ITO EXEMPTION WARD 3, CHENNAI vs. SHRI SHIRDI SAIBABA SPIRITUAL AND CHARITABLE TRUST, CHENNAI

आदेश/ O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The Revenue filed this appeal against the order of Commissioner

of Income Tax (Appeals)-17, Chennai in ITA No 68/14-15/CIT(A)-17 dated

29.08.2017 for assessment year 2012-13.

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registration as a public charitable trust u/s. 12AA and it had approval u/s.

80G(5)(vi) up to 31.03.2012. While making the assessment for assessment

year 2012-13, the AO found that the assessee is selling books and articles at a

profit and hence it is carrying on a trade with a mark up. Since, the assessee

activities covered under purview of proviso to section 2(15), the AO assessed

surplus arising out of sale of devotional articles, books etc at Rs. 76,79,169/-

as income under the head business after allowing normal depreciation,

treating the assessee as an AOP. He has held that since proviso of section

2(15) is invoked, the provisions of section 11 & 12 became inoperative and

hence charged the receipt of voluntary contribution as income and did not

allow expenses of capital nature which was claimed to be an application of

income. With regard to the depreciation claimed as an application of income,

he held that since, the entire capital expenditure incurred had been allowed

as an application of income in the past, he has added back such depreciation.

Further, he held that the expenditure not connected to the income earning

activity like accumulation for future use are not allowable as section 11 has

become redundant.

following this tribunal decision in the assessee’s case for assessment year

2011-12 in ITA No. 1879/Mds/2015 dated 07.11.2006 held that the assessee

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is eligible for exemption u/s. 11 & 12. In respect of other issues, following

this tribunal decision, supra, and the jurisdictional High Court decision in the

case of Medical Trust of the Seventh Day Adventists vs DIT, Exemption-III,

Chennai, in TCA No 949 of 2015 & 771 of 2016 dated 08.08.2017 allowed the

assessee’s appeal. Aggrieved, the Revenue filed this appeal with the following

grounds :

“1. The order of the learned CIT(A) is contrary to the law and facts of the case. 2.1 The Ld. CIT(A) erred in allowing the assessee's claim of depreciation when the entire cost of acquisition of assets were treated as "application of income" for the purpose of claiming exemption u/s. 11 of the Act. 2.2 The Ld. CIT(A) failed to appreciate that as per the decision of the Hon'ble Apex Court in the case of M/s. Nectar Beverages Limited Vs CIT 314 ITR 314, depreciation is neither a loss nor expenditure. Depreciation is only an "allowance" and the view that depreciation is an "expenditure" to be treated as "application of income" for charitable purposes is incorrect. 2.3 The Ld. CIT(A) failed to appreciate the decision of the Hon'ble Kerala High Court in the case of Lissie Medical Institutions Vs CIT 348 ITR 344 (Ker.), which decision was rendered after seeking the view of the CBDT. In that case, the igh Court held that "if the assessee treats expenditure on acquisition of assets as application of income for charitable purposes under section 11(1)(a), then assessee cannot claim depreciation on value of such assets." 2.4 The Ld. CIT(A) ought to have considered the decision of the Hon'ble Delhi Court in the case of DIT Vs. M/s. Charanjiv Charitable Trust (2014) 43 taxmann.com 300 (DeL) wherein it has been held that depreciation would not be allowed in cases where the Trusts are claiming the cost of acquisition of assets as application of income. 2.5 The Ld. CIT(A) erred in not considering the Apex Court decision in the case of J.K. Synthetics Limited (65 Taxman 420) wherein it was held that a double deduction cannot be a matter of inference. It must be provided for in clear and express language, having regard to its unusual nature and its serious impact on the revenues of the State.

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2.6 The Ld. CIT(A) failed to appreciate the decision of the ITAT, Cochin in the case of DlT, Ernakulam Vs Adi Sankara Trust (2012) 143 TT J 234 wherein it was held that when a charitable body has already claimed deduction for acquisition of capital assets as application of money, further claim of depreciation on the same assets would amount to double benefits and cannot be allowed. 2.7 The Id. CIT(A) ought to have followed the jurisdictional High Court's decision in the case of CIT Vs. Rao Bahadur Cunnan Chetty Chairites 135 ITR 485 (Mad), wherein it was held that the word 'income' appearing in Section 11 to Section 12 has to be understood in normal parlance without looking into or invoking the provisions of Section 14 of the Income Tax Act. Once that is done, "depreciation" which is not an "actual expenditure", cannot be allowed. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(Appeals) may be set aside and that of the Assessing Officer may be restored.”

The DR presented the case narrating the facts and the grounds of appeal and

pleaded that the order of assessment may be upheld. Per contra, the AR

submitted that this tribunal in ITA No 879/Mds/2015 and CO No.

130/Mds/2015 in assessment year 2011-12 has allowed the assessee’s appeal.

Based on which and also on the Jurisdictional High Court’s decision, the

CIT(A) allowed the assessee’s appeal. The Revenue has filed an appeal only

against the issue on depreciation. Supreme Court in the case of CIT-III, Pune

vs Rajasthan and Gujarati Charitable Foundation, Poona reported in 2017

TIOL-463-SC-IT dated 13.12.2017 held that when the charitable body applies

its income on acquisition of capital assets, depreciation on such assets should

be allowed and hence the AR pleaded that the Revenue’s contentions are

untenable and hence its appeal may be dismissed.

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supra, that the Revenue is aggrieved only on depreciation issue. As per the

Supreme Court decision, supra, it is in favour of assessee and hence the

Revenue’s appeal is dismissed.

Order pronounced on Tuesday, the 10th day of April, 2018 at Chennai.

Sd/- Sd/- (एसजयरामन) (धु�वु�आर.एलरे डी) (S. JAYARAMAN) (DUVVURU RL REDDY) लेखासद#य/Accountant Member "या�यकसद#य/JUDICIAL MEMBER

चे�नई/Chennai, 4दनांक/Dated: 10th April, 2018 JPV आदेशक/&�त6ल7पअ8े7षत/Copy to: 1. अपीलाथ)/Appellant 2. &'यथ)/Respondent 3. आयकरआयु:त ) अपील(/CIT(A) 4. आयकरआयु:त/CIT 5. 7वभागीय&�त�न�ध/DR 6. गाड=फाईल/GF