M/s. Cochin Port Trust, Cochin V. Jt.Director of Income Tax(OSD)(Exemption, Cochin

ITA 66/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96693 (ITAT-COCHIN)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-01-2015
• Result in Favour of: Set Aside
• Court: TRIBUNAL
• Department Lawyers: V R SREEKUMAR
• Assessee Lawyers: K GOPI
• Keywords: Depreciation; Charitable institution
• Section: 32; 28; 11; 143(3); 12A

Judgement Text

ITA NO. 66/COCH/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI B P JAIN , AM & GEORGE GEORGE.K, JM ITA NO. 66/COCH/2015 (ASST YEAR 2007 - 08 ) COCHIN POST TRUST KOCHI VS THE DY DIRECTOR OF INCOME TAX(EXEMPTION) KOCHI ( APP LICANT ) (RESPONDENT) PAN NO. AADFC8201E ASSESSEE BY SHRI K GOPI REVENUE BY SH V R SREEKUMAR SR DR DATE OF HEARING 9 TH SEPT 2015 DATE OF PRONOUNCEMENT 10 TH SEPT 2015 ORDER PER GEORGE GEORGE.K JM : THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS DIRECTED AGAINST TH E CIT(A)S ORDER DATED 1.10.2014. THE RELEVANT ASSESSMENT YEAR IS 2007 - 08. 2 THE EFFECTIVE GROUNDS RAISED READ AS UNDER: I ) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION MADE BY THE AO IN COMPUTING THE APPLICATION OF INCOME OF THE APPELLANT U/S 11 OF THE I T A C T 1961. II ) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN DENYING THE SET OFF OF EXCESS APPLICATION OF PRIOR YEARS AGAINST INCOME DETERMINED FOR THIS YEA R. GROUND NO.1: 3 THE ASSESSEE IS A TRUST ENGAGED IN THE ACTIVITY OF RENDERING PORT SERVICES. FOR THE RELEVANT ASSESSMENT YEAR RETURN OF INCOME WAS FILED ON 31.10.2007 DECLARING NIL INCOME AFTER CLAIMING EXEMPTION U/S 11(1) OF THE ACT. THE ASSESSMENT W AS PICKED - UP FOR SCRUTINY AND THE SCRUTINY ASSESSMENT U/S 143(3) WAS COMPLETED VIDE ORDER DATED 31.12.2009 FIXING THE TOTAL INCOME AT RS. 9,54,65,972/ - . THE AO HAD DISALLOWED DEPRECIATION WHILE COMPUTING THE APPLICATION OF INCOME FOR THE RELEVANT YEAR. 3 .1 ON APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE CIT(A) HELD THAT DEPRECIATION IS NOT AN APPLICATION OF INCOME. THE LD CIT(A) RELIED ON THE ITA NO. 66/COCH/2015 2 JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF LESSIE MEDICAL INSTITUTIONS VS CIT REPORTED IN 348 ITR 344. THE LD CIT(A) HAS GIVEN HIS FINDING IN PARAS 7.3 AND 7.4 OF HIS ORDER WHICH READS AS UNDER: 7.3. THE OVERALL LEGAL POSITION THAT EMERGES FOR ALLOWABILITY OF DEPRECIATION AS APPLICATION OF INCOME IN THE HANDS OF ASSESSEE/TRUST REGISTERED UNDER SECTION 12A IS THAT : - ( I ) THE DEPRECIATION ALLO W ANCE BEING NOTIONAL EXPENDITURE CANNOT BE DEBITED TO EXPENDITURE ACCOUNTS OF THE ASSESSEE, AS WHAT IS TO BE COMPUTED IS APPLICATION OF INCOME AND NOT EXPENSE . SINCE APPLICATION IS NOT DEFINED IN THE ACT , ITS MEANINGS HAS TO BE TAKEN FROM O X FORD ENGLISH DICTIONA R Y AS PER WHICH APPLICATION MEANS , ' THE BRINGING OF A GENERAL OR FIGURATIVE STATEMENT ' , ' THE ACT I ON OF BRINGING SOMETHING INTO MATERIAL OR EFFECTIVE CONTRACT WITH SOMETHING ELSE ' , ' TO USE ' AND OTH ER MEANINGS WH I CH ARE NOT DIRECTLY RELEVANT IN THE ABOVE CASE . THE MEANINGS CLEARLY REFLECT THAT APPLICATION DOES NOT MEAN ANYTHING NOTIONAL BUT A CONCRETE APPLICATION OF INCOME . THIS IS NOT THE CASE OF DEPRECIATION , AS DEPRECIATION IS NOT A DIRECT OUT FLO W OF FUNDS BUT IS A COMPENSATION FOR DECREASE I N VALUE OF FIXED ASSETS BY USE OF A BUSINESS UNIT . IN CASE OF A SOCIETY , SINCE 100% CAPITAL EXPENSE IS ALLOWED AS APPL I CATION , TH ER EFO R E , T H ER E IS NO QUE S TIO N OF ANY FURTHER DEDUCTION FOR DECREASE IN VALUE OF F IX ED ASSETS . ( II ) DEPRECIATION IS A SPECIFIC ALLOWANCE WHICH HAS BEEN PROVIDED U/S 32 OF THE I . T . ACT AND THUS HAS BEEN SPECIFICALLY PROVIDED FOR CALCULATION OF INCOME U/S 28 I . E . INCOME UN D E R THE HEAD ' BUS I NESS & PROFESSION '. IN THIS SECT I ON , WE ARE NOT C OMPUTING INCOME UNDER THE HEAD ' BUSINESS & PROFESSION ' BUT ONLY ' INCOME FROM PROPERTY HELD UNDER THE TRUST '. THIS CAN NEVER BE TAKEN TO BE SAME AS ' INCOME FROM BUSINESS & PROFESSION . ' (III) AS PER A DEPARTMENT CIRCULAR AND OTHER CASE LAWS CITED BY T HE ASSESSEE, THE INCOME OF SOCIETY ALSO HAS TO BE CO M PUTED IN A COMMERCIAL MANNER . HOWEVER THE QUESTION ARISES WHETHE R AN ASSET WHOSE ENTIRE COST HAS BEEN ALLOWED AS DEDUCTION BY WAY OF E X EMPTION U/S 11 SHOULD BE CONSIDERED FOR THE BENEFIT OF DEPRECIAT ION . THE ISSUE HAS BEEN DECIDED BY THE HON'BLE SUPREME COURT I N T HE CA S E O F ES COR T L TD. VS . UNION OF INDIA 19 9 3 , 1 99 ITR 43 . THE HON ' BLE SUPREME COURT IN THIS CASE HAS DECIDED THAT DOUBLE TAX OR WEIGHTED DEDUCTION CANNOT BE INFERRED . WHERE - EVER THE LEGI SLATURE WANTED TO GIVE SUCH DEDUCT I ON , IT HAS SPECIF I CALLY SA I D SO . THE HON ' BLE COURT HAS OBSERVED THAT THE DOUBLE DEDUCTION CANNOT BE A MATTER OF INFERENCE . IT ITA NO. 66/COCH/2015 3 MUST B E PROVIDED F O R IN C LEAR AND E X PRESS LANGUAGE WITH REGARD TO THE FACT OF ITS UN - USUAL NA TURE AND ITS SERIOUS IMPACT ON THE REVENUE OF THE STATE . THEREFORE , IT IS REASONABLE TO COME TO THE CONCLUSION THAT IN THE ABSENCE OF EXPRESS PROVISION , DEP R E CI AT I ON CANNOT BE A LL OWED ON ASSETS WHOSE COST HAS ALREADY BEEN ALLOWED AS APPLICATION . IV) IN THE CASE OF LES S IE MEDICAL INSTITUTUTIONS VS CIT, 348 ITR 344, KERELA HIGH COURT, THE HON'BLE HC OBSERVED THAT INCOME AVAILABLE FOR APPLICATION WAS REDUCED BY THE AMOUNT OF DEPRECIATION BUT IN EFFECT, CASH SURPLUS WAS AVAILABLE WITH THE TRUST WHICH WAS NOT APPLIED FOR THE ACTIVITIES OF THE TRUS T . THE ITAT ALSO NOTED THAT IN THE CBOT ' S CIRCULAR NO . 5P (LLX - 6 ) DA T E D 19 / 06/1968 , WHICH IS WITH REGARD TO COMPUTATION OF INCOME OF CHAR I TABLE T R USTS , THERE IS NO COMMENTARY ON DEPRECIATION . THE COURT HE L D THAT BUS IN ESS I NCOME OF CHARITABLE TRUST ALSO HAS TO BE COMPUTED AS P ROVIDED U / S 29 O F TH E IN C OM E TA X A C T . HOWEVER, IF THE EXPENDITURE INCURRED FOR ACQU I SITION OF DEPRECIABLE ASSETS ITSELF I S TREATED AS APPLICATION OF INCOME FOR CHAR I TAB LE PURPOSES U /S 1 1 (1 ) ( A ) OF THE ACT , THE COST OF SUCH ASSETS SHOULD BE TREAT E D AS N I L AND I N THAT SITUAT I ON DEPREC I ATION TO BE GRANTED SHOULD BE NIL . I F D EPRE C I ATION IS PROVIDED ON SUCH NOTIONAL COST , IT SHOULD BE WRITTEN BACK AS INCO M E AVAILABLE . THE COURT SOUGHT THE VIEWS OF CBOT WHICH ARE REPRODU C ED BELO W : 'THE CENTRAL BOARD OF DIRECT TAXES IS OF THE CONSIDERED VIEW THAT WHERE AN ASSESSEE HAS ACQUIRED AN ASSET THROUGH APPLICATION OF INCOME AND HAS ALSO CLAIMED THIS AMOUNT AS EXPENDITURE IN ITS INCOME EXPENDITURE ACCOUNT, DE PRECIATION ON SUCH ASSET WOULD NOT BE ALLOWABLE TO THE ASSESSEE. SUCH NOTIONAL STATUTORY DEDUCTIONS LIKE DEPRECIATION, IF CLAIMED AS DEDUCTION WHILE COMPUTING THE INCOME OF THE 'THE PROPERTY HELD UNDER TRUST ' UNDER THE RELEVANT HEAD OF INCOME, IS REQ UIRE D TO BE ADDED BACK WHILE COMPUTING THE INCOME FOR THE PURPOSE OF AP P LICATION IN THE INCOME EXPENDITURE A CCOUNT . THIS WOULD IMPLY THAT A CORRECT FIGURE OF SURPLUS FROM THE TRUST PROPERTY IS REFLECTED IN THE INCOME & EXPENDITURE ACCOUNT OF THE TRUST TO DETER MINE THE INCOME FOR THE PURPOSE OF APPLICATION UNDER SECTION 11 OF THE INCOME TAX ACT . THIS WOULD REDUCE THE POSSIBILITY OF REVENUE LEAKAGE WHICH MAY BE A CAUSE FOR GENERATION OF BLACK MONEY. ON THE BASIS OF ABOVE CLARIFICATION BY THE CBDT, THE HON'BLE KERALA HIGH COURT HELD THAT DEPRECIATION COULD NOT BE ALLOWED IF THE ORIGINAL COST WAS CLAIMED AS APPLICATION OF INCOME . ITA NO. 66/COCH/2015 4 IN VIEW OF THE DETAILED DISCUSSION OF ASSESSING OFFICER AND THE DECISION OF LESSI E M E DICAL INSTITUTIONS OF KERALA HIGH COU R T TH A T DEP RECIATION IS NOT AN APPLICATION OFINCOME , THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED IT . 7 . 4. SUCH DISALLOWANCE OF DEPRECIATION UNDER SIMILAR CIRCUMSTANCES HAS ALSO B E E N CONFI R MED BY HON ' BLE IT AT , COCHIN BENCH IN THE CASE OF G R EATER COCHIN DEVELOPMENT AUTHORITY IN ITA NOS . 792& 793/COCH/20 13 FOR ASSESSMENT YEARS2009 - 10 & 2010 - 11 DATED 08/08/2014 . IN VIEW OF THE FOREGOING, THE D E PRECI A TION CANNOT BE ALLOWED TO THE ASSESSEE SOCIETY AND THE AD HAS RIGHTLY DISALLOWED THE SAME. THUS THE DISALLOWANCE OF DEP RECIATION IS HEREBY CONFIRMED . 3.2 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US AND RAISED THE FOLLOWING CONTENTIONS: IT IS THE CLAIM OF THE APPE L L ANT THAT DEPRECIATION IS TO BE ALLOWED AS AN APPLICATION O F INCOME. THE CL AIM FOR DE P RECIATI O N IS NOT ALLOWED MERELY BECAUSE THE COST OF THE ASSETS ACQ UI RED A S TR US T PR O PERTY IS ALLOWED AS AN APPLICATION. THE DEP R EC I ATION CL AIM E D F O R AY 2007 - 08 HAS TWO COMPONENTS: - DEPREC I ATIO N O N A SS ETS ACQUIRED FR O M AY 20 0 3 - 04 TO AY 2007 - 08. - DEPRECIATION O N A SS ETS ACQUIRED UP TO 31 . 03.2002 (RELEVANT TO AY 2002 - 03) . A) DEPRECIATION ON A SSETS AC Q UIRED FROM AY 2003 - 04 TO AY 2007 - 08: ACCORDING TO THE APPEL LA N T, DEPRECIATION IS ON THE ASSETS USED FOR PORT OPERATIONS AND IS A LOSS. BO MBAY HIGH C O UR T HAS HELD IN CIT VS INSTITUTE OF BANKING (264 ITR 110) TH A T DE P RECIATI O N IS A LO S S TO BE ALLOWED EVEN IF ASSETS ACQUIRED ARE ALLOWED AS APPLICATIO N . THE A PP E LL ANT IS A LSO PLACING RELIANCE ON THE FOLLOWING DECIS I ONS: I) CIT VS SOCIETY OF THE SISTERS OF ST ANNE 1 4 6 I T R 28 (KAR) II) CIT VS SETH MANILAL RAMCHHODD A S VISH ARA M B H AVAM TRUST 105 CTR 303 (GUD. III) CIT VS BHORUKA PUBLIC WELFARE TRUST 2 4 0 ITR 51 3 (CAL) . WHILE ON THIS, WE MAY ALSO SUBMIT THAT T HE CL A IM F OR DEPRECIA T I O N TO THE EXTENT OF COST OF ASSETS ITA NO. 66/COCH/2015 5 ALL OWED AS A PPLIC A TION O F INCO ME IS N O W CO VERED AGAINST THE APPELLANT BY THE DECISION O F HON JUR I SDICTIO NA L H I G H C OU RT OF KERALA IN THE CASE OF LISSIE MEDICAL INSTITUTIONS VS CIT 348 IT R 344. B) DEPRECIATION ON ASSETS ACQUIRED UP TO 31 . 03.2002. WITHOUT PREJ UDICE TO OUR CLAIM TH A T TH E D E PR E CI AT I ON IS AN A L LOWABL E DEDUCTION FOR THE PURPOSE OF COMPUTING THE A P P LI CA T ION OF INCOME, I T IS SUBMITTED THAT THE LEARNED CIT(A) ERR E D I N DIS A L LOWING THE ENTIRE DEPRECIATION CLAIMED BY THE APPELL A NT . THE LEARNED CIT (A) O UGHT TO H A VE NOTED TH A T T HE EN T IRE AM O UN T OF C O ST OF ASSETS ON WHICH DEPRECIATION WA S C L A IM E D B Y TH E APPE LL ANT WAS NOT ALLOWED AS APPLICATION OF INCOME. THE LE A RN E D CIT (A) OU GH T TO HAVE NOTED THAT THE APPELLANT WAS ENTITLED TO E X EMPTIO N U/S 1 1 O F T H E INCO ME TAX ACT ONLY FROM AY 2003 - 04 ONWARDS AND ONL Y THE COST O F A SS E T S ACQ U IRED P RIOR TO AY 2003 - 04 WAS NOT C LAIMED/ A LLO WE D A S A PPLI CA T ION OF INCOME . THE WDV OF ASSETS ACQUIRED BEFORE AY 2003 - 0 4 WA S NOT C L AIMED / A LL OW E D AS APPLICATION OF INCOME AND HENC E TH E L EAR N ED CI T ( A ) OUGHT TO HAVE ALLOWED DEPRECIATION ON THE WDV OF ASSETS H E LD IN THE B E GINNI NG O F A Y 200 3 - 0 4, BEING NOT CLAIMED/ALLOWED AS APPLIC A TIO N O F INCOM E EAR L IER . (FROM AY 2003 - 04 TO AY 2006 - 07 THIS IS NOT COVERED AGAINST THE APPELLANT BY THE DECISION OF HON HIGH COURT OF KERALA REFERRED TO ABOVE . 3.3 THE LD DR PRESENT WAS DULY HEARD. 3,4 AS REGARDS THE MAIN CONTENTION OF THE ASSESSEE, NAMELY WHETHER THE DEPRECIATION IS TO BE ALLOWED AS APPLICATION OF INCOME, WE NOTICE THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS COMPREHENSIVELY CONSIDERED THE ISSUE AND DECIDED THE MATTER IN FAVOUR OF THE REVENUE IN THE CASE OF LESSIE MEDICAL INSTITUTIONS (SUPRA). THE ASSESSEE ALSO ADMITS THIS LEGAL POSITION AND HENCE, THE MAIN CONTENTION RAISED BY THE ASSESSEE THAT THE DEPRECIATION AMOUNT CAN BE CONSIDERED AS AN APPLICATION OF INCOME, IS REJECTED. ITA NO. 66/COCH/2015 6 3.5 IN SO FAR AS THE ALTERNATIVE SUBMISSION OF THE ASSESSEE IS CONCERNED, WE NOTICE THAT THIS CONTENTION/ISSUE WAS NOT RAISED BEFORE THE AO NOR BEFORE THE LD CIT(A) AND THE SAME DOES NOT ARISE OUT OF THE ORDER OF THE LD CIT(A). HENCE, THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THE CIT(A) OUGHT TO HAVE ALLOWED DEPRECIATION ON THE WDV OF ASSETS HELD IN THE BEGINNING OF THE ASSESSMENT YEAR 2003 - 04 IS ALSO REJECTED. THEREFORE, GROUND ONE IS DISMISSED . GROUND NO.2: 4 THE AO WHILE COMPLETING THE SCRUTINY ASSESSMENT DID NOT ALLOW SET OFF OF EXCESS APPLICATION OF THE EARLIER YEARS AGAINST THE INCOME DETERMINED FOR THE CURRENT ASSESSMENT YEAR. 4.1 ON APPEAL, THE LD CIT(A ) HELD THAT THE EXCESS APPLICATION CAN BE ALLOWED, ONLY IF AT THE TIME OF FILING THE RETURN, SUCH APPLICATION HAS BEEN MADE BY THE ASSESSEE IN FORM 10 IN ACCORDANCE WITH THE PROVISIONS OF RULE 17 R.W.S 11(2) OF THE I T ACT AND SINCE THE ASSESSEE HAS NOT MADE ANY SUCH CLAIM BY FILING THE FORM 10, THE SET OFF OF EXCESS APPLICATION CANNOT BE ALLOWED. 4.2 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US AND RAISED THE FOLLOWING CONTENTIONS: REGARDING G R OU N D N O 2, IT IS NOW WELL SETTLED TH A T THE E X CESS A PPLICATION IN EARLIER YEA R S IS ELIGIBLE TO BE SET OFF AGAINST THE INCOME FOR SUBSEQUENT YEARS. RE L I AN C E IS PLACED ON THE FOLLOWING DECISIONS: ITA NO. 66/COCH/2015 7 CITVS INSTITUTE O F BA NKING PERSONNEL S ELECTION (26 4 ITR 110 BORN) CIT VS SACRED HE A RT C HURCH (278 I TR 180 G UJ) . . - - CIT VS MATRI SEVA T R UST (2 4 2 ITR 20). CIT VS TRUSTEES OF SET H M ER WNJE EE FRANJI PANDEY CHARITABLE TRUST - 177 TA X ATION 19 (BO RN . ) THE LEARNED CIT(A) E R RED IN STATING THAT THE EXCESS A PPLICATION CAN B E CARRIED FORWARD ON LY IF THE APP ELLANT HAS FILED FORM 10 PR E SCRIBED UND E R RULE 17 OF THE IT RULE S. F O RM 10 IS TOWARDS ACCUMULATION OF INCOME NO T APPLIED AND NOT F OR C ARRY F O RWARD OF EXCESS APPLICATION 4.3 ON THE OTHER HAND, THE LD DR RELIED ON THE ORDER OF THE CIT(A). 5 WE HAVE HEAR D THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AS RIGHTLY POINTED OUT BY THE LD AR, THE FORM 10 IS REGARDING ACCUMULATION OF INCOME AND NOT FOR CARRY FORWARD OF EXCESS APPLICATION. THE JUDGMENT RELIED BY THE LD AR IS DIRECTLY IN FAVOUR OF THE ASSESSEE. HENCE, THE MATER IS RESTORED TO THE AO TO DETERMINE WHAT IS THE EXCESS APPLICATION OF INCOME IN THE PREVIOUS YEAR WHICH IS REQUIRED TO BE SET OFF OF IN THE CURRENT YEAR. THIS GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 66/COCH/2015 8 6 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH , DAY OF SEPT 2015 . SD/ - SD/ - ( B P JAIN ) (GEORGE GEORGE .K ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 10 TH SEPT 201 5 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT, 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN ITA NO. 66/COCH/2015 9