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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: Shri Rajpal Yadav & Shri Girish Agrawal]
ITA No. 1766/Kol/2019 AY 2012-13 M.P Birla Foundation Educational Society ITA No.1767/Kol/2019 AY 2012-13 M.P Birla Netralaya IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA [Before Shri Rajpal Yadav, Vice President & Shri Girish Agrawal, Accountant Member] I.T.A. No. 1766/Kol/2019 Assessment Year 2012-13
M/s. M.P Birla Foundation Educational Vs. Dy. Commissioner of Income Tax €- Society 1(1), Kolkata 4th Floor, Birla Building 6th 10B Middleton Row, Fl., 9/1 R.N. Mukherjee Road, Kolkata-700 Kolkata-700 071. 001. PAN: AAATM 6127G Appellant Respondent
I.T.A. No. 1767/Kol/2019 Assessment Year 2012-13 M/s. M.P Birla Netralaya Vs. Dy. Commissioner of Income Tax €- 4th Floor, Birla Building 1(1), Kolkata 6th 9/1 R.N. Mukherjee Road, Kolkata-700 10B Middleton Row, Fl., 001. Kolkata-700 071. PAN: AAATM 9632J Appellant Respondent
Date of Hearing (virtual) 14-03-2022 Date of Pronouncement 17.03.2022 For the Appellant None For the Respondent Shri Divakar Chakraborty, Addl. CIT DR
ORDER Per Girish Agrawal, Accountant Member: These two appeals by the assessees are arising out of the separate order of Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as the ‘Ld. CIT(A)], Kolkata-25 in appeal nos. 73/CIT(A)-23/Kol/2015-16 and 235/CIT(A)-25/2014-15 both dated 14-05-2019 for AY 2012-13 against the assessment orders dated 25-03-2015 and 14.08.2014 respectively, passed by ITO, Exemption, Ward-1(4), Kolkata and ADIT(E)- II, Kolkata respectively [hereinafter referred to as the ‘Ld. AO] u/s. 143(3)//11/10(23C)(vi) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’).
ITA No. 1766/Kol/2019 AY 2012-13 M.P Birla Foundation Educational Society ITA No.1767/Kol/2019 AY 2012-13 M.P Birla Netralaya Since the issue involved is common in both the appeals, we dispose of both the appeals by this consolidated order for the sake of convenience.
We noted from the grounds of appeal as well as from the order of the Ld. CIT(A) that he despite allowing the claim of depreciation made by the assessee, gave a direction which was not a matter of dispute in the case. Since the issue involved in the present appeals relates only to the direction given by the Ld. CIT(A) directing the AO to exclude the amount of depreciation from gross receipts for the purpose of computing accumulation of 15% made during the year, we felt it proper to dispose of the matter even though none appeared on behalf of the assessee by taking assistance from the Ld. Sr. DR Shri Divakar Chakraborty who took us through the impugned orders of the authorities below.
First we take up the appeal in ITA No.1767/Kol/2019 AY 2012-13
Brief facts as noted from the records are that the assessee is a society registered u/s. 12A of the Act. The assessee society runs educational institution under the name and style of M.P Birla Foundation H.S School and M.P Birla Shiksha Bhawan. The AO found that the assessee society has acquired assets through application of its income and claimed depreciation of Rs. 56,35,408/- on such assets. While completing the impugned assessment, Ld. AO has not allowed the said claim of deprecation and made the addition to the total income of the assessee without giving any reason for the same in the assessment order. Aggrieved, the assessee went in appeal before the Ld. CIT(A).
Ld. CIT(A) while dealing with the issue and allowing the claim of depreciation towards application of income, relied on the settled position of law by referring to the judgment of the Hon’ble Supreme Court in the case of Rajasthan & Gujarati Charitable Foundation Poona [2018] 89 taxmann.com 127 (SC). The finding given by the Ld. CIT(A) is reproduced as under:-
“In view of above, the claim of depreciation even if assets were purchased from surplus fund of the trust and claimed as depreciation, the claim is to be allowed. The appeal on this ground is hereby allowed. However, it is pertinent to mention here that the depreciation is notional
ITA No. 1766/Kol/2019 AY 2012-13 M.P Birla Foundation Educational Society ITA No.1767/Kol/2019 AY 2012-13 M.P Birla Netralaya expenditure and for computing accumulation in 15% it has to be excluded from the gross receipt. The appeal of the assessee is allowed.” [emphasis supplied by us] 6. From the above finding given by the Ld. CIT(A), we note that the Ld. CIT(A) had allowed the claim of depreciation towards application of income by the assessee. However, while giving the said finding, he went ahead in giving a direction to the Ld. AO on an issue which was never a subject matter of appeal by the assessee that for computing accumulation of 15%, the amount of depreciation is to be excluded from gross receipts. Aggrieved by the above direction of the Ld. CIT(A), the assessee is in appeal before this Tribunal.
We have heard the Ld. Sr. DR who took us through the order of the Ld. CIT(A) by reading the said decision of the Hon’ble Supreme Court in the case of Rajasthan & Gujarati Charitable Foundation Poona (supra) to understand the basis on which the Ld. CIT(A) drew inference and gave the direction to the Ld. AO that depreciation has to be excluded from the gross receipts for computing accumulation of 15%. Relevant portion of the judgment of Hon’ble Supreme Court (supra) from the impugned order of Ld. CIT(A) in this respect is reproduced 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 (hereinafter referred to as 'Act'). For this 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 application 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
ITA No. 1766/Kol/2019 AY 2012-13 M.P Birla Foundation Educational Society ITA No.1767/Kol/2019 AY 2012-13 M.P Birla Netralaya assessee. Though it appears that in most of these cases, the CIT (Appeals) had affirmed the view, but the ITAT reversed the same and the High Courts have accepted the decision of the ITAT 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 Personnel Selection (IBPS)'[2003] 131 Taxman 386. In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner: "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 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
ITA No. 1766/Kol/2019 AY 2012-13 M.P Birla Foundation Educational Society ITA No.1767/Kol/2019 AY 2012-13 M.P Birla Netralaya 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 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 aforesatated judgment of the Bombay High Court, 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
ITA No. 1766/Kol/2019 AY 2012-13 M.P Birla Foundation Educational Society ITA No.1767/Kol/2019 AY 2012-13 M.P Birla Netralaya 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 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.
From the said reading of the judgment by the Ld. Sr. DR and also from the specific query by the bench to the Ld. Sr. DR on the issue, the basis which led the Ld. CIT(A) to arrive at such an inference of giving the direction to the Ld. AO, could not be deciphered. On the contrary, we note from the said decision of the Rajasthan & Gujarati Charitable Foundation Poona (supra) that normal depreciation can be considered as a legitimate deduction for computing the real income of the assessee on general principle or under section 11(1)(a) of the Act. It was further held that income of a charitable trust derived from building, plant & machinery and furniture was liable to be computed in normal commercial manner although the assessee trust/society may not be carrying on any business and depreciation claimed in respect of assets may not be business assets. Hon’ble Supreme Court further held that the income of the trust is required to be computed u/s. 11 of the Act on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross receipts.
Considering the facts on record and the decision of the Hon’ble Supreme Court in the case of Rajasthan & Gujarati Charitable Foundation Poona (supra), we do not find any justification in the suo motto direction given by the Ld. CIT(A) to the Ld. AO to exclude the amount of depreciation from the gross receipts for computing accumulation of 15%, when the claim of depreciation has already been held to be allowed by him. Accordingly, appeal of the assessee is allowed.
ITA No. 1766/Kol/2019 AY 2012-13 M.P Birla Foundation Educational Society ITA No.1767/Kol/2019 AY 2012-13 M.P Birla Netralaya ITA No.1766/Kol/2019 for the AY 2012-13
Since the facts and issue are identical to ITA No. 1767/Kol/2019 for AY 2012-13, which we have already discussed/disposed of as above. Following the same, we hold accordingly and appeal of the assessee is allowed.
In the result, appeals of both the assessees are allowed.
Order is pronounced in the open court on 17 March, 2022.
Sd/- Sd/- (Rajpal Yadav) (Girish Agrawal) Vice President (KZ) Accountant Member Dated 17.03.2022
**PP. Sr. PS
Copy of the order forwarded to:
Assessee – M/s. M.P Birla Foundation Educational Society & M.P Birla Netralaya, 4th Floor, Birla Building,9/1 R.N. Mukherjee Road, Kolkata-700 001. . 2. Revenue – Dy. Commissioner of Income Tax €-1(1), Kolkata 10B Middleton Row, 6th Fl., Kolkata-700 071. 3. CIT 4. CIT(A) 4. DR, ITAT, Kolkata, (sent through e-mail).. True Copy By Order
Assistant Registrar ITAT, Kolkata Bench, Kolkata