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Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANTDr. Shyama Prasad
PER O.P. KANT, A.M
This appeal by the Income Tax Department is directed against order dated 30/03/2015 passed by the Ld. Commissioner of Income Tax (Appeals)-40( Exemption), New Delhi [in short the Ld. CIT(A)] for assessment year 2010-11 raising following grounds:
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessee society is a charitable organization despite the fact that the assessee society was doing business within the meaning of amended provisions of section 2(15) of the Income Tax Act. 2. On the facts and in the circumstances of the case and in law, the Ld. ClT (A) has erred in allowing the claim of depreciation of Rs. 17,500/- to the assessee ignoring the fact that the assessee had 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. 3. 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 or Rs. 17,500/- 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. 4. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.” 2. Briefly stated facts of the case are that the assessee is a society, registered under Societies Registration Act, 1860 on
10/10/1954 and also registered u/s 12AA(1) of the Income Tax Act, 1961 (in short the Act) on 12/12/1989. The main object of the assessee society is to organise and promote game of the hockey in India. For the year under consideration, the assessee filed return of income on 24/09/2010 declaring nil income. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued and complied with. The Assessing Officer observed and that the assessee received sponsoring money income of Rs. 1,62,63,750/- from M/s. Sahara India Commercial Corporation Limited and M/s. Leisure Sports Management Private Limited. According to the sponsorship agreement ,the Sahara logo/brand- name was to be appeared on the articles/items of the player in accordance with the size and brand/logo positioning mentioned in the agreement. The various conditions of the agreements have been reproduced by the Assessing Officer in the assessment order. According to the Assessing Officer this transaction was sufficient to attract the proviso to Section 2(15) of the Act and establish that the activities carried out by the assessee are in the nature of trade, business, commerce or rendering services in relation to the same. The Ld. Assessing Officer relying on the various decisions cited in the assessment order denied the exemption u/s 11(1) of the Act to the assessee and entire surplus of Rs. 1,63,80,011/-was taxed. The Assessing Officer also disallowed the claim of the depreciation on the assets purchased in earlier year as well as in the year under consideration. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who deleted the addition made by Assessing Officer following the order of his predecessor for assessment year 2008-09 and 2009-10.
Aggrieved, the Revenue is in appeal raising the grounds as reproduced above. 4. The Ld. AR relied on the order of the Assessing Officer and submitted that the activities carried out by the assessee are in the nature of trade, business or commerce and therefore the Ld. Assessing Officer is justified in denying the exemption to the assessee invoking the proviso to Section 2(15) of the Act. 5. None represented on behalf of the assessee despite notifying the date of hearing. 6. We have heard the submission of the Ld. AR and perused the relevant material on record. We find that the Ld. CIT(A) has followed order of his predecessor for assessment year 2008-09 and 2009-10 and Department has not preferred any appeal against those orders as noted by the Ld. CIT(A) in para 4.2 of the impugned order. The relevant finding of the Ld. CIT(A) is reproduced as under:
“4.2 The assessee was denied the exemption u/s 11(1) during the A.Vs 2002-03 to 2006-07 mainly on the ground that there was misuse of funds for personal use but the appeal of the assessee was allowed by the learned CIT(A) and the departmental appeal was dismissed by the Hon'ble Tribunal. During the A.Y 2007-08 there was no scrutiny assessment and as such the claim of the exemption was allowed by the AO. During the A.V 2008-09 & 2009-10 the AO had denied the exemption u/s11(1) by invoking the
mischief of the Proviso of section 2(15) mainly on the ground that the assessee is involved in trade, commerce or business as the assesseewas receiving the sponsorship fee from Sahara India. The appeal of the assessee has been allowed by the learned CIT(A)-XXI, New Delhi (old) vide the orders dated 16/11/2011 (A.V 2008-09) and 15/11/2012 (A.V 2009-10). The department apparently did not file the appeal against the order of the learned CIT(A)for the A.Y 2008-09 & 2009-10. 4.3 The AO has again denied the exemption u/s 11(1) during the current A.Y 2010-11by invoking the mischief of the proviso of section 2(15) mainly on the ITNS-55 3 APPEALNO. 260/2013-14 ground that the assesseeis involved in the trade, commerce or business on the same issues as in earlier A.Ys2008-09 & 2009-10 vide the order of the AO. 4.4 The assessee is in appeal against the order of the AO and it is submitted that the AO is not justified to deny the exemption u/s 11(1) as the assessee is not involved in any trade, commerce or business and the mischief of the Proviso of section 2(15) is also not applicable as the assessee is actually in the field of sports which is a charitable activity. It is also submitted that the there were similar issues during the earlier A.Ys.2008-09 & 2009-10 but the appeal of the assessee was allowed by the learned CIT(a) and the appeal of the assessee should be allowed this year also on the principle of consistency.
4.5 1 have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submissions of the assessee that the mischief of Proviso of section 2(15) is not apparently applicable as the assessee is not involved in any trade, commerce or business and the appeal of the assessee is allowed on the principle of consistency on the basis of the orders of my learned predecessor for the earlier A.Y 2008-:-09 & 2009-10 and there is no apparent reasons to deviate from those appellate orders.” 7. The Ld. CIT(A) has also followed the decision of the Hon’ble Delhi High Court in the case of India Trade Promotion Organisation versus DGIT (E) 53 Taxmann.com 404 (Delhi) (order dated 22/01/2015) wherein the Hon’ble High Court has held that mere receipt of fee or charge cannot be said that the assessee is involved in any trade, commerce or business. 8. In our opinion there is no change of facts in the year under consideration as the sponsoring by Sahara India Commercial Corporation limited and Leisure Sports Management Pvt. Ltd. is continued from assessment year 2004-05 and was in existence during the assessment year 2008-09 and 2009-10 i.e. the years in which Ld. CIT(A) has deleted the addition. We also note that the Department has not filed any appeal against those order of the Ld. CIT(A). Thus in view of the rule of consistency, we feel it appropriate to allow the benefit of exemption under section 11(1) of the Act holding that mischief of proviso to section 2(15) is not
applicable in the year under consideration. The ground No. 1 of the appeal is accordingly dismissed.
On the issue of the depreciation, the Hon’ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation, Pune (2018) 402 ITR 0441 (SC) has allowed the benefit of the depreciation despite application of the purchase of the assets towards the income. The relevant part of the decision 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 puruposes 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 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 7
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 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. FramjeeCawasjee 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 Bombay High Court correctly states the principles of law and there is no need to interfere with the same. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. Commissioner of Income Tax'.
It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters. 10. Thus ,accordingly following the same the ground No. 2 and 3 of the appeal are also dismissed.
In the result, the appeal of the Revenue is dismissed.
This decision was pronounced in the Open Court on 28th February, 2019.
sd/- sd/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28/02/2019 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi