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Income Tax Appellate Tribunal, DELHI BENCH ‘B ’, NEW DELHI
Before: SHRI N. K. SAINI & SHRI KULDIP SINGH
The appellant, ITO (E), Trust Ward III, New Delhi by filing the present appeal under I. T. Act, 1961 (hereinafter referred to as ‘the Act’) sought to set aside the order dated 24.03.2010 passed by Ld. CIT(A) XXI, New Delhi qua the Assessment Year 2006-07 on the grounds inter alia that:- “1. On the facts & in the circumstances of the case, the Ld.CIT (A) has erred in holding that the Assessee is entitled to depreciation on assets when, in the first place, the Assessee has already claimed, as application of income, the complete amount spent on purchase of the said assets and, hence, technically claimed 100% deduction in the initial stages itself. By allowing the claim of depreciation the Ld. CIT(A) has, in effect, granted double benefit to the Assessee and hence the decision is erroneous and contrary to the decision of Hon'ble Supreme Court in the case of Escorts Ltd. Vs. Union of India (1993) 199 ITR 43.
2. On the facts & in the circumstances of the case, the Ld. CIT(A) has erred in holding that income on sale of capital assets has to be taken at net value instead of gross value amount at Rs.84,0001- as full value of cost of capital assets already stood allowed to the Assessee as application on income.
3. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in holding that no addition could be made u/s 68 of the Act in respect of corpus donations amounting to Rs. 25,32,000/- despite failure of the Assessee to discharge the onus cast regarding proving the genuineness of the said donations.
On the facts and in the circumstances of the case the Ld. CIT(A) has erred in holding that corpus donations at Rs. 25,32,000/- were already taken as income by the Assessee ignoring the fact that the same were not considered as revenue receipts but as capital receipts by the Assessee and hence not accounted for in the Income & Expenditure Account for A. Y. 06-07.”
Briefly stated, the facts of this case are: during the processing of return of income filed by the assessee qua the Assessment Year 2006-07, the case was subjected to scrutiny and notices along with questionnaire u/s 143(2) and 142(1) were served upon the assessee who put appearance through Shri Sunil Gupta, CA who has attended the proceedings, filed details and discussed the case.
The assessee is a trust registered u/s 12A (a) of the Act w.e.f. 27.02.1996 to avail exemption u/s 80G valid up to 31.03.2005. The trust is running a school in the name and style of Delhi Public School at Ahmedabad for providing education, research, relief to poor, medical relief and advancement of any other objects of general public utility, also to open, run and continuous schools for the education of children to promote human welfare and to support institution such as orphanage, old age home etc. The assessee claimed depreciation to the extent of Rs.2,07,88,207/- and claimed utilization of funds,for purchase of fixed assets to the extent of Rs.10,58,55,279/- which would amount to double deduction while computing exemption u/s 11 of the Act whereas, on the same assets, the assessee was granted application of capital expenditure on this account and the assessee has further claimed application of depreciation amounting to Rs.2,07,88,207/- which is not allowable. The assessee in response to the query raised by the A.O., stated that the assessee has charged an amount of Rs.2,18,48,560/- in the books of account as depreciation and while making computation of income for the income tax purposes, the same has been added back and an amount of Rs.2,07,88,027/- has been claimed as per the Act, and further the amount of Rs.15,76,86,796/- is not the amount of utilization of funds towards purchase of assets, rather it is the amount of fixed asset as on 31.03.2006 as can be seen from a cursory look at the balance sheet of the assessee only. The assessee has also claimed an amount of Rs.10,47,82,193/- as utilization of its funds on account of purchase of fixed assets. The A.O. after examining the submissions made by the assessee in the light of law laid down by Hon'ble Supreme Court and Hon'ble High Court, disallowed the depreciation of Rs.2,07,88,027/- claimed by the assessee. 4. The assessee during the year under assessment had income from sale of asset and has offered an income of Rs.13,605/-. The claim of the assessee on account of capital expenditure was being allowed and as such the entire sale proceeds be taken as income of the assessee since the sale proceeds of the assets was Rs.84,000/- against which a profit of Rs.13,605/- has been earned the amount of Rs.70,395/- (Rs.84,000/- – Rs.13,605/- = Rs.70,395/-) is added to the income of the assessee.
The assessee being in receipt of corpus donation of Rs.25,32,000/- during the year under consideration has filed confirmation letter in respect of corpus donors with their addresses. In order to verify the genuineness and creditworthiness of the corpus donations, notices were issued to 20 persons / parties duly described in the order of the A.O. and in all the cases, no reply has been received till date and thereafter, assessee was asked to prove the genuineness and creditworthiness of corpus donors but he has not brought out any evidence to support this fact till date and as such an amount of Rs.25,32,000/- amounted to undisclosed income and consequently made the addition.
The assessee challenged the assessment order before Ld. CIT(A) by way of appeal which has been allowed vide impugned order dated 24.03.2010. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
The Ld. D.R. challenging the appellate order, contended that this is a case of double deduction claimed by the assessee and relied upon the order passed by A.O.
On the other hand, Ld. A.R. repelled the argument addressed by Ld. D.R. and relied upon the order passed by Ld. CIT(A) by contending inter alia that the assessee’s case is duly covered by the judgement delivered by Hon'ble Jurisdictional High Court cited as Director of Income Tax Vs Vishwa Jagriti Mission, 73 DTR (Del.) 195 and the judgement delivered by Hon'ble Punjab & Haryana High Court entitled as ACIT Vs Tiny Tots Education Society in I.T.A.No. 3182/Del/2008 and prayed for dismissal of the appeal.
Grounds No.1 & 2: Grounds No.1 and 2 are interlinked and more so, ground No.2 is an extension of ground No.1. To decide the controversy at hand, the first question arises for determination in this case is as to whether Ld. CIT(A) has erred in holding the assessee entitled for depreciation on assets when in the first case, the assessee has already claimed as application of income or that the complete amount spent on purchase of the said assets and as such correctly claimed 100% deduction in the initial stage itself and by doing o, Ld. CIT(A) has in fact granted double benefit to the assessee.
Undisputedly, the assessee is a trust registered u/s 12A of the Act and has been granted exemption u/s80G of the Act meaning thereby appellant’s income is exempted under the provisions of Section 11 of the Act. The assessee had purchased some fixed assets in the earlier year and claimed it to be exempted u/s 11 as application of income for charitable purposes on the ground that the same was used for charitable purposes. During the year under assessment, the assessee has claimed an amount of Rs.2,07,88,207/- as depreciation.
Ld. CIT(A) allowed the depreciation by returning the following observations: “The appellant had purchased certain fixed assets in earlier years & since the same were used for charitable purposes, it claimed the same to be exempt u/s 11 as application of income for charitable purposes. The assessee had also been charging I the depreciation on the same fixed assets in its books of accounts. During the year the assessee has claimed an amount of Rs.2,07,88,207/- as depreciation at the rates applicable as per Income Tax Rules. The AO seems to have got confused between the two things, the income chargeable to tax, and the conditions, fulfillment of which make the said income exempt from tax. The AO has failed to appreciate the difference between the income chargeable to tax, and the application of income which is a condition for the purposes of exemption under section \ 11. Application of income is not computation of income and the provision of application of income would come into play only after the income chargeable to tax is determined. Therefore, the question whether depreciation is to be allowed or not has nothing to do with the application of income. The total amount of income has to be computed in the manner laid down under the Act. Income has to be understood in the general sense and depreciation is one of the deductions recognized under law & there is no reason for not allowing the same to the appellant. The case of Escorts Ltd Vs. Union of India, relied upon by the AO, is in respect of section 35(2)(iv), which specifically disallows the deduction u/s.32, whereas, there is no such explicit provision in respect of exemption claims u/s. 11 and 12.”
11.1 On the other hand, the A.O. decided the matter by relying upon the judgement of Hon'ble Supreme Court cited as Escorts Limited Vs Union of India 199 ITR 43.
12. However, Ld. CIT(A) relied upon the judgement cited as ACIT Vs Tiny Tots Education Society (supra) wherein, identical issue has arisen before Hon'ble Punjab & Haryana High Court and the Hon'ble High Court has held as under:- “Charitable purposes- Application of income to charitable objects- Depreciation- Assessee claiming depreciation be reduced from income for determining percentage of funds to be applied for purposes of trust – permissible – not a case of double benefit – I. T. Act, 1961 Section 11. The assessee was a charitable institution registered u/s 12AA of the I. T. Act, 1961. In its accounts, the assessee calculated depreciation for the purpose of showing the amount utilized. The A.O. disallowed the depreciation on the ground that the income of the assessee being exempt, claim for depreciation would amount to taking of double benefit. The CIT(A) held that deduction for computing income to preserve the corpus of the trust was permissible and did not amount to double benefit. This view was upheld by the Tribunal observing that application of income was not computation of income of the charitable institution. Therefore, the question whether depreciation was to be allowed or not had nothing to do with the application of income. The income was always to be computed on commercial principles and as per the system of accounting followed by the assessee, subject always to the statutory provisions. On appeal: Held, dismissing the appeal, that the assessee was not claiming double deduction on account of depreciation. The income of the assessee being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust. It could not be held that double benefit was given in allowing the claim for depreciation for computing income for purposes of section 11.”
13. Identical issue came up before the Hon'ble Jurisdictional High Court in the case cited as Director of Income Tax Vs Vshwa Jagariti Mission 73 DTR (Del.) 195 where, the Hon'ble High Court vide order dated 29th March 2012 has held as under:
“11. The revenue is in appeal against the aforesaid order of the Tribunal. We are not inclined to admit the appeal and frame any substantial question of law since none arises from the order of the Tribunal. There is no dispute that the assessee has been granted registration under Section 12AA vide order dated 11th September, 2009 and, therefore, it was entitled to exemption of its income under Section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so whether depreciation on fixed assets utilized for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(Appeals) as well as the Tribunal. In CIT vs. The Society of the Sisters of St. Anme (Supra), an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under Section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the "total income" as defined in Section 2(45) of the Act and that the word "income" is a wider term than the expression "profits and gains of business or profession". Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The circular No.5-P (LXX-6) of 1968, dated July 19, 1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under:- "Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word 'income' should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s 11 (3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent. of the latter, if the trust is to get the full benefit of the exemption u/s. 11(1)."
A similar view was earlier expressed by the Andhra Pradesh High Court in Commissioner of Income-tax. v. Nizam's Suppl. Religious Endowment Trust (1981) 127 ITR 378 and by the Madras High Court in Commissioner of Income-Tax vs Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485. The Madhya Pradesh High Court in CIT vs. Raipur Pallottine Society (supra) has held, following the judgment of the Karnataka High court cited above, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes.
The judgment of the Supreme Court in Escorts Limited vs. Union of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust / institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-O of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in respect of the cost of the asset under Section 35(1), can the assessee again claim deduction on account of depreciation in respect of the same asset. The Supreme Court ruled that, under general principles of taxation, double deduction in regard to the same business outgoing is not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT(Appeals).
Having regard to the consensus of judicial opinion on the precise question that has arisen in the present appeal, we are not inclined to admit the appeal and frame any substantial question of law. There does not appear to be any contrary view plausible on the question raised before us and at any rate no judgment taking a contrary view has been brought to our notice. In the circumstances, we decline to admit the present appeal and dismiss the same with no order as to costs."
14. Even otherwise, as per the amended provisions contained u/s 10(23C) it is specifically provided that income required to be applied for application in the case of a charitable trust / institution, shall be determined without any deduction of allowance by way of depreciation in respect of assets and cost of which has been claimed as an application of income in the same year or in the earlier year. By applying the law laid down b y Hon'ble High Court discussed in the preceding paragraphs as well as amended provisions of Section 10(23C) and Section 11 of the Act, Ld. CIT(A) has rightly determined the issue in favour of the assessee by holding that application of income is not computation of income and the provisions of application of income would come into play after only the income chargeable to tax is determined and the income has to be in its general sense and depreciation is one of the deductions availed under law and there is no reason for disallowing of the same. Even otherwise, the judgement cited as Escorts Ltd. Vs UOI (supra) is qua Section 35(2)(iv) as relied upon the A.O. during assessment proceedings, which specifically disallow the deduction u/s 32 whereas there is no such provision in respect of exemption claimed u/s 11 and 12 of the Act, hence, not applicable to the facts and circumstances of the case.
Similarly, during the period under assessment, the assessee had offered an income of Rs.13,605/- as profit on the sale of asset and the A.O. has taken the entire sale proceeds as income to be assessed on the ground that the claim of assessee has already been allowed on account of capital expenditure, thus made an addition of Rs.70,395/- i.e. (Rs.84,000 – Rs.13,605 = Rs.70,395/-), which is the profit on the sale of asset.
Keeping in view the fact that the income of the appellant is exempt u/s 11 of the Act and when certain assets purchased by the assessee was claimed to be the part of application of income for charitable purposes, and the same has been sold, the income thereof has been disclosed, the addition cannot be made for the reason that the application of income is not computation of income and the provisions of calculating the income applied for charitable purpose is attracted only after the income eligible for exemption is determined. Since the entire amount of Rs.70,395/- used for purchasing fixed assets, is application of income for charitable purpose, the income earned on the sale of such assets is part of income even for taxation purposes. So, Ld. CIT(A) has rightly deleted the addition of Rs.70,395/-. Consequently, grounds No.1 & 2 are determined against the appellant.
Grounds No.3 & 4: Both the grounds are interlinked and the question arises for determination qua the aforesaid grounds is, “as to whether Ld. CIT(A) has erred in holding that no addition can be made u/s 68 of the Act in respect of corpus donation amounting to Rs.25,32,000/- despite failure of assessee to discharge the onus of proving the genuineness of the said donation.
The aforesaid issue is to be determined in the light of settled principle of law that in case any amount is credited in the account of the assessee, the onus is on the assessee to prove the source, genuineness and creditworthiness of the same u/s 68 of the Act.
Undisputedly, the assessee received corpus donation of Rs.25,32,000/- during the Assessment Year under consideration and filed the confirmation letter in respect of corpus donors with their addresses. The A.O. in his order dated 30.12.2008, categorically recorded that despite issuance of notice u/s 133(6) of the Act to 20 donors claimed by the assessee, no reply / confirmation has been filed by them. The assessee failed to prove the genuineness and creditworthiness of the corpus donation despite specific directions and as such, the amount of Rs.25,32,000/- has been treated as concealed income.
Ld. A.R. contended that since during the assessment proceedings, assessee has filed complete evidence lying at pages 50-145 in the paper book, the onus stands shifted to the A.O. to verify the genuineness and creditworthiness of corpus donors and relied upon the judgement cited as CIT Vs Orissa Corporation Ltd. 159 ITR 78 (S.C.). The Hon'ble Supreme Court in the judgement supra has held as under: “Held, that in this case, the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income tax assessees. Their index numbers were in the file of the revenue. The revenue apart from issuing notices under section 131 at the instance of the respondent did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on same evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to states a case.”
The issue in controversy in the present appeal is duly covered under the judgement supra because when the assessee has provided the complete details of corpus donors lying in the paper book at pages 50-145 in the form of individual confirmations from such donors, their names and addresses as well as PAN, it was for the A.O. to confirm the same. Merely issuance of notices by the A.O. to the corpus donors u/s 133(6) of the Act is not enough to discharge the onus. The A.O. has not even disputed the existence, genuineness and creditworthiness of the said donors nor he has disputed the individual confirmations filed by them. It appears that the A.O. has not made any effort whatsoever to verify the genuineness of the corpus donors as per letters filed by the assessee and arbitrarily proceeded to add the corpus donation amount of Rs.25,32,000/- to the income of the assessee.
Even otherwise, the total expenditure shown to have been incurred by the assessee during the year under assessment, Rs.18,22,54,692/- (Rs.8,49,27,033/- as expenses +Rs.9,73,27,659/- towards fixed assets as per P & L account) and under these circumstances, if the amount received towards corpus donation of Rs.25,32,000/- is added, the total income of the assessee comes to Rs.11,13,87,279/- (Rs.10,88,55,279/- + Rs.25,32,000/-). So, consequently, the amount spent by the assessee towards charitable cause, during the year under consideration, is more than the income earned if the allegation of the A.O. is taken as correct. So, under these circumstances, no addition can be made u/s 11(1A) of the Act. Even otherwise, when the amount of Rs.25,32,000/- has been added in the income again, making addition u/s 68 of the Act would amount to double addition/taxation. When the corpus donations received by the assessee is specifically exempted u/s 11(1D) of the Act, Ld. CIT(A) has rightly deleted the addition. Consequently, grounds No.3 & 4 are determined against the appellant. 23. In view of the findings returned in the preceding paragraphs; we find no ground to interfere in the impugned order passed by Ld. CIT(A), hence the appeal of Revenue is hereby dismissed. Order pronounced in the open court on 04th Nov., 2015. 24.