Income Tax Appellate Tribunal - Delhi
Acit (E), New Delhi vs M/S Gsi India, New Delhi on 29 May, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'F', NEW DELHI
BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER
AND
SH. O.P. KANT, ACCOUNTANT MEMBER
ITA No.1251/Del/2016
Assessment Year: 2012-13
ACIT(E), Vs. GS1 India,
Circle -1(91), New Delhi 330, IInd Floor, C Wing,
August Kranti Bhawan,
Bhikaji Cama Place, New
Delhi
PAN : AAATE0387N
(Appellant) (Respondent)
Appellant by Smt. Deepali Chandra, CIT(DR)
Respondent by Sh. Rishabh Sancheti, Adv.
Date of hearing 16.05.2018
Date of pronouncement 29.05.2018
ORDER
PER O.P. KANT, A.M.:
This appeal by the Revenue has been preferred against the order dated 10/12/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-40, New Delhi [in short 'the Ld. CIT(A)'] for assessment year, 2012-13 raising following grounds:
1. On the facts and in the case and in law, the Ld. CIT(A) has erred in allowed the benefits of Section 11 & 12 of the Income-
tax Act, 1961 ignoring the fact that the assessee's activities 2 ITA No.1251/Del/2016 are not within the purview of Section 2(15) of the I.T. Act, 1961 during the year.
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.13,48,881/- to the assessee ignoring the fact that the assessee had claimed the amount incurred on purchase of the assets in earlier years as application of income, on which depreciation is claim now and further allowance of deprecation will tantamount to double deduction. 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. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of accumulated funds of Rs.13,60,51,495/- u/s 11(2) of the I.T., Act, 1961 in absence of benefit of Exemption u/s 11 and 10(23C) of the I.T. Act, 1961.
4. The appellant craves leave to add, alter of amend any ground of appeal raised above at the time of hearing.
2. Briefly stated facts of the case are that the assessee GS1, India is an organization affiliated to GS1 International, Belgium for promotion of GS1 numbering system of Indian trade and industry for its use in product, services and location identification, promotion of EANCOM standards in electronic data interchange (EDI) and other services as offered by GS1 International. The assessee filed return of income on 25/09/2012 disclosing Nil income. The Assessing Officer noted the historical background of registration granted and cancelled by the Ld. Director of Income-Tax (exemption) [in short the DIT(E)] and further allowing appeal by the Tribunal against the cancellation of registration, which is reproduced as under:
"2. The assessee society was earlier granted registration u/s 12A by the learned DIT vide his order F. 3 ITA No.1251/Del/2016 No. DIT(E)/98-99/E-106/98/360 dated 24.09.1998. Later on, the examination granted was cancelled by the learned DIT vide his order dated 30.06.2009. Its application u/s
10.(23C)(iv) filed for the A.Y. 2008-09 onwards on form no. 56 was also rejected by the learned DGIT vide his order dated 17.11.2008.
The assessee filed a Writ Petition before the Hon'ble Delhi High Court against the rejection of its application u/s 10(23C)(iv) by the learned DGIT. The Hon'ble Delhi High Court vide its writ petition no. 7797/2009 dated 26.09.2013 allowed the writ petition of the assessee directing the learned DGIT to grant approval u/s 10(23C)(iv). In compliance to the order of Hon'ble Delhi High Court, the learned DGfl granted approval u/s 10(23C)(iv) of the I.T. Act 1961 vide his order dated 23.10.2013 subject to the final decision of the Supreme Court, as the Department filed S.L.P. before the Hon'ble Supreme Court against the orders of the Hon'ble Delhi Court. So far, registration u/s 12A was concerned, the learned ITAT vide its order in ITA No. 3733/Del/2009 dated 11.10.2012 allowed the appeal of the assessee relying on the order in the Hon'ble Delhi High Court dated 26.09.2013.
With due honour to the orders of Hon'ble Court, it is submitted that the Department is still in S.L.P. before the Hon'ble Supreme Court against the order of the Hon'ble Delhi High Court. In view of the fact that the matter still being subjudice, undersigned is to proceed as per the previous order in the case of the assessee."
3. The Assessing Officer observed that that the activity of earning royalty/fee on licensing the bar-coding system, is a business and commercial activity. The Ld. Assessing Officer further observed that in view of the section 2(15) of the Act advancement of any other object of general public utility shall not 4 ITA No.1251/Del/2016 be charitable purpose, if it involves the carrying on an activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration in excess of Rs.10 Lacs, irrespective of the nature of use or application or retention of the income from such activity. Accordingly, he held that activities of the assessee were not charitable and excess of income over expenditure amounting to Rs.10,58,54,244/- was held as taxable. The Assessing Officer also disallowed the depreciation of Rs.13,48,881/- claimed as application of income on the ground that capital expenditure on those assets has already been claimed as application of income. The claim of carry forward of Rs.13,60,51,495/-, which was accumulated in pursuance to section 11(2) of the Act in previous years, was also not allowed in view of the assessee held as not engaged in charitable activity. In this manner, the Assessing Officer assessed the total income at Rs.24,32,54,620/- in his order under section 143(3) of the Act passed on 16/03/2015. On further appeal, the Ld. CIT(A) allowed the appeal of the assessee observing as under:
"4.4 Taking into consideration the appellant's submission regarding its activities which are in line with the objects in its MOA, the decision of the Hon'ble Delhi High Court and the ITAT Bench Delhi with regard to the charitable nature of the activity of the appellant vis-a-vis the assessment order u/s 143 (3) of the Act, I am inclined to agree with the appellant that it is a charitable society involved in the charitable activity by promoting the bar code technology which is for benefit of public at large. Accordingly, the activities of the appellant society comes under the definition of charitable purpose u/s 2 (15) especially under the sixth limb i.e. 'advancement of any other object of 5 ITA No.1251/Del/2016 general public utility'. This view is also supported by the above mentioned decisions of the Hon'ble Delhi High Court and followed by Hon'ble Tribunal (Delhi Bench). Hence, I am of the view that the appellant society is eligible society is eligible for exemption u/s 11 of the Act and the appeal on this point is hereby allowed.
4.5 As regards the computation of Rs. 13,60,51,495/- on account of exempt income (excess of income over expenditure, made in the assessment order) the appeal of the appellant is allowed and the AO is directed to allow exemption u/s 11 of the Act. For the addition made towards disallowance of depreciation (Rs.13,48,881/-), as exemption u/s 11 has been allowed to the appellant in this order there is no justification for the addition on this point and accordingly the AO is directed to allow the depreciation claimed. Finally, with regard to the addition (Rs.13,60,51,495/-) on account of disallowance of the amount carried forward u/s 11 (2) there is no justification for this as the appellant's appeal towards exemption u/s 11 of the Act has been allowed in this order. The AO is directed to delete this disallowance."
4. Aggrieved with the above finding of the Ld. CIT(A), the Revenue is in appeal before the Tribunal, raising the grounds as reproduced above.
5. The ground No. 1 of the appeal relates to allowing benefit of section 11 & 12 to the assessee.
5.1 The Ld. DR relied on the order of the Assessing Officer and submitted that activities of the assessee are of commercial nature and, therefore, in view of the proviso to section 2(15) of the Act, the activities are not of charitable in nature and, therefore, no benefit of Section 11 can be allowed to the assessee. 5.2 The Ld. counsel of the assessee, on the contrary relied on the recent decision dated 16/02/2018 of the Hon'ble Delhi High 6 ITA No.1251/Del/2016 Court in the case of the assessee in ITA No. 691/2017 and submitted that Hon'ble High Court held that fee received from barcode licensing cannot be characterized as commercial receipt and subject to tax treatment. He further submitted that in the immediately preceding assessment year 2011-12 also the Tribunal held activities of the assessee as charitable and therefore, assessee is entitled for benefit under section11 of the Act.
5.3 We have heard the rival submissions and perused the relevant material on record. The Hon'ble Delhi High Court in ITA No. 333/2018 for assessment year 2011-12 upheld the activity of the assessee as charitable. The relevant finding of the Hon'ble Delhi High Court is reproduced as under:
"The ITAT in this case relied upon the decision of this Court in another case of the assessee for a precious year [Commissioner of Income-tax (Exemption) Vs. M/s. GSI India, ITA 691/2017, decided on 16.02.2018]. The ITAT in this case relied upon the previous order of this Court in the case of M/s. GSI India Vs. Director General of Income Tax (Exemption) and Anr., W.P.(C) 7797/2009 dated 26.09.2013.] This Court notices that the same issue for another A.Y. was held in favour of the assessee and against the Revenue (in the case of Commissioner of Income Tax Vs. M/s. GSI India, ITA No. 691/2017 decided on 16.02.2018).
The Court had in both its previous judgments - dated 26.09.2013 in W.P.(C) 7797/2009 as well as in the appeal bearing ITA No.691/2017 decided on 16.02.2018 held that the assessee is entitled to the benefit under Section 10(23C)(iv) of the Act and also for its registration under Section 12AA(1) of the Act.7 ITA No.1251/Del/2016
In these circumstances, no substantial question of law arises. The appeal is dismissed."
5.4 The findings of the Hon'ble Delhi High Court in ITA 691/2017 are also reproduced as under:
"This Court by its judgment in GSI India Vs. Director General of Income Tax (Exemption) and Anr., (2014) 360 ITR 138 granted exemption under Section 2(15) read with Section 10(23C)(iv), observing as follows:
24. "The petitioner does not cater to the lowest or marginalized section of the society', but Government, public sector and private sector manufacturers and traders. No fee is charged from users and beneficiaries like stockist, whole sellers, government department etc. while a nominal fee is only paid by the manufacturer or marketing agencies i.e. the first person who installs the coding system which is not at all exorbitant in view of the benefit and advantage which are overwhelming.
Any one from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific or quantity related i.e. dependent upon quantum of production. Registration and annual fee entitles the person concerned to use GSI identification on all their products. Non levy of fee in such cases may have its own disadvantages and problems. Charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent.
25. Having applied the test mentioned above, including the criteria for determining whether the fee is commensurate and is being charged on commercial or business principles, we find that the petitioner fulfils the charitable activity test. It is apparent to us that Revenue has taken a contradictory stand as they have submitted and accepted that the petitioner carries on charitable activity under the residuary head "general public utility " but simultaneously regards the said activity as business. Thus the contention of the Revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but 8 ITA No.1251/Del/2016 decisive element of bequeathing is present. In the absence of "profit motive " and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible.
27. As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self- sustaining in ling-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause "general public utility". The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2 (15) of the Act.
In the present case, activities of the assessee are similar; the bar code licensing fee received by the two cannot be characterized as commercial receipts and subject to tax treatment.
Following the judgment of GSI India Vs. Director General of Income Tax (Exemption) and Anr. (supra)., it is held that the ITAT's decision is correct in law and does not call for interference. No substantial question of law arises.
The appeal is dismissed."
5.5 There is no dispute on the fact that the assessee continued the same activity which was carried in assessment year 2011-12 & 2010-11. As the activities of the assessee have been held as charitable in nature by the Hon'ble High Court and the Tribunal, respectfully following the same, we hold the activity of the assessee in the year under consideration as also charitable and 9 ITA No.1251/Del/2016 the assessee is entitled to benefit of section 11 and 12 of the Act and, thus, application of income has to be allowed in accordance with law. The finding of the Ld. CIT(A) on the issue-in-dispute is upheld. The ground No. 1 of the appeal of the Revenue is accordingly dismissed.
6. In ground No. 2, the Revenue has agitated allowing depreciation of Rs.13,48,881/- to the assessee despite the fact that the assessee claimed the amount incurred on purchase of assets in earlier years as application of income. 6.1 Before us, the Ld. DR relied on the decision of the Hon'ble Delhi High Court in the case of Director of Income Tax Vs. Charanjeev Charitable Trust (in ITA No. 321 to 323/2013) and submitted that in view of the said decision, the Ld. CIT(A) was not justified in allowing depreciation towards the application of income, in respect of the assets, the cost of which has already been allowed as application of income.
6.2 The Ld. counsel, on the contrary, submitted that depreciation has been claimed in accordance with law. 6.3 We have heard the rival submission and perused the relevant material on record. We find that Hon'ble Supreme Court in judgment dated 13/12/2017 in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation, Poona (Civil Appeal No. 7186 of 2014 with Another) has rejected the contention of the Revenue of double benefit and allowed the depreciation on assets as application of income even though capital expenditure in respect of those assets was already claimed as application of income in earlier years. The relevant finding of the Hon'ble Supreme Court is reproduced as under:
10 ITA No.1251/Del/2016".......................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 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 shall be 11 ITA No.1251/Del/2016 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 (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 12 ITA No.1251/Del/2016 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."
6.4 Further, the Hon'ble Supreme Court, has mentioned in the above judgment that the amendment in section11(6) of the Act brought vide Finance Act No. 2/2014, which became effective from assessment year 2015-16, but the said amendment has been held by the Hon'ble Delhi High Court as prospective in nature.
6.5 In view of the above finding of Hon'ble Supreme Court, the disallowance of depreciation amounting Rs.13,48,881/- cannot be sustained and accordingly, the said depreciation is allowed to assessee for application towards the income. The finding of the Ld. CIT(A) on the issue-in-dispute is upheld. The ground of the appeal of the Revenue is accordingly dismissed.
7. The ground No. 3 relates to allowing claim of accumulated funds of Rs.13,60,51,495/- under section 11(2) of the Act in absence of benefit of exemption under section 11 and 10(23C) of the Act.
7.1 While adjudicating the ground No. 1, we have already upheld that the activity of the assessee are charitable in nature and, thus, the claim of the assessee for carry forward under section 11(2) has been rightly allowed by the Ld. CIT(A), 13 ITA No.1251/Del/2016 accordingly, we uphold the same. The ground No. 3 of the appeal is thus accordingly dismissed.
8. In result, the appeal of the Revenue is dismissed. The decision is pronounced in the open court on 29th May, 2018.
Sd/- Sd/-
(AMIT SHUKLA) (O.P. KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 29th May, 2018.
RK/-(D.T.D.)
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi