Coimbatore Masonic Charity Trust, Coimbatore V. DCIT, Exemptions, Coimbatore

ITA 2177/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5761 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 06-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN JCIT D R
• Assessee Lawyers: V JAGA DESAN
• Keywords: Depreciation; Charitable institution
• Section: 10; 11

Judgement Text

, C/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL C/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.2177 /MDS./2017 ( ASSESSMENT YEAR : 2014-15 ) M/S.COIMBATORE MASONIC CHARITY TRUST, 232,RACE COURSE ROAD, NGGO COLONY, COIMBATORE 641 018. VS. THE DCIT(EXEMPTIONS), COIMBATORE. PAN AAATC 1228 N ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.V.JAGADESAN,ADVOCATE / RESPONDENT BY : MR.B.SAGADEVAN, JCIT, D.R ! ' / DATE OF HEARING : 28.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 07.12.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-2, COIMBA TORE DATED 30.05.2017 PERTAINING TO ASSESSMENT YEAR 2014-15. ITA NO. 2177/MDS/2017 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS FOR ADJUDICATION. 1. THE LEARNED CIT(A) IS NOT LEGALLY JUSTIFIED IN C ONFIRMING THE DISALLOWANCE OF DEPRECIATION OF ` 28,09,454/- IN COMPUTING THE INCOME TO BE APPLIED F OR CHARITABLE OBJECTS OF THE ASSESSEE TRUST. 2. COURTS OF LAW HAVE HELD THAT DEPRECIATION IS A P ROPER DEDUCTION IN THE CASE OF A CHARITABLE TRUST EVEN THOUGH THE COST OF ASSETS HAVE BEEN CLAIMED AS APPLICATION OF INCOME TOWARDS CHARITABLE OBJECTS OF THE TRUST. 3. THE CIT (A) ERRED IN HOLDING THAT DEPRECIATION S HOULD NOT BE CONSIDERED AS INCOME APPLIED FOR CHARITABLE PURPOSES WHILE CON SIDERING WHETHER 85% OF GROSS INCOME OF THE TRUST HAS BEEN APPLIED F OR CHARITABLE PURPOSE AND TAKING THE SHORT FALL AS INCOME OF THE TRUST. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A CHARITABLE TRUST REGISTERED U/S.12A OF THE ACT. THE ASSESSEE F ILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2014-15 DECLARING NIL IN COME. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE, IN THE COMPUTATION OF INCOME, DEDUCTED DEPRECIATION ON ASS ETS AMOUNTING TO ` 28,09,454/- FROM THE GROSS RECEIPTS, CLAIMING IT AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES. THE LD. ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 30.11.2016 AND DISALLOWED THE ASSESSEES CLAIM OF DEPRECIATION ON ASSETS AT ` 28,09,454/- BY FOLLOWING THE DECISION OF KERALA HIGH COURT IN CIT VS. LISSIE MEDICAL INSTITUTIONS IN 245 ITR KLR 525(2012). AGGRIEVED B Y THE ORDER OF LD. ITA NO. 2177/MDS/2017 3 ASSESSING OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) OBSERVED THAT DEPRECIATION IS NOT ALLOWABLE WHILE GRANTING EXEMPTION U/S.11 OF TH E ACT SINCE THE COST OF THE ASSET WAS ALREADY ALLOWED AS DEDUCTION AS APPLICATION OF INCOME IN THE YEAR IN WHICH THE ASSET WAS ACQUIRED. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPE AL BEFORE US. 4. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL ON RECORD. IT IS NOTICED THAT SIMILAR ISSUE CAME FOR C ONSIDERATION BEFORE THE JURISDICTIONAL HIGH COURT IN THE CASE OF DIT(EX EMPTION)-III, CHENNAI VS. M/S.MEDICAL TRUST OF THE SEVENTH DAY AD VENTISTS, CHENNAI IN TCA NO.949 OF 2015 AND 771 OF 2016 ASSE SSEES APPEAL & TAX CASE (APPEAL) NO.844 OF 2010 DEPARTMENTAL AP PEAL VIDE ORDER DATED 08.08.2017 WHEREIN IT WAS HELD THAT:- 34.THE SHORT POINT THAT ARISES FOR DECISION IS WHE THER THE PROVISIONS OF SECTION 11(6) INSERTED BY FINANCE (NO.2) ACT, 2014 W.E.F. 1.4.2015, OPERATE PROSPECTIVELY WITH EFFECT FROM ASSESSMENT Y EAR 2015-16 OR RETROSPECTIVELY WITH RESPECT TO EARLIER YEARS AS WE LL. IN THIS REGARD, M/S.PUSHYA SITARAMAN, LEARNED SENIOR COUNSEL AND OT HER LEARNED COUNSELS APPEARING FOR THE ASSESSES REFER TO THE PR OVISIONS OF CIRCULAR 1 OF 2015 DATED 21.1.2015 (371 ITR (ST) 0022) CONTAIN ING EXPLANATORY ITA NO. 2177/MDS/2017 4 NOTES TO THE PROVISIONS OF FINANCE (NO 2) ACT, 2014 THE RELEVANT PORTION OF THE CIRCULAR READS AS FOLLOWS: 7 3. SEVERAL ISSUES HAD ARISEN IN RESPECT OF THE AP PLICATION OF EXEMPTION REGIME TO TRUSTS OR INSTITUTIONS IN RESPE CT OF WHICH CLARITY IN LAW WAS REQUIRED. 7.4 THE FIRST ISSUE WAS REGARDING THE INTERPLAY OF THE GENERAL PROVISION OF EXEMPTIONS WHICH ARE CONTAINED IN SECT ION 10 OF THE INCOME-TAX ACT VIS-A-VIS THE SPECIFIC AND SPECIAL E XEMPTION REGIME PROVIDED IN SECTIONS 11 TO 13 OF THE SAID ACT. AS I NDICATED ABOVE, THE PRIMARY OBJECTIVE OF PROVIDING EXEMPTION IN CAS E OF CHARITABLE INSTITUTION IS THAT INCOME DERIVED FROM THE PROPERT Y HELD UNDER TRUST SHOULD BE APPLIED AND UTILIZED FOR THE OBJECT OR PU RPOSE FOR WHICH THE INSTITUTION OR TRUST HAS BEEN ESTABLISHED. IN M ANY CASES IT HAD BEEN NOTED THAT TRUSTS OR INSTITUTIONS WHICH ARE RE GISTERED AND HAVE BEEN AVAILING BENEFITS OF THE EXEMPTION REGIME TO N OT APPLY THEIR INCOME, WHICH IS DERIVED FROM PROPERTY HELD UNDER T RUST, FOR CHARITABLE PURPOSES. IN SUCH CIRCUMSTANCES, WHEN TH E INCOME BECOMES TAXABLE, A CLAIM OF EXEMPTION UNDER GENERAL PROVISIONS OF SECTION 10 IN RESPECT OF SUCH INCOME IS PREFERRE D AND TAX ON SUCH INCOME IS AVOIDED. THIS DEFEATS THE VERY OBJEC TIVE AND PURPOSE OF PLACING THE CONDITIONS OF APPLICATION OF INCOME, ETC., IN RESPECT OF INCOME DERIVED FROM PROPERTY HELD UNDER TRUST IN THE FIRST PLACE. 7.4.1 SECTIONS 11,12 AND 13 OF THE INCOME-TAX ACT ARE SPECIAL PROVISIONS GOVERNING INSTITUTIONS WHICH ARE BEING G IVEN BENEFIT OF TAX EXEMPTION. IT IS THEREFORE IMPERATIVE THAT ONCE A PERSON VOLUNTARILY OPTS FOR THE SPECIAL DISPENSATION IT SH OULD BE GOVERNED BY THESE SPECIFIC PROVISIONS AND SHOULD NOT BE ALLO WED FLEXIBILITY OF BEING GOVERNED BY OTHER GENERAL PROVISIONS OR SPECI FIC PROVISIONS ITA NO. 2177/MDS/2017 5 AT WILL. ALLOWING SUCH FLEXIBILITY HAS UNDESIRABLE EFFECTS ON THE OBJECTS OF THE REGULATIONS AND LEADS TO LITIGATION. 7.6 APPLICABILITY. THESE AMENDMENTS TAKE EFFECT FROM 1 ST APRIL, 2015 AND WILL, ACCORDINGLY, APPLY IN RELATION TO TH E ASSESSMENT YEAR 2015-2016 AND SUBSEQUENT ASSESSMENT YEARS. 35. PARA 7.6 OF THE CIRCULAR STATES THAT THE AMENDM ENT WOULD APPLY TO ASSESSMENT YEAR 2015-16 AND SUBSEQUENT ASSESSMENT YEARS. RELIANCE WAS PLACED ONTHEJUDGMENT OF THE SUPREME CO URT IN CIT VS.ALOMEXTRUSIONS LTD., (2009) AND CIT VS. VATIKA T OWNSHIPS (367 1TR 466) FOR THE PROPOSITION THAT AN AMENDMENT THAT INC REASES THE LIABILITY OF AN ASSESSEE IS LIABLE TO BE APPLIED ONLY PROSPECTIV ELY. MR. NARAYANASWAMY WOULD OBJECT STATING THAT THE AMENDME NT HAD BEEN INSERTED TO A CORRECT AN EXISTING ANOMALY AND THUS WAS CLEARLY CLARIFICATORY, AND CONSEQUENTLY RETROSPECTIVE IN OP ERATION. 36. WE DO NOT AGREE WITH THE REVENUE. THE AMENDMENT , INSERTED SPECIFICALLY WITH EFFECT FROM ASSESSMENT YEAR 2015- 2016 SEEKS TO DISTURB A VESTED RIGHT THAT HAS ACCRUED TO THE ASSE SSEE. THE AMENDMENT DOES NOT PURPORT TO BE CLARIFICATORY, ON THE OTHER HAND THE EXPLANATORY MEMORANDUM MAKES IT APPLICABLE ONLY W. E.F. A Y 2015-16 AND APPLICATION OF THE AMENDMENT RETROSPECTIVELY WO ULDCERTAINLY LEAD TO A GREAT DEAL OF HARDSHIP TO THE ASSESSEE. WE AR E THUS OF THE VIEW THAT THE PROVISIONS OF SECTION 11(6) OF THE ACT IN SERTED WITH EFFECT FROM 1.4.2015 SHALL OPERATE PROSPECTIVELY WITH RESPECT T O ASSESSMENT YEAR 2015-2016 ONLY. ITA NO. 2177/MDS/2017 6 5. IN VIEW OF THE ABOVE JUDGEMENT OF JURISDICTIONA L HIGH COURT, I AM OF THE OPINION THAT THE LOWER AUTHORITIES IS N OT JUSTIFIED IN DISALLOWING THE CLAIM OF DEPRECIATION AS APPLICATIO N OF INCOME WHILE GRANTING EXEMPTION U/S.11 OF THE ACT AND IT CANNOT BE SAID THAT WHEN THE EXPENDITURE IS ALLOWED IN ITS EN TIRETY ON THE ACQUISITION OF THE FIXED ASSETS AS APPLICATION, THE GRANTING OF DEPRECIATION AS AN APPLICATION WHILE ALLOWING EXEMP TION U/S.11 OF THE ACT, WILL NOT AMOUNT TO DOUBLE DEDUCTION. HENCE, TH E GROUNDS OF THE APPEALS RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON DECEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE DECEMBER, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF