DDIT (E) I(1), MUMBAI vs. M.L. CHARITABLE TRUST, MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The Revenue is in appeal for Assessment year 2009-10 and assessee has preferred cross objection. For Assessment year 2008-09, the assessee as well as the Revenue is in cross appeal, against the impugned order dated 14/02/2013 of the Ld. First Appellate Authority, Mumbai.

. On the other hand, the ld. counsel for the assessee, Shri D.J. Shukla, defended the impugned order by contending that the issue in hand is covered by the decision from Hon'ble jurisdictional High Court in the case of assessee itself (ITA No.264 of 2013) dated 18/03/2013, CIT vs Institute of Banking 264 ITR 110 and the order of the Tribunal for Assessment year 2007-08 (ITA No.3209/Mum/2011) order dated 03/10/2012. This assertion of the assessee was not controverted by the ld. DR. 2.2. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant

4. M.L. Charitable Trust 3653 & 3893/Mum/2013 C.O. No.142/Mum/2014 portion of the order dated 03/10/2012 in the case of assessee itself for Assessment year 2007-08 (ITA No.3209/Mum/2012 and C.O. No.138/Mum/2011) for ready reference and analysis:-

“The present appeal and the cross objections are directed against the order dt.15.11.2010 passed by the CIT(A)-1, Mumbai. Following Grounds of Appeal have been raised by the Assessing officer (AO): 1)“On the facts and circumstances of the case and in law, the Id.CIT(A) erred in allowing the assesee’s claim of depreciation of Rs. 1,39,49,018/- without appreciating the fact that the said claim of depreciation amounts to claiming a double deduction, which in view of the ratio of the judgements in the cases of Escorts Ltd. vs. Union of India (1993) 199 ITR 43 and (1992)

65. Tax Man 320 (SC) in the case J. K. Synthetics Ltd. vs. Union of India cannot be allowed. 2)“The Appellant prays that the order of the ld.CIT (Appeals)-1, Mumbai be set aside and that of the Assessing Officer be restored.” 3)“The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 2.Following cross objections were filed by the assessee-trust : “1.The learned C.I.T(A) erred in not considering the Grounds of Appeal submitted by the Respondent that repayment of loans by the Respondent of Rs.1,55,09,525/. be allowed as application of income of the Respondent in accordance with provisions of Sec. 11 of the I.T.Act, 1961. 2.The Respondent prays that the Assessing Officer be directed to allow repayment of loans of Rs.1,55,09,525/- as application of income in accordance with provisions of Sec. 11 of I. T. Act. 3.The Respondent craves leave to add to, amend, alter or amplify the Grounds of Crossobjection.” 3.Assessee-trust filed its return of income on 31.11.2007 declaring total income at Rs.Nil. Assessment order was passed u/s.143(3) of the Income-tax Act, 1961(Act) on 21.12.2009 determining the total income at Rs. 1,02,34,564/-.During the assessment proceedings AO found that the assessee trust had 5. M.L. Charitable Trust 3653 & 3893/Mum/2013 C.O. No.142/Mum/2014 claimed an amount of Rs.1.39 Crores on account of depreciation on assets,cost of which had been claimed to be application within the meaning of section 11(1)(a) of the Act for the purposes of availing exemption u/s.11 of the Act. 4.AO held that the claim of depreciation as application of income u/s.11(1)(a) against the income of the current AY amounted to claiming double deduction,that capital expenditure incurred on these assets had already been allowed as application of income,that the judgment of Institute of Banking Personnel Selection (2003) 264 ITR 110 had not been accepted on merits by the department. Relying upon the orders of the Escorts Ltd. (199 ITR 43) and J. K. Synthetics Ltd. (65Taxmann 320) he disallowed the claim of the assessee on account of depreciation amounting to Rs.1.39 crores.

5. The assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submissions of the assessee trust and the assessment order he held that the facts of the case of the Escorts Ltd. (supra) were different, that decision of the Hon’ble Jurisdictional High Court in the case of Institute of Banking Personnel Selection (supra) was squarely applicable in the case under consideration, that depreciation was allowable expenditure in the case of the appellant trust.He allowed the appeal filed by the assessee trust and deleted the addition made by the A.O.

6. Before us, DR (Departmental Representative) relied upon the order of the A.O. and submitted that the issue was decided by the Hon’ble High Court of Bombay in favour of the assessee in the case of Institute of Banking Personnel Selection (supra). He further relied upon the order of the Hon’ble High Court of Punjab and Haryana in the case of Marketing Committee, Pipli, (330 ITR 16). 6.1.We have heard the rival submissions and perused the matter before us.We find that the issue of allowability of depreciation;on capital asset from the income of the charitable trust for determining the quantum of funds which have been applied for the purpose of trust in terms of section 11; has been decided in favour of the assessee by the order of the Hon’ble High Courts of Bombay and Punjab and Haryana.The Hon’ble Bombay High Court has held, in the case of Institute of Banking Personnel Selection(supra), as under :- “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, 1961. Income of a 6 M.L. Charitable Trust 3653 & 3893/Mum/2013 C.O. No.142/Mum/2014 charitable trust derived from building, plant and machinery and furniture is 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 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 the gross income of the trust. 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 had been made having regard to the benevolent provisions contained in section 11 of the Act and such adjustment will have to be excluded from the income of the trust under section 11(1)(a).”

In this appeal by tile revenue for assessment year 2007-08, following question of law has been raised for our consideration. 1) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in confirming the order of the learned CIT(A) to 7 M.L. Charitable Trust 3653 & 3893/Mum/2013 C.O. No.142/Mum/2014 decision of the this court in the case of CIT vs Institute of Banking Personnel Services reported in 264 ITR 110 and ignoring the ratio of Apex Court decision in the case of M/s. Escort Ltd. Vs Union of India reported in 299 ITR 43? 2) The Tribunal by impugned order has allowed the claim of the respondent assessee by following the decision in the case of CIT vs Institute of Banking Personnel Services reported in 264 ITR 110. The Revenue has not been able to point out any distinctions in this case which would warrant a taking of different view. In these circumstances, we see no reason to entertain the proposed question of law. 3) Accordingly, the appeal is dismissed with no order as to costs.

2.4. We find that the Tribunal on the issue of depreciation, whether it amounts to double deduction considered both the decisions i.e. the Institute of Banking from Hon'ble Bombay High Court and Escorts Ltd. from Hon'ble Apex Court and also the decision from Punjab & Haryana High Court in the case of Market Committee Pipli 330 ITR 16 (P & H) and following the aforementioned decision decided the issue against the Revenue. It is worth mentioning that the decision from Hon'ble Bombay High Court is a later decision considering another decision in DIT(E) vs Framjee Cawasjee Institute (1993) 109 CTR 463 and also another decision from Gujarat High Court in CIT vs Shri Plot Swetamber Muti Pujak Jain Mandal 211 ITR 293 and decided the issue in favour of the assessee. Respectfully following the aforesaid decision from Hon'ble jurisdictional High Court, we affirm the 8 M.L. Charitable Trust ITA Nos.3652, 3653 & 3893/Mum/2013 C.O. No.142/Mum/2014 stand of the Ld. Commissioner of Income Tax (Appeal). Thus, the appeal of the Revenue is dismissed. 3. Now, we shall take up the appeal of the assessee (ITA No.3893/Mum/2013) (Assessment year 2008-09), wherein, the first ground raised by the assessee pertains to rejecting the claim of the assessee by holding that repayment of loan during the year, amounting to Rs.45,32,980/- was application of income of the assessee in accordance with the provision of section 11 of the Income Tax Act, 1961 (hereinafter the Act). 3.1. During hearing, the crux of argument, on behalf of the assessee is that the ld. Assessing Officer has not discussed with this issue. This factual matrix was not controverted by ld. DR but contended that before this Tribunal for Assessment year 2007-08, this issue was not pressed by the assessee. In turn, the ld. counsel for the assessee placed reliance upon Circular No.100 (considered in 88 ITR (ST) 66). It was prayed that this issue may be remanded back to the file of the Assessing Officer. The ld. DR had no objection to the request of the assessee. 3.2. We have considered the rival submissions and perused the material available on record. It is noted that the ld. Assessing Officer in fact has not made any 9 M.L. Charitable Trust 3653 & 3893/Mum/2013 C.O. No.142/Mum/2014 discussion with respect to this ground in the assessment order. Considering the totality of facts and the submissions of the assessee, we are of the view, the mandate of the Constitution of India is to levy and collect due taxes, therefore, keeping in view, the principle of natural justice, we remand this issue to the file of the ld. Assessing Officer to examine the claim of the assessee afresh on merit and decide in accordance with law. The assessee be given opportunity of being heard with further liberty to furnish evidence, if any, to substantiate its claim, thus, this ground of the assessee is allowed for statistical purposes only.

4. The next ground raised by the assessee pertains to rejecting the claim of the assessee that the assessee be allowed deduction of 15% u/s 11(1)(a) of the Act amounting to Rs.97,99,529/- instead of Rs.89,97,335/- allowed by the Assessing Officer. The ld. counsel contended that deduction from the gross total income of the trust was not allowed by the Assessing Officer for which our attention was invited to the Assessing Officer. Reliance was placed upon the decision in CIT vs Program for Community Organization 248 ITR 1 (SC). The ld. DR defended the addition. 4.1. We have considered the rival submissions and perused the material available on record. The crux of the argument on behalf of the assessee is that the 10 M.L. Charitable Trust ITA Nos.3652, 3653 & 3893/Mum/2013 C.O. No.142/Mum/2014 Assessing Officer did not allowed deduction from the gross total income of the Trust without reducing the expenses. The Hon'ble Apex Court in its order dated 28/11/2000 in (248 ITR 1)(supra) held that on the plain language of section 11(1)(a) of the Act, the assessee was entitled to accumulate 25% of the donation, which can be accumulated (as applicable at the relevant time). While coming to this conclusion, the Hon'ble Apex Court affirmed the decision of Hon'ble Kerala High Court (1997) 228 ITR 620 (Kerala). The Assessing Officer is directed to examine the explanation/claim of the assessee (statement showing application of the income of the trust). The assessee is directed to produce the necessary evidence before the Assessing Officer. In the light of the above decisions, the ld. Assessing Officer is directed to examine the claim of the assessee and decide in accordance with law. Thus this ground of the assessee is also allowed for statistical purposes.

7. So far as, cross objection of the assessee with respect to repayment of loan by the respondent amounting to Rs.37,30,855/- to be allowed as application of income in accordance with provision of section 11 of the Act is concerned, it was prayed that the ld. Assessing Officer may be directed to allow repayment of loan of Rs.37,30,855/- as application of income. The ld. Assessing Officer is directed to examine the claim of the assessee afresh, as agreed from both sides, and decide in accordance with law. The assessee be given opportunity of being heard and to substantiate its claim, thus, the cross objection of the assessee is also allowed for statistical purposes.

12 M.L. Charitable Trust 3653 & 3893/Mum/2013 C.O. No.142/Mum/2014 Finally, the appeals are disposed off in terms indicated hereinabove. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 27/10/2016.