ITO (E) 2(3), MUMBAI V. SHREE MANAV SEVA SANGH, MUMBAI

ITA 5551/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4550 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 01-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORA SRDR
• Assessee Lawyers: DINESH SHAH; SHREYA DOSHI ARS
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure; Set aside
• Section: 12A; 201; 264; 32; 28; 11

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL G BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 5551/MUM/2017 (ASSESSMENT YEAR 2012-13 ) INCOME TAX OFFICER (E)-2(3), ROOM NO.513, 5 TH FLOOR, PIRAMAL CHAMBERS, LALBAUG, LOWER PAREL, MUMBAI-400022 VS. M/S SHREE MANAV SEVA SANGH 255/257, SION MAIN ROAD, SOIN (WEST), MUMBAI 400022 PAN: AAATS 1440Q APPELLANT RESPONDE NT CO NO. 15/MUM/2019 IN ITA NO. 5551/MUM/20178 (A Y 2 012-13 ) M/S SHREE MANAV SEVA SANGH 255/257, SION MAIN ROAD, SOIN (WEST), MUMBAI 400022 PAN: AAATS 1440Q VS. INCOME TAX OFFICER (E)-2(3), ROOM NO.513, 5 TH FLOOR, PIRAMAL CHAMBERS, LALBAUG, LOWER PAREL, MUMBAI-400022 APPELLANT RESPONDE NT ASSESSEE BY : SH. DINESH SHAH & SHREYA DOSHI (ARS) REVENUE BY : SH. SATISH CHANDRA RAJORA (SR-DR) DATE OF HEARING : 14.03.2019 DATE OF PRONOUNCEMEN T : 20.03.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE AND CROSS OBJECTION THEREIN ARE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-5 4, HEREINAFTER REFERRED AS LD. CIT (A), MUMBAI, ALL DATED 16.06.2017 FOR AS SESSMENT YEAR 2012-13. THOUGH, THE REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEALS, HOWEVER, ITA NO. 5551/M/2017& CO NO. 15/M/2019 SHREE MANAV SEVA SANGH 2 DURING THE HEARING OF THE APPEAL THE LD REPRESENTAT IVES OF THE PARTIES AGREED THAT SUBSTANTIAL GROUNDS OF APPEAL RELATES TO DISAL LOWANCES OF THE DEPRICIATION OF FIXED ASSET AND CARRY FORWARD OF DEFICIT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS CH ARITABLE TRUST AND CLAIMED TO HAVE ENGAGED IN THE REHABILITATION AND WELFARE OF C HILDREN FROM WEAKER SECTION OF THE SOCIETY. THE ASSESSEE FILED ITS RET URN OF INCOME FOR AY 2012- 13 ON 04.09.2013 CLAIMING DEFICIT OF RS. 2.04 CRORE . THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WER E SERVED ON THE ASSESSEE. THE ASSESSEE CLAIMED EXEMPTION UNDER SECTION 11 OF THE ACT AND WAS ALLOWED. THE ASSESSMENT WAS COMPLETED ON 03.03.2015 UNDER SECTION 143(3). THE ASSESSING OFFICER WHILE PASSING THE ASS ESSMENT ORDER DISALLOWED THE DEPRICIATION ON FIXED ASSET OF RS. 67,08,751/- HOLDING IT AMOUNT TO DOUBLE DEDUCTION BEING CAPITAL EXPENDITURE AND ALSO DISALL OWED THE CLAIM OF CARRY FORWARD OF DEFICIT OF RS. 2.04 CRORE. ON APPEAL BEF ORE LD. CIT(A), BOTH THE ACTION OF THE ASSESSING OFFICER WERE REVERSED. THE LD CIT(A) GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF HONBLE B OMBAY HIGH COURT IN CIT VS INSTITUTE OF BANKING PERSONNEL ( 264 ITR 110 ). BEING AGGRIEVED BY THE ORDER OF LD CIT(A) THE REVENUE HAS CHALLENGED T HE VALIDITY OF THE ORDER OF LD CIT(A) ON THE GROUND THAT THE DECISION OF HIGH C OURT IN CIT VS INSTITUTE OF BANKING PERSONNEL (SUPRA) IS NOT ACCEPTED BY THE REVENUE AND FILED ITA NO. 5551/M/2017& CO NO. 15/M/2019 SHREE MANAV SEVA SANGH 3 SPECIAL LEAVE PETITION (SLP) BEFORE HONBLE SUPREME COURT. THE ASSESSEE HAS FILED ITS CROSS OBJECTION IN SUPPORT OF THE ORD ER OF LD CIT(A). 3. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) F OR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OU TSET OF THE HEARING THE LD. AR FOR THE ASSESSEE SUBMITS THAT BOTH THE GROUNDS O F APPEAL RAISED BY THE REVENUE ARE COVERED IN FAVOUR OF ASSESSEE AND AGAIN ST THE REVENUE. THE LD AR SUBMITS THAT WHILE GRANTING RELIEF TO THE ASSESS EE THE LD CIT(A) FOLLOWED THE BINDING DECISION OF JURISDICTIONAL HIGH COURT I N CIT VS CIT VS INSTITUTE OF BANKING PERSONNEL (SUPRA). THE LD AR FOR THE AS SESSEE FURTHER SUBMITS THAT THE DECISION OF HIGH COURT IN CIT VS INSTITUTE OF BANKING PERSONNEL (SUPRA) HAS BEEN AFFIRMED BY HONBLE SUPREME COURT IN CIT VS RAJASTHAN AND GUJARAT CHARITABLE FOUNDATION POONA IN CA. NO. 7186/2014 DATED 13.12.2017. THE LD. AR FOR THE ASSESSEE FURNISHED T HE COPY OF DECISION OF HONBLE APEX COURT IN CIT VS RAJASTHAN AND GUJARAT CHARITABLE FOUNDATION POONA (SUPRA). 4. ON THE OTHER HAND THE LD DR FOR THE REVENUE AFTER GOING THROUGH THE DECISION OF CIT VS RAJASTHAN AND GUJARAT CHARITABL E FOUNDATION POONA (SUPRA) AGREED THAT BOTH THE SUBSTANTIAL GROUNDS OF APPEAL RAISED BY THE ITA NO. 5551/M/2017& CO NO. 15/M/2019 SHREE MANAV SEVA SANGH 4 REVENUE IS COVERED AGAINST THE REVENUE. THE LD. DR FOR THE REVENUE SUBMITS THAT HE RELY ON THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE HO NBLE APEX COURT IN CIT VS RAJASTHAN AND GUJARAT CHARITABLE FOUNDATION POON A (SUPRA) HELD THAT ONCE ASSESSEE IS ALLOWED DEPRECIATION, THE ASSESSEE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. FOR APPRECIATION OF FACTS THE ENTIRE ORDER PASSED BY HONBLE APEX COURT IS EXTRACTED BELOW: 1. THESE ARE THE PETITIONS AND APPEALS FILED BY THE I NCOME TAX DEPARTMENT AGAINST THE ORDERS PASSED BY VARIOUS HIGH COURTS GR ANTING BENEFIT OF DEPRECIATION ON THE ASSETS ACQUIRED BY THE RESPONDE NTS-ASSESSEES. IT IS A MATTER OF RECORD THAT ALL THE ASSESSEES ARE CHARITA BLE INSTITUTIONS REGISTERED UNDER SECTION 12A OF THE INCOME TAX ACT (HEREINAFTE R REFERRED TO AS 'ACT'). FOR THIS REASON, IN THE PREVIOUS YEAR TO THE YEAR W ITH WHICH WE ARE CONCERNED AND IN WHICH YEAR THE DEPRECIATION WAS CLAIMED, THE ENTIRE EXPENDITURE INCURRED FOR ACQUISITION OF CAPITAL ASSETS WAS TREA TED 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 DEPRECIATI ON WHICH WAS CLAIMED UNDER SECTION 32 OF THE ACT WAS THAT ONCE THE CAPIT AL EXPENDITURE IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES, T HE ASSESSEES HAD VIRTUALLY ENJOYED A 100 PER CENT WRITE OFF OF THE COST OF ASS ETS AND, THEREFORE, THE GRANT OF DEPRECIATION WOULD AMOUNT TO GIVING DOUBLE BENEF IT 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 A ND THE HIGH COURTS HAVE ACCEPTED THE DECISION OF THE ITAT THEREBY DISMISSIN G THE APPEALS OF THE ITA NO. 5551/M/2017& CO NO. 15/M/2019 SHREE MANAV SEVA SANGH 5 INCOME TAX DEPARTMENT. FROM THE JUDGMENTS OF THE HI GH 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 PERSONNEL SELECTION (IBPS)' [2003] 131 TAXMAN 386 . IN THE SAID JUDGMENT, THE CONTENTION OF THE DEPARTMENT PREDICATED ON DOUBLE BENEFIT WAS TURNED 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 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 SHALL 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 ALS O, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON BEHALF OF THE REV ENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTION ONLY UNDER SECTION 32 OF THE INCOME-TAX ACT AND NOT UNDER GENERAL PRINCIPLES. TH E COURT REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME O F THE ASSESSEE 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 32 OF THE INCOME-TAX ACT ITA NO. 5551/M/2017& CO NO. 15/M/2019 SHREE MANAV SEVA SANGH 6 WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITABLE TRUST DERIV ED FROM 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 MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME-TAX ACT PROVID ING FOR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROF ESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWA NCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOM E OF THE TRUST. IN VIEW OF THE AFORESATATED JUDGMENT OF THE BOMBAY HIGH COURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSE E 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] 109 CTR 463 . IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS THE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOME OF THE TRUST. THE ITO HELD THA T DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXPENDI TURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSISTANT APPELLATE COMMISSIONER. THE APPEAL WAS RE JECTED. THE TRIBUNAL, HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THA T FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSE TS, WHAT HE REALLY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING 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. THIS DID NOT MEAN THAT I N COMPUTING 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 JUDGMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED IN THE AFF IRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT.' 2. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE ARE OF THE OPINION THAT THE AFORESAID VIEW TAKEN BY THE BOMBAY HIGH COURT C ORRECTLY 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 H AVE TAKEN THE AFORESAID VIEW WITH ONLY EXCEPTION THERETO BY THE H IGH COURT OF KERALA ITA NO. 5551/M/2017& CO NO. 15/M/2019 SHREE MANAV SEVA SANGH 7 WHICH HAS TAKEN A CONTRARY VIEW IN ' LISSIE MEDICAL INSTITUTIONS V. CIT [2012] 24 TAXMANN.COM 9/209 TAXMAN 19 (MAG.)/348 ITR 344'. 4. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LE GISLATURE, REALISING THAT THERE WAS NO SPECIFIC PROVISION IN THIS BEHALF IN T HE 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. 5. IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPR ECIATION; HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. 6 . FOR THE AFORESAID REASONS, WE AFFIRM THE VIEW TAKE N BY THE HIGH COURTS IN THESE CASES AND DISMISS THESE MATTERS . 6. IN VIEW OF THE ABOVE DISCUSSIONS, THERE IS NO ERROR ON THE PART OF LD CIT(A) IN FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT VS BANKING PERSONNEL SELECTION (SUPRA). THE OBJECTION OF ASSE SSING OFFICER THAT THE REVENUE FILED SLP BEFORE SUPREME COURT IS PENDING IS OF NO CONSEQUENCE AS THE DECISION OF JURISDICTIONAL HIGH COURT IS BINDIN G TILL IT IS EITHER SET ASIDE OR ITS OPERATION IS STAYED EITHER BY LARGER BENCH O F HIGH COURT OR BY APEX COURT. IN OUR VIEW THE DECISION OF THE HONBLE BOMB AY HIGH COURT HAS BEEN APPROVED BY HONBLE APEX COURT IN CIT VS RAJASTHAN AND GUJARAT CHARITABLE FOUNDATION POONA (SUPRA). THEREFORE, WIT H THIS BACK GROUND, WE FIND NO REASON TO INTERFERE WITH THE FINDING OF LD CIT(A) ON BOTH THE SUBSTANTIAL GROUNDS OF APPEAL. ITA NO. 5551/M/2017& CO NO. 15/M/2019 SHREE MANAV SEVA SANGH 8 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DI SMISSED. 8. AS FAR AS THE CROSS- OBJECTION FILED BY THE ASSESSE E IS CONCERNED, THE SAME IS ONLY IN SUPPORT OF THE ORDER OF LD. CIT(A) AND NO I NDEPENDENT ISSUE OR RELIEF IS CLAIMED. SINCE, WE HAVE UPHELD THE ORDER OF THE LD CIT(A) BY DISMISSING THE APPEAL OF REVENUE, THE CROSS OBJECTION BECOMES INFRUCTUOUS AND IS DISMISSED. 9. IN THE RESULT, THE APPEALS OF THE REVENUE AS WELL A S CROSS-OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/03/2019. SD/- SD /- N.K. PRADHAN, PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 20.03.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI