THE COMMISSIONER OF INCOME TAX, TVM vs. SREE CHITRA THIRUNAL COLLEGE OF ENG.

We have heard the Standing counsel appearing for the appellant and have gone through the impugned orders of the Tribunal and that of the lower authorities.

The respondent is a Trust formed by the Government of Kerala in coordination with the KSRTC, a Government of Kerala undertaking (functioning under Government control). Since the respondent Trust is engaged in conducting Engineering college which claimed exemption under section 11 of the Act and the Trust was granted the benefit by issuing registration in it's favour under section 12 of the I.T.Act, in the returns filed for the assessment years 2001-2002 and 2003-2004, respondent-assessee claimed depreciation on buildings, furniture etc. However, the assessing officer rejected the claim holding that since the income received by the assessee is exempt under section 11 of the Act, the assessee is not entitled to get depreciation. Besides denying depreciation, the assessing officer made an addition of Rs.84,96,000/- towards fees due from KSRTC. For the assessment year 2003-2004, the additional issue raised was with regard to carry forward of income, which according to the Assessing Officer, was in excess to the limit prescribed under section 11(2)(a) of the Act. However, in first appeal, the CIT(Appeals) allowed the appeals on all the grounds raised and the Tribunal on second appeals filed by the Revenue, confirmed the same against which these appeals are filed.

The first contention raised by the Revenue is that the assessee being a Trust enjoying exemption under section 11 of the Act is not entitled to claim depreciation. The Standing counsel submitted that the assessee was engaged only in running educational institution and, so much so, it's activity cannot be called business to qualify it for deduction for depreciation under section 32 of the Act. Education carried on other than for profit, is not treated as a business under the Act, and that is why, separate exemption subject to conditions is provided to educational institutions up to a certain limit under section 10(23C) (iiiad) of the I.T.Act. Apparently, the respondent is running only an educational institution and educational activities carried on by it does not appear to be for profit, and so much so, it is entitled to exemption up to the limit provided in the above provisions stated above. But neither the assessing authority nor the Department has considered the assessee's entitlement for exemption under the above provisions and so much so, we have to consider the case only with respect to the assessee's institution as a Charitable Trust enjoying exemption under section 11 of the I.T.Act.

There is nothing to indicate that charitable institutions enjoying income tax exemption should not carry on business or their activities should not lead to any surplus to qualify it for exemption. Any institution with Education, medical relief, relief of the poor or the advancement of any other object of general public utility as it's objects qualify it as a charitable institution for exemption from income tax under section 2(15) of the I.T.Act. It is very common that the net result of running of educational institutions, hospitals etc. may result in surplus. However, charitable institutions which carry on these activities enjoy exemption under Section 11 if they carry over surplus in excess of the income utilised for chartable purposes for application of subsequent years subject to certain limit prescribed in the Act. There is no bar against the charitable institutions claiming deductions and rebate available under the Act which includes depreciation under section 32 of the Act. Depreciation is nothing but a deduction for wear and tear on the value of fixed assets like buildings, furniture, plant and machinery etc. used for the purposes of business or profession. We have already expressed the view that educational institution is entitled to depreciation in respect of fixed assets like building, furniture etc. because educational activity in the strict sense has to be treated only as business. It is also worthwhile to note that in Commissioner of Income Tax v. Institute of Banking (264 ITR 110), it was held that charitable institutions enjoying registration under Section 12A of the IT Act is entitled to deduction towards depreciation. Further, real profit in a commercial activity has to be computed by following normal accounting practices and policies and under sound commercial accounting principles, in the computation of profits, an establishment is entitled to depreciation for fixed assets used in the business, no matter, the activity was carried on with profit motive or not. In this view of the matter, we uphold the order of the Tribunal declaring eligibility of the respondent for depreciation benefits available under section 32 of the IT Act.

On the question raised pertaining to addition made in the assessment deleted by the first appellate authority and confirmed by the Tribunal, we find from the Tribunal's order that the amount representing fees receivable by the respondent from KSRTC was written off by the respondent. It is not known whether the fees shown as payable to the respondent by the KSRTC for earlier years is towards the fee for training the employees of the Corporation. In any case it is the finding of the Tribunal that the amount was written off by the assessee in earlier years, and, in fact, it is not seen in it's balance sheet as receivable from KSRTC. In view of this finding of the Tribunal, we do not find any justification for the Department treating this as income of the assessee and we confirm the Tribunal's order on this issue as well.

The last ground raised in the appeal for the year 2003-04 is that the income carried forward is in excess of the limit which was reduced from 25% to 15% with effect from assessment year 2003-04. The only reason for disallowance of the claim in the assessment is that the assessee has not shown the purpose for which the amount is carried over. However, it is the finding of the Tribunal that the respondent-assessee has only one object, that is, running of the educational institution which is a charitable institution and, so much so, the Tribunal held that the amount carried forward can be only for educational purpose which is accepted by the department in the hands of the assessee as a charitable object. We do not find any justification to take a view different from what was taken by the Tribunal, because, the revenue has no case that the assessee is likely to utilise the fund for any other purpose in violation of the objects of the Trust. The Trustees include the Minister for Transport as Chairman, Secretaries of the Department of Transport, Finance, Managing Director of a Government Corporation like KSRTC etc. Consequently, we dismiss both the appeals filed by the Revenue.