Income Tax Appellate Tribunal - Delhi
The Delhi Public School Society, New ... vs Department Of Income Tax on 27 July, 2011
1 ITA No.4344/Del/2011
Asstt.Year: 2008-09
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'H': NEW DELHI
BEFORE SHRI A.N. PAHUJA, ACCOUNTANT MEMBER
AND
SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER
ITA No.4344 /Del/2011
Assessment Year: 2008-09
Asstt. Director of Income Tax(E), vs The Delhi Public School Society,
Trust Circle-IV, DPS Staff Flats, F-Block,
New Delhi. East of Kailash,
New Delhi-110065
PAN AAATT0740J
(Appellant) (Respondent)
Appellant by : Mrs. Reena S. Puri, C.I.T. DR
Respondent by : Shri Hiren Mehta
ORDER
PER CHANDRAMOHAN GARG, JUDICIAL MEMBER
This appeal has been preferred by the Revenue against the order of the Commissioner of Income Tax(A)-XXI, New Delhi dated 27.7.2011 for AY 2008-09. The main grounds raised in this appeal reads as under:-
"1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.6,39,42,882/- made by the Assessing Officer in respect of franchisee fees received by the DPS Society from different satellite schools which are running under the name and logo Delhi Public School having different management than the DPS Society.
2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing depreciation amounting to Rs. 12,55,50,824/- on 2 ITA No.4344/Del/2011 Asstt.Year: 2008-09 certain fixed assets, particularly when full cost of such assets stood allowed in earlier years as application of income and further allowance by way of depreciation would now result in allowing double deduction."
2. Brief facts of the case giving rise to this appeal are that the assessee society was registered u/s 12AA of the Income Tax Act, 1961 (hereinafter referred to as the Act) for AY 2008-09 and filed a return at Nil. Subsequently, a notice u/s 143(2) of the Act was served on the assessee and he claimed exemption u/s 11 r/w Section 12 of the Act. The Assessing Officer noted that the assessee derives income namely from running of schools in the name of Delhi Public School (DPS). The assessee society runs 17 schools under its own umbrella and also granted permission to 90 other entities across the country to open the school and permitted to use of its brand name i.e. DPS. The Assessing Officer further noted that the assessee society received Rs.6,39,42,882/-
towards society maintenance charges which were in fact in the nature of franchise fee obtained by the society for allowing such satellite schools to use its brand name. The Assessing Officer examined this issue whether the income was in the nature of business income as per provisions of sub-section (4A) of Section 11 of the Act. The Assessing Officer rejected the submissions and finally held that in the absence of books of accounts as mentioned in clause (12A) of Section 2 of the Act, the contention of the assessee regarding meeting stipulation laid down in sub-section (4A) of Section 11 of the Act cannot be 3 ITA No.4344/Del/2011 Asstt.Year: 2008-09 accepted and he finally held that the receipt of Rs.6,39,42,882/- was liable to be taxed u/s 11(4A) of the Act.
3. The Assessing Officer also noted that the assessee society has claimed an amount of Rs.12,55,50,824/- towards depreciation on fixed assets and the assessee society has also claimed investment in fixed assets as application of income. It was evident that the claim of depreciation tantamounts to double deduction and he disallowed the claim of depreciation of the assessee society.
4. Finally, the Assessing Officer concluded the assessment with a calculation of tax payable amounting to Rs.2,87,69,771/- by the assessee society and penalty proceedings were also initiated.
5. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax(A)-XXI, New Delhi which was partly allowed by the impugned order. We also note that since the grounds before us in this appeal were decided as grounds no. 3, 4 and 5 in favour of the assessee, therefore, the revenue filed this appeal before this Tribunal.
6. We have heard rival arguments of both the parties and carefully considered paper book filed by the assessee spread over 45 pages, returns filed by the assessee from AY 2004-05 to 2006-07 and also carefully perused the second paper book spread over 84 pages containing judgment of ITAT in assessee's own case i.e. ITA No.4571/Del/2004 for AY 2001-02, ITA No. 2580 to 2583/Del/2006 for AY 1998-99, 1999-2000, 2000-01 and 2003-04, ITA No. 4510 & 4511/Del/2007 for AY 2002-03 and 2004-05 with order of ITAT in 4 ITA No.4344/Del/2011 Asstt.Year: 2008-09 ITA No. 2406/Del/2008 for AY 2005-06. This paper book also contains order passed by Commissioner of Income Tax(A) dated 23.06.2010 for AY 2006-07 and order dated 24.06.2010 for AY 2007-08 in assessee's own appeals.
7. Ld. DR submitted that Commissioner of Income Tax(A) has erred in deleting addition of Rs.6,39,42,882 made by the Assessing Officer in respect of franchisee fee received by the assessee DPS Society from different satellite schools which are running under the name and logo of DPS having a different management than the DPS Society. He further submitted that the Assessing Officer rightly held that in the absence of books of accounts as mentioned in clause (12A) of Section 2 of the Act, the contention of the assessee regarding meeting the stipulations laid down in sub-section (4A) of Section 11 of the Act cannot be accepted. Accordingly, the Assessing Officer rightly held that the amount received from satellite schools as franchisee fee is liable to be taxed u/s 11(4A) of the Act. Ld. DR finally submitted that the Commissioner of Income Tax(A) deleted the above addition without considering the peculiar facts and circumstances of the year under consideration and his order in this regard deserves to be set aside, restoring the assessment order.
8. Replying to the above submissions, the assessee's representative submitted that the assessee society is a charitable society which has been granted registration u/s 12AA of the Act and the assessment year 2008-09 has been carried out subject to the provisions of Section 10 and 11 of the Act. The AR also submitted that this receipt of assessee from its satellite schools has 5 ITA No.4344/Del/2011 Asstt.Year: 2008-09 been considered as exempted from AY 1998-99 to 2005-06 by ITAT also for the AY 2006-07 and 2007-08 by the Commissioner of Income Tax(A).
Therefore, there was no substantial cause for the Assessing Officer to consider it taxable income in the hands of assessee society. He finally submitted that the principle of res judicata does not apply to the principles of income tax but principle of consistency must be followed until and unless there is a substantial cause before the judicial or quasi-judicial authority for taking a deviated view from the earlier years.
9. The assessee's representative placed his reliance on the judgment of ITAT and Commissioner of Income Tax(A) passed in assessee's own case for the immediately preceding years to the year under consideration in the present case.
10. After careful consideration of above submission, at the outset we observe that ITAT Delhi 'B' Bench in ITA No. 4571/Del/2004 for the AY 2001-02 held as under:-
"We have carefully considered the rival of Section 10(23C)(vi) reads as follows:
Section 10: In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included:
(23C) any income received by any person on behalf of -
(vi) any university or other educational institution 6 ITA No.4344/Del/2011 Asstt.Year: 2008-09 existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-
clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority; or Provided that the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub- clause (via) shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub- clause (v) or sub-clause (vi) or sub-clause (via).
Provided further that the Central Government, before notifying the fund or trust or institution or the prescribed authority, before approving any university or other educational institution or any hospital or other medical institution under sub-clause (iv) or sub-clause (v) or sub- clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and that Central Government or the prescribed authority, as the case may also make such inquiries as it may deem necessary in this behalf:
13. The provisions of Section 10(23-C)(vi), refers to "any income" and is therefore larger in scope than the provisions of Section 11 of the Act. It is not the case of the AO that the Assessee did not exist solely educational purposes. The prescribed authority before 7 ITA No.4344/Del/2011 Asstt.Year: 2008-09 Issue of notification will be the sole judge on the question whether the assessee exists solely for educational purposes and that it does not exist for profit. The Revenue authorities seems to have proceeded by framing a question whether the activity of running satellite schools on a license basis charging a fee amounted to carrying on a business or not.
This was not the right line of enquiry. Even a proviso u/s l 0(23C)(vi) permits an institution referred to in the main section to carryon business. The said proviso reads as follows.
Provided also that nothing contained in sub-
clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of accounts are maintained by it in respect of such business:
14. The real question for determination is therefore whether the educational institution exists solely for the purpose of education and not se of profit. In this regard we have also perused the copy of the notification dt 8.7.04 issued by the Director General of Income Tax.
The assessee has been duly approved as an Educational Institution for the purpose of sub. Clause (vi) of Clause 23C Sec. 10 of the I.T Act.
As already stated, any income of an educational institution notified u/ s 10 (23C)(vi) is exempt. In view of the notification referred to above, there can be no question the amounts received from the collaborators school by terming the said receipts as business income. We also find that one of the objects of the assessee is to establish progressive schools or other educational 8 ITA No.4344/Del/2011 Asstt.Year: 2008-09 institutions in Delhi or outside Delhi. Perusal of the agreement under which satellite schools were being set up by the assessee also shows that apart from allowing the satellite schools to use the name of Delhi Publish School and its Logo and Moto, the assessee also undertakes rendering of several services.
These services include imparting of education and providing the necessary staff to impart education. By no stretch of imagination can it be said that the purpose sought to be achieved through this agreement for establishing satellite schools is not educational. Apart from the above, the prescribed authority having satisfied itself that the assessee exists for educational purposes and not for the purpose of profit, has thought it fit to approve the assessee for the purpose of applicability of provisions of sec. 10(23C)(vi) of the Act. The Hon'ble AP High Court in the case of Governing Body of Rangaraya Medical College Vs ITO reported in 117 ITR 284 (AP) had an occasion to consider the meaning of the expression, "for the purposes of profit", in the context of the applicability of exemption provisions. The Hon ole High Court had held that where a society exists for educational purposes but some surplus arises from the societies operations, it cannot be said that the institution was run for the purposes of profit so long as no person or individual was entitled to any portion of the said profit was utilized for the purposes and for the promotion of [he objects of the institution. In the present case, it is not the complaint of the AO that the receipts from satellite schools had been utilized for distribution to any individual. So long as no person or individual is entitled to any portion of the profit, the profit can be said to be used only for the purposes of promotion of the objects of the institution. A useful reference can also be made to the case of ACIT vs Thanti Trust reported in 247 ITR 785 (SC).
9 ITA No.4344/Del/2011 Asstt.Year: 2008-09The Hon'ble Supreme Court laid down that a public charitable trust which holds a business, as a part of is corpus may carry on business.
Even without the business being the part of the corpus of the trust it may carry on business.
So long as the business carried on is in the course accomplishing the primary purposes of the trust and the income from such business is utilized for the purpose of achieving the objects of the trust or institution., the requirement of see 11 are satisfied. The Hon'ble High court of Delhi in the case of Commissioner of Income Tax vs Delhi Kannada Education Society reported in 246 ITR 731 also held that if the income is from an educational institution, which exits solely for educational purposes and not for the purpose of profit then that income would be entitled to exemption, so long as the income is 'directly relatable to educational activity. We have already pointed out as to how the assessee had complied with all the various conditions that have been mentioned in the notification by the prescribed Authority u/s lO(23C)(vi) of the Act. For the reasons given above, we are or the view that the provisions of sec. 11 (4A) of the Act were not applicable in the present case."
11. We further observe that ITAT Delhi 'F' Bench in ITA No. 2580, 2581, 2582 and 2583/D/2006 for AY 1998-99, 1999-2000, 2000-01 and 2003-04, dismissing the appeal of the revenue held as under:-
"4. The Iearned counsel for the assessee, at the very outset contended before us that identical issue, in assessee's own case for A.Y. 2001-02 came up for consideration before the IT AT in ITA wherein the Tribunal vide its order dated 20-4-2005 has allowed the appeal of the assessee by holding that provisions of sec. 11(4A) of the Act were not applicable in the case of the assessee and the income of the assessee 10 ITA No.4344/Del/2011 Asstt.Year: 2008-09 was exempt u/s 10(23C)(vi) and, therefore, revenue authorities were not justified in bringing to tax the amount received by the assessee from the satellite schools. In support of its claim, the assessee has also filed a copy of Tribunal's order for A.Y. 2001-02. The learned counsel further submitted that in deleting; the additions for the assessment years in question the learned CIT(Appeals) has followed the aforesaid order of the Tribunal and therefore the issue in question being squarely covered in favour of the assessee by the earlier order of the Tribunal, the appeals filed by the revenue have no force and are liable to be dismissed accordingly.
5. The learned DR was fair enough position. He, however, submitted that the department has not given up its stand.
6. We have carefully considered the entire material on record and the rival submissions. In view of the above admitted position, since the issue involved in these appeals is squarely covered in favour of the assessee by the earlier order of the Tribunal, we find no force in the appeals filed by the revenue. Accordingly, we uphold the order of the learned CIT(Appeals) and dismiss the appeals preferred by the revenue '
12. In the assessee's own case, ITAT Delhi 'B' Bench in ITA No. 4510 & 4511/Del/2007 for AY 2002-03 & 2004-05 dated 19.12.2008 held as under:-
" 3. At the time of hearing, it was fairly conceded by both the sides that the issue in appeal was squarely covered by the decision of this Tribunal in assessee's own case for AY 2001-02 in ITA No.4571/Del/04 dated 20.4.05
4. We have considered the submissions. We have also perused the order of this Tribunal in ITA No.4571/Del/04 dated 24.4.05 for the AY 2001-02 in the assessee's own case. It is noticed that in para 14 of the said order of the coordinate bench of this Tribunal, the Tribunal ahs held that the assessee has complied with all the conditions 11 ITA No.4344/Del/2011 Asstt.Year: 2008-09 that are mentioned in the notification by the prescribed authority u/s 10(23C)(vi) of the I.T.Act. It is further noticed that in para 15 of the said order , the coordinate bench of this Tribunal has in regard to maintaining of the separate sets of books of account held as follows:-
"With regard to the separate books of account, it is seen that the assessee had maintained a separate account under the heading "Secretary's Office". In this account, the receipts towards reimbursement to the society for common expenses from various schools with which it had entered into agreement to provide services have been duly incorporated. A complete set of accounts of the society had also been furnished before the Assessing Officer. Apart from the above, the Chandigarh Bench of the Tribunal in the case of ITO vs Trilok Tirath Vidyavati Chuttani Charitable Trust has held that the purposes of maintaining separate books of accounts is only to enable the Assessing Officer to find out true income and also whether the assessee fulfills the conditions laid down u/s 11 for exemption and also whether the assessee fulfills the conditions laid down u/s 11 for exemption and also whether running of such undertakings is for profit motive or incidental to the object to the trust. The Bench held that it is not mandatory and non-maintenance of separate books of account shall not prove fatal to the claim of the assessee for exemption us/ 11. As already observed, a separate set of books of accounts were maintained by the assessee showing the receipts towards reimbursement of the expenses from the various other schools.
In view of the above, we are of the view that revenue authorities were not justified in bringing to tax the amount received by the assessee from the satellite schools. The addition is therefore directed to be deleted."
5. In the circumstances, respectively following the decision rendered by the coordinate bench of this Tribunal and the absence of any different facts emanating for the assessment years in appeal, the findings of the Commissioner of Income Tax(A) where he has followed the decision of this Tribunal is upheld."
12 ITA No.4344/Del/2011 Asstt.Year: 2008-0913. In another judgement ITAT Delhi 'B' Bench in ITA No. 2426/D/2008 for AY 2005-06 dated 26.05.2009 held as under:-
"4. We have heard both the parties and have gone through the material carefully. We have gone through the orders of the ITAT, Delhi Bench 'B' in ITA No. 4571(Del) of 2004 for AY 2001-02 dated 20th April, 2005 carefully. We find that identical issued was decided by Delhi Bench of the Tribunal in AY 2001-02. ITAT. Delhi Bench 'F' has also decided identical issue in AYs 1998- 99 to 2000-01 and 2003-04 in order dated 30th August, 2007. Since the appeal filed by the revenue is squarely covered in favour of the assessee, by earlier orders of the Tribunal, we do not find any infirmity in the order passed by the ld. Commissioner of Income Tax(A) deleting the addition of Rs.5,69,79,770/-."
14. Now, we come to the judgement of Commissioner of Income Tax(A) passed in assessee's own case for AY 2006-07 and AY 2007-08 dated 23.06.2010 and 24.06.2010 respectively wherein the Commissioner of Income Tax(A) allowed the appeal of the assessee on this point of receipt of franchisee fee from satellite schools with the following observations:-
"5.10 It is pointed out by the AR that the above discussed order of the ITAT, Delhi in appellant's own case pertaining to A.Y. 2001-02 has been followed by CIT(A) - XXIX, New Delhi, while adjudicating identical issue in appeal No. Ill, 112, 113 & 114/06-07 for A.Y. 1998-99, 1999-2000, 2000-0 I and 2003-04 vide' consolidated order dated 23.5.2006. The said order has also been followed even for preceding assessment years, i.e. A.Y. 2004-05 in appeal no. 29/07-08 vide order dated 3.8.2007 and for A.Y. 2005-06 in appeal No. 267/07-08 vide order dated 30.4.2008. Further, the IT AT has upheld the orders of CIT(A) for A.Y. 2004-05 & 2005-06.13 ITA No.4344/Del/2011 Asstt.Year: 2008-09
5.11 I have carefully considered the submissions of the AR and also perused the order of ITAT and CIT(A) being relied upon by the appellant. The issue involved in this appeal is identical as before the ITA T. and has been decided in favour of the Appellant Society by holding that the amount received by the appellant from satellite schools is not liable to income tax because separate books of accounts were maintained. In the present assessment order under appeal the A.O. has himself agreed to the proposition that provisions of section 11 (4A) of the Income Tax Act are pari materia to the provisions of 71t1 proviso to section 10(23C)(vi) of the Income Tax Act. However. he has denied the provisions of section 11on the ground that condition regarding maintenance of 'separate books of accounts appearing in both the sections has not been fulfilled by the assesseee and that the appellant is carrying on systematic business activity with a profit motive. It is also noted that in the assessment order, the AO has observed that the present assessment is being made subject to the provisions of the section 11112 of the IT Act. The appellant continues to enjoy registration u/s.12AA,of the IT Act, during the years borne out by the assessment order itself. The AO has concluded in the assessment order that separate books of accounts have not been maintained, which is violative of the provisions of section 11 (4A), 11/12 of the IT Act. He has also admitted to be following the Departmental stand in the earlier years on this issue. In the order passed by ITAT, Delhi for A.Y. 2001-02 on this issue it was held by ITA T in para 14 that - "For the reasons given above, we are of the view that the provisions 0f section 11 (4A)of the Act were not applicable in the present case. " In para 15 it was further held that - " As already observed a separate set of books' of accounts were maintained by the assessee showing receipts towards reimbursement of the expenses from various other schools."
5.12 In this context, reference is also invited to the decision of Bombay High Court in the case of Sheraton Apparels 256 ITR 20 relied by the AO on the issue of separate books of accounts. A perusal of the above said judgement reveals that while deciding whether levy of 14 ITA No.4344/Del/2011 Asstt.Year: 2008-09 penalty u/s. 27I(I)(c) was justified or not, the Hon'ble Bombay High Court also discussed the meaning of books of accounts, However, any discussion on the same is irrelevant, as the Hon'ble ITAT in appellant's own case for A.Yr.2001-02 vide para15 has clearly given a finding that it has maintained separate books of accounts under the heading "Secretary's office". The relevant portion of the ITAT order is extracted here below:-
"With regard to the separate books of accounts, it is seen that the assessee had maintained a separate account under the heading "Secretary's office ". In this account, the receipts towards reimbursement to the society/or common expenses from various schools with which it had entered into agreement to provide services have been duly incorporated."
5.13 There being no change .in the factual position for assessment year. under appeal, respectfully following the aforesaid order of ITA T and my predecessor's orders (Supra) in the case of appellant itself, it is held that the amount of fees received from satellite schools aggregating to Rs......... is not liable to tax and hence the addition is deleted."
15. In view of above, when we consider the facts of the present case, we observe that the Commissioner of Income Tax(A) allowed the appeal of the assessee for the ground of fee received from satellite school and held as under:-
"5.11 It is pointed out by the AR that the above discussed order of the ITA T, Delhi in appellant's own case pertaining to A.Y. 2001-02 has been followed by CIT(A) - XXIX, New Delhi, while adjudicating identical issue in appeal No. 111, 112, 113 & 114/06-07 for A.Y. 1998-99, 1999-2000, 2000-0 I and 2003-04 vide consolidated order dated 23.5.2006. The said order has also been followed even for preceding assessment years, i.e., A.Y. 2004-05 in appeal no. 29/07-08 vide order dated 3.8.2007 and for A.Y. 2005-06 in appeal No. 267/07-08 vide order dated 30.4.2008. Further, the IT AT 15 ITA No.4344/Del/2011 Asstt.Year: 2008-09 has upheld the orders of CIT(A) for A.Y. 2004-05 & 2005-06.
5.12 I have carefully considered the submissions of the AR and also perused the order of ITAT and CIT(A) being relied upon by the appellant. The issue involved in this appeal is identical as before the ITA T. and has been decided in favour of the Appellant Society by holding that the amount received by the appellant from satellite schools is not liable to income tax because separate books of accounts were maintained. In the present assessment order under appeal the A.O. has himself agreed to the proposition that provisions of section 11(4A) of the Income Tax Act are pari materia to the provisions of 71t1 proviso to section 10(23C)(vi) of the Income Tax Act. However. he has denied the benefit of provisions of section 11 on the ground that condition regarding maintenance of separate books of accounts appearing in both the sections has not been fulfilled by the assessee and that the appellant is carrying on systematic business activity with a profit motive. It is also noted that in the assessment order, the AO has observed that the present assessment is being made subject to the provisions of the section 11112 of the IT Act. The appellant continues to enjoy registration u/s.12AA,of the IT Act, during the year as borne out by the assessment order itself. The AO has concluded in the assessment order that separate books of accounts have not been maintained, which is violative of the provisions of section 11 (4A), 11/12 of the IT Act. He has also admitted to be following the Departmental stand in the earlier years on this issue. In the order passed by IT AT, Delhi for A.Y. 2001-02 on this issue it was held by ITA T in para 14 that
- "For the reasons given above, we are of the view that the provisions 0/ section 11 (4A) of the Act were not applicable in the present case. " In para 15 it was further held that - " As already observed a separate set of books' of accounts were maintained by the assessee showing receipts towards reimbursement of the expenses from various other schools. "
5.13 In this context, reference is also invited to the decision of Bombay High Court in the case of Sheraton 16 ITA No.4344/Del/2011 Asstt.Year: 2008-09 Apparels 256 ITR 20 relied by the AO on the issue of separate books of accounts. A perusal of the above said judgement reveals that while deciding whether levy of penalty u/s. 27I(I)(c) was justified or not, the Hon'ble Bombay High Court also discussed the meaning of books of accounts, However. any discussion on the same is irrelevant, as the Hon'ble lTAT in appellant's own case for A.Y. 2001-02 vide para 15 has clearly given a finding that it has maintained separate books of accounts under the heading "Secretary's office". The relevant portion of the ITA T order is extracted here below:-
"With regard to the separate books of accounts, it is seen that the assessee had maintained a separate account under the heading "Secretary's office". In this account, the receipts towards reimbursement to the society/or common expenses /1'0177 various schools with which it had entered into agreement to provide services have been duly incorporated:
Furthermore relying on the decision of Hon'ble Gujarat High Court in the case of Ahmedabad Urban Development Authority vs DDIT(E) reported at 335 ITR page 575, it is held that Assessing Officer is not entitled to go in to whether trust fulfills condition for applicability of section 11 and 12 where registration u/s 12AA of the IT Act has been granted. In the instant case registration u/s 12AA has been granted by the DIT(E) which has not been withdrawn. So, benefit of section 11 and 12 cannot be disallowed by the Assessing Officer. The relevant portion of the Hon'ble Gujarat High Court is as under:-
"Section 12AA of the Income Tax Act, 1961 lays down the procedure for registration in relation to the conditions for applicability of sections 11 and 12 as provided in section 12A. Therefore, once the procedure is complete as provided in sub-section (1) of section 12AA and a certificate is issued granting registration to the trust or institution the certificate is a document evidencing satisfaction about: (i) the genuineness" of the activities of the trust or institution, and (ii) about the objects of the trust or institution, Section 12A stipulates 17 ITA No.4344/Del/2011 Asstt.Year: 2008-09 that the provisions of sections 11 and 12 shall not apply in relation 10 income of a trust or an institution unless the conditions stipulated therein are fulfilled, Thus, granting of registration under section 12AA denotes that the conditions laid down In section 12A stand fulfilled, The effect of such a certificate of registration under section 12AA, therefore, cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution is no fulfilling the conditions for applicability of sections 11 and 12. "
5.14 There being no change in the factual position for assessment year under appeal, respectfully following the aforesaid order of IT AT and my predecessor's orders (Supra) in the case of appellant itself, it is held that the amount of fees received from satellite schools aggregating to Rs,6,39,42,8801- is not liable to tax and hence the addition is deleted. Grounds No.3 & 4 are allowed in favour of appellant."
16. In view of above judgements by the ITAT and Commissioner of Income Tax(A) from AY 1998-99 to 2007-08, we observe that the amount received by the assessee society from various satellite schools which are running under the name and logo of DPS having a different managerial set up than the assessee DPS society was considered as not liable to tax and additions made by the Assessing Officer in this regard had been deleted following principle of consistency. From the assessment order for the year under consideration, we are unable to see any reasonable or sound reason for deviation from the stand taken by the revenue authorities in assessee's own cases related to the immediately preceding years. We also observe that the Assessing Officer has not brought any substantial or incriminating cause against the assessee society 18 ITA No.4344/Del/2011 Asstt.Year: 2008-09 which supported him in his action to consider the fee received from satellite schools liable to be taxed in the hands of assessee society.
17. Per contra, from a plain reading of impugned order in this regard, we observe that the Commissioner of Income Tax(A) rightly followed the judgment of ITAT and the first appellate authority i.e. Commissioner of Income Tax(A) passed in assessee's own case in this regard had rightly considered that the amount of fees received from satellite schools was not liable to tax for the year under consideration. Hence, he rightly deleted the addition. Accordingly, we are unable to see any infirmity or perversity in the impugned order.
Therefore, we have no reason to interfere with the same. On the basis of foregoing discussions, we arrive to a conclusion that ground no. 1 is devoid of merits and deserves to be dismissed and we dismiss the same.
Ground No. 218. Ld. DR submitted that the Assessing Officer rightly noted that the assessee society has claimed an amount of Rs.12,55,50,824/- towards depreciation on fixed assets and it also claimed investment in fixed assets as application of income amounting to the same amount. Therefore, the Assessing Officer rightly held that the claim of deprecation tantamounts to double deduction and the Assessing Officer rightly disallowed the claim of depreciation made by the assessee society. The DR submitted that the Commissioner of Income Tax(A) grossly erred in allowing depreciation on certain fixed assets in a peculiar circumstance when full cost of such assets 19 ITA No.4344/Del/2011 Asstt.Year: 2008-09 stood allowed in earlier years as application of income and further allowance by way of depreciation would definitely result in allowing double deduction.
19. Replying to the above submissions, the assessee's representative placed reliance on the judgment of Hon'ble Jurisdictional High Court of Delhi in the case of DIT vs Vishwa Jagriti Mission reported as 2012-TIOL-271-HC-
DEL-IT. He also submitted that in assessee's own case, ITAT Delhi 'B' Bench in ITA No. 4571/Del/2004 for AY 2001-02 dated 20.4.2005, the claim of depreciation was allowed and in the subsequent years, there was no disallowance made by the Revenue authorities in this regard. The AR further submitted that the ld. Commissioner of Income Tax(A) rightly allowed depreciation because there was no point of double deduction claimed by the assessee. He also placed reliance on the recent judgment of Hon'ble High Court of Punjab & Haryana in ITA No. 93/Del/2010dated 28.07.2010 in the case of Commissioner of Income Tax vs Tiny Tots Education Society (unreported).
20. In the case of M/s Tiny Tots Education Society, the Hon'ble High Court of Punjab & Haryana considered the judgment of Hon'ble Supreme Court in the case of Escorts Ltd. & Another vs Union of India & Others (1993) 199 ITR 43 wherein it was held that the assessee could not claim deduction when its income was exempt, as it will amount to getting double deduction benefit.
Relevant para of above judgement of Hon'ble High Court of Punjab & Haryana is being respectfully reproduced below:-
20 ITA No.4344/Del/2011 Asstt.Year: 2008-09"4. Learned counsel for the Revenue submits that in view of judgment of the Hon'ble Supreme Court in Escorts Ltd. and another v. Union of India and others [1993J 199 ITR 43, the Assessee could not claim deduction when its income was exempt, as it will amount to getting double benefit.
5. We are unable to accept the submission.
6. The matter was discussed in our recent judgment dated 5.7.2010 in I.T.A. NO.535 of 2009 The Commissioner of Income Tax, Kamal. v. Market Committee, Pipli. After referring to judgments in CIT v. Seth Manilal Ranchhoddas Vishram Bhawan Trust [1992J 198 ITR 598 (Guj) and CIT v. Institute of Banking Personal Selection (lBPS) (2003) 131 TAXMAN 386 (Born). CIT v. Rao Bahadur Calavala Cunnan Chettv Charities [1982J 135 ITR 485 (Mad), CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Kar) and CIT v. Raipur Pallottine Society [1989J 180 ITR 579 (M.P.) the judgment of the Hon'ble Supreme Court In Escorts Ltd. (supra) was held not to be applicable to the situation where depreciation was claimed by a charitable institution in determining percentage of funds applied for the purposes of charitable objects. It was observed:-
"9. In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by learned counsel for the Revenue. 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. There is no double deduction claimed by the assessee as canvassed by the Revenue. Judgment of the Hon'ble Supreme Court in Escorts Ltd. and another (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of Section 11. The questions proposed have, thus, to be answered against the revenue and in favour of the assessee."21 ITA No.4344/Del/2011 Asstt.Year: 2008-09
I7. In view of above, we are unable to hold that the questions proposed by the Revenue are substantial questions of law."
21. At this point, we also carefully considered and perused the judgment of Hon'ble Jurisdictional High Court in the case of Vishwa Jagriti Mission wherein it was held as under:-
"9. The CIT(Appeals), on the basis of the order passed by the DIT(E) on 11th September, 2009, accepted the assessee‟s claim for exemption under Section 11 and directed the Assessing Officer accordingly. As regards the claim of depreciation on fixed assets utilised for charitable objects of the trust, he accepted the assessee's claim on the basis of the authorities cited before him as also on the strength of the following judgments of the Bombay High Court:-
1) Director of Income Tax (Exemption) vs. Framjee Cawasjee Institute (1993) 109 CTR 463.
2) CIT vs. Institute of Banking (2003) 264 ITR 110 The CIT(Appeals) also distinguished the judgment of the Supreme Court in Escorts Limited Vs. Union of India (1993) 199 ITR 43 holding that depreciation under Section 32 of the Act can be denied only in cases where the provisions of Section 35(2)(iv) are applicable. He was of the view that there was never any dispute that in the case of a charitable trust, its income should be computed on commercial principles. There was no double deduction claimed by the assessee as can happen when a claim for deduction of capital expenditure is made under Section 35 and depreciation on the very same asset created by the expenditure is claimed under Section 32. In this view of the matter, he directed the Assessing Officer to allow the claim of depreciation.22 ITA No.4344/Del/2011 Asstt.Year: 2008-09
10. The revenue preferred an appeal before the Tribunal and contended that the CIT(Appeals) was wrong in allowing the depreciation. The Tribunal referred to the fact that the decision of the CIT(Appeals) to allow the depreciation was based on several authorities including some orders of the Delhi Benches of the Tribunal and felt bound by those orders. Accordingly the decision of the CIT(Appeals) was confirmed and the appeal of the revenue was dismissed vide order dated 13th May, 2011.
11. The revenue is in appeal against the aforesaid order of the Tribunal. We are not inclined to admit the appeal and frame any substantial question of law since none arises from the order of the Tribunal. There is no dispute that the assessee has been granted registration under Section 12AA vide order dated 11th September, 2009 and, therefore, it was entitled to exemption of its income under Section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so whether depreciation on fixed assets utilised for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(Appeals) as well as the Tribunal. In CIT vs. The Society of the Sisters of St. Anme (Supra), an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under Section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the "total income" as defined in Section 2(45) of the Act and that the word "income" is a wider term than the expression "profits and gains of business or profession". Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income.
23 ITA No.4344/Del/2011 Asstt.Year: 2008-09The circular No.5-P (LXX-6) of 1968, dated July 19, 1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under:-
"Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word 'income' should be understood in its commercial sense, i.e. book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s. 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent. Of the latter, if the trust is to get the full benefit of the exemption u/s. 11(1)."
12. A similar view was earlier expressed by the Andhra Pradesh High Court in Commissioner of Income-tax. v. Nizam's Suppl. Religious Endowment Trust (1981) 127 ITR 378 and by the Madras High Court in Commissioner Of Income-Tax vs Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485. The Madhya Pradesh High Court in CIT vs. Raipur Pallottine Society (supra) has held, following the judgment of the Karnataka High court cited above, 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 Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that 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.
24 ITA No.4344/Del/2011 Asstt.Year: 2008-0913. The judgment of the Supreme Court in Escorts Limited Vs. Union of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, 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, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee 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 not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT(Appeals).
14. Having regard to the consensus of judicial opinion on the precise question that has arisen in the present appeal, we are not inclined to admit the appeal and frame any substantial question of law. There does not appear to be any contrary view plausible on the question raised before us and at any rate no judgment taking a contrary view has been brought to our notice. In the circumstances, we decline to admit the present appeal and dismiss the same with no order as to costs."
25 ITA No.4344/Del/2011 Asstt.Year: 2008-0922. In view of above submissions and after careful consideration of the ratio of judgments cited before us, we are of the view that the Assessing Officer disallowed the claim of depreciation ignoring the fact that the assessee society is a charitable society and in a case where capital expenditure has been treated to have been applied for the object of the trust, the allowance of deduction on account of depreciation would not amount to double deduction. The Assessing Officer relied on the judgment of Hon'ble Apex Court in the case of Escorts Ltd. (supra) which was carefully considered by the Hon'ble Jurisdictional High Court in the case of Vishwa Jagriti Mission (supra) by Hon'ble High Court of Punjab & Haryana in the case of M/s Tiny Tots Education Society wherein their Lordships after careful scrutiny of the facts and circumstances held that in the case of Escorts Ltd., the Hon'ble Supreme Court was not concerned with the case of charitable trust or institution involving the question as to whether its income should be computed on commercial principles to determine the amount of income available for application of charitable purposes. Secondly, before the Hon'ble Supreme Court, there was an issue of claiming deduction of the cost of asset u/s 35(1) of the Act which allowed deduction for capital expenditure incurred on scientific research.
23. Hon'ble Jurisdictional High Court of Delhi and Hon'ble Punjab & Haryana High Court have held that the judgment of Hon'ble Supreme Court in the case of Escorts Ltd. is inapplicable to the cases of charitable trust wherein the issue of computation of its income should be on commercial principle in 26 ITA No.4344/Del/2011 Asstt.Year: 2008-09 order to determine the amount of income available for application to serve the charitable purposes of the society/trust.
24. In view of above, we hold that the Assessing Officer ignored the fact that the assessee's claim of depreciation was allowed in the earlier assessment years and there was no substantial cause for deviating from its stand of the revenue, therefore, we decline to approve the assessment order in this regard.
25. On the other hand, the ld. Commissioner of Income Tax(A) rightly held that the peculiar facts and circumstances of the present case relate to a charitable institution and this is distinguishable from the judgment of the Hon'ble Apex Court in the case of Escorts Ltd. (supra). He also rightly held that the assessee is not claiming double deduction on account of depreciation as has been held by the Assessing Officer. 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 purpose or objects of the assessee trust because the income of the assessee is being exempt from tax. In view of above, the ld. Commissioner of Income Tax(A) was justified in holding that the claim of depreciation cannot be held as double deduction or benefit for computing the income for the purposes of Section 11 of the Act.
26. The ld. Commissioner of Income Tax(A) also considered the judgments of the ITAT and his coordinate first appellate authorities i.e. Commissioner of Income Tax(A) passed in assessee's own cases related to immediately preceding years from the assessment year under consideration. He rightly 27 ITA No.4344/Del/2011 Asstt.Year: 2008-09 followed the principle of consistency in the findings as there was no sufficient cause for deviation from earlier stand taken by the first appellate authority in AY 2006-07 and 2007-08. Accordingly, we are unable to see any infirmity in the impugned order in this regard. Finally, we hold that ground no. 2 of the revenue is also devoid of merits and deserves to be dismissed and we dismiss the same.
27. In the result, the appeal of the revenue is dismissed as indicated above.
Order pronounced in the open court on 28.9.2012.
Sd/- Sd/-
(A.N. PAHUJA) (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 20th SEPTEMBER 2012
'GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. C.I.T.(A)
4. C.I.T.
5. DR
By Order
Dy.Registrar