DCIT (Exemption), Ghaziabad V. M/s. Kanpur Education Society, Kanpur

ITA 2285/DEL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3479 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 17-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAUSHLENDRA TIWARI
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER I.T.A. NO. 2285/DEL/2017 (ASSESSMENT YEAR 2013-2014) APPELLANT BY : SH. KAUSHLENDRA TIWARI, SR. DR RESPONDENT BY : NONE. DATE OF HEARING : 30.10.2017 DATE OF PRONOUNCEMENT : 30.10.2017 ORDER PER BHAVNESH SAINI JM: 1. THIS APPEAL BY THE REVENUE HAS BEEN DIRECTED AGAIN ST THE ORDER OF LD. CIT(A)-II, KANPUR, DATED 09.12.2016 FO R ASSESSMENT YEAR 2013-14 ON THE FOLLOWING GROUNDS. 1. THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED IN LAW AND ON ALLOWING THE APPEAL OF THE ASSESSEE AFTER ALLOWING CLAIMED DEPRECIATION OF RS. 45,40,842/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION WHICH ALLOWABLE AS THE CAPITAL EXPENDITURE ON ACQUIRING ASSETS HAS ALREADY ALLOWED IN RESPECTIVE YEARS. 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FIRST ALLOWING THE APPEAL OF THE ASSESSEE AFTER DELETING THE ADDITION OF RS. 45,40,842/- 3. APPELLANT CRAVES LEAVE TO MODIFY/ AMEND OR ADD ANY ONE OR MORE GROUNDS OF APPEAL. DCIT(EXEMPTION) EXEMPTION CIRCLE GHAZIABAD VS. KANPUR EDUCATION SOCIETY 110/62, JAWAHAR NAGAR KANPUR, UP. GIR/PAN: AAATK7598P (APPELLANT) (RESPONDENT) 2 ITA NO. 2285/DEL/2017 (AY 2013-14) 4. THE ORDER OF LD. CIT(A) BE CANCELLED AND THE ORDER OF THE A.O. RESTORED. 2. BRIEF FACTS OF THE CASE ARE THAT IN THE ASSESSMENT ORDER, THE AO HAS STATED THAT THE ASSESSEE IS A SOCIETY REGIST ERED UNDER THE SOCIETIES ACT WITH THE REGISTRAR OF SOCIETY (UP) AN D HAS BEEN GRANTED REGISTRATION U/S 12A BY LD. CIT, KANPUR. TH E ASSESSEE SOCIETY IS RUNNING EDUCATIONAL INSTITUTION. AS PER THE INCOME AND EXPENDITURE ACCOUNT, THE TOTAL RECEIPT DURING THE Y EAR HAS BEEN SHOWN AT RS. 5.22 CR., AGAINST WHICH EXCESS OF INCO ME OVER EXPENDITURE HAVE BEEN SHOWN AT RS. 1.09 CR. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN TOTAL C APITAL EXPENDITURE RS. 69,27,349/-. THE ASSESSEE HAS CLAIM ED DEPRECIATIONS OF RS. 45,40,842/- ON ACCOUNT OF APPL ICATION OF INCOME FOR CHARITABLE PURPOSE WHICH IS NOT ALLOWABL E AS CAPITAL EXPENDITURE ON ACQUIRING FIXED ASSETS HAS ALREADY B EEN ALLOWED IN RESPECTIVE YEARS. THE ASSESSEE CHALLENGED THE ASSES SMENT ORDER BEFORE LD. CIT(A). 3. DURING THE APPELLATE PROCEEDINGS THE A.R. OF THE A SSESSEE SUBMITTED THAT THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM THE GROSS INCOME OF THE TRUST. THUS DE PRECIATION MUST BE UNDERSTOOD AS A NECESSARY OUTGOING. WHILE D ISALLOWING DEPRECIATION THE LD. DCIT HAS STATED THAT THE ASSES SEE HAS CLAIMED DEPRECIATION OF RS. 45,40,842/- ON ACCOUNT OF APPLICATION OF INCOME FOR CHARITABLE PURPOSE WHICH IS NOT ALLOWABLE AS THE CAPITAL EXPENDITURE ON ACQUIRING F IXED ASSETS HAS ALREADY BEEN ALLOWED IN RESPECTIVE YEARS. NO OTHER REASON HAS 3 ITA NO. 2285/DEL/2017 (AY 2013-14) BEEN STATED IN THE ASSESSMENT ORDER. WHILE DOING SO THE LD. DCIT HAS NOT APPRECIATED THAT DEPRECIATION HAS BEEN TREA TED AS A NORMAL EXPENSES INCURRED FOR THE ATTAINMENT OF THE OBJECTS OF THE TRUST. IN ORDER TO ARRIVE AT THE INCOME AVAILABLE F OR APPLICATION, THE AMOUNT OF DEPRECIATION SHOULD BE DEDUCTED AS HE LD BY VARIOUS HIGH COURTS AND TRIBUNAL. IF DEPRECIATION I S NOT ALLOWED AS A NECESSARY DEDUCTION IN COMPUTING THE INCOME OF A CHARITABLE/RELIGIOUS TRUST, THEN THERE WOULD BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST. THEREFORE, A CHAR ITABLE/RELIGIOUS TRUST IS ENTITLED TO DEPRECIATION IN RESPECT OF THE ASSETS OWNED BY IT. WE RELY ON THE FOLLOWING JUDGMENTS IN THE MATTE R: A. IN THE CASE OF CIT VS MARKET COMMITTEE, PIPLI [2 011] 330 ITR 16 (P&H), IT HAS BEEN CLEARLY HELD THAT DEDUCTI ON OF DEPRECIATION IN CASE OF A CHARITABLE / RELIGIOUS TR UST DOES NOT AMOUNT TO DOUBLE DEDUCTION. B. IN THE CASE OF CIT VS TINY TOTS EDUCATION SOCIET Y [2011] 330 ITR 21 (P&H), IT HAS BEEN HELD THAT THE DEDUCTI ON OF DEPRECIATION IN CASE OF A CHARITABLE / RELIGIOUS TR UST, DOES NOT AMOUNT TO DOUBLE BENEFIT. SAME IS THE VIEW HELD BY THE BOMBAY HIGH COURT IN THE CASES : (I) CIT VS INSTITU TE OF BANKING [2003] 264 ITR 110 (BOM) (II) DIT (E) VS FRA MJEE CAWASJEE INSTITUTE [1993] 109 CTR 463 (BOM) 9. THUS THE LD. DCIT WAS LIABLE TO ALLOW DEPRECIATION AND REPAY MENT OF LOAN AS AN APPLICATION OF INCOME. C. IN THE DECISION OF HON'BLE MADHYA PRADESH HIGH C OURT IN CIT VS. RAIPUR PALLOTTINE SOCIETY (1989) 180 ITR 57 9 (M.P.) WHEREIN HON'BLE HIGH COURT HELD AS UNDER: 4 ITA NO. 2285/DEL/2017 (AY 2013-14) 'DEPRECIATION IS THE EXHAUSTION OF THE EFFECTIVE LI FE OF A FIXED ASSET OWING TO 'USE' OR OBSOLESCENCE. IT MAY BE COM PUTED AS THAT PART OF THE COST OF THE ASSET WHICH WILL NO T BE RECOVERED WHEN THE ASSET IS FINALLY PUT OUT OF USE. THE OBJECT OF PROVIDING FOR DEPRECIATION IS TO SPREAD T HE EXPENDITURE INCURRED IN ACQUIRING THE ASSET OVER IT S EFFECTIVE LIFETIME AND THE AMOUNT OF PROVISION MADE IN RESPEC T OF ACCOUNTING PERIOD IS INTENDED TO REPRESENT THE PROP ORTION OF SUCH EXPENDITURE WHICH HAS EXPIRED DURING THAT PERI OD. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTIO N IN COMPUTING THE INCOME OF A CHARITABLE TRUST, THEN TH ERE WOULD BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST . A CHARITABLE TRUST IS, THEREFORE, ENTITLED TO DEPRECIATION IN RESPECT OF T HE ASSETS OWNED BY IT. YOUR HONOUR, WITH EFFECT FROM ASSESSMENT YEAR 2015-1 6 AS PER AMENDMENT IN THE ACT (FINANCE (NO. L) BILL, 2014 TO AMEND SECTION 11 BY INSERTING A NEW SUBSECTION 6), DEPREC IATION SHALL NOT BE CONSIDERED AS AN EXPENSE IN THE CASE OF THE TRUST. THIS CONFIRMS THAT FOR THE ASSESSMENT YEAR UNDER CONSIDE RATION, IN ORDER TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICA TION, THE AMOUNT OF DEPRECIATION SHOULD BE ALLOWED AND DEDUCT ED. THUS CLAIM OF DEPRECIATION OF RS. 45,40,8427- MAY PLEASE BE ALLOWED IN VIEW OF THE ABOVE SUBMISSIONS AND JUDGMENTS. 4. LD. CIT(A) CONSIDERING THE VARIOUS DECISIONS OF DI FFERENT HONBLE HIGH COURTS ALLOWED THE APPEAL OF THE ASSES SEE. HIS FINDINGS ARE REPRODUCED AS UNDER: 5 ITA NO. 2285/DEL/2017 (AY 2013-14) I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF T HE CASE. DEPRECIATION HAS BEEN HELD TO BE AN ALLOWABLE DEDUCTION IN THE HANDS OF TRUST AND CANNOT BE ADDED AS INCOME OF THE APPELLANT, IN VARIOUS JUDGMENTS. I N ORDER TO COMPUTE INCOME AVAILABLE FOR APPLICATION T O CHARITABLE & RELIGIOUS PURPOSES DEPRECIATION DEBITE D TO ASSETS OF THE TRUST MUST BE DEDUCTED - CIT V. SOCIETY OF SISTERS OF ST. ANNE (1984) 146 ITR 28 (KARN.) (1984) 39 CTR 9 (1984) 16 TAXMAN 400, CIT V. SHETH MANILAL RAN CHHODDAS VISHRAM BHAVAN TRUST (1992) 198 ITR 598 (GUJ.) (1993) 70 TAXMAN 228 (GUJ.), ACCORDINGLY THIS GROUND IS ALLOWED. 5. I HAVE HEARD LD. DR, WHO HAS RELIED UPON THE ORDER OF THE AO. HOWEVER, NONE HAS APPEARED ON BEHALF OF THE ASS ESSEE DESPITE NOTIFYING THE DATE OF HEARING THROUGH REGIS TERED POST. AFTER CONSIDERING THE SUBMISSION OF THE LD. DR, I D O NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. THE ASSESSEE HAS RELIED UPON SEVERAL DECISIONS ON THE PROPOSITION THAT CHARITABL E/RELIGIOUS TRUST IS ENTITLED TO DEPRECIATION IN RESPECT OF TH E ASSETS OWNED BY IT, WHICH ARE REPRODUCED IN THE SUBMISSION OF TH E ASSESSEE. THE LAW U/S 11(6) IS INSERTED LATER ON W.E.F 01.04. 2015 TO DENY DEPRECIATION THEREFORE, FOR ASSESSMENT YEAR UNDER A PPEAL I.E. 2013-14 ASSESSEE WOULD BE ENTITLED FOR DEPRECIATION S. LD. CIT(A) ON PROPER APPRECIATION OF FACTS AND VARIOUS DECISIO NS CORRECTLY ALLOWED DEPRECIATION TO THE ASSESSEE. LD. DR DID NO T POINT OUT ANY INFIRMITY IN THE ORDER OF LD. CIT(A). IN THE CA SE OF DIT VS M/S INDRAPRASTH CANCER SOCIETY, IN ITA NO. 240/2014, DA TED 18.11.2014, HONBLE DELHI HIGH COURT HAD TAKEN THE SAME VIEW AS IS TAKEN BY LD. CIT(A), IN WHICH DEPARTMENTAL AP PEALS HAVE BEEN DISMISSED. DEPARTMENTAL APPEAL FAILS AND DISMI SSED. IN THE RESULT DEPARTMENTAL APPEAL IS DISMISSED. 6 ITA NO. 2285/DEL/2017 (AY 2013-14) ORDER PRONOUNCED IN THE OPEN COURT ON 30.10.2017. SD/- (BHAVNESH SAINI) JUDICIA L MEMBER DATE: 30.10.2017 @MIT. COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK 6. BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) S.NO. DETAILS DATE 1 DRAFT DICTATED ON 30.10.2017 2 DRAFT PLACED BEFORE AUTHOR 30.10.2017 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER