DCIT (E)-2(1), MUMBAI vs. SANTACRUZ RESIDENTS ASSOCIATION, MUMBAI

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 learned Commissioner of Income Tax (Appeals)-1, Mumbai (‘CIT(A)’ for short) dated 14.03.2017, pertaining to the assessment year (A.Y.) 2012-13.

4. I have heard the ld. DR and perused the records. It transpires that upon assessing officer’s disallowance on the above said two issues, the learned CIT(A) has allowed the assessee's appeal by following the Hon’ble jurisdictional High Court direct decision on the issues. Both the counsel fairly agreed that the issues are covered in favour of the assessee by the decision of Hon’ble jurisdictional High Court relied upon by the learned CIT(A).

First issue - Disallowance of depreciation, the ld CIT (A) has held 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.

4 Dy. CIT (Exemptions) vs. The Santacruz Residents Association "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 CTP. 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 the Trust. The Income Tax Officer held that depreciation could not be taken into account because; full capital exnenrtture hzd been a/fu^a in the year of acquisition of tne assets. The assessee went in 3ppeol before the Assistant Appellate Commissioner. The dppeai was rejected. The Tribunal, however, took the view that when the Income Tax Officer stated that full expenditure hdd 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." 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. "

5 Dy. CIT (Exemptions) vs. The Santacruz Residents Association iii. Respectfully following the above observations of Hon'ble jurisdiction! High Court, the Assessing Officer is directed to allow the claim of depreciation as application of income u/s. 11 of the i. T. Act 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 CIT(A) has held as under: 6.2 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. Relying upon several case laws the appellant stated that deficit of the current year is required to be carried forward to the subsequent years. On perusal of the facts I find that the case of appellant is squarely ' covered by the judgement of Hon'ble Bombay High Court in the case of Institute of Banking Personnel 264 ITR 110 wherein the Hon. Jurisdictional High Court has observed as under – ............"5. Now coming to question No. 3, the point which arises for consideration is: whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in subsequent year for char/table purposes7 It was argued on behalf of the department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the assessing officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that m the case of a Charitable Trust, their income was assessable under self-contained code mentioned m section 11 to section 13 of the Income Tax Act and that the income of the Charitable Trust: was not assessable under the head "profits and gains of business" under sect/on 28 in which the provision for carry forward of losses was relevant. That, in the case of a Charitable Trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of subsequent years. We do not find any merit in this argument of the department. Income derived from the trust property has a/so got to be computed on commercial principles and if commercial 6 Dy. CIT (Exemptions) vs. The Santacruz Residents Association for charitable and religious purposes in the earlier years against the income earned by the Trust in the subsequent year will have to be regarded as application of income of the Trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(l)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v, Shri Plot Swetamber Muni Pujak Jain Mandal (1995) 211 ITR 293 (Guj). Accordingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the department." ii. Respectfully following the ratio laid down by the Hon. High Court as above, the AO is directed to allow the carry forward of deficit in the succeeding years after due verification of facts.

Order pronounced in the open court on 10.10.2017 (Shamim Yahya) लेखा सद"य / Accountant Member मुंबई Mumbai; "दनांक Dated : 10.10.2017 व."न.स./Roshani, Sr. PS