The ITO, Ward-5(4), Baroda V. M/s. Sigma Institute Of Technology and Engineering, Baroda

ITA 344/AHD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0358 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 04-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Capital receipt; Capital expenditure
• Section: 32; 12; 10; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.344/AHD/2014 WITH CO NO.203/AHD/2014 / ASSTT. YEAR: 2010-2011 ITO, WARD-5(4) BARODA. VS M/S.SIGMA INSTITUTE OF TECHNOLOGY & ENGINEERING BAKROL, NR. MADHAVNAGAR AJWA NIMETA ROAD TAL-WAGHODIA,DIST. BARODA PIN : 390 019. PAN : AAJTS 7182 G ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI JAMES KURIAN, SR.DR ASSESSEE BY : NONE / DATE OF HEARING : 30/09/2016 / DATE OF PRONOUNCEMENT: 10/10/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER REVENUE IS IN APPEAL AGAINST THE ORDER OF THE LD.CI T(A)-V, BARODA DATED 12.11.2013 PASSED FOR THE ASTT.YEAR 2010-11. ON RECEIPT OF NOTICE IN REVENUES APPEAL, THE ASSESSEE HAS FILED CO BEARING NO.203/AHD/2014. 2. IN RESPONSE TO THE NOTICE OF HEARING NONE COME P RESENT ON BEHALF OF THE ASSESSEE. THEREFORE, WE HEARD THE APPEAL EX PARTE QUA THE ASSESSEE. ITA NO.344/AHD/2014 WITH CO 2 3. REVENUE HAS PLEADED THAT HT ELD.CIT(A) HAS ERRED IN NOT FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ESCORT LTD. VS. UNION OF INDIA, 199 ITR 43 WHILE ALLOWING DEDUCTION OF DE PRECIATION TO THE ASSESSEE. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 10.10.2010 DECLARING TOTAL INCOME (DEFICIT) AT ( -)RS.1,73,69,268/-. THE ASSESSEE IS A PUBLIC TRUST REGISTERED UNDER THE BOM BAY PUBLIC TRUST ACT, 1950. IT IS ENGAGED IN THE ACTIVITY OF PROVIDING E DUCATION. IT HAS ALSO REGISTERED UNDER INCOME TAX ACT UNDER SECTION 12A(A ) OF THE ACT. IT ALSO GOT APPROVAL UNDER CLAUSE (23C) OF SECTION 10 OF THE IN COME TAX ACT. THE AO FOUND THAT THE ASSESSEE HAS CLAIMED RS.4,35,86,312/ - AS DEPRECIATION EXPENSES. THE LD.AO DISALLOWED THIS EXPENDITURE ON THE GROUND THAT THE ASSESSEE HAS CLAIMED EXEMPTION OF THE INCOME WHILE APPLYING THAT INCOME ON THE CAPITAL ASSETS. THUS, GRANT OF DEPRECIATION ON THESE VERY CAPITAL ASSETS WOULD AMOUNT TO DOUBLE TAXATION. THE AO MADE REFER ENCE TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORT LTD . (SUPRA). 5. ON APPEAL, THE LD.CIT(A) HAS ALLOWED DEDUCTION T O THE ASSESSEE. THE LD.CIT(A) PUT RELIANCE ON THE JUDGMENT OF THE HONB LE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. DESH BHAGAT MEMOR IAL EDUCATION TRUST, WHICH HAS EXPLAINED DISTINCTION BETWEEN THE RATIO L AID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ESCORT LTD. (SUPRA) VI S--VIS CHARITABLE INSTITUTION WHOSE INCOME BEING ASSESSED AFTER GIVIN G BENEFIT OF SECTIONS 11 AND 12 OF THE INCOME TAX ACT. RELEVANT SUBMISSION MADE BY THE ASSESSEE AND FINDING OF THE LD.CIT(A) READ AS UNDER: . IV. CIT V. DESH BHAGAT MEMORIAL EDUCATION TRUS T. (2011) 37 (I) ITCL 131 (P&H-HC) ITA NO.344/AHD/2014 WITH CO 3 ISSUE BEFORE THE HON'BLE COURT: 'WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND: IN LAW, THE DEPRECIATION ON THE CAPITAL ASSETS IS ALSO TO B E CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE WHEN I T DOES NOT REPRESENT ANY CASH EXPENDITURE ON CHARITY AND WHEN ENTIRE COS T OF CAPITAL ASSETS HAVE ALREADY BEEN CONSIDERED AND IS BEING CONSIDERE D AS APPLICATION OF INCOME?' HELD: IN THE PRESENT CASE, THE ASSESSEE IS NOT CLAIMING D OUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION AS HAS BEEN SUGGESTED BY LE ARNED COUNSEL FOR THE REVENUE. THE INCOME OF THE ASSESSEE BEING EXEMP T, THE ASSESSEE IS ONLY CLAIMING THAT DEPRECIATION SHOULD BE REDUCED F ROM THE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHICH HAVE TO B E APPLIED FOR THE PURPOSES OF THE TRUST. THERE IS NO DOUBLE DEDUCTION CLAIMED BY THE ASSESSEE AS CANVASSED BY THE REVENUE. JUDGMENT OF T HE HON'BLE SUPREME COURT IN ESCORTS LTD. AND ANOTHER (SUPRA) I S DISTINGUISHABLE FOR THE ABOVE REASONS. IT CANNOT BE HELD THAT DOUBL E BENEFIT IS GIVEN IN ALLOWING CLAIM FOR DEPRECIATION FOR COMPUTING INCOM E FOR PURPOSES OF SECTION 11. THE QUESTIONS PROPOSED HAVE, THUS, TO B E ANSWERED AGAINST THE REVENUE AND IN FAVOR OF THE ASSESSEE.' 2. RATIO OF SUPREME COURT JUDGMENT IN CASE OF ESC ORTS LTD. IN ESCORTS LTD. V. UNION OF INDIA [1993] 199 ITR 43 , THE SUPREME COURT HELD THAT WHEN DEDUCTION UNDER SECTION 35(2)( IV) WAS ALLOWED IN RESPECT OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEAR CH, NO DEPRECIATION WAS TO BE ALLOWED UNDER SECTION 32 ON THE SAME ASSE T. THERE IS A FUNDAMENTAL AXIOM THAT DOUBLE DEDUCTION IS NOT INTE NDED UNLESS THERE IS A CLEAR STATUTORY INDICATION TO THE CONTRARY. THE S UPREME COURT ALSOREFERRED TO PARA 3.29 OF THE CHOKSI COMMITTEE R EPORT (DECEMBER, 1977), IN THIS CONTEXT. THIS PARA READ AS FOLLOWS '3.29. OUR ATTENTION HAS ALSO BEEN DRAWN TO CERTAIN ANOMALOUS SITUATIONS IN THE MATTER OF ALLOWANCE OF DEPRECIATI ON. IN CERTAIN CASES WHERE A FULL DEDUCTION HAS BEEN ALLOWED IN RELATION TO A CAPITAL ASSET UNDER OTHER SECTIONS (AS FOR EXAMPLE, SECTION 35 WH ICH PERMITS A DEDUCTION IN RESPECT OF CAPITAL EXPENDITURE FOR SCI ENTIFIC RESEARCH), THE TAXPAYERS HAVE CONTENDED THAT SUCH DEDUCTION IS IND EPENDENT OF THE ALLOWANCE BY WAY OF DEPRECIATION. IN OUR VIEW, THE INTENTION OF THE LEGISLATURE IS NOT TO ALLOW A DOUBLE DEDUCTION (OF 200%) IN RESPECT OF ITA NO.344/AHD/2014 WITH CO 4 THE SAME ASSET, ONCE UNDER SECTION 35 AND, AGAIN BY WAY OF DEPRECIATION UNDER SECTION 32. IF AND TO THE EXTENT THAT THERE IS ANY ANOMALY OR CONTRARY VIEW POSSIBLE ON A CONSTRUCTION OF SECTION 35, WE RECOMMEND THAT THE LAW SHOULD BE CLARIFIED TO PROVI DE THAT NO DEPRECIATION UNDER SECTION 32 SHALL BE ALLOWABLE IN RESPECT OF CAPITAL EXPENDITURE FOR SCIENTIFIC RESEARCH QUALIFYING FOR DEDUCTION UNDER SECTION 35.' THE SUPREME COURT RULING MAY APPLY (SUBJECT TO THE SPECIFIC FACTS) TO CHARITABLE ORGANIZATION AS IT PERTAINS TO CLAIM OF DEPRECIATION UNDER ANOTHER SECTION OF THE ACT WHEN 100 PER CENT (OR MO RE) DEPRECIATION HAS ALREADY BEEN PROVIDED U/S. 35. IT MAY BE NOTED THAT FOR COMMERCIAL ENTITIES, THE TAXABLE INCOME IS DETERMINED, WHICH M AY NOT BE THE REAL INCOME. THE PERMISSIBLE EXPENDITURES ALSO MAY NOT B E NECESSARILY REAL. IN THE CASE OF CHARITABLE ORGANIZATIONS EXEMPTED IN COME AND ITS APPLICATION FOR CHARITABLE .PURPOSES IS DETERMINED. IF ONE LOOKS CAREFULLY AT THE SCHEME OF DETERMINING 'INCOME' AND 'APPLICATION' OF CHARITABLE ORGANIZATIONS, IT CAN BE SEEN THAT BOTH CAPITAL NATURE RECEIPTS AND APPLICATIONS ARE INCLUDED. WHEN CAPITA L RECEIPTS ARE TREATED AS A PART OF INCOME, THEN THERE IS A STRONG CASE FOR DOUBLE DEDUCTION OF DEPRECIATION FOR THOSE ASSETS WHICH AR E PURCHASED OUT OF SUCH CAPITAL RECEIPTS. COPY OF JUDGMENTS AND RULINGS ENCLOSED HEREWITH FOR YOUR READY REFERENCE. THE ASSESSEE HOPES THAT THE ABOVE DETAILS/EXPLANATI ONS SHALL MEET WITH YOUR HONOR'S REQUIREMENT. IF YOUR HONOR REQUIRES AN Y FURTHER INFORMATION THE ASSESSEE WILL BE PLEASED TO SUBMIT THE SAME. THE ASSESSEE HAS FULL FAITH IN YOUR HONOR THAT THESE SU BMISSIONS WILL BE KEPT IN PREVIEW BY YOUR HONOR WHILE DISPOSING OF THE CAS E AND WE WILL FEEL THAT EQUITY AND JUSTICE PREVAILS. 4.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND REASONS RECORDED BY THE AO. THE RATIO OF THE FOLLOWING DECI SIONS IS THAT DEPRECIATION ON THE FIXED ASSETS IS TO BE ALLOWED W HILE DETERMINING REAL INCOME OF THE TRUST FOR THE PURPOSE OF SECT ION 11 (1) (A): CIT VS MARKET COMMITTEE, PIPLI [2011] 330 ITR 16 (P &H) CIT VS INSTITUTE OF BANKING [2003] 264 ITR 110 (BOM ) DIT (E) VS FRAMJEE CAWASJEE INSTITUTE [1993] 109 CT R 463 (BOM) CIT VS SHETH MANILA! RANCHHODDAS VISHRAM BHAVAN TRU ST [1992] 198 ITR 598 (GUJ) ITA NO.344/AHD/2014 WITH CO 5 CIT VS TINY TOTS EDUCATION SOCIETY [2011] 330 ITR 2 1 (P&H) CIT VS RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES [1982] 135 ITR 485 (MAD) CTT VS RAIPUR PALLOTTINE SOCIETY [1989] 180 ITR 579 (MP) CIT VS SOCIETY OF THE SISTERS OF ST. ANNE [1984] 14 6 ITR 28 (KARN) IT AT MUMBAI, A.D.I.T VS SHRI VILE PARL E KELVANI MANDAL ITA NO. 7106/MUM/2011. THEREFORE, RESPECTFULLY FOLLOWING THE SAME THE DEP RECIATION OF RS.2,17,93,156/- IS DIRECTED TO BE ALLOWED TO THE A PPELLANT IN COMPUTATION OF REAL INCOME OF THE TRUST FOR THE PUR POSE OF SECTION 11(1)(A). THE AO SHALL WORK OUT THE APPLICATION INC OME ON THE BASIS OF REAL INCOME SO DETERMINED. 6. WITH THE ASSISTANCE OF LD.DR, WE HAVE GONE THROU GH THE RECORD CAREFULLY. WE FIND THAT THE ISSUE IN DISPUTE IS SQ UARELY COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRUST, 198 ITR 5 98. THE HONBLE GUJARAT HIGH COURT HAS FORMULATED THE FOLLOWING QUE STIONS FOR ITS CONSIDERATION: '1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT, WHILE CO MPUTING INCOME UNDER SECTION 11(1)(A) OF THE INCOME-TAX ACT, 1961, DEPRECIATION HAS TO BE ALLOWED ? 2. WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT, HAVING REGARD TO THE SCHEME OF THE ACT, 'INCOME' REFERRED TO IN S ECTION 11(1)(A) OF THE ACT IS TO BE COMPUTED NOT IN ACCORDANCE WITH THE PR OVISIONS OF THE ACT THE BUT IN ACCORDANCE WITH THE NORMAL RULES OF ACCO UNTANCY UNDER WHICH THE DEPRECIATION HAS TO BE ALLOWED WHILE COMP UTING SUCH INCOME UNDER SECTION 11(1)(A) OF THE ACT ?' 7. THE HONBLE HIGH COURT HAS ANSWERED BOTH THE QUE STIONS IN AFFIRMATIVE AND AGAINST THE REVENUE. THE HONBLE HIGH COURT HA S OBSERVED THAT INCOME FROM PROPERTIES HELD UNDER TRUST HAVE TO BE ARRIVED AT IN NORMAL COMMERCIAL MANNER WITHOUT CLASSIFYING UNDER VARIOUS HEADS. TH EREFORE, RESPECTFULLY ITA NO.344/AHD/2014 WITH CO 6 FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT, CITED SUPRA, WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS NOT COMMI TTED ANY ERROR WHILE ALLOWING THE DEPRECIATION TO THE ASSESSEE. WE DO N OT FIND ANY MERIT IN THIS APPEAL. IT IS REJECTED. 8. WE TAKE UP ASSESSEES CROSS OBJECTION. 9. REGISTRY HAS POINTED OUT THAT CO FILED BY THE AS SESSEE IS TIME BARRED BY 10 DAYS. THE ASSESSEE HAS FILED DELAY CONDONATION APPLICATION ALONG WITH AFFIDAVIT OF SHRI SHAILESH RAMANLAL SHAH, WHICH WE HAVE GONE THROUGH. WE HAVE ALSO GONE THROUGH THE MEMORANDUM OF CO. SUB-S ECTION 4 OF SECTION 253 AUTHORISES THE RESPONDENT TO FILE CROSS-OBJECTI ON ON RECEIPT OF NOTICE IN APPEAL. THE CO IS REQUIRED TO BE FILED WITHIN 30 D AYS OF RECEIPT OF NOTICE AND IT IS TO BE VERIFIED IN THE MANNER AKIN TO AN APPEA L, BUT, THE CO IS TO BE FILED AGAINST ANY PART OF THE ORDER IMPUGNED IN THE APPEA L. IN THE CO FILED BY THE ASSESSEE, IT HE HAS NOWHERE DEMONSTRATED ITS GRIEVA NCES AGAINST ANY PART OF THE ORDER OF THE CIT(A), AS SUCH, THE CO IS NOT MAINTAI NABLE IN THE PRESENT FORM. SINCE CO IS NOT MAINTAINABLE AT THRESHOLD, WE ARE N OT CONSIDERING APPLICATION OF THE ASSESSEE FOR CONDONATION OF DELAY. BOTH ARE ACCORDINGLY DISMISSED. 10. IN THE RESULT, APPEAL OF THE REVENUE AND CO OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 10 TH OCTOBER, 2016 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANTN MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 10/10/2016