Income Tax Appellate Tribunal - Delhi
Dcit(E), New Delhi vs Goodearth Foundation, New Delhi on 29 January, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : A : NEW DELHI
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
AND
SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
ITA No.3524/Del/2015
Assessment Year: 2010-11
DCIT(E), Vs. Goodearth Foundation,
Circle-1(1), Eicher House,
Civic Centre, 12, Commercial Complex,
New Delhi. Greater Kailash-II,
New Delhi.
PAN: AAATG5663R
(Appellant) (Respondent)
Assessee by : Shri Gaurav Jain, Advocate &
Ms Deepika Aggarwal, Advocate
Revenue by : Ms Ashima Neb, Sr. DR
Date of Hearing : 29.01.2019
Date of Pronouncement : 29.01.2019
ORDER
PER R.K. PANDA, AM:
This appeal by the Revenue is directed against the order dated 4th March, 2015 of the CIT(A)-40, relating to Assessment Year 2010-11.
2. Grounds of appeal Nos.1 and 2 by the Revenue read as under:-
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of depreciation of Rs.73,14,022/- to the assessee ignoring the fact that the assessee had claimed the amount incurred on purchase of assets in earlier years as application of income, on which depreciation is claimed now and further allowance of depreciation will be tantamount to double ITA No.3524/Del/2015 deduction."
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of depreciation of Rs.73,14,022/- to the assessee in view of the recent decision of the Hon'ble Delhi High Court in the case of DIT(E) Vs. Charanjiv Charitable Trust dated 18.03.2014."
3. Facts of the case, in brief, are that the assessee is a society registered u/s 12A of the IT Act by Order F.No.DIT(E)/2004-05/9-733/3/356 dated 17.06.2004. l It is also approved u/s 80G vide order dated 15th July, 2009. The society was established with the object of setting up or acquiring and running an institution or institutions for education for the benefit of the public. It filed its return of income on 28th September, 2010 disclosing nil income. The Assessing Officer, during the course of assessment proceedings, observed that the assessee has claimed depreciation of Rs.73,14,022/- on capital assets which was also treated as application of income u/s 11(1) and full deduction of the entire amount was already allowed. Therefore, claiming of depreciation on the assets which was already allowed as application of income amounts to double deduction. Relying on various decisions, the Assessing Officer disallowed the claim of depreciation of Rs.73,14,022/-.
4. Before the CIT(A) the assessee, relying on various decisions, submitted that the Assessing Officer is not justified in disallowing the depreciation as the same is claimed on commercial principles. Based on the arguments advanced by the assessee and distinguishing the various decisions relied on by the Assessing Officer and following the decision of the Hon'ble Delhi High Court in the case of DIT(E) vs. Indraprastha Cancer Society vide order dated 18.11.2014 the ld. CIT(A) allowed the 2 ITA No.3524/Del/2015 claim of depreciation on the capital assets the purchase of which was also claimed as application of income u/s 11(1).
5. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal.
6. We have considered the rival arguments made by both the sides and perused the relevant material on record. The only question to be decided in the impugned grounds is regarding the allowability of depreciation on the capital assets acquired by the assessee where the expenditure incurred for acquisition of such capital assets was treated as application of income for charitable purposes u/s 11(1)(a) of the IT Act. We find the issue stands decided in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation Poona vide Civil Appeal No.7186 of 2014 and batch of other appeals vide consolidated order dated 13th December, 2017. The relevant observations of the Hon'ble Supreme Court read as under:-
"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 assessees had virtually enjoyed a 100 per cent write off of 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 3 ITA No.3524/Del/2015 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 'Commissioner of Income Tax v. Institute of Banking Personnel Selection (IBPS)' [(2003) 131 Taxman 386 (Bombay)]. 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 @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 4 ITA No.3524/Del/2015 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 (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 etc. 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 5 ITA No.3524/Del/2015 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."
7. Since the assessment year involved in the instant appeal is assessment year 2010-11, therefore, in view of the decision of the Hon'ble Supreme Court cited (supra), we do not find any infirmity in the order of the CIT(A) allowing the claim of depreciation of Rs.73,14,022/- to the assessee on the amount incurred for purchase of assets in earlier years and claimed cost of such capital asset as application of income. The decision relied on by the Revenue in the grounds of appeal is no longer applicable in view of the binding decision of the Hon'ble Supreme Court cited (supra). The grounds raised by the Revenue are, therefore, dismissed.
8. Ground Nos.3 and 4 read as under:-
"3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the provision for gratuity amounting to Rs.47,53,461/- as application of income disregarding the fact that the assessee had not actually incurred the expenses during the previous year and mere creation of a provision in the books of account of estimated liability cannot be treated as application of income.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the provision for leave encashment amounting to Rs.7,41,936/- as application of income disregarding the fact that the assessee has not actually incurred the expenses during the previous year and mere creation of a provision in the books of account of estimated liability cannot be treated as application of income."6 ITA No.3524/Del/2015
9. Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, observed that the assessee has claimed provision for gratuity and leave encashment of Rs.47,53,461/- and Rs.7,41,936/- respectively as application of income for the current assessment year. According to the Assessing Officer, the provisions of section 11 of the IT Act allows the application of income which is applied during the year and the assessee is not allowed to make provisions which cannot be ascertained without their actual payments. According to him, the commercial sense applies in case of charitable institutions as business principles are not applicable whereas provision for gratuity and leave encashment are not allowed as per section 43B of the IT Act. Since all charitable institutions are running on commercial principles or on business lines, certain limitations are there on them vis-à- vis commercial organization. Therefore, he was of the opinion that the provisions for gratuity and leave encashment should not be allowed to the assessee. He, therefore, confronted the same to the assessee. It was explained by the assessee that it is maintaining books of account in accordance with the mercantile system of accounting consistently for the past several years which has always been accepted by the Revenue. In accordance with the said method, the assessee recognizes all the revenues as well as expenses on the dates of accrual notwithstanding actual receipt or payment thereof subsequently. The decisions of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. vs. CIT (245 ITR 428) and in the case of CIT vs. Garware Synthetics Bristles, 205 ITR 426 were brought to the notice of the Assessing 7 ITA No.3524/Del/2015 Officer. It was accordingly argued that the provision made by the assessee should be allowed.
10. However, the Assessing Officer was not satisfied with the explanation given by the assessee. Distinguishing the various decisions relied on by the assessee and holding that principles of res judicata are not applicable to the tax proceedings, the Assessing Officer disallowed the provision for gratuity and leave encashment made by the assessee. In appeal, the ld.CIT(A), following his order for assessment year 2009-10, allowed the claim of the assessee on account of provision for gratuity and leave encashment. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal.
11. We have heard both the sides and perused the relevant material on record. We find the Tribunal, in assessee's own case for the immediately preceding assessment year i.e., assessment year 2009-10, in ITA No.967/Del/2013, order dated 04.03.2015, has restored the issue to the file of the CIT(A) by observing as under:-
"3. We have heard rival contentions and perused the entire material available on record. A bare perusal of afore-mentioned finding would reveal that ld. CIT(A) has not given any reasoning to defer from the AO's reasoning as to why, while applying the commercial principle, section 43B should not be applied. Unless the impugned order before us has complete reasoning, it is not possible to appreciate the correct position on this count. We, therefore, set aside the order of ld. CIT(A) and restore the matter back to his file for passing a reasoned order, after giving an opportunity of being heard to the assessee."
12. Since the ld.CIT(A) while deciding the issue in favour of the assessee has followed the order of his predecessor for assessment year 2009-10 and since the 8 ITA No.3524/Del/2015 Tribunal in assessee's own case for assessment year 2009-10 has restored the issue to the file of the CIT(A) for passing a speaking order on the issue, therefore, respectfully following the order of the Tribunal in assessee's own case for the preceding assessment year, we restore both these issues i.e., provision for gratuity and leave encashment to the file of the CIT(A) for fresh adjudication in the light of the direction of the Tribunal for assessment year 2009-10. Needless to say, the CIT(A) shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. The grounds raised by the Revenue are accordingly allowed for statistical purposes.
13. In the result, the grounds of appeal Nos.1 & 2 by the revenue are dismissed and grounds of appeal Nos.3 and 4 are allowed for statistical purposes.
The decision was pronounced in the open court on 29.01.2019.
Sd/- Sd/-
(K. NARASIMHA CHARY) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMFBER
Dated: 29th January, 2019
dk
Copy forwarded to
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asstt. Registrar, ITAT, New Delhi
9