ITO (Exemptions), New Delhi V. M/s. S.S. Mota Singh (Nila) Charitable Trust, New Delhi

ITA 3639/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6190 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 04-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Reassessment proceedings; Capital expenditure
• Section: 143(3); 32; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A , NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL M EMBER AND SH RI O.P. KANT , ACCOUNTANT MEMBER ITA NO . 3639 /DE L/ 2015 ASSESSMENT YEAR : 2007 - 08 ITO(EXEMPTIONS), WARD - 2(1),NEW DELHI VS. S.S. MOTA SINGH(NILA) CHARITABLE TRUST, C - 103, 10 TH FLOOR, HIMALAYA HOUSE, K.G. MARG, NEW DELHI PAN : AAATS3761J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI PRAVEEN KUMAR, SR.DR RESPONDENT BY NONE PRESENT ORDER PER O.P. KANT, A .M. : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 25 TH MARCH, 2015 PASSED BY THE LD. CIT(A) - 40, NEW DELHI, [IN SHORT THE LD. CIT(A) ] FOR ASSESSMENT YEAR 2007 - 08, RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DEPRECIATION OF RS. 80,66,227/ - TO THE ASSESSEE IGNORING THE FACT THAT THE ASSESSEE HAS CLAIMED THE AMOUNT INCURRED ON PURCHASE OF ASSETS IN EARLIER YEARS AS APPLICATION OF INCOME, ON WHICH DEPRECIATION IS CLAIMED NOW AND FURTHER ALLOWANCE OF DEPRECIATION WILL BE TANTAMOUNT TO DOUBLE DEDUCTION. DATE OF HEARING 15.01.2019 DATE OF PRONOUNCEMENT 28.01.2019 2 ITA NO. 3639/DEL/2015 2. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. C I T(A) HAS ERRED IN ALLOWING THE CLAIM OF DEPRECIATION OF RS. 80,66,227/ - TO THE ASSESSEE IN VIEW OF THE RECENT DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF DIT(E) VS. CHARANJIV CHARITABLE TRUST DATED 18 - 03 - 2014 3 . THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME - TAX ACT, 1961 (FOR SHO RT THE ACT ) , T HE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION OF RS.80,66,227/ - ON THE GROUND THAT CORRESPONDING PURCHASE OF THE ASSETS IN EARLIER YEAR WAS ALREADY ALLOWED AS APPLICATION INCOME. BEFORE THE LD. CIT( A), THE ASSESSEE CHALLENGED THE REASSESSMENT PROCEEDINGS AND DISALLOWANCE OF DEPRECIATION. THE LD. CIT(A) THOUGH UPHELD THE VALIDITY OF THE REASSESSMENT PROCEEDINGS BUT ALLOWED THE CLAIM OF THE ASSESSEE OF DEPRECIATION OBSERVING AS UNDER: 4.8 THE HON'BLE DELHI HIGH COURT IN THE LATEST CASE OF DIT(EXEMPTION) VS. CHARANJIV CHARITABLE TRUST IN IT APPEAL NO. 321 TO 323 OF 2013 VIDE THE ORDER DATED 18/03/2014 HAS HELD THAT THE DEPRECIATION IS NOT ALLOWABLE IN THE CASE OF CHARITABLE OR RELIGIOUS INSTITUTIONS VID E PARA 30. SINCE THE ASSESSEE HAS BEEN ALLOWED EXEMPTION U/S 11(1) THE ASSESSEE IS NOT ELIGIBLE FOR ANY TYPE OF DEPRECIATION AS THE ASSESSEE IS A CHARITABLE SOCIETY AND NOT A BUSINESS ENTITY AND AS SUCH IS NOT ELIGIBLE FOR DEPRECATION U/S 32(1). 4.9 HOWEV ER, THE HON'BLE DELHI HIGH COURT IN A SUBSEQUENT DECISION IN THE CASE OF DIT(EXEMPTION) VS. INDRAPRASTHA CANCER SOCIETY IN ITA NO. 240, 348, 406, 463 & 464/2014 VIDE THE ORDER DATED 18/11/2014 HAS AGAIN HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION I N THE CASE OF CHARITABLE OR RELIGIOUS INSTITUTION ALSO. 4.10 AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT IT IS NOT ONLY ILLEGAL BUT ALSO IMMORAL AND UNETHICAL TO CLAIM DEPRECIATION ON THE CAPITAL ASSETS AS THE ENTI RE CAPITAL EXPENDITURE HAS BEEN CLAIMED AS A DEDUCTION AND AS APPLICATION OF INCOME U/S 11(1) AND AS SUCH THERE IS NO MERIT IN THE SUBMISSIONS OF THE ASSESSEE BUT THE APPEAL OF THE ASSESSEE IS 3 ITA NO. 3639/DEL/2015 ALLOWED REGARDING THE CLAIM OF DEPRECIATION IN VIEW OF THE LATE ST ORDER OF THE HON'BLE DELHI HIGH COURT. 2.1 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL, RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT IN VIEW OF THE DECISION OF THE HON B LE DELHI HIGH COURT IN THE CASE OF DIT(EXEMPTION) VS. CHARANJIV CHARITABLE TRUST, IT APPEAL NO. 321 TO 323 OF 2013, ORDER DATED 18.03.2014, THE APPEAL OF THE REVENUE MAY BE ALLOWED. WHEREAS NONE REPRESENTED THE ASSESSEE. 4. WE HAVE HEA RD L D. DEPARTMENTAL R EPRESENTATIVE AND HAVE PERUSED THE RELEVANT MATERIAL ON RECORD. 5. THE ONLY ISSUE - IN - DISPUTE IN THE INSTANT CASE IS THAT THE CLAIM OF DEPRECIATION OF RS.80,66,277/ - OF THE ASSESSEE. THE CONTENTION OF THE ASSESSING OFFICER IS THAT THE ASSESSEE HAS ALREADY BEEN ALLOWED AN AMOUNT OF PURCHASE OF ASSETS AS APPLICATION OF THE INCOME IN EARLIER YEARS AND, THEREFORE, ALLOWING THE DEPRECIATION WILL AMOUNT TO DOUBLE DEDUCTION. WE NOTE THAT THE ISSUE OF ALLOWANCE OF DEPRECIATION DESPITE PURCHASE OF ASSETS CONSIDERED TOWARDS APPLICATION OF INCOME , HAS BEEN DECIDED BY THE HON BLE SUPREME COURT VIDE JUDGMENT DATED 13/12/2017 IN THE CASE OF CIT VS. RAJASTHAN AND GUJARATI C HARITABLE FOUNDATION, POONA (C IVIL A PPEAL NO. 7186 OF 2014 WITH ANOTHER). THE RELEVANT PARA OF THE AB OVE DECISION IS REPRODUCED AS UNDER: ..THE VIEW TAKEN BY THE ASSESSING OFFICER IN DISALLOWING THE DEPRECIATION WHICH WAS CLAIMED UNDER SECTION 32 OF THE ACT WAS THAT ONCE THE CAPITAL EXPENDITURE IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PU RPOSES, THE ASSESSEES HAD VIRTUALLY ENJOYED A 100 PER CENT WRITE OFF OF THE COST OF ASSETS AND, THEREFORE, THE GRANT OF 4 ITA NO. 3639/DEL/2015 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 HIGH COURTS HAVE ACCEPTED THE DECISION OF THE ITAT THEREBY DISMISSING THE APPEALS OF THE INCOME TAX DEPARTMENT. FROM THE JUDGMENTS OF THE HIGH COURTS, IT CAN BE DISCERNED THAT THE HIGH COURTS HAVE PRIMARILY FOLLOWED THE JUDGMENT OF THE BOMBAY HIGH COURT IN 'COMMISSIONER OF INCOME TAX V. INSTITUTE OF BANKING PERSONNEL SELECTION (IBPS)' [(2003) 131 TAXMAN 386 (BOMBAY)]. IN THE SAID JUDGMENT, THE CONTENTION OF THE DEPARTMENT PREDICATED ON DOUBLE BENEFI T 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 SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. M UNISUVRAT JAIN 1994 TAX 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 TH E 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 VALUE OF THE BUILDING @2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITURE @ 5%. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS : WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSEE, AS EXPENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN TREATED AS APPLICATION 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 PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND ACCUMULATION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME TAX ACT DEALS WITH CHARGEABILITY OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPECT OF BUILDING, PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN THAT MATTER ALSO, A SIMILAR ARGUMENT, AS IN TH E PRESENT CASE, WAS ADVANCED ON BEHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTION ONLY UNDER SECTION 32 OF THE INCOME TAX ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL 5 ITA NO. 3639/DEL/2015 DEPRECIATIO N CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSESSEE 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 32OF THE INCOME TAX ACT W AS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FORM BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MA Y NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME TAX ACT PROVIDING FOR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROFES SION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFORESA TATED JUDGMENT OF THE BOMBAY HIGH CURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTION WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CAS E OF DIRECTOR OF INCOME - TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 109 CTR 463. IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THO SE ASSETS IN COMPUTING 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 ASSISTANT AP PELLATE COMMISSIONER. 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 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 C ANNOT 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 ANSWE RED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE ARE OF THE OPINION THAT THE AFORESAID VIEW TAKEN BY THE 6 ITA NO. 3639/DEL/2015 BOMBAY HIGH COURT CORRECTLY STATES THE PRINCIPLES OF LAW AND TH ERE IS NO NEED TO INTERFERE WITH THE SAME. 6. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HON BLE SUPREME COURT IN THE ISSUE - IN - DISPUTE, THE GROUND OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER IS PRONOUN CED IN THE OPEN COURT ON 2 8 T H JANUARY , 201 9 . S D / - S D / - [ AMIT SHUKLA ] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 8 T H JANUARY, 2019 . RK / - [D.T.D.S] COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI