M/S ZEEN -ZAR CHARITABLE FOUNDATION TRUST NOON HOSPITAL & RESEARCH CENTRE, JHALAWAR V. INCOME TAX OFFICER (EXEMPTION), KOTA

ITA 337/JPR/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6364 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 12A; 12AA; 32; 28; 11

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BE NCHES, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA NO.337/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15 M/S ZEEN-ZAR CHARITABLE FOUNDATION TRUST NOON HOSPITAL & RESEARCH CENTRE, JHALAWAR ROAD, BHAWANI MANDI-326502 DISTRICT-JHALAWAR, RAJASTHAN, INDIA CUKE VS. ITO (EXEMPTION) KOTA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAATZ0347B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI PANKAJ SONI (ADVOCATE) JKTLO DH VKSJ LS @ REVENUE BY : SMT. POONAM RAI (DCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 06/07/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 10/07/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- KOTA DATED 20.12.2017 FOR ASSESSMENT YEAR 2014-15 W HEREIN THE ASSESSEE HAS EFFECTIVELY RAISED THE GROUND RELATING TO DISAL LOWANCE OF DEPRECIATION OF RS. 71,61,334/- ON FIXED ASSET ACQUIRED BY THE ASSE SSEE. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE TRUST IS RUNNING A HOSPITAL IN THE NAME OF NOON HOSPITAL, BHAWANI MAND I AND IS REGISTERED U/S 12AA OF THE ACT. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE TRUST HAS CLAIME D DEPRECIATION OF RS. 71,61,334/- AND THE SAME WAS HELD NOT ALLOWABLE AS THE ENTIRE COST OF THE ITA NO. 337/JP/2018 M/S ZEEN-ZAR CHARITABLE FOUNDATION TRUST, JHALAWAR VS ITO (E) KOTA 2 ASSET HAS BEEN CLAIMED AS APPLICATION OF INCOME IN THE EARLIER YEARS U/S 11 OF THE ACT. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE MATTER IS COVERED BY THE DECISIONS OF VARIOUS HIGH COURTS. THE LD CIT(A) HAS STATED THAT THE SUPREME COURT HAS ADMITTED AN SLP AGAINST THE DECISION OF VARIOUS HIG H COURTS INCLUDING THE RAJASTHAN HIGH COURT IN CASE OF CIT(E) VS. VIJAYA S HANTI EDUCATIONAL TRUST 75 TAXMANN.COM 124 AND THEREFORE, HE HAS CONFIRMED THE DISALLOWANCE OF DEPRECIATION IN THE HANDS OF THE ASSESSEE TRUST. 4. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE MATTER IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN CASE OF COMMISSIONER OF INCOME TAX-III, PUNE VS. RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA [2018] 300 CTR 1 (SC) AND DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN CASE OF COMMISSIONER OF INC OME TAX-II VS. KRISHI UPAJ MANDI SAMITI [2016] 388 ITR 605 (RAJ). PER CON TRA, THE LD. DR SUBMITTED THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION O F HONBLE RAJASTHAN HIGH COURT IN CASE OF VIJAYA SHANTI EDUCATIONAL TRUST AN D KRISHI UPAJ MANDI SAMITI AND HAS PREFERRED AN SLP BEFORE THE HONBLE SUPREME COURT. SHE FURTHER RELIED ON THE FINDING OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS NO RES INTEGRA IN LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF COMMISSIONER OF IN COME TAX-III, PUNE VS. RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA WH EREIN THE HONBLE SUPREME COURT HAS HELD AS UNDER:- 1. THESE ARE THE PETITIONS AND APPEALS FILED BY TH E INCOME TAX DEPARTMENT AGAINST THE ORDERS PASSED BY VARIOUS HIG H COURTS GRANTING BENEFIT ITA NO. 337/JP/2018 M/S ZEEN-ZAR CHARITABLE FOUNDATION TRUST, JHALAWAR VS ITO (E) KOTA 3 OF DEPRECIATION ON THE ASSETS ACQUIRED BY THE RESPO NDENTS-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 ENT IRE EXPENDITURE INCURRED FOR ACQUISITION OF CAPITAL ASSETS WAS TREATED AS AP PLICATION OF INCOME FOR CHARITABLE PURUPOSES UNDER SECTION 11(1)(A) OF THE ACT. THE VIEW TAKEN BY THE ASSESSING OFFICER IN DISALLOWING THE DEPRECIATION W HICH WAS CLAIMED UNDER SECTION 32 OF THE ACT WAS THAT ONCE THE CAPITAL EXPENDITURE I S TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES, T HE ASSESSEES HAD VIRTUALLY ENJOYED A 100 PER CENT WRITE OFF OF THE COST OF ASS ETS AND, THEREFORE, THE GRANT OF DEPRECIATION WOULD AMOUNT TO 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 REVERSED THE SAME AND THE HI GH COURTS HAVE ACCEPTED THE DECISION OF THE ITAT THEREBY DISMISSING THE APP EALS OF THE INCOME TAX DEPARTMENT. FROM THE JUDGMENTS OF THE HIGH COURTS, IT CAN BE DISCERNED THAT THE HIGH COURTS HAVE PRIMARILY FOLLOWED THE JUDGMEN T OF THE BOMBAY HIGH COURT IN CIT V. INSTITUTE OF BANKING PERSONNEL SEL ECTION (IBPS) (2003) 131 TAXMAN 386 (BOMBAY). IN THE SAID JUDGMENT, THE CONT ENTION OF THE DEPARTMENT PREDICATED ON DOUBLE BENEFIT WAS TURNED DOWN IN THE FOLLOWING MANNER: 3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIRES CONSIDERATION BY THIS COURT IS : WHETHER DEPRECIATION WAS ALLOWABLE ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER S. 11 IN THE PAST YEARS? IN THE CASE OF CIT VS. MUNISU VRAT JAIN (1994) TAX LR 1084 (BOM) THE FACTS WERE AS FOLLOWS. THE ASSESS EE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRU ST. IT WAS ALSO REGISTERED WITH THE CIT, PUNE. THE ASSESSEE DERIVED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASST. YRS. 1977-78, 1978 -79 AND 1979-80, ITA NO. 337/JP/2018 M/S ZEEN-ZAR CHARITABLE FOUNDATION TRUST, JHALAWAR VS ITO (E) KOTA 4 THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF T HE BUILDING @ 2-1/2 PER CENT AND THEY ALSO CLAIMED DEPRECIATION ON FURN ITURE @ 5 PER CENT. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETER MINATION WAS : WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSE E, AS EXPENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN TREATED AS AP PLICATION OF INCOME IN THE YEAR OF ACQUISITION? IT WAS HELD BY THE BOMB AY HIGH COURT THAT S. 11 OF THE IT ACT MAKES PROVISION IN RESPECT OF COMP UTATION OF INCOME OF THE TRUST FROM THE PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND ACCUMULATION O F INCOME. ON THE OTHER HAND, S. 28 OF THE IT ACT DEALS WITH CHARGEAB ILITY OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND S. 29 PROVIDES TH AT INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH S. 30 TO S. 43C. THAT, S. 32(1) OF THE ACT PROVIDES FO R DEPRECIATION IN RESPECT OF BUILDING, PLANT AND MACHINERY OWNED BY T HE ASSESSEE AND USED FOR THE BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO S. 34. IN THAT MATTER ALSO, A SIMILAR AR GUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON BEHALF OF THE REVENUE , NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTION ONLY UNDER S. 32 OF THE IT ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT REJECTE D THIS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSES SEE ON GENERAL PRINCIPLES OR UNDER S. 11(1)(A) OF THE IT ACT. THE COURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENUE THAT S. 32 OF THE IT ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOU NT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FROM BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIABLE TO BE COMPUT ED IN NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CAR RYING ON ANY BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPRECIA TION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, S. 32 OF THE IT ACT PROVIDING FOR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR ITA NO. 337/JP/2018 M/S ZEEN-ZAR CHARITABLE FOUNDATION TRUST, JHALAWAR VS ITO (E) KOTA 5 PROFESSION IS NOT APPLICABLE. HOWEVER, THE INCOME O F THE TRUST IS REQUIRED TO BE COMPUTED UNDER S. 11 ON COMMERCIAL P RINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFOR ESTATED JUDGMENT OF THE BOMBAY HIGH COURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEP ARTMENT. 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTION WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTO R OF INCOME-TAX (EXEMPTION) VS. FRAMJEE CAWASJEE INSTITUTE (1993) 1 09 CTR 463 (BOM). IN THAT CASE, THE FACTS WERE AS FOLLOWS : TH E ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSET S. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUT ING THE INCOME OF THE TRUST. THE 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 AAC. THE APPEAL WAS REJECTED. THE TRIBUNAL, HOWEVER , TOOK THE VIEW THAT WHEN THE ITO STATED THAT FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS, WHAT HE REALLY M EANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TRE ATED 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 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 ASSESSEE AND AGAINST THE DEPARTMENT. ITA NO. 337/JP/2018 M/S ZEEN-ZAR CHARITABLE FOUNDATION TRUST, JHALAWAR VS ITO (E) KOTA 6 2. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, W E ARE 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. 3. IT MAY BE MENTIONED THAT MOST OF THE HIGH COURTS HAVE 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 '.[2012] 24 TAXMANN.COM 9/209 TAXMAN 19 (MAG.)/348 ITR 344 (KER.) 4. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LEGISLATURE, REALISING THAT THERE WAS NO SPECIFIC PROVISION IN THIS BEHALF IN THE INCOME TAX ACT , HAS MADE AMENDMENT IN SECTION 11(6) OF THE ACT VIDE FINANCE 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 S AID AMENDMENT IS PROSPECTIVE IN NATURE. 6. IN THE INSTANT CASE, THE PROVISIONS OF SECTION 1 1(6) ARE NOT APPLICABLE AS THE SAME WILL BE APPLICABLE FROM AY 2015-16. FOR T HE IMPUNGED ASSESSMENT YEAR, RESPECTIVELY FOLLOWING THE DECISION OF THE HO NBLE SUPREME COURT REFERRED SUPRA, THE ASSESSEE TRUST IS HELD ELIGIBLE TO CLAIM DEPRECIATION. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/07/2018. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 10/07/2018 *GANESH KR ITA NO. 337/JP/2018 M/S ZEEN-ZAR CHARITABLE FOUNDATION TRUST, JHALAWAR VS ITO (E) KOTA 7 VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT - M/S ZEEN-ZAR CHARITABLE FOUNDATION TRUST, JHALAWAR 2. IZR;FKHZ@ THE RESPONDENT - ITO, EXEMPTION, KOTA 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 337/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.