The Assistant Commissioner Of Income Tax (Exemptions), Circle - 1, Mangaluru V. M/s. Srinivas Institute Of Technology, Mangaluru

ITA 37/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0014 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 05-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition; Capital expenditure
• Section: 143(3); 12A; 32; 37; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO S . 37 & 38/BANG/2017 ASSESSMENT YEAR S : 2012 - 13 & 2013 - 14 THE ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS), CIRCLE-1, MANGALURU. VS. M/S. SRINIVASA INSTITUTE OF TECHNOLOGY, 13-7-849, HOTEL SRINIVASA BUILDING, G.H.S. ROAD, MANGALURU 575 001. PAN: AAGTS 0850G APP ELL ANT RESPONDENT A PP EL LANT BY : SMT. PADMAMEENAKSHI, JT.CIT(DR)( ITAT), BENGALURU. RE SPONDENT BY : SHRI BALRAM R. RAO, ADVOCATE DATE OF HEARING : 18.0 7 .2018 DATE OF PRONOUNCEMENT : 14.09 .201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THESE ARE APPEALS BY THE REVENUE AGAINST TWO ORDER S BOTH DATED 20.10.2016 OF CIT(APPEALS), MANGALURU, RELATING TO ASSESSMENT YEARS 2012-13 & 2013-14. SINCE COMMON ISSUES ARE INVOLVE D IN BOTH THESE APPEALS BY THE REVENUE, WE DEEM IT CONVENIENT TO PA SS A COMMON ORDER. 2. THE ASSESSEE IS A CHARITABLE TRUST WITH OBJECTS TO PROVIDE EDUCATION. IN THE COURSE OF ASSESSMENT U/S. 143(3) OF THE ACT FOR AY 2012-13 & 2013- 14, THE AO NOTICED FROM THE DETAILS OF DEPRECIATION CLAIMED, THAT THE ITA NO. 37 & 38/BANG/2017 PAGE 2 OF 8 DEPRECIATION WAS CLAIMED ON ASSETS, THE COST OF ACQ UISITION OF THE SAID ASSETS HAD BEEN CLAIMED BY THE ASSESSEE AS CAPITAL EXPENDITURE TOWARDS APPLICATION OF FUNDS TOWARDS THE OBJECTS OF THE TRU ST AND ALLOWED AS SUCH. ACCORDING TO THE AO, ALLOWING SUCH A CLAIM WOULD AM OUNT TO ALLOWING DOUBLE DEDUCTION. ON THE FACTS OF THE PRESENT CASE, HE WAS OF THE VIEW THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF ESCORTS LIMITED & ANOTHER VS. UNION OF INDIA 199 ITR 43 IS SQUARELY APPLICABLE, WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT WHEN DEDUCTION U/S 35( 2)(IV) IS ALLOWED IN RESPECT OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEAR CH, NO DEPRECIATION IS ALLOWABLE U/S 32 ON THE SAME ASSET. 3. THE ASSESSEE POINTED OUT THAT HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF ALL SAINTS CHURCH, 148 ITR 786 (KAR) AND SOCIETY OF SISTERS OF ST. ANN, 146 ITR 28 (KAR) HAS TAKEN THE VIEW THAT WHERE CAPITAL EXPENDITURE ON ACQUISITION OF DEPRECIABLE ASSET IS CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE, ALLOWING DEPRECIA TION ON THE VERY SAME CAPITAL ASSET WOULD NOT AMOUNT TO DOUBLE ALLOWANCE. THE ASSESSEE ALSO POINTED OUT THAT THE DECISION OF ESCORTS LTD. (SUPRA) WILL NOT BE APPLICABLE AS IT WAS RENDERED ON A DIFFERENT SET OF FACTS. 4. THE AO, HOWEVER, HELD THAT ALLOWANCE OF DEPRECI ATION WHEN THE COST HAS ALREADY BEEN RECOVERED BY WAY OF EXEMPTION AS APPLICATION OF INCOME AMOUNTS TO DOUBLE DEDUCTION AND DOUBLE BENEF IT ON THE SAME ASSET. THE AO REFERRED TO THE DECISION OF THE OF H ON'BLE HIGH COURT OF KERALA IN THE CASE OF DDIT(E) V. LISSIE MEDICAL INSTITUTIONS, 348 ITR 344 (KER) WHEREIN IT WAS HELD THAT ALLOWING DEPRECIATION OF A DEPRECIABLE ASSET WHEN THE COST OF ACQUISITION OF DEPRECIABLE ASSET W AS ALLOWED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE AMOUNT S TO DOUBLE DEPRECIATION AND THEREFORE DEPRECIATION CANNOT BE A LLOWED. THE AO ALSO DISTINGUISHED THE CASES CITED BY THE ASSESSEE. ITA NO. 37 & 38/BANG/2017 PAGE 3 OF 8 5. ON APPEAL BY THE ASSESSEE, THE CIT(A), AGREED WI TH THE SUBMISSION OF THE ASSESSEE AND DELETED THE ADDITION MADE BY TH E AO. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUNAL. THE RELEV ANT GROUND OF APPEAL RAISED BY THE ASSESSEE IS GROUNDS NO.2 & 3 IN BOTH THE APPEALS WHICH IS RELATING TO DISALLOWANCE OF DEPRECIATION. 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF AO. WE HAVE CONSIDERED THE ORDER OF THE A O. IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE ITAT BANGALORE BEN CH IN THE CASE OF DDIT(E) V. CUTCHI MEMON UNION (2013) 60 SOT 260 BAN GALORE ITAT , WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS T RIBUNAL. IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPRECIATION AND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE REL EVANT CAPITAL ASSET, COST OF ACQUISITION WAS CONSIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITION. THE AO TOOK THE VIEW THAT ALLOWING DE PRECIATION WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTION AND PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN ESCORTS LTD. (SUPRA) . THE CIT(A), HOWEVER, ALLOWED THE CLAIM OF ASSESSEE. ON FURTHER APPEAL BY THE REVENU E, THE TRIBUNAL HELD AS FOLLOWS:- 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTI NG INCOME OF CHARITABLE INSTITUTIONS, THEN THERE IS NO WAY TO PR ESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME AS IT IS NOTHI NG BUT A DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR, DETERIORATIO N, OR OBSOLESCENCE. SINCE INCOME FOR THE PURPOSES OF SECT ION 11(1) HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER, THE AMO UNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHI LE COMPUTING SUCH INCOME. IT WAS SO HELD BY THE HONBLE KARNATA KA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). IT WAS HELD IN CIT VS. TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 21 (P&H) , FOLLOWING CIT VS. MARKET ITA NO. 37 & 38/BANG/2017 PAGE 4 OF 8 COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) : (2011) 2 38 CTR (P&H) 103 THAT DEPRECIATION CAN BE CLAIMED BY A CHARITABLE INSTITUTION IN DETERMINING PERCENTAGE OF FUNDS APPL IED FOR THE PURPOSE OF CHARITABLE OBJECTS. CLAIM FOR DEPRECIATI ON WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUISHED BY THE HONBLE COURT IN THE AFORESAID DECISIONS. 21. THE ISSUE RAISED BY THE REVENUE IN THE GROUND OF APPEAL IS THUS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. MARKET COMMITTEE, PIPLI, 330 ITR 16 (P&H) . THE HONBLE PUNJAB & HARYANA HIGH COURT AFTER CONSIDERING SEVER AL DECISIONS ON THAT ISSUE AND ALSO THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) , CAME TO THE CONCLUSION THAT DEPRECIATION IS ALLOWABLE ON CAPITA L ASSETS ON THE INCOME OF THE CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF T RUSTS IN TERMS OF SECTION 11 OF THE ACT. THE HONBLE PUNJAB & HA RYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) AND OBSERVED THAT THE HONBLE SUPREME COURT WAS DEALING WITH A CASE OF TW O DEDUCTIONS UNDER DIFFERENT PROVISIONS OF THE ACT, O NE U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITUR E OF A CAPITAL NATURE INCURRED ON SCIENTIFIC RESEARCH U/S. 35(1)(I V) OF THE ACT. THE HONBLE COURT THEREAFTER HELD THAT A TRUST CLAI MING DEPRECIATION CANNOT BE EQUATED WITH A CLAIM FOR DOU BLE DEDUCTION. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS ALSO MADE A REFERENCE TO THE DECISION OF THE HON'BLE KAR NATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF SISTERS OF ANNE, 146 ITR 28 (KAR), WHEREIN IT WAS HELD THAT U/S. 11(1) OF THE ACT, INC OME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDU CTIBLE WHILE COMPUTING SUCH INCOME. IN VIEW OF THE AFORESAID DE CISION ON THE ISSUE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THE ABOVE ISSUE DOES NOT CALL FOR ANY INTERFERENCE. 22. CONSEQUENTLY, GROUND NO.5 RAISED BY THE REVENU E IS DISMISSED. ITA NO. 37 & 38/BANG/2017 PAGE 5 OF 8 8. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SIN CE BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE (NO.2) AC T, 2014 W.E.F. 1.4.2015 BY INSERTION OF SUB-SECTION (6) TO SECTION 11 OF THE ACT, WHICH READS AS UNDER:- (6) IN THIS SECTION WHERE ANY INCOME IS REQUIRED TO BE APPLIED OR ACCUMULATED OR SET APART FOR APPLICATION, THEN, FOR SUCH PURPOSES THE INCOME SHALL BE DETERMINED WITHOUT ANY DEDUCTION OR ALLOWANCE BY WAY OF DEPRECIATION OR OTHERWISE IN RESPECT OF ANY ASSET, ACQUISITION OF WHICH HAS BEEN CLAIMED AS AN APPLICATION OF INCOME UNDER THIS SECTION IN THE SAME OR ANY OTH ER PREVIOUS YEAR. 9. AS ALREADY STATED, THE AFORESAID AMENDMENT IS PROSPECTIVE AND WILL APPLY ONLY FROM A.Y. 2015-16. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) HAS TO BE CON FIRMED. CONSEQUENTLY GROUNDS NO.2 & 3 RAISED BY THE REVENUE IN BOTH TH E APPEALS ARE DISMISSED. 10. THE SECOND ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS WHICH IS PROJECTED BY THE REVENUE IN GROUNDS OF APP EAL NO.4 IN BOTH THE APPEALS, IS AS TO WHETHER THE CIT(APPEALS) WAS JUST IFIED IN HOLDING THAT ASSESSEE, A TRUST, IS ENTITLED TO CARRY FORWARD EXP ENDITURE INCURRED IN EXCESS OF ITS INCOME FOR SETTING OFF AGAINST INCOME OF THE SUCCEEDING YEARS? THE ASSESSEE IS A TRUST REGISTERED U/S. 12A OF THE ACT. FOR THE A.Y. 2012-13 & 2013-14, THE ASSESSEE FILED A RETURN OF INCOME CLAI MING CARRY FORWARD OF EXCESS APPLICATION OF INCOME OF THE CURRENT YEAR AN D ALSO FROM EARLIER YEARS. THE ASSESSEE SOUGHT TO CARRY FORWARD THE E XCESS APPLICATION FOR SETTING OFF AS APPLICATION OF INCOME IN THE SUBSEQU ENT ASSESSMENT YEARS. ACCORDING TO THE AO THERE WAS NO PROVISION IN THE A CT FOR CARRY FORWARD OF EXCESS EXPENDITURE OF EARLIER YEAR TO BE ADJUSTED A GAINST INCOME OF THE SUBSEQUENT YEAR AND HE THEREFORE DENIED THE CLAIM O F THE ASSESSEE. ITA NO. 37 & 38/BANG/2017 PAGE 6 OF 8 11. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD THA T THE ASSESSEE IS ENTITLED TO CARRY FORWARD EXCESS APPLICATION FOR SE T OFF IN SUBSEQUENT ASSESSMENT YEARS AS APPLICATION OF INCOME FOR CHARI TABLE PURPOSE. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE HAS R AISED GROUND NO.4 IN BOTH THE APPEALS, BEFORE THE TRIBUNAL. 12. THE LEARNED DR REITERATED THE STAND OF THE AO T HAT THERE IS NO PROVISION IN THE ACT TO ALLOW CARRY FORWARD OF EXCE SS APPLICATION OF INCOME FOR SET OFF AS APPLICATION OF INCOME IN SUBSEQUENT YEARS. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2010-11 IN ITA NO.522/BANG/2014 ORDER DATED 11.6 .2015 WHEREIN THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE ON IDEN TICAL ISSUE ON IDENTICAL FACTS. 13. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11( 1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ON LY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITAB LE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED TO MEET THE EXPENSES INCURRED FO R CHARITABLE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURP OSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUB SEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURP OSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SE T-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEA RS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME O F SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION 164 ITR 439 (RAJ) CIT V S. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ. ) . IN CIT VS. INSTITUTE ITA NO. 37 & 38/BANG/2017 PAGE 7 OF 8 OF BANKING PERSONNEL SELECTION 264 ITR 110 (BOM) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AG AINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLI CATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF I NCOME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ADIT 248 ITR 368 (MAD) , THE HONBLE MADRAS HIGH COURT HELD THAT THE INCOME OF T HE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRIN CIPLES, THAT S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCU RRED ON RELIGIOUS OR CHARITABLE PURPOSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT T HE LOSS INCURRED UNDER ONE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FRO M THE SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRED WAS F OR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE O F LOSS OF AN EARLIER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUE NT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO INCUR THAT EXPENDITURE, THE TRUST S HOULD HAVE AN INCOME. SO LONG AS THE EXPENDITURE INCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDITURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF WHICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LI ABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN EARLIER YEAR IS ADJU STED AGAINST THE INCOME OF A LATER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES FROM THE INCOME O F THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLI ER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HA D BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPENDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. ITA NO. 37 & 38/BANG/2017 PAGE 8 OF 8 THE HIGH COURT RELIED ON THE DECISION IN THE CASE O F CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR.). 14. WE ARE THEREFORE OF THE VIEW THAT THERE IS NO M ERIT IN GROUND NO.4 RAISED BY THE REVENUE IN BOTH THE APPEALS. ACCORDIN GLY, THE SAME IS DISMISSED. 15. IN THE RESULT, THE APPEALS BY THE REVENUE ARE D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF SEPTEMBER, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 14 TH SEPTEMBER, 2018. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.