M/s Krupanidhi Education Trust, Bangalore V. DIT, Bangalore

ITA 495/BANG/2014

• Counselvise Citation: 49521114 RSA 2014
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition; Assessment record; Capital expenditure
• Section: 143(3); 32; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.495/BANG/2014 ASSESSMENT YEAR : 2009-10 M/S. KRUPANIDHI EDUCATION TRUST, CHIKKABELANDUR, CARMELRAM POST, VARTHUR HOBLI, OFF. SARJAPUR ROAD, BANGALORE 560 034. PAN: AAATK 1211R VS. THE DIRECTOR OF INCOME TAX (EXEMPTION), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, C.A. REVENUE BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) DATE OF HEARING : 05.02.2015 DATE OF PRONOUNCEMENT : 20.02.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 12.3.2014 OF DIT(EXEMPTIONS), BANGALORE PASSED U/S. 263 OF THE A CT. 2. THE ASSESSEE IS A TRUST RUNNING VARIOUS EDUCATIO NAL INSTITUTIONS. ASSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED BY THE AO FOR THE A.Y. 2009-10 BY AN ORDER DATED 30.12.2011. THE DIT(E), ON PERUSAL OF THE ITA NO.495/BANG/2014 PAGE 2 OF 8 ASSESSMENT RECORDS WAS OF THE VIEW THAT THE ORDER O F ASSESSMENT DATED 30.12.11 WAS ERRONEOUS AND PREJUDICIAL TO THE INTER ESTS OF REVENUE. THE DIT(E) NOTICED THAT THE AO COMPLETED THE ASSESSMEN T DENYING THE EXEMPTION OF CAPITAL EXPENDITURE CLAIMED U/S.11(1)( A) OF THE ACT AS APPLICATION OF INCOME OF THE TRUST, SINCE THE REGIS TRATION U/S.12A OF THE ACT HAD BEEN CANCELLED BY THE DIT(E). HE FURTHER NOTIC ED FROM THE DETAILS OF DEPRECIATION CLAIMED, THAT THE DEPRECIATION WAS CLA IMED ON THE OPENING WDV WHICH IS INCLUSIVE OF ASSETS ACQUIRED DURING EA RLIER YEARS, WHEREIN THE EXPENDITURE TOWARDS ACQUISITION OF THE SAID ASSETS HAS ALREADY BEEN CLAIMED BY THE ASSESSEE AS CAPITAL EXPENDITURE TOWA RDS APPLICATION OF FUNDS TOWARDS THE OBJECTS OF THE TRUST AND ALLOWED AS SUCH IN EARLIER YEARS. ACCORDING TO THE DIT(E), DOING SO AMOUNTED TO ALLOW ING DOUBLE DEDUCTION. ON THE FACTS OF THE PRESENT CASE, HE WAS OF THE VIE W THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE 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 RESEARCH, NO DEPR ECIATION IS ALLOWABLE U/S 32 ON THE SAME ASSET. 3. ACCORDINGLY, A SHOW CAUSE NOTICE U/S. 263 OF TH E ACT WAS ISSUED BY THE DIT(E). 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 ITA NO.495/BANG/2014 PAGE 3 OF 8 THAT WHERE CAPITAL EXPENDITURE ON ACQUISITION OF DE PRECIABLE ASSET IS CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE, ALLOWING DEPRECIATION ON THE VERY SAME CAPITAL ASSET WOULD N OT 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 DIFF ERENT SET OF FACTS. 4. THE DIT(E), HOWEVER, HELD THAT ALLOWANCE OF DEP RECIATION 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. IN COMING TO THE AFORESAID CONCLUSION, THE CIT REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN P.K. BADIANI V. CIT, (1976) 105 ITR 642 (SC) WHEREIN IT WAS OBSERVED THAT ALLOWANCE OF DEPRECIA TION IS TO REPLACE THE VALUE OF AN ASSET TO THE EXTENT IT I S DEPRECIATED DURING THE PERIOD OF ACCOUNT RELEVANT TO ASSESSMENT YEAR AND A S THE VALUE TO THAT EXTENT HAD BEEN LOST, THE CORRESPONDING ALLOWANCE O F DEPRECIATION TAKES PLACE. HE ALSO REFERRED TO THE DECISION IN MYSORE MINERALS LTD. V. CIT, (1999) 239 ITR 775 WHEREIN IT WAS OBSERVED THAT THE CONCEPT OF DEPRECIATION SUGGESTS THAT TAX BENEFIT ON ACCOUNT O F DEPRECIATION LEGITIMATELY BELONGS TO ONE WHO HAS INVESTED IN THE CAPITAL ASSET IN UTILISING THE CAPITAL ASSET AND THEREBY LOSING GRADUALLY INVE STMENT COST BY WEAR AND TEAR AND NEED TO REPLACE THE SAME BY HAVING LOST IT S VALUE FULLY OVER A PERIOD OF TIME. THE DIT(E), CONCLUDED AS FOLLOWS:- ITA NO.495/BANG/2014 PAGE 4 OF 8 6.5 THUS, AS OBSERVED BY DIFFERENT COURTS, DEPREC IATION IS ONLY DIMINUTION IN THE VALUE OF AN ASSET. THERE IS NO AC TUAL EXPENDITURE ON ACCOUNT OF DEPRECIATION BUT IT IS THE ACTUAL AMO UNT AVAILABLE FOR THE ASSESSEE TO INVEST IN THE NEW ASSET / MACHI NERY ONCE THE VALUE OF THE OLD ASSET / MACHINERY HAS FULLY BEEN R EDUCED TO NIL. THEREFORE, BY CLAIMING DEPRECIATION, THE ASSESSEE W ILL HAVE PHYSICAL CASH IN HIS HAND WHICH HAS TO BE USED BY H IM FOR PURCHASE OF A NEW ASSET IN PLACE OF THE OLD. HENCE, IT CANNOT BE CLAIMED BY THE ASSESSEE AS AN EXPENDITURE DURING TH E TENURE OF THE ASSET AS WELL AS APPLICATION OF INCOME OF THE TRUST WHILE PURCHASING THE NEW MACHINERY IN PLACE OF THE EXISTI NG, WHICH OTHERWISE AMOUNTS TO DOUBLE DEDUCTION / EXEMPTION. 5. THE DIT(E) ALSO PLACED RELIANCE ON THE DECISION OF HON'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 D EPRECIABLE ASSET WAS ALLOWED AS APPLICATION OF INCOME FOR CHARITABLE PUR POSE AMOUNTS TO DOUBLE DEPRECIATION AND THEREFORE DEPRECIATION CANNOT BE A LLOWED. THE DIT LISTED OUT THE DETAILS OF APPLICATION OF INCOME AND CLAIM OF DEPRECIATION IN A CHART IN PARA 11 OF HIS ORDER WHICH READS THUS:- ASST. YEAR INCOME BEFORE APPLICATION COST OF CAPITAL ASSETS DURING THE YEAR CLAIMED AS APPLICATION OF INCOME DEPRECIATION CLAIMED ON COST OF CAPITAL ASSETS (1) (2) (3) (4) 2006-07 12,11,79,731 5,67,99,662 9,21,576 2007-08 12,41,08,027 25,99,22,313 33,87,452 2008-09 14,53,81,247 9,14,39,711 11,79,089 2009-10 17,27,36,619 2,46,47,797 30,60,985 ITA NO.495/BANG/2014 PAGE 5 OF 8 6. THE DIT(E) FINALLY CONCLUDED THAT ORDER OF AO WA S ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND ACCORDI NGLY SET ASIDE THE ASSESSMENT WITH A DIRECTION TO REWORK THE DEPRECIAT ION ALLOWABLE ON THE WDV OF ASSETS, AFTER TAKING INTO ACCOUNT THE COST O F ASSETS WHICH HAS ALREADY BEEN ALLOWED AS APPLICATION OF INCOME IN TH E PREVIOUS YEARS AND NO DEPRECIATION SHOULD BE ALLOWED ON SUCH ASSETS. 7. AGGRIEVED BY THE ORDER OF DIT(E), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WHO RELIED ON THE ORDER OF CIT. THE LD. COUNSEL FOR THE ASSESSEE REL IED ON THE DECISION OF ITAT BANGALORE BENCH IN THE CASE OF DDIT(E) V. CUTCHI MEMON UNION (2013) 60 SOT 260 BANGALORE ITAT , WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL. 9. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE OF CUTCHI MEMON UNION (SUPRA) . IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPRECIATION AND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE RELEVANT CAPITAL ASSET, COST OF AC QUISITION WAS CONSIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISI TION. THE AO TOOK THE VIEW THAT ALLOWING DEPRECIATION WOULD AMOUNT TO ALL OWING DOUBLE DEDUCTION ITA NO.495/BANG/2014 PAGE 6 OF 8 AND PLACED RELIANCE ON THE DECISION OF HON'BLE SUPR EME COURT IN ESCORTS LTD. (SUPRA) . THE CIT(A), HOWEVER, ALLOWED THE CLAIM OF ASSES SEE. ON FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL HELD AS FOLLOWS:- 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF D EPRECIATION 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). I T WAS HELD IN CIT VS. TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 21 (P&H) , FOLLOWING CIT VS. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 THAT DEPRECIATION CAN BE CLAIMED BY A CHARITABLE INSTITUTION IN DETERMINING PERCENTA GE OF FUNDS APPLIED FOR THE PURPOSE OF CHARITABLE OBJECTS. CLAI M FOR DEPRECIATION WILL NOT AMOUNT TO DOUBLE BENEFIT. TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUISHED BY THE HON BLE 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 SEVERAL DECISI ONS ON THAT ISSUE AND ALSO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) , CAME TO THE CONCLUSION THAT DEPRECIATION IS ALLOWABLE ON CAPITAL ASSETS ON THE INCOME OF THE CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUN DS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF TRUSTS IN TERMS OF SECTION 11 OF THE ACT. THE HONBLE PUNJAB & HARYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF ESCORTS LTD. (SUPRA) AND OBSERVED THAT THE HONBLE SUPREME COURT WAS DEALING WITH A CASE OF TWO DEDUCT IONS UNDER ITA NO.495/BANG/2014 PAGE 7 OF 8 DIFFERENT PROVISIONS OF THE ACT, ONE U/S. 32 FOR DE PRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITURE OF A CAPITAL NA TURE INCURRED ON SCIENTIFIC RESEARCH U/S. 35(1)(IV) OF THE ACT. THE HONBLE COURT THEREAFTER HELD THAT A TRUST CLAIMING DEPRECI ATION CANNOT BE EQUATED WITH A CLAIM FOR DOUBLE DEDUCTION. THE HON BLE PUNJAB & HARYANA HIGH COURT HAS ALSO MADE A REFERENCE TO T HE DECISION OF THE HON'BLE KARNATAKA 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, INCOME HAS TO BE COMPUTED IN NORM AL COMMERCIAL MANNER AND THE AMOUNT OF DEPRECIATION DE BITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INCOME. I N VIEW OF THE AFORESAID DECISION 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 . 10. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SI NCE 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. 11. AS ALREADY STATED, THE AFORESAID AMENDMENT IS P ROSPECTIVE AND WILL APPLY ONLY FROM A.Y. 2015-16. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF THE VIEW THAT JURISDICTION U/S. 263 OF THE ACT OUGH T NOT TO HAVE BEEN ITA NO.495/BANG/2014 PAGE 8 OF 8 EXERCISED BY THE DIT(E). WE MAY ALSO ADD THAT TWO VIEWS ARE POSSIBLE ON THE ISSUE AND EVEN ON THIS BASIS, INVOKING JURISDIC TION U/S. 263 OF THE ACT IS NOT PERMISSIBLE. WE THEREFORE QUASH THE ORDER U/S. 263 AND ALLOW THE APPEAL OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF FEBRUARY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 20 TH FEBRUARY, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.