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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI TARVINDER SINGH KAPOOR & SHRI CHANDRA MOHAN GARG
O R D E R PER CHANDRA MOHAN GARG, JM:
This appeal has been filed by the Revenue against the order of CIT(A)-40, Delhi, dated 27.06.2017 by raising following grounds of appeal:
“2. The Ld. CIT(A) has erred in allowing the appeal of the assessee by ignoring the fact in the case of charitable or religious institutions, the assessee is not eligible for any type of depreciation as the entire expenditure for the purchase of capital assets is allowed as a deduction and the same is treated as application of income u/s. 11(1) and claiming depreciation on the same capital assets is a double deduction and is not as per law as these capital assets are not used for the purpose of business or profession as provided u/s. 32(1).
2 ITA 5726/Del/2017 ACIT vs. Sansriti Eductional Society
3. On the facts and in circumstances of the case, whether the Ld. CIT (A) was correct in not appreciating the fact that allowance of depreciation on the assets tantamount to double deduction firstly in the form of allowing application of income in the year(s) of acquisition /purchase of assets and secondly in the form of depreciation allowance over a period of usage of assets/several assessment years.
4. Whether the CIT (A) was correct in allowing the depreciation claim of assessee, when the legislature, by way of amendment made w.e.f. 1.4.2015, conveyed its intention not to allow double deduction, one by way of application and another by way of depreciation on the same assets, cost of which has been allowed as application of income and therefore, it was never the intention of the legislature to allow double deduction.
5. The appellant craves leave to add. to alter or amend any ground of appeal raised above at the time of hearing.” 2. We have heard arguments of both the sides and carefully perused the material placed on record. The learned Senior Departmental Representative (Sr. DR) submitted that the learned CIT(A) was not correct on law and on facts to allow claim of depreciation to assessee. He also submitted that the assessee is not eligible for any type of depreciation as entire expenditure for purchase of capital asset is allowed as deduction and the same was treated as application of income u/s 11(1) of the Income-tax Act, 1961 (in short “the Act”) and claiming depreciation on same capital asset amounts to double deduction and not as per law.
The learned Representative placing reliance on the judgment of Hon’ble High Court of Delhi dated 18.09.2014 in and other appeals (including the present assessee) in the case of Indraprastha Cancer Society, submitted that the issue is no more res-integra as the Hon’ble High Court of Delhi has upheld the order of Tribunal in assessee’s own case. Therefore, order of CIT(A) may kindly be upheld. He also drew
3 ITA 5726/Del/2017 ACIT vs. Sansriti Eductional Society our attention to para 4.1.1 of the order of learned CIT(A) and submitted that the learned first appellate authority has also relied on said decision of Hon’ble High Court of Delhi for allowing relief to the assessee.
On careful consideration of above submissions, first of all we note that on the similar facts and circumstances Hon’ble Delhi High Court in the case of Indraprashtha Cancer Society (supra) and other appeals including Revenue’s appeal against present assessee on similar ground, dismissing the appeals of Revenue, held thus:
“8. Decisions of other High Courts in Commissioner of Income Tax versus Tiny Tots Education Society, (2011) 330 ITR 21 (P&H) and Commissioner of Income Tax versus Institute of Banking, (2003) 264 ITR 110 (Bom.) in which the ratio as expounded in the case of Vishwa Jagriti Mission (supra) was accepted and affirmed, were noticed. Referring to the decision of the Kerala High Court in Lissie Medical Institutions (supra) it was observed:-
“Kerala High Court was also conscious of the said decisions and the fact that Section ll(l)(a) had been interpreted in a different manner. It was in these circumstances that the Kerala High Court in the last portion of paragraph 6, as quoted above, has stated that the assessee would be entitled to write back depreciation and if done, the Assessing Officer would modify the assessment determining the higher income and allow recomputation of depreciation written back for the purpose of application of income for charitable purposes in future or subsequent years. This may lead to its own difficulties and problems as suddenly the entire depreciation written off would have to be added first and then in one year substantial application of income would be required. This may be impractical and would disturb the working of many a charitable institutions. The legal interpretation which has continued since 1984, if disturbed and implemented, would not appropriately resolved. Consistency and certainty is more appropriate.
The equally plausible and consistent interpretation of clause (a) of Section 11(1) of the Act is that income derived from property must be calculated as per the principles of the Act. The said clause is not a computation provision and does not disturb the “income” earned or available but postulates that the “income” as computed in accordance with 4 ITA 5726/Del/2017 ACIT vs. Sansriti Eductional Society the provisions of the Act to the extent of 86% must be applied. Application of income may include purchase of a capital asset. The said purchase is valid and taken into consideration for the purpose of ensuring compliance, i.e., application of money or funds and is not a factor which determines and decides the quantum of income derived from property held under trust. Computation of income is separate and distinct and has to be made on commercial basis by applying provisions of the Act.”
To our mind, therefore, the issue has been examined in depth and detail twice and thus there is no error in the impugned orders passed by the Tribunal. However, learned counsel for the Revenue has drawn our attention to the decision dated 18th March, 2014 in titled Director of Income Tax (Exemption) versus Charanjiv Charitable Trust, wherein it has been held:- “30. So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced. The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the CIT (Appeals) as well as the assessing officer. It was their view that allowing depreciation in respect of assets, the cost of which was earlier allowed as deduction as application of income of the trust, would actually amount to double deduction on the basis of the ruling of the Supreme Court in Escorts Ltd. vs. UOI (supra). In respect of the additions to the fixed assets made during the previous year relevant to the assessment year 2006-07, the CIT (Appeals) held that since the cost of the assets was not allowed as a deduction by way of application of income, depreciation should be allow. The CIT (Appeals) has thus made a distinction between assets the cost of which was allowed as deduction as application of income and assets, the cost of which was not so allowed. The Tribunal has not kept this distinction in view, but has proceeded to rely upon a judgment of this Court in DIT vs. Vishwa Jagrati Mission (supra). In the judgment of this Court the question was whether the income of the assessee, which was a charitable trust, should be computed on commercial principles and if so, whether depreciation on fixed assets used for charitable purposes should be allowed as a deduction. This Court noticed that there was a consensus of judicial opinion on this aspect and held, after referring to those authorities as well as a circular of the CBDT issued on 19.07.1968, that while computing the income of the trust available for application for charitable purposes, depreciation on assets used for charitable purposes should be allowed. The point to be noticed is that in this judgment, this Court referred to and distinguished the judgment of the Supreme Court in Escorts Ltd. (supra) on the ground that in Escorts (supra), the Supreme Court was concerned with a case where the deduction of the cost of the asset was allowed under Section 35(1) as 5 ITA 5726/Del/2017 ACIT vs. Sansriti Eductional Society capital expenditure incurred on scientific research and, therefore, no deduction for depreciation on the very same assets was held allowable under general principles of taxation, as it would amount to double deduction. The judgment of this Court in DIT vs. Vishwa jagrati Mission reinforces the principle that if the cost of the asset has been allowed as deduction by way of application of income then depreciation on the same asset cannot be allowed in the computation of the income of the trust. The distinction has not been kept in view by the Tribunal which seems to have erroneously relied on the judgment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has already been allowed as application of income. We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets.”
The aforesaid paragraph refers to the decision in the case of Vishwa Jagriti Mission (supra) but ratio was distinguished on the ground that in the said case the Court was concerned with computation of income of a charitable trust/institution on commercial principles and if so whether depreciation on fixed assets used for charitable purposes should be allowed as a deduction. The consensus of judicial opinion on the said aspect was referred to. It is noticeable that in Charanjiv Charitable Trust (supra) it stands observed that the Tribunal overlooked the fact that the cost of asset had been allowed as a “deduction” and thereafter depreciation was being claimed. The said case, therefore, appears to be a peculiar one wherein deduction as expenditure and depreciation was being claimed simultaneously, while computing the taxable income under the head “profits and gains from business”. The said decision dated 18th March, 2014 does not refer to the decision in Indian Trade Promotion Organisation (supra) which was decided on 27th November, 2013. The judgment in the case of Indian Trade Promotion Organisation (supra) was not cited and referred to. The judgment in the case of Charanjiv Charitable Trust (supra) is authored by the same Judge, who has also authored the decision in the case of Vishwa Jagriti Mission (supra). It is obvious that in Charanjiv Charitable Trust (supra), the Division Bench could not have taken a different view on the legal ratio as interpreted in Vishwa Jagriti Mission (supra). Further, the decisions in the case of Vishwa Jagriti Mission and Indian Trade Promotion Organisation (supra) being prior in point of time would act as binding precedents and could not have been overruled or dissented from by a coordinate Division Bench. By Finance (No. 2) Act of 2014, sub-section (6) to Section 11 stands 11. inserted with effect from 1st April, 2015 to the effect that where any income is required to be applied, 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 an asset, the acquisition of which 6 ITA 5726/Del/2017 ACIT vs. Sansriti Eductional Society has been claimed as application of income under this Section in the same or any other previous year. The legal position, therefore, would undergo a change in terms of Section 11(6), which has been inserted and applicable with effect from 1st April, 2015 and not to the assessment years in question. The newly enacted sub- section relates to application of income. In these circumstances, we do not find any merit in the appeals in the case 12. of Indraprastha Cancer Society, Abul Kalam Azad Islamic Awakening and in the case of M/s Sanskriti Educational Society (ITA No. 348/2014). Similarly, we do not think it is necessary and required that we should issue notice in the application for condonation of delay filed in the case of M/s Sanskriti Educational Society (ITA Nos. 463 and 464/2014) as on merits the Revenue is not entitled to succeed. In these appeals, the applications for condonation of delay shall be treated as dismissed and as a sequitur the appeals will be treated as dismissed
In the present case for A.Y. 2014-15 the learned CIT(A) by referring to said decision of the Hon’ble High Court of Delhi granted relief to the assessee by observing as under:
“4. Determination 4.1 Grounds of appeal nos. 1 and 3 for assessment year 2013 -
14. (Appeal No. 375/2016-17) and ground of appeal No. 1 for assessment year 2014 - 15(Appeal No. 375/2016-17) challenge the disallowance of depreciation as application of income. 4.1.1 The Assessing Officer has relied on the decision of the Hon'ble Supreme Court in the case of Escort Limited Vs. Union of India (supra) and J. K. Synthetics Limited Vs. Union of India (supra) while disallowing depreciation as the same amounted to claiming doubled deduction. The appellant has submitted that it is running an educational institution and has created huge infrastructure consisting of land and building, furniture and fixtures, electrical installations, buses etc. and that the income of the society should be understood in its commercial sense i.e. book income, after adding back any applications and also after adding back any debits made for capital expenditure incurred for the purpose of the trust or otherwise. It has also been submitted that if depreciation is not allowed as deduction for computing the income of charitable institutions, then there is no way to preserve corpus of the trust for deriving the income. Therefore, the amount of depreciation debited to the accounts of a charitable institution is to be deducted to arrive at the income available for application to charitable and religious purposes. Reliance has also been placed on the decisions of the Hon'ble Delhi
7 ITA 5726/Del/2017 ACIT vs. Sansriti Eductional Society High Court dated 18.11.2014 in appellant's own case in No. 240, 348, 406, 463 & 464/2014 and the Hon'ble ITAT Delhi Bench 'G' in ITA Nos. 3879/Del/2010 and 42/Del/2012 where depreciation was allowed. 4.1.2 I have considered the assessment order and the submissions of the appellant. Provisions relating to allowability of depreciation under the Income-tax Act and provisions governing income from property held for charitable or religious purposes have also been referred. Charitable trusts or institutions are governed by the provisions of sections 11, 12, 12A, 12AA and 13 under Chapter HI of the Income-tax Act. These sections constitute a complete code governing the grant, cancellation or withdrawal of registration, providing exemption of income and also conditions subject to which a charitable trust or institution is required to function in order to be eligible for exemption. Section ll(l)(a) provides for exemption to the extent income derived from the property held under trust is applied for charitable purposes. Subject to fulfillment of conditions laid down in section IX, exemption is available in respect of income irrespective of whether the expenditure incurred is revenue or capital in nature. Hence, exemption is available even when the income is applied for acquiring a capital asset. In view of this, charitable institutions were not eligible for depreciation. 4.1.3 This view has been clarified in Para 7.5 of the Explanatory Notes to the provisions of the Finance (No. 2) Act, 2014 issued vide Circular No. 1/2015 dated 21st January, 2015. Section 11 was amended by the Finance (No. 2) Act, 2014 whereby a new sub-section has been inserted which provides that under section 11, income for the purposes of its 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 section 11 in the same or any other previous year. Para 7.5 of the said Explanatory Notes is reproduced as under: "7.5 The second issue which had arisen was that the existing scheme of section 11 as well as section 10(23C) of the Income-tax Act provided exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation etc. was being claimed and such amount of notional deduction was not being applied for charitable purpose. As a result, double claimed by the trusts and institutions. Therefore, these provisions were required to be rationalized to ensure that double benefit is not claimed and such notional amount does not get excluded from the condition of application of income for charitable purpose."
4.1.4 There are many conflicting judgments of various Hon'ble High Courts, including that of the jurisdictional High Court, both in favour and against
8 ITA 5726/Del/2017 ACIT vs. Sansriti Eductional Society allowability of depreciation. The Hon'ble Delhi High Court, in the case of Director of Income Tax (Exemption) vs. Charanjiv Charitable Trust [(2014) 267 CTR 305], have held that if the cost of the asset has been allowed as deduction by way of application of income, then depreciation on the same asset cannot be allowed in computation of income of the trust (Para 30). However, in a subsequent decision, the Hon'ble Delhi High Court, in the case of DIT (Exemption) vs. Indraprastha Cancer Society & Others (which is also the appellant's own case) in 348, 406, 463 & 464/2014 vide the order dated 18.11.2014 have held that the assessee is eligible for depreciation in the case of charitable or religious institution also. 4.1.5 Relying on the latest decision of the Hon'ble Delhi High Court in the matter of DIT (Exemption) vs. Indraprastha Cancer Society & Others (supra), which is also the appellant's own case, the claim of depreciation of the appellant for the both the years under consideration is allowed. 4.1.6 As regards the reliance by the Assessing Officer on the judgment of the Hon'ble Supreme Court in the case of Escorts Limited Vs. Union of India, (supra), it is to be noted that in the case of Indraprastha Cancer Society (supra), the Hon'ble Delhi High Court have relied on its decision in DIT Vs. Vishawajagriti Mission [(2013) 262 CTR 558] wherein the said decision the Hon'ble Supreme Court was distinguished. It has been mentioned in the said order that in Escort Ltd the claim for depreciation under section 32 of the Act was denied as the entire expenditure on the capital asset had been allowed under section 35(2)(iv) while computing business profit and loss. It has further being noted by the Hon'ble court that the Supreme Court was not concerned with the case of charitable trust/institution, and the question as to whether income under the head "profit and gains of business" should be computed on commercial principles in order of determine the amount of income available in application for charitable purposes. Similar position exists with respect to the decision of the Hon'ble Supreme Court in the case of J. K. Synthetic Limited (supra) which has been referred by the Assessing Officer. 4.1.7 In view of the discussion above and relying on the decision of Hon'ble Delhi High Court in the case of Indraprastha Cancer Society and others (supra), which is also the appellant's own case, the Assessing Officer is directed to allow depreciation as application of income for both the years under consideration. Grounds of appeal nos. 1 and 3 for assessment year 2013 - 14 (Appeal No. 375/2016-17) and ground of appeal No. 1 for assessment year 2014 - 15(Appeal No. 375/2016-17) are allowed.
6. The learned DR has not controverted or shown different facts on the issue of allowability of claim of assessee for depreciation as application of income. In view of 9 ITA 5726/Del/2017 ACIT vs. Sansriti Eductional Society above, we are unable to see any perversity, ambiguity or any other valid reason to interfere with the first appellate order which has been passed under similar facts and circumstances of assessee’s own appeal on the identical issue. Thus, we uphold the same.
The Revenue’s appeal is dismissed.
Order pronounced in open court on 3/8/2022.