M/s. The Indian Education Trust, CHENNAI V. Addl. CIT, CHENNAI

ITA 2150/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1109 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Keywords: Depreciation; Charitable institution; Question of law; Capital expenditure
• Section: 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN,VICE-PRESID ENT AND SHRI VIKAS AWASTHY, JUDICIAL MEM BER ITA NO.2150/MDS/2011 (ASSESSMENT YEAR: 2007-08) M/S. THE INDIAN EDUCATION TRUST, M/S.SUBBARAYA AIYAR PADMANABHAN & RAMAMANI, ADVOCATES 75A, DR.RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI-600 004. PAN: AAATI0345N VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHENNAI (APPELLANT) (RESPONDENT) APPELLANT BY : MR. SAROJ KUMAR PARIDA, ADVOCATE RESPONDENT BY : MR. N.MADHAVAN, JCIT DATE OF HEARING : 12 TH MARCH, 2013 DATE OF PRONOUNCEMENT : 12 TH MARCH, 2013 O R D E R PER VIKAS AWASTHY, JM: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNIN G THE ORDER OF THE CIT(A)-XII, CHENNAI DATED 18.10.20 11. 2. THE ASSESSEE IS A CHARITABLE TRUST RUNNING TWO S CHOOLS VIZ. SRI SANKARA SENIOR SECONDARY SCHOOL AT ADYAR A ND SRI SANKARA VIDYASHRAMAM MATRICULATION HIGHER SECONDARY SCHOOL AT THIRUVANMIYUR. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 12.10.200 7 ITA NO.2150/MDS/2011 2 DECLARING ITS INCOME TO BE NIL. THE CASE OF THE ASS ESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143( 2) WAS ISSUED ON 7.5.2008. IN THE INCOME RETURNED, THE ASS ESSEE HAD CLAIMED DEPRECIATION OF ` 49,58,947/- ON THE SCHOOL BUILDINGS. THE ASSESSING OFFICER FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF ESCORTS INDI A LTD. VS. UOI REPORTED AS 199 ITR 43(SC) DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE FOR COMPUTING APPLICATION OF 85% OF THE TRUSTS INCOME UNDER SECT ION 11(1)(A) OF THE INCOME TAX ACT, 1961. AGGRIEVED A GAINST THE ASSESSMENT ORDER DATED 12.11.2009 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) C ONFIRMED THE ORDER OF THE ASSESSING OFFICER AND DISMISSED TH E APPEAL OF THE ASSESSEE. NOW, THE ASSESSEE HAS COME IN SECO ND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF T HE CIT(A). 3. SHRI SAROJ KUMAR PARIDA, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS ERRED IN CON FIRMING THE DISALLOWANCE OF DEPRECIATION ON SCHOOL BUILDING S WHILE COMPUTING THE APPLICATION OF 85% OF THE INCOME OF T HE ASSESSEE TRUST. THE COUNSEL FURTHER SUBMITTED THAT THE INCOME ITA NO.2150/MDS/2011 3 OF THE TRUST IS REQUIRED TO BE COMPUTED AFTER PROVI DING FOR NORMAL DEPRECIATION ON COMMERCIAL PRINCIPLES AND NO T WITH REFERENCE TO SECTION 32 OF THE ACT. THE COUNSEL IN ORDER TO SUPPORT HIS CONTENTIONS RELIED ON THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MARKET COMMITTEE, PIPLI REPORTED AS 330 ITR 16 (P&H) AND T HE ORDER OF THE TRIBUNAL IN ITA NO.931 & 932/MDS/2012 IN THE CASE TITLED M/S. GREAT LAKES INSTITUTE OF MANAGEMENT DE CIDED ON 22.06.2012 AND THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NOS.1790 & 1791/MDS/2012 IN THE CAS E OF ITO VS. M/S. RAMANANDHA ADIGALAR FOUNDATION & M/S. KONGUNADU ARTS & SCIENCE COLLEGE COUNCIL DECIDED ON 14.02.2013. THE AR SUBMITTED THAT THE HONBLE PUNJA B & HARYANA HIGH COURT IN THE CASE OF CIT VS. MARKET CO MMITTEE, PIPLI (SUPRA) HAS HELD THAT THE INCOME OF THE ASSESSEE IS BEING EXEMPT, THE ASSESSEE WAS ONLY CLAIMING THAT DEPRECATION SHOULD BE REDUCED FROM THE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHICH HAD TO B E APPLIED FOR THE PURPOSES OF THE TRUST. THERE WAS NO DOUBLE DEDUCTION CLAIMED BY THE ASSESSEE. IT COULD NOT BE HELD THAT DOUBLE ITA NO.2150/MDS/2011 4 BENEFIT WAS GIVEN IN ALLOWING THE CLAIM FOR DEPRECI ATION FOR COMPUTING INCOME FOR THE PURPOSE OF SECTION 11. THE COUNSEL POINTED OUT THAT WHILE DECIDING THE CASE TH E HONBLE HIGH COURT HAD TAKEN INTO CONSIDERATION THE JUDGEME NT OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. ( SUPRA) AND HAS DISTINGUISHED THE SAME. 4. ON THE OTHER HAND, SHRI N.MADHAVAN APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT THE ASSESSEE I S NOT ENTITLED TO CLAIM DEPRECIATION AS IT AMOUNTS TO DOU BLE DEDUCTION. THE DR STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND PRAYED FOR DISMISSAL OF THE APPEAL OF THE ASSE SSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE JUDGEMENTS/ORDERS CITED BY THE COUNSEL FOR THE ASSE SSEE. WE FIND THAT THE ISSUE RELATING TO THE DEPRECIATION WH ILE CLAIMING DEDUCTION UNDER SECTION 11 OF THE INCOME TAX ACT HA S BEEN ADJUDICATED BY THE TRIBUNAL IN THE CASE OF M/S. GRE AT LAKES INSTITUTE OF MANAGEMENT (SUPRA). THE TRIBUNAL WHIL E DECIDING THE ISSUE HAS RELIED ON THE JUDGMENT OF THE HONBLE PUNJAB & ITA NO.2150/MDS/2011 5 HARYANA HIGH COURT IN THE CASE OF CIT VS. MARKET CO MMITTEE (SUPRA). THE TRIBUNAL VIDE ORDER DATED 22 ND JUNE, 2012 IN THE CASE OF M/S. GREAT LAKES INSTITUTE OF MANAGEMENT HA S HELD AS UNDER:- 9. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEPRECIATION O F ` 46,30,368/- IN ASSESSMENT YEAR 2006-07 AND ` 41,81,550/- IN ASSESSMENT YEAR 2007-08 AND THE SAME WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROU ND THAT THE ENTIRE INVESTMENT IN FIXED ASSETS WAS CONSIDERED AS APPLICATION OF INCOME AND ALLOWING OF DEPRECIATION TO THE ASSESSEE WOULD AMOUNT TO DOUBL E DEDUCTION. ON APPEAL, THE CIT(A) CONFIRMED THE ACT ION OF THE ASSESSING OFFICER FOR THE VERY SAME REASON. WE FIND THAT THE HON'BLE P&H HIGH COURT IN THE CASE OF MARKET COMMITTEE, PIPLI(SUPRA) HAS HELD AS UNDER: 10. IN THE PRESENT CASE, THE ASSESSEE IS NOT CLA IMING DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION AS HAS BEEN SUGGESTED BY LEARNED COUNSEL FOR THE REVENUE. THE INCOME OF THE ASSESSE BEING EXEMPT, THE ASSESSE IS ONLY CL AIMING THAT DEPRECIATION SHOULD BE REDUCED FROM THE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHICH HAVE TO B E APPLIED FOR THE PURPOSES OF THE TRUST. THERE IS NO DOUBLE DEDUCTION CLAIMED BY THE ASSESSEE AS CANVASSED BY THE REVENUE. THE JUDGMENT OF THE HON'BLE SUPREME COURT IN ESCORTS LTD. CASE [1993]199 ITR 43 IS DISTINGUISHABLE FOR THE ABOVE REASONS. IT CANNOT BE HELD THAT DOUBLE BENEFIT IS GIVEN IN ALLOWING CLAIM FOR DEPRECIATION FOR COMPUTING IN COME FOR PURPOSES OF SECTION 11. THE QUESTIONS PROPOSED HAV E, THUS, TO BE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. ITA NO.2150/MDS/2011 6 10. FURTHER, THE CHENNAI D BENCH OF THE TRIBUNAL IN THE CASE OF COIMBATORE STOCK EXCHANGE(SUPRA) HAS HE LD AS UNDER: 5. WE ARE UNABLE TO ACCEPT THE SUBMISSION. 6. THE MATTER WAS DISCUSSED IN OUR RECENT JUDGEM ENT DATED 5.7.2010 IN ITA NO.535 OF 2009, THE CIT,KARNAL V. M ARKET COMMITTEE,PIPLI. AFTER REFERRING TO JUDGMENTS IN CI T V. SETH MANILAL RANCHHODDAS VISHRAM BHAWAN TRUST [1992] 198 ITR 598 (GUJ.) AND CIT V. INSTITUTE OF BANKING PERSONAL SEL ECTION (IBPS) (2003) 131 TAXMAN 386 (BOM.), CIT V. RAO BAHADUR CA LAVALA CUNNAN CHETTY CHARITIES [1982] 135 ITR 485 (MAD.), CIT V. SOCIETY OF THE SISTERS OF ST. ANNE [1984] 146 ITR 2 8 (KAR) AND CIT V. RAIPUR PALLOTTINE SOCIETY [1989] 180 ITR 579 (M. P.), THE JUDGMENT OF THE HONBLE SUPREME COURT IN ESCORTS LT D., (SUPRA), WAS HELD NOT TO BE APPLICABLE TO THE SITUATION WHER E DEPRECIATION WAS CLAIMED BY A CHARITABLE INSTITUTION IN DETERMIN ING PERCENTAGE OF FUNDS APPLIED FOR THE PURPOSES OF CHARITABLE OBJ ECTS. IT WAS OBSERVED:-9. IN THE PRESENT CASE, THE ASSESSEE IS NOT CLAIMING DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION AS HAS BEEN SUGGESTED BY LD. COUNSEL FOR THE REVENUE. THE INCOME OF THE A SSESSEE BEING EXEMPT, THE ASSESSEE IS ONLY CLAIMING THAT DEPRECIA TION SHOULD BE REDUCED FROM THE INCOME FOR DETERMINING THE PERCENT AGE OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSES OF THE TR UST. THERE IS NO DOUBLE DEDUCTION CLAIMED BY THE ASSESSEE AS CANVASS ED BY THE REVENUE. JUDGMENT OF THE HONBLE SUPREME COURT IN E SCORTS LTD AND ANOTHER (SUPRA) IS DISTINGUISHABLE FOR THE ABOV E REASONS. IT CANNOT BE HELD THAT DOUBLE BENEFIT IS GIVEN IN ALLO WING CLAIM FOR DEPRECIATION FOR COMPUTING INCOME FOR PURPOSES OF S EC.11. THE QUESTIONS PROPOSED HAVE, THUS, TO BE ANSWERED AGAIN ST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 7. IN VIEW OF ABOVE, WE ARE UNABLE TO HOLD THAT T HE QUESTIONS PROPOSED BY THE REVENUE ARE SUBSTANTIAL QUESTIONS O F LAW. SINCE THE ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE AND DEPARTMENT HAS NOT BROUGHT ANY CONTRARY MATERIA L OR ANY HIGHER COURTS ORDER IN ITS FAVOUR, THEREFORE, WE DO NOT FIND ANY INFIRMITY OR FLAW IN THE ORDERS OF THE CIT(A) I N THIS REGARD AS SUCH WHILE CONCURRING WITH THE CONCLUSION AS DRA WN BY THE CIT(A), WE UPHOLD HIS ORDERS AND DISMISS THE APPEAL S OF THE REVENUE BEING DEVOID OF ANY MERITS. 5. SINCE THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ITA NO.2150/MDS/2011 7 ASSESSEE AND DEPARTMENT HAS NOT BROUGHT ANY CONTRAR Y MATERIAL OR ANY HIGHER COURTS ORDER IN ITS FAVOUR, THEREFORE, WE DO NOT FIND ANY INFIRMITY OR FLAW IN THE ORDERS OF THE CIT(A) IN THIS REGARD AS SUCH WHILE CONCURRING WITH THE CO NCLUSION AS DRAWN BY THE CIT(A), WE UPHOLD HIS ORDERS AND DISMI SS THE APPEALS OF THE REVENUE BEING DEVOID OF ANY MERITS. 11. THUS, THE FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE ABOVE QUOTED DECISIONS OF THE HON'BLE P&H HIGH COURT AND THE DECISION OF THIS TRIBUNAL, WE SE T ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIREC T THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEPRECIATIO N TO THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. THUS, THE GROUNDS OF APPEAL OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION ARE ALLOWED. 6. THE HONBLE DELHI HIGH COURT IN THE CASE OF DIRE CTOR OF INCOME TAX (EXEMPTIONS) VS. VISHWA JAGARTHI MISSION REPORTED AS 2012-TIOL-271 HC-DEL-IT WHILE DECIDING A SIMILAR ISSUE HAS DISTINGUISHED THE JUDGEMENT OF TH E HONBLE SUPREME COURT IN THE CASE OF ESCORTS INDIA LTD. (S UPRA), WHEREIN THE HONBLE HIGH COURT HAS OBSERVED AS UNDE R:- 13. THE JUDGMENT OF THE SUPREME COURT IN ESCORTS LIMITED VS. UNION OF INDIA (SUPRA) HAS BEEN RIGHTLY HELD TO BE INAPPLICABLE TO THE PRESENT CASE. THERE ARE T WO REASONS AS TO WHY THE JUDGMENT CANNOT BE APPLIED TO THE PRESENT CASE. FIRSTLY, THE SUPREME COURT WAS NO T CONCERNED WITH THE CASE OF A CHARITABLE TRUST/INSTI TUTION INVOLVING THE QUESTION AS TO WHETHER ITS INCOME SHO ULD BE COMPUTED ON COMMERCIAL PRINCIPLES IN ORDER TO DETERMINE THE AMOUNT OF INCOME AVAILABLE FOR APPLICATION TO CHARITABLE PURPOSES. IT WAS A CASE W HERE THE ASSESSEE WAS CARRYING ON BUSINESS AND THE ITA NO.2150/MDS/2011 8 STATUTORY COMPUTATION PROVISIONS OF CHAPTER IV-D OF THE ACT WERE APPLICABLE. IN THE PRESENT CASE, WE ARE NO T CONCERNED WITH THE APPLICABILITY OF THESE PROVISION S. WE ARE CONCERNED ONLY WITH THE CONCEPT OF COMMERCIAL INCOME AS UNDERSTOOD FROM THE ACCOUNTING POINT OF VIEW. EVEN UNDER NORMAL COMMERCIAL ACCOUNTING PRINCIPLES, THERE IS AUTHORITY FOR THE PROPOSITION THAT DEPRECIATION IS A NECESSARY CHARGE IN COMPUTING THE NET INCOME. SECONDLY, THE SUPREME COURT WAS CONCERNED WITH THE CASE WHERE THE ASSESSEE HAD CLAIMED DEDUCTION OF THE COST OF THE ASSET UNDER SECTION 35 (1) OF THE ACT, WHICH ALLOWED DEDUCTION FOR CAPITAL EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH. THE QUESTION WAS WHETHER AFTER CLAIMING DEDUCTION IN RESPECT OF THE COST OF THE ASSET UNDER SECTION 35(1 ), CAN THE ASSESSEE AGAIN CLAIM DEDUCTION ON ACCOUNT O F DEPRECIATION IN RESPECT OF THE SAME ASSET. THE SUPR EME COURT RULED THAT, UNDER GENERAL PRINCIPLES OF TAXAT ION, DOUBLE DEDUCTION IN REGARD TO THE SAME BUSINESS OUTGOING IS NOT INTENDED UNLESS CLEARLY EXPRESSED. THE PRESENT CASE IS NOT ONE OF THIS TYPE, AS RIGHTLY DISTINGUISHED BY THE CIT(APPEALS). 14. HAVING REGARD TO THE CONSENSUS OF JUDICIAL OPI NION ON THE PRECISE QUESTION THAT HAS ARISEN IN THE PRES ENT APPEAL, WE ARE NOT INCLINED TO ADMIT THE APPEAL AND FRAME ANY SUBSTANTIAL QUESTION OF LAW. THERE DOES N OT APPEAR TO BE ANY CONTRARY VIEW PLAUSIBLE ON THE QUESTION RAISED BEFORE US AND AT ANY RATE NO JUDGME NT TAKING A CONTRARY VIEW HAS BEEN BROUGHT TO OUR NOTI CE. IN THE CIRCUMSTANCES, WE DECLINE TO ADMIT THE PRESE NT APPEAL AND DISMISS THE SAME WITH NO ORDER AS TO COS TS. 7. THE CASE OF THE ASSESSEE IS IDENTICAL TO THE ONE ALREADY ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNA L IN THE CASE OF M/S. GREAT LAKES INSTITUTE OF MANAGEMENT (S UPRA) AS WELL AS IN THE CASE OF M/S.RAMANANDHA ADIGALAR FOUN DATION & M/S.KONGUNADU ARTS & SCIENCE COLLEGE COUNCIL (SUP RA). ITA NO.2150/MDS/2011 9 UNDISPUTEDLY, THE ASSESSEE IS A TRUST. THE LAW LAID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF ESCORTS LTD. (SUPRA) IS NOT APPLICABLE IN THE CASE OF TRUST S. THEREFORE, THE AUTHORITIES BELOW HAVE WRONGLY APPLIED THE RATI O OF SAID JUDGEMENT IN THE INSTANT CASE. IN VIEW OF THE ABOVE , WE HOLD THAT THE CIT(A) HAS ERRED IN DISALLOWING THE DEPREC IATION CLAIMED BY THE ASSESSEE. THE ORDER OF THE CIT(A) IS THEREFORE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION TO THE ASSESSEE. 8. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR THE RE ASONS STATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, T HE 12 TH DAY OF MARCH, 2013 AT CHENNAI. SD/- SD/- ( DR. O.K.NARAYANAN ) (VIKAS AWASTHY) VICE-PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 11 TH MARCH, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.