DCIT, Udupi V. M/s Academy of General Education, Manipal

ITA 636/BANG/2014

• Counselvise Citation: 63621114 RSA 2014
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 12-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL KUMAR AGARWAL JT
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition; Capital expenditure
• Section: 143(3); 12A; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO. 636/BANG/2014 ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, UDUPI. VS. M/S. ACADEMY OF GENERAL EDUCATION, ACADEMY HOUSE, MANIPAL. PAN: AAATA 2976P APPELLANT RESPONDENT APPELLANT BY : SHRI SUNIL KUMAR AGARWAL, JT. CIT(DR) REVENUE BY : SMT. SHEETAL BORKAR, ADVOCATE DATE OF HEARING : 29.07.2015 DATE OF PRONOUNCEMENT : 07.08.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 14.03.2014 OF CIT(APPEALS), MYSORE RELATING TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE IS A CHARITABLE TRUST WITH OBJECTS TO PROVIDE EDUCATION BY RUNNING SEVERAL EDUCATIONAL INSTITUTIONS. IN TH E COURSE OF ASSESSMENT U/S. 143(3) OF THE ACT FOR AY 2011-2012 THE AO NOTI CED FROM THE DETAILS OF DEPRECIATION CLAIMED, THAT THE DEPRECIATION WAS CLA IMED ON ASSETS, THE COST OF ACQUISITION OF THE SAID ASSETS HAD BEEN CLAIMED BY THE ASSESSEE AS CAPITAL EXPENDITURE TOWARDS APPLICATION OF FUNDS TO WARDS THE OBJECTS OF THE ITA NO.636/BANG/2014 PAGE 2 OF 9 TRUST AND ALLOWED AS SUCH. ACCORDING TO THE AO, ALL OWING SUCH A CLAIM WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTION. ON THE F ACTS OF THE PRESENT CASE, HE WAS OF THE VIEW THAT THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF ESCORTS LIMITED & ANOTHER VS. UNION OF INDIA 199 IT R 43 IS SQUARELY APPLICABLE, WHEREIN IT HAS BEEN CATEGORICA LLY HELD THAT WHEN DEDUCTION U/S 35(2)(IV) IS ALLOWED IN RESPECT OF CA PITAL EXPENDITURE ON SCIENTIFIC RESEARCH, NO DEPRECIATION IS ALLOWABLE U /S 32 ON THE SAME ASSET. 3. THE ASSESSEE POINTED OUT THAT HON'BLE HIGH COUR T 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 THAT WHERE CAPITAL EXPENDITURE ON ACQUISITION OF DEPRECIABLE ASSET IS CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE, ALLOWING DEPRECIA TION ON THE VERY SAME CAPITAL ASSET WOULD NOT 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 DIFFERENT SET OF FACTS. 4. THE AO HOWEVER, HELD THAT ALLOWANCE OF DEPRECIA TION WHEN THE COST HAS ALREADY BEEN RECOVERED BY WAY OF EXEMPTION AS A PPLICATION OF INCOME AMOUNTS TO DOUBLE DEDUCTION AND DOUBLE BENEFIT ON T HE SAME ASSET. THE AO REFERRED TO THE DECISION OF THE 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 DEPRECIABL E ASSET WHEN THE COST OF ACQUISITION OF DEPRECIABLE ASSET WAS ALLOWED AS APP LICATION OF INCOME FOR ITA NO.636/BANG/2014 PAGE 3 OF 9 CHARITABLE PURPOSE AMOUNTS TO DOUBLE DEPRECIATION A ND THEREFORE DEPRECIATION CANNOT BE ALLOWED. THE AO ALSO DISTING UISHED THE CASES CITED BY THE ASSESSEE. 5. ON APPEAL BY THE ASSESSEE, THE CIT(A), FOLLOWIN G THE DECISIONS RENDERED IN THE CASE OF ST.ANNS CONVENT 349 ITR 55 9 (KARN) AND DR.T.M.A. PAL FOUNDATION, MANIPAL IN ITA NO. 481 TO 485/BANGH/2009 DATED 16.2.2010 HELD THAT THE CLAIM OF THE ASSESSEE FOR DEPRECIATION HAS TO BE ALLOWED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF AO. WE HAVE CONSIDERED THE ORDER OF THE A O. IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE ITAT BANGALORE BEN CH IN THE CASE OF DDIT(E) V. CUTCHI MEMON UNION (2013) 60 SOT 260 BAN GALORE ITAT , WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS T RIBUNAL. IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPRECIATION AND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE REL EVANT CAPITAL ASSET, COST OF ACQUISITION WAS CONSIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITION. THE AO TOOK THE VIEW THAT ALLOWING DE PRECIATION WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTION AND PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN ESCORTS LTD. (SUPRA) . THE CIT(A), HOWEVER, ALLOWED THE ITA NO.636/BANG/2014 PAGE 4 OF 9 CLAIM OF ASSESSEE. ON FURTHER APPEAL BY THE REVENU E, THE TRIBUNAL HELD AS FOLLOWS:- 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTIO N FOR COMPUTING INCOME OF CHARITABLE INSTITUTIONS, THEN T HERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING TH E INCOME AS IT IS NOTHING BUT A DECREASE IN THE VALUE OF PROPERTY THR OUGH WEAR, DETERIORATION, OR OBSOLESCENCE. SINCE INCOME FOR TH E PURPOSES OF SECTION 11(1) HAS TO BE COMPUTED IN NORMAL COMMERCI AL MANNER, THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INCOME. IT WAS SO HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). IT 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 PERCENTAGE OF FUNDS APPL IED FOR THE PURPOSE OF CHARITABLE OBJECTS. CLAIM FOR DEPRECIATI ON WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUISHED BY THE HONBLE 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 SEVER AL DECISIONS ON THAT ISSUE AND ALSO THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) , CAME TO THE CONCLUSION THAT DEPRECIATION IS ALLOWABLE ON CAPITA L ASSETS ON THE INCOME OF THE CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF T RUSTS IN TERMS OF SECTION 11 OF THE ACT. THE HONBLE PUNJAB & HA RYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) AND OBSERVED THAT THE HONBLE SUPREME COURT WAS DEALING WITH A CASE OF TW O DEDUCTIONS UNDER DIFFERENT PROVISIONS OF THE ACT, O NE U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITUR E OF A CAPITAL NATURE INCURRED ON SCIENTIFIC RESEARCH U/S. 35(1)(I V) OF THE ACT. THE HONBLE COURT THEREAFTER HELD THAT A TRUST CLAI MING DEPRECIATION CANNOT BE EQUATED WITH A CLAIM FOR DOU BLE DEDUCTION. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS ALSO ITA NO.636/BANG/2014 PAGE 5 OF 9 MADE A REFERENCE TO THE DECISION OF THE HON'BLE KAR NATAKA 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, INC OME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDU CTIBLE WHILE COMPUTING SUCH INCOME. IN VIEW OF THE AFORESAID DE CISION 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. 8. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SIN CE 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 SAM E OR ANY OTHER PREVIOUS YEAR. 9. 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 THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY GROUNDS NO.2.1 TO 2.5 RAISED BY THE RE VENUE ARE DISMISSED. 10. THE OTHER ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL WHICH IS PROJECTED BY THE REVENUE IN GROUNDS OF APPEAL, IS A S TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN HOLDING THAT ASSESSEE , A TRUST, IS ENTITLED TO ITA NO.636/BANG/2014 PAGE 6 OF 9 CARRY FORWARD EXPENDITURE INCURRED IN EXCESS OF ITS INCOME FOR SETTING OFF AGAINST INCOME OF THE SUCCEEDING YEARS? THE ASSESS EE IS A TRUST REGISTERED U/S. 12A OF THE ACT. FOR THE A.Y. 2011- 12, THE ASSESSEE FILED A RETURN OF INCOME CLAIMING CARRY FORWARD OF EXCESS E XPENDITURE INCURRED DURING THE PREVIOUS YEAR OVER THE INCOME OF THE PRE VIOUS YEAR OF RS.2,01,30,805/-. THE ASSESSEE SOUGHT TO CARRY FO RWARD THE EXCESS APPLICATION FOR SETTING OFF AS APPLICATION OF INCOM E IN THE SUBSEQUENT ASSESSMENT YEARS. ACCORDING TO THE AO THERE WAS NO PROVISION IN THE ACT FOR CARRY FORWARD OF EXCESS EXPENDITURE OF EARLIER YEAR TO BE ADJUSTED AGAINST INCOME OF THE SUBSEQUENT YEAR AND HE THEREF ORE DENIED THE CLAIM OF THE ASSESSEE. 11. ON APPEAL BY THE ASSESSEE, THE CIT(A) DIRECTED THE AO TO ALLOW CLAIM OF THE ASSESSEE AND IN DOING SO, FOLLOWED THE DECISION RENDERED BY THE ITAT BANGALORE IN THE CASE OF DR.T.M.A. PAI FOUNDATION, MANIPAL IN ITA NO. 481 TO 485/BANGH/2009 DATED 16.2.2010 . 12. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 13. IN THE GROUNDS OF APPEAL, THE REVENUE HAS REIT ERATED THE STAND OF THE AO THAT THERE IS NO PROVISION IN THE ACT TO ALLOW C ARRY FORWARD OF EXCESS APPLICATION OF INCOME FOR SET OFF AS APPLICATION OF INCOME IN SUBSEQUENT YEARS. THE LD. DR REITERATED THE STAND OF THE REVE NUE AS CONTAINED IN THE GROUNDS OF APPEAL. ITA NO.636/BANG/2014 PAGE 7 OF 9 14. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11 (1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ON LY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITAB LE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED TO MEET THE EXPENSES INCURRED FO R CHARITABLE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURP OSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUB SEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURP OSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SE T-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEA RS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME O F SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION 164 ITR 439 (RAJ) CIT V S. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ. ). IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION 264 ITR 110 (BOM) THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11 , EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLICATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS TH E COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ADIT 248 ITR 368 (MAD), THE HONBLE MADRAS HIGH ITA NO.636/BANG/2014 PAGE 8 OF 9 COURT HELD THAT THE INCOME OF THE TRUST HAS TO BE A RRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRINCIPLES, THAT S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCURRED ON RELIGIOUS OR C HARITABLE PURPOSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE I NCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT THE LOSS INCURRED UNDER ON E HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FROM THE SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRED WAS FOR RELIGIOUS OR CHARITABL E PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUS T IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE OF LOSS OF AN EARL IER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUENT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO INCUR THAT EXPENDITURE, THE TRUST SHOULD HAVE AN INCOME. SO LONG AS THE EXPENDITURE INCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDITURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF WHICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LI ABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN EARLIER YEAR IS ADJU STED AGAINST THE INCOME OF A LATER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES FROM THE INCOME O F THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLI ER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HA D BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPENDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. ITA NO.636/BANG/2014 PAGE 9 OF 9 THE HIGH COURT RELIED ON THE DECISION IN THE CASE O F CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR.) . 15. WE ARE THEREFORE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.3 TO 3.2 RAISED BY THE REVENUE. ACCORDINGLY, THE SAME AR E DISMISSED. 16. IN THE RESULT, THE APPEAL BY THE REVENUE IS D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF AUGUST, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 7 TH AUGUST, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.