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Income Tax Appellate Tribunal, ‘ B’ BENCH : CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY]
आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER
The appeal of the assessee in ITA No.1246/Chny/2019 is
directed against the order of the Commissioner of Income-tax
(Appeals), Puducherry dated 15.02.2016 for assessment year 2010-11
and the two appeals filed by other assessee in ITA Nos.1243 &
1244/Chny/2019 are directed against the consolidated order of the
Commissioner of Income-tax (Appeals), Puducherry dated 18.05.2016
for assessment years 2011-12 & 2012-13.
Since, the identical facts and issues are involved in these
appeals, we proceed to dispose the same vide this common order.
All the three appeals filed by the above assessees in the title
have been filed with a delay of 1009 days. The two Assessees filed
petitions for each appeal requesting for condoning the delay by
stating that the delay had occurred on account of belatedly handing
over the appellate orders to Authorized Representative. It was
ITA Nos.1246 and 1243,1244 :- 3 -: /chny/2019
pleaded by ld.AR that the delay in filing these three appeals may
be condoned
Petitions filed by all the assessees for condonation of
delay are perused. We find that the assessees have valid and
justifiable reasons for delay in filing of these three appeals.
Consequently, the delay in filing of these three appeals are
condoned and all the appeals filed by the assessees are admitted.
For the sake of convenience and clarity the facts relevant to the
appeal in ITA No.1246/Chny/2019 for assessment year 2010-11 is
stated herein.
The issue in the appeal relates to whether depreciation can
be allowed as an application of income while computing income of
Charitable Trust u/s.11 of the Income Tax Act, 1961 (in short “the
Act”). This issue is no longer res integra as it is settled by the Hon’bel
Supreme Court in the case of CIT Vs. Rajasthan and Gujarati Charitable
Foundation in [2018] 89 Taxmann.com 127(SC) as under:
“so far as the issue regarding claim of depreciation u/s.32 of the Act is concerned, the controversy is no longer res integra, having been settled by the hon’ble Supreme Court in the case of CIT Vs. Rajasthan and Gujarati
ITA Nos.1246 and 1243,1244 :- 4 -: /chny/2019
Charitable Foundation in [2018] 89 Taxmann.com 127(SC), by which the hon’ble Supreme Court has affirmed the view taken by the Bombay High Court in CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION (IBPS) reported in [2003] 131 Taxman 386 (Bom). The relevant portion of the said judgement of the Bombay High Court (402 ITR 445) as quoted by the hon’ble Supreme Court and affirmed is quoted below for ready reference:
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 deprecia-tion 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 the 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
ITA Nos.1246 and 1243,1244 :- 5 -: /chny/2019
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 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 aforestated 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
ITA Nos.1246 and 1243,1244 :- 6 -: /chny/2019
above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department. 5. Now coming to question No. 3, the point which arises for consideration is : whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in subsequent year for charitable purposes? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a Charitable Trust, their income was assessable under self-contained code mentioned in section 11 to section 13 of the Income-tax Act and that the income of the Charitable Trust was not assessable under the head "profits and gains of business" under section 28 in which the provision for carry forward of losses was relevant. That, in the case of a Charitable Trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the Trust for charitable and religious purposes in the earlier years against the income earned by the Trust in the subsequent year will have to be regarded as application of income of the Trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(1)(a) of the Act.
The issue in the present appeal is squarely covered in favour of the
assessee by the above decision of Hon’bel Supreme Court (supra).
ITA Nos.1246 and 1243,1244 :- 7 -: /chny/2019
Respectfully following the above judgement of Hon’bel Supreme Court
in CIT Vs. Rajasthan and Gujarati Charitable Foundation (supra) , we allow the appeal filed by assessee.
Since, the facts in the above present appeal for assessment year 2010-11 are identical to the facts in ITA Nos.1243 & 1244/Chny/2019
filed by other assessee for assessment years 2011-12 & 2012-13, for the reasons mentioned therein, we allow the appeals filed by the other
assessee on the lines indicated in appeal ITA No.1246/Chny/2019. Hence, the above captioned appeals filed by the assessee are allowed.
In the result, the appeal filed by the assessee in ITA
No.1246/Chny/2019 and the two appeals filed by the other assessee in ITA Nos.1243 & 1244/Chny/2019 are allowed.
Order pronounced on 26th July, 2019, at Chennai. Sd/- Sd/- (इंटूर� रामा राव) (धु�वु� आर.एल रे डी) (DUVVURU RL REDDY) (INTURI RAMA RAO) �या"यक सद$य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai 2दनांक/Dated: 26th July, 2019. K S Sundaram आदेश क) +�त4ल5प अ6े5षत/Copy to: 1. अपीलाथ(/Appellant 3. आयकर आयु7त (अपील)/CIT(A) 5. 5वभागीय +�त�न<ध/DR 2. +,यथ(/Respondent 4. आयकर आयु7त/CIT 6. गाड$ फाईल/GF