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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: S/Shri Saktijit Dey & Manoj Kumar Aggarwal
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “B”, MUMBAI
Before S/Shri Saktijit Dey, Judicial Member & Manoj Kumar Aggarwal, Accountant Member ITA No.3698/Mum/2018 Assessment Year 2012-13 Breach Candy Hospital Trust, ACIT (E)- 1(1), 60A, Bhulabhai Desai Road, Mumbai Vs. Mumbai 400 012.
PAN AAATB0214D (Appellant) (Respondent)
Appellant By : Shri Ketan Ved & Shri Shyam Sunder Sharma Respondent By : Ms Samatha Mullamudi
Date of Hearing :01.10.2019 Date of Pronouncement : 11.10.2019
O R D E R Per Saktijit Dey, Judicial Member:
This is an appeal by the assessee against order, dated 05.03.2018, of
learned CIT(A)-3, Mumbai, for the A.Y. 2012-13.
Ground nos. 1 to 3 are on the issue of claim of depreciation of
Rs. 8,14,49,109/-.
Briefly, the facts are the assessee is a trust and registered as a
Charitable Organization with the Director of Income Tax (Exemptions),
Mumbai, u/s. 12A of the Act. It is also registered with Charity Commissioner,
Mumbai. Basically, the assessee is maintaining and running a hospital for
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treatment of diseases to persons of all communities. For the assessment
year under dispute, assessee filed its return of income on 28.09.2012
declaring ‘Nil’ income after claiming exemption u/s. 11 of the Act. During the
assessment proceedings, the Assessing Officer, while verifying the return of
income as well as financial statements of the assessee noticed that though
the assessee had claimed exemption in respect of an amount of
Rs. 8,14,49,109/- spent on acquiring capital assets by treating it as
application of funds, still, it has debited an amount of Rs. 8,14,49,109/- to
the income and expenditure account towards claim of depreciation on the
very same assets. This, according to the Assessing Officer, would result in
double benefit. He, therefore, called upon the assessee to justify the claim of
depreciation. In response, assessee submitted that deprecation has to be
taken into account in computing the income of the trust, although, the
amount spent in acquiring the assets had been treated as application of
income of trust in the year in which assets were acquired. The Assessing
Officer, however, did not find merit in the submissions of the assessee.
Relying on the decision of the Hon’ble Supreme Court in the case of Escorts
Ltd. vs. Union of India 199 ITR 43, he held that once the amount of Rs.
8,14,49,109/- was allowed as exempt u/s 11 of the Act on account of
application of income in the year in which the assets were acquired, the
assessee would not be eligible for depreciation on such assets. While doing
so, he observed that the decision of Hon’ble Bombay High Court in the case
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of CIT vs. Institute of Banking Personnel Selection (2003) 264 ITR 110, would
not be applicable as it has not taken note of the ratio laid down in the case of
Escorts Ltd. (supra). Accordingly, he disallowed assessee’s claim of
depreciation. Being aggrieved, assessee challenged the disallowance before
learned CIT(A).
After taking note of the decision of Hon’ble Supreme Court in the case
of CIT vs. Rajasthan & Gujarati Charitable Foundation Poona (2019) 89
taxmann.com 127, though, learned CIT(A) held that the assessee is entitled
to claim depreciation however, he directed the Assessing Officer to allow the
same as per the provisions of section 32 of the Act. Being aggrieved with the
aforesaid direction of learned CIT(A) the assessee is in appeal before us.
Learned AR submitted, though, learned CIT(A) was correct in allowing
assessee’s claim of depreciation however, the provisions of section 32 of the
Act is not applicable to the assessee trust. Further, he submitted, while
deciding assessee’s application u/s. 154 of the Act in this regard, learned
CIT(A) has again made a mistake by directing the Assessing Officer to allow
depreciation as per section 11 of the Act. The learned AR submitted in view
of the decision of Hon’ble Supreme Court in the case of CIT vs. Rajasthan &
Gujarati Charitable Foundation Poona (supra), the issue stands squarely
settled in favour of the assessee and while computing income the assessee is
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eligible to claim depreciation. Thus, the assessee having clamed such
depreciation in the Income and Expenditure Account, it is allowable.
The learned DR relied upon the observations of learned CIT(A).
We have considered rival submissions and perused the material on
record. We have also applied our mind to the decisions relied upon. At the
outset, we must observe, the fact that the assessee is entitled to claim
depreciation is not in dispute as learned CIT(A) has accepted assessee’s claim
and the Revenue has not contested the aforesaid decision of learned CIT(A).
Be that as it may, the short issue before us is, whether the assessee is
entitled to claim depreciation on the assets, the expenditure incurred in
respect of which has already been allowed as application of income u/s. 11 of
the Act in the year of acquisition of assets. In the case of CIT vs. Institute of
Banking Personnel Selection (supra), the Hon’ble Jurisdictional High Court
held that though a charitable trust may not be carrying on any business and
the assets in respect whereof depreciation is claimed may not be business
assets, however, the income of the Trust has to be computed u/s. 11 on
commercial principles after providing for allowance for normal depreciation
and deduction thereof from gross income of the Trust. Further, in the case of
Director of Income-tax (Exemption) vs. Framjee Cawasjee Institute (1993)
109 CTR 463, the Hon’ble Jurisdictional High Court approved the view of the
Tribunal in holding that, though, expenditure incurred in acquiring the assets
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was allowed as application of income u/s. 11(1)(a) of the Act in the year of
acquisition, however, depreciation in respect of those assets while computing
income in subsequent years have to be allowed. The aforesaid decisions of
the Hon’ble Jurisdictional High Court now stand approved by the Hon’ble
Supreme Court in the case of CIT vs. Rajasthan and Gujarati Charitable
Foundation Poona (supra). Thus, as per the ratio laid down in the decisions
referred to above, normal depreciation can be considered as a legitimate
deduction in computing the real income of the Trust on general principles or
u/s. 11(1)(a) of the Act. While concluding so, the Hon’ble Court negated
Revenue’s contention that section 32 is the only provision under which
depreciation can be granted. We may hasten to add, the aforesaid legal
position stands substantially altered after introduction of sub section (6) to
section 11 of the Act by Finance (No.2) Act, 2014, w.e.f. 1.4.2015, wherein
allowance of deduction on account of depreciation or otherwise has been
specifically prohibited. However, this amendment being prospective would
not be applicable to the impugned assessment year. In view of the aforesaid,
assessee’s claim of depreciation stands allowed. Consequently, grounds are
allowed.
In view of our decision in the aforesaid grounds, ground nos. 4 and 5
have become consequential requiring no further adjudication
6 ITA No.3698/Mum/2018 Breach Candy Hospital Trust
In the result, the appeal is allowed as indicated above.
Order pronounced in the open court on this 11th day of October, 2019.
Sd/- Sd/- (Manoj Kumar Aggarwal) (Saktijit Dey) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated : 11th October, 2019. SA Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT(A), Mumbai. 4. The CIT 5. DR, ‘B’ Bench, ITAT, Mumbai
BY ORDER, //True Copy// (Assistant Registrar) Income Tax Appellate Tribunal, Mumbai