Bombay High Court
Commissioner Of Income Tax ... vs His Holiness Dr. Sydena Taher Saifuddin ... on 3 July, 2024
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
2024:BHC-OS:11094-DB
902-OSITXA-1581-2018.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1581 OF 2018
Commissioner of Income Tax (Exemptions) ...Appellant
Versus
His Holiness Dr. Sydena Taher Saifuddin Memorial ...Respondent
Foundation
Mr. Suresh Kumar, Advocate for the Appellant.
Mr. Sameer Dalal, Advocate for Respondent.
CORAM : G. S. KULKARNI &
SOMASEKHAR SUNDARESAN, JJ.
DATE : JULY 03, 2024
PC :
1. The Appellant-Revenue in this Appeal under Section 260(A) of the Income Tax Act, 1961 has assailed an order dated 28 th September, 2016 passed by the Income Tax Appellate Tribunal (" ITAT"), whereby the Revenue's Appeal against an order passed by the CIT Appeal for the assessment year 2011-12 had been rejected thereby affirming the findings of the CIT (Appeal) allowing the claim of the Respondent-
Assessee on depreciation of the asset. The Revenue has raised the Digitally signed by ASHWINI following questions of law for consideration:-
ASHWINI JANARDAN JANARDAN VALLAKATI VALLAKATI Date:
2024.07.29 15:26:51 +0530 Page 1 of 7 July 03, 2024 Ashwini Vallakati ::: Uploaded on - 29/07/2024 ::: Downloaded on - 02/08/2024 22:46:10 ::: 902-OSITXA-1581-2018.doc "a) Whether on the facts of the case and in law the Hon'ble ITAT erred in allowing the appeal of the assessee on account of disallowing depreciation in contravention of the decision of Escorts Ltd. Vs. UOI 199 ITR 43 wherein it was held that since section 11 of the Income Tax Act provides for deduction capital expenditure incurred on assets acquired for the objects of the trust as application and does not specifically & expressly provide for double deduction on account of depreciation on the same very assets acquired from such capital expenditure, no deduction shall be allowed u/s.32 for the same or any other previous year in respect of that asset as it amounts to claiming a double deduction".
b) "Whether, on the facts and in the circumstances of the case and in law the Hon'ble ITAT erred in allowing the appeal, when the Delhi High Court in the case of Chiranjiv Charitable Trust and Kerala High Court in the case of Lissie Medical Institutions vs. CIT 76 DTR (Ker) 372 has decided the issue in the favour of the department after considering the decision of Hon'ble Supreme Court in the case of Escorts Ltd (199 ITR 43)".
c) "Whether, on the facts and in the circumstances of the case and in law the Hon'ble ITAT erred in relying upon the decision of co-ordinate Bench of ITAT in assessee's own case for A.Y. 2009-10, which was decided by relying upon the judgment of Hon'ble jurisdictional Bombay High Court in the case of CIT vs. Institute of Banking personnel selections without appreciating the fact that Department has not accepted the decision in the case of Institute of Banking personnel selection on merit, but due to smallness of tax effect appeal was not Page 2 of 7 July 03, 2024 Ashwini Vallakati ::: Uploaded on - 29/07/2024 ::: Downloaded on - 02/08/2024 22:46:10 ::: 902-OSITXA-1581-2018.doc filed before Hon'ble Supreme Court. Moreover, Department has filed appeal before Hon'ble High Court in assessee's own case for A.Y. 2009-10 and also filed SLPs in other cases on the issue of depreciation inclusive the case of G.D. Birla Medical Research & Educational Foundation in which leave has been granted by the Hon'ble Apex Court- S.L.P.(C) No. 24904 of 2016(C.A.No.8294 of 2016) and in all the cases the issue is pending for adjudication".
2. From what has been urged at the bar, it appears that insofar as the position in law prior to 1 st April, 2015 is applicable. The issue in the present proceedings as it relates to assessment year 2011-12, the law stands settled in the authoritative pronouncement of the Supreme Court in the case of Commissioner of Income Tax-III, Pune v. Rajasthan & Gujarati Charitable Foundation Poona1. In such case the proceeding had arisen from the decision of this Court wherein the following question of law was formulated by this Court in Commissioner of Income Tax-III, Pune v. Rajashtani & Gujarati Charitable Foundation2.
"Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is justified in holding that the depreciation in respect of cost of the assets allowed to the assessee as expenditure is allowable as it gives rise to double deduction though such deduction is not specifically provided in the Income-tax Act,1961 ?"
1 [2018] 89 taxmann.com 127 (SC) 2 [2013] 31 taxmann.com 491 (Bom.) Page 3 of 7 July 03, 2024 Ashwini Vallakati ::: Uploaded on - 29/07/2024 ::: Downloaded on - 02/08/2024 22:46:10 ::: 902-OSITXA-1581-2018.doc
3. This Court answered the question of law considering the prior decision of this Court in the case of CIT v. Institute of Banking3 against the Revenue.
4. In the Revenue's proceeding before the Supreme Court against the aforesaid decision of this Court in the Supreme Court in Commissioner of Income Tax-III, Pune v. Rajasthan & Gujarati Charitable Foundation Poona confirmed the findings rendered by this Court. The order passed by the Supreme Court records as under:-
1. These are the petitions and appeals filed by the Income Tax Department against the orders passed by various High Courts granting benefit of depreciation on the assets acquired by the respondents-assessees. It is a matter of record that all the assessees are charitable institutions registered under Section 12A of the Income Tax Act (hereinafter referred to as 'Act'). For this reason, in the previous year to the year with which we are concerned and in which year the depreciation was claimed, the entire expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes 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 that once the capital expenditure is treated as application of income for charitable purposes, the assessee had virtually enjoyed a 100% write off the cost of assets and, therefore, the grant of depreciation would amount to giving double benefit to the assessee.
Though it appears that in most of these cases, the CIT (Appeals) had affirmed the view, but the ITAT reversed the same and the High Courts have accepted the decision of the ITAT thereby dismissing the appeals of the Income Tax Department. From the judgments of the High Courts, it can be discerned that the High Courts have primarily followed the judgment of the Bombay High Court in 'CIT 3 [2003] 264 ITR 110 (Bom.) Page 4 of 7 July 03, 2024 Ashwini Vallakati ::: Uploaded on - 29/07/2024 ::: Downloaded on - 02/08/2024 22:46:10 ::: 902-OSITXA-1581-2018.doc v. Institute of Banking Personnel Selection (IBPS) [2003] 131 Taxman 386. In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner:
"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 1977-78, 1978- 79 and 1979-80, the assessee claimed depreciation on the value of the building @ 21/2% 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 shall 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 32 of 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 from building, plant and Page 5 of 7 July 03, 2024 Ashwini Vallakati ::: Uploaded on - 29/07/2024 ::: Downloaded on - 02/08/2024 22:46:10 ::: 902-OSITXA-1581-2018.doc 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 aforestated judgment of the Bombay High Court, 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 (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 ie., in favour of the assessee and against the Department."
2. 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.
3. It may be mentioned that most of the High Courts have taken the Page 6 of 7 July 03, 2024 Ashwini Vallakati ::: Uploaded on - 29/07/2024 ::: Downloaded on - 02/08/2024 22:46:10 ::: 902-OSITXA-1581-2018.doc aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. CIT [2012] 24 taxmann.com 9/209 Taxman 19 (Mag.)/348 ITR 344'.
4. 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.
5. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.
6. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters.
5. In this view of the matter, the Learned Counsel for the parties agree that questions of law as raised in the present appeal stands squarely covered, by the decision of the Supreme Court in Rajasthan & Gujarati Charitable Foundation Poona (Supra). We hence see no reason to entertain this appeal.
6. The appeal is accordingly dismissed. No costs.
[ SOMASEKHAR SUNDARESAN, J.] [G. S. KULKARNI, J.] Page 7 of 7 July 03, 2024 Ashwini Vallakati ::: Uploaded on - 29/07/2024 ::: Downloaded on - 02/08/2024 22:46:10 :::