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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
This appeal is preferred by the assessee against the order of CIT (A) –XII, New Delhi dated 10.01.2011.
Assessee trust registered u/s 12(A) (a) vide order dated 11.1.1998 mainly for the objects and activities promotion of Fashion Design Industries. For AY 2007-08 it filed its return of income on 31.10.2007 disclosing nil income. In the computation of income assessee showed income from property held under trust amounting to Rs. 22,11,76,304/- and reduced therefrom amount spent during the previous year of Rs. 18,02,20,722/- leaving surplus of Rs. 4,09,55,582/-. For this amount assessee submitted declaration under explanation 2B of Section 11(1)(B) submitting that since the assessee has not been able to utilized 85% of its receipts towards its objects a resolution was submitted for accumulation of income. Subsequently form no. 10 was submitted for accumulation. The main purpose for which the amount is accumulated and set a part was for promotion of fashion industry in India. Ld. AO denied the benefit of accumulation of surplus for the following reasons a. Resolution dated 25/10/2007 was submitted on 21/12/2009 at the fag end of the assessment proceedings. AO also stated that certified copy of resolution is submitted and not the original resolution. Page 1 of 7
Fashion Design Council of India b. In the original resolution form no 10 was not attached. Therefore condition that form no 10 which was required to be submitted along with return of income was not complied with. c. Signatories of return of income as well as the resolution for accumulation of income are different trustees. d. AR of the assessee failed to produce the minute book of the trust. Further the depreciation of Rs. 6,38,652/- was also disallowed on the grounds that it amounts to double deduction because at the time of acquisition of the capital assets whole cost is claimed as application of income and once again depreciation is claimed.
Against this order assessee preferred an appeal before the CIT (A) who did not grant any relief to the assessee. The CIT (A) did not grant the benefit of accumulation because of the reason that assessee has failed to specify any definite or determinable purposes for the accumulation of income. According to CIT (A) accumulation in global manner is not envisaged u/s 11(2) of the Act. Therefore relying on the decision of Honorable Calcutta High court in DCIT (Exe) V Trustees of Singhanai Charitable Trust 199 ITR 819 dismissed the appeal of the assessee on this count. Regarding the disallowance of depreciation the CIT (A) relying on the decision of Hon’ble Supreme court in Escorts Ltd. vs. Union of India 199 ITR 43 holding that it is double deduction dismissed the appeal of the assessee. Aggrieved with the order of CIT (A) assessee is in appeal before us.
Before us ld. AR submitted that the object of the trust of the assessee are listed in the memorandum of association of the trust the objects of the trust are divided into main objects and ancillary objects. In form no. 10 the assessee has submitted the object for accumulation is to promote fashion design in India. She submitted that it is one of the specific object of the trust and therefore the finding of the CIT (A) that it is not specific object is not correct. She submitted that form no. 10 is submitted before the assessing officer and along with a copy of resolution passed at meeting held on 25th October, 2007. She further submitted that the infirmity or genuineness doubted by the AO are incorrect as the same are certified copy of the resolution therefore she said that assessee trust
Fashion Design Council of India should be granted the benefit of accumulation of its income. Regarding filing of the declaration in Form no 10 at the fag end of the assessment proceedings she relied on the decision of Hon’ble Gujarat High Court in case of Mayur Foundation 274 ITR 562 wherein it is held that if form no. 10 is submitted before the completion of the assessment proceedings the assessee should be given the benefit of accumulation. She also relied on the decision of Nagpur Hotel Owners association of Hon’ble Supreme Court reported in 247 ITR 201.
Ld. DR relied on the order of CIT (A) as well as the assessing officer. He further pressed that promotion of fashion industry is not specific object as the trust itself exists with the aim of promoting Indian fashion worldwide therefore he submitted that in absence of pacific object the benefit of accumulation cannot be given.
We have carefully considered the rival submission and also perused the relevant documents produced before us. The total income of the trust is 2,221,176304/- out of that the amount of Rs. 189,220722/- has been spent on the object of the trust leaving a surplus of 4,09,55,582/-. For accumulation of this income a declaration was submitted dated 30th October, 2007 along with a resolution dated 25th October, 2007. Vide letter dated 21st December, 2009 in response to notice u/s 143(2) of the Income Tax Act assessee submitted form no. 10 for accumulation of the income. In form no. 10 and in resolution the objects for which the accumulation was to be set a part were as under : “(1) to promote the fashion industry etc. (2) To take such other steps as the trustees consider as being in tune with the aforesaid objective of the trust.” We have perused the Memorandum of the Assessee association where in the objects of the trust are defined under the heading of main object and ancillary object. The main object of the trust includes provision of effective forum for representation on the interest of the fashion design industry for its professional advancement and growth and also to make representation before various government and semi government organizations. It has also its main object of promotion of fashion design industry in India as well as outside India by strategic planning and also of promotional campaigns , demonstration media coverage etc. The main objects of the association therefore covers many facets of Fashion Design Council of India the fashion design industry and it has as much as 12 main objects and 15 ancillary objects. The object of promotion of fashion industry is one of the main object of the trust at serial no 2 of the main objects. Therefore it cannot be said that in form no 10 as well as in resolution no specific object is mentioned by the assessee. Further reliance placed by CIT (A) on the decision of Hon Kolkata High court in DCIT (exemption) V Trustee of Singhania Charitable Trust 199 ITR 819 does not apply to the facts of the case of the reason that in that case the assessee trust it has mentioned all the objects of the trust in form no 10. This is not the case here, assessee has mentioned one of the main objects as purposes of accumulation. AO has stated that as form no 10 is not submitted with the return of income but at the fag end of the assessment proceedings, therefore the application of accumulation cannot be allowed. On this Honourable Gujarat high court in case of CIT V Mayur Foundation Mayur Foundation 274 ITR 562 has held that if form no 10 is submitted at any time before the assessment is completed same should be considered as valid compliance of law. Admittedly in this case assessee has submitted the form No 10 before the completion of assessment proceedings therefore no fault can be found with the assessee. Therefore we are of the view that the form no. 10 submitted by the assessee before completion of assessment proceedings and is having the specific objects therefore trust is entitled for the accumulation of income. Hence, ground no. 1 of the appeal is allowed.
Regarding second ground of appeal about the allowability of depreciation AO has disallowed the depreciation claimed by the assessee trust of Rs. 638652/- on the ground that once the assets are acquired assessee has claimed the deduction as application of income and further deprecation there on is also claimed. Therefore it amounts to double deduction. CIT (A) confirmed the disallowance applying the ratio of decision of Honourable Supreme court in case of Escorts Limited V Union of India 199 ITR 43.
08 Before us the ld AR submitted that this issues ins now covered on favor of the assesse because of the decision of Honourable Delhi high court in case of DCIT V Vishwa Jagriti Mission dated 29/3/2012.
09 Ld DR relied on the orders of AO and CIT (A). Page 4 of 7
Fashion Design Council of India 10 We have carefully perused the orders of lower authorities and arguments advanced. We are of the view that this issue is squarely covered in favour of the assessee by the decision of Honourable Jurisdictional High court in case of Director of Income tax V Vishwa Jagriti Mission 262 CTR 558 where in it is held that “12. A similar view was earlier expressed by the Andhra Pradesh High Court in CIT v. Trustees of H.E.H. Nizam's Suppl. Religious Endowment Trust [1981] 127 ITR 378 and by the Madras High Court in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485. The Madhya Pradesh High Court in 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 (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-D 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.”
Fashion Design Council of India Therefore respectfully following the decision of Honourable Delhi high court we allow the ground no 2 of the appeal directing AO to grant the assessee allowance of Depreciation of Rs 638652. Ground no 2 of the appeal of the assessee is allowed.
11 In the result appeal of the assessee is allowed. (Order pronounced in the Open Court on 30.10.2015)