The ITO, Ward-3, Anand V. Charutar Arogya Mandal,

ITA 2782/AHD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6229 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 17-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S R SHAH
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 32; 28; 11

Judgement Text

, *,* *,**,* *,* IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER I.T.A. NO.2782/AHD/2014 ( / ASSESSMENT YEAR : 2010-11) INCOME TAX OFFICER, WARD 3, 2 ND FLOOR, S.P. COMPLEX, NR. OLD C.K. HALL, MAYFAIR ROAD, ANAND 388 001 VS. CHARUTAR AROGYA MANDAL, C/O. SHREE KRISHNA HOSPITAL, SOJITRA ROAD, GOKUL ROAD, KARAMSAD 388 325 ! PAN/GIR NO. : AAATC 1264 G ( ' / APPELLANT ) .. ( #' RESPONDENT ) '$ APPELLANT BY : SHRI UMA SHANKER PRASAD, SR.D.R. #'%$ / RESPONDENT BY : SHRI S.R. SHAH, A.R. & ' (%) * / DATE OF HEARING 26/12/2017 +,-. %) * / DATE OF PRONOUNCEMENT 12/01/2018 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE RELATING TO ASSESSMEN T YEAR 2010-11 IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IV, BARODA DATED 24.07.2014 WHICH IS ARIS ING OUT OF ORDER U/S.143(3) OF THE INCOME TAX ACT DATED 13.03.2013 F RAMED BY INCOME TAX OFFICER, WARD-3, ANAND, VIDE APPEAL NO.CAB/IV-A -118/2013-14. ITA NO.2782/AHD /2014 INCOME TAX OFFICER. VS. CHARUTAR AROGYA MANDAL ASST.YEAR 2010-11 - 2 - 2. ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. C.I.T. (A) ERRED IN HOL DING THAT THE INTEREST INCOME OF RS. 2,09,98,763/- WHICH WAS AGREED BY THE ASSESSEE FOR TAXATION NECESSARILY INCLUDE TH E UNDISCLOSED INTEREST INCOME OF RS.23,08,970/-, DISC OVERED BY THE A.O. AS PER 26AS DATA, AND UNILATERALLY ACCEPTED T HE CHANGED VERSION OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. C.I.T, (A) ERRED IN DELETING T HE ADDITION MADE BY THE A.O. ON ACCOUNT OF DIS ALLOWANCE OF DEPRECIATION OF RS.1,85,78,132/- ON ASSETS PU RCHASED OUT OF GRANT RECEIVED U/S.35AC OF THE I.T. ACT, WITH OUT APPRECIATING THE FACT THAT PROVISIONS GOVERNING THE DEDUCTION OF DEPRECIATION U/S.132 OF THE I.T. ACT, IS OUTSIDE THE AMBIT OF PROVISIONS OF SECTION 11 TO 13 OF THE I.T. ACT. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE APPELLANT AOP IS IN THE ACTIVITY OF INSTITUTE F OR EDUCATION RESEARCH, TRAINING, ETC. FOR SOCIAL AND ECONOMIC DE VELOPMENT UNDER THE NAME AND STYLE OF CHARUTAR AROGYA MANDAL. THE AO MA DE DISALLOWANCE OF RS.5,42,028/- AS PER PARA 6, RS.23,08,970/- AS P ER PARA 7.1 AND RS.1,85,78,132/- AS PER PARA 9 OF THE ORDER. 4. THE ONLY ISSUE IS DIFFERENCE OF INCOME AS PER IN COME & EXPENDITURE ACCOUNT AND FORM NO. 26AS FROM WHICH TA X IS DEDUCTED. IN THIS REGARD, IT IS SEEN THAT THE APPELLANT MAINTAIN S THE BOOKS OF ACCOUNT ON ITA NO.2782/AHD /2014 INCOME TAX OFFICER. VS. CHARUTAR AROGYA MANDAL ASST.YEAR 2010-11 - 3 - MERCANTILE BASIS. IT HAS ACCOUNTED FOR ENTIRE INCOM E WHICH IS ACCRUED DURING THE YEAR. IT IS ALSO SEEN THAT IN RESPECT OF CORPUS FUND INTEREST IS CREDITED DIRECTLY TO CORPUS ACCOUNT AND SOME PORTIO N IS TRANSFERRED TO INCOME & EXPENDITURE ACCOUNT. ON PERUSAL OF COMPUTA TION OF INCOME IT IS SEEN THAT APPELLANT HAS ADDED INTEREST CREDITED TO CORPUS FUND/EARMARKED FUNDS AND THUS OVER AND ABOVE INTERE ST CREDITED TO INCOME AND EXPENDITURE ACCOUNT OF RS.96,94,906/- (R S.6,99,706/- SAVINGS BANK INTEREST + RS.89,95,200/- INTEREST FRO M CORPUS FUND), IT HAS OFFERED TO TAX FURTHER INTEREST OF RS.1,13,03,857/- (25% OF INTEREST RECEIVED AND CONSIDERED IN CORPUS FUND) AND THUS IT HAS OFFERED TO TAX TOTAL INTEREST OF RS.2,09,98,763/- WHICH IS MUCH HI GHER THAN INTEREST INCOME OF RS.1,81,76,676/- WORKED OUT BY ASSESSING OFFICER BASED ON TDS AS PER FORM 26AS. IN VIEW OF THESE FACTS , ASSESSEE'S CONTENTION IS ACCEPTABLE. THEREFORE, NO AMOUNT IS REQUIRED TO B E ADDED TO THE RETURNED INCOME. IN OUR CONSIDERED OPINION, LD. CIT(A) HAS R IGHTLY GRANTED THE RELIEF TO THE ASSESSEE. 5. THE SECOND GROUND OF APPEAL IS WITH RESPECT TO D ELETING THE DISALLOWANCE OF DEPRECIATION OF RS.1,85,78,132/- ON ASSETS PURCHASE OUT OF GRANT RECEIVED U/S.35AC OF THE I.T. ACT TOWARDS DEPRECIATION IN RESPECT OF INFRASTRUCTURE FACILITY DEVELOPED BY CARDIAC AND CANCER FACILITY. ITA NO.2782/AHD /2014 INCOME TAX OFFICER. VS. CHARUTAR AROGYA MANDAL ASST.YEAR 2010-11 - 4 - 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT WAS ASKED TO SUBSTANTIATE HIS CLAIM OF DEPRECIATION OF RS.1,85,78,132/- ON CARDIAC CARE CENTRE. IT WAS NOTICED BY THE AUTHORIT IES BELOW THAT THE INVESTMENT IN INFRASTRUCTURE FACILITY FOR CARDIAC C ENTRE AND CANCER CENTRE OUT OF THE DONATION RECEIVED U/S 35AC. THEREFORE, T HE SAME WAS MADE OUT OF THE EXEMPTED INCOME. THE AO WAS OF THE VIEW THAT DEPRECIATION TO THE EXTENT OF FUNDS INVESTED AND DEPRECIATION CLAIMED C ANNOT BE ALLOWED. 7. LD.CIT(A) ALLOWED THIS GROUND OF APPEAL WITH THE FOLLOWING OBSERVATION: I HAVE GONE THROUGH THE FACTS BROUGHT BEFORE ME BY THE APPELLANT AND AS DISCUSSED IN THE ASSESSMENT ORDER. UNDER THE COM PUTATIONS PROVISIONS APPLICABLE TO THE CHARITABLE TRUST REGIS TERED U/S.12A OF THE ACT WHICH IS THE CASE WITH THE APPELLANT TRUST, THE INCOME HAS TO BE COMPUTED ON THE BASIS OF COMMERCIAL PRINCIPLES IN A CCORDANCE WITH PROVISIONS OF SECTION 11 TO 13 OF I.T. ACT WHICH IS A CODE BY ITSELF AND HENCE THE DEPRECIATION NECESSARY FORMS AN APPROPRIA TE CHARGE AGAINST THE INCOME OF THE TRUST FOR THE PURPOSE OF WORKING OUT ITS TAXABLE INCOME. FURTHER, THE AO HAS DISALLOWED THE DEPRECIA TION ON THE GROUND THAT ASSETS HAVE BEEN PURCHASED FROM THE EXEMPT INC OME. IN THIS REGARD, APPELLANT SUBMITTED THAT SECTION 35AC DOES NOT PROV IDE THE EXEMPTION TO THE DONEE BUT IT ALLOWS THE DONATION AMOUNT AS R EVENUE EXPENDITURE IN THE HANDS OF THE DONOR. THEREFORE, IT HAS NOTHIN G TO DO WITH DONEE. FOR THE DONEE, IT MAKES NO DIFFERENCE WHETHER IT IS EXEMPT IN THE HANDS OF THE DONOR OR NOT. IT SHOULD BE GIVEN THE SAME TR EATMENT IN THE HANDS OF DONEE AS IF ASSETS PURCHASED UNDER THE NORMAL CI RCUMSTANCES. EVEN OTHERWISE, AS SUBMITTED BY APPELLANT, IN THE CASE O F CHARITABLE TRUST, INCOME IS TO BE COMPUTED UNDER PROVISIONS OF SECTIO N 11 TO 13 AND NOT UNDER PROVISIONS OF SECTION 28 TO SECTION 43D WHICH IS APPLICABLE TO OTHER ASSESSEE AND THE THUS PROVISIONS CONTAINED IN THOSE SECTIONS ARE NOT APPLICABLE TO CHARITABLE TRUST APPROVED U/S.12A OF I.T. ACT. IN THIS ITA NO.2782/AHD /2014 INCOME TAX OFFICER. VS. CHARUTAR AROGYA MANDAL ASST.YEAR 2010-11 - 5 - REGARD, APPELLANT RELIED ON THE JUDGMENT OF GUJARAT HIGH COURT IN CASE OF AHMEDABAD SOUTH INDIAN ASSOCIATION CHARITABLE TR UST (TAX APPEAL NO. 933,934 TO 936 OF 2010) WHICH IS ATTACHED IN PA PER BOOK AT PAGE NO. 7 TO 10. THE JURISDICTIONAL HIGH COURT HELD THA T EVEN IF ASSETS PURCHASED BY THE TRUST ARE ALLOWED DEDUCTION AS APP LICATION OF INCOME, WHILE WORKING OUT THE TAXABLE INCOME OF THE TRUST D EPRECIATION HAS TO BE ALLOWED ON VALUE OF SUCH ASSETS. IN VIEW OF THE ABOVE, THE APPELLANT IS ELIGIBLE FOR DEPRECIATION ON THE ASSETS PURCHASED OUT OF THE DONATION RECEIVED U/S.3 5AC OF THE ACT. THEREFORE, I DIRECT THE AO TO ALLOW THE DEPRECIATIO N CLAIMED BY THE APPELLANT AND DELETE THE DISALLOWANCE OF DEPRECIATI ON OF RS.1,85,78,132/-. THIS GROUND OF APPEAL IS ALLOWED . 8. LD.AR CITED A JUDGMENT OF HONBLE SUPREME COURT IN THE MATTER OF CIT-III, PUNE VS. RAJASTHAN AND GUJARAT CHARITAB LE FOUNDATION PUNE IN CIVIL APPEAL NO.7186 OF 2014. RELEVANT PARAS OF THE SAME IS REPRODUCED AS UNDER: THE FIRST QUESTION WHICH REQUIRES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATION WAS ALLOWABLE ON THE ASSETS, T HE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER S ECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN 1994 T AX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. THE ASSESSEE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRUST. 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 V ALUE OF THE BUILDING @2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITUR E @ 5%. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINA TION WAS : WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSEE, AS EX PENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN TREATED AS APPLI CATION OF INCOME 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 PROPERT Y HELD FOR ITA NO.2782/AHD /2014 INCOME TAX OFFICER. VS. CHARUTAR AROGYA MANDAL ASST.YEAR 2010-11 - 6 - CHARITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVID ES FOR APPLICATION AND ACCUMULATION OF INCOME. ON THE OTHER HAND, SECT ION 28 OF THE INCOME TAX ACT DEALS WITH CHARGEABILITY OF INCOME F ROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCO ME FROM PROFITS AND GAINS OF BUSINESS AHLL BE COMPUTED IN ACCORDANCE WI TH SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDE S 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 THAT 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 O F THE INCOME TAX ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT REJ ECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDE RED AS A LEGITIMATE 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 OF THE REVENUE THAT SECTION 32 OF THE INCOME TAX ACT WAS THE ONLY SECTION GRANTING BENEFI T OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FORM BUILDING, PLANT AND MACHINERY AND FURN ITURE WAS LIABLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER ALTHOUGH TH E TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPE CT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME TAX ACT PROVIDING FOR DEPR ECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROF ESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQ UIRED 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 AFORESATATED JU DGMENT 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 QUESTI ON WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTO R OF INCOME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 10 9 CTR 463. IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS T HE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK I NTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOM E OF THE TRUST. THE ITA NO.2782/AHD /2014 INCOME TAX OFFICER. VS. CHARUTAR AROGYA MANDAL ASST.YEAR 2010-11 - 7 - ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSI STANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL , HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THAT FULL EXPENDI TURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS, W HAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TREATED AS APPLICATION OF INCOME OF THE TRUST IN THE YEAR IN WHICH THE INCOME WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT IN COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YEARS, DEPRE CIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUNT. THIS VIE W OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE BOMBAY HIGH COURT IN THE ABOV E JUDGMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED 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 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 Y EAR 2015-2016. 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 DEPRE CIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. FOR THE AFORESAID ITA NO.2782/AHD /2014 INCOME TAX OFFICER. VS. CHARUTAR AROGYA MANDAL ASST.YEAR 2010-11 - 8 - REASONS, WE AFFIRM THE VIEW TAKEN BY THE HIGH COURT S IN THESE CASES AND DISMISS THESE MATTERS. 9. IN OUR CONSIDERED OPINION, LD. CIT(A) HAS PASSED REASONED AND DETAILED ORDER AND NOW MATTER IS SQUARELY COVERED B Y ABOVE SAID JUDGMENT OF HONBLE APEX COURT. IN THESE CIRCUMSTAN CES, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD .CIT(A). 10. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT I S DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 12/01/2018 SD/- SD/- IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; (PRAMOD KUMAR) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 12/01/2018 PRITI YADAV, SR.PS !'# $#! COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) 45 / THE CIT(A)-9, AHMEDABAD. 5. 67 8)'12 *12. 0 / DR, ITAT, AHMEDABAD 6. 8 9: ( GUARD FILE. % & / BY ORDER, # 6)) //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD