DCIT (E) I(1), MUMBAI vs. D.Y PATIL SPORTS ACADEMY, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI

BEFORE SHRI SHAMIM YAHYA, AM AND SHRI PAWAN SINGH, JM I.T.A. No. 811/Mum/2017 (Assessment Year: 2012-13) Dy. CIT (Exemption)-1(1), Dr. D. Y. Patil Sports Academy Room No. 506, 5th Floor, Patil Building, Vs. Piramal Chamber, Lalbaug, Opp. MIG Colony, Adarsh Nagar, Mumbai-400 012 Worli, Mumbai-400 025 PAN/GIR No. AAATD 3102 G (Appellant) (Respondent) :

Appellant by : Shri Ram Tiwari Respondent by : Shri Balan Narayanan

: 27.06.2018 Date of Hearing : 27.06.2018 Date of Pronouncement

O R D E R Per Shamim Yahya, A. M.: This is an appeal by the Revenue is arising out of the order of the ld. Commissioner of Income Tax (Appeals)-1, Mumbai dated 21.11.2016 and pertains to the

assessment year 2012-13.

2 ITA No. 811/Mum/2017 Dr. D. Y. Patil Sports Academy 2. "Whether, on the facts and in the circumstances of the case and in law the ld CIT(A) erred in allowing the appeal , when the Delhi High Court in the case of Charanjiv Charitable Trust and Kerala High Court in the case of Lissie Medical Institutions vs CJT 76 DTK (Ker) 372 has decided tlie issue in tlte favour of the department after considering the decision of Hon'ble Supreme Court in the case of Escorts Ltd (199 ITR 43)". 3. " Whether, on the facts and in the circumstances of the case and in law the Id CIT(A) erred in allowing appeal on the issue of depreciation ignoring the fact that the Revenue has filed SLPs on this issue in other cases inclusive the case of G.D. Birla Medical Research & Educational Foundation in which leave has been granted by the Hon'ble Apex Court - S.L.P.(C) No. 24904 of 2016(C.A.No.8294 of 2016) and in all cases the issue is pending for adjudication before Hon'ble Supreme Court". 4. "Whether, on the facts and in the circumstances of the case and in law the Id CIT(A) erred in relying upon the decision of Hon'ble IT AT in assessee's own case for AYs. 2010-11 & 2011-12, in which appeal of the assessee on the issue of depreciation and carry forward and set off of deficit was allowed by Hon'ble 1TAT by relying upon the judgment of Hon'ble high Court in the case of CIT vs. Institute of Banking personnel selection without appreciating the fact that Department has not accepted the decision in the case of Institute of Banking Personnel on merit, but due to smallness of tax effect appeal was not filed before Hon'ble Supreme Court. Moreover, the Revenue recommended filing appeal before Hon'ble High Court for AYs. 2010-11 & 2011-12". 5. Whether on the facts of the case and in law the ld.CIT(A) erred in allowing the carry forward of deficit of Rs.106,50,63,840/- and allowing set off against the income of the subsequent years. 6. Whether, on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit, ignoring the fact that there was no express provision in the I T Act, 1961 permitting allowance of such claim." 7. Whether, on the facts and in the circumstances of the case and in law the Id CIT(A) erred in allowing appeal on the issue of deficit ignoring the fact that the Revenue has filed SLPs on tins issue in other cases inclusive the case of MIDC in which leave has been granted by the Hon'ble Apex Court (SPL (Civil) 9891 of 2014) and in all cases the issue is pending for adjudication before Hon’ble Supreme Court. 8. The appellant prays that the order of the ld. Commissioner of Income Tax (Appeals)-I, Mumbai be set aside and that of the Assessing Officer be restored.

grounds of appeal. First issue relates to disallowance of the depreciation. Second issue

3 ITA No. 811/Mum/2017 Dr. D. Y. Patil Sports Academy relates to the disallowance of carry forward of the said deficit to be set of against the

income of the subsequent years.

assessing officer’s disallowance on the above said two issues, the ld. Commissioner of

Income Tax (Appeals) has allowed the assessee's appeal by following the ITAT decision

in assessee's own case wherein the Hon'ble jurisdictional High Court’s direct decision on

these issues were followed.

Commissioner of Income Tax (Appeals).

First issue: Disallowance of depreciation. The ld. Commissioner of Income Tax

(Appeals) has concluded as under:

ii. From above observations of Hon'ble ITAT in appellant's own case, it may be noted that the CIT(A) relying upon the judgement of Hon'ble jurisdictional High Court in the case of Institute of Banking Personnel had allowed relief to the appellant which has been upheld by Hon'ble ITAT. Respectfully following the decision of Hon'ble courts as above, the assessing officer is directed to allow the claim of depreciation.,, of the appellant after due verification of facts.

Second issue: Disallowance of carry forward of deficit to be set off against the income of

the subsequent year. The ld. Commissioner of Income Tax (Appeals) has concluded as

under:

I have considered the facts and circumstances of the case, gone through the assessment order of the A.O and the submissions of the appellant and also discussed the case with the AR of the appellant. The contentions and submissions of the appellant are being discussed and decided here in under: i. Appellant has relied upon several case laws and also judgement of Hon'ble ITAT in its own case in A.Yrs. 2010-11 and 2011-12. The relevant portion of this judgement has been reproduced above while deciding

4 ITA No. 811/Mum/2017 Dr. D. Y. Patil Sports Academy Ground No. 1 of appeal relating to depreciation where the issue of carry forward and set-off of deficit has also been discussed by Hon'ble ITAT and allowed in favour of the appellant. Further it is noted that the issue is also covered in appellant's favour by the judgement of Hon'ble Bombay High Court in the case of Banking Personnel Selection 264 ITR 110. Respectfully following the judgement of Hon'ble courts, the assessing officer is directed to allow carry forward and set off of deficit after due verification of facts. ii. Ground No. 2 of appeal is therefore allowed. .

the view taken by the Hon'ble jurisdictional High Court in the case of CIT vs. Rajasthan

& Gujarati Chairtable Foundation Poona vide order dated 13.12.2017, the Hon’ble

Supreme Court has held 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

5 ITA No. 811/Mum/2017 Dr. D. Y. Patil Sports Academy 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 ahll 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 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.

6 ITA No. 811/Mum/2017 Dr. D. Y. Patil Sports Academy 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.” 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.

latest decision of honble apex court, we uphold the order of the ld. Commissioner of

Income Tax (Appeals).

7 ITA No. 811/Mum/2017 Dr. D. Y. Patil Sports Academy

Order pronounced in the open court on 27.06.2018

Sd/- Sd/-

(Pawan Singh) (Shamim Yahya) Judicial Member Accountant Member Mumbai; Dated : 27.06.2018 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai