Income Tax Appellate Tribunal - Ahmedabad
The Dcit (Exemptions), Circle-2,, ... vs Sardar Patel Education Trust,, Anand on 30 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH
(BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
& SHRI AMARJIT SINGH, ACCOUNTANT MEMBER)
ITA. No: 424/AHD/2017
(Assessment Year: 2012-13)
Deputy Commissioner of V/S Sardar Patel Education
Income-tax (Exemptions), Trust C/o. C.P. Patel &
Circle-2, Ahmedabad F.H.Shah Commerce
College, Bhalej Road,
Anand-388001
(Appellant) (Respondent)
PAN: AABTS2321M
Appellant by : Shri Lalit P Jain, Sr. D.R.
Respondent by : None
(आदे श)/ORDER
Date of hearing : 24-08-2018
Date of Pronouncement : 30-08-2018
PER MAHAVIR PRASAD, JUDICIAL MEMBER
1. This appeal by the Revenue is directed against the order of the Ld. CIT(A)-9, Ahmedabad dated 06.12.2016 pertaining to A.Y. 2012-13 and following grounds have been taken:
2 ITA No. 424/Ahd/2017. A.Y. 2012-13
1. Whether on the facts and in the circumstances of the case is the Ld. CIT (A) justified in allowing the depreciation of Rs.84,35,041/-which amount to double deduction as 100% deduction was already allowed to the assessee as application of income.
2.On the facts and circumstances of the case, the Id. Commissioner of Income-Tax (Appeal) ought to have upheld the order of the Assessing officer.
2. Briefly stated the facts of the case are that the assessee trust is very old trust engaged in the educational activities at Anand. The trust claims exemption u/s 11 of the I.T. Act. The assessee trust is registered under section 12A of the Act, vide registration No-BRD/Exemption/110-16-S/99-2000 dated 26-11-1999. The trust is also registered u/s 80G(5) of the Income tax Act, 1961.
3. It was seen that the trust has claimed depreciation to the extent of Rs. 84,35,041/- for the relevant period. The AR of the assessee was asked by the A.O. as to why the claim of depreciation should not be disallowed in view of the fact that capital expenditure is allowed as application of income in case of a trust.
4. Thereafter following reply was filed by the ld. A.R. :
As regards the show cause as to why deduction on account of Depreciation claimed by the Trust should not be disallowed treating the same as double deduction as the assessee treats Capital Expenditure on acquisition of assets as application of income u/s 11 of the Act, it is respectfully submitted that the same is permissible in view of the following judicial pronouncement wherein it has been specifically and unambiguously held as follows: -
Allowing depreciation in the computation of income to be applied will not lead to a double deduction: - Deduction of depreciation is different from application of income, as has been explained in following case laws: -3 ITA No. 424/Ahd/2017
. A.Y. 2012-13 In CIT v/s Raipur Pallottine Society 180ITR 579 (MP), it was held that depreciation on assets held by assessee-trusl provided in books of accounts is allowable. If depreciation is not allowed as a necessary deduction for computing the income of charitable institution, then there would be no way to preserve the corpus of the trust for deriving income. The Revenue's contention that depreciation under Sec. 32 of the Act could be allowed only when income was computed under the head "Business" falling under Sec. 28 of the Act was not accepted and in this regard, the court relied on the observations of the Karnataka High Court in CIT Vs. Society of the Sisters of St. Anne 146 ITR 28 (Kar).
In Director of Income Tax (Exemption) v/s Framjee Cawasjee Institute 109 CTR 463 (Bom), the Court held that depreciation on depreciable assets had to be taken into account in computing the income of the trust although the amount spent on acquiring such assets had been treated as application of income of trust in the year in which assets were acquired. The Tribunal had clarified the position by stating that: "When the ITO says that full expenditure has been allowed in the year of the acquisition of the assets, what he really means is that the amount spent on acquiring these assets had been treated as application of income of the trust in the year in which the income was spent in acquiring these assets. This does not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account." As the position was clear, the Court declined the reference.
In CIT v/s Tiny Tots Education Society 330 ITR 21 (P&H), the Court held that depreciation is allowable on capital assets from the income of charitable trust for determining the quantum of funds which have to be applied for the purposes of the trust in terms of Sec. 11. The provision relating to compulsory application of income is altogether a different concept and would come into play only after the income is determined. In determining the income, depreciation has to be taken intoaccount. Application of income is not computation of income of the charitable institution. Therefore, the question whether depreciation is to be allowed or not has nothing to do with the application of income. Income is always to be computed on commercial principles and as per system of accounting followed by the assessee, subject always to the statutory provisions. A similar view has been held in CIT v/s Market Committee, PIPLI 330 ITR 16 (P&H) wherein depreciation was allowed on capital assets of the charitable trust for determining the quantum of funds to be applied for the purposes of the trust in terms of Sec. 11. The court was of the view that depreciation in case of trusts was not a double deduction as it was not an expenditure; it only reduced the percentage of funds available for charitable or religious purposes. It negatived 4 ITA No. 424/Ahd/2017 . A.Y. 2012-13 the claim of the Revenue which relied on the decision in Escorts Ltd. v/s Union of India (1993) 199 ITR 43 (SC).
The Escorts Ltd. case was distinguished by the P&H Court in Market Committee, Pipli (supra), wherein the high Court distinguished the case as follows:
In the Escorts case, two deductions -were claimed under both Sections 32 (1) (ii) and 35(1)(iv) of the Act. The assessee therein had incurred expenditure of a capital nature on scientific research relating to the business which resulted in acquisition of an asset, and had claimed depreciation on the asset under Section 32 and 100% deduction as expenditure on scientific research under Section 35(l)(iv). The Apex Court had observed that: ".... Where a capital asset used for scientific research related to the business of the assessee is also ipso facto an asset used for the purpose of the business, it is impossible to conceive of the legislature having envisaged a double deduction in respect of the same expenditure, one by way of depreciation under Sec. 32 of the IT Act, 1961 and other by way of allowance under Sees. 35(l)(iv) of a part of the capital expenditure on scientific research, even though the two heads of deduction do not completely overlap and there is some difference in the rationale of the two deductions...... "
However, in the instant case, the trust is not claiming double deduction on account of depreciation. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. It cannot be held that double benefit is given in allowing the claim for depreciation for computing income for the purposes of Sec. 11. Hence, the Escorts case was distinguished and reliance was placed by the Court on CIT Vs. Society of the Sisters of St. Anne, CIT Vs. Raipur Pallottine Society, CIT Vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust (Gup 198 ITR 598, etc. Subsequent to Lisssie case (which has created much hue and cry in the department regarding depreciation claim), the High Court of Delhi dealt with a similar issue in DIT Vs. Vishwa Jagriti Mission and once again distinguished the Escorts Ltd. case (supra). In DIT Vs. Vishwa Jasriti Mission (2012) 73 DTK (Del) 195, the Court held that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. It also distinguished the Escorts Ltd. case and held that: ".... In the Escorts case, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, 5 ITA No. 424/Ahd/2017 . A.Y. 2012-13 there is authority for the proposition that depreciation is a necessary charge in computing tin1 net income. Secondly, the Supreme Court was concerned with the case where the asses see had claimed deduction of the cost of the asset under Section 35 (1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in respect of the cost of the asset under Section 35 (1), can the assessee again claim deduction on account of depreciation in respect of the same asset. The Supreme Court ruled that, under general principles of taxation, double deduction in regard to the same business outgoing is no! intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT(Appeals). "
Also, in CIT Vs. Institute of Banking Personnel 264 ITR 110 (Bom), the Court followed the principle laid down in CIT vs. Munisuvrat Jain (1994) Tax LR 1084 (Bom) and held that depreciation is allowable on the assets the cost of which has been fully allowed as application of income under Sec. 11 in past years. The Court rejected the argument of the Revenue that that depreciation can be allowed as deduction only under Sec. 32 of the IT Act and not under general principles; and held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under Sec. 11(1) (a) of the IT Act. It held that income of a charitable trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, Sec. 32 of the IT 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 Sec. 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the trust.
Following these judgments, the Income tax Appellate Tribunals have also decided the issue in favour of the assessee and allowed depreciation in the following cases:
• Coimbatore Stock Exchange Ltd, v/s Department Of Income Tax • ITO(OSD) v/s M/s. The Educational Trust of the Seventh Day Adventists in ITA No. 640/Mds/2009 • DDIT (Exemptions) v/s M/s. St. John's Educational Trust in ITA Nos. 987 to 990/Mds/2010 dated 18.10.201 Moreover, the Jurisdictional, Binding and Honourable Ahmedabad ITAT in ADIT (Exemption) v/s Friends of WWB, India, (ITA No. 2658/Ahd/2012), after duly considering the decisions of Escorts Ltd, and Lissie Medical Institutions has distinguished the same, and after elaborately discussing the issue vis-a-vis a plethora of case laws, allowed claim of depreciation as well as capital expenditure. Similar view was expressed by the AhmendabadITAT in 102 TTJ
653. 6 ITA No. 424/Ahd/2017
. A.Y. 2012-13 ii. Now coming to the case of Lissie Medical Institutions v/s CIT (Kerala) 24 taxmann.com 9 which has created much hue and cry in the department, it is pertinent to note that the said decision was on different facts as mentioned below:
-
a. The decision of Honourable Kerala High court in Lissie Medical Institutions was on Section 32 r.w.s. 11(1) (a) of the Act and in case of a Trust carrying on business (i.e. business was held in trust) and where claim was made u/s 32 out of such Business Income, in this regard the following is worth taking note of: -"Section 32, read with section 11, of the Income-tax Act, 1961 - Depreciation -Allowance/Rate of - Assessment year 2005-06 - Whether if assessee treats expenditure on acquisition of assets as application of income for a charitable , purposes under section 11(1)(a), assessee cannot claim depreciation on value of such assets - Held, yes"
"It is settled position through several decisions of the High Courts and the Supreme Court that when business is held in trust by charitable institutions income from business has to be computed by granting deductions provided under sections 30 to 43D as provided under section 29. [Para 5] " The Honourable High Conn also relied on the decision of Escorts Ltd, v/s Union of India (SO 199 ITR 43, which was also on Section 32 r.w.s. 35(2) (iv) wherein it was held that "when entire expenditure on scientific research was allowed u/s 35, depreciation u/s 32 cannot be allowed on the same. " Thus, as it is clear from the specific findings in the aforesaid rulings, the decisions were w.r.t. Section 32 of the Act. Here it is needless to mention that for disallowing anything u/s 32 there has to be a claim by the assessee u/s 32 out of which something or the entire claim could be disallowed. In the present case, the Trust is not engaged in any business activity and thus there is no business income and hence there is no claim of Depreciation u/s 32 of the Act. Hence, nothing could be disallowed u/s 32 of the Act as also the decisions cited above are clearly distinguishable on facts.
b. Further, in the aforesaid decision of Lissie Medicat Institutions (Kerala), the Honourable Kerala High Court has categorically observed as follows:-7 ITA No. 424/Ahd/2017
. A.Y. 2012-13 "As rightly pointed out by the assessee, the system of allowing depreciation was followed by the assessee for several years and it was consistent with the view taken by the several High Courts in India. There is force in this contention because assessee cannot be taken by surprise by disallowing depreciation which was being allowed for several years and to demand tax for one year after making disallowance. The assessee should be allowed to write back the depreciation for this year and even for previous years and then allow the same to be carried forward for application for subsequent years. It is for the assessee to write back depreciation and if so done the Assessing Officer will modify the assessment determining higher income and allow recomputed income with the depreciation written back by the assessee to be carried forward for subsequent years for application for charitable purposes. [Para 8] "
Thus, even otherwise, the addition could not be made to the total income of the assessee for the year under consideration on account of disallowance of depreciation, as per the categorical and specific directions of the Honourable High Court.
c. Without prejudice, in the worst scenario and presuming and pretending that the decision of Honourable Kerala High Court is not w.r.t. Section 32 but w.r.t. the computation of income of Trust under normal circumstances, it is significant to consider the following: -
i. With all respect, Honourable Kerala High Court is a non-jurisdictional court.
ii. The simultaneous claim of Depreciation and Capital Expenditure has been allowed and decided in favour of assessee by various other Honourable Courts including Jurisdictional High Court of Gujarat (This fact is also acknowledged by the Honourable Kerala High Court as cited in point (b) above). The issue is in favour of assessee as per Jurisdictional Tribunal (as cited above) as well.
iii. The honourable Tribunal has distinguished the decision of Kerala High Court on facts and in law and given a detailed reasoning for the same.
All the aforesaid circumstances require recalling the decision of Honourable Supreme Court in CIT v/s Vegetable Products Ltd. (SO (88 ITR 192) wherein their Lordships have held that " if two contrary views are taken by the different High Courts or if two views are possible, view 8 ITA No. 424/Ahd/2017 . A.Y. 2012-13 favourable to the assessee should be adopted". Thus, even on this count and with due respect the decision of Honourable Kerala high Court fails to apply.
In view of the above fuels, the provisions of Act as well as the ratio laid down by binding judicial pronouncements, the assessee can claim deduction of Depreciation as well as Capital Expenditure as application of Income u/s 11 as the same does not amount to 'double deduction'. Thus,Depreciation cannot be disallowed even if the capital expenditure on acquisition of assets is claimed as Application of Income.
5. The above said reply was considered by the ld. A.O. but was not convinced with him and hence he disallowed the entire claim of depreciation of Rs. 8435041/- and added to the income of the assessee.
6. Against the said order, assessee preferred first statutory appeal before the ld. CIT(A) who allowed the appeal of the assessee.
7. Now Department is before us. None appeared on behalf of the assessee and we have heard the ld. D.R. on the basis of record available with us and we are of the considered opinion that assessee case is fully covered by the judgment of Supreme Court in the matter of CIT vs. Rajasthan & Gujarati Charitable Foundation Poona (2018) (402 ITR 441) has held matter in favour of the assessee with the following details:
3. As stated above, the first question which requires consideration by this Court is: whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years? In the case of CIT v. Munisuvrat Jain 1994 Tax Law Reporter, 1084 the facts were as follows. The assessee was a Charitable Trust. It was registered as a Public Charitable Trust. It was also registered with the Commissioner of Income Tax, Pune. The assessee derived income from the temple property which was a Trust property.
During the course of assessment proceedings for assessment years 1977- 9 ITA No. 424/Ahd/2017
. A.Y. 2012-13 78, 1978-79 and 1979-80, the assessee claimed depreciation on the value of the building @2½% and they also claimed depreciation on furniture @ 5%. The question which arose before the Court for determination was :
whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets 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 the Trust from the property held for charitable or religious purposes and it also provides for application and accumulation of income. On the other hand, section 28 of the Income Tax Act deals with chargeability of income from profits and gains of business and section 29 provides that income from profits and gains of business ahll be computed in accordance with section 30 to section 43C. That, section 32(1) of the Act provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. It further provides for deduction subject to 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 Income Tax Act and not under general principles. The Court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the 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 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 Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 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 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. In view of the aforesatated judgment of the Bombay High Curt, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Department.
4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax 10 ITA No. 424/Ahd/2017 . A.Y. 2012-13 (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income 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 Assistant 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 really meant was that the amount spent on acquiring those assets had been treated as 'application of income' of the Trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, Question No. 2 is covered by the decision of the Bombay High Court in the above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department.
After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same.
It may be mentioned that most of the High Courts 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. Commissioner 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 the 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 amendment is prospective in nature.
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.
11 ITA No. 424/Ahd/2017. A.Y. 2012-13
8. Respectfully following the Hon'ble Supreme Court order, we dismissed the appeal of the Department.
9. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in Open Court on 30 08- 2018
Sd/- Sd/-
(AMARJIT SINGH) (MAHAVIR PRASAD)
ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER
Ahmedabad: Dated 30 /08/2018
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,Ahmedabad