MUWAHHID EDUCATIONAL FOUNDATION,MANGALURU vs. DCIT, CPC, BANGALORE

PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER:

2. The sole issue involved in this appeal is not allowing depreciation on Fixed Assets as claimed by the assessee in its grounds of appeal.

Page 2 of 9 3. The brief facts of the case are that the assessee is a trust engaged in solely proving educational services to students at Montessory, primary and high school level under the name and style of Red Caramels. It is formed as a public charitable trust and registered with Registrar of the State Government in the year 2012. Trust was granted registration u/s 12A w.e.f the asst. year 2020-21. The trust was not registered u/s 12A for the impugned assessment year under appeal.

4. The assessee filed return of income 29.12.2017 declaring “income from other source” of Rs. 5,59,551/- and the same was processed u/s 143(1)(a) of the I. T. Act. 1961 by disallowing of depreciation of Rs. 18,08,848/- .Aganist this order the assessee filed rectification application u/s 154 before the Assessing Officer(AO). Based on the above rectification application, the AO did not allow depreciation by observing that the assessee is not eligible for getting exemption u/s 10(23C)(iii)(ad) of the Act since the gross receipt of the trust is Rs.1,42,71,529/- which is more than Rs. one crore and he further observed that the there is no provision for allowance of depreciation under the head ‘income from other sources’ unless the income earned is from let out/leased assets. Since the assessee has not declared in such income, the depreciation claimed is not allowable and rejected the rectification application filed by the assessee.

5. Aggrieved from the order of the AO, the assessee filed appeal before the CIT(A). The ld.CIT further discussed the provision of Page 3 of 9 sec. 32 of the Act relying on the judgment of Hon’ble Supreme Court and Hon’ble High Court. He noticed that disallowance u/s 143(1) does not come within the purview of sec. 154 of the Act for the reason that as per provisions of sec. 154 of the Act, the mistake apparent from record can only be rectified but he noted that in the impugned case allowing depreciation is not mistake apparent from record and this is debatable issue which needs elaborate enquiry as per the discussion in his order.

6. Aggrieved from the above order, the assessee filed appeal before the ITAT.

9. After hearing both the sides and perusing the entire materials on record I noted that the assessee is a trust and running school, on perusal of income and expenditure the only source of income is fee collected of Rs.1,42,70,680/- and interest of banking deposits of Rs.849/- and the net income from running a school is Rs.5,58,701/-. While filling the return of income the assessee declared the entire income under the head “income from other sources” and the CPC did not give benefit of depreciation on the Fixed Assets. The assessee filed rectification application u/s 154 of the Act but AO rejected the same and the CIT(A) also rejected on observing that it is debatable issue after relying on certain judgments. On going through the income and expenditure account and the entire submissions of the assessee, the assessee wrongly offered the income from under the “income from other sources” u/s 56 of the Act. After going through the sec.56, I observe that the income earned by the assessee does not fall under the head of “ income from other sources”. The sole purpose as per submission of the assessee is to running a school for educational purposes to students, therefore, if any income received by the assessee will not fall under the head “income from other sources”. The income of the assessee should be computed under the head profit and gains of business & profession as per under Chapter IV D , therefore the income should be computed as per Chapter IV D of the I.T. Act. .

Page 5 of 9 10. Chapter XIV described the procedure for assessment. The section 139 of the Act as specified the filing of return of income as per the Act. The income should be computed in the manner provided as per chapter IV, computation of total income. I want to reproduce the section 14 of the Act which is as under:- Heads of income. 37 14. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :— A.—Salaries. B.—38[***] C.—Income from house property. D.—Profits and gains of business or profession. E.—Capital gains. F.—Income from other sources. The above heads of income has specified the manner & procedure for calculating the total income after considering the relevant sections/provisions of the Act. Since the assessee’s activities falls under the head D - Profits and gains of business or profession, therefore the assessee is eligible for depreciation on Fixed assets as per section 32 of the Act.

Page 6 of 9 “9. We have considered the rival submissions of both sides and also perused the record. We are very much aware of the recent decision of ITAT, Jodhpur Bench in the case of Akbar Mohammad, Nagaur Vs. ACIT, CPC, Bangalore & 109/Jodh/2021 order dated 31.01.2012 in which the Hon’ble Co-ordinate Bench had resolved an identical controversy by holding as under: “6.1 Of course, it is a case in point that the assessee did not file any appeal against the intimations passed us 143(1) of the Act and the Ld. Sr. DR is right to the extent that the assessee cannot be given relief for that reason. However, it is also a settled law that the assessee cannot be taxed on an amount on which tax is not legally imposable. Although, the assessee might have chosen a wrong channel for redressal of his grievance, all the same, it is incumbent upon the Tax authorities to burden the assessee only with correct amount of tax and not to unjustly benefit at the cost of tax payer. Therefore, in the interest of substantial justice, we deem it expedient to restore the issue to the file of the Assessing officer with a direction to pass appropriate orders deleting the addition / disallowance after duly considering the settled judicial position in this regard, which have been decided in the three cases as enumerated above in Para 5.” During hearing, we have apprised both sides about this recent decision of the Hon’ble Co-ordinate Bench.

10. Therefore, respectfully following the decision of Hon’ble Co-ordinate Bench, we are inclined to accept the request of assessee. Therefore, Ground No. 2 is allowed.”

Asst. Registrar, ITAT, Bangalore.

Page 9 of 9 1. Date of Dictation ………………………………………

7. If not uploaded, furnish the reason for doing so …………………………..

8. Date on which the file goes to the Bench Clerk …………………..