ITO (EXEMPTION)-2(3) MUMBAI, MUMBAI V. SAYAJI-U-BA KHIN MEMORIAL TRUST, MUMBAI

ITA 5883/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9762 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 04-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJNIKANT CHEMIYARI
• Assessee Lawyers: RAJAT MITTAL
• Keywords: Capital asset; Depreciation; Charitable institution; Question of law; Tax effect; Capital expenditure
• Section: 143(3); 12A; 11

Judgement Text

1 ITA 5883/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5883/MUM/2016 (ASSESSMENT YEAR: 2010-11) ITO-(E) 2(3), MUMBAI VS SAYAJI-U-BA KHIN MEMORIAL TRUST 2 ND FLOOR, GREEN HOUSE, GREEN STREET, FORT, MUMBAI 400 023 PAN : AAATT0114E APPELLANT BY SHRI RAJAT MITTAL REVENUE BY SHRI RAJNIKANT CHEMIYARI DATE OF HEARING 13-03-2018 DATE OF PRONOUNCEMENT 21-03-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-1, MUMBAI DATED 14-07-2016 AND IT PERTAINS T O AY 2010-11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. 'WHETHER ON THE FACTS OF THE CASE AND IN LAW THE ID.CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSES ON ACCOUNT OF DISALLOWING DEPRECIATION ON FIXED ASSETS OF RS. 84,81,13,61- IN CONTRAVENTION OF THE DECISION OF ESCORTS LTD. VS. U OI 199 1TR 43 WHEREIN IT WAS HELD THAT SINCE SECTION 11 OF THE INCOME TAX ACT PROVIDES FOR DEDUCTION CAPITAL EXPENDITURE INCURRED ON ASSETS ACQUIRED FOR THE OBJECTS OF THE TRUST AS APP LICATION AND DOES NOT SPECIFICALLY & EXPRESSLY PROVIDE FOR DOUBLE DEDUCTION ON ACCOUNT O F DEPRECIATION ON THE SAME VERY ASSETS ACQUIRED FROM SUCH CAPITAL EXPENDITURE, NO DEDUCTIO N 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 CIRCUMSTANCE S OF THE CASE AND IN LAW THE IDCIT(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 THE FAVOUR OF THE DEPARTME NT AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD (199 ITR 4 3). 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW THE ID CIT(A) ERRED IN RELYING UPON THE JUDGMENT OF HON'BLE HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION WITHOUT APPRECIATING THE FACT T HAT DEPARTMENT HAS NOT ACCEPTED THE DECISION ON MERIT, BUT DUE TO SMALLNESS OF TAX EFFE CT APPEAL WAS NOT FILED BEFORE HON'BLE 2 ITA 5883/MUM/2016 SUPREME COURT. HOWEVER, THE ISSUE IS PENDING FOR AD JUDICATION BEFORE HON'BLE SUPREME COURT IN OTHER CASES. 4. WHETHER ON THE FACTS OF THE CASE AND IN LAW T HE LD.CIT(A) ERRED IN ALLOWING THE ACCUMULATION OR SETTING APART OF 15% OF INCOME OF R S. 56,37,4627- AS THE ASSESSEE HAS EXPENDED THE ENTIRE INCOME TOWARD OBJECT OF THE TRU ST AS APPLICATION OF INCOME AND THERE IS NO SURPLUS LEFT TO BE ACCUMULATED. HOWEVER, IN ASSESSE E'S OWN CASE THE QUESTION OF LAW ON THIS ISSUE HAS BEEN ADMITTED BY HON'BLE BOMBAY HIGH COUR T VIDE ORDER, ITA NO. 2422 OF 2013 DATED 26TH APRIL 2026, FOR A. Y. 2007-08. 5. WHETHER ON THE FACTS OF THE CASE AND IN LAW T HE ID.CIT(A) ERRED IN ALLOWING THE CARRY FORWARD OF DEFICIT OF RS. 1,52,81,656/- AND ALLOWIN G SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEARS, - 6. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR CAR RY FORWARD OF THE SAID DEFICIT, IGNORING THE FACT THAT THERE WAS NO EXPRESS PROVISION IN THE I T ACT, 1961 PERMITTING ALLOWANCE OF SUCH CLAIM.' 7. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR CAR RY FORWARD OF THE SAID DEFICIT BY RELYING UPON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN T HE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION, IGNORING THE FACT THAT THE DEP ARTMENT HAS NOT ACCEPTED THE SAID DECISION OF THE JURISDICTIONAL HIGH COURT ON MERIT OF THE CA SE , BUT DUE TO SMALLNESS OF TAX EFFECT APPEAL WAS NOT FILED BEFORE HON'BLE SUPREME COURT. HOWEVER , ON THIS ISSUE THE DEPARTMENT HAS FILED SLP BEFORE THE APEX COURT IN THE CASE OF MIDQSPL (C IVIL) 9891 OF 2024) AND THE MATTER IS PENDING BEFORE THE HON'BLE SUPREME COURT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A TRUST REGISTERED U/S 12A OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 19-08-2011 DECLARING DEFICIT OF RS.1,5 2,81,656. THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) ON 28-02-2 013, DETERMINING TOTAL INCOME AT NIL, WHEREIN THE AO HAS DENIED THE BENEFIT OF DEPRECIATION CLAIMED ON FIXED ASSETS ON THE GROUND THAT WHEN ENTIRE AMOUNT OF CAPITAL ASSET HAS BEEN CLAIMED AS APPLICA TION OF INCOME U/S 11(1), CLAIMING FURTHER DEPRECIATION ON SUCH FIXED ASSETS AMOUNTS TO DOUBLE DEDUCTION BY RELYING UPON THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF ESCORTS LTD VS UOI 199 ITR 43 (SC). THE AO ALSO REJECTED THE CLAIM OF ASSESSEE TOWARDS CLAIM OF CAR RY FORWARD OF EXCESS APPLICATION OF INCOME OF RS.1,52,81,656 BY HOLDING THAT THERE IS NO PROVISION FOR CARRY FORWARD OF EXCESS APPLICATION A S LOSS OR DEFICIT U/S 11 3 ITA 5883/MUM/2016 TO THE SUBSEQUENT YEARS. THE AO ALSO REJECTED THE CLAIM OF THE ASSESSEES ACCUMULATION OF INCOME TO THE EXTENT OF 15% OF GROSS RECEIPTS U/S 11(1) (A) OF THE INCOME-TAX ACT, 1961. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS. THE ASSESSEE ALSO RELIED UPON THE DECISION OF ITAT, IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2007- 08, WHEREIN THE ITAT HAS ALLOWED THE CLAIM OF DEPRECIATION, CARRIED FORWARD OF EXCESS APPLICATION OF INCOME U/S 11(1) AND ACCUMULATION OF INCOME TO THE EXTENT OF 15% U/S 11(1)(A) OF THE ACT. THE CIT(A), BY FOL LOWING ITATS DECISION IN ASSESSEES OWN CASE ALLOWED APPEAL FILED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS IN APP EAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DEPRECIATION CLAIMED ON FIXED ASSETS. THE LD.AR FOR THE ASSESSE E SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2007-08 IN ITA N O.5646/MUM/2011, WHEREIN THE ITAT HAS ALLOWED DEPRECIATION. ON THE OTHER HAND, THE LD.DR STRONGLY RELIED UPON THE ORDER OF THE AO. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH OF ITAT , MUMBAI BENCH E IN ITA NO.5646/MUM/2011 FOR AY 2007-08 HAS CONSIDER ED A SIMILAR ISSUE IN THE LIGHT OF DECISION OF HONBLE SUPREME C OURT IN THE CASE OF 4 ITA 5883/MUM/2016 ESCORTS LTD VS UOI AND BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INSTITUTE OF BANKI NG PERSONNEL SELECTION 264 ITR 110 (BOM) ALLOWED DEPRECIATION CLAIMED ON F IXED ASSETS. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW:- 4. WE HAVE CONSIDERED SUBMISSIONS OF LD.REPRESENT ATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE OBSERV E THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT( A) ON THIS ISSUE AS THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUT ED U/S 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOM E OF THE TRUST. LD CIT(A) HAS RIGHTLY OBSERVED THAT THE REL IANCE PLACED BY THE DEPARTMENT IN THE CASE OF ESCORTS LTD (SUPRA) I S NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IT IS ALSO OBSERVED THAT A COORDINATE BENCH OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 BY FOLLOWING T HE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION (SUPRA) AL LOWED THE CLAIM OF DEPRECIATION, WHICH IS FOLLOWED BY LD CIT( A) IN THE IMPUGNED ORDER. HENCE, WE UPHOLD HIS ORDER AND REJ ECT GROUND NO.1 OF APPEAL TAKEN BY DEPARTMENT. 6. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH T HE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW TH AT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON FIXED ASSETS EVEN THOU GH ENTIRE COST OF SUCH FIXED ASSETS HAS BEEN CLAIMED AS APPLICATION OF INC OME U/S 11 OF THE INCOME-TAX ACT, 1961. THE LD.CIT(A), AFTER CONSIDE RING RELEVANT FACTS HAS RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A). HENCE, WE A RE INCLINED TO UPHOLD THE FINDINGS OF THE CIT(A) AND REJECT GROUND RAISED BY THE REVENUE. 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS ACCUMULATION 5 ITA 5883/MUM/2016 OF INCOME U/S 11(1)(A) OF THE INCOME-TAX ACT, 1961. THE AO REJECTED ACCUMULATION OF INCOME U/S 11(1)(A) ON THE GROUND T HAT WHEN THERE IS NO SURPLUS AVAILABLE FOR ACCUMULATION OF INCOME, THERE IS NO PROVISION UNDER THE ACT TO ACCUMULATE 15% OF GROSS RECEIPTS FOR FUT URE YEARS. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARE LY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BEN CH IN ITS OWN CASE FOR AY 2007-08. WE FIND THAT THE CO-ORDINATE BENCH OF ITAT IN ASSESSEES OWN CASE FOR AY 2007-08 IN ITA NO.5646/M UM/2011 HAS ALLOWED THE CLAIM OF THE ASSESSEE TOWARDS ACCUMULAT ION OF 15% INCOME U/S 11(1)(A) OF THE ACT. THE RELEVANT PORTION OF T HE ORDER IS EXTRACTED BELOW:- 7. WE OBSERVE THAT LD CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE, INTER ALIA, OBSERVING AS UNDER: 6.3 I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE APPELLANTS A/R SUBMISSION. I HAVE ALSO CAREFULLY OBSERVED THE FINDINGS OF THE HONBLE SUPREME COURT IN THE CASE OF PROGRAMME FOR COMMUNITY ORGANIZATION REPORTED IN 24 8 ITR I, WHEREIN THE HONBLE SUPREME COURT, WHILE DELIVERING THE SAID JUDGEMENT HAS STATED THAT HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE PROVISIONS, IT IS C LEAR THAT A CHARITABLE OR RELIGIOUS TRUST IS ENTITLED TO ACCUMULATE TWENTY FIVE PERCENT. THUS, T AKING NOTE OF ALL THESE FACTS, I FIND MERITS IN THE ARGUMENTS OF THE APPELLANT. BESIDES T HIS, I ALSO GET STRONG OPINED FROM THE RECENT JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. TRUSTEES OF BHAT FAMILY RESEARCH FOUNDATION, WHEREIN THE HONB!E BOM BAY BOMBAY HIGH COURT STATES THAT IT IS CLEAR FROM CLAUSE (A) OF SUB-SECTION (1 ) OF SECTION 11 THAT INCOME DERIVED FROM PROPER HELD UNDER TRUST WHOLLY FOR CHARITABLE PURPO SES OR RELIGIOUS PURPOSES SHALL NOT BE INCLUDED IN THE TOTAL INCOME TO THE EXTENT TO WHICH IT IS APPLIED FOR SUCH PURPOSES IN INDIA AND, WHERE IT IS ACCUMULATED FOR SUCH APPLICA TION, TO THE EXTENT THAT THE ACCUMULATION IS NOT IN EXCESS OF 25% OF THE INCOME OF RS. 10, 000/-, WHICHEVER IS HIGHER. THE EXEMPTION OF ACCUMULATED INCOME TO THE EXTENT O F 25% OR RS. 10,000/-, WHICHEVER IS HIGHER, IS UNQUALIFIED AND UNCONDITIONAL.. FURT HER TO THAT, I ALSO PLACE RELIANCE TO THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF ADDL. CIT VS. A. I N. RAO CHARITABLE TRUST (1995) 129 CTR 205, WHEREIN IT IS HELD THAT E XEMPTION AVAILABLE U/S 11(1)(A) I.E. 15% OF INCOME IS UNFETTERED AND NOT SUBJECT TO ANY CONDITIONS. 6 ITA 5883/MUM/2016 6.4 CONSIDERING ALL THE ABOVE FACTUAL POSITION AS W ELL AS THE CASE LAWS REFERRED AS ABOVE, I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT T HE A.O. WAS ROT JUSTIFIED IN DENYING THE CLAIM OF THE APPELLANT FOR THE ACCUMULATION OF INCO ME. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 8 WE OBSERVE THAT LD CIT(A) HAS RELIED ON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF A.I.N. RAO CHARITABLE TRUST (SUPRA), WHEREI N , IT IS HELD THAT EXEMPTION AVAILABLE U/S.11(1)(A) I.E. 15% OF INCOME IS UNFETTERED AND N OT SUBJECT TO ANY CONDITIONS. IN THE CASE BEFORE US, ASSESSEE HAS CLAIMED 15% ACCUMULATI ON U/S.11(1)(A) OF THE ACT. HENCE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF LD CIT(A) AND REJECT GROUND OF APPEAL TAKEN BY DEPARTMENT. 8. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH T HE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE VIEW THAT THE ASSE SSEE IS ELIGIBLE FOR ACCUMULATION OF INCOME TO THE EXTENT OF 15% OF GROS S RECEIPTS U/S 11(1)(A) OF THE ACT. THE CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY ALLOWED THE CLAIM. WE DO NOT FIND ANY ERRO R IN THE ORDER OF THE CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDI NGS OF CIT(A) AND REJECT GROUND RAISED BY THE REVENUE. 9. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS CARRY FORWARD OF EXCESS APPLICATION OF INCOME. THE LD.AR FOR THE AS SESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, IN ITS OWN CASE FOR AY 2007-08, WHEREIN THE I TAT HAS HELD THAT THE ASSESSEE CAN CLAIM CARRY FORWARD OF EXCESS APPLICAT ION OF INCOME TO SUBSEQUENT YEARS. WE FIND THAT THE CO-ORDINATE BEN CH OF ITAT, IN ASSESSEES OWN CASE IN ITA NO.5646/MUM/2011 FOR AY 2007-08 HAS ALLOWED THE CLAIM OF CARRY FORWARD OF EXCESS APPLIC ATION OF INCOME TO SUBSEQUENT YEARS. THE RELEVANT PORTION OF THE ORDE R IS EXTRACTED BELOW:- 9. IN REGARD TO GROUND NO.3 OF APPEAL, WE HEARD LD . 7 ITA 5883/MUM/2016 REPRESENTATIVES OF PARTIES AND PERUSED ORDERS OF AU THORITIES BELOW. WE OBSERVE THAT LD CIT(A) BY ALLOWING THE C LAIM OF THE ASSESSEE HAS RELIED ON THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS INSTITUTE OF BANKING PE RSONNEL SELECTION (SUPRA), WHEREIN IT HAS BEEN STATED THAT INCOME DERIVED FROM THE TRUST PROPERTY HAS TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED, THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST F OR CHARITABLE PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME E ARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARD ED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE P URPOSES IN SUBSEQUENT YEAR IN WHICH SUCH ADJUSTMENT HAS BEEN M ADE. HENCE, THERE IS NO REASON TO INTERFERE WITH THE ORD ER OF THE LD.CIT(A). ACCORDINGLY, WE UPHOLD THE SAME BY REJE CTING GROUND NO.3 OF APPEAL TAKEN BY REVENUE. 10. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE AO TO ALLOW CARRY FORWARD OF EXCESS APPLICATION OF INCOME U/S 11 OF THE INCOME-TAX ACT, 1961. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 21 ST MARCH, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI