ITO (EXEMPTIONS), NEW DELHI vs. M/S. S.S. MOTA SINGH (NILA) CHARITABLE TRUST, 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.3639/Del/2015 Assessment Year: 2007-08 ITO(Exemptions), Vs. S.S. Mota Singh(Nila) Ward-2(1),New Delhi Charitable Trust, C-103, 10th Floor, Himalaya House, K.G. Marg, New Delhi PAN :AAATS3761J (Appellant) (Respondent) Appellant by Shri Praveen Kumar, Sr.DR Respondent by None present

Date of hearing 15.01.2019 Date of pronouncement 28.01.2019

ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against the order dated 25th March, 2015 passed by the Ld. CIT(A)-40, New Delhi, [in short ‘the Ld. CIT(A)’] for assessment year 2007-08, raising following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of depreciation of Rs. 80,66,227/- to the assessee ignoring the fact that the assessee has claimed the amount incurred on purchase of assets in earlier years as application of income, on which depreciation is claimed now and further allowance of depreciation will be tantamount to double deduction.

2 ITA No.3639/Del/2015 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of depreciation of Rs. 80,66,227/- to the assessee in view of the recent decision of the Hon’ble Delhi High Court in the case of DIT(E) Vs. Charanjiv Charitable Trust Dated 18-03-2014 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.3639/Del/2015 allowed regarding the claim of depreciation in view of the latest order of the Hon'ble Delhi High Court.”

2.1 Aggrieved, the Revenue is in appeal before the Tribunal, raising the grounds as reproduced above. 3. Ld. DR relied on the order of the Assessing Officer and submitted that in view of the decision of the Hon’ble Delhi High Court in the case of DIT(Exemption) Vs. Charanjiv Charitable Trust, IT Appeal No. 321 to 323 of 2013, order dated 18.03.2014, the appeal of the Revenue may be allowed. Whereas none represented the assessee. 4. We have heard Ld. Departmental Representative and have perused the relevant material on record. 5. The only issue-in-dispute in the instant case is that the claim of depreciation of Rs.80,66,277/- of the assessee. The contention of the Assessing Officer is that the assessee has already been allowed an amount of purchase of assets as application of the income in earlier years and, therefore, allowing the depreciation will amount to double deduction. We note that the issue of allowance of depreciation despite purchase of assets considered towards application of income, has been decided by the Hon’ble Supreme Court vide judgment dated 13/12/2017 in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation, Poona (Civil Appeal No. 7186 of 2014 with Another). The relevant para of the above decision is reproduced as under: “…………………..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

4 ITA No.3639/Del/2015 depreciation would amount to giving double benefit to the 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 'Commissioner of Income Tax v. 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 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 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

5 ITA No.3639/Del/2015 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 32of 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. 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.” After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the

6 ITA No.3639/Del/2015 Bombay High Court correctly states the principles of law and there is no need to interfere with the same.” 6. Respectfully following the above judgment of the Hon’ble Supreme Court in the issue-in-dispute, the ground of the Revenue is dismissed. 7. In the result, the appeal of the Revenue is dismissed. Order is pronounced in the open court on 28th January, 2019.

Sd/- Sd/- [AMIT SHUKLA] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28th January, 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