The Dy.DIT (Exemption), Ahmedabad V. Shree Monark Education Trust, Ahmedabad

ITA 373/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6201 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 16-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Question of law; Capital expenditure
• Section: 12A; 32; 28; 11

Judgement Text

ITA NO. 373/AHD/2016 DCIT VS. SHREE MONARK EDUCATION TRUST A.Y. 2012-13 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] I.T.A. NO.373/AHD/2016 ASSESSMENT YEAR : 2012-13 DEPUTY COMMISSIONER OF INCOME-TAX .....APPELLANT (EXEMPTIONS), CIRCLE-1, AHMEDABAD VS. SHREE MONARK EDUCATION TRUST .RESPONDENT MAHADEV VAS, NIKOL GAM, NIKOL AHMEDABAD [PAN : AABTM 3910 C] APPEARANCES BY: MUDIT NAGPAL FOR THE APPELLANT NONE FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 22.01.2018 DATE OF PRONOUNCING THE ORDER : 30.01.2018 O R D E R PER PRAMOD KUMAR, AM: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE LEARNED CIT(A)S ORDER DATED 18 TH DECEMBER 2015, FOR THE ASSESSMENT YEAR 2012-13, ON THE FOLLOWING GROUND:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) IS JUSTIFIED IN ALLOWING THE ASSESSEES APPEAL IN D ELETING THE ADDITION OF DISALLOWANCE OF DEPRECIATION MADE BY THE ASSESSING OFFICER OF RS.1,92,59,098/- 2. NONE APPEARED FOR THE ASSESSEE BUT HAVING REGARD TO THE FACT THAT THE APPEAL INVOLVES A SHORT AND NEATLY IDENTIFIED QUESTION OF LAW, WITHIN A NARROW COMPASS OF UNDISPUTED MATERIAL FACTS, WE DEEM IT FIT AND PROPE R TO DECIDE THE MATTER EX PARTE QUA THE ASSESSEE. 3. THE ASSESSEE IS A CHARITABLE TRUST ENGAGED IN TH E ACTIVITY OF RUNNING EDUCATIONAL INSTITUTIONS. DURING THE COURSE OF SCRUTINY ASSESS MENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS.1,92,5 9,098/- IN ITS INCOME AND EXPENDITURE ACCOUNT, ON ONE HAND, AND AT THE SAME TIME, HAS CLAIMED CAPITAL EXPENDITURE AMOUNTING TO RS.2,09,34,456/- A S APPLICATION OF INCOME. THE ASSESSING OFFICER WAS OF THE VIEW THAT THIS TANTAMOUNTS TO DOUBLE DEDUCTION CONTRARY ITA NO. 373/AHD/2016 DCIT VS. SHREE MONARK EDUCATION TRUST A.Y. 2012-13 PAGE 2 OF 4 TO THE SCHEME OF THE ACT. HE THUS PROCEEDED TO DISA LLOW DEPRECIATION CLAIM OF RS.1,92,59,098/-. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO DELETED THE DISALLOWANCE ON THE STRENGTH OF, INTER ALIA, HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF CIT VS. SHETH MANIL AL RANCHHODDAS VISHRAM BHAWAN TRUST (198 ITR 598 (GUJ)). THE ASSESSING OFFICER I S NOT SATISFIED AND IS IN APPEAL BEFORE US. 4. LEARNED DEPARTMENTAL REPRESENTATIVE FAIRLY ADMIT S THAT THE ISSUE IS NOW SETTLED IN FAVOUR OF THE ASSESSEE BY AN AUTHORITY NO LESS T HAN HONBLE SUPREME COURT. THEIR LORDSHIPS HAVE, IN THE CASE OF CIT VS. RAJASTHAN AN D GUJARATI CHARITABLE FOUNDATION [(2018) 89 TAXMANN.COM 127 (SC)], OBSERVED AS FOLLO WS:- 1. THESE ARE THE PETITIONS AND APPEALS FILED BY TH E INCOME TAX DEPARTMENT AGAINST THE ORDERS PASSED BY VARIOUS HIGH COURTS GR ANTING BENEFIT OF DEPRECIATION ON THE ASSETS ACQUIRED BY THE RESPONDENTS-ASSESSEES . IT IS A MATTER OF RECORD THAT ALL THE ASSESSEES ARE CHARITABLE 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 CONCERN ED AND IN WHICH YEAR THE DEPRECIATION WAS CLAIMED, THE ENTIRE EXPENDITURE IN CURRED FOR ACQUISITION OF CAPITAL ASSETS WAS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES UNDER SECTION 11(1)(A) OF THE ACT. THE VIEW TAKEN BY THE ASSESSING OFFICER IN DISALLOWING THE DEPRECIATION WHICH WAS CLAIMED UNDE R SECTION 32 OF THE ACT WAS THAT ONCE THE CAPITAL EXPENDITURE IS TREATED AS APP LICATION OF INCOME FOR CHARITABLE PURPOSES, THE ASSESSEES HAD VIRTUALLY ENJOYED A 100 PER CENT WRITE OFF OF THE COST OF ASSETS 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 REVER SED THE SAME AND THE HIGH COURTS HAVE ACCEPTED THE DECISION OF THE ITAT THERE BY DISMISSING THE APPEALS OF THE INCOME TAX DEPARTMENT. FROM THE JUDGMENTS OF TH E HIGH COURTS, IT CAN BE DISCERNED THAT THE HIGH COURTS HAVE PRIMARILY FOLLO WED THE JUDGMENT OF THE BOMBAY HIGH COURT IN 'CIT V. INSTITUTE OF BANKING P ERSONNEL SELECTION (IBPS)'(2003) 131 TAXMAN 386 (BOMBAY). IN THE SAID JUDGMENT, THE CONTENTION OF THE DEPARTMENT PREDICATED ON DOUBLE BENEFIT WAS TUR NED DOWN IN THE FOLLOWING MANNER: '3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUI RES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATION WAS ALLOWABLE ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UND ER SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN 1994 T AX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. THE ASSESSEE WAS A CHARI TABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRUST. IT WAS ALS O REGISTERED WITH THE COMMISSIONER OF INCOME TAX, PUNE. THE ASSESSEE DERI VED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1977-78, 1978-79 A ND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE B UILDING @2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITURE @ 5%. THE QU ESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS : WHETHER DE PRECIATION COULD BE DENIED TO THE ASSESSEE, AS EXPENDITURE ON ACQUISITI ON OF THE ASSETS HAD BEEN TREATED AS APPLICATION OF INCOME IN THE YEAR OF ACQ UISITION? IT WAS HELD BY THE ITA NO. 373/AHD/2016 DCIT VS. SHREE MONARK EDUCATION TRUST A.Y. 2012-13 PAGE 3 OF 4 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 PROVID ES 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 GA INS OF BUSINESS AHLL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 4 3C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPECT OF BUI LDING, PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR BUSINESS PURPOSE S. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN THAT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE 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 DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSES SEE ON GENERAL PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME TAX ACT. TH E COURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENUE THAT SECTION 32OF THE INCOME TAX ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON A CCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FORM BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED I N NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON AN Y BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED M AY 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 PROFESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PRO VIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROS S INCOME OF THE TRUST. IN VIEW OF THE AFORESATATED JUDGMENT OF THE BOMBAY HIG H CURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE I.E., IN FAVOUR O F THE ASSESSEE AND AGAINST THE DEPARTMENT. 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTI ON WHICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF IN COME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 10 9 CTR 463. IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRU ST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACC OUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOME OF THE TRUST. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUS E, FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSISTANT APPELLATE COMMISSION ER. 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 AC QUISITION OF THE ASSETS, WHAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON A CQUIRING 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. THI S DID NOT MEAN THAT IN COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YE ARS, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUN T. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE BOMBAY HIGH COUR T IN THE ABOVE JUDGMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE D ECISION OF THE BOMBAY ITA NO. 373/AHD/2016 DCIT VS. SHREE MONARK EDUCATION TRUST A.Y. 2012-13 PAGE 4 OF 4 HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUE STION NO. 2 IS ANSWERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' 2. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, W E ARE OF THE OPINION THAT THE AFORESAID VIEW TAKEN BY THE BOMBAY HIGH COURT CORRE CTLY 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 HIGH COURT OF KERALA WHICH HAS TAKEN A CONTRARY VIEW IN 'LISSIE MEDICAL INSTITUTIONS V. CI T [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 INC OME 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 2015-2016 . THE DELHI HIGH COURT HAS TAKEN THE VIEW AND RIGHTLY SO, THAT THE SAID AM ENDMENT IS PROSPECTIVE IN NATURE. 5. IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DE PRECIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. 5. IN THE LIGHT OF THE VIEWS SO EXPRESSED BY HONBL E SUPREME COURT, THE GRIEVANCE OF THE ASSESSING OFFICER IS DEVOID OF ANY LEGALLY S USTAINABLE MERITS. WE, ACCORDINGLY, REJECT THE SAME AND APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A). 6. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JANUARY, 2018. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 30 TH DAY OF JANUARY, 2018 **BT* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD