ITO (E) 2(3), MUMBAI V. KUTCHI KADVA PTIDAR GNYATI TRUST FUND, MUMBAI

ITA 3308/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9102 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 05-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: APURVA R SHAH
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 10B; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO.3308 / MUM/20 17 ( ASSESSMENT YEAR : 2013 - 14 ) ITO (E) 2 (3) R.NO.513, PIRAMAL CHAMBER, LALBAUG, LOWER PAREL MUMBAI 400 012 VS. KUTCHI KADVA PATIDAR GNYATI TRUS T FUND PATIDAR WADI, LBS MARG GHATKOPAR (W) MUMBAI 400 086 PAN/GIR NO. AACTS0647K APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI RAM TIWARI ASSESSEE BY SHRI APURVA R. SHAH DATE OF HEARING 27 / 09 /201 7 DATE OF PRONOUNCEME NT 09 / 10 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 1, MUMBAI DATED 27/02/2017 FOR THE A.Y.2013 - 14 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. IN THIS APPEAL, REVEN UE IS AGGRIEVED BY THE ORDER OF CIT(A) FOR DELETING DISALLOWANCE OF ASSESSEES CLAIM OF DEPRECIATION AND ALLOWING CARRY FORWARD OF DEFICIT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TR UST REGISTERED WITH DIT (E), MUMBAI U/S.12A OF THE IT ACT AND ALSO REGISTERED WITH CHARITY COMMISSIONER, MUMBAI. THE ASSESSEE FILED ITS RETURN OF INCOME ON 17/09/2013 ALONGWITH THE INCOME AND EXPENDITURE ACCOUNT, BALANCE ITA NO. 3308/MUM/2017 KUTCHI KADVA PATIDAR GNYATI TRUST FUND 2 SHEET AND AUDIT REPORT IN FORM 10B DECLARING TOTAL INCOME AT RS. NIL. THE AO DECLINED ASSESSEES CLAIM OF DEPRECIATION, WHICH WAS DELETED BY CIT(A) AFTER OBSERVING AS UNDER: - 5.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, GONE THROUGH THE ASSESSMENT ORDER OF THE A.O AND THE SUBMISSIONS OF THE APPELLANT AND ALSO DISCUSSED THE CASE WITH THE AR OF THE APPELLANT. THE CONTENTIONS AND SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED HERE IN UNDER: I. THE ASSESSING OFFICER HAS NOT TREATED THE DEPRECIATION AS APPLICATI ON OF INCOME ON THE GROUND THAT IT AMOUNTS TO DOUBLE DEDUCTION. APPELLANT HAS SUBMITTED THAT IN A NUMBER OF JUDGMENTS, DEPRECIATION HAD BEEN ALLOWED AS APPLICATION OF INCOME U/S. 11. IN THIS REGARD I FIND THAT THE ISSUE IS DIRECTLY COVERED IN APPELLANT'S F AVOUR BY THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING - PERSONNEL 264 ITR 110 WHEREIN THE HON'BLE COURT HAS OBSERVED AS UNDER : - '4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTION WHICH WAS RAISED BEFORE THE BOMB AY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE (1993) 109 CTR 463 (BOM). IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK IN TO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOME OF THE TRUST. THE INCOME TAX OFFICER HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE; FULL CAPITAL EXPENDITURE HAD BEEN A/LOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASS ESSEE WENT IN APPEAL BEFORE THE ASSISTANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL, HOWEVER, TOOK THE VIEW THAT WHEN THE INCOME TAX OFFICER STATED THAT FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS, WHAT 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, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUNT. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY, THE BOMBAY 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 ANSWERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSES AND AGAINST, THE DEPARTMENT.' II. IN A RECENT JUDGEMENT IN CASE OF DIRECTOR OF INCOME - TAX (EXEMPTIONS), MUMBAI V. SHRI VILE PARLE KELAVANI MANDAL [2015] 58 TAXMANN.COM 288 HON'BLE BOMBAY HIGH COURT HELD : 'AS FAR AS QUESTION NO.4 IS CONCERNED, THIS COURT HAS REPEATEDLY HELD THAT THERE IS NOTHING LIKE DOUBLE DEDUCTION. WHEN THE ASSESSEE HAS ACQUIRED AN ITA NO. 3308/MUM/2017 KUTCHI KADVA PATIDAR GNYATI TRUST FUND 3 ASSET FROM THE INCOME OF THE TRUST AND TH EREAFTER THE AMOUNT THAT IS CLAIMED IS THE DEPRECIATION ON THE USE OF THE ASSETS, SUCH DEPRECIATION CLAIM DOES NOT MEAN DOUBLE DEDUCTION. THE DEDUCTION EARLIER CLAIMED IS TOWARDS TOWARDS APPLICATION OF FUNDS OF THE TRUST FOR ACQUIRING ASSETS. THE LATTER IS DEPRECIATION AND IT IS PERMISSIBLE DEDUCTION CONSIDERING THE USE OF THE ASSETS. THIS HAS BEEN CLARIFIED REPEATEDLY BY THIS COURT. IF ANY REFERENCE IS REQUIRED THEN THE CASE OF CIT V. INSTITUTION OF BANKING PERSONNEL SELECTION (IBPS) [2003] 264 ITR 110/131 TAXMAN 386 (BOM.) IS ENOUGH.' III. RESPECTFULLY FOLLOWING THE ABOVE OBSERVATIONS OF HON'BLE JURISDICTIONAL HIGH COURT, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION AS APPLICATION OF INCOME U/S, 11 OF THE I. T. ACT AFTER DUE VERIF ICATION OF FACTS. 4. IT IS CLEAR FROM THE OBSERVATION OF THE CIT(A) THAT HE HAS BORROWED DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL FOR DELETING THE DISALLOWANCE OF DEPRECIATION. I DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 5. CARRY FORWARD OF DEFICIT WAS ALLOWED BY CIT(A) AFTER OBSERVING AS UNDER: - 6.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, GONE THROUGH THE ASSESSMENT ORDER OF THE A.O AND THE SUBMISSIONS OF THE APPELLANT AND ALSO DISCUSS ED THE CASE WITH THE AR OF THE APPELLANT. THE CONTENTIONS AND SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED HERE IN UNDER: I. RELYING UPON SEVERAL CASE LAWS THE APPELLANT STATED THAT DEFICIT OF THE CURRENT YEAR IS REQUIRED TO BE CARRIED F ORWARD TO THE SUBSEQUENT YEARS. ON PERUSAL OF THE FACTS I FIND THAT THE CASE OF APPELLANT IS SQUARELY COVERED BY THE JUDGEMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL 264 ITR 110 WHEREIN THE HON. JURISDICTIONAL HIGH COURT HAS OBSERVED AS UNDER 5. NOW COMING TO QUESTION NO. 3, THE POINT WHICH ARISES FOR CONSIDERATION IS : WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREAT ED AS APPLICATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF THE DEPARTMENT THAT EXPENDITURE INCURRED IN THE EARLIER YEARS CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND THAT ITA NO. 3308/MUM/2017 KUTCHI KADVA PATIDAR GNYATI TRUST FUND 4 UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES. IN THE PRESENT CASE, THE ASSESSING OFFICER DID NOT ALLOW CARRY FORWARD OF THE EXCESS OF EXPENDITURE TO BE SET OFF AGAINST THE SURPLUS O F THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEIR INCOME WAS ASSESSABLE UNDER SELF - CONTAINED CODE MENTIONED IN SECTION 11 TO SECTION 13 OF THE INCOME TAX ACT AND THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' UNDER SECTION 28 IN WHICH THE PROVISION FOR CARRY F ORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE OF A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD OF THE EXCESS OF EXPENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF T HE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PRO VISIONS CONTAINED IN SECTION 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A) OF T HE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (1995) 211 ITR 293 (GUJ). ACCORDINGLY, WE ANSWER QUESTION N O. 3 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 5. NOW COMING TO QUESTION NO. 3, THE POINT WHICH ARISES FOR CONSIDERATION IS : WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLICATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF THE DEPARTMENT THAT EXPENDITURE INCURRED IN THE EARLIER YEARS CANNOT BE MET OUT OF THE INCOME OF T HE SUBSEQUENT YEAR AND THAT UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES. IN THE PRESENT CASE, THE ASSESSING OFFICER DID NOT ALLOW CARRY FORWARD OF TH E EXCESS OF EXPENDITURE TO BE SET OFF AGAINST THE SURPLUS OF THE SUBSEQUENT YEARS ON THE GROUND THAT IN THE CASE OF A CHARITABLE TRUST, THEIR INCOME WAS ASSESSABLE UNDER SELF - CONTAINED CODE MENTIONED IN SECTION 11 TO SECTION 13 OF THE INCOME TAX ACT AND THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' UNDER SECTION 28 IN WHICH THE PROVISION FOR CARRY FORWARD OF LOSSES WAS RELEVANT. THAT, IN THE CASE OF A CHARITABLE TRUST, THERE WAS NO PROVISION FOR CARRY FORWARD ITA NO. 3308/MUM/2017 KUTCHI KADVA PATIDAR GNYATI TRUST FUND 5 OF THE EXCESS OF EXPENDITURE OF EARLIER YEARS TO BE ADJUSTED AGAINST INCOME OF SUBSE QUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH A DJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A) OF THE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (1995) 211 ITR 293 (GUJ). ACCORDINGLY, WE ANSWER QUESTION NO. 3 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. II. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON. HIGH COURT AS ABOVE, THE AO IS DIRECTED TO ALLOW THE C ARRY FORWARD OF DEFICIT IN THE SUCCEEDING YEARS AFTER DUE VERIFICATION OF FACTS. 6. IT IS CLEAR FROM THE ABOVE ORDER OF CIT(A) THAT HE HAS FOLLOWED PROPOSITION OF LAW LAID DOWN BY JURISDICTIONAL HIGH COURT IN CASE OF INSTITUTE OF BANKING PERSONNEL. I DO N OT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 09 / 10 /2017 SD/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DAT ED 09 / 10 /201 7 KARUNA SR. PS ITA NO. 3308/MUM/2017 KUTCHI KADVA PATIDAR GNYATI TRUST FUND 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//