The DCIT (Exemptions), Circle-2, Ahmedabad V. Amreli Jilla Leva Patel Charitable Trust, Surat

ITA 96/AHD/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1163 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 08-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 32; 28; 11; 143(3); 12A

Judgement Text

ITA NO. 96/AHD/2018 DCIT VS. AMRELI JILLA LEUVA PATEL CHARITABLE TRUST ASSESSMENT YEAR: 2014-15 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR, AM AND MS. MADHUMITA ROY, JM] ITA NO. 96/AHD/2018 ASSESSMENT YEAR: 2014-15 DY. COMMISSIONER OF INCOME-TAX (EXEMPTIONS) ....... ...........APPELLANT CIRCLE-2, AHMEDABAD VS. AMRELI JILLA LEUVA PATEL CHARITABLE TRUST ...........................RESPONDENT 101, PALLAVI APARTMENT, OPP. LAXMI DIAMOND, AK ROAD, SURAT 395 008 [PAN : AABTS 5025 Q] APPEARANCES BY: LALIT P JAIN, FOR THE APPELLANT NONE, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 06.09.2018 DATE OF PRONOUNCING THE ORDER : 18.09.2018 O R D E R PER PRAMOD KUMAR, AM: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE LEARNED CIT(A)-7, AHMEDABADS ORDER DATED 17 TH NOVEMBER 2017, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TA X ACT, 1961, FOR THE ASSESSMENT YEAR 2014-15. 2. THE GRIEVANCE RAISED BY THE APPELLANT IS AS FOLL OWS:- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN AL LOWING THE DEPRECIATION OF RS.2,25,59,002/- TO THE ASSESSEE WH ICH AMOUNTS TO DOUBLE DEDUCTION AS 100% DEDUCTION WAS ALLOWED TO T HE ASSESSEE AS APPLICATION OF INCOME.' 3. NONE APPEARED FOR THE ASSESSEE, BUT WE HAVE HE ARD THE LEARNED DEPARTMENTAL REPRESENTATIVE, PERUSED THE MATERIAL O N RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. 4. IN RESPONSE TO THE QUESTION BY THE BENCH, LEARNE D DEPARTMENTAL REPRESENTATIVE ACCEPTED THAT THE AFORESAID ISSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY THE HONBLE SUPREME COURTS JUDGMENT I N THE CASE OF CIT VS. ITA NO. 96/AHD/2018 DCIT VS. AMRELI JILLA LEUVA PATEL CHARITABLE TRUST ASSESSMENT YEAR: 2014-15 PAGE 2 OF 4 RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION [(2018 ) 402 ITR 441], WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS:- 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 WITH WHICH WE ARE CONCERNED AND IN WHICH YEAR THE DEPRECIATION WAS CLAIMED, THE ENT IRE EXPENDITURE INCURRED FOR ACQUISITION OF CAPITAL ASSETS WAS TREATED AS APPLIC ATION OF INCOME FOR CHARITABLE PURPOSES UNDER SECTION 11(1)(A) OF THE A CT. THE VIEW TAKEN BY THE ASSESSING OFFICER IN DISALLOWING THE DEPRECIATION W HICH WAS CLAIMED UNDER SECTION 32 OF THE ACT WAS THAT ONCE THE CAPITAL EXP ENDITURE IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES, THE 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 AND THE HI GH COURTS HAVE ACCEPTED THE DECISION OF THE ITAT THEREBY DISMISSING THE APP EALS OF THE INCOME TAX DEPARTMENT. FROM THE JUDGMENTS OF THE HIGH COURTS, IT CAN BE DISCERNED THAT THE HIGH COURTS HAVE PRIMARILY FOLLOWED THE JUDGMEN T OF THE BOMBAY HIGH COURT IN 'CIT V. INSTITUTE OF BANKING PERSONNEL SEL ECTION (IBPS)'(2003) 131 TAXMAN 386 (BOMBAY) . 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 INCO ME UNDER SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JA IN 1994 TAX LAW REPORTER, 1084 THE FACTS WERE AS FOLLOWS. THE ASSES SEE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRU ST. IT WAS ALSO REGISTERED WITH THE COMMISSIONER OF INCOME TAX, PUN E. THE ASSESSEE DERIVED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASS ESSMENT YEARS 1977-78, 1978-79 AND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE BUILDING @2% AND THEY ALSO CLAIME D DEPRECIATION ON FURNITURE @ 5%. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINATION WAS : WHETHER DEPRECIATION COULD BE D ENIED TO THE ASSESSEE, AS EXPENDITURE ON ACQUISITION OF THE ASSE TS HAD BEEN TREATED AS APPLICATION OF INCOME IN THE YEAR OF ACQUISITION ? 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 TH E TRUST FROM THE PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND ACCUMULATION OF INCOME. ON THE OTHE R HAND, SECTION 28 OF THE INCOME TAX ACT DEALS WITH CHARGEABILITY OF INCO ME FROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCO ME FROM PROFITS AND GAINS OF BUSINESS AHLL BE COMPUTED IN ACCORDANCE WI TH SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDE S FOR DEPRECIATION IN RESPECT OF BUILDING, PLANT AND MACHINERY OWNED BY T HE ASSESSEE AND USED FOR BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO ITA NO. 96/AHD/2018 DCIT VS. AMRELI JILLA LEUVA PATEL CHARITABLE TRUST ASSESSMENT YEAR: 2014-15 PAGE 3 OF 4 SECTION 34. IN THAT MATTER ALSO, A SIMILAR ARGUMENT , AS IN THE PRESENT CASE, WAS ADVANCED ON BEHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTION ONLY UNDER SECTION 32 OF THE I NCOME TAX ACT AND NOT UNDER GENERAL PRINCIPLES. THE COURT REJECTED TH IS ARGUMENT. IT WAS HELD THAT NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSESSEE ON GEN ERAL PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME TAX ACT. THE C OURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENUE THAT SECTION 32OF THE INCOME TAX ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME OF A CHARITAB LE TRUST DERIVED FORM BUILDING, PLANT AND MACHINERY AND FURNITURE WAS LIA BLE TO BE COMPUTED IN NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPR ECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECT ION 32 OF THE INCOME TAX ACT PROVIDING FOR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROFESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 O N COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. I N VIEW OF THE AFORESATATED JUDGMENT OF THE BOMBAY HIGH CURT, WE A NSWER 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 DIRECTO R OF INCOME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993] 10 9 CTR 463 . IN THAT CASE, THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS T HE TRUST. IT DERIVED ITS INCOME FROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK I NTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOM E OF THE TRUST. THE ITO HELD THAT DEPRECIATION COULD NOT BE TAKEN INTO ACCOUNT BECAUSE, FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE ASSI STANT APPELLATE COMMISSIONER. THE APPEAL WAS REJECTED. THE TRIBUNAL , HOWEVER, TOOK THE VIEW THAT WHEN THE ITO STATED THAT FULL EXPENDITURE HAD BEEN ALLOWED IN THE YEAR OF ACQUISITION OF THE ASSETS, WHAT HE REAL LY MEANT WAS THAT THE AMOUNT SPENT ON ACQUIRING THOSE ASSETS HAD BEEN TRE ATED AS 'APPLICATION OF INCOME' OF THE TRUST IN THE YEAR IN WHICH THE IN COME WAS SPENT IN ACQUIRING THOSE ASSETS. THIS DID NOT MEAN THAT IN C OMPUTING 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 JUD GMENT. HENCE, QUESTION NO. 2 IS COVERED BY THE DECISION OF THE BO MBAY HIGH COURT IN THE ABOVE JUDGMENT. CONSEQUENTLY, QUESTION NO. 2 IS ANSWERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGA INST 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 CORRE CTLY STATES THE PRINCIPLES OF LAW AND THERE IS NO NEED TO INTERFERE WITH THE S AME. 3. IT MAY BE MENTIONED THAT MOST OF THE HIGH COURTS H AVE TAKEN THE AFORESAID VIEW WITH ONLY EXCEPTION THERETO BY THE HIGH COURT OF KERALA WHICH HAS TAKEN A CONTRARY VIEW IN 'LISSIE MEDICAL INSTITUTIONS V. CIT [2012] 24 TAXMANN.COM 9/209 TAXMAN 19 (MAG.)/348 ITR 344 (KER.) '. ITA NO. 96/AHD/2018 DCIT VS. AMRELI JILLA LEUVA PATEL CHARITABLE TRUST ASSESSMENT YEAR: 2014-15 PAGE 4 OF 4 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 2015-2016 . THE DELHI HIGH COURT HAS TAKEN THE VIEW AND RIGHTLY SO, THAT THE SAID AM ENDMENT IS PROSPECTIVE IN NATURE. 5. THE ASSESSMENT YEAR BEFORE US IS 2014-15, I.E. P RIOR TO THE AMENDMENT IN SECTION 11(6) OF THE ACT VIDE FINANCE ACT, 2014. C LEARLY, THEREFORE, THE RATIO OF THE ABOVE JUDGMENT FROM HONBLE SUPREME COURT WILL APPL Y ON THE FACTS OF THE PRESENT CASE. 6. IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF RAJASTHAN A ND GUJARATI CHARITABLE FOUNDATION (SUPRA), WE APPROVE THE CONCLUSIONS ARRI VED AT BY THE LEARNED CIT(A) WHICH ARE IN ACCORDANCE WITH THE LAW SO LAID DOWN B Y THE HONBLE SUPREME COURT. WE, THEREFORE, CONFIRM THE ACTION OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 7. IN THE RESULT, APPEAL IS DISMISSED. PRONOUNCE D IN THE OPEN COURT TODAY ON THE 18 TH SEPTEMBER, 2018 SD/- SD/- MS. MADHUMITA ROY PRA MOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 18 TH DAY OF SEPTEMBER, 2018 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: ..17.09.2018................ ... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: .. 18.09.2018..... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: 18.09.2018.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: . 18.09.2018. 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : . . 18.09.2018. 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER : . 8. DATE OF DESPATCH OF THE ORDER: ......