DY.COMMISSIONER OF INCOME TAX(EXEMPTIONS)-CIRCLE-1,, AHMEDABAD vs. AMC MEDICAL EDUCATION TRUST,, AHMEDABAD

आदेश / O R D E R

PER MAHAVIR PRASAD, JUDICIAL MEMBER : This is an appeal by the department against the order of the Commissioner of Income Tax (Appeals)-9, Ahmedabad, vide Appeal No.CIT(A)-9/349/DDIT(Exem)/14-15 dtd. 13/08/2015 for the Assessment Year (AY) 2011-12.

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 2 - addition of disallowance of depreciation made by the Assessing Officer of Rs.1,80,40,668/-. II) On the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) ought to have upheld the order of the Assessing Officer. III) It is, therefore, prayed that the order of the Ld. Commissioner of Income Tax (Appeals) may be set aside and that of the Assessing Officer be restored.”

3.1 During the course of assessment proceedings, it was seen that the assessee is claiming deprecation of Rs.1,80,40,668/- and also claimed the Capital Expenditure of Rs.6,94,14,916/- as application towards the objects of the Trust. Since the assessee had claimed the capital expenses as application towards the objects of the Trust, the claim of depreciation would amount to double deduction, since the benefit of 100% deduction of the expenses had already been allowed to the assessee Trust.

3.2 In this regards, the assessee vide its letter dated 07/03/2014 objected for the disallowance of depreciation by relying on the various High Courts including binding judgments of the Hon'ble High Court of Gujarat.

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 3 - The submission of the assessee were considered. In the case of the 3.3 Trust the whole cost of the assets is treated as application of funds for the purpose of objects of the trust. As per the AO this basically amounts to 100% deduction. Therefore, any further allowance by way of depreciation will amounting to double deduction in view of the decision of the Supreme Court in the case of Escorts Ltd (199 ITR 43), wherein the Supreme Court was held that when deduction u/s.35(2)(iv) was allowed in respect of capital expenditure on scientific research no depreciation was to be allowed u/s.32 on the same assets. The apex court further observed that double deduction is intended unless there is clear statutory indication to the contrary. "It is impossible to conceive of the Legislature having envisaged a double deduction in respect of the same expenditure, even though it is true that the two heads of the deduction (i.e., depreciation and scientific research expenditure) do not completely overlap and there is some difference in the rationale of the two deductions. No Legislature could have at all intended a double deduction in regard to the same business outgoing, and if it was intended it would be clearly expressed. Therefore, even in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions - both under sections 10( 2)(vi) and section 70(2)(xiv) under the 1922 Act or under sections 32( 7)(ii) and 35(2)(iv) of the 1961 Act - qua the same expenditure. Thus, even before the 1980 amendment, the Act did not permit a deduction for depreciation in respect of the cost of a capital asset acquired for purposes of scientific research to the extent such cost had been written off under section 10(2)(xiv)/35(1)and (2). The mere fact that a baseless claim was raised by same over- enthusiastic assessees who sought a double allowance or that such claims may perhaps have been accepted by some authorities, was not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier." *

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 4 - 3.4 Finally, AO disallowed the claim of depreciation of Rs.1,80,40,668/- and added back to the total income of the assessee.

3.5 Thereafter, assessee preferred first statutory appeal before the ld. CIT(A) who allowed the appeal of the appellant with following observation: “The issue of allowability of depreciation in the case of Charitable Trust has been decided by the Hon'ble Gujarat Hight court in the case of CIT Vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust 198 ITR 598 (Guj). Head note and the main facts are reproduced below for reference: “Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under - Assessment years 1971-72 and 1972-73 - Whether while computing income under section 11(1)(a), depreciation has to be allowed - Held, yes Headnotes of the judgement is: The income of the assessee-trust was mainly from immovable property. For the assessment years 1971-72 and 1972-73, the assessee claimed depreciation. The ITO rejected the assessee's claim on the ground that the income from house property was to be calculated according to sections 22 to 27. However, on appeal, the AAC allowed the assessee's claim. On appeal by the revenue, the Tribunal upheld the order of the AAC. On reference: In the case of CIT v. Rao Bahadur Calavala Cunnan Chetty Charities 1982] 135 ITR 485, the Madras High Court held that the income from the properties held under trust would have to be arrived at in the normal commercial manner without classification under the various heads set out in section 14. It held that the expression 'income' has to be understood in the popular or general sense and not in the sense in which the income is arrived at for the purpose of assessment to tax by

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 5 - application of some artificial provisions either giving or denying deduction. It observed that the computation under the different categories or heads arises only for the purpose of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chapter III. Following the aforesaid decision in the instant case the Tribunal was justified in holding that having regard to the scheme of the Act, 'income' referred to in section 11(1)(a) was not to be computed not in accordance with the provisions of the Act but in accordance with the normal rules of the accountancy under which the depreciation has to be allowed while computing such income under section 11(1)(a).”

4.1 Further, the A.O has relied on the decision of Hon'ble Supreme Court in the case of Escorts Ltd. Vs. Union of India [1993] 199 ITR 43 (SC) while disallowing the depreciation of capital assets held by charitable trust. This aspect was also elaborated by Hon'ble ITAT "C" Bench, Ahmedabad in appeal No. 1322/Ahd/2011 in the case of Sardar Patel Institute of Public Administration for Asst Year 2008-09. The Hon'ble ITAT vide para-4 has observed as under:

"Before us Ld. CIT-DR has supported the assessment order and made submission that the view of the Assessing Officer was correct. On the contrary, that the view of the assessee argued that the judgment of Hon'ble Supreme Court in the case of Escorts Ltd. (supra) is not applicable in the present case. The AR further argued that in the identical facts and circumstances of Hon'ble Punjab and Haryana High Court has distinguished the judgment of the Hon'ble Supreme Court in favour of the assessee. We have considered facts and circumstances of the case and submissions made by the respective Representatives of the parties. The Assessing Officer has disallowed the claim following the judgment passed by the Hon'ble Supreme Court in the case of Escorts Ltd. (supra). We find the Hon'ble High Court Punjab and Haryana has distinguished the judgment of the Hon'ble Supreme Court in the case of C1T Vs. Tiny Tots Education Society 330 ITR 21 (P&H). in view of the fact that the issue has already been settled by the Hon'ble High Court of Punjab & Haryana respectfully following the ratio laid therein we had no infirmity

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 6 - into the impugned order of the Id. C1T(A). Therefore, the present appeal stands dismissed. We find no infirmity in the order of the Id. CIT (A). In view of the above, the appeal of the Revenue is dismissed." 4.2 In view above and respectfully following the judgments by Hon'ble Gujarat High court as above, I am of the view that addition of Rs.1,80,40,668/- on account of disallowance of depreciation be deleted. Ground No.2 is accordingly allowed. 6 As a result the appeal is allowed.” 4. Now appeal is before us.

5.1 Hon’ble Bombay High Court, in the case of CIT vs. Institute of Banking Personnel Selection [264 ITR 110 (Bom)] has categorically held that Section 11 of the Income tax Act makes a provisions in respect of computation of income of the trust from property held for charitable or

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 7 - religious purposes and it also provides for application and accumulation of income. 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 regarding conditions for allowing depreciation and development rebate. 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 where of depreciation is claimed may not be business assets.

5.2 In the case of CIT vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust 198 ITR 598 (Guj). In this case, it is held by the Jurisdictional High Court that: “Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under - Assessment years 1971-72 and 1972-73 - Whether while computing income under section 11(1)(a), depreciation has to be allowed - Held, yes Headnotes of the judgement is: The income of the assessee-trust was mainly from immovable property. For the assessment years 1971-72 and 1972-73, the assessee claimed depreciation. The ITO rejected the assessee's claim on the ground that the income from house property was to be calculated according to sections 22 to 27. However, on appeal, the AAC allowed the assessee's claim. On appeal by the revenue, the Tribunal upheld the order of the AAC.”

5.3 Respectfully Hon’ble Supreme Court of India delivered its decision in the case of Commissioner of Income Tax vs. Rajasthan and

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 8 - Gujarat Charitable Foundation Poona. It is held by the Hon’ble Supreme court that as under: “3. 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 Law Reporter, 1084 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 the 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 @2½% and they also claimed depreciation on furniture @ 5%. 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 provision in respect of computation of income of the Trust from the property held for charitable or religious purposes and it also provides for application and accumulation of 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 ahll 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 form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 9 - 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 aforesatated 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. 4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the Trust. The ITO 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 ITO 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.”

ITA No.3089/Ahd/2015 DCIT vs. AMC Medical Education Trust Asst.Year –2011-12. - 10 - reasoned order and same does not require any kind of interference at our end.

Sd/- Sd/- एन.के. �ब�लैया महावीर �साद (लेखा सद�य) (�या�यक सद�य) ( MAHAVIR PRASAD ) ( N.K. BILLAIYA ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 02/02/2018 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-9, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 31/01/2018 (dictation-pad 4 pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …01/02/2018 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………