ITO (E), DELHI vs. M/S. ALLIANCE FRANCAISE DE DELHI, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘A’, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.217/Del/2017 Assessment Year: 2012-13 ITO(E), Vs. M/s. Alliance Francaise De Trust Ward-1(1), Delhi, Delhi 72, Lodhi Road, Lodhi Estate, New Delhi PAN :AABTA3939P (Appellant) (Respondent) Appellant by Shri Manoj Kumar Mahar, Sr.DR Respondent by Shri Sandeep Sapra, President

Date of hearing 07.08.2019 Date of pronouncement 03.09.2019

ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against order dated 03/10/2016 passed by the learned Commissioner of Income Tax (Appeals) - 40, New Delhi, for assessment year 2012-13 raising following grounds:

2 ITA No.217/Del./2017 assesses lide charitable or religious institutions are governed by almost the separate or independent provisions of Section 11,12,12AA & 13 of the I.T. Act and these provisions are independent code in itself in Chapter III of the Income Tax Act, 1961. The income and expenditure is computed on the basis of application of income for charitable or religious purposes and the deduction is allowed of the entire expenditure including the capital expenditure for purchase of capital assets u/s 11(1) of the I.T. Act, 1961 and claiming depreciation on the same capital assets is 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) 3. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.

3 ITA No.217/Del./2017 to the main activity of promoting Indo French cultural relations. The assessee is registered under section 12A of the Income Tax Act, 1961 (in short ‘the Act’) vide order dated 30.06.1956 and claimed exemption under section 11 of the Act. According to the Assessing Officer though teaching French language was incidental to the main object of promoting French thought and French cultural relation, however, letting out of the facilities of art gallery, booking of AFD premises and letting out of auditorium and conference room were not incidental to the activity of the assessee in respect of the which it was granted registration under section 12A of the Act. In view of the Assessing Officer the activities which are not incidental to the main object, are in the nature of trade, commerce business or activity of rendering in relation to any trade, commerce or business and thus, invoking proviso to section 2(15) of the Act, he withdrawn the benefit of exemption under section 11 of the Act from activities other than the main object of the society. The Assessing Officer also restricted the claim of the depreciation of the assessee. The Ld. CIT(A), however, has allowed both the exemption under section 11 of the Act as well as claim of depreciation of the assessee. The Ld. CIT(A) allowed the benefit of exemption under section 11, following the decision of the Tribunal in the case of the assessee for assessment year 2009-10 observing as under:

“4.1 It is seen that the facts of the case for the year under consideration are same as those for assessment year 2009-10, 2010-11 and 2011-12. In the year under consideration out of the total receipts of Rs. 7,09,49,208/-, the activities which have been treated as business activity and brought to tax are income from art gallery amounting to Rs.12.50 lakhs (1.76%), income from booking of auditorium & conference room amounting to Rs. 9.93 lakhs (1.40%), income from translation amounting Rs.7.66 lakhs (1.08%) and

4 ITA No.217/Del./2017 income from use of extra equipment of Rs.5.54 lakhs (0.78%). It is evident that the appellant earned more than 75% of the gross receipts from teaching of French language. 4.2 The Hon'ble ITAT, Delhi Bench "A" in ITA No. 6190/Del/2012 in the appellant's own case for assessment year 2009-10 have held as under: "13. Hon'ble Jurisdictional High Court in the judgment cited as India Trade Promotion Organization vs. DGIT (Exemptions) in civil appeal No. 1872/2013 upheld the constitutional validity of provisions to Section 2(15) of the Act. The ratio of judgment (supra) is that:- "58 In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section IO(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that if carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or any activity for a cess or fee or any other consideration. In both the activities, in the nature of trade commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business, then it would not be entitled to claim its object to a 'charitable purpose'. On the flip side, where an institution is not driven through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. 14. So applying the law laid down by Hon'ble Jurisdictional High Court in the judgment supra) as to the applicability of proviso to Section 2(15) of the Act, we are of the considered view that in order to achieve the primary objects of teaching French language and promoting the Indo French cultural relations, the assessee earned more than 75% of gross receipt

5 ITA No.217/Del./2017 and meager income e. 2.95% from Art gallery, 1.89% from booking of auditorium and conference hall was earned, which cannot be treated as income earned from trade and commerce activities by the assessee as held by the Hon'ble Jurisdictional High Court in the judgment (supra). The proviso to Section '15) of the Act is to read in conjunction with Section 10(23C)(iv) of the Act. Rules and Regulation of the assessee society are categoric enough to prove that the entire income is to be replied towards the promotion of aims and objects of the society and no portion thereof shall be transferred by way of dividend, bonus etc. to the members of the assessee society. So, when the objects of tire society, which are undisputedly charitable, do not fall under the limb of Section 2(15) of the Act, the income from trade, commerce or business activities is not dominant to its prime object, the same cannot be treated as business income. More so, by any stretch of imagination, the income of the assessee from art gallery, booking of AFC, income from letting out auditorium and conference room etc, is not derived with the motive to earn profit but to further advance the charitable cause of teaching French language and promoting Indo-French cultural relations etc. In view of what has been discussed above, finding no illegality or perversity in the finding returned by Ld. CIT(A) vide impugned order dated 03.09.2012, we are not inclined to interfere ) the same. Hence, the appeal filed by the Revenue is hereby dismissed."

4.1 In view of above, we do not find any error in the order of the Ld. CIT(A) in following a binding precedent in the case of the assessee itself. Accordingly, ground No. 1 of the appeal is dismissed. 5. As far as ground No. 2 on the issue of depreciation is concerned, the Ld. CIT(A) allowed the ground following the decision of the Hon’ble Delhi High Court in the case of DIT(exemption) Vs. Indraprastha Cancer Society in ITA No. 240, 348, 406, 463 and 464/2014 vide order dated 18/11/2014. The relevant finding of the Ld. CIT(A) is reproduced as under:

6 ITA No.217/Del./2017 “4.6 There are many conflicting judgments of various Hon’ble High Courts, including that of the jurisdictional High Court, both in favour and against allowability of depreciation. The Hon’ble Delhi High Court, in 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 in ITA No. 240, 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. 4.7 A bare reading of the provisions relating to income from property held for charitable purposes shows that depreciation per se was not allowed as a deduction in the case of charitable or religious institutions. This issue has been laid to rest by amendment to section 11 by the Finance (No. 2) Act, 2014 which is effective from the assessment year 2015-16 and subsequent years. However, relying on the latest decision of the Hon’ble Delhi High court in the matter of DIT(Exemption) Vs. Indraprastha Cancer Society (supra), the claim of depreciation of the appellant is allowed.”

“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 ‘Commissioner of Income Tax Vs. Institute of Banking Personnel Selection (IBPS) [(2003) 131 Taxman 386 (Bombay)]. 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

7 ITA No.217/Del./2017 proceedings for assessment years 1977-78, 1978-79 and 1979- 80, the assessee claimed depreciation on the value of the building @2% and they also claimed depreciation on furniture @ 57o. 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 Trusf 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 changeability 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 ll(l)(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 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."

8 ITA No.217/Del./2017 7. Thus, respectfully following the decision of the Hon’ble Supreme Court, we do not interfere in the finding of the Ld. CIT(A) on the issue in dispute. The ground No. 2 of the appeal of the Revenue is accordingly dismissed. 8. In the result, the appeal of the Revenue is dismissed. Order is pronounced in the open court on 3rd September, 2019.

Sd/- Sd/- [AMIT SHUKLA] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 3rd September, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi