The ITO, (Exemptions), Palanpur V. The Banaskantha District Kelvani Mandal, Palanpur

ITA 967/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6335 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 17-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: MANTHAN S KHOKANI
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 12A; 32; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 967/AHD/2015 (ASSESSMENT YEAR: 2010-11) THE I.T.O. (EXEMPTIONS) PALANPUR (B.K) V/S THE BANASKANTHA DISTRICT KELVANI MANDAL C/O. COLLEGE CAMPUS OPP. S.T. WORKHSOP PALANPUR DIST: BANASKANTHA (APPELLANT) (RESPONDENT) PAN: AAATB1553B APPELLANT BY : SHRI V.K. SINGH, SR. D.R. RESPONDENT BY : SHRI MANTHAN S. KHOKANI, A.R . ( )/ ORDER DATE OF HEARING : 04 -01-201 8 DATE OF PRONOUNCEMENT : 05-01-2018 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-9, AHMEDABAD DATED 13.01.2015 PERTAINING TO A.Y. 2010- 11. ITA NO. 967/A HD/2015 . A.Y. 2010-11 2 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS. 53,60,346/- MAD E BY THE A.O. 3. THE GRIEVANCE RAISED BY THE REVENUE IS NO MORE RES INTEGRA AS THE SAME IS NOW WELL SETTLED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE HONBLE SUPREME COURT IN A BUNCH OF APPEALS IN CIVIL APPEAL NO. 7186 OF 2014. IT WOULD BE APPROPRIATE TO EXTRACT THE JUDGMENT OF THE HONBLE SUPREME COURT FOR THE SAKE OF THE COMPLETENESS OF THE ADJUDICATIO N. THESE ARE THE PETITIONS AND APPEALS FILED BY THE I NCOME TAX DEPARTMENT AGAINST THE ORDERS PASSED BY VARIOUS HIGH COURTS GRANTING B ENEFIT OF DEPRECIATION ON THE ASSETS ACQUIRED BY THE RESPONDENTS-ASSESSEES. IT IS A MATTER OF RECORD THAT ALL THE ASSESSEES ARE CHARITABLE INSTITUTIONS REGISTERED UN DER SECTION 12A OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS 'ACT'). FOR THI S REASON, IN THE PREVIOUS YEAR TO THE YEAR WITH WHICH WE ARE CONCERNED AND IN WHICH Y EAR THE DEPRECIATION WAS CLAIMED, THE ENTIRE EXPENDITURE INCURRED FOR ACQUIS ITION OF CAPITAL ASSETS WAS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PUR UPOSES UNDER SECTION 11(1)(A) OF THE ACT. THE VIEW TAKEN BY THE ASSESSING OFFICER IN DISALLOWING THE DEPRECIATION WHICH WAS CLAIMED UNDER SECTION 32 OF THE ACT WAS T HAT ONCE THE CAPITAL EXPENDITURE IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES, THE ASSESSEES HAD VIRTUALLY ENJOYED A 100 PER CENT WRIT E OFF OF THE COST OF ASSETS AND, THEREFORE, THE GRANT OF DEPRECIATION WOULD AMOUNT T O GIVING DOUBLE BENEFIT TO THE ASSESSEE. THOUGH IT APPEARS THAT IN MOST OF THESE C ASES, THE CIT (APPEALS) HAD AFFIRMED THE VIEW, BUT THE ITAT REVERSED THE SAME A ND THE HIGH COURTS HAVE ACCEPTED THE DECISION OF THE ITAT THEREBY DISMISSIN G THE APPEALS OF THE INCOME TAX DEPARTMENT. FROM THE JUDGMENTS OF THE HIGH COUR TS, IT CAN BE DISCERNED THAT THE HIGH COURTS HAVE PRIMARILY FOLLOWED THE JUDGMEN T OF THE BOMBAY HIGH COURT IN 'COMMISSIONER OF INCOME TAX V. INSTITUTE OF BANK ING PERSONNEL SELECTION (IBPS)' [(2003) 131 TAXMAN 386 (BOMBAY)]. IN THE SAID JUDGM ENT, THE CONTENTION OF THE DEPARTMENT PREDICATED ON DOUBLE BENEFIT WAS TURNED DOWN IN THE FOLLOWING MANNER: 3. AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIR ES 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 ITA NO. 967/A HD/2015 . A.Y. 2010-11 3 TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRU ST. IT WAS ALSO REGISTERED WITH THE COMMISSIONER OF INCOME TAX, PUNE. THE ASSE SSEE DERIVED INCOME FROM THE TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY . DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1977 -78, 1978-79 AND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE V ALUE OF THE BUILDING @2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITUR E @ 5%. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETERMINA TION WAS : WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSEE, AS EX PENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN TREATED AS APPLI CATION 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 THE TRUST FROM THE PROPERTY HELD FOR CHAR ITABLE OR RELIGIOUS PURPOSES AND IT ALSO PROVIDES FOR APPLICATION AND A CCUMULATION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME TAX ACT DEALS WITH CHARGEABILITY OF INCOME FROM PROFITS AND GAINS OF B USINESS AND SECTION 29 PROVIDES THAT INCOME FROM PROFITS AND GAINS OF BUSI NESS AHLL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 43C. THAT, SECTION 32(1) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPECT OF BUILDIN G, PLANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR BUSINESS PURPOSE S. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN THAT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON B EHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTI ON ONLY UNDER SECTION 32 OF THE INCOME TAX ACT AND NOT UNDER GENERAL PRIN CIPLES. THE COURT REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEP RECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING T HE REAL INCOME OF THE ASSESSEE ON GENERAL PRINCIPLES OR UNDER SECTION 11( 1)(A) OF THE INCOME TAX ACT THE COURT REJECTED THE ARGUMENT ON BEHALF OF TH E REVENUE THAT SECTION 32OF THE INCOME TAX ACT WAS THE ONLY SECTION GRANTI NG BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD T HAT INCOME OF A CHARITABLE TRUST DERIVED FORM BUILDING, PLANT AND M ACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED IN NORMAL COMMERCIAL MANN ER 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 INCOME TAX ACT PROVIDING F OR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROF ESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQ UIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PRO VIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE ITA NO. 967/A HD/2015 . A.Y. 2010-11 4 TRUST. IN VIEW OF THE AFORESATATED JUDGMENT OF THE BOMBAY HIGH CURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE I.E., IN F AVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 4. QUESTION NO. 2 HEREIN IS IDENTICAL TO THE QUES TION 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 ANS WERED IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGA INST THE DEPARTMENT. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE A RE 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 SAME . IT MAY BE MENTIONED THAT MOST OF THE HIGH CO URTS HAVE 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. CO MMISSIONER OF INCOME TAX'. IT MAY ALSO BE MENTIONED AT THIS STAGE THAT THE LEGISLATURE, 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 AMENDM ENT IS PROSPECTIVE IN NATURE. ITA NO. 967/A HD/2015 . A.Y. 2010-11 5 IT ALSO FOLLOWS THAT ONCE ASSESSEE IS ALLOWED DEPRECIATION, HE SHALL BE ENTITLED TO CARRY FORWARD THE DEPRECIATION AS WELL. FOR THE AFORESAID REASONS, WE AFFIRM THE VIEW TAKEN BY THE HIGH COURTS IN THESE CASES AND DISMISS THESE MATTERS. 4. RESPECTFULLY FOLLOWING THE AFORE-STATED JUDGMENT OF THE HONBLE SUPREME COURT, THE APPEAL BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 05- 01- 20 18 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 05/01/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD