DDIT, Bangalore V. Ohio University Christ College, Bangalore

ITA 962/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7642 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 10-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution
• Section: 143(3); 12A; 12; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.962/BANG/2016 (ASST. YEAR 2010-11) THE DY. DIRECTOR OF INCOME-TAX (EXEMPTION), BANGALORE. . APPELLANT VS. OHIO UNIVERSITY CHRIST COLLEGE, ACADEMY FOR MANAGEMENT EDUCATION, BANGALORE. . RESPONDENT APPELLANT BY : SHRI M.K BIJU, JCIT RESPONDENT BY : SMT. RASHMI, ADVOCATE DATE OF HEARING : 28-8-2017 DATE OF PRONOUNCEMENT : -8-2017 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) 14, BANGALOR E DATED 8/3/2016 FOR ASST. YEAR 2010-11. 2. BRIEFLY STATEDS THE FACTS OF THE CASE ARE AS UND ER:- ITA NO.962/B/201 6 2 2.1 THE ASSESSEE, IS A PUBLIC CHARITABLE TRUST REGI STERED U/S 12A OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), ESTA BLISHED FOR THE PURPOSE OF PROMOTING EDUCATION WITHOUT ANY PROFIT M OTIVE. THE ASSESSEE REPORTEDLY CONDUCTS MBA PROGRAMMES IN INDI A IN COLLABORATION WITH OHIO UNIVERSITY, USA. FOR ASST. YEAR 2010-11, THE ASSESSEE FILED ITS RETURN OF INCOME ON 14/10/2010 D ECLARING NIL INCOME. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESS MENT WAS COMPETED U/S 143(3) OF THE ACT VIDE ORDER DATED 26 /3/2013, WHEREIN THE ASSESSEES INCOME WAS DETERMINED AT RS.72,93,19 6/-, DUE TO THE ASSESSING OFFICER (AO) DISALLOWING OF THE ASSES SEES CLAIM FOR SET OFF OF EXCESS APPLICATION OF ASST. YEAR 2009-10 AGA INST THE INCOME OF THE YEAR UNDER CONSIDERATION I.E ASST. YEAR 2010-11 , AS HE WAS OF THE VIEW THAT THERE IS NO EXPRESS PROVISION IN THE AC T PERMITTING THE ASSESSEES CLAIM. ON APPEAL, THE LD CIT(A) VIDE OR DER DATED 8/3/2016 ALLOWED THE ASSESSEES AFORESAID CLAIM FOR SET OFF OF EARLIER YEARS EXCESS APPLICATION AGAINST THE ASSESSEES INCOME FO R ASST. YEAR 2010- 11 FOLLOWING, INTER ALIA, THE DECISION OF THE CO-OR DINATE BENCH OF THIS ITA NO.962/B/201 6 3 TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASST. YEAR 2008-09 AND 2009- 10 IN ITA NOS.1075 & 1076/BANG/2014 DATED 9/10/2015 ON THIS ISSUE. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A)-14, BANGAL ORE DATED 8/3/2016 FOR ASST. YEAR 2010-11, REVENUE HAS FILED THIS APPEAL RAISING THIS GROUND:- CARRY FORWARD OF EXCESS APPLICATION: I). WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT WITHOUT APPRECIATING THE FACT THA T THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENVISAGED U/S 15 TO 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PURPOSE OF CLAIMING EXEMP TION UNDER SECTION 11, 12 AND 13 AND, THEREFORE, THE PRO VISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF TOSS FROM ON E HEAD AGAINST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET-OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YE ARS AS ENVISAGED U/S 70 TO 79 ARE ALSO NOT APPLICABLE TO T HE CHARITABLE TRUSTS/INSTITUTIONS. II). WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW WITHOUT APPRECIATING THE F ACT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN THE IN COME COMPUTED DOES NOT ARISE, EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCURRED HUGE AMOUNT OF CAPITAL EXPEND ITURE ITA NO.962/B/201 6 4 SOURCED OUT OF BORROWED OR CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME. HOWEVER, EXPENDITURE INCURRED OUT OF THE ABOVE SOURCES CANNO T BE TERMED AS APPLICATION OF FUNDS OUT OF THE INCOME EA RNED IN A PARTICULAR ASSESSMENT YEAR INASMUCH AS LOAN BORRO WED DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED B Y THE ASSESSEE, CORPUS FUND DONATION DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION 11(1)(D) AND 15% OF INC OME SET APART IN EARLIER ASSESSMENT YEAR CANNOT BE CONSTRUE D AS INCOME OF THE CURRENT YEAR AND 15% SET APART OUT OF THE CURRENT YEAR INCOME IS ALSO EXCLUDED FROM INCOME AV AILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATIO N IS ONLY TO SHOW THAT THE INCOME IS FULLY UTILIZED RATHER TH AN CLAIMING EXCESS EXPENDITURE EITHER REVENUE OR CAPIT AL OVER AND ABOVE THE INCOME SO AS TO CLAIM EXCESS APPLICAT ION OR DEFICIT/LOSS TO BE CARRIED FORWARD TO SUBSEQUENT AS SESSMENT YEARS. EVEN IN THE CASE OF EXCESS APPLICATION BY VI RTUE OF BORROWED FUNDS/CORPUS FUND DONATIONS/15% SET APART OF EARLIER YEARS, THE INCOME OF THE ASSESSEE CANNOT BE CONVERTED TO LOSS BUT AT BEST IT CAN BE MADE NIL. H ENCE, THE CARRY FORWARD OF EXCESS APPLICATION OF INCOME AS CL AIMED BY THE ASSESSEE CANNOT BE ALLOWED. 3.2.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT TH E IDENTICAL ISSUE ITA NO.962/B/201 6 5 WAS UP FOR CONSIDERATION BEFORE A COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASST. YEARS 2008-09 AND 2009-10. IN ITS ORDER IN ITA NO.1075 & 1076/BANG/2014 DATED 9/10/20 15, THE CO- ORDINATE BENCH ALLOWED THE ASSESSEES CLAIM FOR SET OFF OF BROUGHT FORWARD EXCESS APPLICATION OF INCOME/EXPENDITURE AG AINST THE ASSESSEES INCOME FOR THE SUBSEQUENT YEARS I.E, ASS T. YEAR 2009-10. AT PARAS 5.3.1 TO 5.3.3 THEREOF THE COORDINATE BENCH H AS HELD AS UNDER:- 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF B OTH THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSES SEE AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL O N RECORD, INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED . THE FACTS OF THE ISSUE BEFORE US IS THAT THE ASSESSEE H AD INCURRED CERTAIN PRELIMINARY EXPENDITURE IN THE YEA R OF SETTING UP OF THE TRUST. THE SAME IS AMORTISED BY THE ASSESSEE TRUST OVER A PERIOD OF 5 YEARS FROM THE YE AR OF INCURRING OF EXPENDITURE. THE FACT OF AMORTIZATION WAS NOT DISPUTED BY THE ASSESSING OFFICER IN THE ASSESS MENT PROCEEDINGS FOR ASSESSMENT YEAR 2007-08 WHERE THE ENTIRE AMOUNT WAS ADDED BACK CLAIMING 1/5 TH OF THE EXPENDITURE. THE UN-AMORTISED EXPENDITURE HAS BEEN BROUGHT FORWARD AND SET OFF AS APPLICATION OF INCOM E IN ITA NO.962/B/201 6 6 SUBSEQUENT YEARS, INCLUDING THE TO ASSESSMENT YEARS , 2008-09 AND 2009-10 WHICH ARE UNDER CONSIDERATION. 5.3.2 WE FIND THAT THE ISSUE BEFORE US IS DIREC TLY RELATED TO THE ISSUE DECIDED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SISTERS OF ST. ANNE (SUPRA)CIT ED BY THE ASSESSEE. IN THE SAID CASE, THE HON'BLE KARNAT AKA HIGH COURT AT PARAS 8 TO 10 THEREOF HAS HELD AS UND ER :- 8. .... BUT STILL THE CONTENTION FOR THE REVENUE IS T HAT THE DEPRECIATION ALLOWANCE BEING A NOTIONAL INCOME (EXPENDITURE ?) CANNOT BE ALLOWED TO BE DEBITED TO THE EXPENDITURE ACCOUNT OF THE TRUST. THIS CONTENTION A PPEARS TO PROCEED ON THE ASSUMPTION THAT THE EXPENDITURE S HOULD NECESSARILY INVOLVE ACTUAL DELIVERY OF OR PARTING W ITH THE MONEY. IT SEEMS TO US THAT IT NEED NOT NECESSARILY BE SO. THE EXPENDITURE SHOULD BE UNDERSTOOD AS NECESSARY OUTGOINGS. THE DEPRECIATION IS NOTHING BUT DECREASE IN VALUE OF PROPERTY THROUGH WEAR, DETERIORATION OR OBSOLESCENCE AND ALLOWANCE IS MADE FOR THIS PURPOSE IN BOOK KEEPING, ACCOUNTANCY, ETC. IN SPICER & PEGLER' S BOOK-KEEPING AND ACCOUNTS, 17TH EDN., PP. 44, 45 & 46, IT HAS BEEN NOTED AS FOLLOWS: 'DEPRECIATION IS THE EXHAUSTION OF THE EFFECTIVE LI FE OF A FIXED ASSET OWING TO USE' OR OBSOLESCENCE. IT MAY BE COMPUTED AS THAT PART OF THE COST OF THE ASSET WHIC H WILL ITA NO.962/B/201 6 7 NOT BE RECOVERED WHEN THE ASSET IS FINALLY PUT OUT OF USE. THE OBJECT OF PROVIDING FOR DEPRECIATION IS TO SPRE AD THE EXPENDITURE, INCURRED IN ACQUIRING THE ASSET, OVER ITS EFFECTIVE LIFETIME; THE AMOUNT OF THE PROVISION, MA DE IN RESPECT OF AN ACCOUNTING PERIOD IS INTENDED TO REPR ESENT THE PROPORTION OF SUCH EXPENDITURE, WHICH HAS EXPIR ED DURING THAT PERIOD.' 'AT THE END OF ITS EFFECTIVE LIFE, THE ASSETS CEASE S TO EARN REVENUE, I.E., THE CAPITAL VALUE HAS EXPIRED AND TH E ASSET WILL HAVE TO BE REPLACED OR A SUBSTITUTE FOUND. PRO VISION FOR DEPRECIATION IS THE SETTING ASIDE, OUT OF THE R EVENUE OF AN ACCOUNTING PERIOD, THE ESTIMATED AMOUNT BY WHICH THE CAPITAL INVESTED IN THE ASSET HAS EXPIRED DURING TH AT PERIOD. IT IS THE PROVISION MADE FOR THE LOSS OR EX PENSE INCURRED THROUGH USING THE ASSET FOR EARNING PROFIT S, AND SHOULD, THEREFORE, BE CHARGED AGAINST THOSE PROFITS AS THEY ARE EARNED.' 'IF DEPRECIATION IS NOT PROVIDED FOR, THE BOOKS WIL L NOT CONTAIN A RECORD OF REVENUE OR CAPITAL. IF THE ASSE T WERE HIRED INSTEAD OF PURCHASED, THE HIRING FEE WOULD BE CHARGED AGAINST THE PROFITS; HAVING BEEN PURCHASED, THE ASSET IS, IN EFFECT, THEN HIRED BY CAPITAL TO REVEN UE, AND THE TRUE PROFIT CANNOT BE ASCERTAINED UNTIL A SUITA BLE CHARGE FOR THE USE OF THE ASSET HAS BEEN MADE. MORE OVER, ITA NO.962/B/201 6 8 UNLESS PROVISION IS MADE FOR DEPRECIATION, THE BALA NCE SHEET WILL NOT PRESENT A TRUE AND THE FAIR VIEW OF THE STATE OF AFFAIRS; ASSETS SHOULD BE SHOWN AT A FIGURE WHIC H REPRESENTS THAT PART OF THEIR VALUE ON ACQUISITION, WHICH HAS NOT YET EXPIRED.' 9. IN CIT VS. INDIAN JUTE MILLS ASSOCIATION (1982 ) 134 ITR 68 (CAL), THE CALCUTTA HIGH COURT, WHILE CONSTR UING THE EXPRESSION 'EXPENDITURE' INCURRED IN S. 44A OF THE ACT, OBSERVED: 'DEPRECIATION CLAIMED SHALL INCLUDE THE EXPENDITURE INCURRED.' 10. THERE ARE ONLY TWO RECOGNISED METHODS OF ACCOUNTING : (I) CASH BASIS, (II) MERCANTILE BASIS. UNDER THE CASH BASIS ONLY CASH TRANSACTIONS ARE RECORDED. IT IS ONLY CASH RECEIPTS AND CASH PAYMENTS WHICH FIND ENT RIES IN THE BOOKS OF ACCOUNT. MERCANTILE SYSTEM OF ACCOU NTING WAS EXPLAINED BY THE SUPREME COURT IN KESHAV MILLS LTD. VS. CIT (1953) 23 ITR 230 AT 230 (SC) IN THE FOLLOW ING WORDS : 'THE MERCANTILE SYSTEM OF ACCOUNTING OR WHAT IS OTHERWISE KNOWN AS THE DOUBLE ENTRY SYSTEM IS OPPOS ED TO THE CASH SYSTEM OF BOOK-KEEPING UNDER WHICH A RECOR D IS KEPT OF ACTUAL CASH RECEIPTS AND ACTUAL CASH PAYMEN TS, ITA NO.962/B/201 6 9 ENTRIES BEING MADE ONLY WHEN MONEY IS ACTUALLY COLL ECTED OR DISBURSED. THAT SYSTEM BRINGS INTO CREDIT WHAT I S DUE, IMMEDIATELY IT BECOMES LEGALLY DUE AND BEFORE IT IS ACTUALLY RECEIVED AND IT BRINGS INTO DEBIT EXPENDIT URE THE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRE D BEFORE IT IS ACTUALLY DISBURSED.' IT IS NOT IN DISPUTE THAT IF THE MERCANTILE SYSTEM IS FOLLOWED, THE DEPRECIATION ALLOWANCE IN RESPECT OF THE TRUST PROPERTY SHOULD BE ALLOWED. 5.3.3 FURTHER, THE CBDT CIRCULAR NO.5-P (LXX) 6 OF 1968 CITED BY THE ASSESSEE MAKES IT CLEAR THAT INCO ME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE; IN TH E CASE OF TRUSTS ALSO AND THEREFORE THE COMMERCIAL PRINCIP LE ENUNCIATED BY THE HON'BLE KARNATAKA HIGH COURT IN T HE ABOVE REFERRED CASE OF SISTERS OF ST. ANNE (SUPRA) APPLIES TO TRUSTS AS WELL. IN VIEW OF THE FACTUAL AND LEGA L MATRIX OF THIS ISSUE IN THE CASE ON HAND AS DISCUSSED ABOV E, WE CONCUR WITH THE DECISION OF THE LEARNED CIT (APPEA LS) IN CANCELLING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND IN ALLOWING THE AMORTIZATION OF EXPENSE S. CONSEQUENTLY, GROUND NO. B (1 TO 6) OF THE REVENUE S APPEAL FOR ASSESSMENT YEAR 2008-09 AND GROUND NO.C FOR ASSESSMENT YEAR 2009-10 ARE DISMISSED. ITA NO.962/B/201 6 10 3.2.2 FOLLOWING THE AFORESAID ORDER OF THE CO-ORDIN ATE BENCH IN THE ASSESSES OWN CASE FOR ASST. YEARS 2008-09 & 2009-1 0, WE ALLOW THE ASSESSEES CLAIM FOR SET OFF OF THE EXCESS APPLICAT ION OF ASST. YEAR 2009-10 AGAINST THE ASSESSEES INCOME FOR ASST. YEA R 2010-11 IN THE CASE ON HAND AND THEREBY UPHOLD THE IMPUGNED ORDER OF THE LD CIT(A) ON THIS ISSUE. CONSEQUENTLY, FINDING NO MERIT IN T HE GROUNDS RAISED BY REVENUE, WE DISMISS THE SAME. 5. IN THE RESULT, THE REVENUES APPEAL FOR ASST. Y EAR 2010-11 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2017 . SD/- SD/- (LALIET KUMAR) (JA SON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEM BER BANGALORE DATED : 31/8/2017 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REG ISTRAR, ITAT, BANGALORE.