DCIT (E) 2(1), MUMBAI vs. MOHD HAJI SABOO SIDIK INSTITUTION, MUMBAI

आयकर अपीऱीय अधिकरण “I” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपीऱ सं./I.T.A. No.7019/Mum/2016 (नििाारण वर्ा / Assessment Year: 2013-14) बिाम/ DCIT (E) 2(1) Mohd. Haji Saboo Sidik R.No 519, 5 t h Floor, Institution, Piramal Chamber, C/o. Anjuman I Islam, v. Lalbaug, Badruddin Tayabji Marg, Lower Parel, 92, DR. D.N. Road, Mumbai-400013 Mumbai स्थायी ऱेखा सं./ PAN : AABTM6917D (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) ..

Revenue by : Shri. Saurabh Kumar Rai , DR Assessee by: Jayesh Chugh सुनवाई की तारीख /Date of Hearing : 16-04-2018 घोषणा की तारीख /Date of Pronouncement : 16-04-2018 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 7019/Mum/2016 for assessment year 2013-14 is directed against the appellate order dated 06.09.2016 passed by learned Commissioner of Income-tax(Appeals)-1, Mumbai (hereinafter called "the CIT(A)") , the appellate proceedings had arisen before learned CIT(A) against the assessment order dated 30.01.2016 passed by learned Assessing Office ( hereinafter called “ the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called "the Act") , for assessment year 2013-14 . 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under-

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“CIT v. Institute of Banking {2003} 264 ITR110(Bom) CIT v. Institute of Banking Personnel Selection {2003} 185 CTR 492 (Bom) CIT v. Munisuvarat Jain {1994) Tax LR 1084 (Bom) "Claim of depreciation must be allowed in computing income of trust even if full cost of assets has been considered as application of income". Eighth ITO v. Trustees of Marathi Mission {1982) 1 ITD 539(Bom)” The AO rejected the claim of double deduction as in the view of AO double deduction is not allowed , firstly as an application of income of the entire acquisition cost of the capital assets and secondly by way of depreciation on such capital assets as a charge to P&L account. The AO disallowed the claim of the assessee vide assessment order dated 30-10-2016 passed u/s 143(3) of the 1961 Act. 4. The assessee being aggrieved by the assessment order dated 30.01.2016 passed by the AO u/s. 143(3) filed an appeal before learned CIT-A, who allowed the appeal of the assessee vide appellate order dated 06-09-2016 by holding as under:- “ 5.2 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. The Assessing Officer has not treated the depreciation as application of income on the ground that it amounts to double deduction. Appellant has submitted that in a number of judgments, depreciation had been allowed as application of income u/s, 11. In this regard I find that the issue is directly covered in appellant's favour by the judgment of Hon'ble Bombay High Court in the case of CIT Vs. Institute of Banking Personnel 264 ITR 110 wherein the Hon'ble Court has observed as under : "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 (Bom). 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 Trust. The Income Tax Officer held that depreciation could not be taken into account because; full capital expenditure had been allowed in the year of

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acquisition of the assets. The assesses went in appeal before the Assistant Appellate Commissioner. The appeal was rejected. The Tribunal, however, took the view that when the Income Tax Officer 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 assesses and against, the department." ii. In a recent judgement in case of Director of Income-tax (Exemptions), Mumbai v. Shri Vile Parle Kelavani Mandal [2015] 58 taxmann.com 288 Hon'ble Bombay High Court held : "As far as question No.4 is concerned, this Court has repeatedly held that there is nothing like double deduction. When the assessee has acquired an asset from the income of the trust and thereafter the amount that is claimed is the depreciation on the use of the assets, such depreciation claim does not mean double deduction. The deduction earlier claimed is towards towards application of funds of the trust for acquiring assets. The latter is depreciation and it is permissible deduction considering the use of the assets. This has been clarified repeatedly by this Court, If any reference is required then the case of CIT v. Institution of Banking Personnel Selection (IBPS) [2003] 264 ITR 110/131 Taxman 386 (Bom.) is enough." iii. Respectfully following the above observations of Hon'ble jurisdictional High Court, the Assessing Officer is directed to allow the claim of depreciation as application of income u/s. 11 of the IT. Act. iv. This Ground of appeal is therefore, allowed.” 5. Aggrieved by the appellate order dated 06-09-2016 passed by learned CIT(A), the Revenue has come in an appeal before the tribunal . the Ld. AR at the outset submitted that the issue is covered by the decision of Hon’ble Supreme Court in the case of CIT-III,Pune v. Rajasthan and

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Gujarati Charitable Foundation Poona in Civil Appeal no. 7186 of 2014 decided by the Hon’ble Supreme Court on 13.12.2017. The Ld. DR fairly agreed that facts are identical in the instant case and the decision of Hon’ble Supreme Court is applicable . 6. We have heard rival contentions and perused the material on record including cited case laws. We have observed that the assessee is a trust which is registered as Charitable Organization with DIT (E), Mumbai u/s. 12A(a) vide registration no. TR 4352 and with Charity Commissioner, Mumbai vide Registration no. E-35(Mumbai).The assessee principal object is to run schools, Colleges i.e. it is engaged only in Education activities. During the year , the assessee claimed depreciation on assets as well capital expenditure as an application of income. We have gone through the facts of the case and the decision of the Hon’ble Supreme Court in the case of CIT- III,Pune v. Rajasthan and Gujarati Charitable Foundation Poona in Civil Appeal no. 7186 of 2014 decided by the Hon’ble Supreme Court on 13.12.2017 . We have observed that the issue in the instant appeal before us is no more Res-integra . Hon’ble Supreme Court has already decided this issue in CIT-III,Pune v. Rajasthan and Gujarati Charitable Foundation Poona(supra) in favour of the tax-payer, by holding 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 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 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

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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 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 Curt, we answer 6

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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.” 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. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters.” The facts of the instant case before us are similar and ratio of aforesaid decision of Hon’ble Supreme Court in the case of CIT-III,Pune v. Rajasthan and Gujarati Charitable Foundation Poona(supra) shall be applicable and 7

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the assessee will be entitled for depreciation on the capital assets which were already been claimed as an application of income . The Hon’ble Supreme Court while deciding this issue has taken note that there is an amendment in Section 11(6) of the Act, vide Finance (No. 2) Act 2014 , w.e.f. 01-4-2015 i.e. effective from assessment year 2015-16, which amendment in statute was held to be prospective in nature. The impugned assessment year before us is assessment year 2013-14 which is prior to assessment year 2015-16 and amendment by Finance(No.2) Act, 2014 shall not be applicable to the instant appeal and hence we have no hesitation in dismissing the appeal of the Revenue. The Revenue fails in this appeal . We order accordingly.

Order pronounced in the open court on 16 04.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 16.04.2018 को की गई ।

Sd/- Sd/- (JOGINDER SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, dated: 16.04.2018 Nishant Verma Sr. Private Secretary

copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench 6. Master File

// Tue copy// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI