Sri Adichunchangiri Shikshana Trust, Mandya v. Addl CIT, Mysore

ITA 775/BANG/2009 | 2006-2007
Pronouncement Date: 29-01-2010 | Result: Allowed

Appeal Details

RSA Number 77521114 RSA 2009
Bench Bangalore
Appeal Number ITA 775/BANG/2009
Duration Of Justice 5 month(s) 29 day(s)
Appellant Sri Adichunchangiri Shikshana Trust, Mandya
Respondent Addl CIT, Mysore
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 29-01-2010
Date Of Final Hearing 20-01-2010
Next Hearing Date 20-01-2010
Assessment Year 2006-2007
Appeal Filed On 31-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH BANGALORE BEFORE SHRI K.P.T.THANGAL VICE PRESIDENT AND SHRI N.L.KALRA AM ITA NO.775(BANG.)/2009 (ASSESSMENT YEAR : 2006-07) SRI ADICHUNCHANAGIRI SHIKSHANA TRUST ADICHUNCHANAGIRI KSHETRA NAGAMANGALA TALUK MANDYA DISTRIT APPELLANT VS THE ADDITIONAL COMMISSIONER OF INCOME-TAX RANGE-2 MYSORE RESPONDENT ASSESSEE BY : SHRI D.DEVARAJ REVENUE BY SHRI JASON P BOAZ O R D E R PER SHRI N.L.KALRA AM; THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF LEARNED CIT(A) MYSORE DATED 22-05-2009. THE FIRST GRIEVA NCE OF THE ASSESSEE IS THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT TH E AO WAS JUSTIFIED IN NOT ALLOWING THE DEPRECIATION. 2. THE AO OBSERVED THAT THE ENTIRE EXPENDITURE INC LUDING THE CHARITABLE AND RELIGIOUS EXPENDITURE IS TO BE CONSI DERED FOR ASCERTAINING THE 85% OF THE EXPENDITURE APPLIED FOR CHARITABLE PURPOSES SO THAT PROVISIONS OF SEC.11 ARE APPLIED FOR EXEMPTING THE ITA NO.775(B)/09 2 INCOME OF THE TRUST. HENCE THE CAPITAL EXPENDITUR E IS CONSIDERED AS PART OF EXPENDITURE APPLIED FOR CHARITABLE PURPOSES THEREFORE THE ASSESSEE CANNOT BE ENTITLED TO DEPRECIATION WHILE A SCERTAINING THE INCOME U/S 11 OF THE IT ACT. 3. THE LEARNED CIT(A) NOTICED THAT THE ISSUE OF AL LOWING DEPRECIATION CAME UP IN THE ASSESSMENT YEAR 2005-06 . THE TRIBUNAL OBSERVED THAT ALLOWING OF DEPRECIATION IS PURELY AC ADEMIC AS THE ACCUMULATION IS NOT IN EXCESS OF 15% DURING THE YEA R AND THEREFORE THE GROUND OF APPEAL RAISED BY THE ASSESSEE WAS DIS MISSED. THE LEARNED CIT(A) THEREFORE UPHELD THE ORDER OF THE A O IN VIEW OF THE ORDER OF TRIBUNAL DATED 31-12-2008 IN THE CASE OF A SSESSEE FOR THE EARLIER YEAR THOUGH THE ASSESSEE HAS RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INSTITUTE OF BANKING 264 ITR 110. DURING THE COURSE OF PROCEEDI NGS BEFORE US THE LEARNED AR DREW OUR ATTENTION TO THE DECISION O F THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INSTITUTE OF BANKING(SUPRA). THE LEARNED AR DREW OUR ATTENTION T O THE FINDING GIVEN BY THE HONBLE BOMBAY HIGH COURT AND SUCH FIN DINGS ARE REPRODUCED AS UNDER; AS STATED ABOVE THE FIRST QUESTION WHICH REQUIRES CONSIDERATION BY THIS COURT IS: WHETHER DEPRECIATIO N WAS ALLOWABLE ON THE ASSETS THE COST OF WHICH HAS ITA NO.775(B)/09 3 BEEN FULLY ALLOWED AS APPLICATION OF INCOME U/S 11 IN THE PAST YEARS? IN THE CASE OF CIT VS MUNISUVRAT JAIN (1994) TAX LR 1084(BOM). THE FATS WERE AS FOLLOWS: THE ASSESSEE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRUST. IT WAS AL SO REGISTERED WITH THE COMMISSIONER OF INCOME-TAX PUNE. THE ASSESSEE DERIVED INCOME FROM TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEARS 1977-78 1978-79 AND 1979-80 THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE BUILDING A T 21/2% AND THEY ALSO CLAIMED DEPRECIATION ON FURNITURE AT 5%. THE QUESTION WHICH AROSE BEFORE TH E 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 AS HELD B THE BOMBAY HIGH COURT THAT SECTION 11 OF THE IT ACT MAKES A PROVISION IN RESPECT OF COMPUTAT ION OF INCOME OF THE TRUST FROM PROPERTY HELD OR CHARIT ABLE R RELIGIOUS PURPOSES AND IT ALSO PROVID4ES FOR APPLICATION AND ACCUMULATION OF INCOME. ON THE OTH ER HAND SECTION 28 OF THE IT ACT DEALS WITH CHARGEABI LITY OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND SECTION 29 PROVIDES THAT INCOME FROM PROFITS AND GA INS 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 P LANT ITA NO.775(B)/09 4 AND MACHINERY OWNED Y THE ASSESSEE AND USED FOR BUSINESS PURPOSES. IT FURTHER PROVIDES FOR DEDUCTI ON SUBJECT TO SECTION 34. IN THAT MATTER ALSO A SIMI LAR ARGUMENT AS IN THE PRESENT CASE WAS ADVANCED ON BEHALF OF THE REVENUE NAMELY THAT DEPRECIATION CA N BE ALLOWED AS DEDUCTION ONLY UNDER SECTION 32 OF TH E IT 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 IT ACT. THE COURT REJECTED THE ARG UMENT ON BEHALF OF THE REVENUE THAT SECTION 32 OF THE IT ACT WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD THAT INCOME O F A CHARITABLE TRUST DERIVED FROM BUILDING PLANT AND MACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED I N A 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 IT ACT PROVIDING FOR DEPRECIATION FOR COMPUTATION O F 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 GROS S INCOME OF THE TRUST. IN VIEW OF THE AFORESTATED ITA NO.775(B)/09 5 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. THE FINDING GIVEN BY THE HONBLE BOMBAY HIGH CO URT WAS ON THE FOLLOWING QUESTION OF LAW: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN LAW IN DIRECTIN G THE AO TO ALLOW DEPRECIATION ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCO ME UNDER SECTION 11 IN THE PAST YEARS? 5. THE LEARNED AR ALSO RELIED ON THE DECISION OF T HE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS SOCIETY OF THE SISTERS OF ST.ANNE 146 ITR 28. THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT THE DEPRECIATION IS NOTHING BUT DECREASE IN VALUE OF PR OPERTY THROUGH WEAR DETERIORATION OR OBSOLESCENCE AND ALLOWANCE I S MADE FOR THIS PURPOSE IN BOOK KEEPING ACCOUNTANCY. THE DEPRECIA TION IF IT IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME FROM THE CHARITABLE INSTITUTIONS THEN THERE IS NO WAY TO PR ESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. THE LEARNED AR ALSO RELIED ON THE CIRCULAR NO.5P(XX-6) DATED 19-06-1968 IN THAT CIRC ULAR THE BOARD MENTIONED THAT IN THE CASE OF BUSINESS UNDERTAKING HELD UNDER THE TRUST THAT INCOME HAS TO BE SHOWN IN THE UNDERTAKIN G. THE INCOME IS ITA NO.775(B)/09 6 TO BE UNDERSTOOD IN ITS COMMERCIAL SENSE. FROM THI S CIRCULAR THE LEARNED AR SUBMITTED THAT ON HAS TO CONSIDER THE AL LOWABILITY OF DEPRECIATION WHILE ASCERTAINING THE EXEMPTION OF IN COME U/S 11 OF THE IT ACT. 6. ON THE OTHER HAND LEARNED DR STATED THAT DEPRE CIATION IS NOT ALLOWABLE BECAUSE THE EXPENDITURE INCURRED IN ACQU IRING THE CAPITAL ASSET IS BEING TREATED AS PART OF THE EXPENDITURE F OR CHARITABLE PURPOSES. THE ASSESSEE CANNOT BE GIVEN DOUBLE DEDU CTION AS SUCH THE LEARNED DR SUBMITTED THAT THE DEPRECIATION IS N OT ADMISSIBLE. 7. WE HAVE HEARD BOTH THE PARTIES. WE HAVE IN THE EARLIER PARA REFERRED TO THE FINDINGS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING (SUPRA). WE HAVE ALSO GONE THROUGH THE DECISION OF THE JURISDICTIONAL HIGH COURT. THE HON BLE JURISDICTIONAL HIGH COURT HELD THAT THE AMOUNT OF DEPRECIATION DEB ITED TO THE ACCOUNT OF CHARITABLE INSTITUTIONS IS TO BE DEDUCTE D TO ARRIVE AT AN AVAILABLE INCOME FROM CHARITABLE OR RELIGIOUS PURPO SES. FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT WE THEREFORE HOLD THAT THE DEPRECIATION IS TO BE DEDUCTED TO ARRIVE AT AN INCOME AVAILABLE TO CHARITABLE AND RELIGIOUS PURPOSES. ITA NO.775(B)/09 7 8. THE NEXT GRIEVANCE OF THE ASSESSEE IS THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PROVISION OF SEC.40(A)(IA ) FOR COMPUTING THE INCOME U/S 11 OF THE IT ACT. 9. WE HAVE HEARD BOTH THE ARTIES. THE BOARD VIDE CIRCULAR DATED 26-11-1968 IN PARA-3 MENTIONED AS UNDER; 3. IN TH IN THE CASE OF BUSINESS UNDERTAKING HELD UNDER TRUST ITS INCOME WILL BE THE INCOME AS SHOWN IN TH E ACCOUNTS OF THE UNDERTAKING. UNDER SECTION 11(4) ANY INCOME OF THE BUSINESS UNDERTAKING DETERMINED BY THE INCOME-TAX OFFICER(NOW ASSESSING OFFICER) IN ACCORDANCE WITH THE PROVISION S OF THE ACT WHICH IS IN EXCESS OF THE INCOME AS SOW N IN RELIGIOUS AND HENCE IT WILL BE CHARGED TO TAX UNDER SUB-SECTION(3). AS ONLY THE INCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11(1) THE PERMITTED ACCUMULATION OF 25 PER CENT WILL ALSO B CALCULATED WITH REFERENCE TO THIS INCOME. WHILE APPLYING THE EXEMPTION U/S 11 OF THE IT ACT ONE HAS TO CONSIDER THE CAPITAL EXPENDITURE TREATED AS MADE FO R THE PURPOSES OF CHARITABLE PURPOSES. THIS SHOWS THAT SEC.37 CANNO T BE INVOKED FOR ITA NO.775(B)/09 8 ASCERTAINING THE INCOME TO BE ASCERTAINED U/S 11 OF THE IT ACT. ONE HAS TO SEE THAT 85 % OF THE RECEIPT IS ALLOWED FOR CHARITABLE PURPOSES AND DIFFERENCE BETWEEN THE 85% OF THE RECEIPT AND A CTUAL EXPENDITURE FOR CHARITABLE PURPOSES CAN BE TAXED U/S 11 OF THE IT ACT. 10. THE HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF SOCIETY OF SISTERS OF ST. ANNE HELD THAT THE WORD INCOME IS TO BE UNDERSTOOD IN ITS COMMERCIAL SENSE IN CASE THE TRUST DERIVED INCOME FROM HOUSE PROPERTY OR FROM INTEREST ON SECURITIES CAPITAL GA INS OR OTHER SOURCES. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DIRE CTOR OF INCOME- TAX(E) VS GIRIDHARILAL SHEWNARAIN TANTIA TRUST 1 99 ITR 215 HELD THAT LONGTERM CAPITAL GAINS IS NOT ENTITLED TO BENE FIT U/S 80T. HENCE IT IS CLEAR THT THE INCOME IN THE CASE OF TRUST IS TO BE ASCERTAINED BASED ON THE COMMERCIAL SENSE I.E. BASED ON BOOK PR OVISIONS OF SEC.40(A)(IA) CANNOT BE INVOKED FOR ASCERTAINING TH E INCOME I THE CASE OF TRUST. THE HONBLE MADRAS HIGH COURT IN THE CAS E OF CIT VS RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES(1982) 135 ITR 485 HELD THAT IN THE CASE OF A TRUST INCOME WILL HAVE TO BE CALCULATED IN THE COMMERCIAL MANNER AND IT IS NOT TO BE COMPUTED UNDE R THE IT ACT. HENCE WE HOLD THAT THE LEARNED CIT(A) WAS NOT JUS TIFIED IN HOLDING THAT PROVISIONS OF SEC.40(A)(IA) CAN BE INVOKED FOR DISALLOWING THE EXPENSES ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOUR CE. WE HAVE ITA NO.775(B)/09 9 NOTICED FROM THE LEARNED DR THAT THE ASSESSEE HAS M ADE PAYMENTS WITHOUT DEDUCTING TAX AT SOURCE TO THE EMPLOYEES AN D OTHER PARTIES. THE REVENUE HAS TO TAKE NECESSARY ACTION UNDER THE ACT IN CASE IT IS FELT THAT THE ASSESSEE IS NOT PROPERLY DEDUCTED TAX AT SOURCE. HOWEVER ON THIS GROUND ALL THE EXPENSES DEBITED IN THE BOOKS CANNOT BE DISALLOWED BY INVOKING PROVISIONS OF SEC.40(A)(I A) OF THE IT ACT. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE (K.P.T.THANGAL (N.L.KALRA) VICE PRESIDENT ACCOUNTANT MEMBER PLACE: BANGALORE DATED: AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) 7. GF(DELHI) BY ORDER AR ITAT BANGALORE