ASSISTANT COMMISSIONER OF INCOME TAX, , HUBBALLI vs. LOK SHIKSHANA TRUST, HUBBALLI

Per Shri Jason P Boaz, A.M. : This appeal by Revenue is directed against the order of Commissioner of Income Tax (Appeals), Hubli dt.4.9.2017 and Corrigendum dt.30.10.2017 for the Assessment Year 2013-14. None was present for the assessee when the case was called and therefore this appeal is disposed off with the assistance of the learned Departmental Representative for Revenue and the material on record.

2 ITA No.2598/Bang/2017 2. Briefly stated, the facts relevant for disposal of this appeal are as under :-

2.1 The assessee trust, engaged in the activity of publishing of newspaper and periodicals, filed its return of income for Assessment Year 2013-14 on 28.9.2013 declaring loss of Rs.4,46,83,407. The return was processed under Section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under Section 143(3) of the Act vide order dt.21.3.2016, wherein the assessee's loss was determined at (-) Rs.3,89,42,871 in view of the following disallowances :-

i) Depreciation : Rs.42,61,485. ii) Employees contribution to PF/ESI : Rs.14,79,051. 2.2 Aggrieved by the order of assessment dt.21.3.2016 for Assessment Year 2013-14, the assessee filed an appeal challenging the aforesaid two disallowances (supra) before the CIT (Appeals), Hubli. The learned CIT (Appeals) vide the impugned order dt.4.9.2017 and corrigendum dt.30.10.2017 allowed the assessee's appeal.

3 ITA No.2598/Bang/2017

4.1 The learned Departmental Representative for Revenue was heard in support of the grounds raised (supra) and placed strong reliance on the order of the Assessing Officer in disallowing the assessee's claim for depreciation on fixed assets in view of the decision of the Hon'ble Apex Court in the case of Escorts Ltd. Vs. Union of India (1993) 199 ITR 43.

4.2 According to the learned Authorised Representative for the assessee, the issue in respect of the claim of depreciation is covered by the decision of the Hon'ble Apex Court in the case of CIT Vs. Rajasthan &

4 ITA No.2598/Bang/2017 Gujarati Charitable Foundation, Poona (2018) 89 Taxmann.com 127 (SC) and the Hon'ble Karnataka High Court in the case of DIT (E) Vs. Al-Ameen Charitable trust & Others (383 ITR 517) (Kar) vide order dt.22.2.2016. The learned Authorised Representative also, inter alia, placed reliance on the following decisions of the co-ordinate bench of this Tribunal :-

(i) Moogambigai Charitable Trust Vs. Addl. CIT (Exemption) in ITA No.1224/Bang/2015 dt.13.7.2016;

(ii) ITO (Exemption) Vs. Sharaddha Trust in ITA No.899/Bang/2016 dt.7.4.2017.

4.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. We find that the issue of claim of depreciation by a charitable trust under Section 11 of the Act has been considered and held in favour of the assessee by the Hon'ble Apex Court in the case of Rajasthan & Gujarati Chairtable Foundation, Poona (supra); by the Hon'ble Karnataka High Court, in the case of Al-Ameen Charitable Fund Trust & Other (supra) and various decisions of this Tribunal. In the case of Moogambigai Charitable and Education Trust (supra), the co-ordinate bench in its order in ITA No.1224/Bang/2015 dt.13.7.2016 at para 11 thereof has held as under :-

“ 11. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that this issue has been considered by this Tribunal in a series of decisions. In the case of M/s. CMR Janardhana Trust (supra), the Tribunal has again considered and decided this issue in paras 15 to 17 as under :

5 ITA No.2598/Bang/2017

“ 15. We have heard the submissions of the ld. DR, who relied on the order of CIT(A) and the decision of the Hon’ble Delhi High Court in the case of DIT(E) Vs. Charanjiv Charitable Trust (2014) 43 taxmann.com 300 (Delhi). We have considered the order of the CIT(A). Identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of assessee. On further appeal by the Revenue, the Tribunal held as follows:- “20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable instituitions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income. It was so held by the Hon’ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit. The decision of the Hon’ble Supreme Court in the case of Escorts Ltd. 199 ITR 43 (SC) have been referred to and distinguished by the Hon’ble Court in the aforesaid decisions. 21. The issue raised by the revenue in the ground of appeal is thus no longer res integra and has been decided by the Hon’ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H). The Hon’ble Punjab & Haryana High Court after considering several decisions on that issue and also the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra), came to the conclusion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon’ble Punjab & Haryana High Court made a reference to the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon’ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon’ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon’ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference.

6 ITA No.2598/Bang/2017 22. Consequently, ground No.5 raised by the revenue is dismissed.” 16. It is no doubt true that the Hon’ble Delhi High Court in the case of Charanjiv Charitable Trust (supra) has taken a contrary view but then when two views are possible on an issue, the view favourable to the Assessee has to be followed. The decision of the Hon’ble Punjab & Haryana High Court is in favour of the Assessee and has followed the decision of the Hon’ble Karnataka High Court in the case of Society of Sisters of Anne (supra). The interpretation to the contrary given by the CIT(A) on the decision of the Hon’ble Karnataka High Court in the case of Society of Sisters of Anne (supra) cannot therefore be accepted. We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of subsection (6) to section 11 of the Act, which reads as under:- “(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.” 17. As already stated, the aforesaid amendment is prospective and will apply only from A.Y. 2015-16. In view of the above legal position, we are of the view that the order of the CIT(A) has to be reversed. Consequently grounds No.4 & 5 raised by the Assessee are allowed.” There is no dispute that the amendment of section 11(6) of the Act by the Finance Act, 2014 is prospective w.e.f. 1.4.2015 and therefore the said amended provision is not applicable for the assessment year under consideration. Following the earlier decisions of this Tribunal, we decide this issue in favour of the assessee and against the revenue.”

4.3.2 Respectfully following the decision of the Hon'ble Apex Court in the case of Rajasthan & Gujarati Charitable Foundation, Poona (supra) and of the Hon'ble Karnataka High Court in the case of Al-Ameen Charitable Fund Trust & Others (supra), wherein the Hon'ble High Court has distinguished the decision of the Hon'ble Kerala High Court in Lissie Medical Institutions (supra) and also following the decision of the co- ordinate bench in the case of Moogambigai Chairtable & Education Trust (supra), we uphold the decision of the learned CIT (Appeals) in allowing the assessee's claim for depreciation on fixed assets for Assessment Year

7 ITA No.2598/Bang/2017 2013-14. Consequently, the grounds raised by Revenue’s on this issue are dismissed.

Contribution to PF / ESI u/s.2(24)(x) r.w.s. 36(1)(va) of the Act.

5.1 On a perusal of the grounds raised (Supra), it is seen that they are in respect of the issue of deletion of the disallowance made by the Assessing Officer (AO) on account of employees contribution to PF and ESI in view of the provisions of sec. 2(24)(x) r.w.s 36(1)(va) of the Act, since the said contributions were not remitted within the due dates specified under the prescribed statutes. The ld DR for Revenue was heard in respect of the grounds raised and placed support on the findings of the Assessing Officer. It was submitted that the impugned order of the ld CIT(A) on this issue be set aside and the order of the AO, disallowing the assessee’s claim for being allowed deduction on account of employees contribution to PF & ESI as it was not paid within the due dates prescribed in the respective statutes, be restored in view of the judgment of the Hon’ble Kerala High Court in the case of CIT Vs. Merchem Ltd. (2015) 378 ITR 443 (Ker) which has upheld this proposition.

5.2 Per contra, the ld AR for the assessee submitted that there was no error in the impugned order of the ld CIT(A) on this issue and the same is to be upheld as he has followed the binding decisions of the Hon’ble Karnataka High Court in the cases of Essae Teraoka Pvt. Ltd.,

8 ITA No.2598/Bang/2017 (2014) 366 ITR 408 (Kar) and Spectrum Consultants Pvt. Ltd., (2014) 29 DTR 274 (Kar) and not that of the Hon’ble Kerala High Court cited by the ld DR which has dissented with the decisions of the Hon’ble Karnataka High Court.

5.3.1 We have heard the rival contentions and perused and carefully considered the material on record. The issue for consideration before us is whether or not the assessee is entitled to be allowed deduction on account of Employees Contributions to PF & ESI, which admittedly was not paid within the due dates specified in the respective statutes but was paid before the due date prescribed u/s 139(1) of the Act. Though a conflicting decision of the Hon’ble High Court of Kerala in the case of Merchem Ltd. (Supra) has been placed before, we respectfully submit that we are bound by the decisions of the Hon’ble Jurisdictional High Court of Karnataka.

5.3.2 The Hon’ble Karnataka High Court in its order in the case of Essae Teraoka Pvt. Ltd., reported in (2014) 366 ITR 408 at para 6 thereof has held as under:-

9 ITA No.2598/Bang/2017

A similar finding on same facts was rendered by the Hon’ble Jurisdictional High Court of Karnataka in the case of Spectrum Consultants India (P) Lt., (2013) 89 DTR 274 (Kar). No contrary decision of the Hon’ble Apex Court or the Hon’ble Karnataka High Court on this issue has been placed before us. Therefore, respectfully following the decision of the Hon’ble Karnataka High Court in the case of Essae Teraoka Pvt. Ltd. (Supra), we uphold the finding in the impugned order of the ld CIT(A), that the assessee is entitled to deduction on account of employees contribution to PF & ESI as the same was admittedly paid within the due date prescribed u/s 139(1) of the Act. We hold and direct accordingly. Consequently, Grounds (iii) and (iv) raised by revenue are dismissed.

10 ITA No.2598/Bang/2017 7. In the result, Revenue’s appeal for Assessment Year 2013-14 is dismissed. Order pronounced in the open court on the 25th day of April, 2018.

Sd/- Sd/- (N.V. VASUDEVAN) (JASON P BOAZ) Judicial Member Accountant Member Bangalore, Dt. 25.04.2018. *Reddy gp Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR. ITAT, Bangalore 3 CIT 6 Guard File

Senior Private Secretary Income Tax Appellate Tribunal Bangalore.