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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A.K. GARODIA
Per Sunil Kumar Yadav, Judicial Member
These cross appeals are preferred by the revenue and the assessee against the respective orders of the CIT(Appeals). Since the appeals were heard together, these are being disposed of through this consolidated order. We, however, prefer to adjudicate them one after the other.
In these appeals, the revenue has assailed the order of the CIT(Appeals) that the CIT(A) has not followed the order of the Tribunal in the case of M/s. C M R Janardhana Trust in & 643/Bang/2008 dated 24.12.2008 in which it was held that if the entire amount of capital asset purchased during the year is treated as application of income, then no further deduction can be allowed for depreciation as the value of entire capital asset is treated as application of income and the CIT(A) has allowed the appeal of the assessee after holding that the assessee is entitled for depreciation.
During the course of hearing, the ld .counsel for the assessee has invited our attention with the submission that the impugned issue is squarely covered by the judgment of the Hon'ble jurisdictional High Court in ITA Nos.485, 486, 307 & 308/Bang/2013 Page 3 of 9 the case of Al-Ameen Charitable Fund Trust in and various orders of the Tribunal in the case of Karnataka Reddy Janasangha v. DIT, in ITA No.220/Bang/2011 and DDIT v. International Institute of Information Technology in ITA No.396/Bang/2013 in which it has been held that assessee is entitled for depreciation, despite application of entire amount. While holding so, they have taken into account the decision of the Tribunal in the case of M/s. C M R Janardhana Trust (supra).
The ld. DR placed reliance upon the order of the Assessing Officer.
Having carefully examined the orders of the authorities below in the light of the judgments referred to by the parties, we find that the Tribunal has taken a consistent view, following the judgment of Hon'ble High Court of Karnataka that assessee is entitled for depreciation in such circumstances. The relevant observations of the Tribunal in the case of International Institute of Information Technology (supra) are extracted hereunder for the sake of reference:-
“5.3 We have heard both parties and perused and carefully considered the material on record. We find that the issue of the assessee being entitled to depreciation, is covered in favour of the assessee by the decision of the co-ordinate bench of this Tribunal in the assessee’s own case for Assessment Year 2006-07 in of 17.9.2012 it has been as under at para 5 thereof: “05. At the time of hearing, the learned DR relied on the grounds of appeal and reiterated the same as its submissions, but nothing was brought on record to show that the earlier decision of this Tribunal in assessee's own case has been reversed by the Hon'ble High Court of ITA Nos.485, 486, 307 & 308/Bang/2013 Page 4 of 9 Karnataka. In such facts and circumstances, we are bound to follow the earlier order of the Tribunal, that too in assessee's own case, there being no change in the facts and circumstances of the case in this appeal also. In the said order, while allowing the assessee's appeal, the Tribunal observed as under : "7.5 The Hon'ble jurisdictional High Court in the case of CIT v Society of the Sisters of St. Anne (146 ITR 26 had categorically held that the amount of depreciation debited to the accounts of a charitable institution is to be deducted to arrive at the available income for the purpose of application to charitable and religious purposes. The decision of the Hon'ble jurisdictional High Court has been followed by the Hon'ble Madhya Pradesh High Court in the case of CIT v. Raipur Pallottine Society 180 ITR 579 and by the Hon'ble Madras High Court in the case of Govindu Naicker Estate v. Asst. Director of Income tax and Another 248 ITR 368.
8. In the result, appeal filed by the assessee is allowed.” In this year also, the learned Departmental Representative could not bring on record any order to show that the earlier decisions by this Tribunal for earlier years i.e. dt. 30.6.2010 or ITA No.893/Bang/2011 dt. 17.9.2012 for Assessment Year 2006-07 were reversed by the Hon’ble High Court of Karnataka. In these similar facts and circumstances of the case, we are bound to follow the earlier orders of the co-ordinate bench of this Tribunal (supra). Following the same, we hold that the assessee is entitled to depreciation and consequently dismiss grounds 2 to 4 raised by Revenue.”
6. Since no contrary judgment has been placed by the revenue, we having perused the orders of the Tribunal, hold that the CIT(Appeals) has rightly adjudicated the issue in holding that the assessee is entitled for depreciation. Accordingly, the order of the CIT(Appeals) stands confirmed.
ITA Nos.485, 486, 307 & 308/Bang/2013 Page 5 of 9 & 308/B/2013
In these appeals, the assessee has assailed the order of the CIT(Appeals) inter alia on the following common grounds. For the sake of reference, the grounds raised in are extracted hereunder:-
“1. The order of the learned Commissioner of Income tax (Appeals)-V, Bangalore is opposed to law and on facts of the case.
2. Accumulation or Set apart of income under Section l1(1)(a): (a) The learned CIT (Appeals)-V, Bangalore has erred in law in dismissing the appellant's claim for accumulation or set apart of an income of Rs.1,95,43,427/- under Section 11(1)(a), being 15% of the gross receipts amounting to Rs.13,02,89,512/- without notice to the Assessing Officer, by stating that, accumulation has already been allowed by the Assessing Officer under Section 11(2) of the Income tax Act, 1961. (b) The learned CIT (Appeals)- V, Bangalore has failed to appreciate the fact that, accumulation under Section 11(1)(a) is a separate issue from accumulation with notice under Section 11(2). (c) The learned CIT (Appeals)-V, Bangalore ought to have given specific direction to the Assessing Officer to first allow accumulation under Section 11(1)(a) and after allow accumulation under Section 11(2) for the remaining unspent surplus, if any. (d) The learned CIT (Appeals)- V, Bangalore has grossly ignored the decisions relied on by the Appellant in the following cases. (i) Additional Commissioner of Income tax & Another Vs. ALN Rao Charitable Trust [216 ITR 697] (SC)
, 486, 307 & 308/Bang/2013 Page 6 of 9 (ii) CIT Vs. Programme for Community Organisation [248 ITR 1] (SC) (iii) CIT Vs. Programme for Community Organisation [228 ITR 620] (Kerala) (iv) CIT Vs. G.R.Govinarajulu & Sons Charities [271 ITR 145] (Mad) 3. Investment made in fixed deposits amounting to Rs.4,59,21,115/-: (a) The learned CIT (Appeals)-V, Bangalore is not justified in law in stating that, investing in capital assets which is not part of the object of the Trust would not amount to an application as envisaged under Section 11 (1)( a) of the Income tax Act, 1961 and thereby not consider the investment made on fixed deposits amounting to Rs.4,59,21,115/- as application of income. (b) The learned CIT (Appeals)-V, Bangalore has grossly ignored the Board's Instruction No.883-CBDT F.No.180/54/72- IT(Al), dated 24.9.1975 (CBDT Bulletin XXI/l/74, page 157), relied on by the Appellant.
4. Accumulated income treated as deemed income under Section l1(3)(c): (a) The learned CIT (Appeals)-V, Bangalore has erred in law in stating that, the income accumulated for the assessment year 2003-2004 amounting to Rs.1,95,43,427/- will be taxable in the subsequent assessment year 2009-2010 by overlooking the fact that, the said income was spent within five years from the assessment year 2003-2004.
5. The Appellant craves leave to add, amend or alter any of the forgoing grounds.
For these and any other grounds that may be urged before the Hon'ble ITAT, it is prayed that the Hon'ble ITAT may allow the appeal with cost.”
Ground No.1 in both the appeals relate to independent accumulation of income u/s. 11(2), besides accumulation of profit u/s. 11(1)(a) of the Act.
During the course of hearing of the appeals, it has been brought to our notice from the details of application of funds in both the assessment years with the submission that application of fund is already more than 85%, therefore the issue of accumulation of fund u/s. 11(2) becomes academic and does not require any adjudication, as the CIT(Appeals) has already allowed the accumulation of fund as per the provisions of section 11(1)(a) of the Act. Therefore, we do not find it necessary to give a specific finding on a issue, whether accumulation of fund is further permissible after allowing accumulation of fund u/s. 11(1)(a) of the Act.
Accordingly, this issue is disposed of for both the assessment years.
So far as ground No.2 in both the appeals is concerned, we find that the CIT(Appeals) has approved the action of the AO by holding that investment in fixed deposits cannot be the object of the assessee trust or for the purpose of the trust for which the trust was created. In this regard, the ld. counsel for the assessee has contended that for making fixed deposits may not be the object of the assessee trust, but for accumulating the fund for a particular purpose, certain investments in FDRs are required.
The ld. DR, on the other hand, has placed reliance upon the orders of CIT(Appeals).
Having heard the rival submissions and from a careful perusal of the orders of authorities below, we find that the mode of investment is given in sub-section (5) of section 11 for accumulating the fund. Investment or deposits of money can be made as per sub-section (5) of section 11 of the Act and clause (iii) says that for the purpose of sub-section (2), deposits can be made in any account of the Scheduled Bank or co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); meaning thereby, if the assessee makes investments or deposits in the scheduled bank and claims the deposits as accumulated for the purpose of section 11(1)(a) or 11(2), the investment or deposit cannot be disallowed only for the reason that application of money was not for the object of the society.
We accordingly do not find any merit in the disallowance and direct the AO to treat the deposits in the scheduled bank as part of accumulation of fund as no disallowance can be made.
The next ground relates to non-application of accumulation of fund within a specified period. In this regard, the CIT(Appeals) has categorically observed that the accumulated fund was not applied for the objects of the society and if not applied, it is to be liable to be taxed in the previous year immediately following the previous year in which it was derived where it could not be applied to the specified purposes and the CIT(Appeals) has given directions that the said amount will be taxable in A.Y. 2009-10 and not in the current year. The CIT(Appeals) has taken into account the , 486, 307 & 308/Bang/2013 Page 9 of 9 provisions of the Act and having noted that the accumulated fund was not applied for the specified purposes, he directed that this amount be taxed in the A.Y. 2009-10. Since we do not find any infirmity in the order of CIT(Appeals), we confirm the same.
In the result, the appeals of the Revenue are dismissed, and that of the assessee are partly allowed.
Pronounced in the open court on this 12th day of August, 2016.