TAXATION, IN SUCH A CASE, IF TH E INCOME IS ASSESSED AS INCOME FROM BUSINESS OR PROFESSION, THE ASSESSEE MAY BE ELIGIBLE FOR DEPRECIATION. THE ASS ESSEE IS CERTAINLY NOT ENTITLED FOR DEPRECIATION, WHEN THE I NCOME WAS EXEMPTED ON APPLICATION OR ACCUMULATION AS PROVIDED UNDER THE SCHEME OF THE ACT. THE CHARITABLE INSTITUTION UNDER THE SCHEME OF INCOME-TAX ACT IS ON A DIFFERENT FOOTING. THE ENTIRE INCOME OF THE ASSESSEE-TRUST FROM THE PROPER TY HELD UNDER TRUST DO NOT FORM PART OF TOTAL INCOME UNDER SECTION 11 OF THE ACT PROVIDED THE SAME IS APPLIED FOR CHARITA BLE OBJECT. SECTION 11 OF THE ACT ALSO PROVIDES FOR ACCUMULATIO N OF 15% OF INCOME FOR FUTURE APPLICATION FOR THE OBJECT OF THE TRUST. THEREFORE, THE BUSINESS AND CHARITABLE INSTITUTION ARE TWO DIFFERENT CATEGORIES IN THE SCHEME OF INCOME-TAX AC T. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CUST OMARY WAY OF COMPUTING INCOME OR THE COMMERCIAL PRINCIPLE OF COMPUTING INCOME CANNOT OVERRIDE THE SPECIFIC PROVI SION OF 13 I.T.A. NOS.2075 & 2076/ MDS/2016 INCOME-TAX ACT. THE INCOME-TAX ACT DOES NOT PROVID E FOR ALLOWING DEPRECIATION OTHER THAN THE ASSET WHICH WA S USED FOR BUSINESS OR PROFESSION. THERE IS NO OTHER PROV ISION IN THE INCOME-TAX ACT OTHER THAN SECTION 32 OF THE ACT FOR ALLOWING DEPRECIATION. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE DEPRECIATION HAS TO BE ALLOWED ON COMMERCIAL PRINCI PLE OR CUSTOMARY PRINCIPLE OF COMPUTATION OF INCOME IS CON TRARY TO THE SPECIFIC PROVISION, NAMELY, SECTION 32 OF THE A CT. 10. THE NEXT QUESTION ARISES FOR CONSIDERATION IS W HEN THERE IS A CONFLICT BETWEEN CUSTOMARY PRACTICE, COM MERCIAL PRINCIPLE AND PROVISIONS OF SECTION 32, WHICH ONE W ILL PREVAIL? THE OBVIOUS ANSWER TO THIS QUESTION IS THE STATUTOR Y PROVISION, NAMELY, SECTION 32 OF THE ACT WILL PREVA IL OVER THE CUSTOMARY PRACTICE AND COMMERCIAL PRINCIPLE. THERE FORE, EVEN ON CUSTOMARY PRACTICE OR COMMERCIAL PRINCIPLE WHEREBY THE ASSESSEE CLAIMS DEPRECIATION WHILE COMPUTING TH E INCOME, SECTION 32 OF THE ACT IS A SPECIFIC PROVISI ON UNDER INCOME-TAX ACT, WHICH IS CONTRARY TO COMMERCIAL PRI NCIPLE OR CUSTOMARY PRACTICE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SECTION 32 WILL PREVAIL OVE R THE 14 I.T.A. NOS.2075 & 2076/ MDS/2016 CUSTOMARY PRACTICE OR COMMERCIAL PRINCIPLE. HENCE, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION IN RESPEC T OF BUILDING, PLANT, MACHINERY, ETC. WHICH ARE NOT USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. 11. EVEN ASSUMING FOR ARGUMENT SAKE THAT THE ASSESS EE WAS DOING BUSINESS, THEN THE ASSESSEE IS NOT ELIGIB LE FOR EXEMPTION UNDER SECTION 11 OF THE ACT AND AS RIGHTL Y SUBMITTED BY THE LD. DEPARTMENTAL REPRESENTATIVE, T HE REGISTRATION UNDER SECTION 12AA OF THE ACT HAS TO B E CANCELLED UNDER SECTION 12AA(3) OF THE ACT. MOREOV ER, THE ASSESSEE WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER S ECTION 11 OF THE ACT IF IT IS CARRYING ON ANY BUSINESS ACTIVI TY. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION. 12. AS RIGHTLY SUBMITTED BY THE LD. DEPARTMENTAL REPRESENTATIVE, IN VIEW OF SECTION 11(4) & (4A) OF THE ACT, IF THE PROPERTY HELD UNDER TRUST IS A BUSINESS UNDERTA KING, THEN THE INCOME OF THE BUSINESS UNDERTAKING, WHICH WAS S O HELD AS PROPERTY HELD UNDER TRUST, HAS TO BE COMPUTED BY APPLYING THE PROVISIONS OF INCOME-TAX ACT UNDER CHAPTER IV. WHILE 15 I.T.A. NOS.2075 & 2076/ MDS/2016 COMPUTING INCOME OF THE BUSINESS UNDERTAKING, ALL EXPENDITURE, INCLUDING DEPRECIATION, HAS TO BE ALLO WED AND THE INCOME OF SUCH BUSINESS UNDERTAKING WHICH WAS H ELD UNDER TRUST HAS TO BE ALLOWED AS EXEMPTION UNDER SE CTION 11 ON APPLICATION AND ACCUMULATION. IN THIS CASE, AS RIGHTLY SUBMITTED BY THE LD. D.R., NO BUSINESS UNDERTAKING WAS HELD UNDER TRUST AS PROVIDED UNDER SECTION 11(4) & (4A) OF THE ACT. THE ASSESSEE IS CLAIMING DEPRECIATION IN RESP ECT OF ASSET WHICH WAS USED AS TOOL FOR CARRYING OUT CHARI TABLE OBJECT OF THE INSTITUTION. WHEN THE ASSET WAS USED AS TOOL FOR CARRYING OUT THE OBJECT OF THE CHARITABLE INSTITUTI ON, SUCH ACTIVITY CANNOT BE CONSTRUED AS A BUSINESS OR PROFE SSION OF THE ASSESSEE. THEREFORE, SECTION 32 OF THE ACT IS NOT APPLICABLE IN THIS CASE. 13. WE HAVE CAREFULLY GONE THROUGH ALL THE JUDGMENT S AND DECISIONS CITED BY THE LD.COUNSEL FOR THE ASSESSEE, WHICH ARE AS UNDER:- 1. DIT V. VISHWAJAGRITI MISSION (2012) 73 DTR (DEL) 195 2. CIT V. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) 3. CIT V. SOCIETY OF SISTERS OF ST.ANNE (1984) 146 ITR 28 (KAR) 4. CIT V. BHORUKA PUBLIC WELFARE TRUST (1999) 240 ITR 513 (CAL) 5. CIT V. TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 21 (P&H) 16 I.T.A. NOS.2075 & 2076/ MDS/2016 6. CIT V. SHETHMANILALRANCHHODDASVISHRAMBHAVAN TRUST (1992) 198 ITR 598 (GUJ) 7. CIT V. RAIPUR PALLOTTINE SOCIETY (1989) 180 ITR 579 (MP) 8. CIT V. INSTITUTE OF BANKING PERSONNEL SELECTION (2003) 264 ITR 110 (BOM) 9. DIT(E) V. FRAMJEECAWASJEE INSTITUTE (1993) 109 CTR (BOM) 463 10. DDIT V. LAKSHMI SARASWATHI EDUCATIONAL TRUST ITA NO.452/MDS/2014 CHENNAI ITAT 11. APOLLO HOSPITALS EDUCATIONAL TRUST V. DCIT ITA NO.2090/MDS/2012 CHENNAI ITAT 12. SERVICES ASSOCIATION OF SEVENTH DAY ADVENTISTS PVT. LTD. V. ITO ITA NO.1853/MDS/2011 CHENNAI ITAT 13. SERVICES ASSOCIATION OF SEVENTH DAY ADVENTISTS PVT. LTD. V. ITO ITA NO.427/MDS/2012 CHENNAI ITAT 14. ACIT V. MAMALLAN EDUCATIONAL TRUST ITA NO.1808/MDS/2012 CHENNAI ITAT 15. DCIT V. MAMALLAN EDUCATIONAL TRUST ITA NO.91/MDS/2013 CHENNAI ITAT 16. ITO V. SRI RANGANATHAR TRUST ITA NO.1954/MDS/2012 CHENNAI ITAT 17. ITO V. KGISL TRUST ITA NO.1813/MDS/2012 CHENNAI ITAT 18. CIT V. RAO BAHADUR CALAVALACUNNANCHETTY CHARITIES (1982) 135 ITR 485 (MAD) 19. DEVI KARUMARIAMMAN EDUCATIONAL TRUST V. DCIT (EXEMPTIONS) (2015) 60 TAXMANN.COM 439 (MADRAS) 20. ITO V. THE GRD TRUST ITA NO.2537/MDS/2014 CHENNAI ITAT AFTER GOING THROUGH ALL THE JUDGMENTS / DECISIONS, WE FIND THAT THE CONFLICT BETWEEN THE COMMERCIAL PRINCIPLE OR CU STOMARY PRACTICE IN COMPUTING INCOME AND THE PROVISIONS OF SECTION 32 WERE NOT BROUGHT TO THE NOTICE OF THE COURTS / T RIBUNAL. THEREFORE, THOSE JUDGMENTS / DECISIONS ARE NOT APPL ICABLE TO THE FACTS OF THE CASE. 17 I.T.A. NOS.2075 & 2076/ MDS/2016 14. IN VIEW OF THE ABOVE DISCUSSION, WE FIND NO MER IT IN THE APPEAL OF THE ASSESSEE. ACCORDINGLY, THE SAME IS DISMISSED. 5. IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITIES AND ACCORDINGLY, THE SAME IS CONFIRMED. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED ON 28 TH OCTOBER, 2016 AT CHENNAI. SD/- SD/- ( . . !' ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) # /ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 1 /DATED, THE 28 TH OCTOBER, 2016. SP. , *.!2 32'. /COPY TO: 1. () /APPELLANT 2. *+() /RESPONDENT 3. 4. ( )/CIT(A) 4. 4. /CIT, 5. 25 *. /DR 6. & 6 /GF.