DCIT (E) 2(1), MUMBAI V. MUMBAI EDUCATIONAL TRUST, MUMBAI

ITA 4714/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4385 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 03-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR ANSARI
• Keywords: Capital asset; Depreciation; Charitable institution; Tax effect; Capital expenditure; Set aside
• Section: 12A; 201; 43; 32; 28; 11

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI AMARJIT SINGH (JM) I.T.A. NO. 4714/MUM/2017 (ASSESSMENT YEAR 2009-10 ) DCIT(E)-2(1) ROOM NO. 519 5 TH FLOOR PIRAMAL CHAMBERS LALBAUG, LOWER PAREL MUMBAI-400 012. VS . MUMBAI EDUCATION TRUST MET COMPLEX GEN. A.K. VAIDYA CHOWK BANDRA RECLAMATION BANDRA WEST MUMBAI-400 050. PAN : AAATM0985G (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI YOGESH JOIJODE DEPARTMENT BY SHRI AKHTAR ANSARI DATE OF HEARING 15.10.2020 DATE OF PRONOUNCEMENT 19.10.2020 O R D E R PER SHAMIM YAHYA (AM) :- THIS IS AN APPEAL BY THE REVENUE IS ARISING OUT OF ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [IN SHORT LEAR NED CIT(A)] DATED 10.04.2017 PERTAINING TO A.Y. 2009-10. 2. THE GROUNDS OF APPEAL READ AS UNDER :- 1. 'WHETHER ON THE FACTS OF THE CASE AND IN LAW THE ID.CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE ON ACCOUNT OF DISA LLOWING DEPRECIATION ON FIXED ASSETS OF RS.9,09,48,642/- 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 PROVIDES FOR DEDUCTION CAPITAL EXPEND ITURE INCURRED ON ASSETS ACQUIRED FOR THE OBJECTS OF THE TRUST AS APPLICATION AN D DOES NOT SPECIFICALLY & EXPRESSLY PROVIDE FOR DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION ON THE SAME VERY ASSETS ACQUIRED FROM SUCH CAPITAL EXPENDITUR E, NO DEDUCTION SHALL BE ALLOWED U/S.32FOR 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 TH E CASE AND IN LAW THE ID. CIT(A) ERRED IN ALLOWING THE APPEAL, WHEN THE DELHI HIGH COURT IN THE CASE OF CHARANJIV CHARITABLE TRUST AND KERALA HIGH C OURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS VS CIT 76 DTK (KER) 372 H AS DECIDED THE ISSUE IN THE FAVOUR OF THE DEPARTMENT AFTER CONSIDERING THE DEC ISION OF HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD (199 ITR 43) .' MUMBAI EDUCATION TRUST 2 3. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION CLAI M OF THE ASSESSEE BY RELYING UPON THE JUDGMENT OF HON'BLE BOMBAY HIGH CO URT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION, IGNORING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE SAID DECISION OF THE J URISDICTIONAL HIGH COURT ON MERIT OF THE CASE, BUT DUE TO SMALLNESS OF TAX EFFECT APPEAL WAS NOT FILED BEFORE HON'BLE SUPREME COURT. ALSO, THE ID CIT (A) ERRED IN RELYING UPON THE JUDGMENT OF HON'BLE HIGH COURT IN THE CASE OF CIT V S. SHRI VILE-PARLE KELVANI MANDAL, WITHOUT APPRECIATING THE FACT THAT DEPART MENT HAS NOT ACCEPTED THE DECISION ON MERIT AND FILED SLP, BUT SUBSE QUENTLY WITHDRAWN THE SAME AS THERE WAS NO CLAIM OF DEPRECIATION ON EXE MPTED ASSETS. MOREOVER, THE REVENUE HAS FILED SLPS ON THIS ISSUE IN OTHER CASES INCLUSIVE THE CASE OF G.D. BIRLA MEDICAL RESEARCH & EDUCATIONA L FOUNDATION (S.L.P.(C) NO. 24904 OF 2016(C.A.NO.8294 OF 2016) AND IN THIS C ASE LEAVE HAS BEEN GRANTED BY THE HON'BLE APEX COURT AND IN ALL CASES I SSUE IS PENDING FOR ADJUDICATION BEFORE THE HON'BLE APEX COURT.. 4. 'THE APPELLANT PRAYS THAT THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS)-7, MUMBAI BE SET ASIDE AND THAT OF THE ASSES SING OFFICER BE RESTORED. 3. THE ASSESSEE IN THIS CASE IS A TRUST. THE ONLY I SSUE ARISING OUT OF THE ABOVE GROUNDS OF APPEAL RELATES TO DISALLOWANCE OF DEPRECIATION. 4. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. IT TRANSPIRES THAT THE ISSUE IS COVERED BY THE DECISION OF HON'BL E JURISDICTIONAL HIGH COURT DIRECT DECISION AND HON'BLE SUPREME COURT DECISION IN ASSESSEES OWN CASE. IN THIS REGARD WE MAY GAINFULLY REFER TO HON'BLE APEX COURT DECISION IN THE CASE OF CIT VS. RAJASTHAN & GUJARATI CHARITABLE FOUNDATION POONA (CIVIL APPEAL NO. 7186 OF 2014 VIDE ORDER DATED 13.12.2017). IN THIS CASE HON'BLE BOMBAY HIGH COURT DECISION IN ASSESSEES OWN CASE WAS ALSO CONS IDERED. THESE ARE THE PETITIONS AND APPEALS FILED BY THE INCO ME TAX DEPARTMENT AGAINST THE ORDERS PASSED BY VARIOUS HIGH COURTS GRAN TING 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 WHIC H WE ARE CONCERNED AND IN WHICH YEAR THE DEPRECIATION WAS CLAIMED, THE ENTIRE EXPENDITURE INCURRED 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 UNDER SECTION 32 OF THE ACT WAS THAT ONCE THE CAPITAL EXPENDITURE IS TRE ATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES, THE ASSESSEES HAD VIRTUALLY MUMBAI EDUCATION TRUST 3 ENJOYED A 100 PER CENT WRITE OFF OF THE COST OF ASSE TS 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 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 JUDGM ENT OF THE BOMBAY HIGH COURT IN ' COMMISSIONER OF INCOME TAX V. INSTITUTE OF BANKING P ERSONNEL SELECTION (IBPS )' [(2003) 131 TAXMAN 386 (BOMBAY)]. IN THE SAID JUD GMENT, THE CONTENTION OF THE DEPARTMENT PREDICATED ON DOUBLE BENEFIT 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 O F INCOME UNDER SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JAIN 1994 TAX LAW REPORTER, 1084 THE FACTS WERE AS FOLLO WS. THE ASSESSEE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRUST. IT WAS ALSO REGISTERED WITH THE COMMI SSIONER OF INCOME TAX, PUNE. THE ASSESSEE DERIVED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1977-78, 1978-79 AN D 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE BU ILDING @ 2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITURE @ 5%. TH E QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS : WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSEE, AS EXPENDITURE ON AC QUISITION 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 COMP UTATION OF INCOME OF THE TRUST FROM THE PROPERTY HELD FOR CHARI TABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND AC CUMULATION 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 ASSESSE E AND USED FOR BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34 . IN THAT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE P RESENT CASE, WAS ADVANCED ON BEHALF OF THE REVENUE, NAMELY, THAT DE PRECIATION 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 ASSESSE E 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 WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIVED FROM BUILDING, PLANT AND MACHINERY AND FURNI TURE WAS LIABLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RES PECT WHEREOF MUMBAI EDUCATION TRUST 4 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 REQU IRED 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 AFORESTATED JUDGMENT OF THE BOMBAY HIGH CURT, WE ANSWER QUESTION NO. 1 IN THE AF FIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUESTION W HICH WAS RAISED BEFORE THE BOMBAY HIGH COURT IN THE CASE 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 ASSE SSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE I NCOME 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 APPEA L BEFORE THE ASSISTANT APPELLATE COMMISSIONER. THE APPEAL WAS REJE CTED. THE TRIBUNAL, HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATE D THAT FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITIO N OF THE ASSETS, WHAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRIN G THOSE ASSETS HAD BEEN TREATED AS 'APPLICATION OF INCOME' O F 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 S UBSEQUENT YEARS, DEPRECIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUNT. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRM ED 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 J UDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED IN THE AFFI RMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE AR E OF THE OPINION THAT THE AFORESAID VIEW TAKEN BY THE BOMBAY HIGH COURT CORREC TLY 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 HAVE TA KEN 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. COMMISSIONER OF INCOM E TAX '. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LEGISLATUR E, 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 201 5-2016. THE DELHI HIGH COURT HAS TAKEN THE VIEW AND RIGHTLY SO, THAT THE SAID AMENDMENT IS PROSPECTIVE IN NATURE. MUMBAI EDUCATION TRUST 5 IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPRECI ATION, 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. 5. THUS FINDING THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY HON'BLE BOMBAY HIGH COURT AND HON'BLE SUPREME COURT IN ASSE SSEES OWN CASE, WE UPHOLD THE ORDER OF LEARNED CIT(A). 6. IN THE RESULT, THIS APPEAL, FILED BY THE REVENUE STAND DISMISSED. ORDER PRONOUNCED UNDER RULE 34(4) OF THE ITAT RULE S ON 19.10.2020. SD/- SD/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 19/10/2020 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. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI