Deputy Commissioner Of Income Tax (Exemptions), Circle-1, Bangalore V. M/s. Green Wood High Trust, Bangalore

ITA 708/BANG/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2898 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-10-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 18-11-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MANJUNATH KARKIHALLI
• Assessee Lawyers: B R SUDHEENDRA
• Keywords: Depreciation; Charitable institution; Question of law; Capital expenditure; Capital Gains
• Section: 12A; 264; 32; 11

Judgement Text

ITA NO.708/BANG/2020 M/S. GREEN WOOD HIGH TRUST, BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.708/BANG/2020 ASSESSMENT YEAR: 2014-15 DEPUTY COMMISSIONER OF INCOME-TAX (EXEMPTIONS) CIRCLE-1 BENGALURU VS. M/S. GREEN WOOD HIGH TRUST, NO.377, SARJAPUR ROAD KORAMANGALA BENGALURU PAN NO :AAATG6125A APPELLANT RESPONDENT APPELLANT BY : DR. MANJUNATH KARKIHALLI, D.R. RESPONDENT BY : SHRI B.R. SUDHEENDRA, A.R. DATE OF HEARING : 25.10.2021 DATE OF PRONOUNCEMENT : 25.10.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE O RDER DATED 22.9.2020 PASSED BY LD. CIT(A)-14, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2014-15. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN HOLDING THAT THE BROUGHT FORWARD D EFICIT AMOUNT SHOULD BE ALLOWED AS APPLICATION. 2. THE ASSESSEE IS A CHARITABLE TRUST AND IT WAS G RANTED REGISTRATION U/S 12A OF THE INCOME-TAX ACT,1961 ['T HE ACT' FOR SHORT] ON 24.11.2011 BY LD. DIT (EXEMPTIONS). THE LD. A.R . SUBMITTED THAT THE ASSESSEE HAD APPLIED MONEY FOR CHARITABLE PURPOSES IN ITA NO.708/BANG/2020 M/S. GREEN WOOD HIGH TRUST, BANGALORE PAGE 2 OF 7 EXCESS OF INCOME GENERATED IN THE YEARS RELEVANT TO ASSESSMENT YEARS 2012-13 & 2013-14. THE AMOUNT SO SPENT IN EX CESS AGGREGATED TO RS.5.35 CRORES. THE ASSESSEE CLAIMED THE ABOVE SAID BROUGHT FORWARD DEFICIT AMOUNT AS APPLICATION OF IN COME DURING THE YEAR UNDER CONSIDERATION. THE A.O. REJECTED THE CLA IM WITHOUT DISCUSSING ON THIS ISSUE IN THE ASSESSMENT ORDER. THE LD. A.R. SUBMITTED THAT THE ASSESSEE CONTESTED THIS ISSUE BE FORE LD. CIT(A) AND THE FIRST APPELLATE AUTHORITY HAS ALLOWED THE C LAIM OF THE ASSESSEE BY FOLLOWING THE DECISION RENDERED BY HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANIPAL ACADEMY O F HIGHER EDUCATION 415 ITR 361. 3. THE LD. A.R. FURTHER SUBMITTED THAT AN IDENTIC AL ISSUE HAS BEEN EXAMINED BY JURISDICTIONAL HIGH COURT OF KARNATAKA IN THE ASSESSEES OWN CASE IN ITA NO.231 OF 2018 RELATING TO AY 2012-13 AND THE HONBLE HIGH COURT, VIDE ITS ORDER DATED 14 .8.2018, ALLOWED AN IDENTICAL CLAIM OF THE ASSESSEE. ACCORDINGLY, H E PRAYED THAT THE ORDER PASSED BY LD. CIT(A) DOES NOT CALL FOR ANY IN TERFERENCE. 4. LD. D.R., ON THE CONTRARY, SUPPORTED THE ORDER P ASSED BY THE A.O. 5. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE R ECORD. WE NOTICE THAT AN IDENTICAL ISSUE HAS BEEN EXAMINED IN THE ASSESSEES OWN CASE BY HONBLE JURISDICTIONAL HIGH COURT OF KA RNATAKA (REFERRED SUPRA). ACCORDINGLY, WE EXTRACT BELOW RE LEVANT PORTION OF THE ORDER PASSED BY LD CIT(A):- 4. WITH REGARD TO CARRYING FORWARD OF THE LOSSES F OR BEING SET OFF AGAINST THE INCOME OF THE CHARITABLE TRUST FOR THE PRESENT ASSESSMENT YEAR, THE CONTROVERSY IS COVERED BY THE JUDGMENT IN COMMISSIO NER OF INCOME TAX (EXEMPTIONS) AND ANOTHER VS. OHIO UNIVERSITY CHRIST COLLEGE RENDERED ON 17.07.2018 IN ITA.NO.312/2016 AND ITA NO.313/2016, IN WHICH THIS COURT HELD AS UNDER: ITA NO.708/BANG/2020 M/S. GREEN WOOD HIGH TRUST, BANGALORE PAGE 3 OF 7 '16. IN SO FAR AS THE SECOND QUESTION PROPOSED BY T HE REVENUE, QUOTED ABOVE IS CONCERNED ALSO, WE FIND THAT THE TR IBUNAL'S FINDINGS IN THIS REGARD DO NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THE SAID FINDINGS ARE QUOTED BELOW FOR READY REFERE NCE : '5.1 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED APPL ICATION OF INCOME ON ACCOUNT OF EXPENDITURE OF EARLIER YEAR S, WHICH HAS BEEN BROUGHT FORWARD AND SET OFF IN THE YEAR UN DER CONSIDERATION. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT THERE IS NO EXPRESS PROVISION IN TH E ACT PERMITTING THE ADJUSTMENT OF EARLIER YEARS BROUGHT FORWARD EXPENSES AS APPLICATION OF INCOME IN THE CURRENT YE AR. ACCORDING TO THE ASSESSING OFFICER, THE APPLICATION OF INCOME FOR CHARITABLE PURPOSES MUST BE DURING THE R ELEVANT PREVIOUS YEAR. SINCE THE INCOME OF THE TRUST IS EXE MPT FROM TAX, THE QUESTION OF DEFICIT DOES NOT ARISE AND ALS O THE TRUST IS REQUIRED TO UTILIZE 85% OF THE INCOME OF THE PREVIO US YEAR FOR CHARITABLE PURPOSES DURING THE YEAR. IN THIS VI EW OF THE MATTER AND FOR THE ABOVE REASONS, THE ASSESSING OFF ICER DISALLOWED THE ASSESSEE'S CLAIM OF EXPENDITURE OF E ARLIER YEARS BEING BROUGHT FORWARD AND SET OFF DURING THE YEAR. 5.2 ON APPEAL, THE LEARNED CIT (APPEALS) ALLOWED TH E AMORTIZATION OF THE EXPENDITURE AS CLAIMED BY THE A SSESSEE AND DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY PLACING RELIANCE ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE REPORTED IN 146 ITR 28 (1984) A ND CBDT CIRCULAR NO.5-P(LXX)-6 OF 1968. 5.3.1 WE HAVE HEARD THE RIVAL CONT ENTIONS OF BOTH THE LEARNED DEPARTMENTAL REPRESENTA TIVES FOR REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE F OR THE ASSESSEE AND PERUSED AND CAREFULLY CONSIDERED THE M ATERIAL ON RECORD, INCLUDING THE JUDICIAL PRONOUNCEMENTS C ITED. THE FACTS OF THE ISSUE BEFORE US IS THAT THE ASSESSEE H AD INCURRED CERTAIN PRELIMINARY EXPENDITURE IN THE YEAR OF SETT ING UP OF THE TRUST. THE SAME IS AMORTISED BY THE ASSESSEE TR UST OVER A PERIOD OF 5 YEARS FROM THE YEAR OF INCURRING OF EXP ENDITURE. THE FACT OF AMORTIZATION WAS NOT DISPUTED BY THE AS SESSING OFFICER IN THE ASSESSMENT PROCEEDINGS FOR ASSESSMEN T YEAR 2007-08 WHERE THE ENTIRE AMOUNT WAS ADDED BACK CLAI MING 1/5TH OF THE EXPENDITURE. THE UN-AMORTIZED EXPENDIT URE HAS BEEN BROUGHT FORWARD AND SET OFF AS APPLICATION OF INCOME IN SUBSEQUENT YEARS, INCLUDING THE ASSESSMENT YEARS 20 08-09 AND 2009-10 WHICH ARE UNDER CONSIDERATION. ITA NO.708/BANG/2020 M/S. GREEN WOOD HIGH TRUST, BANGALORE PAGE 4 OF 7 5.3.2 WE FIND THAT THE ISSUE BEFORE US IS DIRECTLY RELATED TO THE ISSUE DECIDED BY THE HON'BLE KARNATAKA HIGH COU RT IN THE CASE OF SISTERS OF ST. ANNE (SUPRA) CITED BY TH E ASSESSEE. IN THE SAID CASE, THE HON'BLE KARNATAKA HIGH COURT AT PARAS 8 TO 10 THEREOF HAS HELD AS UNDER : - XXXXXXX ....... 5.3.3 FURTHER, THE CBDT CIRCULAR NO.5-P (LXX)-6 OF 1968 CITED BY THE ASSESSEE MAKES IT CLEAR THAT INCOME SH OULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE : IN THE CASE OF TRUSTS ALSO AND THEREFORE THE COMMERCIAL PRINCIPLE ENUNCIA TED BY THE HON'BLE KARNATAKA HIGH COURT IN THE ABOVE REFER RED CASE OF SISTERS OF ST. ANNE (SUPRA) APPLIES TO TRUS TS AS WELL. IN VIEW OF THE FACTUAL AND LEGAL MATRIX OF THIS ISS UE IN THE CASE ON HAND AS DISCUSSED ABOVE, WE CONCUR WITH THE DECISION OF THE LEARNED CIT (APPEALS) IN CANCELLING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND IN A LLOWING THE AMORTIZATION OF EXPENSES. CONSEQUENTLY, GROUND NO.B (1 TO 6) OF THE REVENUE'S APPEAL FOR ASSESSMENT YEAR 2 008-09 AND GROUND NO.C FOR ASSESSMENT YEAR 2009-10 ARE DISMISSED.' 17. IN OUR OPINION, THE MATTER IS SQUARELY COVERED BY A DECISION OF THE COGNATE BENCH OF THIS COURT IN THE CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE (1984) 16 TAXMAN 400 (KAR.) AND (1984) 146 ITR 28, WHEREIN THE COORDINATE BENCH OF THIS COURT HELD THAT EVEN THE DEPRECIATION NOT INVOLVING ANY CASH OUTFLOW IS ALSO IN THE CHARACTER OF EXPENDITURE AND THEREFORE SUCH DEPRECI ATION IS NOTHING BUT DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR AND TEAR, DETERIORATION OR OBSOLESCENCE AND THE ALLOWANCE MAD E FOR THAT PURPOSE IN THE BOOKS OF ACCOUNTS WERE DEEMED TO BE THE APPLICATION OF FUNDS FOR THE PURPOSE OF SEC. 11 OF THE ACT. THE RELEVANT PORTION OF THE SAID JUDGMENT IS ALSO QUOTED BELOW FOR READY REFERENCE: '11. MR. SRINIVASAN, HOWEVER, URGED THAT THERE ARE ENOUGH INDICATIONS IN SECTION 11 TO EXCLUDE THE MERCANTILE SYSTEM OF ACCOUNTING. THE LEARNED COUNSEL RELIED UPON SECTIONS 11(1)(A) AND 11(4) IN SUPPORT OF HIS CONTENTION. WE DO NOT THINK THAT THERE IS ANYTHING IN THESE SUB-SECTIONS TO SUPPORT THE CONTENTION OF MR. SRINIVASAN. EXPLANATION TO SECTION 11(1)(A) ON THE CONTRARY TAKES NOTE OF THE INCOME NOT RECEIVED IN A PARTICULAR YEAR. IT LENDS SUPPORT TO THE CONTENTION OF THE ASSESSEE THAT ACCOUNTING NEED NOT ONLY BE ON CASH BASIS. SECTION 11(4) IS NOT INTENDED TO EXPLAIN HOW THE ACCOUNTS OF THE BUSINESS UNDERTAKING SHOULD BE MAINTAINED. IT IS INTENDED ONLY TO BRING TO TAX THE EXCESS INCOME COMPUTED UNDER THE PROVISIONS OF THE ACT IN RESPECT OF BUSINESS UNDERTAKING. ITA NO.708/BANG/2020 M/S. GREEN WOOD HIGH TRUST, BANGALORE PAGE 5 OF 7 12. THE DEPRECIATION IF IT IS NOT ALLOWED AS NECESS ARY DEDUCTION FOR COMPUTING THE INCOME FROM THE CHARITA BLE INSTITUTIONS, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. THE BOARD ALSO A PPEARS TO HAVE UNDERSTOOD THE `INCOME' UNDER SECTION 11(1) IN ITS COMMERCIAL SENSE. THE RELEVANT PORTION OF THE CIRCU LAR NO.5XX-6 OF 1968, DATED 19-6- 1968 (SEE TAXMANN'S D IRECT TAXES CIRCULARS, VOL. 1, 1980 EDN. P.85) READS: 'WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPERTY , INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOU RCES, THE WORD `INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIA L SENSE, I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATIONS THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BA CK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR TH E PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD BE NO TED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDED BACK WILL BEC OME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE O F THE TRUST. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSE S OF THE TRUST FROM OUT OF THE INCOME, COMPUTED IN THE AFORE SAID MANNER, SHOULD NOT BE LESS THAN 75 PER CENT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTI ON UNDER SECTION 11(1) .' 13. IN CIT V. TRUSTEE OF H.E.H. THE NIZAM'S SUPPLEM ENTAL RELIGIOUS ENDOWMENT TRUST (1981) 127 ITR 378, THE A NDHRA PRADESH HIGH COURT HAS ACCEPTED THE ACCOUNTS MAINTA INED IN RESPECT OF THE TRUST IN CONFORMITY WITH THE PRIN CIPLES OF ACCOUNTANCY FOR THE PURPOSES OF DETERMINING THE INC OME DERIVED FROM THE PROPERTY HELD IN TRUST.' 18. IN VIEW OF THE AFORESAID FINDINGS OF THE LEARNE D TRIBUNAL, ALLOWING ANY EXPENDITURE OF THE EARLIER YEAR WHICH HAS BEEN BROUGHT FORWARD AND SET OFF IN THE YEAR UNDER CONSI DERATION, IS A JUSTIFIED FINDING OF FACT BASED ON THE CORRECT INTE RPRETATION OF LAW AND THE JUDGMENT RELIED UPON BY IT RENDERED BY THE COGNATE BENCH. THEREFORE, THE SAME DOES NOT CALL FOR INTERFERENCE. A SIMILAR VIEW WAS ALSO TAKEN BY THE DIVISION BENCH OF BOMBAY HIGH COURT IN COMMISSIONER OF INCOME-TAX V. INSTITUTE OF BANKING (2003) 264 ITR 110, WHEREIN THE DIVISION BENCH OF BOMBAY HIGH COUR T HELD THAT THE INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED, THEN ADJUSTMENT OF EXPENSES INCURRED B Y THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YE ARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR W ILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR. THE RELE VANT PORTION OF ITA NO.708/BANG/2020 M/S. GREEN WOOD HIGH TRUST, BANGALORE PAGE 6 OF 7 THE SAID JUDGMENT OF BOMBAY HIGH COURT IS ALSO QUOT ED BELOW FOR READY REFERENCE : 'NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIM ATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSES SEE ON GENERAL PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME- TAX ACT, 1961. INCOME OF A CHARITABLE TRUST DERIVED FROM BUILDING, PLANT AND MACHINERY AND FURNITURE IS LIAB LE TO BE COMPUTED IN A NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE A SSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE ACT PROVIDING FOR DEPRECIATION, FOR COMPUTATION OF INCOME DERIVED FRO M BUSINESS OR PROFESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDE R SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALL OWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM THE GROSS INCOME OF THE TRUST. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED , THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CH ARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR W ILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUS T FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAD BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE I NCOME OF THE TRUST UNDER SECTION 11(1)(A) .' IN VIEW OF THE CONTROVERSY COVERED BY THE ABOVE DEC ISIONS OF THIS COURT, WE ARE OF THE OPINION THAT THE SUBSTANTIAL QUESTION OF LAW AS SUGGESTED BY THE APPELLANTS DOES NOT NOW ARISE FOR OUR FURTHER CONSI DERATION IN THE PRESENT APPEAL. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE BINDI NG DECISION RENDERED BY HONBLE JURISDICTIONAL KARNATAKA HIGH C OURT AND FURTHER THE JURISDICTIONAL HIGH COURT HAS DECIDED A N IDENTICAL ISSUE IN ASSESSEES FAVOUR IN THE ASSESSEES OWN CASE. A CCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER PAS SED BY LD CIT(A) ON THIS ISSUE. ITA NO.708/BANG/2020 M/S. GREEN WOOD HIGH TRUST, BANGALORE PAGE 7 OF 7 6. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH OCT, 2021. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 25 TH OCT, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.