Income Tax Appellate Tribunal - Bangalore
Ddit, Bangalore vs Ohio University Christ College, ... on 31 August, 2017
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
ORDER
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, Bangalore dated 8/3/2016 for asst. year 2010-11.
2. Briefly stateds the facts of the case are as under:-
ITA No.962/B/2016 22.1 The assessee, is a public charitable trust registered u/s 12A of the Income-tax Act, 1961 (in short 'the Act'), established for the purpose of promoting education without any profit motive. The assessee reportedly conducts MBA programmes in India in collaboration with Ohio University, USA. For asst. year 2010-11, the assessee filed its return of income on 14/10/2010 declaring NIL income. The return was processed u/s 143(1) of the Act and the case was subsequently taken up for scrutiny. The assessment was competed u/s 143(3) of the Act vide order dated 26/3/2013, wherein the assessee's income was determined at Rs.72,93,196/-, due to the Assessing Officer ('AO') disallowing of the assessee's claim for set off of excess application of asst. year 2009-10 against 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 Act permitting the assessee's claim. On appeal, the ld CIT(A) vide order dated 8/3/2016 allowed the assessee's aforesaid claim for set off of earlier years excess application against the assessee's income for asst. year 2010- 11 following, inter alia, the decision of the co-ordinate bench of this ITA No.962/B/2016 3 Tribunal in the assessee's 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, Bangalore 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 that 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 exemption under section 11, 12 and 13 and, therefore, the provisions relating to set-off of loss from one source against the income from another source, set-off of toss from one head against income from another head and carry forward and set-off of loss against the income of subsequent years as envisaged u/s 70 to 79 are also not applicable to the charitable trusts/institutions.
ii). Whether, in the given facts and circumstances, the CIT(A) is correct in law without appreciating the fact that the issue of application of income more than the income computed does not arise, except in a case where the assessee has incurred huge amount of capital expenditure ITA No.962/B/2016 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 cannot be termed as application of funds out of the income earned in a particular assessment year inasmuch as loan borrowed does not fall under the category of income earned by the assessee, corpus fund donation does not come under income by virtue of section 11(1)(d) and 15% of income set apart in earlier assessment year cannot be construed as income of the current year and 15% set apart out of the current year income is also excluded from income available for application. As such, the concept of application is only to show that the income is fully utilized rather than claiming excess expenditure either revenue or capital over and above the income so as to claim excess application or deficit/loss to be carried forward to subsequent assessment years. Even in the case of excess application by virtue 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. Hence, the carry forward of excess application of income as claimed by the assessee cannot be allowed."
3.2.1 We have heard the rival contentions and perused and carefully considered the material on record. We find that the identical issue ITA No.962/B/2016 5 was up for consideration before a coordinate bench of this Tribunal in the assessee's own case for asst. years 2008-09 and 2009-10. In its order in ITA No.1075 & 1076/Bang/2014 dated 9/10/2015, the co-
ordinate bench allowed the assessee's claim for set off of brought forward excess application of income/expenditure against the assessee's income for the subsequent years i.e, asst. year 2009-10. At paras 5.3.1 to 5.3.3 thereof the coordinate bench has held as under:-
"5.3.1 We have heard the rival contentions of both the learned Departmental Representative for Revenue and the learned Authorised Representative for the assessee and perused and carefully considered the material on record, including the judicial pronouncements cited. The facts of the issue before us is that the assessee had incurred certain preliminary expenditure in the year of setting up of the trust. The same is amortised by the assessee trust over a period of 5 years from the year of incurring of expenditure. The fact of amortization was not disputed by the Assessing Officer in the assessment 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 income in ITA No.962/B/2016 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 directly related to the issue decided by the Hon'ble Karnataka High Court in the case of Sisters of St. Anne (supra)cited by the assessee. In the said case, the Hon'ble Karnataka High Court at paras 8 to 10 thereof has held as under :-
" 8. .... But still the contention for the Revenue is that the depreciation allowance being a notional income (expenditure ?) cannot be allowed to be debited to the expenditure account of the trust. This contention appears to proceed on the assumption that the expenditure should necessarily involve actual delivery of or parting with 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 life of a fixed asset owing to 'use' or obsolescence. It may be computed as that part of the cost of the asset which will ITA No.962/B/2016 7 not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective lifetime; the amount of the provision, made in respect of an accounting period is intended to represent the proportion of such expenditure, which has expired during that period."
"At the end of its effective life, the assets ceases to earn revenue, i.e., the capital value has expired and the asset will have to be replaced or a substitute found. Provision for depreciation is the setting aside, out of the Revenue of an accounting period, the estimated amount by which the capital invested in the asset has expired during that period. It is the provision made for the loss or expense incurred through using the asset for earning profits, and should, therefore, be charged against those profits as they are earned."
"If depreciation is not provided for, the books will not contain a record of revenue or capital. If the asset 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 revenue, and the true profit cannot be ascertained until a suitable charge for the use of the asset has been made. Moreover, ITA No.962/B/2016 8 unless provision is made for depreciation, the balance sheet will not present a true and the fair view of the state of affairs; assets should be shown at a figure which 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 construing 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 entries in the books of account. Mercantile system of accounting was explained by the Supreme Court in Keshav Mills Ltd. vs. CIT (1953) 23 ITR 230 at 230 (SC) in the following words :
"The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book-keeping under which a record is kept of actual cash receipts and actual cash payments, ITA No.962/B/2016 9 entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred 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 income should be understood in its commercial sense; in the case of trusts also and therefore the commercial principle enunciated by the Hon'ble Karnataka High Court in the above referred case of Sisters of St. Anne (supra) applies to trusts as well. In view of the factual and legal matrix of this issue 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 allowing the amortization of expenses. 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/2016 103.2.2 Following the aforesaid order of the co-ordinate bench in the assesse's own case for asst. years 2008-09 & 2009-10, we allow the assessee's claim for set off of the excess application of asst. year 2009-10 against the assessee's income for asst. year 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 the grounds raised by Revenue, we dismiss the same.
5. In the result, the Revenue's appeal for asst. year 2010-11 is dismissed.
Order pronounced in the open court on 31st August, 2017.
Sd/- Sd/-
(LALIET KUMAR) (JASON P BOAZ)
JUDICIAL MEMBER ACCOUNTANT MEMBER
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. Registrar, ITAT, Bangalore.