ITO (E) 1(3), MUMBAI V. GORDHANDAS SHIVACHANDRAI GARODIA CHARITABLE TRUST, MUMBAI

ITA 3335/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9951 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• 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: V JANARDHANAN
• Assessee Lawyers: RAHUL MAKANI
• Keywords: Depreciation; Charitable institution; Tax effect; Capital expenditure
• Section: 28; 11

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ./ I.T.A. NO. 3335/MUM/2017 ( / ASSESSMENT YEAR: 2013 - 14 ) ITO (EXEMPTION) 1(3), ROOM NO. 511, 5 TH FLOOR, PIRAMAL CHAMBER, PAREL, LALBAUG, MUMBAI - 400 012 / VS. GORDHANDAS SHIVCHANDRAI GARODIA CHARITABLE TRUST, NAMAKWALA BUNGLOW, M. G. ROAD, GHATKOPAR (E), MUMBAI - 400 077 ./ ./ PAN/GIR NO. ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI V. JANARDHANAN / RESPONDENT BY : SHRI RAHUL MAKANI / DATE OF HEARING : 27.06.201 7 / DATE OF PRONOUNCEMENT : 01 .0 9 .2017 / O R D E R PER SHAMIM YAHYA , A. M.: THIS IS AN A PPEAL BY THE REVENUE ARISING OUT OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - I , MUMBAI (CIT(A) FOR SHORT) DATED 23.02.2017 , PERTAININ G TO THE ASSESSMENT YEAR (A.Y.) 2013 - 14 . 2. THE GROUNDS OF APPEAL READ AS UNDER : 2 ITA NO. 3335/MUM/2017 (A.Y. 2013 - 14) ITO (EXEMPTION) VS. GORDHANDAS SHIVCHANDRAI GARODIA CHARITABLE TRUST 1. 'WHETHER ON THE FA CTS OF THE CASE AND IN LAW THE L D.CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE ON ACCOUNT OF DISALLOWING DEPRECIATION ON FIXED ASSETS OF RS.4,34 ,722/ - IN CONTRAVENTION OF THE DECISION OF ESCORTS LTD. VS. UOI 199 ITR 43 WHEREIN IT WAS HELD THAT SINCE SECTION 11 OF THE INCOME TAX ACT PROVIDES FOR DEDUCTION CAPITAL EXPENDITURE INCURRED ON ASSETS ACQUIRED FOR THE OBJECTS OF THE TRUST AS APPLICATION AN D DOES NOT SPECIFICALLY & EXPRESSLY PROVIDE FOR DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION ON THE SAME VE RY ASSETS ACQUIRED FROM SUCH CAPITAL EXPENDITURE, NO DEDUCTION SHALL BE ALLOWED U/S.32 FOR THE SAME OR ANY OTHER PREVIOUS YEAR IN RESPECT OF THAT ASSE T AS IT AMOUNTS TO CLAIMING A DOUBLE DEDUCTION.' 2. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT(A) ERRED IN ALLOWING THE APPEAL, WHEN THE DELHI HIGH COURT IN THE CASE OF CHARANJIV CHARITABLE TRUST AND KERALA HIGH CO URT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS VS CIT 76 DTR (KER) 372 HAS DECIDED THE ISSUE IN THE FAVOUR OF THE DEPARTMENT AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD (199 ITR 43).' 3. 'WHETHER, ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION CLAIM OF THE ASSESSEE BY RELYING UPON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION, IGNORING THE FACT THAT TH E DEPARTMENT HAS NOT ACCEPTED THE SAID DECISION OF THE JURISDICTIONAL HIGH COURT ON MERIT OF THE CASE, BUT DUE TO SMALLNESS OF TAX EFFECT APPEAL WAS NOT FILED BEFORE HO N'BLE SUPREME COURT. ALSO, THE L D CIT(A) ERRED IN RELYING UPON THE JUDGMENT OF HON'BLE H IGH COURT IN THE CASE OF CIT VS. S H RI VILE - PARLE KELVANI MANDAL, WITHOUT APPRECIATING THE FACT THAT DEPARTMENT HAS NOT ACCEPTED THE DECISION ON MERIT AND FILED SLP, BUT SUBSEQUENTLY WITHDRAWN THE SAME AS THERE WAS NO CLAIM OF DEPRECIATION ON EXEMPTED ASSE TS. MOREOVER, THE REVENUE HAS FILED SLPS ON THIS ISSUE IN OTHER CASES INCLUSIVE THE CASE OF G.D. BIRLA MEDICAL RESEARCH & EDUCATIONAL FOUNDATION (S.L.P.(C) NO. 24904 OF 2016(C.A.NO.8294 OF 2016) AND IN THIS CASE LEAVE H A S BEEN GRANTED BY THE HON'BLE APEX C OURT AND IN ALL CASES ISSUE IS PENDING FOR ADJUDICATION B EFORE THE HON'BLE APEX COURT. 4. 'WHETHER ON THE FACTS OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN ALLOWING THE CA RRY FORWARD OF DEFICIT OF RS.5 7,62,532/ - .AND ALLOWING SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEARS.' 5. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR CAM) FORWARD OF THE 3 ITA NO. 3335/MUM/2017 (A.Y. 2013 - 14) ITO (EXEMPTION) VS. GORDHANDAS SHIVCHANDRAI GARODIA CHARITABLE TRUST SAID DEFICIT, IGNORING THE FACT THAT THERE WAS NO EXPRESS PROVISION I N THE I TACT, 1961 PERMITT ING ALLOWANCE OF SUCH CLAIM. 6. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR CAM) FO RW ARD OF THE SAID DEFICIT BY RELYING UPON THE JUDGMEN T OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION, IGNORING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE SAID DECISION OF THE JURISDICTIONAL HIGH COURT ON MERIT OF THE CASE, BUT DUE TO SMALLNESS OF TAX EFFECT APPEA L WAS NOT FILED BEFORE HON'BLE SUPREME COURT. HOWEVER, ON THIS ISSUE THE DEPARTMENT HAS FILED SLPS ANOTHER CASES BEFORE THE HON'BLE APEX COURT INCLUSIVE THE CASE OF MIDC(SLP (CIVIL) 9891 OF2014), IN WHICH LEAVE HAS BEEN GRANTED AND THE ISSUE IS PENDING FO R ADJUDICATION BEFORE THE HON'BLE SUPREME COURT.' 3. T HERE ARE TWO ISSUES ARISING OUT OF THE ABOVE GROUNDS OF APPEAL. FIRST ISSUE RELATES TO DISALLOWANCE OF THE DEPRECIATION. SECOND I SSUE IS THE ALLOWANCE OF C ARRY FORWARD OF DEFICIT TO BE SET OF AGAINST THE INCOME OF THE SUBSEQUENT YEARS. 4. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. IT TRANSPIRES THAT UPON ASSESSING OFFICER S DISALLOWANCE ON THE ABOVE SAID T W O ISSUES, THE LEARNED CIT - A HAS ALLOWED THE ASSESSEE'S APPEAL BY FOLLOWING HON'BLE JURISDICTIONAL HIGH COURT DIRECT DECISION ON THE ISSUES. BOTH THE COUNSEL FAIRLY AGREED THAT THE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT RELIED UPON BY THE LEARNED CIT - A. THE R EVENUE HAS ALSO AGREE D TO THIS . I N THE GROUNDS O F APPEAL RAISED HERE - IN - ABOVE , IT IS MENTIONED THAT D EPARTMENT HAS NOT ACCEPTED THE HON'BLE JURISDICTIONAL HIGH COURTS DECISION ON THIS ISSUE . BE AS IT MAY THAT HON'BLE JURISDICTIONAL HIGH COURTS DECISION IS BINDING. IN THIS R EGARD , I MAY GAINFULLY REFER TO THE ORDER OF LEARNED CIT ( A ) ON BOTH THE ISSUES AS UNDER : 4 ITA NO. 3335/MUM/2017 (A.Y. 2013 - 14) ITO (EXEMPTION) VS. GORDHANDAS SHIVCHANDRAI GARODIA CHARITABLE TRUST FIRST ISSUE 5.2 I H AVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, GONE THROUGH THE ASSESSMENT ORDER OF THE A.O AND THE SUBMISSIONS OF THE APPELLANT AND AL SO 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 APPLICATION 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. CASE LAWS RELIED UPON BY THE ASSESSING OFFICER HAVE ALSO BEEN DISTINGUISHED. IN THIS REGARD I FIND THAT THE ISSUE IS DIRECTLY COVERED IN APPELLANT'S FAVOUR 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 BOMBAY 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 FR OM DEPRECIABLE ASSETS. THE ASSESSEE TOOK INTO 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 ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE 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 THA T 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 COVERE D BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED IN THE 5 ITA NO. 3335/MUM/2017 (A.Y. 2013 - 14) ITO (EXEMPTION) VS. GORDHANDAS SHIVCHANDRAI GARODIA CHARITABLE TRUST AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST, THE DEPARTMENT.' II. IN A RECENT JUDGEMENT IN CASE OF DIRECTOR OF INCOME - TAX (EXEMP TIONS), 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 ASSET FROM THE INCOME OF THE TRUST AND THEREAFTER 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 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 SEL ECTION (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 1. T. ACT AF TER DUE VERIFICATION OF FACTS. SECOND ISSUE 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 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. RELYING UPON SEVERAL CASE LAWS THE APPELLANT STATED THAT DEFICIT OF THE CURRENT YEAR IS REQUIRED TO BE CARRIED FORWARD 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 6 ITA NO. 3335/MUM/2017 (A.Y. 2013 - 14) ITO (EXEMPTION) VS. GORDHANDAS SHIVCHANDRAI GARODIA CHARITABLE TRUST BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLICATION OF I NCOME 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 UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITUR E 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 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 NE 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 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 INCURR ED 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 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 SUPPORTE D BY THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. 5HRI PLOT 5WETAMBER 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 CARRY FORWARD OF DEFICIT IN THE SUCCEEDING YEARS A FTER DUE VERIFICATION OF FACTS. 5. SINCE THE LEARNED CIT - A HAS FOLLOWED THE HON'BLE JURISDI CTIONAL HIGH COURT S DECISION S MENTIONED HERE - IN - ABOVE , I DO NOT FIND ANY INFIRMITY IN THE SAME. HENCE , I U PHOLD THE ORDER OF LEARNED CIT ( A ) . 7 ITA NO. 3335/MUM/2017 (A.Y. 2013 - 14) ITO (EXEMPTION) VS. GORDHANDAS SHIVCHANDRAI GARODIA CHARITABLE TRUST 6. IN THE RESULT, THE R EVENUE S APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/09/2017 SD/ - (S HAMIM YAHYA ) / ACCOUNTANT MEMBER MUMBAI ; DATED : 01/09/2017 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI