Income Tax Appellate Tribunal - Lucknow
Income Tax Officer (Exemption), ... vs M/S Suryabux Pal Charitable Trust, ... on 23 February, 2018
I.T.A. No.193/Lkw/2016
1
Assessment year:2011-12
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH 'B', LUCKNOW
BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND
SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER
ITA No.193/Lkw/2016
Assessment year:2011-12
Income Tax Officer (Exemption) Vs. Surya Bux Pal Charitable Trust
Lucknow. 3/249, Vinay Khand,
Gomti Nagar,
Lucknow.
PAN:AAETS 2948 D
(Appellant) (Respondent)
Appellant by Shri Yashvendra Singh, D.R.
Respondent by Ms. Sweta Mittal, A.C.A.
Date of hearing 22/02/2018
Date of pronouncement 23/02/2018
ORDER
PER T. S. KAPOOR, A.M.
This is an appeal filed by the Revenue against the order of learned CIT(A) dated 08/02/2016 relating to assessment year 2011-12.
2. Brief facts, as stated in the assessment order, are that the assessee is running educational institution and is a society registered under the Societies Act and also enjoyed the benefit of exemption u/s 12AA of the Act. During the assessment proceedings the assessee did not comply with the various notices and filed incomplete details and information and therefore, the Assessing Officer denied an amount of Rs.2,71,20,688/- out of administrative expenses as inadmissible being 30% of the expenses claimed under this head. The Assessing Officer also disallowed the claim for application of income towards capital assets at Rs.8,14,18,262/- in the I.T.A. No.193/Lkw/2016 2 Assessment year:2011-12 absence of documentary evidence in support of application of income towards the purchase of capital assets. Similarly, the Assessing Officer disallowed an amount of Rs.63,45,086/- being the amount allowed as concession against fee of students as the Assessing Officer held that no details of such students, to whom the concession was provided, had been filed. The Assessing Officer further disallowed a claim of depreciation of Rs.2,65,36,922/- which the assessee had claimed as depreciation by holding that the claim of application of income towards capital assets has already been allowed in earlier years therefore, he held that the further claim of depreciation will amount to double deduction of claim.
2.1 Aggrieved by the order of the Assessing Officer, the assessee filed appeal before learned CIT(A) and made various submissions. The assessee also filed additional evidence which the CIT(A) sent to Assessing Officer for his remand report. The learned CIT(A), after going through the remand report and further comments of the assessee, allowed relief to the assessee by holding as under:
Addition of ad hoc disallowance out of administrative expenses 6.4 The submissions of the appellant were forwarded to the Assessing Officer for necessary inquiry and report. The AO has since submitted a remand report vide letter F.No. ITO(E)/Lko/Remand Report/2015-16 dated 20.01.2016 which is on record. The observations of the Assessing Officer in the remand report are as under:-
During the assessment proceedings, the AO had made addition of Rs.2,71,20,688/- towards Administrative Expenses @ 30% of total expenses claimed at Rs.9,04,02,294/- as the assessee trust failed to produce books of accounts, bills/vouchers etc. in respect of claim of application of income towards charitable purpose. During the remand proceedings, the assessee trust has submitted copies of ledger account of expenses exceeding I.T.A. No.193/Lkw/2016 3 Assessment year:2011-12 Rs. 2 Lakhs and submitted photocopy of some bills and vouchers.
6.5 A copy of remand report was provided to the appellant for comments. The appellant has filed the written submissions claiming that With respect to aforesaid expense we would like to state that during the remand proceeding we had submitted copies of ledger accounts of expenses of 2,00,000/- and above claimed under the head Administrative Expenses in Income & Expenditure account of relevant assessment year alongwith copies of .some bills and vouchers. We would further like to state that all bills and vouchers of administrative expenses amounting to Rs.9,04,02,294.92 incurred by the appellant appellant trust during the relevant assessment year were also produced before the Ld. Assessing Officer for verification with our reply dated 04/01/2016 during the remand proceedings.
6.6 On examination of the above facts and circumstances it is evident that the books of accounts and bill/vouchers are duly maintained by the appellant and audit report in Form 10B was filed with Balance Sheet. The copies of ledger accounts and bill/vouchers were produced before the AO in remand proceedings and no adverse inference on the same has been drawn in remand report. Ledger accounts and bill/vouchers were produced in appellate proceedings also. The activities of the appellant are exactly similar to activities of the earlier AY's.
In the earlier AY's the appellant has always been granted exemption u/s 11 as registration u/s 12A was already granted Similar is the position in the year under consideration. The books of accounts and bills/vouchers have been examined by the AO and no adverse inference has been drawn in the remand report. In view of these facts, the basis of disallowance of administrative expenses cannot be sustained and the same is hereby deleted. The addition of Rs.2,71,20,688/- out of administrative expenses is deleted."
Addition on account of concession given to students 7.4 The submissions of the appellant were forwarded to the Assessing Officer for necessary inquiry and report. The AO has I.T.A. No.193/Lkw/2016 4 Assessment year:2011-12 since submitted a remand report vide letter F.No. ITO(E)/Lko/Remand Report/2015-16 dated 20.01.2016 which is on record. The observations of the Assessing Officer in the remand report are as under:-
The AO had made the addition at Rs. 63,45,086/- on account of Fee Concession as the assessee trust had not produced details and documents during the assessment proceedings. In this regard, during the remand proceedings, the assessee has produced ledger accounts of the Fee Concession under following heads.
S.No. Account Name Amount
1 Fee Rebate 4565600
2 Fee Exemption 976386
3 Discount on fee fix 773100
4 Discount A/c 30000
Total 6345086
A copy of remand report was provided to the appellant for comments. The appellant has filed the written submission claiming that-
With respect to aforesaid expense we would like to state that we had submitted copies of all ledger accounts pertaining to fee concession along with copies of some letter/notices issue by the management of the appellant trust for fee concession along with incentive policy for admission of meritorious students and copies of some applications for fee concession of financially deprived students along with the hand written ledger during the remand proceeding. Further, the appellant Trust had produced all its books of accounts along with bills and vouchers before the Ld. Assessing Officer for verification with reply dated 06.01.2016 during remand proceeding.
The activity of giving fee concessions to deserving students is not new for this year and is a regular practice of the appellant I.T.A. No.193/Lkw/2016 5 Assessment year:2011-12 trust. The activities of appellant are exactly similar to the activities undertaken by appellant in the earlier A.Y.'s In the earlier A.Y.'s the appellant has been granted exemption u/s 11 as it is registered u/s 12A of the Act. The audit report was filed alongwith Balance Sheet. These fee concessions have been allowed to the appellant-trust in the earlier A.Y's also. The relevant ledger accounts of fee concession and supporting documentary evidence was produced before the AO in remand proceedings and same were checked by AO. No adverse inference has been drawn by AO in the remand report in respect of the same. Documentary evidence in support of fee concessions in tuition fee and other fee given to the students was produced in appellant proceedings and was examined. The same documents with ledger accounts were examined by the AO in remand proceedings and no adverse inference was drawn. In view of the above facts the addition made to the tune of Rs. 63,45,086/- is hereby deleted. The addition made to gross receipts is not called for and the same is hereby deleted.
Addition on account of depreciation on capital assets "8.4 The submissions of the appellant were forwarded to the Assessing Officer for necessary inquiry and report. The AO has since submitted a remand report vide letter F.No. ITO(E)/Lko/Remand Report/2015-16/dated 20.01.2016 which is on record. The observations of the Assessing Officer in the remand report are as under:-
In this regard, the Assessing officer had observed that since, the claim of application of income towards capital assets has already been allowed in earlier years, therefore, double deduction of claim of depreciation is not allowable in view of the settled principles of law and instructions of CBDT.
On this issue, I am of the opinion that the Assessing Officer had rightly construed that the Assessee trust was not eligible for its claim of depreciation as the same would amount to double deduction. Hence, the claim of application of income to the tune of Rs.2,65,36,922/- towards Depreciation is not allowable and may be sustained.
I.T.A. No.193/Lkw/2016 6 Assessment year:2011-12 8.5 A copy of remand report was provided to the appellant for comments. The appellant has filed the written submissions claiming that-
We would like to submit that income of trust/society registered u/s 12A shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under section 11 in the same or any other previous year w.e.f. 01.04.2015 as section 11(6) of Income-tax Act has been inserted by the Finance (No. 2) Act, 2014. Thus, depreciation claim was not disallowable as per Income-tax Act, 1961, in the relevant assessment year. Further, by catena of judgments of Hon'ble ITAT and Hon'ble High Court it is well settled that charitable institutions can claim depreciation on assets acquired out of application of trust income, irrespective of the facts that cost of purchase is out of application of income exempt u/s 11 and 12 of the Act. In this regard, our reliance is placed on judgment of Hon'ble ITAT, Jaipur in the case of M/s Santokbha Durlabhji cuke trust, Jaipur v. Income tax Officer in ITA NO. 241 & 242/JP/2014 for A.Ys. 2004-05 and 2009-10 dated 13.03.2015. Relevant portion is reproduced below:
"2.5 Besides by a catena of judgments of ITAT and Hon'ble High Court it is by now well settled that charitable institutions can claim depreciation on assets acquired out of application of trust income, irrespective of the facts that cost of purchase is out of application of income exempt u/s 11 and 12 of the Act Following are the case laws relied:-
a. In ITO v. SS Jain Subodh Shiksha Samiti in [ITA No. 250/JP/2007] it was held:
Where the society had claimed depreciation even when the cost of the assets have been treated as applied, it shall be treated as applied towards the income of the society. The word 'applied' used in section 11 should be construed widely and not in a narrow sense as held in:
b. In ACIT Vs. Bhopal Campion School Society [2011] 14 Taxmann.com 59 (Indore) it was held:
I.T.A. No.193/Lkw/2016 7 Assessment year:2011-12 Even otherwise, depreciation allowance is a concession granted by the state in the computation of income base on many factors relevant to the wholesome fiscal administration. Depreciation represents the diminution in the value of an asset when applied to M/s Santokbha Durlabhji Trust Vs. ITO Ward-l(l), Jaipur.
The purpose of making profit or gain. Depreciation is thus related to an asset and is a notional loss against actual loss in the sense of outgoing of a business, meaning thereby, depreciation is a statutory allowance not confined expressly to diminution in value of asset by reason of wear and tear only. A charitable trust is entitled to depreciation in respect of asset held by it. Our view is fortified by the decision from Hon'ble Jurisdictional High Court in the case of CIT V. Raipur Pallottine Society [1990] 50 Taxman 233(MP) c. In CIT v. Institute of Banking Personnel Selection (IMPS) [2003] 131 TAXMAN 386 (BOM). It was held:
Section 11 of the Income-tax Act, 1961, Charitable or religious trust Exemption of income from property held under-Assessment year 1984-85- Whether assessee trust could claim depreciation on assets, cost of which had been fully allowed as application of income under section 11 in past years-Held, yes
-Whether assessee could claim depreciation on asserts which it received on account of transfer and cost of acquiring of which was not incurred by assessee -Held, yes -Whether assessee could carry forward deficit of earlier years and set it off against surplus of subsequent years-Held, yes, d. In CIT vs. Seth Manilal Ranchod Das Vishram Bhawan Trust [198 ITR 598 (Guj)] it was held:
The amount of depreciation debited to the accounts of the charitable institutions has to be deducted to arrive at the income available for application to charitable and religious purposes.
I.T.A. No.193/Lkw/2016 8 Assessment year:2011-12 e. In CIT vs. Society of Sister St. Anne 146 ITR 28 depreciation was allowed in addition to capital expenditure.
f. In Pooran Mal Phoola Devi Memorial Trust vs. ITO (JP ITAT) it was held that depreciation is allowable as application of income.
g. Latest judgment in GKR Charities vs. Dy. DIT (Exemptions) [2011] 46 SOT 23 is also of the view that benefit of depreciation is different from claim of capital expenditure and both are allowable distinctively.
h. P&H High Court again has reiterated the similar stand in its latest judgment in CIT Vs. Market Committee [2011] 330 ITR 16.
M/s Santokbha Durlabhji Trust vs. ITO Ward-Kl). Jaipur. It is further pleaded that the legal position in behalf of such depreciation has been amended w.e.f. 01.04.2015 by insertion of Section 11(6) of I.T. Act, 1961 by Finance (No.2) Act, 2014 as under-
"(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any\other previous year. The memorandum explaining the amendment of above provision appended with Finance (No.2) Act, 2014 explains the same as under:-
The section issue which has arisen is that the existing scheme of section 11 as well as section 10(23C) provides exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these section, notional deduction by way of depreciation etc, is claimed and such amount of notional deduction remains to be applied for charitable purpose. Therefore, double benefit is claimed by the trusts and institutions under the existing law. The provisions need to be rationalized to ensure that double benefit is not claimed and such notional amount does not get I.T.A. No.193/Lkw/2016 9 Assessment year:2011-12 excluded from the condition of application of income for charitable purpose.
In view of the above, it is also proposed to amend the Act to provide that under section 11 and 10(23C), income for the purposes of application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year.
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. M/s Santokbha Durlabhji Trust vs. ITO WardOl(l), Jaipur.
Thus, the change in legal position about eligibility of depreciation qua assets acquired by meeting the cost from application of exempt income of the charitable institution is effective with prospective effective, specifically from 01.04.2015. Thu the legislative amendment also supports the ration of judicial precedents cited above, allowing such depreciation.
..............................................................................In view thereof, we find no infirmity in the order of the Ld. CIT(A) on this issue allowing depreciation. Hence, the appeals of the Revenue are dismissed."
8.6 The undersigned has gone through the judgment of Hon'ble ITAT, Jaipur judgment relied upon by the appellant in the case of M/s Santokbha Duriabhji Trust vs. ITO ward-1(1), Jaipur in ITA No. 241 & 242/JP/2014 for A.Y. 2004-05 and 2009-10 dated 13.03.2015. The undersigned has also gone through section 11(6) of the IT. Act, 1961 inserted by the Finance (No.2) Act, 2014. This provision is applicable w.e.f. 01.04.2015. Briefly stated as per the existing scheme of section 11 and section 10(23C) provides exemption in respect of income when it is applied to acquire a capital asset. Subsequently when computing the income, notional deduction by way of depreciation etc. is claimed and such amount of notional deduction remains to be applied for charitable purpose. This means that double benefit is claimed by Trust and institutions. To ensure that double benefit is not claimed there I.T.A. No.193/Lkw/2016 10 Assessment year:2011-12 was amendment in the Act and income for purpose of application shall be determined without any allowance of depreciation. This amendment took effect from 01.04.2015 i.e. A.Y. 2015-16 and subsequent years. The issue in appeal is for A.Y. 2011-12 and the pre amended section will apply in the case of appellant. In view of these facts the provisions of Section 11(6) of the Act shall be applicable only after 01.04.2015. In view of existing scheme of section 11 & section 10(23C) for A.Y. 2011-12 and the judgments in case of M/s Santokbha Durlabhji Trust of Hon'ble ITAT Jaipur the claim of depreciation is allowed to the appellant. The addition made by AO is deleted."
Addition on account of capital expenditure "9.3 The submissions of appellant were forwarded to the Assessing Officer for necessary inquiry and report. The AO has since submitted a remand report vide letter F.No. ITO(E)/Lko/Remand Report/2015-16 dated 20.01.2016 which is on record. The observations of the Assessing Officer in the remand report are as under:-
The AO had made the addition towards capital expenditure At Rs. 8,14,/18/262/- the assessee trust had not produced the details and documentary evidences in support of its claim of application of income towards purchase of capital asset. During the remand proceedings, the assessee trust has submitted details of addition in fixed assets and also submitted copies of some ledger account of additions in fixed assets as under:-
S. Assets CEST
No. addition
1. Furniture & Fixtures 2609268
2. Electrical Equipment 544300
3. Library book 492010
4. Tata Safati UP32DR 0077 767384
5. Tata Safari UP 32 DS 0077 767384
6. Winger Car UP 51T4177 663000
7. Winger Car UP 51T 4277 663000
8. Bio Metric Machine 84000
9. Card Printer Duel Side encoder 118650
10. Endeavour 1686358
I.T.A. No.193/Lkw/2016
11
Assessment year:2011-12
A copy of remand report was provided to the appellant for comments. The appellant has filed the written submission claiming that-
Capital expenditure of Rs.8,14,18,262/- was incurred for purchase of capital assets by the appellant trust during the relevant assessment year. The assessee Trust has submitted details of aforesaid addition in fixed assets along with copies of its ledger accounts with Ld. Assessing Officer during the remand proceeding. Further, the appellant Trust had produced all its books of accounts along with bills and vouchers before the Ld. Assessing Officer for verification with reply dated 06.01.2016 during remand proceeding.
The activities of the appellant are similar to the activities undertaken in the earlier AY's . Appellant has always been granted exemption u/s 11 in earlier AY's as it was registered u/s 12A. During the remand proceedings the ledger accounts and details of addition to fixed assets were produced before AO along with supporting documentary evidence. The same were examined by AO and no adverse inference has been drawn in the remand report after verification of the books of accounts and bill/vouchers. The ledger accounts of addition of fixed assets along with copies of bills/vouchers were produced before the undersigned also and were examined head wise. The activities of the charitable trust for the year under consideration are similar to activities of earlier A.Y.'s wherein exemption u/s 11 was granted as it was held that these capital assets were used for charitable purpose. No fact has been brought out to hold that these assets were not utilized for charitable purpose during the year under consideration. In view of these facts the amount spent on capital assets is allowed to be treated as application of income while computing income u/s 11 and 12 of the Act. The action of AO is deleted."
Aggrieved, the Revenue is in appeal before us.
3. Learned D. R., at the outset, heavily placed his reliance on the order of the Assessing Officer. It was submitted that during the remand proceedings the Assessing Officer had specifically held that the allowance of I.T.A. No.193/Lkw/2016 12 Assessment year:2011-12 depreciation will amount to double benefit to the assessee as the capital expenditure was already allowed to the assessee in earlier years.
4. Learned A. R., on the other hand, heavily placed her reliance on the order of learned CIT(A) and submitted that learned CIT(A) after going through the submissions of the assessee and after obtaining remand report from the Assessing Officer has elaborately dealt with the issues and has rightly deleted the additions. It was submitted that the registration u/s 12A of the Act was never cancelled and assessee was being allowed exemption u/s 11 as the assessee was engaged in charitable activities. As regards the arguments of Learned D. R. regarding double claim on account of depreciation, Learned A. R. submitted that various courts have already held that depreciation claim has to be allowed irrespective of the fact that the capital assets were already allowed as a deduction as utilization of income. Specific reliance was placed on an order of Hon'ble Allahabad High Court in the case of CIT vs. Krishi Utpadan Mandi Samiti in Income Tax Appeal No. 21 of 2012 wherein Hon'ble High Court has decided the question of allowance of depreciation in favour of the assessee.
5. We have heard the rival parties and have gone through the material placed on record. We find that it is undisputed fact that the assessee is a registered trust and is also enjoying exemption u/s 12A of the Act. It is also undisputed fact that the benefit of exemption u/s 12A was not withdrawn. Learned CIT(A) after going through the detailed submissions of the assessee and after obtaining remand report of the Assessing Officer has rightly deleted the addition by holding that the registration u/s 12A was not cancelled. We further find that CIT(A) has categorically held that the books of account of the assessee were audited and necessary audit report in the prescribed form was filed with the return of income. He has also held that I.T.A. No.193/Lkw/2016 13 Assessment year:2011-12 the Assessing Officer during the remand proceedings had not commended adversely on the written submissions filed by the assessee. As regards the adverse comments by the Assessing Officer regarding depreciation claimed by the assessee, we find that Hon'ble Allahabad High Court in the case of CIT vs. Krishi Utpadan Mandi Samiti, under similar facts and circumstances, has held that depreciation was allowable even if the entire capital expenditure was allowed as deduction. The relevant findings of Hon'ble court as reproduced below:
"On perusal of the impugned judgment and order passed by the Tribunal, it reflects that after taking into consideration the undisputed facts that the issue of depreciation on the assets of the assesses was examined by the Tribunal in the assessee's own case for the earlier assessment year 2007-2008 rendered in the case of Income Tax Officer Vs. Krishi Utpadan Mandi Samiti Jalaun and others in I.T.R. Nos. 305 to 309/Lkw/ll of this Bench, directing the Assessing Officer to allow the claim of the assessee, the Appellate Tribunal, vide impugned judgment and order dated 20.6.2012, decided the issue in favour of the assessee and against the department. The findings of facts so recorded by the Appellate Tribunal are on the basis of cogent material on records. Therefore, it cannot be said that the findings recorded by the Tribunal are perverse or contrary to the material on record. It is settled law that the findings of fact cannot be upset unless perversity is shown.
We also take note of the fact that income for the Assessment Year under consideration declared by the assessee is nil. Therefore, the Appellate Tribunal has rightly passed the impugned order.
During the course of arguments, Sri Alok Mathur, learned Counsel for the department has also failed to point out any reasonable cause which shows that depreciation was allowable. Moreover, as per Clause 3 of Circular No. 3/2011[F.No. 279/Misc. 142/2007-ITJ] dated 9.2.2011, appeal is not maintainable.
I.T.A. No.193/Lkw/2016 14 Assessment year:2011-12 For the reasons aforesaid, the question so framed is answered in the negative i.e. against the department. The impugned judgment and order passed by the Appellate Tribunal is hereby confirmed."
5.1 We further find that with effect from 01/04/2015 section 11(6) has been inserted by which it has been laid down that income of trust/society registered u/s 12A shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income u/s 11 in the same or any other previous year. This amendment is prospective and is applicable from 01/04/2015 and before this many courts, as noted by learned CIT(A) in his order, have held that depreciation claim is allowable. The case of assessee relates to assessment year 2011-12 and therefore, this amendment will not be applicable in the case of the assessee.
5.2 In view of these facts and circumstances, we do not find any infirmity in the findings of CIT(A).
6. In the result, the appeal of the Revenue is dismissed.
(Order pronounced in the open court on 23/02/2018) Sd/. Sd/.
(PARTHA SARATHI CHAUDHURY) ( T. S. KAPOOR )
Judicial Member Accountant Member
Dated:23/02/2018
*Singh
Copy of the order forwarded to :
1. The Appellant
2. The Respondent.
3. Concerned CIT
4. The CIT(A)
5. D.R., I.T.A.T., Lucknow