COMMISSIONER OF INCOME TAX vs. DR T.M.A. PAI FOUNDATION

Revenue has filed this appeal raising purported substantial questions of law under Section 260-A of the Income Tax Act, 1961 arising from the order of learned Tribunal dated 21.03.2014 in ITA No.1140/Bang/2013 for the Assessment Year 2010-2011 - The Asst. CIT vs. Dr.T.M.A.Pai Foundation..

Date of Judgment 30-08-2018 I.T.A.No.346/2014 Commissioner of Income Tax & Another. Vs. Dr. T.M.A. Pai Foundation

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“Depreciation: 1.1 Whether on the facts and in the circumstances of the case, the Tribunal were justified in law in allowing assessee’s claim for depreciation on new assets put into use in during the accounting year relevant to this asst. year, even though the entire cost of these assets have been claimed by the assessee as an application of income fro charitable activities? 1.2. Whether on the facts and in the circumstances of the case, the Tribunal were right in law failing to take cognizance of the fact that allowing of total cost of the asset as an application of income and allowing of depreciation on the value of such assets in the same year results in double deduction and is not admissible in the absence of clear statutory indication? 1.3 Whether on the facts and in the circumstances of the case, the Tribunal were justified in law in not appreciating the fact that in the case of CIT vs. Institute of Banking – 264 ITR 110 (Bom) the decision is regarding

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allowing of depreciation on assets whose value was allowed in the preceding years as application of income , and not on allowing of depreciation in the same assessment year in which the cost was allowed as an application of income and therefore, is distinguishable? 1.4 Whether on the facts and in the circumstances of the case, the Tribunal were justified in law in not taking cognizance of the judgment of Hon’ble High Court of Delhi in the case of DIT (Exemption) vs. Charanjiv Charitable Trust in ITA No.321 to 323/2013 wherein it is held that Tribunal was not justified in directing the allowance of depreciation in respect of assets, the cost of which has been allowed as deduction as application of income of the Trust?

Carry forward of Deficit: 2.1 Whether on the facts and in the circumstances of the case, the Tribunal were justified in law in allowing carry forward of deficit of earlier years for set off against the income of current year, when there is no

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provision in the I.T.Act to allow carry forward of such deficit, and the number of years for which such carry forward of deficit for set off can be allowed? 2.2 Whether on the facts and in the circumstances of the case, the Tribunal were justified in law in placing reliance on the decision in the case of CIT vs. Institute of Banking – 264 ITR 110 (Bombay) for allowing carry forward and set off of deficit of earlier years, even though said decision was not pursued in further appeal in view of nil tax effect involved, and as per sec 268A the said decision is not binding in respect of this assessee? 2.3 Whether on the facts and in the circumstances of the case, the Tribunal were justified in law in failing to take cognizance of the decision of Hon’ble Apex Court in the case of Union of India vs. Dharmendra Textiles Processors (2008) 306 ITR 277 (SC) wherein the Apex Court held that the Hon’ble High Courts can only interpret the law and not legislate, and legislative casus omissus

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cannot be supplied by judicial interpretative process?”

“3. This Court in the case of ‘Commissioner of Income Tax-III, Pune v. Rajasthan & Gujarati Charitable Foundation Poona’ [2018] 89 taxmann.com 127 [SC] with regard to allowability and Depreciation in the hands of Religious and Charitable Trust held as under:

“5. Learned Counsel at the Bar submitted that so far as the issue regarding claim of Depreciation under Section 32 of the Act is concerned, the controversy is no longer res integra, having

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been settled by the Hon’ble Supreme Court in the case of ‘Commissioner of Income Tax-III, Pune v. Rajasthan & Gujarati Charitable Foundation Poona’ [2018] 89 taxmann.com 127 [SC], by which the Hon’ble Supreme Court has affirmed the view taken by the Bombay High Court in ‘Commissioner of Income Tax v. Institute of Banking Personnel Selection (IBPS)’ [2003] 131 Taxman 386 [Bom.]. The relevant portion of the said Judgment of Bombay High Court as quoted by the Hon’ble Supreme Court and affirmed is quoted below for ready reference.

“In the said judgment, [Bombay High Court] the contention of the Department predicated on double benefit was turned down in the following manner:

Date of Judgment 30-08-2018 I.T.A.No.346/2014 Commissioner of Income Tax & Another. Vs. Dr. T.M.A. Pai Foundation

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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, 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 at the rate of 2.5 per cent and they also claimed depreciation on furniture at the rate of 5 per cent. The question which arose before the court for

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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 properly 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,

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plant and machinery owned by the assessee and used for the 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

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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 aforestated Judgment of the Bombay High Court, we answer question No. 1 in the affirmative i.e., in favour of the

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assessee and against the department.”

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for interference. A similar view was also taken by the Division Bench of Bombay High Court in Commissioner of Income- tax v. Institute of Banking (2003) 264 ITR 110, wherein the Division Bench of Bombay High Court held that the 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.

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In view of the controversy covered by the above decisions of this Court, we are of the opinion that the substantial question of law as suggested by the appellants does not now arise for our further consideration in the present appeal.”

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Sd/- JUDGE

Sd/- JUDGE

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