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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 30TH DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.166 OF 2016
BETWEEN:
Commissioner of Income Tax (Exemptions),
C.R.Buildings, Queens Road, Bangalore.
Deputy Commissioner of Income Tax, Circle-1, Udupi.
…Appellants (By Mr.Sanmathi E I, Adv.)
AND:
Manipal Hotel & Restaurant Management College Trust Valley View International, Manipal-576104. PAN:AAATM2175J. …Respondent (By Mr.S.Parthasarathi, Adv.)
This Income Tax Appeal is filed under Section 260-A of Income Tax Act 1961, arising out of order dated 31.08.2015
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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passed in ITA No.640/Bang/2014, for the Assessment Year 2011-12, praying to decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon'ble Court as deemed fit, set aside the appellate order dated 31.08.2015 passed by the Income Tax Appellate Tribunal, 'A' Bench, Bengaluru, as sought for, in the respondent-assessee’s case, in appeal proceedings No. ITA No. 640/Bang/2014 for A.Y.2011-12 and grant such other relief as deemed fit, in the interest of justice.
This I.T.A. coming on for Admission, this day S.Sujatha J. delivered the following:-
JUDGMENT
Mr.Sanmathi E.I., Adv. for Appellants – Revenue. Mr.S.Parthasarathi, Adv. for Respondent – Assessee.
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 31.08.2015 in ITA No.640/BNG/2014 for the Assessment Year 2011-12 – The Deputy Commissioner of Income-tax vs. M/s. Manipal Hotel & Restaurant Management College Trust.
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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The suggested substantial questions of law in the memo of appeal of Revenue are quoted below for ready reference:- 1. Whether on the facts and in the circumstances of the case the Tribunal is right in law in allowing depreciation claimed by the assessee ignoring the fact that the entire cost of asset has been fully allowed as application of income under section 12A of I.T.Act?
Whether on the facts and in the circumstances of the case, the Tribunal is right in upholding the decision of the Commissioner of Income Tax (Appeals) allowing the assessee’s claim of carry forward of current year’s loss and set-off of excess deficit pertaining to earlier years without appreciating the fact that as per the scheme of taxation of charitable or religious trust / institution as codified under section 11, 12 and 13, there is no provision for computing loss from property held under
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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trust/institution on account of excess application of income/funds of the trust?
The learned counsel for Revenue submits that the controversy raised in the present appeal is covered by a decision of this Court in ITA No.231/2018 (D.D 14.08.2018), in the case of Pr. Commissioner of Income- Tax (Exemptions) and Another vs. M/s Green Wood High School. The relevant portion of the said order is extracted hereunder for ready reference:
“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
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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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:
As stated above, the first question which requires consideration by this court is :
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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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
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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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,
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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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
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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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
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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assessee and against the department.”
xxxxxxx…..
With regard to carrying forward of the losses for being set off against the income of the charitable trust for the present Assessment Year, the controversy is covered by the judgment in Commissioner of Income Tax (Exemptions) and another Vs. Ohio University Christ College rendered on 17.07.2018 in ITA.No.312/2016 and ITA No.313/2016, in which this Court held as under: xxxxxxx…..
In view of the aforesaid findings of the learned Tribunal, allowing any expenditure of the earlier year which has been brought forward and set off in the year under consideration, is a justified finding of fact based on the correct interpretation of law and the judgment relied upon by it rendered by the cognate Bench. Therefore, the same does not call
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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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.
xxxx….
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.”
Date of Judgment 30-08-2018 I.T.A.No.166/2016 Commissioner of Income Tax (Exemptions) & Anr. Vs. Manipal Hotel & Restaurant Management College Trust.
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In view of the aforesaid, we are of the opinion that no substantial question of law arises for our further consideration in the present case also.
The appeal filed by the Revenue is accordingly dismissed in terms of the aforesaid judgments of this Court. No costs.
Sd/- JUDGE
Sd/- JUDGE
dn/-