DCIT (Exemptions), , CHENNAI V. Sri Vekkaliamman Educational & Charitable Trust, CHENNAI

ITA 2722/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5041 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 13-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANATH KUMAR RAHA
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 12A; 32; 28; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO. 2722/CHNY/2017 / ASSESSMENT YEAR : 2011-2012. DEPUTY COMMISSIONER OF INCOME TAX, (EXEMPTIONS) CHENNAI CIRCLE, CHENNAI 600 034. VS. M/S. SRI VEKKALIAMMAN EDUCATIONAL & CHARITABLE TRUST, NO.10, EAST MADA CHURCH STREET, ROYAPURAM, CHENNAI 600 013. [PAN AAFTS 7863Q] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI. SANATH KUMAR RAHA, JCIT. /RESPONDENT BY : SHRI. G. SEETHARAMAN, C.A. /DATE OF HEARING : 13-06-2018 ! /DATE OF PRONOUNCEMENT : 18-06-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER DEPARTMENT THROUGH THIS APPEAL, WHICH IS DIRECTE D AGAINST AN ORDER DATED 29.08.2017 OF LD. COMMISSIONER OF IN COME TAX (APPEALS)-17, CHENNAI, ASSAILS THE DIRECTION GIVE N BY HIM TO ALLOW THE ASSESSEE ITS CLAIM OF DEPRECIATION ON ASSETS , COST OF WHICH WERE TREATED AS APPLICATION OF INCOME. ITA NO. 2722/CHNY/17 :- 2 -: 2. WE HAVE HEARD THE LD. COUNSEL FOR BOTH SIDES. 3. ASSESSING OFFICER HAD DENIED THE CLAIM OF DEPRECIA TION MADE BY THE ASSESSEE WHICH IS A TRUST REGISTERED U /S.12A(A) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) RELYIN G ON THE JUDGMENT OF KERALA HIGH COURT IN THE CASE OF M/S LISSIE MEDICA L MISSION VS. CIT, 348 ITR 344 . LD. ASSESSING OFFICER HAD TAKEN A VIEW THAT ALLOWING A CLAIM OF DEPRECIATION ON ASSETS, COST OF WHICH WE RE CLAIMED AS APPLICATION OF INCOME WOULD RESULT IN DOUBLE DEDUCT ION. LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THE OTHER H AND HAD HELD IN FAVOUR OF THE ASSESSEE. THE ISSUE IN OUR OPINION I S NO MORE RES- INTEGRA, IN VIEW OF JUDGMENT OF HONBLE APEX IN TH E CASE OF CIT VS. RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA, 300 ITR 0001. THEIR LORDSHIPS HAD HELD AS UNDER:- THESE ARE THE PETITIONS AND APPEALS FILED BY THE INCOME TAX DEPARTMENT AGAINST THE ORDERS PASSED BY VARIOUS HIGH COURTS GR ANTING BENEFIT OF DEPRECIATION ON THE ASSETS ACQUIRED BY THE RESPONDE NTS-ASSESSEES. IT IS A MATTER OF RECORD THAT ALL THE ASSESSEES ARE CHARITA BLE INSTITUTIONS REGISTERED UNDER SECTION 12A OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS 'ACT'). FOR THIS REASON, IN THE PREVIOUS YEAR TO THE YEAR WITH WHICH WE ARE CONCERNED AND IN WHICH YEAR THE DEPRECIATION WAS CLAIMED, THE ENTIRE EXPENDITURE INCURRED FOR ACQUISITION OF CAPI TAL ASSETS WAS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES UN DER SECTION 11(1)(A) OF THE ACT. THE VIEW TAKEN BY THE ASSESSIN G OFFICER IN DISALLOWING THE DEPRECIATION WHICH WAS CLAIMED UNDE R SECTION 32 OF THE ACT WAS THAT ONCE THE CAPITAL EXPENDITURE IS TREATE D AS APPLICATION OF INCOME FOR C.A. NO. 7186/ 2014 ETC. CHARITABLE PURP OSES, THE ASSESSEES HAD VIRTUALLY ENJOYED A 100 PER CENT WRITE OFF OF T HE COST OF ASSETS AND, THEREFORE, THE GRANT OF DEPRECIATION WOULD AMOUNT T O GIVING DOUBLE BENEFIT TO THE ASSESSEE. THOUGH IT APPEARS THAT IN MOST OF THESE CASES, THE CIT (APPEALS) HAD AFFIRMED THE VIEW, BUT THE ITAT R EVERSED THE SAME AND THE HIGH COURTS HAVE ACCEPTED THE DECISION OF THE I TAT THEREBY DISMISSING THE APPEALS OF THE INCOME TAX DEPARTMENT . FROM THE JUDGMENTS OF THE HIGH COURTS, IT CAN BE DISCERNED T HAT THE HIGH COURTS ITA NO. 2722/CHNY/17 :- 3 -: HAVE PRIMARILY FOLLOWED THE JUDGMENT OF THE BOMBAY HIGH COURT IN 'COMMISSIONER OF INCOME TAX V. INSTITUTE OF BANKING PERSONNEL SELECTION (IBPS)' [(2003) 131 TAXMAN 386 (BOMBAY)].IN THE SAI D JUDGMENT, THE CONTENTION OF THE DEPARTMENT PREDICATED ON DOUBLE B ENEFIT WAS TURNED DOWN IN THE FOLLOWING MANNER: 3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIR ES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATIO N WAS ALLOWABLE ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER SECTION 11 I N THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN 1994 T AX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. THE ASSES SEE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHA RITABLE TRUST. IT WAS ALSO REGISTERED WITH THE COMMISSIONER OF INCOME TAX, PUNE. THE ASSESSEE DERIVED INCOME FROM THE TEM PLE PROPERTY WHICH WAS A TRUST PROPERTY.DURING THE COUR SE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1977-78 , 1978- 79 AND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION O N THE VALUE OF THE BUILDING @2% 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 EX PENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN TREATED AS AP PLICATION OF INCOME IN THE YEAR OF ACQUISITION? IT WAS HELD BY T HE BOMBAY HIGH COURT THAT SECTION 11 OF THE INCOME TAX ACT MA KES PROVISION IN RESPECT OF C.A. NO. 7186/ 2014 ETC. CO MPUTATION OF INCOME OF THE TRUST FROM THE PROPERTY HELD FOR C HARITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPL ICATION AND ACCUMULATION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME TAX ACT DEALS WITH CHARGEABILITY OF INCOME F ROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVID ES THAT INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPE CT OF BUILDING, PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN THAT MATTER ALSO, A SIMIL AR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON BEHALF OF T HE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTI ON ONLY UNDER SECTION 32 OF THE INCOME TAX ACT AND NOT UNDE R GENERAL PRINCIPLES. THE COURT REJECTED THIS ARGUMENT. IT WA S HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMA TE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSES SEE ON GENERAL PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME TAX ACT THE COURT REJECTED THE ARGUMENT ON BEHALF O F THE REVENUE THAT SECTION 32OF THE INCOME TAX ACT WAS TH E ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITAB LE TRUST ITA NO. 2722/CHNY/17 :- 4 -: DERIVED FORM BUILDING, PLANT AND MACHINERY AND FURN ITURE WAS LIABLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER A LTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND T HE ASSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF T HE INCOME TAX ACT PROVIDING FOR DEPRECIATION FOR COMPUTATION OF INCOME 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 PRO VIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THE REOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFOR ESATATED JUDGMENT OF THE BOMBAY HIGH CURT, WE ANSWER QUESTIO N NO. 1 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTI ON WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX (EXEMPTION) V. FRAMJEE CA WASJEE INSTITUTE [1993] 109 CTR 463. IN THAT CASE, THE FAC TS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACC OUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOM E OF THE TRUST. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXPENDITURE HAD C.A. NO. 7186/ 2014 ETC. BEEN ALLOWED IN THE YEAR OF ACQUISITION O F THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSISTANT AP PELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL , HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THA T FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISI TION OF THE ASSETS, WHAT HE REALLY MEANT WAS THAT THE AMOUNT SP ENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS 'APPLICA TION OF INCOME' OF THE TRUST IN THE YEAR IN WHICH THE INCOM E WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT I N COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YEARS, DEPRE CIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUN T. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE BOMB AY HIGH COURT IN THE ABOVE JUDGMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANS WERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE A RE OF THE OPINION THAT THE AFORESAID VIEW TAKEN BY THE BOMBAY HIGH COURT C ORRECTLY STATES THE PRINCIPLES OF LAW AND THERE IS NO NEED TO INTERFERE WITH THE SAME. IT MAY BE MENTIONED THAT MOST OF THE HIGH COURTS HA VE TAKEN THE AFORESAID VIEW WITH ONLY EXCEPTION THERETO BY THE H IGH COURT OF KERALA ITA NO. 2722/CHNY/17 :- 5 -: WHICH HAS TAKEN A CONTRARY VIEW IN 'LISSIE MEDICAL INSTITUTIONS V. COMMISSIONER OF INCOME TAX'. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LEG ISLATURE, REALISING THAT THERE WAS NO SPECIFIC PROVISION IN THIS BEHALF IN T HE INCOME TAX ACT, HAS MADE AMENDMENT IN SECTION 11(6) OF THE ACT VIDE FIN ANCE ACT NO. 2/2014 WHICH BECAME EFFECTIVE FROM THE ASSESSMENT YEAR 201 5-2016. THE DELHI HIGH COURT HAS TAKEN THE VIEW AND RIGHTLY SO, THAT THE SAID AMENDMENT IS PROSPECTIVE IN NATURE. IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPR ECIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. FOR THE AFORESAID REASONS, WE AFFIRM THE VIEW TAKEN BY THE HIGH COURTS IN THESE CASES AND DISMISS THESE MATTERS. ACCORDINGLY, WE ARE OF THE OPINION THAT LD. COMMISS IONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN HOLDING THAT ASSESS EE WAS ELIGIBLE TO CLAIM DEPRECIATION ON ASSETS, COST WHICH WAS CLAIM ED AS APPLICATION OF INCOME. WE DO NOT FIND ANY REASON TO INTERFERE WIT H THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE RESULT, APPEAL OF THE REVENUE STANDS DIS MISSED. ORDER PRONOUNCED ON MONDAY, THE 18TH DAY OF JUNE, 2 018, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:18TH JUNE, 2018. KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF