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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue is directed against the order of ld. Commissioner of Income-tax (Appeals)-54, hereinafter referred as ld. CIT (A), Mumbai, all dated 21.06.2017 for Assessment Year 2012-13. Though, the revenue has raised multiple grounds of appeals, however, during the hearing of the appeal the ld representatives of the parties agreed Ground No. 1 to 4 relates to disallowance of depriciation and Ground No. 4 to 6 relates to Shri Mahavir Jain Vidyalya disallowance of carry forward deficit, thus there is only two substantial grounds of appeal.
Brief facts of the case are that the assessee is Charitable Trust registered with charity commissioner Mumbai and having registration under section 12AA and 80G of the Income –tax Act. The assessee filed its return of income for AY 2012-13 on 24.09.2012 claiming deficit of Rs. 46,05,265/-.
The return of income was selected for scrutiny and statutory notices were served on the assessee. The assessment was completed on 31.03.2015 under section 143(3). The assessee was granted exemption under section 11(2) of the Act. The assessing officer while passing the assessment order disallowed the depriciation on fixed asset of Rs. 79,67,071/- holding it amount to double deduction being capital expenditure and also disallowed the claim of carry forward of deficit of Rs. 46,05,265/-. On appeal before ld. CIT(A), both the action of the assessing officer were reversed. The ld CIT(A) granted relief to the assessee by following the decision of Hon’ble Bombay High Court in CIT Vs Institute of Banking Personnel ( 264 ITR 110). Being aggrieved by the order of ld CIT(A) the revenue has challenged the validity of the order of ld CIT(A) on the ground that the decision of High Court in CIT Vs Institute of Banking Personnel (supra) is not accepted by the revenue and filed Shri Mahavir Jain Vidyalya Special Leave Petition (SLP) before Hon’ble Supreme Court. The assessee has filed its cross objection in support of the order of ld CIT(A).
We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. At the outset of the hearing the ld. AR for the assessee submits that both the grounds of appeal raised by the revenue are covered in favour of assessee and against the revenue. The ld AR submits that while granting relief to the assessee the ld CIT(A) followed the binding decision of Jurisdictional High Court in CIT Vs CIT Vs Institute of Banking Personnel (supra). The ld. AR for the assessee further submits that the decision of High Court in CIT Vs Institute of Banking Personnel (supra) has been affirmed by Hon’ble Supreme Court in CIT Vs Rajasthan and Gujarat Charitable Foundation Poona in CA. No. 7186/2014 dated 13.12.2017. The ld. AR for the assessee furnished the copy of decision of Hon’ble Apex Court in CIT Vs Rajasthan and Gujarat Charitable Foundation Poona (supra).
4. On the other hand the ld DR for the revenue after going through the decision of CIT Vs Rajasthan and Gujarat Charitable Foundation Poona (supra) agreed that both the substantial grounds of appeal raised by the revenue is Shri Mahavir Jain Vidyalya covered against the revenue. The ld. DR for the revenue submits that he rely on the order of the assessing officer.
We have considered the rival submissions of the parties and have gone through the orders of the authorities below. The Hon’ble Apex Court in CIT Vs Rajasthan and Gujarat Charitable Foundation Poona (supra) held that once assessee is allowed depreciation, the assessee shall be entitled to carry forward the depreciation as well. For appreciation of facts the entire order passed by Hon’ble Apex Court is extracted below:
“1. 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 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 Shri Mahavir Jain Vidyalya 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 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 Shri Mahavir Jain Vidyalya 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 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."
2. 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.
3. 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 Shri Mahavir Jain Vidyalya which has taken a contrary view in 'Lissie Medical Institutions v. CIT [2012] 24 taxmann.com 9/209 Taxman 19 (Mag.)/348 ITR 344'.
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.
5. 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.”
6. In view of the above discussions, there is no error on the part of ld CIT(A) in following the decision of Jurisdictional High Court in CIT Vs Banking Personnel Selection (supra). The objection of assessing officer that the revenue filed SLP before Supreme Court is pending is of no consequence as the decision of Jurisdictional High Court is binding till it is either set aside or its operation is stayed either by Larger Bench of High Court or by Apex Court. In our view the decision of the Hon’ble Bombay High Court has been approved by Hon’ble Apex Court in CIT Vs Rajasthan and Gujarat Charitable Foundation Poona (supra). Therefore, with this back ground, we find no reason to interfere with the finding of ld CIT(A) on both the substantial grounds of appeal
. Shri Mahavir Jain Vidyalya
7. In the result the appeal filed by the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 20/03/2019.