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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 14.11.2022 for the A.Y.2014-15.
(A.Y: 2014-15) Maheshwari Pragati Mandal 2. Brief facts of the case are, assessee filed its return of income on 29.09.2014 declaring total income of ₹.Nil. Subsequently, the return was revised on 23.03.2016 declaring total income of ₹.Nil. The case was selected for scrutiny and notices u/s. 143(2) and 142(1) of Income- tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for.
The Assessee trust is registered with the Directorate of Income Tax (Exemption), Mumbai u/s 12A of the Act, under Registration No. INS/5112. Trust is also registered with the Charity Commissioner, Mumbai vide Registration No. F-11526 (Mumbai). The trust is engaged in charitable activities in the field of Education. Accordingly, claimed exemption u/s 11 of the Act. During the assessment proceedings, Assessing Officer observed that assessee has claimed depreciation of ₹.62,72,682/- and he observed that assessee claimed depreciation and also capital expenditure viz. addition to fixed assets in the computation of income as it amounts to double deduction. Vide order sheet dated 004.11.2016 the assessee was asked to explain as to why the depreciation claimed by the assessee should not be disallowed.
Page No. | 2 (A.Y: 2014-15) Maheshwari Pragati Mandal 4. In response, assessee submitted as under: - “From the computation of total income, you will please observe that, the capital cost of fixed assets has not been claimed as application of income. Only depreciation in respect thereof has been claimed in computing the income of the trust. It may be added here that, for earlier years, although, capital cost for acquiring fixed assets has been shown as application income in the original computations filed alongwith the returns of income for those years but, in fact the same has not been actually allowed as can be seen from the revised computation of income for those years filed herewith. On the aforestated facts and in the circumstances of the case, it is submitted that, depreciation as claimed in the return of income is an allowable deduction in computing the income of trust."
After considering the submissions of the assessee, Assessing Officer observed that, by way of claiming the capital expenditure towards the purchase of the fixed assets and secondly, by way of depreciation, the assessee cannot take double deduction. He observed that when the assets were purchased at that instant point of time, the assessee has claimed application of the same as per the provisions of Section 11 of the Act and again when depreciation on this asset is claimed it would amount to double claim in the form of application of income. When the capital asset is written off in the books, there is no asset pending in the books for claiming depreciation allowance. Such double deduction is not provided for in the Act.
Page No. | 3 (A.Y: 2014-15) Maheshwari Pragati Mandal 6. Further, Assessing Officer observed that while going through the original computation of income filed with the return of income, he observed that assessee has claimed capital expenditure of ₹.16,36,253/- as an application of Income and Expenditure on the object of the trust. In the revised statement of income, the assessee has excluded capital expenditure as application of income and expenditure inclusive of depreciation claimed as an application of income. The assessee's revised computation of income is afterthought when the specific issue brought on record that the assessee has claimed double deduction by way of capital expenditure and depreciation which tantamount to double deduction. When this fact is brought to the knowledge of the assessee, assessee has changed its mind and filed revised computation with negative income. The same is not acceptable as mentioned above and considering the ratio of judgements stated in his order, he rejected the claim of depreciation and added back to the income of the Trust. Accordingly, he revised the computation of income by disallowing claim made by the assessee.
Aggrieved assessee preferred an appeal before the Ld.CIT(A) and submitted its submissions as under: -
Page No. | 4 (A.Y: 2014-15) Maheshwari Pragati Mandal “The assessee Trust filed its return of income on 29-09-2014 declaring total income at Rs.Nil. Subsequently, the return was revised on 23-03-2016 declaring the total income at Rs. Nil. In the original return, cost of acquisition of capital assets was considered as application of income and also depreciation in respect thereof was claimed in computing the income available for application as provided for u/s 11 of the IT Act. However, in the revised return of income, no claim was made regarding cost of capital assets as application of income. Only the depreciation in respect thereof and in respect of additions to fixed assets made in earlier years (where the capital cost was, although claimed in some of the years but was not actually allowed as application of income) has been claimed. The Appellants crave leave to submit such other data/documents, etc. at the time of the hearing as may be considered necessary for deciding the issues involved in the appeal.”
After considering the submissions of the assessee Ld.CIT(A) dismissed the appeal filed by the assessee by observing as under: - ”5.2 From the original computation of income filed with the return of income it is seen that appellant had claimed capital expenditure of Rs. 16,36,253/- as an application of income in its revise statement of income the appellant had excluded capital expenditure as application of income and expenditure inclusive of depreciation was claimed. The AO noted that the appellant's revision of computation of income is an after thought when the specific issues brought on record that the appellant had claimed double deduction by the way of capital expenditure and depreciation. After this fact was brought on record, the appellant filed revised computation with negative income. The AO also noted that the appellant has claimed capital expenditure over the years as well as depreciation on the fixed assets thereby enjoying double deduction. In this regard AO relied upon various decisions of Courts including - Hon'ble Supreme Court's J .K. Synthetics Ltd. Vs. UOI 199 1TR 43(SC) and Hon'ble Delhi High Court's Chinrangiv Charitable Trust ITA 321/2013 5.4 Upon careful consideration of the matter, I am also of the view that the revised return filed by the appellant was an afterthought with a view to defraud the revenue. Therefore, I do not find any infirmity in the order of the AO. Hence, the order of Page No. | 5 (A.Y: 2014-15) Maheshwari Pragati Mandal the AO is upheld and the additions made are sustained and confirmed.”
Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “1. The learned Commissioner of Income-Tax (Appeals). Income Tax Department, hereinafter referred to as the "CIT(Appeals)", erred in coming to the conclusion that, "I do not find any infirmity in the order of the AO" and consequently upholding the order of the Assessing Officer and sustaining and confirming the addition in respect of depreciation of Rs 62,72,682 as made by the Assessing Officer. Your appellants submit that, on the facts and in the circumstances of its case, the addition as made by the Assessing Officer is legally incorrect as has been held by the Hon'ble Supreme Court in this regard in the case of Rajasthan and Gujarati Charitable Foundation (402 ITR 441) and therefore the same requires to the deleted.
2. Without prejudice to the ground of appeal no.1, it is submitted that, the CIT(Appeals) erred in disregarding the decision of the Hon'ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation (402 ITR 441) relied upto by the appellants before him and erroneously upholding the addition of deprecation of Rs 62,72,682 as made by the Assessing Officer. Your appellants submit that, on the facts and in the circumstances of its case, the decision of the Hon'ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation (402 ITR 441) is squarely applicable in the case of the appellants and the same ought to have been followed by the CIT(Appeals) in deciding the appeal before him.
3. Without prejudice to the grounds of appeals nos. 1 & 2, it is submitted that, the assessment having been completed based on the revised return, the same cannot be ignored partially by the CIT(A) in concurring with the AO that it is an after through and ignoring the same in deciding the grounds of appeal before him. Your appellants submit that, on the facts and in the circumstances of its case, the revised return having been filed in time and taken on record by the Assessing Officer cannot be ignored for the purpose of deciding the grounds of appeal by the CIT(Appeals).”
Page No. | 6 (A.Y: 2014-15) Maheshwari Pragati Mandal 10. At the time of hearing, Ld. AR of the assessee submitted that assessee has claimed the depreciation during this assessment year. In this regard, he submitted that originally assessee has filed return of income by claiming the capital cost of the assets to the extent of ₹.16,36,253/- along with depreciation. However, assessee has revised the return of income by withdrawing the capital expenditure claimed above. He submitted that till A.Y. 2014-15 the law of the land as held by the Hon'ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation [2018] 402 ITR 441 (SC), as per which the charitable institutions are allowed to claim the capital expenditure incurred on the assets as application, at the same time, the depreciations were also allowed to claim as expenditure of the Trust and however, he submitted that the Finance Act, 2014 has brought amendment in section 11(6) of the Act which become effective from A.Y.2015-16 which prohibited the allowance of depreciation in the cases where assessee claims the capital expenditure as application of funds which is applicable prospectively. Therefore, the issue of allowing depreciation is covered by the above said decision. However, he submitted that Assessing Officer and Ld.CIT(A) has dismissed the plea of the assessee by disallowing the depreciation claimed by the assessee.
Page No. | 7 (A.Y: 2014-15) Maheshwari Pragati Mandal Further, he submitted that assessee has revised its return of income from A.Y. 2008-09 onwards which is placed on record which shows that assessee has not effectively claimed the application of funds on the capital expenditure incurred by the assessee in the earlier Assessment Years.
On the other hand, Ld. DR relied on the orders of the lower authorities.
Considered the rival submissions and material placed on record, we observe from the record that assessee has originally claimed capital expenditure as application of funds, however, by filing the revised return of income assessee has withdrawn the above claim of capital expenditure. However, claimed the depreciation on the assets held by the assessee to the extent of ₹.62,72,682/-. From the record, we observe that Assessing Officer has rejected the claim of the assessee by relying on the decision of the Hon'ble Supreme Court in the case of J.K. Synthetics Ltd v. Union of India [1999 ITR 43], in the above said decision Hon'ble Supreme Court has dealt with the issue of allowing the capital asset as an allowance u/s. 35(2)(4) of the Act and at the same time whether the assessee is allowed to claim depreciation u/s. 32 of the Page No. | 8 (A.Y: 2014-15) Maheshwari Pragati Mandal Act on the same set of assets which was already claimed as deduction u/s. 35(2)(4) of the Act. In this regard Hon'ble Supreme Court held that even though there is no specific discussion on such allowance in the Act, however, it is not the intention of the legislature to allow the double deduction to any assessee. This is not in dispute that the issue dealt by the Hon'ble Supreme Court relating to deduction u/s. 35 and 32 of the Act which are relating to the head “income from business or profession”. However, the issue to be considered u/s.11 of the Act, which is not similar to the issue decided in the case of J.K. Synthetics Ltd v. Union of India (supra). We observe that the issue dealt by the Hon'ble Supreme Court in the case of CIT v. Rajasthan & Gujarati Charitiable foundation (supra) relating to charitable institutions in which the issue was, whether to consider capital expenditure as application of income and at the same time claim of depreciation on the same set of assets as expenses of the Trust. This issue was elaborately discussed by the Hon'ble Supreme Court in the above said decision and allowed the claim of the assessee in their favour, observing 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, 1961 (hereinafter referred to as "Act"). For this Page No. | 9 (A.Y: 2014-15) Maheshwari Pragati Mandal 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 appli- cation 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 Commissioner of Income-tax (Appeals) had affirmed the view, but the Income-tax Appellate Tribunal reversed the same and the High Courts have accepted the decision of the Income-tax Appellate Tribunal 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 v. Institute of Banking [2003] 131 Taxman 386 (Bom). In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner: "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 LR 1084 (Bom) 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 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 at 25 per cent. and they also claimed depreciation on furniture at 5 per cent. 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 a provision in respect of computation of income of the trust from property held for charitable or religious purposes and it also provides for application and accumulation of Page No. | 10 (A.Y: 2014-15) Maheshwari Pragati Mandal 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 machinery and furniture was liable to be computed in 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 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 Curt, we answer question No. 1 in the affirmative, i.e. in favour of the assessee and against the Department. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of DIT (Exemption) v Framjee Cawasjee Institute [1993] 109 CTR (Bom) 463. In that case the facts were as follows: The assessee was a trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of Page No. | 11 (A.Y: 2014-15) Maheshwari Pragati Mandal the trust. The Income-tax Officer 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 Income-tax Officer 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 the 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. CIT. 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 (No. 2) Act of 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.”
Page No. | 12 (A.Y: 2014-15) Maheshwari Pragati Mandal 13. This being the case the Assessing Officer has no option but to allow the claim of the assessee in the current Assessment Year which is A.Y. 2014-15. We observe that section 11 of the Act was amended by the Finance Act, 2014 by introducing section 11(6) of the Act to restrict the claim on depreciation effective from A.Y. 2015-16. In the present case we observe that assessee itself has withdrawn the capital expenditure as application of fund by filing revised return of income, therefore, the claim of the assessee for the present assessment year is proper and just. Therefore, we are inclined to allow the claim of the assessee for the current Assessment Year, however, the assessee cannot claim any depreciation on those assets which assessee has already declared as application of income in the earlier Assessment Years and also where the assessee has claimed as application of income or in the earlier assessment year and assessee has choose to claim the depreciation or not is immaterial. Therefore, the assets carried forward by the assessee which was not declared as application of income is alone to claim as depreciation from A.Y. 2015-16. In this case, the assessee has effectively disallowed in A.Y. 2014-15, only to the extent of above and to the extent of future addition to the fixed assets in the property of the Trust. Therefore, we are inclined to allow the claim of Page No. | 13 (A.Y: 2014-15) Maheshwari Pragati Mandal the assessee for the current Assessment Year and decide the issue in favour of the assessee.
In the result, appeal filed by the assessee allowed.
Order pronounced in the open court on 02nd May, 2023.