Assistant Commissioner of Income Tax (Exemptions), Mangaluru V. M/s. T.A. Pai Management Institute, Manipal

ITA 2692/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4835 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 11-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: SRIDHAR KAMAT
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition; Capital expenditure
• Section: 143(3); 12A; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.V VASUDEVAN, JUDICIAL MEMBER AND SHRI A.K GARODIA, ACCOUNTANT MEMBER ITA NO.2692/BANG/201 7 (ASST. YEAR 2011-12) THE ASST. COMMISSIONER OF INCOME-TAX, (EXEMPTIONS), CIRCLE-1, MANGALURU. . APPELLANT VS. M/S T.A PAI MANAGEMENT INSTITUTE, POST BOX NO.9, 80 BADAGABETTU, MANIPAL. . RESPONDENT PAN AAATT2248R. APPELLANT BY : SHRI C.H SUNDAR RAO, C.I.T RESPONDENT BY : SHRI SRIDHAR KAMAT, C.A DATE OF HEARING : 2-04-2018 DATE OF PRONOUNCEMENT : 11-04-2018 O R D E R PER SHRI N.V VASUDEVAN, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE AGAINST THE ORDER DATE D 18.9.2017 OF CIT(A), MANGALURU, RELATING TO AY 2011-12. ITA NO.2692/B/17 2 2. THE ASSESSEE IS A CHARITABLE TRUST WITH OBJECTS TO PROVIDE EDUCATION BY RUNNING SEVERAL EDUCATIONAL INSTITUTIONS. IN THE C OURSE OF ASSESSMENT U/S. 143(3) OF THE ACT FOR AY 2011-2012 THE AO NOTICED FROM THE DETAILS OF DEPRECIATION CLAIMED, THAT THE DEPRECIATION WAS CLAIMED ON ASSET S, THE COST OF ACQUISITION OF THE SAID ASSETS HAD BEEN CLAIMED BY THE ASSESSEE AS CAP ITAL EXPENDITURE TOWARDS APPLICATION OF FUNDS TOWARDS THE OBJECTS OF THE TRU ST AND ALLOWED AS SUCH. ACCORDING TO THE AO, ALLOWING SUCH A CLAIM WOULD AM OUNT TO ALLOWING DOUBLE DEDUCTION. ON THE FACTS OF THE PRESENT CASE, HE WAS OF THE VIEW THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LIMITED & ANOTHER VS. UNION OF INDIA 199 ITR 43 IS SQUARELY APPLICABLE, WHEREIN IT HAS BEEN CATEGO RICALLY HELD THAT WHEN DEDUCTION U/S 35(2)(IV) IS ALLOWED IN RES PECT OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, NO DEPRECIATION IS ALLOWABLE U /S 32 ON THE SAME ASSET. 3. THE ASSESSEE POINTED OUT THAT HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF ALL SAINTS CHURCH, 148 ITR 786 (KAR) AND SOCIETY OF SISTERS OF ST. ANN, 146 ITR 28 (KAR) HAS TAKEN THE VIEW THAT WHERE CAPITAL EXPENDITURE ON ACQUISITION OF DEPRECIABLE ASSET IS CONSIDERED AS APPLICATION OF I NCOME FOR CHARITABLE PURPOSE, ALLOWING DEPRECIATION ON THE VERY SAME CAPITAL ASSE T WOULD NOT AMOUNT TO DOUBLE ALLOWANCE. THE ASSESSEE ALSO POINTED OUT THAT THE DECISION OF ESCORTS LTD. (SUPRA) WILL NOT BE APPLICABLE AS IT WAS RENDERED ON A DIFF ERENT SET OF FACTS. 4. THE AO HOWEVER, HELD THAT ALLOWANCE OF DEPRECIAT ION WHEN THE COST HAS ALREADY BEEN RECOVERED BY WAY OF EXEMPTION AS APPLI CATION OF INCOME AMOUNTS TO DOUBLE DEDUCTION AND DOUBLE BENEFIT ON THE SAME ASS ET. THE AO REFERRED TO THE DECISION OF THE OF HON'BLE HIGH COURT OF KERALA IN THE CASE OF DDIT(E) V. LISSIE MEDICAL INSTITUTIONS, 348 ITR 344 (KER) WHEREIN IT WAS HELD THAT ALLOWING DEPRECIATION OF A DEPRECIABLE ASSET WHEN THE COST O F ACQUISITION OF DEPRECIABLE ASSET WAS ALLOWED AS APPLICATION OF INCOME FOR CHAR ITABLE PURPOSE AMOUNTS TO DOUBLE DEPRECIATION AND THEREFORE DEPRECIATION CANN OT BE ALLOWED. THE AO ALSO DISTINGUISHED THE CASES CITED BY THE ASSESSEE. ITA NO.2692/B/17 3 5. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD THA T DEPRECIATION CANNOT BE DENIED TO THE ASSESSEE. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE RELEVANT GROUND OF APPEAL RAISED BY THE REVENUE IS GROUND NO.1 TO 3 RELATING TO THE ISSUE OF ALLOWI NG DEPRECIATION. 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF AO. WE HAVE CONSIDERED THE ORDER OF THE AO. IDENT ICAL ISSUE CAME UP FOR CONSIDERATION BEFORE ITAT BANGALORE BENCH IN THE CA SE OF DDIT(E) V. CUTCHI MEMON UNION (2013) 60 SOT 260 BANGALORE ITAT , WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL. IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPRECIATION AND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE RELEVANT CAPITAL ASSET, COST OF ACQUI SITION WAS CONSIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITIO N. THE AO TOOK THE VIEW THAT ALLOWING DEPRECIATION WOULD AMOUNT TO ALLOWING DOUB LE DEDUCTION AND PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT I N ESCORTS LTD. (SUPRA) . THE CIT(A), HOWEVER, ALLOWED THE CLAIM OF ASSESSEE. 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 DEDUCTIO N FOR COMPUTING INCOME OF CHARITABLE INSTITUTIONS, TH EN THERE 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 SECT ION 11(1) HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER, THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INCOME. I T WAS SO HELD BY THE HONBLE 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. TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 21 (P&H) , FOLLOWING CIT VS. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 THAT ITA NO.2692/B/17 4 DEPRECIATION CAN BE CLAIMED BY A CHARITABLE INSTITU TION IN DETERMINING PERCENTAGE OF FUNDS APPLIED FOR THE PURPOSE OF CHARITABLE OBJECTS. CLAIM FOR DEPRECIATI ON WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 1 99 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUISHED BY THE HONBLE COURT IN THE AFORESAID DECISIONS. 21. THE ISSUE RAISED BY THE REVENUE IN THE GROUND OF APPEAL IS THUS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. MARKET COMMITTEE, PIPLI, 330 ITR 16 (P&H). THE HONBLE PUNJAB & HARYANA HIGH COURT AFTER CONSIDERING SEVERAL DECISIONS ON THAT I SSUE AND ALSO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA), CAME TO THE CONCLUSION THAT DEPRECIATION IS ALLOWABLE ON CAPITA L ASSETS ON THE INCOME OF THE CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF TRUSTS IN TERMS OF SECTI ON 11 OF THE ACT. THE HONBLE PUNJAB & HARYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) A ND OBSERVED THAT THE HONBLE 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 NA TURE INCURRED ON SCIENTIFIC RESEARCH U/S. 35(1)(IV) OF T HE ACT. THE HONBLE COURT THEREAFTER HELD THAT A TRUST CLAIMING DEPRECIATION CANNOT BE EQUATED WITH A CLAI M FOR DOUBLE DEDUCTION. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS ALSO MADE A REFERENCE TO THE DECISIO N OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF SISTERS OF ANNE, 146 ITR 28 (KAR) , WHEREIN IT WAS HELD THAT U/S. 11(1) OF THE ACT, INC OME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING 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 DOE S NOT CALL FOR ANY INTERFERENCE. 22. CONSEQUENTLY, GROUND NO.5 RAISED BY THE REVENUE IS DISMISSED. ITA NO.2692/B/17 5 8. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SINC E BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE (NO.2) ACT, 20 14 W.E.F. 1.4.2015 BY INSERTION OF SUB-SECTION (6) TO SECTION 11 OF THE A CT, WHICH READS AS UNDER:- (6) IN THIS SECTION WHERE ANY INCOME IS REQUIRED TO BE APPLIED OR ACCUMULATED OR SET APART FOR APPLICATION , THEN, FOR SUCH PURPOSES THE INCOME SHALL BE DETERMINED WI THOUT ANY DEDUCTION OR ALLOWANCE BY WAY OF DEPRECIATION O R OTHERWISE IN RESPECT OF ANY ASSET, ACQUISITION OF W HICH HAS BEEN CLAIMED AS AN APPLICATION OF INCOME UNDER THIS SECTION IN THE SAME OR ANY OTHER PREVIOUS YEAR. 9 . AS ALREADY STATED, THE AFORESAID AMENDMENT IS PROSP ECTIVE AND WILL APPLY ONLY FROM A.Y. 2015-16. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) HAS TO BE UPHELD. CON SEQUENTLY GROUND NO.1 TO 3 RAISED BY THE REVENUE ARE DISMISSED. 10. THE SECOND ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL WHICH IS PROJECTED BY THE REVENUE IN GROUNDS OF APPEAL, IS A S TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN HOLDING THAT ASSESSEE, A TRUST, IS ENTITLED TO CARRY FORWARD EXPENDITURE INCURRED IN EXCESS OF ITS INCOME FOR SE TTING OFF AGAINST INCOME OF THE SUCCEEDING YEARS? THE ASSESSEE IS A TRUST REGISTER ED U/S. 12A OF THE ACT. FOR THE A.Y. 2011-12, THE ASSESSEE FILED A RETURN OF INCOME CLAIMING CARRY FORWARD OF UNABSORBED EXPENDITURE OF RS.12,53,21,282 AND BROUG HT FORWARD UNABSORBED EXPENDITURE OF RS.59,35,15,018 AND CLAIMED CARRIED FORWARD OF BOTH THE AFORESAID ITEMS FOR SET OFF IN SUBSEQUENT ASSESSMENT YEARS. ACCORDING TO THE AO THERE WAS NO PROVISION IN THE ACT FOR CARRY FORWARD OF EXCESS EXPENDITURE OF EARLIR YEAR TO BE ADJUSTED AGAINST INCOME OF THE SUBSEQUENT YEAR AND HE THEREFORE DENIED THE CLAIM OF THE ASSESSEE. ITA NO.2692/B/17 6 11. ON APPEAL BY THE ASSESSEE, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE HAS RAISED GROUND NO.4 BEFORE THE TRIBUNAL. 12. THE LEARNED DR REITERATED THE STAND OF THE AO THAT THERE IS NO PROVISION IN THE ACT TO ALLOW CARRY FORWARD OF EXCESS APPLICA TION OF INCOME FOR SET OFF AS APPLICATION OF INCOME IN SUBSEQUENT YEARS. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE ITAT IN THE CASE OF ACIT, UDIPI VS. DR.TMA PAI FOUNDATION, MANIPAL ITA NO.1140/BANG/2013 FOR AY 2010-11 DATED 21.3.2014 WHEREIN THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE ON IDEN TICAL ISSUE ON IDENTICAL FACTS. 13. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11 (1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME S HOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITABLE PURPOSES AS CONTEMPL ATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED T O MEET THE EXPENSES INCURRED FOR CHARITABLE OR RELIGIOUS PURPOSES. HENCE, EVEN I F THE EXPENSES FOR SUCH PURPOSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAI D EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUBSEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SET-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEARS AGAINST T HE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME OF SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWA R CHARITABLE FOUNDATION 164 ITR 439 (RAJ) CIT VS. SHRI PLOT SWETAMBER MURTI PUJ AK JAIN MANDAL 211 ITR 293 (GUJ.). IN CIT VS. INSTITUTE OF BANKING PERSONN EL SELECTION 264 ITR 110 (BOM) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLI CATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST OF WHICH ITA NO.2692/B/17 7 HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UND ER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ADIT 248 ITR 368 (MAD), THE HONBLE MADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUST HAS TO BE A RRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRINCIPLES, THAT S. 11 IS A BENEVOLE NT PROVISION, AND THAT THE EXPENDITURE INCURRED ON RELIGIOUS OR CHARITABLE PUR POSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUEN T YEAR. THE PRINCIPLE THAT THE LOSS INCURRED UNDER ONE HEAD CAN ONLY BE SET OFF AG AINST THE INCOME FROM THE SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE IN CURRED WAS FOR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITURE ADJUSTED A GAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDE NCE OF LOSS OF AN EARLIER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUENT YE AR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURR ING EXPENDITURE AND IN ORDER TO INCUR THAT EXPENDITURE, THE TRUST SHOULD HAVE AN IN COME. SO LONG AS THE EXPENDITURE INCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDITURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF WHICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LIABLE TO TAX. THE EXPEND ITURE, IF INCURRED IN AN EARLIER YEAR IS ADJUSTED AGAINST THE INCOME OF A LATER YEAR , IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABL E PURPOSES FROM THE INCOME OF THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDI TURE WAS IN THE EARLIER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER E XPENDITURE HAD BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPE NDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIGIOUS AND C HARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RELIED ON THE DECISION IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR.). 14. WE ARE THEREFORE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.4 RAISED BY THE REVENUE. ACCORDINGLY, THE SAME IS DISMISSED. ITA NO.2692/B/17 8 15. IN THE RESULT, THE APPEAL BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL, 2018 . SD/- SD/- (A.K GARODIA) (N .V VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE DATED : 11/4/2018 VMS COPY 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, BAN GALORE ITA NO.2692/B/17 9 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P.S... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT.. 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..