MEDICAL TRUST OF SEVENTH DAY ADVENTISTS,CHENNAI vs. DDIT, CHENNAI

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ITA 1708/CHNY/2015Status: DisposedITAT Chennai04 September 2018AY 2010-118 pages
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What did the Tribunal hold?

The Tribunal held that depreciation is allowable on assets even if their cost was treated as application of income, following a Supreme Court judgment. It also allowed the carry forward of excess application of income from earlier years, citing High Court precedents. The issue of gratuity payment was remitted back to the Assessing Officer for fresh consideration.

What were the facts?

The assessee, a medical trust registered under Section 12AA, claimed depreciation on assets whose cost was allowed as application of income. It also claimed carry forward of excess application of income from earlier years and sought allowance for gratuity payments made to employees.

What were the issues?

Whether depreciation is allowable on assets when their cost is treated as application of income, and whether excess application of income from prior years can be carried forward and set off.

Which sections of the Income-tax Act were involved?

Section 12AA,Section 28,Section 44DB

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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI

Before: SHRI ABRAHAM P. GEORGE & SHRI DUVVURU RL REDDY]

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

1.

In this appeal filed by the assessee, which is directed against an order dated 15.04.2014 of Commissioner of Income-tax (Appeals)-17, Chennai, it has taken altogether sixteen grounds of which ground No. 16 is general, needing no specific adjudication.

ITA No.1708 /2015 :- 2 -:

2.

Vide its grounds 1 to 6, assessee is aggrieved that depreciation � 64,95,237/- claimed by it was not allowed.

3.

Ld. Counsel for the assessee submitted that assessee was a trust registered u/s.12AA of the Income Tax Act, 1961 (in short ‘’the Act’’). As per the ld. Authorised Representative, assessee was denied depreciation for a reason that cost of the assets on which such depreciation was claimed was allowed as application of income. As

per the ld. Authorised Representative, by virtue of judgment of Hon’ble Apex Court in the case of CIT vs. Rajasthan & Gujarati Charitable Foundation Poona, (2018) 89 Taxmann.com 127 , where an assessee is a charitable institution registered u/s.12A of the Act even though expenditure claimed for acquisition of capital assets was treated as application of income, depreciation would be allowable on such assets.

Per contra, ld. Departmental Representative fairly agreed 4.

that question raised was covered in favour of the assessee by virtue of Hon’ble Apex Court judgment cited supra.

We have perused the orders and heard the contentions. 5.

Disallowance of depreciation was made for a sole reason that cost of assets on which depreciation was claimed was allowed as application of income. However, by virtue of judgment of Hon’ble Apex Court in ITA No.1708 /2015 :- 3 -: the case of Rajasthan & Gujarati Charitable Foundation Poona (supra) even where cost of acquisition is treated as application of income, depreciation has to be allowed on such assets. Accordingly, we are of the opinion that assessee was eligible for claiming such depreciation.

Claim of depreciation stands allowed. Grounds 1 to 6 of the assessee stand allowed.

Through its grounds 7 & 8, assessee is aggrieved that excess 6. application of income for earlier years claimed for carry forward was not allowed, and set off denied against the surplus for the impugned assessment year.

7.

Ld. Counsel for the assessee submitted that assessee was having excess application over income as under for various years prior to the impugned assessment year.

A.Y. Income Application Excess Application 100% 85% 2005-06 13,14,44,013 11,17,27,411 13,43,90,741 29,46,728 2006-07 14,08,30,200 11,97,05,670 15,26,33,163 1,18,02,963 2007-08 16,00,04,266 13,60,03,626 16,24,47,030 24,42,764 2008-09 11,89,46,495 10,11,04,521 12,05,72,697 16,26,202 2009-10 12,94,29,585 11,00,15,147 13,04,44,331 10,14,746

ITA No.1708 /2015 :- 4 -:

Contention of the ld. Authorised Representative was that assessee was eligible for claiming carry forward of such excess by virtue of the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Matriseva Trust, 242 ITR 20.

Per contra, ld. Departmental Representative submitted that 8.

income of the trust was not to be computed as per Section 28 to 44DB of the Act. According to him, the question of spending money in excess of income would arise only when there was real income. As per the ld. Departmental Representative, assessee could not say that it had spent a sum in excess of its income. Thus, according to him, lower authorities were justified in disallowing carry forward of excess application over income of the earlier years.

We have perused the orders and heard the rival contentions. 9.

Contention of the ld. Departmental Representative is that assessee could not have had excess of spending over its income, so as to claim carry forward. However, Hon’ble Apex Court had itself held in the case of Rajasthan & Gujarati Charitable Foundation Poona (supra) that depreciation on capital assets, value of which was already treated as application of income is an allowable claim. Thus, there could be excess over application of income for myriad reasons like claim of depreciation and/ or other expenditure which did not involve any ITA No.1708 /2015 :- 5 -: immediate cash flow. What was held by the Hon’ble Jurisdictional High Court in the case of Matriseva Trust (supra) is reproduced hereunder:-

‘’5. With regard to the second question, the Tribunal has held that the trust is entitled to set off the amount of excess application of the last year against the deficiency of Rs. 82,516 of the present assessment year. When similar questions came up before the Rajasthan High Court and the Gujarat High Court in the cases of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 and CIT v. Shri Plot Swetamber 211 ITR 239, Murti Pujak Jain Mandal [1995] respectively, both the Rajasthan High Court and the Gujarat High Court have answered the questions in favour of the assessee and against the revenue.

6.

Following the aforesaid decisions of the Rajasthan and the Gujarat High Courts, we answer the second question referred to us in favour of the assessee and against the revenue’’.

There is no dispute that excess of application claimed by the assessee was the amount which was expended above its income. In other words, assessee only claimed excess application without considering accumulation of 15% allowed to it. In such circumstances, we are of the opinion that assessee was eligible for claiming the carry forward of excess over application of income pertaining to the earlier years.

Orders of the lower authorities is set aside. Ld. Assessing Officer is directed to give set off claimed by the assessee. Grounds 7 & 8 of the assessee stand allowed.

ITA No.1708 /2015 :- 6 -:

10.

Vide its grounds 9 to 11, grievance of the assessee is that gratuity of �13,99,817/- paid to its employees was not allowed as application of income.

11.

Ld. Counsel for the assessee submitted that claim of gratuity payment was disallowed by the ld. Assessing Officer taking a view that there was no actual cash outflow. However, according to him, the sum of �13,99,817/- was actual gratuity payment made by the assessee during the relevant previous year and this had to be allowed. Ld. Authorised Representative also filed a list of persons to whom gratuity payments were effected.

12.

Per contra, ld. Departmental Representative submitted that the issue could be looked into by the ld. Assessing Officer.

We have perused the orders and heard the contentions. 13.

Expenditure claimed as fund contribution to employees by the assessee during the relevant previous year was as under:-

(i) Retirement Fund contribution : �19,62,734/- (ii) Gratuity Fund Contribution : �10,67,703/- (iii) Gratuity payment to employees : �13,99,817/- Total : �44,30,254/- ITA No.1708 /2015 :- 7 -:

Claim of the assessee before us is that gratuity payment of �13,99,817/- comprised in the above list was actually paid during the relevant previous year, but the ld. Assessing Officer and ld. Commissioner of Income Tax (Appeals) took a view that there was no actual cash outflow. Now before us, assessee has filed a list showing names of the persons to whom gratuity payments were claimed as effected during the relevant previous year. In the circumstances, we are of the opinion that the matter needs a fresh look by the ld. Assessing Officer. We set aside the orders of the lower authorities and remit the question regarding allowability gratuity payment of �13,99,817/- back to the file of the ld. Assessing Officer for consideration afresh in accordance with law. Assessee has to produce the list of persons and sufficient evidence to show that these payments were made during the previous year relevant to impugned assessment year. Grounds 9 to 11 of the assessee are allowed for statistical purpose.

14.

When grounds 12 to 15 were taken up, ld. Counsel for the assessee submitted that he was not pressing these grounds.

Accordingly, grounds 12 to 15 are dismissed as not pressed.

ITA No.1708 /2015 :- 8 -:

15.

In the result, the appeal of the assessee is partly allowed for statistical purpose.

Order pronounced on Tuesday, the 4th day of September, 2018, at Chennai.

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