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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
आदेश / O R D E R Per C.N.PRASAD (J.M.) This appeal is filed by the Revenue against the orders of the Ld. CIT (Appeals) -1, Mumbai dated 08.01.2015 for the assessment year 2010-11.
The Revenue has raised the following grounds : “1. Whether on the facts of the case and in law the id. CIT(A) erred in allowing the appeal of the assessee on account of disallowing depreciation on fixed assets of Rs. 10,75,86,879/- in contravention of the decision of Escorts Ltd Vs. UOI 199 ITR 43 wherein it was held that since section 11 of the Income Tax Act provides for deduction capital expenditure incurred on assets acquired for M/s Padamshree Dr.D.Y.Patil University the objects of the trust as application and does not specifically & expressly provide for double deduction on account of depreciation on the same very assets acquired from such capital expenditure, no deduction shall be allowed u/s. 32 for the same or any other previous year in respect of that asset as it amounts to claiming a double deduction.
2. Whether, on the facts and in the circumstances of the case and in law the 1dCIT(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 CIT 76 DTR (Ker) 372 has decided the issue in the 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 of the case and in law the Id. CIT(A) erred in allowing the carry forward of deficit of Rs.60,99,44,5121- and allowing set off against the income of the subsequent years, allowing the deficit will tantamount to double deduction on account of expenditure out of exempt income.
4. Whether, on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing to carry forward of deficit on account of excess expenditure and directing the Assessing Officer to allow carry forward of deficit on account of excess expenditure without appreciating the fact that this would have the effect of granting double benefit to the assessee, first as 'accumulation' of income u/s. 11(1) (a) or as corpus donation u/s 11(1) (d) in earlier years/current year and then as 'application' of income u/s 11(1) (a) in the subsequent years which was legally not permissible.? 5. Whether, on the facts and in the circumstances of the case and in law, the Ld 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."
The Ld. Counsel for the Assessee at the outset submits that there are two issues in the Revenue’s appeal i.e. rejecting the claim for depreciation on fixed assets on the ground that the amount spent for purchase of fixed assets have been considered as application of income and therefore on allowing depreciation it amounted to double deduction and the second issue is whether
M/s Padamshree Dr.D.Y.Patil University the Assessee is entitled for carry forward of deficit and such a deficit can be set off against the income of the subsequent years. The Ld. Counsel for the Assessee submits that both the questions have been answered by the Hon’ble Bombay High Court in Assessee’s favour in the case of CIT Vs. Institute of Banking Personnel Selection [264 ITR 110]. The Ld. Counsel submits that the Ld. CIT (Appeals) following the decision of the Hon’ble Bombay High Court allowed the claims of the Assessee, therefore the same may be sustained. He further submits that similar view has been taken by the Hon’ble Calcutta High Court in the case of CIT Vs. Siliguri Regulated Market Committee [366 ITR 51] and Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Market Committee Pipli [330 ITR 16] by distinguishing the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. Vs. Union of India [119 ITR 43] which was relied on by the Assessing Officer.
The Ld. DR placed reliance on the orders of the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below and the decision of the Jurisdictional High Court in the case of CIT Vs. Institute of Banking Personnel Selection (supra). The questions raised before the Hon’ble Jurisdictional High Court (supra) are as under : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Assessing Officer to allow depredation on the assets the cost of which has been fully allowed as application of income under section 11 in the past years? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the assessee to carry forward the deficit of earlier year and set it off against the surplus of subsequent years when the M/s Padamshree Dr.D.Y.Patil University same was not allowable in the case of the assessee-trust in whose case income exempted under section 11 of the Income-tax Act, 1961?" The Hon’ble High Court regarding question no. 1 held as under : “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 fain [1994] Tax LR 1084 (Bom), 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 temple property which was a trust property. During the course of assessment proceedings for the assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed depreciation on the value of the building at 21/2 per cent. and they also claimed depreciation on furniture at 5 per cent. 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 a provision in respect of computation of income of the trust from 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 a 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.
M/s Padamshree Dr.D.Y.Patil University 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 aforestated judgment of the Bombay High Court, we answer question No. 1 in the affirmative, i.e., in favour of the assessee and against the Department.” The Hon’ble High Court regarding question no.3 held as under : 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 the subsequent year for charitable purposes? 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 utilisation 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 in the case of a charitable trust, their income was assessable under self-contained code mentioned in 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 section 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 the subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust 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(1)(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 Murti Pujak Jain Mandal [1995] 211 ITR 293. Accordingly, we answer question No. 3 in the affirmative, i.e., in favour of the assessee and against the Department.”
Therefore as could be seen from the above, both the questions have been answered in favour of the Assessee and against the department.
M/s Padamshree Dr.D.Y.Patil University 6. The Hon’ble Bombay High Court in recent judgements in the cases of DCIT(E) Vs. Najam Baug Trust in of 2013 dated 14.01.2015 and DCIT(E) Vs. Anjuman E Mohammedi Trust in ITA No.248 of 2013 dated 09.01.2015 reiterated the view taken by it in Institute of Banking Personnel Selection (supra) that the Assessee is entitled to carry forward and set off the deficit against current year income.
In respect of allowability of depreciation on assets while arriving at application of income, the Hon’ble Bombay High Court recently in the case of DCIT(E) Vs. Shri Vile Parle Kelavani Mandal 2015 [378 ITR 593] reiterated its view in the case of Institute of Banking Personnel and Training (supra).
Respectfully following the above said decisions of the Jurisdictional High Court, we affirm the order of the Ld. CIT (Appeals) on both the issues.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on the 4th day of May 2017.