The DCIT (Exemptions), Circle-2, Ahmedabad V. Charutar Vidhya Mandal, Anand

ITA 422/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2408 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 20-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA MURARI
• Assessee Lawyers: T P HEMANI
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 32; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER) ITA. NO: 422/AHD/2017 (ASSESSMENT YEAR: 2010-11) DEPUTY COMMISSIONER OF INCOME-TAX (EXEMPTIONS), CIRCLE-2, AHMEDABAD V/S CAHRUTAR VIDHYA MANDAL MOTA BAZAR P.O. BOX NO. 22 V.V. NAGAR, ANAND (GUJARAT)-388120 (APPELLANT) (RESPONDENT) PAN: AAATC1878Q APPELLANT BY : SHRI KRISHNAMURARI, CIT/D R RESPONDENT BY : SHRI T. P. HEMANI, A.R. ( )/ ORDER DATE OF HEARING : 29 -08-201 8 DATE OF PRONOUNCEMENT : 30 -08-2018 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-9, AHMEDABAD DATED 05.12.1 PERTAINING TO A.Y. 2010-11 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: ITA NO. 422/ AHD/2017 . A.Y. 2010-11 2 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IS THE LD. CIT (A) JUSTIFIED IN ALLOWING THE DEPRECIATION OF RS.6,26,08,162/- WHICH AMOUNT TO DOUBLE DEDUCTION AS 100% DEDUCTION WAS ALREADY ALLOWED TO THE ASSESSEE AS AP PLICATION OF INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ID. COMMISSIONER OF INCOME-TAX (APPEAL) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFI CER. 2. BRIEFLY STATED THE FACTS OF THE CASE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, IT IS SEEN THAT ASSESSEE HAS CLAIMED E XPENSES OF RS. 27,92,76,882/- FOR A.Y. 2010-11 AS PER INCOME AND EXPENDITURE ACCO UNT, THIS EXPENSES INCLUDED DEPRECIATION OF RS, 6,26,08,162/-. THE CLA IM MADE BY YOU AMOUNTS TO DOUBLE DEDUCTION IN VIEW OF THE FACT THAT ANY ADDIT ION IN FIXED ASSET IS CLAIMED AS APPLICATION OF INCOME. THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC), HAS ALSO HELD THAT DEDUCTION ALLOWED U/S.35(2)(IV) IN RESPECT OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEAR CH, NO DEPRECIATION IS ALLOWED U/S.32 AN ASSET:. FURTHERMORE, HIGH COURT IN. THE C ASE OF KERALA IN THE CASE OF LISSIE MEDICAL INSTITUTIONS (KERA1A)/MAG/2012) 348 ITR 344 (KERALA) HELD THAT IF ASSESSEE TREATS EXPENDITURE ON ACQUISITION: OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE U/S. 11(1)(A), THEN A SSESSEE CANNOT CLAIM DEPRECIATION ON VALUE OF SUCH ASSETS. IN VIEW OF TH E ABOVE FINDING, YOU ARE REQUESTED TO SHOW CAUSE AS WHY CLAIM OF DEPRECIATIO N SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE INCOME OF THE TRUST? 3. IN RESPONSE TO SAID NOTICE, ASSESSEE REPLIED AS FOL LOWS: 'ASSESSEE HAS BEEN CLAIMED DEPRECIATION AND NO AMOUN T OF CAPITAL EXPENDITURE IS CLAIMED AS APPLICATION OF INCOME SINCE INCEPTION. HENCE, QUESTI ON OF DOUBLE DEDUCTION DOES NOT ARISE. AND FURTHER TO THAT ASSESSEE IS CLAIMING EXEMPTION U/S. 10(23C)(VI), APPROVAL VIDE NO.BRD/CC/TECH/10(23C)(VI)/CVM/09-10 DATED 19.11.2 000 BY THE CCIT, BARODA. HENCE, TOTAL INCOME OF THE ASSESSEE IS EXEMPT. ITA NO. 422/ AHD/2017 . A.Y. 2010-11 3 FROM THE ABOVE EXPLANATION IT CAN BE INFERRED THAT THE CLAIM OF DEPRECIATION DOES NOT AMOUNT TO DOUBLE DEDUCTION, AND THEREFORE THE SAME SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE INCOME OF ASSESSEE.' 4. THE REPLY OF THE ASSESSEE IS TAKEN NOTE OF BUT S AME IS NOT TAKEN INTO CONSIDERATION. THE INVESTMENT IN ASSET IS ALLOWED AS DEDUCTION AS APPLICATION OF FUNDS. THE ALLOWANCE OF DEPRECIATION AS FURTHER APPLICATION OF RECEIPTS IN SUBSEQUENT YEAR WOULD AP PARENTLY BE DOUBLE DEDUCTION. THIS WOULD BE INCONSISTENT WITH THE ACCOUNTING PRINCIPLE AND ALSO IN VIEW OF VARIOUS PROVISIONS OF THE I.T. ACT. THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ES CORTS LTD. 199 ITR 43 IS APPLICABLE TO THE CASE OF THE ASSESSEE. IN, THIS CASE, THE HON'BLE SUPREME COURT HAS HELD THAT WHEN DEDUCTION U/S 35(2)(IV) WAS ALLOWED IN RESPECT OF CAPITAL EXPENDI TURE ON SCIENTIFIC RESEARCH, NO DEPRECIATION HAS TO BE ALLOWED U/S.32 ON THE SAME ASSET. 4.1 THE APEX COURT FURTHER OBSERVED THAT DOUBLE DED UCTION IS INTENDED UNLESS THERE IS CLEAR STATUTORY INDICATION TO THE CONTRARY. 'IT IS IMPOSSIBLE TO CONCEIVE OF THE LEGISLATURE HA VING ENVISAGED A DOUBLE DEDUCTION IN RESPECT OF THE SAME EXPENDITURE, EVEN THOUGH IT IS TRUE THAT THE T WO HEADS OF THE DEDUCTION (I.E., DEPRECIATION AND SCIENTIFIC RESEARCH EXPENDITURE) DO NOT COMPLETELY OVERLAP AND THERE IS SOME DIFFERENCE IN/THE RATIONA LE OF THE TWO DEDUCTIONS. NO LEGISLATURE COULD HAVE AT ALL INTENDED A DOUBLE DEDUCTION IN REGARD TO THE SAME BUSINESS OUTGOING, AND IF IT WAS INTENDED IT W OULD BE CLEARLY EXPRESSED. THEREFORE, EVEN IN THE ABSENCE OF CLEAR STATUTORY INDICATION TO THE CONTRA RY, THE STATUTE SHOULD NOT BE READ SO AS TO PERMIT AN ASSESSEE TWO DEDUCTIONS - BOTH UNDER SECTIONS 10(2) (VI) AND SECTION 70(2)(XIV) UNDER THE 1922 ACT OR UNDER SECTIONS 32(7)(II) AND 35(2)(IV) OF THE 19 61 ACT - QUA THE SAME EXPENDITURE. THUS, EVEN BEFORE THE 1980 AMENDMENT, THE ACT DID NOT PERMIT A DEDUCTION FOR DEPRECIATION IN RESPECT OF THE COST OF A CAPITAL ASSET ACQUIRED FOR PURPOSES OF SCIENTI FIC RESEARCH TO THE EXTENT SUCH COST HAD BEEN WRITT EN OFF UNDER SECTION 70(2)(XIV) /35(1) AND (2). THE ME RE FACT THAT A BASELESS CLAIM WAS RAISED BY SAME OVER-ENTHUSIASTIC ASSESSEES WHO SOUGHT A DOUBLE ALLOWANCE OR THAT SUCH CLAIMS MAY PERHAPS HAVE BEEN ACCEPTED BY SOME AUTHORITIES, WAS NOT SUFFICIENT TO ATTRIBUTE ANY AM BIGUITY DOUBT AS TO THE TRUE SCOPE OF THE PROVISION S AS THEY STOOD EARLIER. 4.2 FURTHER, IN A RECENT DECISION IN THE CASE OF LI SSIE MEDICAL INSTITUTIONS V/S. COMMISSIONER OF INCOME-TAX, KOCHI, 348 ITR 344, THE HON'BLE HIGH COUR T OF KERALA HAS HELD THAT- 'WHEN THE EXPENDITURE INCURRED FOR ACQUISITION OF D EPRECIABLE ASSETS ITSELF IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES UNDER SECTION 11(1) (A), SHOULD NOT THE COST OF SUCH ASSETS TO BE TREAT ED AS NIL FOR THE ASSESSEE AND IN THAT SITUATION DEPRE CIATION TO BE GRANTED TURNS OUT TO BE NIL. HOWEVER, IF DEPRECIATION PROVIDED IS CLAIMED ON, NOTIONAL COST AFTER THE ASSESSEE CLAIMS 100 PERCENT OF THE COST INCURRED FOR IT AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES; THE DEPRECIATIO N SO CLAIMED HAS TO BE WRITTEN BACK AS INCOME AVAILABLE . IN FACT, GOING BY THE SEVERAL DECISIONS OF THE VARIOUS HIGH COURTS, THE ITA NO. 422/ AHD/2017 . A.Y. 2010-11 4 CHARITABLE INSTITUTIONS WILL BE GENERATING UNACCOUN TED INCOME EQUAL TO THE DEPRECIATION AMOUNT CLAIMED ON A YEAR TO YEAR BASIS WHICH IS NOTHING BU T BLACK MONEY. THE VIEWS FROM THE CENTRAL BOARD OF DIRECT TAXES HAVE BEEN OBTAINED ON THE ISSUES. 4.3 THE HON'BLE HIGH COURT OF KERALA, IN THE SAID O RDER, HAS REFERRED TO DECISIONS OF VARIOUS HIGH COURTS INCLUDING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V/S. SHETH MANILA! RANCHHODDAS VISHRAM BHAVAN TRUST 198 ITR 59 8 (GUJ.) AND HELD THAT 'WE DO NOT FIND IN ANY OF THESE DECISIONS THIS ASPECT IS CONSI DERED AND DISCUSSED BY ANY OF THE HIGH COURTS.' THE HON'BLE ITAT, COCHIN BENCH HAS ALSO SUPPORTED THE SAI D VIEW WHILE DECIDING THE CASE OF' DDIT(E), RANGE-II, ERNAKULAM V/S. ADI SANKARA TRUST IN FAVOUR OF THE REVENUE. 4. BUT LD. A.O. WAS NOT AGREED WITH THE CONTENTION OF THE ASSESSEE AND DISALLOWED THE DEPRECIATION OF RS. 6,26,08,162/- ON THE GROUND THAT HONBLE GUJARAT HIGH COURT HAS ADMITTED THE APPEAL OF THE REVENUE IN RES PECT OF DISALLOWANCE OF DEPRECIATION. 5. THEREAFTER ASSESSEE PREFERRED FIRST STATUTORY APPEA L BEFORE THE LD. CIT(A) WHO ALLOWED THE APPEAL OF THE ASSESSEE. 6. NOW DEPARTMENT IS BEFORE US. 7. WE HAVE GONE THROUGH THE RELEVANT RECORD AND THE IM PUGNED ORDER. NONE APPEARED ON BEHALF OF ASSESSEE AND WE HAVE HEARD TH E LD. D.R. IN OUR CONSIDERED OPINION, THIS CASE IS SQUARELY COVERED B Y THE JUDGMENT OF SUPREME COURT IN THE CASE OF CIT VS. RAJASTHAN & GUJARATI C HARITABLE FOUNDATION POONA (2018) (402 ITR 441) HAS HELD MATTER IN FAVOU R OF THE ASSESSEE WITH THE FOLLOWING DETAILS: 3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIR ES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATION WAS ALLOWABLE ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCO ME UNDER SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JA IN 1994 TAX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. THE ASSES SEE WAS A CHARITABLE ITA NO. 422/ AHD/2017 . A.Y. 2010-11 5 TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRU ST. IT WAS ALSO REGISTERED WITH THE COMMISSIONER OF INCOME TAX, PUN E. THE ASSESSEE DERIVED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASS ESSMENT YEARS 1977- 78, 1978-79 AND 1979-80, THE ASSESSEE CLAIMED DEPRE CIATION ON THE VALUE OF THE BUILDING @2% AND THEY ALSO CLAIMED DEPRECIA TION ON FURNITURE @ 5%. THE QUESTION WHICH AROSE BEFORE THE COURT FOR D ETERMINATION WAS : WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSE E, AS EXPENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN TREATED AS APPLI CATION 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 CHAR ITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND A CCUMULATION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME TAX ACT DEALS WITH CHARGEABILITY OF INCOME FROM PROFITS AND GAINS OF B USINESS AND SECTION 29 PROVIDES THAT INCOME FROM PROFITS AND GAINS OF BUSI NESS AHLL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPECT OF BUILDIN G, 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 B EHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTI ON ONLY UNDER SECTION 32 OF THE INCOME TAX ACT AND NOT UNDER GENERAL PRIN CIPLES. THE COURT REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEP RECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING T HE 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 O F THE REVENUE THAT SECTION 32OF THE INCOME TAX ACT WAS THE ONLY SECTIO N GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD T HAT INCOME OF A CHARITABLE TRUST DERIVED FORM BUILDING, PLANT AND M ACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED IN NORMAL COMMERCIAL MANN ER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE A SSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME TAX ACT PROVIDING F OR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROF ESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQ UIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PRO VIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFORESATATED JUDGMENT OF THE BOMBAY HIGH CURT, WE ITA NO. 422/ AHD/2017 . A.Y. 2010-11 6 ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE I.E., IN F AVOUR OF 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 DIRECTO R OF INCOME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 10 9 CTR 463. IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS T HE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK I NTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOM E 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 ASSI STANT APPELLATE 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 REAL LY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TRE ATED AS 'APPLICATION OF INCOME' OF THE TRUST IN THE YEAR IN WHICH THE INCOM E WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT IN C OMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YEARS, DEPRECIATION IN R ESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUNT. THIS VIEW OF THE TRIB UNAL HAS BEEN CONFIRMED BY THE BOMBAY HIGH COURT IN THE ABOVE JUD GMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BO MBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANS WERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGA INST THE DEPARTMENT. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE A RE 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 . IT MAY BE MENTIONED THAT MOST OF THE HIGH COURTS HA VE TAKEN THE AFORESAID VIEW WITH ONLY EXCEPTION THERETO BY THE HIGH COURT OF KE RALA WHICH HAS TAKEN A CONTRARY VIEW IN 'LISSIE MEDICAL INSTITUTIONS V. CO MMISSIONER OF INCOME TAX'. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LEG ISLATURE, REALISING THAT THERE WAS NO SPECIFIC PROVISION IN THIS BEHALF IN THE INCOME 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 AMENDMENT IS PROSPECT IVE IN NATURE. ITA NO. 422/ AHD/2017 . A.Y. 2010-11 7 IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPRE CIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. FOR THE AFORESAID REASONS, WE AFFIRM THE VIEW TAKEN BY THE HIGH COURTS IN THESE CASES AND DISMISS THESE MATTERS. 8. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT, WE DISMISSED THE APPEAL OF THE DEPARTMENT. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 - 08- 2018 SD/- SD/- (AMARJIT SINGH) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 30/08/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD