Assistant Commissioner of Income Tax (Exemptions) Circle-1, Mangalore V. M/s KLF Academy of Deemed University , Belgaum

ITA 2197/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4636 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 15-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition
• Section: 143(3); 12A; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH ' B ' BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO. 2197 /BANG/201 7 (ASST. YEAR 201 1 - 1 2 ) THE ASST. COMMISSIONER OF INCOME TAX (EXEM PTION), CIRCLE - 1, MANGALORE . . APPELLANT VS. M/S. KLE ACADEMY OF DEEMED UNIVERSITY, J N MEDICAL COLLEGE CAMPUS, OLD P B ROAD, NEHRUNAGAR, BELGAUM - 590 010 . . RESPONDENT PAN - AAA TD5159R. APPELLANT BY : MS. NEERA MALHOTRA, CIT (D.R) RESPONDENT BY : SHRI PRAVEEN GHALI , C.A DATE OF HEARING : 2 7 - 0 6 - 201 8 DATE OF PRONOUNCEMENT : 29 - 06 - 201 8 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER: TH I S APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) , BELGAUM DATED 24.08.2017 FOR ASST. YEAR 201 1 - 1 2 . ITA NO. 2197 /B ANG / 20 1 7 2 2 . BRIEFLY STATED, THE FACTS OF THE CASE RELEVANT FOR TH I S APPEAL ARE AS UNDER: - 2 .1 THE ASSESSEE, A TRUST , RUNNING EDUCATIONAL INSTITUTIONS AND REGISTERED U/S 12A A OF THE INCOME - TAX ACT 1961 (IN SHORT THE ACT ) VI DE ORDER NO.15/12A/CIT/BGM/2007 - 08 DT.22.11.2017, FILED ITS RETUR N FOR ASST. YEAR 201 1 - 1 2 ON 30 / 9 /201 1 DECLARING NIL INCOME . THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 3 0 / 1 /201 4 WHEREIN THE A SSESSEE S INCOME WAS DETERMINED AT NIL; AFTER , INTER ALIA, DISALLOWING THE ASSESSEE S CLAIM FOR DEPRECIATION ON FIXED ASSETS AMOUNTING TO RS. 8,45,83,043 / - . 2 .2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 3 0/1 /201 4 FOR ASST. YEAR 201 1 - 1 2 , THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A), BELAGAVI . THE LD CIT(A) DISPOSED THE APPEAL VIDE THE IMPUGNED ORDER DATED 24/08/2017 , ALLOWING THE ASSESSEE APPEAL ON THE ISSUE OF ITS CLAIM FOR DEPRECIATION ON FIXED ASSE T S BY FOLLOWING , INTER ALIA, THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF D IT (EXEMPTIONS) VS. AL AMEEN CHARITABLE FUND TRUST REPORTED IN 383 ITR 517 (KAR) . 3 .1 REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CIT(A), BELAGAVI DATED 24.8.2017 FOR ASST. YEAR 201 1 - 1 2 , HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL, RAISING THE FOLLOWING GROUNDS: - 1 THE ORDER OF THE CIT(APPEALS) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2 THE LEARNED CIT(APPEALS) ERRED IN ALLOWING THE ASSESSEE'S CLAIM OF DEPRECIATION AND NOT ITA NO. 2197 /B ANG / 20 1 7 3 CONSIDERING THE JUDGMENT OF THE HON'B LE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTION DT.17.2.2012. 3 THE LEARNED CIT(APPEALS) HAS ALSO FAILED TO APPRECIATE THE FACT THAT DEPRECIATION IS ADMISSIBLE ONLY IN RESPECT OF ASSETS USED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS OR PRO FESSION. SINCE THE ASSESSEE IS NOT ENGAGED IN BUSINESS BUT UNDERTAKING CHARITABLE / RELIGIOUS ACTIVITIES, THE BENEFIT OF DEPRECIATION SHOULD NOT BE AVAILABLE TO IT. . 4 FOR THESE AND SUCH OTHER GROUNDS IT IS URGED THAT THE ORDER OF THE LEARNED CIT(APPEALS) ON THE ABOVE POINTS MAY BE SET ASIDE AND THE ORDER OF THE A O BE RESTORED. 5 THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ALL OR ANY OTHER GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3 .2 THE LD DR FOR REVENUE WAS HEARD IN SUPPO RT OF THE GROUNDS RAISED (SUP R A) AND PLACED STRONG RELIANCE ON THE ORDER OF THE AO IN DISALLOWING THE ASSESSEE S CLAIM FOR DEPRECIATION ON FIXED ASSETS IN VIEW OF THE DECISION OF THE HON BLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDIVAL INSTITUTIONS (348 ITR 344) (KER) . 3 . 3 .1 ACCORDING TO THE LD AR FOR THE ASSESSEE , THE ISSUE IN RESPECT OF THE CLAIM OF DEPRECIATION IS COVERED BY THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF CIT VS. RAJASTHAN & GUJARATI ITA NO. 2197 /B ANG / 20 1 7 4 CHARITABLE FOUNDATION , POONA (2018) 89 TAXMA NN.COM 127 (SC ) AND THE KARNATAKA HIGH COURT IN THE CASE OF DIT(E) VS. AL - AMEEN CHARITABLE TRUST AND OTHERS (383 ITR 517) (KAR) VIDE ORDER DATED 22/2/2016. THE LD AR ALSO , INTER ALIA , PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE CO - ORDINATE BENCH ES OF THIS TRIBUNAL: - (I) MOOGAMBIGAI CHARITABLE TRUST VS. ADDL. CIT (EXEMPTION) IN ITA NO.1224/BANG/2015 DATED 13/7/2016; (II) ITO EXEMPTION VS. SHARADDHA TRUST IN ITA NO.899/BANG/2016 DATED 7/4/2017, (III) JYOTHI CHARITABLE TRUST VS. DCIT (EXEMPTION) IN ITA NO.622/BANG/2015 DATED 14/8/2015. 3 . 4 . 1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED. WE FIND THAT THE ISSUE OF CLAIM OF DEPRECIATION BY A CHARITABLE TRUS T U/S 11 OF THE ACT HAS BEEN CONSIDERED AND HELD IN FAVOUR OF THE ASSESSEE BY THE HON BLE APEX COURT IN THE CASE OF RAJASTHAN & GUJARATI CHARITABLE FOUNDATION, POONA (SUPRA); BY THE HON BLE KARNATAKA HIGH COURT, IN THE CASE OF DIT(EXEMPTION) VS. AL - AMEEN C HARITABLE FUND TRUST & OTHERS (383 ITR 517) (KAR) AND VARIOUS DECISIONS OF THE THIS TRIBUNAL. IN THE CASE OF MOOGAMBIGAI CHARITABLE AND EDUCATION TRUST VS. ADIT (EXEMPTION), THE CO - ORDINATE BENCH IN ITS ORDER IN ITA NO.1224/BANG/2015 DATED 13/7/2016 AT PA RA 11 THEREOF HAS HELD AS UNDER: - ITA NO. 2197 /B ANG / 20 1 7 5 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN A SERIES OF DECISIONS. IN THE CASE OF M /S CMR JANAR DHANA TRUST (SUPRA), THE TRIBUNAL HAS AGAIN CONSIDERED AND DECIDED THIS ISSUE IN PARAS 15 TO 17 ASUNDER: 15. WE HAVE HEARD THE SUBMISSIONS OF THE ID. OR, WHO RELIED ON THE ORDER OF CIT)A) AND THE DECISION OF THE HO N B L E DELHI HIGH COURT IN THE CASE OF DIT (E) VS. CHARANJIV CHARITABLE TRUST (2014) 83 TAX MA NN . COM 300 (DELHI). WE HAVE CONSIDERED THE ORDER OF THE CIT (A). I DENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE ITAT BANGALORE BENCH IN THE CASE OF DDIT (E) V. CUTCHI ME MON UNION (2013) 60 SOT 260 BANGALORE ITAT, WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL, IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPREDATION AND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE RELEVANT CAPITAL ASSET, COST OF ACQUISITION WAS CONSID ERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITION. THE AO TOOK THE VIEW THAT ALLOWING DEPREDATION WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTION AND PLACED RELIANCE ON THE DECISION OF HON BLE SUPREME COURT IN ESCORTS LTD. (SUPRA), THE CIT(A) HOWEVER, ALLOWED THE CLAIM OF ITA NO. 2197 /B ANG / 20 1 7 6 ASSESSES. ON FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL HELD AS FOLLOWS: - '20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING INCOME OF CHARITABLE INSTITUTIONS, THEN T HERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME AS IT IS NOTHING BUT A DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR, DETERIORATION, OR OBSOLESCENCE, SINCE INCOME FOR THE PURPOSES OF SECTION 11)1) HAS TO BE COMPUTED IN NORMAL CO MMERCIAL MANNER, THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INCOME, IT WAS SO HELD BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). IT WAS HELD IN CIT VS. TI NY TOTS EDUCATION SOCIETY (2011) 330 IT R 21 (P&H), FOLLOWING CIT VS. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) (2011) 238 C TR (P&H) 103 THAT DEPRECIATION CAN BE CLAIMED BY A CHARITABLE INSTITUTION IN DETERMINING PERCENTAGE OF FUNDS APPLIED FOR THE PU RPOSE OF CHARITABLE OBJECTS. CLAIM FOR DEPRECIATION WILL NOT AMOUNT TO DOUBLE BENEFIT, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUISHED BY THE HON'BLE COURT IN THE AFORESAID DECIS IONS. ITA NO. 2197 /B ANG / 20 1 7 7 21 . THE ISSUE RAISED BY THE REVENUE IN THE GROUND OF APPEAL IS THUS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MARKET COMMITTEE, PIPLI, 330 IT R 16 (P&H). THE HON'BLE PUNJAB & HARYANA H IGH COURT AFTER CONSIDERING SEVERAL DECISIONS ON THAT ISSUE AND ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA), CAME TO THE CONCLUSION THAT DEPRECIATION IS ALLOWABLE ON CAPITAL ASSETS ON THE INCOME OF THE CHARITABLE TRUS T FOR DETERMINING THE QUANTUM OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF TRUSTS IN TERMS OF SECTION 11 OF THE ACT. THE HON'BLE PUNJAB & HARYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF ME HO N 'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (S UPRA) AND OBSERVED THAT THE HON'BLE SUPREME COURT WAS DEALING WITH A CASE OF TWO DEDUCTIONS UNDER DIFFERENT PROVISIONS OF THE ACT, ONE U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITURE OF A CAPITAL NATURE INCURRED ON SCIENTIFIC RESEARCH U/S. 35(1)(IV) OF THE ACT. THE HON'BLE COURT THEREAFTER HELD THAT A TRUST CLAIMING DEPRECIATION CANNOT BE EQUATED WITH A CLAIM FOR DOUBLE DEDUCTION THE H ON'BLE PUNJAB & HARYANA HIGH COURT HAS ALSO MADE A REFERENCE TO THE DECISION OF THE HON'B L E KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ANNE, 146 IT R 28 (KAR ) , WHEREIN IT WAS HELD ITA NO. 2197 /B ANG / 20 1 7 8 THAT U/S. 11(1) OF THE ACT, INCOME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTI NG SUCH INCOME. IN VIEW OF THE AFORESAID DECISION ON THE ISSUE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THE ABOVE ISSUE DOES NOT CALL FOR ANY INTERFERENCE. 22. CONSEQUENTLY, GROUND NO.5 RAISED BY THE REVENUE IS DISMISSED.' 1 6. IT IS NO DOUBT TRU E THAT THE H ON'BLE DELHI H IGH COURT IN THE CASE OF CHARANJIV CHARITABLE TRUST (SUPRA) HAS TAKEN A CONTRARY VIEW BUT THEN WHEN TWO VIEWS ARE POSSIBLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED, THE DECISION OF THE HON'B L E PUNJAB & H ARYANA HIGH COURT IS IN FAVOUR OF THE ASSESSEE AND HAS FOLLOWED THE DECISION OF THE HO N BLE KARNATAKA HIGH COURT IN THE CASE OF SOCIETY OF SISTERS OF ANNE (SUPRA). THE INTERPRETATION TO THE CONTRARY GIVEN BY THE CIT(A) ON THE DECISION OF THE HON'BLE KARNAT AKA HIGH COURT IN THE CASE OF SOCIETY OF SISTERS OF ANNE (SUPRA) CANNOT THEREFORE BE ACCEPTED. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SINCE BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE ( NO . 2) ACT, 2014 W . E .F 1 . 4 . 2015 BY INSERTION OF SUBSECTI ON (6) TO SECTION 11 OF THE ACT, WHICH READS AS UNDER: - '(6) IN THIS SECTION WHERE ANY INCOME IS ITA NO. 2197 /B ANG / 20 1 7 9 REQUIRED TO BE APPLIED OR ACCUMULATED OR SET APART FOR APPLICATION, THEN, FOR SUCH PURPOSES THE INCOME SHALL BE DETERMINED WITHOUT ANY DEDUCTION OR ALLOWANCE B Y WAY OF DEPRECIATION OR OTHERWISE IN RESPECT OF ANY ASSET, ACQUISITION OF WHICH HAS BEEN CLAIMED AS AN APPLICATION OF INCOME UNDER THIS SECTION IN THE SAME OR ANY OTHER PREVIOUS YEAR . 17. AS ALREADY STATED, THE AFORESAID AMENDMENT IS PROSPECTIVE AND W ILL APPLY ONLY FROM AX. 201546. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) HAS TO BE REVERSED. CONSEQUENTLY GROUNDS NO,4 & 5 RAISED BY THE ASSESSEE ARE ALLOWED . THERE IS NO DISPUTE THAT THE AMENDMENT OF SECTION 11( 6) OF THE ACT BY THE FINANCE ACT, 2014 IS PROSPECTIVE W.EF. 1.42015 AND THEREFORE THE SAID AMENDED PROVISION IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 3 . 4 .2 RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF RAJASTHAN & GUJARATI CHARITABLE FOUNDATION, POONA (SURPA) AND OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF AL - AMEEN CHARITABLE FU ND TRUST & OTHERS (383 ITR 517), WHEREIN THE HON BLE HIGH COURT HAS DISTINGUISHED THE DECISION OF THE HON BLE KERALA HIGH COURT IN LISSIE MEDICAL INSTITUTIONS ITA NO. 2197 /B ANG / 20 1 7 10 (SUPRA) AND ALSO FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF M/S MOOGAMBIGAI CHARITABLE & EDUCATIONAL TRUST, IN ITA NO.1224/BANG/2015 DATED 13/7/2016, WE UPHOLD THE DECISION OF THE LD CIT(A) IN ALLOWING THE ASSESSEE S CLAIM FOR DEPRECIATION ON FIXED ASSETS FOR ASST. YEAR 201 1 - 1 2 . CONSEQUENTLY, THE GROUNDS RAISED BY REVENUE (SUPRA ) ON THIS ISSUE ARE DISMISSED. 4 . IN THE RESULT, REVENU E S APPEAL FOR ASST. YEAR 201 1 - 1 2 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JU NE , 201 8 . SD/ - SD/ - ( N. V. VASUDEVAN ) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED : 29/06 /201 8 * REDDY GP C OPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETARY , ITAT, BANGALORE