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Income Tax Appellate Tribunal, BANGALORE BENCH “ C ”
Before: SHRI VIJAY PAL RAO & SHRI JASON P. BOAZ
Appellant By : Shri L. Bharath, C.A. Respondent By : Dr. Shankar Prasad K, JCIT (D.R) Date of Hearing : 29.6.2015. Date of Pronouncement : 17.07.2015. O R D E R Per Shri Jason P. Boaz, A.M. : These appeals by the assessee are directed against the common order of the Commissioner of Income Tax (Appeals), LTU, Bangalore dt.27.10.2014 for Assessment Years 2009-10 and 2010-11.
The facts of the case, briefly are as under :- 2.1 The assessee is a public charitable trust registered under Section 12A of the Income Tax Act, 1961 (in short 'the Act') vide order dt.12.5.1988 is engaged in activities of providing medical services to the public. For Assessment Year 2 & 334/Bang/2015 2009-10, the assessee filed its return of income on 30.9.2009 declaring NIL income. In this period the assessee reported gross receipts of Rs.25.76 Crores and expenditure incurred of Rs.27.92 Crores. For Assessment Year 2010-11, the assessee filed its return of income on 29.9.2010 declaring NIL income. In this period the assessee reported gross receipts ofRs.32.42 Crores and expenditure of Rs.36.27 Crores. In both these Assessment Years 2009-10 and 2010-11, the assessee's case was taken up for scrutiny and the assessments were completed under Section 143(3) of the Act vide orders dt.10.12.2011 and 4.12.2012 wherein the assessee’s income was determined at NIL. In these two orders of assessment, for Assessment Years 2009-10 & 2010-11 the Assessing Officer did not allow the assessee’s claims for depreciation of Rs.2,15,91,269 and Rs.2,27,83,295 respectively on assets put to use and restricted the set off of expenditure to Rs.25.76 Crores and Rs.33.99 Crores. 2.2 Aggrieved by the orders of assessment for Assessment Years 2009-10 and 2010-11, the assessee preferred appeals before the CIT (Appeals) – LTU, Bangalore. The learned CIT (Appeals) dismissed the assessee's appeals vide a combined order dt.27.10.2014.
Aggrieved by the orders of the CIT (Appeals), LTU, Bangalore dt.27.10.2014 for both Assessment Years 2009-10 & 2010-11, the assessee preferred these
3 & 334/Bang/2015 appeals raising identical grounds (only the amount of depreciation being different). We therefore extract the grounds raised for Assessment Year 2009-10 :- “1. The order of the LAO and LAA is bad in law.
2. The LAO and LAA erred in not permitting the set off of depreciation claimed on the assets put to use for achieving the objectives of the trust against the gross receipts as permitted under Section 11 of the Income Tax Act, 1961. a. The LAO and LAA erred in denying the deduction of depreciation to the extent of Rs.2,15,91,269. b. The LAA has rejected the contentions of the appellant by incorrectly appreciating the principles emerging from the following rulings relied on by the appellant in support of its contentions : • Karnataka High Court in CIT V Society of the Sisters of St. Anne (146 ITR 28). • Bombay High Court in CIT V Munisuvrat Jain (1994) Tax LR 1084. • Delhi Court in DIT V Raghuvanshi Charitable Trust (197 Taxman 170); • Hon'ble Bangalore ITAT in the case of Sri Adichunchanagiri Shikshana Trust V ACIT (19 ITR (Trib) 828) and Dy. DIT V. Cutchi Memon Union (38 Taxmann.com 276).”
4. Grounds No.1 and 2(a) and (b) – Depreciation 4.1 In the course of assessment proceedings, for both Assessment Years 2009- 10 and 2010-11, the Assessing Officer noticed from the details of depreciation claimed, that the depreciation was claimed on assets, the cost of acquisition of which had been claimed by the assessee as capital expenditure towards application of funds for achievement of the objects of the trust. The Assessing Officer disallowed the assessee's claim for depreciation of Rs.2,15,91,269 for Assessment Year 2009-10 and Rs.2,27,83,295 for Assessment Year 2010-11 on the ground that allowing depreciation of a depreciable asset when the cost of acquisition of the 4 & 334/Bang/2015 asset was allowed as application of income for charitable purposes would amount to double deduction and therefore disallowed the assessee's claims for depreciation. 4.2.1 On appeal, the assessee pointed out that the Hon'ble Karnataka High Court in the case of Society of Sisters of St. Ann, 146 ITR 28 (Kar) has taken the view that where capital expenditure on acquisition of depreciable assets is considered as application of income for charitable purposes, allowing depreciation on the very same capital asset would not amount to double disallowance. It was also submitted that, inter alia, this decision of the Hon'ble Karnataka High Court had been followed by the co-ordinate bench of the ITAT, Bangalore in the case of Adichunchanagiri Shikshara Trust, 19 ITR (Trib) 828 and DDIT V Cutchi Menon Union 38Taxmann.com 276. 4.2.2 The learned CIT (Appeals) was of the view that the judicial pronouncements relied on by the assessee (supra) are not applicable to the case on hand and would not come to the assessee's rescue. She was of the view that on the facts of the case on hand, the decision of the Hon'ble Apex Court in the case of Escorts Limited & Another V UOI (199 ITR 43) is squarely applicable and provides the guidance for understanding the issue on hand, and wherein it has been categorically held that when deduction under Section 35(2)(iv) of the Act is 5 & 334/Bang/2015 allowed in respect of capital expenditure on scientific research, no depreciation is allowable under Section 32 of the Act on the same asset. 4.2.3 The learned CIT (Appeals) referred to the decision of the Hon'ble Kerala High Court in the case of DDIT (E) V Lissie Medical Institutions 348 ITR 344 (Ker), wherein it was held that allowing depreciation on a depreciable asset, when the cost of acquisition of the depreciable asset was allowed as application of income for charitable purpose amounts to double deduction in respect of the same asset and therefore depreciation cannot be allowed. 4.3 Before us, the learned Authorised Representative for the assessee reiterated the submission put forth before the learned CIT (Appeals) and also placed reliance on the very same judicial pronouncements (supra) in support of its claim that being allowed depreciation on capital assets put to use, in addition to the capital expenditure on acquisition of those very same depreciable assets being considered as application of income for charitable purposes, would not amount to double allowance/deduction. The learned Authorised Representative also submitted that the decision of the Hon'ble Apex Court in the case of Escorts Ltd. (supra) would not be applicable in the case on hand as it was rendered on a different set of facts.
6 & 334/Bang/2015 4.4 Per contra, the learned Departmental Representative supported the findings of the authorities below on this issue. 4.5.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited on both sides. An identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT (E) v. Cutchi Memon Union (2013) 60 SOT 260 (Bangalore ITAT), wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the Assessing Officer denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The Assessing Officer took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of assessee. On further appeal by the Revenue, the Tribunal held as follows:-
“20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income. It was so held by the Hon’ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for 7 & 334/Bang/2015 depreciation will not amount to double benefit. The decision of the Hon’ble Supreme Court in the case of Escorts Ltd. 199 ITR 43 (SC) have been referred to and distinguished by the Hon’ble Court in the aforesaid decisions.
The issue raised by the revenue in the ground of appeal
is thus no longer res integra and has been decided by the Hon’ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR
16. (P&H). The Hon’ble Punjab & Haryana High Court after considering several decisions on that issue and also the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra), came to the conclusion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon’ble Punjab & Haryana High Court made a reference to the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon’ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon’ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon’ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR
28. (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference.
22. Consequently, ground No.5 raised by the revenue is dismissed.”
4.5.2 We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of sub-section (6) to section 11 of the Act, which reads as under:-
“(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.”
4.5.3 The aforesaid amendment is prospective and will apply only from Assessment Year 2015-16. In view of the above legal position and respectfully
8 & 334/Bang/2015 following the decision of the Hon'ble Karnataka High Court in the case of CIT V Society of St. Anne 146 ITR 28 (Kar), of the Hon'ble Punjab & Haryana High Court in the case of CIT V Tiny Tots Education Society (2011) 330 ITR 21 (P &H), and CIT V Market Committee, Pipli (2011) 330 ITR 16 (P&H) and of the co-ordinate benches in the case of DDIT (E) V Cutchi Memon Union (supra) and City Hospital Charitable Trust (supra), we hold that where capital expenditure on acquisition of depreciable asset is considered as application of income for charitable purpose, allowing depreciation on the very same asset would not amount to double allowance / deduction. We, therefore, reverse the decision of the learned CIT (Appeals) and Assessing Officer on this issue and consequently allow the assessee's grounds raised at S.Nos.1 to 2(a) and (b) in respect of its claim for depreciation.
5. In the result, the assessee's appeals for Assessment Years 2009-10 and 2010-11 are allowed. Order pronounced in the open court on 17th July, 2015.