Assistant Director of Income tax, CHENNAI V. M/s. Balamani Arunachalam Educational & Charitable trust, CHENNAI

ITA 2188/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73673 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-01-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 16-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Charitable institution; Cost of acquisition
• Section: 12A; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . , . . , ! ' [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.2188/MDS/2013 / ASSESSMENT YEAR: 2010-11 THE ASST. DIRECTOR OF INCOMETAX (EXEMPTIONS)-IV CHENNAI VS. M/S BALAMANI ARUNACHALAM EDUCATIONAL AND CHARITABLE TRUST NO.6/4, VAIGAI STREET KALACHETRA COLONY CHENNAI 600 090 [PAN AABTB 4308D ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : SHRI N. MADHAVAN, JCIT /RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE / DATE OF HEARING : 30-01-2014 ! / DATE OF PRONOUNCEMENT : 31-01-2014 ' / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2010-11, IS DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME- TAX (APPEALS)-VII CHENNAI, DATED 24.09.2013, PASSED IN APPEAL I.T.A.NO.2188/13 :- 2 -: NO.156/2013-14, IN PROCEEDINGS UNDER SECTION 143(3 ) OF THE INCOME- TAX ACT, 1961 (IN SHORT THE ACT). 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THE PRESE NT APPEAL: 1.1 THE ID CIT(A) ERRED IN HOLDING THAT THE ASSESS EE TRUST IS ELIGIBLE FOR DEPRECIATION CLAIMED TO THE EXTENT OF RS.39.63 LAKHS . 1.2 THE ID CIT(A) FAILED TO APPRECIATE THAT THE ASS ESSEE HAD CLAIMED THE ENTIRE COST OF THE ASSETS AS APPLICATIO N OF INCOME IN THE EARLIER YEARS WHILE ACQUIRING THE ASSETS AND CL AIM OF DEPRECIATION ON THE SAME WOULD AMOUNT TO DOUBLE DED UCTION. 1.3 RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE KERALA HIGH COURT DECISION IN THE CASE OF M/S LISSIE MEDICAL INSTITUTIONS VS CIT 348 ITR 344(KER.) WHEREIN IT WAS HELD THAT AFTER WRITING OFF FULL VALUE OF CAPITAL EXPEND ITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND WHEN THE ASSESSEE AGAIN CLAIMS THE SAM E AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL C LAIM BECOMES CASH SURPLUS AVAILABLE WITH THE ASSESSEE WHICH GOES OUTSIDE THE BOOKS OF ACCOUNTS OF THE TRUST UNLESS IT IS WRITTEN BACK WHICH IS NOT DONE. IT IS NOT PERMISSIBLE FOR A CHARITABLE IN STITUTION TO GENERATE INCOME OUTSIDE THE BOOKS IN THIS FASHION. 1.4 RELIANCE IS FURTHER PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF JK SYNTHETICS LIMITED (65 TAXM AN 420), WHEREIN IT WAS HELD THAT IF THE INTENTION OF THE LE GISLATURE IS TO PROVIDE MORE THAN 100% DEDUCTION, IT WOULD HAVE BEEN CLEARLY INCORPORATED THROUGH A SPECIFIC PROVISION I N THE ACT, AS DONE IN THE CASE OF 'WEIGHTED DEDUCTIONS'. HENCE, A DOUBLE DEDUCTION CANNOT BE A MATTER OF INFERENCE, R ATHER IT MUST BE IN CLEAR AND EXPRESS TERMS IN THE ACT ITSELF. 1.5 RELIANCE IS FURTHER PLACED ON THE DECISION IN T HE CASE OF CIT VS. RAO BAHADUR CUNNAN CHETTY CHARITIES (135 ITR 48 5), WHEREIN IT WAS HELD THAT THE WORD 'INCOME' HAS TO B E UNDERSTOOD IN NORMAL PARLANCE WITHOUT LOOKING INTO OR INVOKING THE PROVISIONS OF SEC.14 OF THE INCOME TAX ACT. I.T.A.NO.2188/13 :- 3 -: 1.6 IT IS SUBMITTED THAT THE DECISION OF HON'BLE ITAT, COCHIN IN THE CASE OF IT ERNAKULAM VS. ADI SANKARA TRUST, IS FAVOURABLE TO REVENUE WHEREIN IT WAS HELD THAT SINC E DEDUCTION FOR ACQUISITION OF ASSETS HAD ALREADY BEEN CLAIMED AS A PPLICATION OF INCOME, FURTHER CLAIM OF DEPRECIATION ON THE SAME A SSETS WOULD AMOUNT TO DOUBLE BENEFITS AND CANNOT BE ALLOWED. 1. 7 IT IS SUBMITTED THAT THE PROVISIONS OF SEC. 11 CONTEMPLATES AN APPLICATION OF INCOME FROM CHARITABLE PURPOSES. SIN CE DEPRECIATION IS A NOTIONAL EXPENDITURE, THE SAME CA NNOT BE EXCLUDED FROM THE RECEIPTS EVEN FOR THE PURPOSE OF COMPUTATION OF APPLICATION OF FUNDS. 1.8 THE ASSESSEE MAY PREPARE ITS INCOME AND EXPENDI TURE ACCOUNT TO DETERMINE THE EXCESS OF INCOME OVER EXPE NDITURE, IN WHICH THE ASSESSEE WAS ENTITLED TO DEBIT THE DEPREC IATION AS PER THE PROVISIONS OF CHAPTER IV OF THE ACT (SEC.14 TO SEC.80VVA OF THE ACT) BUT THE SAME CANNOT BE EXCLUDED FROM THE R ECEIPTS FOR THE PURPOSE OF COMPUTATION OF APPLICATION OF FUNDS. IT HAS TO BE EXCLUDED ONLY AFTER CALCULATING THE APPLICATION OF FUNDS FOR THE PURPOSE OF EXEMPTION U/S 11 OF THE ACT. 3. IN THE COURSE OF HEARING, THE REVENUE VEHEMENTLY AR GUES THAT SINCE THE ASSESSEE HAD CLAIMED ENTIRE COST OF THE ASSETS IN QUESTION AS APPLICATION OF INCOME IN THE EARLIER AS SESSMENT YEARS, THE IMPUGNED CLAIM OF DEPRECIATION TANTAMOUNTS TO GRANT ING DOUBLE DEDUCTION. ACCORDINGLY, IT PRAYS FOR ACCEPTANCE OF THE APPEAL. 4. PER CONTRA, THE ASSESSEE SUPPORTS THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE OF DEPRECIATION AND ARGUE S THAT VARIOUS HIGH COURTS HAVE ALREADY HELD THE ISSUE IN ASSESSEES F AVOUR. IN VIEW THEREOF, IT PRAYS FOR AFFIRMING THE CIT(A)S ORDER UNDER CHALLENGE. I.T.A.NO.2188/13 :- 4 -: 5. THE ASSESSEE IS AN AOP/TRUST REGISTERED U/S 12A A OF THE ACT SINCE 15.7.2005. FOR THE IMPUGNED ASSESSMENT Y EAR, IT HAD FILED ITS RETURN ON 25.4.2011 WHICH WAS SUMMARILY PROCE SSED. THEREAFTER, THE ASSESSING OFFICER FRAMED REGULAR ASSESSMENT V IDE ORDER DATED 24.1.2013 DENYING THE ASSESSEE A SUM OF ` 39,63,657/- CLAIMED AS DEPRECIATION BY HOLDING THAT SINCE IT HAD ALREADY C LAIMED ENTIRE COST OF ASSETS AS APPLICATION IN ORDER TO COMPLY THE RELE VANT PROVISIONS OF THE ACT, THIS DEPRECIATION WOULD AMOUNT TO DOUBLE DED UCTION. 6. THE ASSESSEE CARRIED THE ISSUE IN APPEAL. WE FIND THAT THE CIT(A) HAS ACCEPTED THE ARGUMENTS OF THE ASSESSEE AND DELETED THE DISALLOWANCE BY HOLDING AS FOLLOWS: WITH REGARD TO THE NON ALLOWANCE OF DEPRECIATION ON THE OPENING BALANCES OF THE FIXED ASSETS, THE ASSESSING OFFICER IS OF OPINION THAT SINCE THE ASSETS HAVE BEEN CLAIMED AS DEDUCTION IN THE EARLIER YEARS AS APPLICATION OF INCOME, CLAIMIN G OF DEPRECIATION WOULD AMOUNT TO DOUBLE DEDUCTION. THIS IS BONE OF CONTENTION FOR A LONG TIME, HOWEVER THE COURTS HAVE HELD THAT FOR THE FOLLOWING REASONS THE DEPREC IATION SHALL BE ALLOWED AS DEDUCTION FROM THE INCOME OF A CHARITABL E TRUST. A. THE SCHEME OF TAXATION OF CHARITABLE TRUSTS ARE QUI TE DIFFERENT FROM THE TAXATION OF THE OTHER TAXABLE ENTITIES. B. THE CONCEPT OF TOTAL INCOME' IS NOT APPLICABLE I N CASE OF CHARITABLE TRUST. C. A DEDUCTION BY WAY OF DEPRECIATION IN CASE OF CHARI TABLE TRUST IS NECESSARY IN ORDER TO PRESERVE THE CORPUS OF THE TRUST. I.T.A.NO.2188/13 :- 5 -: D. THE DEDUCTION OF DEPRECIATION IN CASE OF CHARITABLE TRUST, DOES NOT AMOUNT TO A DOUBLE BENEFIT/ DEDUCTION. REFERENCE SHALL BE MADE ON THE FOLLOWING HIGH COURT DECISIONS. A. CIT VS INSTITUTE OF BANKING (2003) 264 ITR 110 (BOM ) B. CIT VS MARKET COMMITTEE PIPLE ( 2011) 330 ITR 16 (P & H) C. CIT VS SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRU ST (1992) 198 ITR 598 (GUJ) D. CIT VS TINY TOTS EDUCATION SOCIETY ( 2011 ) 330 ITR 21(P & H) E. CIT VS RAO BAHADUR CALAVALA CANNAN CHETTY CHARITIES ( 1982) 135 ITR 485 (MAD) FOR THE REASONS, STATED ABOVE AND FOLLOWING THE JUDGEMENTS OF THE HIGH COURTS, I AM OF THE OPINION THAT THE DEPRECIATION IS AN ALLOWABLE EXPENDITURE EVEN THOUGH THE ASSETS WOULD HAVE BEEN TREATED AS APPLICATION OF INCOME DURING THE PREVIOUS YEARS. HENCE, I DIRECT ASSESSING OFFICER T O ALLOW THE CLAIM OF THE DEPRECIATION IN THE ACCOUNTS OF THE TR UST. THEREFORE, THE REVENUE HAS FILED THE INSTANT APPEAL . 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. THERE IS NO DISPUTE ON FACTS. THE ONLY QUARREL BET WEEN THE PARTIES IS THAT PER REVENUE, THE ASSESSEES CLAIM OF DEPRECIA TION COULD NOT HAVE BEEN ACCEPTED BY THE CIT(A) SINCE IN EARLIER ASSESS MENT YEARS THE COST OF ACQUISITION OF THE ASSETS HAD ALREADY BEEN ALLO WED AS APPLICATION OF INCOME. PROCEEDING ON THIS QUESTION, WE FIND TH AT THE KERALA HIGH COURT IN THE CASE OF M/S LISSIE MEDICAL INSTITUTION S VS CIT, 348 ITR 344(KER) HAS DECIDED THE ISSUE IN REVENUES FAVOUR WHEREAS OTHER I.T.A.NO.2188/13 :- 6 -: HIGH COURTS IN THE CASE OF CIT VS INSTITUTE OF BANK ING [2003] 264 ITR 110(BOM), CIT VS MARKET COMMITTEE PIPLE [2011] 330 ITR 16 (P&H), CIT VS SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRU ST [1992] 198 ITR 598(GUJ), CIT VS TINY TOTS EDUCATION SOCIETY [ 2011] 330 ITR 21 (P&H) AND CIT VS RAO BAHADUR CALAVALA CANNAN CHETTY CHARITIES [1982] 135 ITR 485(MAD) HAVE ADJUDICATED THE VERY I SSUE IN ASSESSEES FAVOUR. IN THESE CIRCUMSTANCES, THE CASE LAW OF HON'BLE SUPREME COURT [1973] 88 ITR 192 CIT VS VEGETABLE PR ODUCTS LTD. HOLDING THAT WHEN THERE IS DIVERGENCE OF OPINIONS I N THE DECISIONS OF VARIOUS HIGH COURTS THE ONE FAVOURING THE ASSESSEE HAS TO BE ADOPTED, APPLIES IN THE PRESENT CASE. ACCORDINGLY, WE REJE CT THE REVENUES ARGUMENTS AND CONFIRM THE FINDINGS OF THE CIT(A). 8. THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 31 ST OF JANUARY, 2014, AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (S. S. GODARA) JUDICIAL MEMBER DATED: 31 ST JANUARY, 2014 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR