Sanskriti Educational Society, New Delhi V. ITO, New Delhi

ITA 2493/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5364 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 04-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Question of law; Capital expenditure
• Section: 143(3); 80G; 12A; 32; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCE C, NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2492 AND 2493/DEL./2016 (ASSESSMENT YEAR : 2011-12) SANSKRITI EDUCATIONAL SOCIETY VS. ITO, K-1/149 (BASEMENT) TRUST WARD-1 CHITRANJAN PARK NEW DELHI NEW DELHI (PAN : AACTS9946B) APPELLANT RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI AMIT KATOCH, SR.DR DATE OF HEARING : 16 .01.2019 DATE OF ORDER : 29 .01.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE COMMON QUESTION OF LAW AND FACTS HAVE BEEN RAISED BY THE ASSESSEE BY APPELLANT SANSKRITI EDUCATIONAL SOCIETY (HEREINAFTER REFERRED TO AS THE ASSESSEE) IN BOTH THE AFORESAID APPEALS THE SAME ARE BEING DISPOSED OF BY WAY OF CO MPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. 2. ASSESSEE, SANSKRITI EDUCATIONAL SOCIETY (ITA N O. 2492- 93/DEL/2016 ) (HEREINAFTER REFERRED TO AS THE ASS ESSEE) BY ITA NO.2492-93/DEL./2016 2 FILING THE PRESENT APPEALS SOUGHT TO SET ASIDE THE IMPUGNED ORDERS PASSED BY THE COMMISSIONER OF INCOME-TAX (A PPEALS)- 36, NEW DELHI ON IDENTICAL GROUNDS INTER ALIA THAT :- 1. THE LD. CIT(APPEALS) ERRED IN OBSERVING THAT DEPRECIATION ON PURCHASE OF FIXED ASSETS DURING THE YEAR AT DPS HARNI AMOUNTING TO RS. 1,55,20,817/- AN D RS. 3,60,58,416/- SHALL NOT BE ALLOWED ON THE FACTS AND CIRCUMSTANCES OF THE CASE WITHOUT THERE BEING ANY REASONS OR BASIS WHATSOEVER. 2. THE LD. CIT(APPEALS) FAILED TO APPRECIATE THAT THE DEPRECIATION IN ITS ENTIRETY HAS BEEN ALLOWED I N THE CASE OF THE ASSESSEE IN FULL YEAR AFTER YEAR AND TH E HONBLE DELHI HIGH COURT HAS ALSO CONFIRMED THE ORDER PASSED BY THE TRIBUNAL AND ALLOWED THE DEPRECIATION. THUS, IN THE SPIRIT OF JUDICIAL DISCI PLINE, THE LD. CIT(APPEALS) SHOULD HAVE FOLLOWED THE ORDER OF THE HONBLE DELHI HIGH COURT IN THE CASE OF THE APPELLANT ON THE FACTS OF THE CASE. 3. THAT THE LD. CIT(APPEALS) HAS UNNECESSARILY DRAGGED THE ASSESSEE INTO LITIGATION IN SPITE OF TH E FACT THAT THE ISSUE REGARDING THE CLAIM OF DEPRECIATION HAS BEEN FINALIZED BY THE HONBLE DELHI HIGH COURT IN T HE CASE OF THE ASSESSEE AND AS SUCH NO DIFFERENT VIEW COULD BE TAKEN ON THE FACTS OF THE CASE. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR MODIFY ANY GROUND OF APPEAL ANY TIME BEFORE THE HEARING OF THE APPEAL. ITA NO.2492-93/DEL./2016 3 3. BRIEFLY STATED THAT FACTS NECESSARY FOR ADJUDI CATION OF THE CONTROVERSY AT HAND ARE : ASSESSEE SOCIETY REGISTE RED U/S 12A OF THE ACT IS RUNNING AND MAINTAINING TWO SCHOOLS UND ER THE NAME AND STYLE OF DELHI PUBLIC SCHOOL, KALILI AND DELHI PUBLIC SCHOOL, HARNI. ASSESSING OFFICER FRAMED THE ASSESSMENT U/S 143(3) OF THE ACT BY MAKING ADDITION OF RS. 2,34,01,317/- AND 2,2 2,52,237/- FOR AY 2011-12 AND 2012-13 RESPECTIVELY ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSE E ON THE GROUND THAT THE ASSESSEE HAS CLAIMED ENTIRE COST OF PURCHASE OF FIXED ASSET IN THE YEAR OF PURCHASE ITSELF. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A ) BY WAY OF FILING THE APPEALS WHO HAVE CONFIRMED THE DISALL OWANCE CLAIMED ON DEPRECIATION OF THE ASSESSEE BY PARTLY A LLOWING THE APPEAL. FEELING AGGRIEVED THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 5. ASSESSEE HAS FAILED TO PUT AN APPEARANCE DESPITE NOTICE. SINCE THE PRESENT APPEALS WERE FILED WAY BACK ON 04 .05.2016 ASSESSEE SOCIETY CANNOT BE WAITED IN PERPETUITY, SO WE PROCEED TO DECIDE THESE APPEALS WITH THE ASSISTANCE OF LD. DR FOR THE REVENUE AND BY PERUSING THE FACTS AVAILABLE ON REC ORD BY THE ASSESSEE. ITA NO.2492-93/DEL./2016 4 6. WE HAVE HEARD THE LD. DR FOR THE REVENUE AND GONE THROUGH THE ORDER PASSED BY THE LOWER REVENUE AUTHORITIES. 7. UNDISPUTEDLY THE ASSESSEE TRUST IS REGISTERED U/ S 12A OF THE ACT AND ALSO NOTIFIED U/S 80G OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT DURING THE YEAR UNDER ASSESSMENT, ASSE SSEE TRUST EARNED INCOME FROM SCHOOL FEE, BANK INTEREST AND OT HER MISCELLANEOUS INCOME. ASSESSEE CLAIMED DEPRECIATION ON ASSETS OF RS. 2,34,01,317/- FOR AY 2011-12 AND RS. 2,22,52 ,237/- FOR AY 2012-13. 8. AO AS WELL AS LD. CIT(A) BY RELYING UPON DECISIO N RENDERED BY HONBLE SUPREME COURT OF INDIA IN CASE CITED AS ESCORTS LTD. AND ANOTHER REPORTED IN 199 ITR 43 DISALLOWED THE DEPRECIATION ON THE GROUND THAT WHEN DEDUCTION IS ALLOWED IN RESPECT OF CAPITAL EXPENDITURE NO DEPRECIATION IS ALLOWED ON THE SAME ASSETS. 9. HOWEVER, THE HONBLE SUPREME COURT OF INDIA HAS SET AT REST THE ISSUE IN CONTROVERSY IN FAVOUR OF THE ASS ESSEE IN CASE CITED AS CIT VS. RAJASTHAN & GUJARATI CHARITABLE FOUNDATION REPORTED IN 300 CTR 1. OPERATIVE PART OF THE FINDINGS OF THE HONBLE SUPREME COURT ARE AS UNDER :- ITA NO.2492-93/DEL./2016 5 FROM THE JUDGMENTS OF THE HIGH COURTS, IT CAN BE DISCERNED THAT THE HIGH COURTS HAVE PRIMARILY FOLLOWED THE JUDGMENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX V. INSTITUTE OF BANKING PERSONNEL SELECTION (IBPS) [(2003) 13] TAXMAN 386 (BOMBAY)]. IN THE SAID JUDGMENT, THE CONTNETIONB OF THE DEPARTMENT PREDICATED ON DOUBLE BENEFIT WAS TURNED DOWN IN THE FOLLOWING MANNER : '3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIRES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATION WAS ALLOWABLE ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCO ME UNDER SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN 1994 TAX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. THE ASSESSEE WAS A CHARITABL E TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRU ST. IT WAS ALSO REGISTERED WITH THE COMMISSIONER OF INCOME TAX, PUNE. THE ASSESSEE DERIVED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1977-78, 1978-79 AND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE BUILDING @ 2 54% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITURE @ 5%. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS : WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSEE, AS EXPENDITURE ON ACQUISITI ON OF ITA NO.2492-93/DEL./2016 6 THE ASSETS HAD BEEN TREATED AS APPLICATION OF INCOM E IN THE YEAR OF ACQUISITION? IT WAS HELD BY THE BOMBAY HIGH COURT THAT SECTION 11 OF THE INCOME TAX ACT MAKES PROVISION IN RESPECT OF COMPUTATION OF INCOME OF THE TRUST FROM THE PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICA TION AND ACCUMULATION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME TAX ACT DEALS WITH CHARGEABILITY OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCOME FROM PROFITS AND GAINS OF BUSINESS AHLL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPECT OF BUILDING, PLANT AND MACHINERY OWNED BY T HE ASSESSEE AND USED FOR BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN TH AT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON BEHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTION ONLY UNDER SECTION 32 OF THE INCOME TAX ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT REJECTED THIS ARGUMEN T. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDE RED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INC OME OF THE ASSESSEE ON GENERAL PRINCIPLES OR UNDER SECT ION 11 (1 )(A) OF THE INCOME TAX ACT THE COURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENUE THAT SECTION 32 O F THE INCOME TAX ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FORM ITA NO.2492-93/DEL./2016 7 BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIA BLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME TAX ACT PROVIDING FOR DEPRECIATION FOR COMPUTATION OF INCOM E DERIVED FROM BUSINESS OR PROFESSION IS NOT APPLICAB LE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATI ON AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUS T. IN VIEW OF THE AFORESATATED JUDGMENT OF THE BOMBAY HIGH CURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMAT IVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUEST ION WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 109 CTR 463. IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK I NTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING T HE INCOME OF THE TRUST. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXP ENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSISTANT AP PELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL , ITA NO.2492-93/DEL./2016 8 HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THAT FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISI TION OF THE ASSETS, WHAT HE REALLY MEANT WAS THAT THE AMOUN T SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS 'APPL ICATION OF INCOME' OF THE TRUST IN THE YEAR IN WHICH THE IN COME WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT IN COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YE ARS, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUNT. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRM ED BY THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BO MBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUE STION NO. 2 IS ANSWERED IN THE AFFIRMATIVE I.E., IN FAVO UR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' 10. FOLLOWING THE DECISION RENDERED BY HONBLE SUPR EME COURT (SUPRA) WE ARE OF THE CONSIDERED VIEW THAT D EPRECIATION CLAIMED BY THE ASSESSEE ON ASSETS CANNOT BE DENIED THOUGH EXPENDITURE OF THE ASSETS HAD ALREADY BEEN TREATED AS APPLICATION OF INCOME IN THE YEAR OF ACQUISITION. SO FOR THE PU RPOSE OF COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YE ARS DEPRECATION HAS TO BE ALLOWED. SO AO/ LD. CIT(A) HA VE ERRED IN DISALLOWING THE DEPRECIATION ON ASSETS CLAIMED BY T HE ASSESSEE. CONSEQUENTLY ASSESSEE IS HELD ENTITLED FOR DEPRECIA TION ON ITA NO.2492-93/DEL./2016 9 PURCHASE OF FIXED ASSETS DURING THE YEAR UNDER ASSE SSMENTS, HENCE, BOTH THE APPEALS FILED BY THE ASSESSEE ARE A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH JANUARY, 2019. SD/- SD/- (R.K.PANDA) (K ULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/01/ 2019 BR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXVI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI DATE OF DICTATION 15.01.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 29.01.2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER