ASSTT CIT (E) -I(1), MUMBAI V. HIS HOLINESS DR. SYEDNA TAHER SAIFUDDIN MEMMORIAL FOUNDATION, MUMBAI

ITA 3775/MUM/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3156 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 18-06-2015
• Court: TRIBUNAL
• Department Lawyers: JAYESH CHUGH
• Assessee Lawyers: NEELIMA V NADKARNI
• Keywords: Depreciation; Charitable institution; Earning of tax free income; Capital expenditure
• Section: 12A; 32; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A. NO. 3775/M/2015 (AY:2008 - 2009 ) ACIT(E) - 1(1), R.NO.506, 5 TH FLOOR, PIRAMAL CHAMBER, LALBAUG, MUMBAI 400 012. / VS. HIS HOLINESS DR. SYEDNA TAHER SAIFUDDIN MEMMORIAL FOUNDATION, 1 ST FLOOR, AMATULLAH MANZIL, 65 BAZAR GATE STREET, FORT, MUMBAI - 01. ./ PAN : AAATH0335D ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI JAYESH CHUGH, AR / RESPONDENT BY : MS. NEELIMA V. NADKARNI, DR / DATE OF HEARING : 27.8 .2015 / DATE OF PRONOUNCEMENT : 30 .9 .2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 18.6.2015 IS AGAINST THE ORDER OF THE CIT (A) - 7, MUMBAI DATED 25.3.2015 FOR THE ASSESSMENT YEAR 2008 - 2009. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. WHETHER ON THE FACTS OF THE CAS E AND IN LAW, THE CIT (A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE ON ACCOUNT OF DISALLOWING DEPRECIATION ON FIXED ASSETS OF RS. 57,29,927/ - IN CONTRAVENTION OF THE DECISION OF ESCORTS LTD VS. UOI 199 ITR 43 WHEREIN IT WAS HELD THAT SINCE SECTION 11 OF THE INCOME TAX ACT, 1961 PROVIDES FOR DEDUCTION OF CAPITAL EXPENDITURE INCURRED ON ASSETS ACQUIRED FOR THE OBJECTS OF THE TRUST AS APPLICATION AND DOES NOT SPECIFICALLY AND EXPRESSLY PROVIDE FOR DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION ON THE SAME VERY ASSETS ACQUIRED FROM SUCH CAPITAL EXPENDITURE, NO DEDUCTION SHALL BE ALLOWED U/S 32 FOR THE SAME OR ANY OTHER PREVIOUS YEAR IN RESPECT OF THAT ASSET AS IT AMOUNTS TO CLAIMING A DOUBLE DEDUCTION. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW, THE LD CIT (A) ERRED IN ALLOWING THE APPEAL, WHEN THE DELHI HIGH COURT IN THE CASE OF CHARANJIV CHARITABLE TRUST AND KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS VS. CIT 76 DTR (KER) 372 HAS DECIDED THE ISSUE IN FAVOUR OF THE DEPAR TMENT AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD (199 ITR 43). 3. WHETHER, ON THE FACTS OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN ALLOWING THE CARRY FORWARD DEFICIT OF RS. 65,41,073/ - AND ALLOWING SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEARS , ALLOWING THE DEFICIT 2 WILL TANTAMOUNT TO DOUBLE DEDUCTION ON ACCOUNT OF EXPENDITURE OF EXEMPT INCOME. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN ALLOWING TO CA RRY FORWARD OF DEFICIT ON ACCOUNT OF EXCESS EXPENDITURE AND DIRECTING THE ASSESSING OFFICER TO ALLOW CARRY FORWARD OF DEFICIT ON ACCOUNT OF EXCESS EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THIS WOULD HAVE THE EFFECT OF GRANTING DOUBLE BENEFIT TO THE A SSESSEE FIRST AS ACCUMULATION OF INCOME U/S 11(1)(A) OR AS CORPUS DONATION U/S 11(1)(D) IN EARLIER YEARS / CURRENT YEAR AND THEN AS APPLICATION OF INCOME U/S 11(1)(A) IN THE SUBSEQUENT YEARS WHICH WAS LEGALLY NOT PERMISSIBLE. 5. WHETHER, ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF THE SAID DEFICIT, IGNORING THE FACT THAT THERE WAS NO EXPRESS PROVISION IN THE IT ACT, 1961 PERMITTING ALLOWANCE OF SUCH CLAIM. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE, WHO IS A CHARITABLE TRUST, FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. NIL. DURING THE ASSESSMENT, AO OBSERVED THAT ASSESSEE CLAIMED (I) AN AMOUNT OF RS. 57,29,927/ - ON ACCOUNT OF DEPRECIATION ON ASSETS AND (II) RS. 65,41,073/ - WAS CLAIMED AS SET - OFF OF EARLIER YEARS DEFICIT AGAINST THE INCOME OF THE YEAR UNDER CONSIDERATION. FOR MAKING ABOVE CLAIMS, ASSESSEE RELIED ON THE RATIO LAID DOWN IN THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD VS. UNION OF INDIA AND THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING (2003) 204 ITR 110 (BOM). AO DID NOT CONSIDER THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD AND PRO CEED TO MAKE DISALLOWANCE OF THE ABOVE CLAIMS. AGGRIEVED WITH THE DECISION OF THE AO, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE, CIT (A) DELETED THE DISALLOWANCE ON ACCOUNT OF DEPRECIATION OF RS. 57,29,927/ - AND HELD THAT THE SAID JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD (SUPRA) IS NOT APPLICABLE TO A CHARITABLE ORGANIZATION AS IT PERTAI NS TO CLAIM OF DEPRECIATION UNDER ANOTHER SECTION OF THE ACT WHEN OR MORE DEPRECIATION HAD ALREADY BEEN PROVIDED U/S 35 OF THE ACT . AGGRIEVED WITH THE DECISION OF THE CIT (A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAI SING THE ABOVE MENTIONED GROUND NOS.1 AND 2 . 4 . DURING THE PROCEEDINGS BEFORE THE TRIBUNAL, LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE ORDER OF THE CIT (A) AND REITERATED SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 3 5 . ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE ORD ER OF THE AO. 6 . I HAVE HEARD LD REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED ON RECORD. ON PERUSAL OF THE ORDER OF THE CIT ( A) IN GENERAL AND PARAS FROM 3.7 TO 3.10 IN PARTI CULAR, I FIND THE SAME ARE RELEVANT IN THIS REGARD. CONSIDERING THE IMPORTANCE OF THE SAID PARAS 3.7 TO 3.10 OF THE IMPUGNED ORDER, THE SAME ARE EXTRACTED AS UNDER: 3.7. I HAVE ALSO PERUSED THE ORDER IN THE CASE OF THE APPELLANT FOR THE AY 2005 - 06 VIDE APPEAL NO. CIT(A) - I/IT - E1(81)/2011 - 12, WHEREIN LD CIT (A) HAS ALLOWED DEPRECIATION AS WELL AS CARRY FORWARD OF LOSSES . SIMILAR DECISION HAS BEEN GIVEN BY THE LD CIT (A) IN THE CASE OF THE APPELLANT FOR AY 2009 - 2010 VIDE APPEAL NO. CIT(A) - 1/IT - E1(6)/ 2011 - 12. SINCE, THE FACTS IN THE CURRENT YEAR ARE IDENTICAL, I FIND NO REASON TO DIFFER FROM THE ABOVE DECISIONS OF THE LD CIT (A). 3.8. FURTHER, IT IS SEEN THAT THE ISSUE UNDER CONSIDERATION IS COVERED IN FAVOUR OF THE ASSESSEE BY OTHER DECISIONS AND ALS O IT HAS BEEN HELD BY VARIOUS COURTS THAT DEPRECIATION IS TO BE ALLOWED EVEN IF THE ENTIRE COST OF THE ASSET WAS TREATED AS APPLICATION / EXPENDITURE IN THE YEAR OF PURCHASE. ............... ................ 3.3. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD (SUPRA) WILL NOT APPLY TO A CHARITABLE ORGANIZATION AS IT PERTAINS TO CLAIM OF DEPRECIATION UNDER ANOTHER SECTION OF THE ACT WHEN 100% OR MORE DEPRECIATION HAD ALREADY BEEN PROVIDED U/S 35. THE HONBLE SUPREME COURT IN THAT CAS E WAS DEALING WITH A CASE RELATING TO TWO DEDUCTIONS BOTH UNDER SECTIONS 10 (2)(VI) AND 10(2)(XIV) OF THE 1922 ACT OR BOTH UNDER SECTION 32(1)(II) AND 35(1)(IV) OF THE ACT. THE ASSESSEE THEREIN HAD INCURRED EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RES EARCH RELATING TO THE BUSINESS WHICH RESULTED INTO ACQUISITION OF AN ASSET. THE ASSESSEE HAD SOUGHT TO CLAIM A SPECIFIC PERCENTAGE OF THE WRITTEN DOWN VALUE OF THE ASSET AS DEPRECIATION AND AT THE SAME TIME CLAIMED DEDUCTION, IN FIVE CONSECUTIVE YEARS OF THE EXPENDITURE INCURRED ON THE ACQUISITION OF THE ASSET. THE JUDGMENT OF THE HONBLE SUPREME COURT IN ESCORTS LTD IS THUS DISTINGUISHABLE FOR THE ABOVE REASONS. MOREOVER, THE SUPREME COURT DECISION HAS BEEN DISTINGUISHED INTER ALIA BY THE PUNJAB & HARYA NA HIGH COURT IN THE CASE OF MARKET COMMITTEE PIPLI AND TINY TOTS EDUCATION SOCIETY (BOTH SUPRA) AS WELL AS MUMBAI AND CHENNAI TRIBUNALS IN THE CASES LISTED ABOVE. 3.4. FURTHER, HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT (E) VS. FRAMJEE CAWASJEE INSTITU TE (SUPRA), HAS HELD THAT EVEN IF THE AMOUNT SPENT ON ACQUIRING DEPRECIABLE ASSET WAS TREATED AS APPLICATION OF INCOME OF THE TRUST IN THE YEAR OF ACQUISITION, DEPRECIATION WOULD STILL BE ALLOWABLE IN SUBSEQUENT YEARS. THIS DECISION OF THE HONBLE BOMBAY HIGH COURT WAS FOLLOWED IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA) AND CIT VS. SANJEEVAN VIDYALAYA TRUST (SUPRA). HENCE, I DIRECT THE AO TO DELETE THE DISALLOWANCE OF DEPRECIATION OF RS. 1,14,71,022/ - IN AY 2010 - 2011 AND RS. 68,89,365/ - IN AY 2011 - 2012. 7 . F ROM ABOVE, IT IS VERY CLEAR THAT THE JUDGMENT OF APEX COURT IN THE CASE OF ESCORTS LTD (SUPRA) RELIED ON BY THE AO WHILE MAKING THE DISALLOWANCE IS NOT APPLICABLE TO A CHARITABLE ORGANIZATION , LIKE THE ASSESSEE IN THE PRESENT CASE WHICH IS REGISTERED U/S 12A OF THE ACT, SINCE IT PERTAINS TO THE CLAIM OF DEPRECIATION UNDER THE PROVISIONS OF SECTION 35 OF THE ACT . FURTHER, AS PER THE PROPOSITION LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF DIT (E) VS. FRAMJEE CAWASJEE INSTITUTE (SUPRA) EXPENDITURE ON ACQUISITION OF DEPRECIABLE ASSET WAS TREATED AS APPLICATION OF INCOME OF THE TRUST IN THE YEAR OF ACQUISITION, DEPRECIATION IS ALLOWABLE IN SUBSEQUENT YEARS . THE SAID JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IS BINDING ON THE TRIBUNAL . CONSIDERING THE ABOVE PROPOSITIONS, IN MY OPINION, CIT (A) HAS RIGHTLY ADJUDICATED THE ISSUE AND DELETED THE 4 DISALLOWANCE MADE BY THE AO. IN MY CONSIDERED OPINION, THE DECISION TAKEN BY THE CIT (A) IN ALLOWING THE ASSESSEES APPEAL IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTE RFERENCE. ACCORDINGLY, GROUND NOS. 1 AND 2 RAISED BY THE REVENUE ARE DISMISSED. 8. GROUND NOS. 3 TO 5 RELATE TO THE DISALLOWANCE OF CARRY FORWARD OF DEFICIT OF RS. 65,41,073/ - . IN THE RETURN OF INCOME, THE SAID AMOUNT WAS CLAIMED AS SET - OFF AGAINST THE ACCUMULATED CARRIED FORWARD DEFICIT OF EARLIER YEARS. AO DID NOT CONSIDER THE SAME AND MADE A DISALLOW ANCE. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) GRANTED RELIEF VIDE PARAS 4.3 AND 4.4 OF THE IMPUGNED ORDER. AGGRIEVED WITH THE SAID DECISION OF THE CIT (A) REVENUE IS IN APPEAL BEFORE THE TRIBUNAL VIDE GROUND NOS. 3 TO 5 OF T HE APPEAL. 9. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL, LD DR RELIED ON THE ORDER OF THE AO. 10. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE ORDER OF THE CIT (A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. ON HEAR ING THE LD REPRESENTATIVES OF BOTH THE PARTIES AND ON PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES IN GENERAL AND PARAS 4.3 AND 4.4 OF THE CIT (A)S ORDER IN PARTICULAR, I FIND THE SAME ARE RELEVANT IN THIS REGARD. CONSIDERING THE SIGNIFICANC E OF THE SAID PARAS 4.3 AND 4.4 OF THE IMPUGNED ORDER ARE EXTRACTED AS UNDER: 4.3. I HAVE PERUSED THE ORDER OF THE APPELLANT FOR AY 2005 - 06 VIDE APPEAL NO. CIT (A) - I/IT - E1(81)/2011 - 12 AND ALSO NOTED THAT THE LD CIT (A) HAS ALLOWED CARRY FORWARD OF LOSSES FOR AY 2005 - 06. I SEE THAT THE FACTS AND THE GROUNDS ARE THE SAME IN THE CURRENT YEAR AS WERE IN AY 2008 - 2009. 4.4. FURTHER, IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING (2003) 204 ITR 110 (BOM) CITE D BY THE APPELLANT, IN MY OPINION, THE APPELLANT DESERVES TO SUCCEED IN REGARD TO THIS GROUND OF APPEAL. ACCORDINGLY, I HOLD THAT THE AO WAS WRONG IN DISALLOWING THE SET - OFF OF BROUGHT FORWARD DEFICIT OF EARLIER YEARS AGAINST THE CURRENT YEARS SURPLUS OF RS. 65,41,073/ - . THE AO IS DIRECTED TO ALLOW THE SAME. 11. IT IS A SETTLED ISSUE THAT ANY SURPLUS AMOUNT OF THE CURRENT YEAR CAN BE SET - OFF AGAINST THE BROUGHT FORWARD DEFICIT OF THE EARLIER YEARS AND T HE SAME VIEW WAS EVEN SUPPORTED BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE ITS JUDGMENT IN THE CASE OF CIT VS. INSTITUTE OF BANKING (SUPRA). CONSIDERING THE SAME, I AM OF THE OPINION THAT THE CIT (A) HAS RIGHTLY ADJUDICATED THE ISSUE BY GRANTING RELIEF TO THE ASSES SEE. THEREFORE, THE CIT (A)S DECISION IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY 5 INTERFERENCE. ACCORDINGLY, GROUND NOS.3 TO 5 RAISED BY THE REVENUE ARE DISMISSED . 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OP EN COURT ON 3 0 T H SEPTEMBER, 2015. S D / - (D. KARUNAKARA RAO) ACCOUNTANT MEMBER MUMBAI ; 30 . 9 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI