Appeal details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 90468 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-06-2015
Appeal Filed By
Department
Bench Allotted
D
Next Hearing Date
23-04-2015
Assessment Year
2010-2011
Appeal Filed On
07-10-2014
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2538 /MDS./2014 ( !' #' / ASSESSMENT YEAR : 2010-11) INCOME TAX OFFICER, COMPANY WARD-I,IST FLOOR, 63 RACE COURSE ROAD, COIMBATORE 641 018. VS. M/S.P.S.GOVINDASWAMY NAIDU & SONS CHARITIES , P.B NO.1609, AVINASH ROAD, PEELAMEDU, COIMBATORE. PAN AAATP 2881 N ( / APPELLANT ) ( / RESPONDENT ) $% & ' / APPELLANT BY : DR.NICHAL,CIT D.R ()$% & ' / RESPONDENT BY : MR.RAGHU, C.A * + & ,- / DATE OF HEARING : 23.04.2015 .# & ,- /DATE OF PRONOUNCEMENT : 12.06.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-I, COIMBA TORE DATED ITA NO.2538 /MDS/2014 2 23.07.2014 IN ITA NO.163/13-14 PASSED UNDER SEC.14 3(3) READ WITH SECTION SEC. 250 OF THE ACT. 2. THE REVENUE HAS RAISED SIX ELABORATE GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE REVENUE I S AGGRIEVED BY THE ORDER OF THE LD. CIT (A), WHO HAD ERRED IN ALLOWING THE CLAIM OF DEPRECIATION TO THE ASSESSEE-TRUST WHEN THE COST OF THE ASSET ON WHICH THE DEPRECIATION IS CLAIMED IS ALREADY ALLOWE D AS APPLICATION OF INCOME U/S.11 OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PUBLIC CHARITABLE TRUST, REGISTERED U/S.12AA OF THE ACT; F ILED ITS RETURN OF INCOME DECLARING NIL INCOME FOR THE ASSESSMENT YEAR 2010-11. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT W AS COMPLETED U/S.143(3) OF THE ACT ON 14.03.2013. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE LD. A SSESSING OFFICER THAT THE ASSESSEE TRUST HAD CLAIMED DEPRECIATION AM OUNTING TO ` 1,37,65,910/-. THE LD. ASSESSING OFFICER DISALLOWE D THE CLAIM OF DEPRECIATION BECAUSE THE COST OF THE ASSET ON WHICH THE DEPRECIATION ITA NO.2538 /MDS/2014 3 WAS CLAIMED WAS ALREADY ALLOWED AS APPLICATION OF I NCOME FOR THE PURPOSE OF SECTION-11(1) OF THE ACT. WHILE DOING SO , THE LD. ASSESSING OFFICER OBSERVED AS FOLLOWS:- A. WHEN THE COST OF ACQUISITION OF ASSET IS FULLY ALLOWED AS APPLICATION, THE CLAIM OF DEPRECIATION AMOUNTS TO DOUBLE DEDUCTION O NLY. DOUBLE DEDUCTION CANNOT BE CLAIMED UNLESS AND OTHERWISE IT IS EXPRESSLY AND SPECIFICALLY PROVIDED FOR IN THE ACT. B. AFTER CONSIDERING 100% DEDUCTION OF COST OF ACQU ISITION OF ASSET FROM THE INCOME OF THE TRUST, THE COST OF ASSET BECOMES NIL AND HENCE NO DEPRECIATION CAN BE CALCULATED ON THE 100% DEPRECIA TION ASSET. C. DEPRECIATION CAN BE CALCULATED ONLY IN THE CASE OF TAXABLE ENTITIES TO ARRIVE AT THE CORRECT TAXABLE PROFIT AND IN THE CAS E OF COMPANIES IF THEY WANT TO DECLARE DIVIDEND. D. IN THE CASE OF TRUSTS, THE MAIN QUESTION IS THE APPLICATION OF AVAILABLE INCOME FOR THE PURPOSES OF THE TRUST. THE DEPRECIAT ION IS NOT A CASH EXPENSES AND THE MONEY STILL REMAINS WITH THE TRUST IN THE YEAR OF GENERATION AND HENCE HAS TO BE ADDED BACK TO ARRIVE AT THE EXACT FUNDS AVAILABLE WITH THE TRUST FOR FURTHER APPLICATION FO R THE PURPOSE OF THE TRUST. IF THE DEPRECIATION IS ALLOWED, THE UNSPENT MONEY S TILL LIES WITH THE TRUST AND IS NOT UTILIZED FOR THE CHARITABLE PURPOSES OF THE TRUST. E. TO BE ELIGIBLE FOR DEPRECIATION THE ASSET SHOULD HAVE BEEN PURCHASED FROM CORPUS FUND AND NOT FROM THE INCOME DURING THE YEAR. ITA NO.2538 /MDS/2014 4 F. THE ASSET ACQUIRED CAN BE CHARGED AGAINST THE I NCOME ONLY ONCE AND HENCE IF THE ASSET HAS BEEN PURCHASED OUT OF THE IN COME OF THE TRUST THEN NO DEPRECIATION CAN BE ALLOWED AS IT TANTAMOUNT TO CLAIMING/CHARGING THE ASSET MORE THAN ONCE. G. IMPORTANTLY, THE DECISION OF THE KERALA HIGH COU RT IN THE CASE OF M/S.LISSIE MEDICAL INSTITUTIONS SQUARELY BRINGS OUT THE CASE AGAINST THE ALLOWANCE OF THE CLAIM OF DEPRECIATION. H. LAST BUT THE MOST IMPORTANT POINT IS THAT THE CBDT HAS CLARIFIED THE STAND TO BE TAKEN BY THE DEPARTMENT, BY WAY OF EXPLANATIO N BEFORE THE KERALA HIGH COURT. IN VIEW OF THE ABOVE REASONING AND ALSO BY RELYING IN THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTION VS. CIT REPORTED IN [2012] 348 ITR 344(KER.), THE L D. ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION OF ` 1,37,65,901/-. 4. ON APPEAL, THE LD. CIT (A) FOLLOWING IN THE DEC ISION OF THE CHENNAI BENCH OF THE TRIBUNAL HELD THE ISSUE IN FAV OUR OF THE ASSESSEE, AGGRIEVED BY WHICH THE REVENUE IS IN APPE AL BEFORE US. ITA NO.2538 /MDS/2014 5 5. ON PERUSING THE FACTS OF THE CASE, WE FIND T HAT ON THE ISSUE OF DEPRECIATION THE CHENNAI BENCH OF THE TRIBUNAL IN I TS RECENT DECISION HAD ELABORATELY CONSIDERED THE MATTER AND DECIDED A GAINST THE ASSESSEE ALIGNING WITH THE DECISION OF THE HONBLE KERALA HIGH COURT (SUPRA). THE RELEVANT PORTION OF THE DECISION OF TH E TRIBUNAL IN THE CASE ANJUMAN-E-HIMAYATH-E-ISLAM IN I.T.A.NO.2271/MDS./2014, ORDER DATED 02.06.2015 IS REPRODUCED HEREIN BELOW F OR REFERENCE:- 5.2 WE FIND THIS ISSUE IS ELABORATELY DISCUSSED I N THE CASE OF LISSIE MEDICAL INSTITUTION VS. CIT REPORTED IN [2012] 348 ITR 344(KER.) AND HELD THE ISSUE AGAINST THE ASSESSEE. WHILE DOING SO, THE HONBLE KERALA HIGH COURT HAD CONSIDERED THE CIRCULAR NO.5P(LLX-6) DATED 19.06.1968 WHICH HAS NOT BEEN CONSIDERED BY THE OTHER DECISIONS. THE CIRCULAR NO. 5P(LLX-6) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 1. CIRCULAR NO. 5-P (LXX-6) OF 1968, DATED 19-6-196 8. SUBJECT : SECTION 11CHARITABLE TRUSTSINCOME REQUI RED TO BE APPLIED FOR CHARITABLE PURPOSEINSTRUCTIONS REGARDING. IN BOARD'S CIRCULAR NO. 2-P(LXX-5) OF 1963, DATED T HE 15TH MAY, 1963, IT WAS EXPLAINED THAT A RELIGIOUS OR CHARITABLE TRUST CLAIMING EXEMPTION UNDER SECTION 11(1) OF THE INCOME- TAX ACT, 1961, MUST SP END AT LEAST 75 PER CENT OF ITS TOTAL INCOME, FOR RELIGIOUS OR CHARITABLE PU RPOSES. IN OTHER WORDS, IT WAS NOT PERMITTED TO ACCUMULATE MORE THAN 25 PER CE NT OF ITS TOTAL INCOME. ITA NO.2538 /MDS/2014 6 THE QUESTION HAS BEEN RECONSIDERED BY THE BOARD AND THE CORRECT LEGAL POSITION IS EXPLAINED BELOW. 2. SECTION 11(1) PROVIDES THAT SUBJECT TO THE PROVI SIONS OF SECTIONS 60 TO 63 'THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR . . . '. THE REFERENCE IN SUB-SECTION (A) IS INVARIABLY TO 'INCOME' AND NOT TO 'TOTAL INCOME'. THE EXPRESSION 'TOTAL INCOME' HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(45) OF THE A CT AS 'THE TOTAL AMOUNT OF INCOME . . . COMPUTED IN THE MANNER LAID DOWN IN TH IS ACT'. IT WOULD ACCORDINGLY BE INCORRECT TO ASSIGN TO THE WORD 'INC OME' USED IN SECTION 11(1)(A), THE SAME MEANING AS HAS BEEN SPEC IFICALLY ASSIGNED TO THE EXPRESSION 'TOTAL INCOME' VIDE SECTION 2(45) . 3. IN THE CASE OF A BUSINESS UNDERTAKING HELD UNDER TRUST, ITS 'INCOME' WILL BE THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDER TAKING. UNDER SECTION 11(4), ANY INCOME OF THE BUSINESS UNDERTAKING DETER MINED BY THE INCOME- TAX OFFICER IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT, WHICH IS IN EXCESS OF THE INCOME AS SHOWN IN ITS ACCOUNTS, IS TO BE DE EMED TO HAVE BEEN APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGI OUS, AND HENCE IT WILL BE CHARGED TO TAX UNDER SUB-SECTION (3). AS ONLY THE I NCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTIO N 11(1), THE PERMITTED ACCUMULATION OF 25 PER CENT WILL ALSO BE CALCULATED WITH REFERENCE TO THIS INCOME. 4. WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPER TY, INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WO RD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME , AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATIONS THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDE D BACK WILL BECOME ITA NO.2538 /MDS/2014 7 CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE OF THE TRUS T. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TRUST FROM OUT OF T HE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LESS THAN 75 PER CE NT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION U NDER SECTION 11(1). 5. TO SUM UP, THE BUSINESS INCOME OF THE TRUST AS DISC LOSED BY THE ACCOUNTS PLUS ITS OTHER INCOME COMPUTED ABOVE, WILL BE THE 'INCOME' OF THE TRUST FOR PURPOSES OF SECTION 11(1). FURTHER, THE TRUST MUST SPEND AT LEAST 75 PER CENT OF THIS INCOME AND NOT ACCUMUL ATE MORE THAN 25 PER CENT THEREOF. THE EXCESS ACCUMULATION, IF ANY, WILL BECOME TAXABLE UNDER SECTION 11(1). AFTER CONSIDERING THE CIRCULAR, THE HONBLE KERALA HIGH COURT HELD AS FOLLOWS:- HELD, THAT AFTER WRITING OFF THE FULL VALUE OF THE CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND WHEN THE ASSESSEE AGAIN CLAIMED THE SAME AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL CLAIM BECAME A CASH SURPLUS AVAILABLE WITH THE ASSESSEE, WHICH WAS OUTSIDE THE BOOKS OF A CCOUNT OF THE TRUST UNLESS IT WAS WRITTEN BACK WHICH WAS NOT DONE BY THE ASSESSEE. IT WAS NOT PERMISSIBLE FOR A CHARITABLE INSTITUTION TO GENERATE INCOME OUTSIDE THE BOOKS IN THIS FASHION AND THERE WOULD B E VIOLATION OF SECTION 11(1)(A). IT WAS FOR THE ASSESSEE TO WRITE BACK THE DEPRECIATION AND IF THAT WAS DONE, THE ASSESSING OF FICER WOULD MODIFY THE ASSESSMENT DETERMINING HIGHER INCOME AND ALLOW RECOMPUTED ITA NO.2538 /MDS/2014 8 INCOME WITH THE DEPRECIATION WRITTEN BACK BY THE AS SESSEE TO BE CARRIED FORWARD FOR SUBSEQUENT YEARS FOR APPLICATIO N FOR CHARITABLE PURPOSES . FURTHER HONBLE CALCUTTA HIGH COURT HAS HELD IN THE CASE DCIT VS. GIRDHARILAL SHEWNARAIN TANTIA TRUST REPORTED IN [1993] 199 ITR 15(CAL.) THAT THE INCOME CONTEMPLATED BY THE PROVISIONS OF SECT ION 11 IS THE REAL INCOME AND NOT THE INCOME AS ASSESSED OR ASSES SABLE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE KERALA HIGH COURT AND TAKING CUE FROM THE DECISION OF THE HONBLE CALCUTT A HIGH COURT , WE DO NOT FIND ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT(A) AND ALSO THE VIEWS EXPRESSED BY HIM IN HIS ORDER. ACCORDINGLY THIS APP EAL IS HELD IN FAVOUR OF THE REVENUE. IT IS PERTINENT TO NOTE THAT EXEMPTION U/S.11 OF TH E ACT IS A SEPARATE CODE IN ITSELF. SECTION-11 OF THE ACT CLEA RLY SPECIFIES IN THE MANNER IN WHICH THE INCOME OF THE TRUST HAS TO BE APPLIED IN ORDER TO GET THE BENEFIT OF EXCLUSION FROM THE TOTA L INCOME OF THE TRUST. THE INCOME OF THE TRUST THAT NEEDS TO BE CON SIDERED IS THE REAL INCOME FOR THE PURPOSE OF SECTION 11 OF THE AC T. ONCE THE BENEFIT OF SECTION-11 IS DENIED AND THE INCOME OF T HE TRUST IS TO BE TAXED, THEN THE COMPUTATION OF INCOME WILL BE MA DE UNDER THE RESPECTIVE HEADS OF INCOME AS PROVIDED IN THE ACT I N WHICH CASE THE BENEFIT OF VARIOUS DEDUCTIONS PROVIDED UNDER TH E ACT CAN BE AVAILED BY THE ASSESSEE SUCH AS DEPRECIATION ETC. THEREFORE, FOLLOWING THE DECISION OF THE TRIBUNAL, SURPA, WE H EREBY HOLD THAT THE ASSESSEE WILL NOT BE ENTITLED TO CLAIM THE BENE FIT OF ITA NO.2538 /MDS/2014 9 DEPRECIATION WHILE ARRIVING AT THE INCOME U/S.11 OF THE ACT. ACCORDINGLY, THE APPEAL OF REVENUE IS DECIDED IN IT S FAVOUR. 6. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED. ORDER PRONOUNCED ON 12 TH JUNE, 2015 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 12 TH JUNE, 2015. K S SUNDARAM. & (,/0 1 0#, /COPY TO: 1. $% /APPELLANT 2. ()$% /RESPONDENT 3. * 2, ( ) /CIT(A) 4. * 2, /CIT 5. 05 (,6! /DR 6. ' 7+ /GF
