BABA HIRA SINGH BHATTAL INSTITUTE OF ENGINEERING & TECHNOLOGY,LEHRAGAGA vs. DCIT, (E), C-1, CHANDIGARH

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT

This is an appeal filed by the assessee against the

order of the Ld. CIT(A) Patiala dated 05.03.2019 pertaining

to assessment year 2015-16.

of appeal :

“1.That the order passed by the Commissioner of Income Tax (Appeals) is illegal, arbitrary, bad in law and against the facts of the case.

ITA 870/CHD/2019 A.Y. 2015-16 2 2. That the Commissioner of Income Tax (Appeals) erred on facts and law in upholding the addition (amounting to Rs 2,47,58,982/-) made by the Assessing Officer by invoking the provisions of section 11 & 12 in case of appellant being an educational institution approved u/s 10(23C)(vi) of the Income Tax Act, 1961. 3. That the Commissioner of Income Tax (Appeals) erred on facts and law in upholding the order of the Assessing Officer treating tied up grants received from the government as income of the appellant. 4. That the Commissioner of Income Tax (Appeals) erred on facts & in law in upholding the order of the Assessing Officer disallowing depreciation as application of income disregarding/ overlooking the fact that the appellant had not claimed cost of the fixed assets as application in the preceding years.

appellant/assessee is a Society registered under the

Societies Registration Act (XXI of I860). It has been

established by the Government of Punjab to impart

education both under degree and certificate level courses. It

is a charitable institution whose sole objective is to impart

education without any profit motive and it functions under

the control of Government of Punjab; that the appellant is

100 percent financed by the Government of Punjab in terms

of infrastructure, i.e., land and buildings, machinery and

equipment, furniture and fixtures, library books, vehicles

and other assets; that the return of income for the F.Y. 14-

ITA 870/CHD/2019 A.Y. 2015-16 3 15 was e-filed by the appellant on dt. 31.01.16 vide

acknowledgment no 941720210310116 declaring Nil

income. The said return was revised by the appellant vide

acknowledgement no. 949635070100216 on dt. 10-02-2016

declaring Nil Income and claiming a refund of

Rs. 13,45,871.00; that the appellant had claimed exemption

for the excess of receipts over expenditure u/s 10(23C)(vi),

though in the return filed by the appellant, the section

under which exemption had been claimed had inadvertently

been mentioned as section 10(23C)(iiiab). Exemption was

claimed by the appellant u/s 10(23C)(vi) on account of

approval by the Chief Commissioner of Income Tax,

Ludhiana granted vide order no.

CCIT/Ldh/JB/10(23C)/ll/2015-16/2729 dt. 18.09.2015.

The case of the appellant assessee was selected for scrutiny

through CASS. During the course of assessment

proceedings, notice u/ s 143(2), 142(1) along with detailed

questionnaires was issued, which were duly compiled with.

The Assessing Officer vide assessment order dated

21.12.17, made an addition of Rs 2,47,58,982/- in the

returned income and assessed the total income of the

appellant at Rs 2,47,58,982/-, alleging that the appellant

ITA 870/CHD/2019 A.Y. 2015-16 4 had failed to utilize 85 percent of the alleged receipts

towards the objects for which it has been incorporated. In

arriving at the said conclusion, the Assessing Officer

treated the amounts collected as per the instructions issued

by the Government of Punjab and the Punjab Technical

University from the students as income of the appellant.

The assessee-appellant filed appeal before the CIT(A),

contending that the Assessing Officer treated the above as

income of the appellant, ignoring the fact that the amounts

collected by the appellant from the students never vested

with it and that further, the Assessing Officer, in making

the above addition, also disallowed depreciation as

application of income ignoring the facts of the case.

3.1 The ld. Commissioner of Income Tax (Appeals)

accepted the fact that the excess of income over expenditure

belonged to the consolidated fund of the State of Punjab

(tied up grant in aid) & that this being so, it did not vest

with the appellant.

3.2 The grievance of the assessee by way of the present

appeal is that accepting, as above, the Commissioner

(Appeals) still goes on to uphold the order of the Assessing

ITA 870/CHD/2019 A.Y. 2015-16 5 Officer, who had treated the said excess as income of the

appellant and that further, the Commissioner of Income Tax

(Appeals) also wrongly upheld the disallowance of the claim

of depreciation towards application of income, disregarding/

overlooking the fact that the appellant had not claimed cost

of the fixed assets as application of income.

the order passed by the Commissioner of Income Tax

(Appeals) is illegal, arbitrary, bad in law and against the

facts of the case; that the Commissioner of Income Tax

(Appeals) erred on facts and law in upholding the addition

(amounting to Rs 2,47,58,982/-) made by the Assessing

Officer by invoking the provisions of section 11 & 12 in case of appellant being an educational institution approved u/s

10(23C)(vi) of the Income Tax Act, 1961; that the

Commissioner of Income Tax (Appeals) erred on facts and

law in upholding the order of the Assessing Officer treating

tied up grants received from the government as income of

the appellant; that the Commissioner of Income Tax

(Appeals) erred on facts & in law in upholding the order of

the Assessing Officer disallowing depreciation as application

of income disregarding/ overlooking the fact that the

ITA 870/CHD/2019 A.Y. 2015-16 6 appellant had not claimed cost of the fixed assets as

application in the preceding years.

reliance on the impugned order.

correct in upholding the addition of Rs.2,47,58,982/- made

by the Assessing Officer by invoking the provisions of

Sections 11 & 12 of the Income Tax Act.

that as per the provisions of Sections 11 & 12, all receipts

collected from the students, in whatever form, are to be

considered as income of the Trust/Society; that the funds

so collected should be specifically incurred for the purpose

for which it is collected and the same should be included in

the receipts as per the Income Tax Act; that if the assessee

treats expenditure on acquisition of assets as application of

income for charitable purposes u/s 11(1)(a) and if the

assessee claims depreciation on the value of such assets,

then, in order to reflect the true income to be available for

application for charitable purposes, the assessee should

write back in the accounts, the depreciation amount to form

ITA 870/CHD/2019 A.Y. 2015-16 7 part of the income to be accounted for application for

charitable purposes; that this has not been done by the

assessee and even the income which should be available for

application for charitable purposes gets reduced by the

depreciation amount, which is not permissible under the

Act; that in fact, the net effect is that after writing off the

full value of the capital expenditure on acquisition of assets

as application of income for charitable purposes, when the

assessee again claims the same amount in the form of

depreciation, such notional claim becomes cash surplus

available with the assessee i.e. statutorily required to be

applied for its aims and objects; that this is true even if the

assessee is assessed as an AOP, the assessee claims

depreciation on the assets whose cost was allowed in the

previous years; and that therefore, even if the assessee is

assessed as an AOP for a particular year, it cannot claim

the notional depreciation on the assets whose value has

already been shown as written off.

CIT(A) held, following the CIT(A)’s order for the earlier

years, that in those years, the ld. CIT(A) had upheld a part

of the assessee's submission, to the extent that the excess

ITA 870/CHD/2019 A.Y. 2015-16 8 of income over expenditure is in the nature of Grain-in-Aid

and it belongs to the consolidated fund of the State and

that the assessee cannot incur any expenditure without the

express approval of the State Government and the

University; that he was relying on the said decision of the

CIT(A), to that extent as judicial discipline. It was held that

the assessee Society collects Development Fund, Hostel

Fund, Student Activity Fund and other similar funds from

the students, as per the express Notification of the State

Government; that as per the Rules and the

Notifications/Circulars of the State Government, these

funds can be spent only on the specific approval of the

State Government and till such time, they are in the nature

of Grant-in-Aid, which would be in consonance with the

findings of the ld. CIT(A) in the earlier years; that the fact

that these payments are charged separately from the annual

fees is also a matter of record and not in dispute; that

however, the fact that the donations are voluntary, is not

established; that the CIT(A)’s order that in case the surplus

left under these funds belongs to the consolidated funds of

the State and can be spent for specified purposes as per the

approval of the State Government, relates to the utilization

ITA 870/CHD/2019 A.Y. 2015-16 9 of the funds and not to their treatment, either as receipts,

or as corpus donation; that to be Corpus Donation, the

receipt should, in the first instance, by a donation and

voluntary contribution; that in the instant case, the funds

are charged indiscriminately to all the students and are in

the nature of fees, notwithstanding their utilization being

controlled by the State Government; and that they are

required to form part of the Receipt and Expenditure

Account of the assessee.

was approved u/s 10(23C)(vi) and had claimed exemption

thereunder, has not been disputed by the authorities below,

that therefore, the ld. CIT(A) went wrong in upholding the

disallowance made by invoking the provisions of Sections 11

and 12 of the Act; that since the assessee Society is

approved u/s 10(23C)(vi) of the Act, no disallowance,

whatsoever could have been made by applying the

provisions of Sections 11 and 12 of the Act. In this regard

reliance has been placed on CBDT Circular No.14 of 2015,

dated 17.08.2015 (copy at pages 54-56 of the assessee's

case laws Paper Book Volume II). The ld. Counsel for the

assessee has also sought to place reliance on the decision of

ITA 870/CHD/2019 A.Y. 2015-16 10 the Hon'ble Allahabad High Court in the case of “CIT Vs

Jeevan Deep Charitable Trust”, 2012 (12) TMI 818 )copy at

ACL PB-II, pages 57-59) and the decision of the Hon'ble

Allahabad High Court in the case of “the Commissioner of

Income Tax Vs Sunbeam English School”, 2013 (7) TMI 812

(copy at ACL PB-II, pages 60-64).

written submissions dated 17.05.2023, has reiteration in

her arguments by the ld. DR, has contended, inter-alia, that

the comments of the concerned AO, i.e., the DCIT, Circle-I

(Exemptions) Chandigarh were called for; that in his

comments dated 10.05.2023 (reproduced at pages 3-4 of the

department’s written submissions), has submitted that the

AO was aware that the assessee had claimed exemption u/s

10(23C)(vi) of the Income Tax Act and the same was

mentioned in the third para of the assessment order passed

on 21.12.2017, but in para 7.0, at page 5 of the assessment

order, Section 11 & 12 was written inadvertently, which

may be treated as a typing mistake and such inadvertent

mentioning of Sections 11 & 12 should not be the basis for

deciding the substance and merits in the order, that that

this mistake may be considered u/s 292B of the Act. The

ITA 870/CHD/2019 A.Y. 2015-16 11 DCIT has also stated in his comments that after the

assessment, the CIT (Exemption) Chandigarh passed order

dated 20.03.2021 u/s 263 of the Income Tax Act, setting

aside the assessment order passed u/s 143(3) read with

Section 263 read with Section 144B of the Act, at an

assessed income of Rs.4,14,42,640/-. A copy of the said

comments dated 10.05.2023, of the DCIT, Circle-I

(Exemptions), Chandigarh have been enclosed with the

Department’s written submissions before us. Further,

copies of the aforesaid order dated 20.03.2021 passed u/s

263 of the Act by the CIT (Exemption), Chandigarh and a

copy of the aforesaid assessment order dated 20.03.2022,

passed u/s 143(3) read with Section 263 read with Section

144B of the Act, by the DCIT, Circle-I, Chandigarh, have

also been enclosed.

that in view of the above developments, i.e., after the

issuance of the order dated 20.03.2021 u/s 263 of the Act

and the consequential assessment order dated 30.03.2022,

u/s 143(3) read with Section 263 and Section 144B of the

Act, the original assessment order dated 21.12.2017, which

forms the genesis of the present dispute has now become

ITA 870/CHD/2019 A.Y. 2015-16 12 null and void and as such, the appeal of the assessee may

also be treated as null and void and be dismissed as such.

written submissions of the Department, the assessee has,

as also reiterated by the ld. Counsel for the assessee in his

arguments, submitted that the fact that the original

assessment in the case of the assessee had been made in

reference to the provisions of Sections 11 and 12 of the Act,

stands duly accepted by the Department even in its written

submissions; that this being so, the plea that in the original

assessment order, reference to Sections 11 and 12 was

written inadvertently, does not carry any merit; that also,

such plea of the Department of mention of Sections 11 and

12 having inadvertently been made in the assessment order

seems to be an afterthought, especially when the said plea

has been raised by the successor AO who had not himself

framed the original assessment. It has further been

contended that the Department’s reliance on the provisions

of Section 292B of the Act is also misplaced, as since the

assessment was proceeded with and framed as per the

provisions contained in Sections 11 and 12 in the case of

the assessee, who had claimed exemption u/s 10(23C)(vi),

ITA 870/CHD/2019 A.Y. 2015-16 13 the same does not tantamount to any mistake, defect or

omission so as to fall within the ambit of the provisions of

Section 292B of the Act. It has been submitted that

because fresh assessment has since been framed pursuant

to the revisional order passed by the CIT (Exemptions), the

original assessment has become null and void and as such,

the appeal of the assessee be dismissed. The submissions

are that;

(a) the assessee has filed the present appeal against

the CIT(A)’s order and not against that passed by the

AO, this plea of the Department carries no merit;

(b) The CIT (A) has not set aside the original

assessment order completely, but has set it aside

merely on the computation of taxable income, which is

clear from the contents of para 5 of the said revisional

order;

(c) Without prejudice, it is not correct to say that in

view of the fresh assessment framed, consequent to the

revisional order, the original assessment order has

become null and void, since that original assessment

order has been merged in the order of the ld. CIT(A),

ITA 870/CHD/2019 A.Y. 2015-16 14 which is under appeal at the hands of the assessee

before this Tribunal. Reliance in this regard has been

placed on the decision of the Hon'ble Supreme Court in

the case of “Kunhayammed & others Vs State of Kerala

& another” [2000] 245 ITR 360 (S.C). Reliance has also

been placed on the decision of the Hon'ble Bombay

High Court in the case of “CIT Vs Tejaji Farasram

Kharawa” [1953] 23 ITR 412 (Bom). Reliance has

further been placed on the decision of the Supreme

Court in the case of “CIT Vs Amrit Lal Bhogilal & Co”,

[1958] 34 ITR 130 (S.C.) Reliance has also been placed

on the decision of the Hon'ble Supreme Court in the

case of “Gojer Bros (P) Ltd. Vs Ratan Lal Singh” [1974]

AIR 1938 (copy placed at ACL PB-II, paged 43-53

alongwith copies of the aforesaid decisions).

receipts/surplus, i.e., grants received from the Government,

not being income of the assessee and, consequently, the

provisions in respect of application of income not being

attracted to such receipts/surplus was challenged by the

assessee before the ld. CIT(A); that similarly, the action of

the AO in disallowing depreciation as application of income

ITA 870/CHD/2019 A.Y. 2015-16 15 also stood challenged before the ld. CIT(A); that these

issues were duly considered by the ld. CIT(A); that on the

passing of the CIT’s order, which is presently under appeal,

the order passed by the AO cease to exist, has it got merged

in the order of the CIT(A) and it is only the order of the ld.

CIT(A) that remains operative and capable of being enforced

as on date; that it is this order of the ld. CIT(A) which is

under challenge by way of the present appeal; that also, the

CIT(A)’s order upholding the original assessment order is

dated 05.03.2019 and it was passed prior to the revisional

order passed by the CIT (E) on 20.03.2021; that if the

legally unsustainable request of the department to dismiss

the appeal of the assessee as void abi-nitio, since the

original assessment order has itself, as per the department,

been rendered void abi-nitio pursuant to the passing of the

fresh assessment order dated 30.03.2022, were to be

accepted, the settled principle of merger, as enunciated by

the Hon'ble Supreme Court in the decisions cited by the

assessee, amongst others, would stand infracted and

violated to the utter prejudice of the assessee. It has been,

in this manner requested that the appeal of the assessee be

decided on merit in accordance with law.

ITA 870/CHD/2019 A.Y. 2015-16 16 14. Having considered the rival contentions in this respect,

we are at one with the contentions raised on behalf of the

assessee. It is not at all in dispute and rather it is a matter

of record that the fact that the original assessment in this

case was proceeded consciously with reference to the

provisions of Sections 11 and 12 of the Act is at one

apparent from the original assessment order itself, wherein

in para 5, reference has been made to order sheet notings

dated 10.11.2017 and24.11.2017, whereby the assessee was

show caused for making addition of the funds collected by

the assessee, as income for the year. In para 7.0 onwards

of the assessment order, as has also been accepted by the

department itself in para 3 of its written submissions filed

before us and also the comments dated 10.05.2023, of the

DCIT (Exemptions), Circle-1, Chandigarh, assessment was

proceeded with in reference to the provisions of Sections 11

and 12 of the Act. It is only in the said comments of the

DCIT, Circle-1 (Exemption), Chandigarh that for the first

time, a case has been tried to be made out, that the

reference to Sections 11 and 12 of the Act was inadvertently

made in the assessment order, which may be treated as a

typing mistake. Such methodology, in our considered

ITA 870/CHD/2019 A.Y. 2015-16 17 opinion, is unheard of. Firstly, the flow of the assessment

order itself makes it amply clear and apparent that the AO

was fully aware and conscious of invocation of the

provisions of Sections 11 and 12 of the Act. This would be

evident from a perusal of the second sub para of para 7.0 of

the assessment order, where the AO states that “………..as

per the provisions of Section 11 and 12, all the receipts

collected from the students in whatever form are to be

considered as income of the Trust/Society. The funds so

collected should be included in the receipts as per Income

Tax Act. The assessee has failed to consider the

Development and Student Activity Fund so received in the

receipts of the year under consideration and claimed the

expenses for its activities which is not allowable. Therefore,

the amount received under these funds during the year is

added back to the income of the assessee and taxable

income is computed as under…………..” It has further been

observed that “………Thus an amount of Rs.2,56,40,102/-

should be added to the receipts of the assessee and then

application of income needs to be considered as discussed

in the last para………..”

ITA 870/CHD/2019 A.Y. 2015-16 18 14.1 From this last observation also, it is evident that the

AO was fully conscious of the invocation of the provisions of

Sections 11 and 12 of the Act while making the assessment.

14.2 Likewise, the issue of depreciation was also dealt

with accordingly.

14.3 Further, in case the AO, after passing of the order,

felt it so necessary, he would have invoked the provisions of

Section 154 in order to rectify, if he so felt it necessary to

do so.

order originally who could have taken remedial measures, if

so advised, and none else. Here, it is the DCIT, Circle-1

(Exemption), Chandigarh, who, in his comments dated

10.05.2023, has sought to raise the issue of the alleged

inadvertence in mention being made of Sections 11 and 12

in the original assessment order. It is not at all, under law,

the purview of the said officer to raise these issues, and

more particularly when the original assessment order has

been the subject matter of appeal before the ld. CIT(A), who,

vide order dated 05.03.2019, i.e., the order impugned in the

present appeal, has upheld the original assessment order.

ITA 870/CHD/2019 A.Y. 2015-16 19 16. By virtue of the passing of the CIT(A)’s aforesaid order

under appeal, the original assessment order got merged

therein. The law is very clear in this regard. It was way

back in 1958 that the Hon'ble Supreme Court in “CIT Vs

Amrit Lal Bhogilal & Co” (supra), held that if an appeal is

provided against an order passed by a Tribunal, the

decision of the appellate authority is the operative decision

in law; that if the appellate authority implies or reversed

the decision of the Tribunal, it is obvious that it is the

appellate decision that is effective and can be enforced; in

law, the position would be just the same even if the

appellate decision merely confirms the decision of the

Tribunal. As a result of the confirmation or affirmation of

the decision of the Tribunal by the appellate authority, the

original decision merges in the appellate decision and it is

the appellate decision alone which subsists and is operative

and capable of enforcement.

16.1 In keeping with “Amrit Lal Bhogilal” (supra), it is only

and only the order dated 05.03.2019 passed by the ld.

CIT(A), which rules the roost and which alone is operative,

and not the original assessment order, which stands merged

in the said order passed by the CIT(A).

ITA 870/CHD/2019 A.Y. 2015-16 20 16.2 Likewise, in the case of “Kunhayammed & others”

(supra), the Hon'ble Supreme Court has held, inter-alia that

where the appeal or revision is provided against the order

passed by a Court, Tribunal or any other authority before

the superior forum and, such superior forum modifies,

reverses or affirms the decision put in issue before it, the

decision by the Sub-ordinate Forum merges in the decision

by the superior forum and it is the latter which subsists,

remains operative and is capable of enforcement in the eye

of law; that the doctrine of merger is not a doctrine of

universal or unlimited application; that it will depend on

the nature of jurisdiction exercise by the superior forum

and the contents or subject matter of challenge laid or

capable of being laid would be determinative of the

applicability of merger. The superior jurisdiction should be

capable of reversing, modifying or affirming the order put in

issue before it.

16.3 In the present case, indubitably, the superior

jurisdiction of the ld. CIT(A) was capable of reversing,

modifying or affirming the original assessment order, which

was put in issue before the ld. CIT(A) and the ld. CIT(A), in

fact, has affirmed the original assessment order. Therefore,

ITA 870/CHD/2019 A.Y. 2015-16 21 the doctrine of merger is squarely applicable and the

assessment order originally passed stands fully merged in

the order passed by the ld. CIT(A).

16.4 Also, in ““Gojer Bros (P) Ltd.” (supra), the Hon'ble

Supreme Court has reiterated that there is no distinction in

terms of application of the doctrine of merger, an appellate

judgement simplister dismissing an appeal and an appellate

judgement modifying or reversing the decree of the lower

Court. In the present case as stated, the appellate order

passed by the ld. CIT(A) has confirmed the original

assessment order. Therefore, the assessment order stands

merged in the order of the ld. CIT(A).

Bombay High Court in “Tejaji Farasram Kharawa” (supra)

held that it is a well established principle of law that when

an appeal is provided from a decision of a Tribunal and the

Appeal Court after hearing the appeal passes an order, the

order of the original Court ceases to exist and is merged in

the order of the Appeal Court and although the Appeal

Court may merely confirm the order of the Trial Court, the

order that stands and is operative is not the order of the

ITA 870/CHD/2019 A.Y. 2015-16 22 Trial Court but the order of the Appeal Court. In the case

at hand, the Appeal Court, i.e. the ld. CIT(A) has

affirmed/confirmed the order of the Trial Court, i.e., the AO

and that too, by a speaking order. Therefore, it is the

CIT(A)’s order that the AO’s order stands merged.

cited by the Department before us, nor has it been pleaded

that the law laid down therein is either not a law of the land

or is not the law applicable to the facts of the present case.

Department’s contention that the original order dated

05.03.2017 is void abi-nitio and that accordingly, the

appeal of the assessee is also void abi-nitio and it be

dismissed as such. This argument of the Department is,

accordingly, rejected.

assessee was approved u/s 10(23C)(vi) and that it had

claimed exemption under the said provision. It was,

accordingly, due to an inadvertent error that the provision

was mentioned as Section 10(23C)(iiiab). The exemption

claimed u/s 10(23C)(vi) was pursuant to the approval

ITA 870/CHD/2019 A.Y. 2015-16 23 granted by the Chief Commissioner of Income

Tax, Ludhiana, granted vide order

No.CCIT/LDH/JB/10(23C)(11/2015-16/2729 dated

18.09.2015. This remains undisputed and it finds mention

in para 3 of the assessment order wherein the reply of the

assessee, to notices u/s 143(2) and 142(1) of the Act has

been reproduced, wherein, it has been specifically

mentioned that “…………But while filing the Income Tax

Return, the Section under which exemption was claimed as

inadvertently been written as “Section 10(23C)(iiiab) instead

of 10(23C)(vi)”.

since the assessee stands approved under the provisions of

Section 10(23C)(vi) of the Act, no disallowance could have

been made by applying the provisions of Section 11 and 12

of the Income Tax Act. In this regard, reliance has correctly

been placed on behalf of the assessee, on CBDT Circular

No.14 of 2015, dated 17.08.2015, which recognizes that

Section 10(23C)(vi) of the Act prescribes that income of any

University or other educational Institution, existing solely

for educational purposes and not for purposes of profit,

shall be exempt from tax if such entities are approved by

ITA 870/CHD/2019 A.Y. 2015-16 24 the prescribed authorities, which is the case of the assessee

also. Herein, the receipts/surplus, i.e., grants received

from the Government, is not the income of the assessee

and, consequently, the provisions in respect of application

of income are not attracted to such receipts or surplus.

21.1 Therefore, we find ourselves to be in agreement with

the assessee that the ld. CIT(A) went wrong in upholding the

addition of Rs.2,47,58,982/- made by the AO by invoking

the provisions of Sections 11 and 12 when the assessee is

an educational institution duly approved u/s 10(23C)(vi) of

the Income Tax Act. Accordingly, Ground No.2 is accepted

and the addition is deleted.

the assessment order treating tied up grants received by the

assessee from the Government as income of the assessee.

expenses incurred on its activities in the Income &

Expenditure Account, but the funds received in the

Development Funds, Student Activity Fund and Hostel Fund

are not shown as receipts/income; that the Development

and Student Activity Fund is collected from the students

ITA 870/CHD/2019 A.Y. 2015-16 25 and forms part of the fees; that the assessee has shown

annual repair and maintenance of hostel expenses etc.,

which are nothing but expenses on student activities,

development activities and hostel maintenance; that the

funds are the receipts of the assessee which are charged

from students as part of their fees every year, which should

have been ideally been used for the objects/purposes for

which they are taken from the students, that assessee is

accumulating these funds in its Balance Sheet to avoid

showing it in its Income & Expenditure Account and then

having to spend over; that further, it is peculiar that the

assessee is booking expenses on development, hostel and

student activity in its Income and Expenditure Account

without routing the receipts of these funds through its

Income and Expenditure Account.

order for the earlier years, that in those years, the ld.

CIT(A) has upheld part of the assessee's submissions to the

extent that the excess income over expenditure is of the

nature of grant-in-aid and belongs to the consolidated fund

of the State and the assessee cannot incur any expenditure

without the express approval of the State Government and

ITA 870/CHD/2019 A.Y. 2015-16 26 the University; and that in the interest of judicial discipline

and consistency, he was relying on the decision of his

predecessor to the said extent. The ld. CIT(A) observed that

the assessee Society collects Development Fund, Hostel

Fund, Student Activity Fund and other similar funds from

the students as per express Notifications of the State

Government, which is a matter of record and not in dispute.

He observed that as per the Rules and

Notifications/Circulars of the State Government, these

funds can be spent only on the specific approval of the

State Government and till such time, they are in the nature

of grant-in-aid and would be in consonance with the

findings of the ld. CIT(A) in the earlier years; that in such

order, the ld. CIT(A) has held that in case surplus is left

under these funds, it belongs to the consolidated fund of

the State and can be spent for specified purpose as per the

approval of the State Government. It was observed that this

finding relates to the utilization of the funds and not to

their treatment, either as receipts, or as corpus donation.

followed the decision of his predecessor for assessment year

2006-07 to 2012-13 and has accepted the fact that the

ITA 870/CHD/2019 A.Y. 2015-16 27 assessee's excess of income over expenditure was in the

nature of grant-in-aid and that the same belonged to the

Consolidated Fund of the State of Punjab; that it stands

accepted by the ld. CIT(A) that the assessee collects various

funds from its students as per the express Notification

issued by the Government; that the ld. CIT(A) further

accepts that till such time such funds are spent as per the

directions of the Government, the same are in the nature of

grant-in-aid. It has been contended that the fact that the

funds/surplus vests with the consolidated fund of the

Government of Punjab and that they were allowed to be

retained by the assessee as yearly grant also stands

approved by this Bench of the Tribunal in the case of the

assessee itself, in the preceding years. Attention in this

regard has been drawn to copy of order dated 21.10.2016,

passed by this Bench in the assessee's own case, in ITA

Nos.1110 to 1116/CHD/2014 for assessment years 2006-07

to 2012-13 (ACL PB -1, pages 1 and 2) and copy of order

dated 17.01.2018 passed by this Bench in the assessee's

own case in ITA Nos. 1391 to 1397/CHD/2017, for

assessment years 2006-07 to 2012-13 (ACL PB -1, pages 3-

5) and copy of order dated 21.10.2016 passed by this Bench

ITA 870/CHD/2019 A.Y. 2015-16 28 in the assessee's own case in ITA No.214/CHD/2020, for

assessment year 2013-14 (ACL PB-II, pages 72-78).

25.1 It has been contended that the ld. CIT(A) accepted

the fact that funds/surplus of receipts over expenditure

were in the nature of grants-in-aid in the hands of the

assessee, they could neither be considered as income of the

assessee under the Income Tax Act, nor for ascertaining the

amount to be expended or the amount to be accumulated

under the provisions thereof. Reliance has been placed on

the following case laws ;

i) Commissioner of Income Tax, Chandigarh Vs The

Punjab State e-governance Society” [2011] 4 TMI

1332 (P&H) (ACL PB-1, pages 6-9),

ii) Commissioner of Income Tax, Panchkula Vs M/s

State Urban Development Society [2011] 11

taxmann.com 458 (P&H) (ACL PB -1, pages 10-11),

and

iii) DIT Vs Society for Development Alternatives

[2012] 18 taxmann.com 364 (Del) (ACL PB-1,

pages 12-15)

ITA 870/CHD/2019 A.Y. 2015-16 29 26. The ld. DR, on the other hand, has placed strong

reliance on the impugned order, contending that the ld.

CIT(A) has rightly upheld the treatment of the grants

received by the assessee from the Government, as income of

the assessee; that as rightly held by the ld. CIT(A), to be

corpus donation, in the first instance, the receipt should be

a donation and voluntary contribution; that in the present

case, the funds are charged indiscriminately from all the

students and are in the nature of fees; their utilization

being controlled by the State Government notwithstanding;

and that they are required to form part of the Receipt &

Expenditure Account of the assessee.

receipts over expenditure were in the nature of grant-in-aid,

which facts stand expressly accepted by the ld. CIT(A)

himself. As such, this grant-in-aid cannot be considered as

income of the assessee under the Act, either for

ascertaining the amount to be expended or for ascertaining

the amount to be accumulated. The grants-in-aid made

available to the assessee by the Government of Punjab,

being not the income of the assessee, are exempt from tax.

ITA 870/CHD/2019 A.Y. 2015-16 30 28. Accordingly, finding the grievance of the assessee by

way of Ground No.3 to be justified, the same is accepted.

the ld. CIT(A) in upholding the disallowance of depreciation

as application of income. As per the assessee, while doing

so, the ld. CIT(A) has illegally disregarded the fact that the

assessee had not claimed cost of the fixed assets as

application in the earlier years.

Expenditure Account showed that the assessee had claimed

depreciation amounting to Rs.51,69,258/- as application of

income; that in the course of its activity, the assessee had

acquired different assets, which were purchased with the

surplus funds available; that the entire expenditure

incurred for the acquisition of capital assets was treated as

application of income for charitable purposes u/s 11(1)(a) of

the Act in the respective years in which such assets were

procured; that if the assessee treats the expenditure of

acquisition of assets as application of income for charitable

purposes u/s 11(1)(a) and if the assessee claims

depreciation on the value of such assets, then, in order to

ITA 870/CHD/2019 A.Y. 2015-16 31 reflect the true income to be available for application for

charitable purposes, the assessee should write back in the

accounts, the depreciation amount to form part of the

income to be accounted for application for charitable

purposes, which had not been done by the assessee; that

the income which should be available for application for

charitable purposes gets reduced by the depreciation

amount, which is not permissible under the Act; that the

net effect is that after writing of the full value of the capital

expenditure on acquisition of assets as application of

income for charitable purposes, when the assessee again

claims the same amount in the form of depreciation, such

notional claim becomes cash surplus available with the

assessee that was statutorily required to be applied for its

Aims and Objects; that this is true even if the assessee is

assessed as an AOP and the assessee claims depreciation on

the assets whose cost was allowed in the previous years;

and that therefore, even if the assessee is assessed as an

AOP for a particular year, it cannot claim the notional

depreciation on the assets whose value has already been

shown written off. In this way, the AO disallowed the

ITA 870/CHD/2019 A.Y. 2015-16 32 depreciation claimed as expense and the amount of

Rs.51,69,258/- was added back.

order that with the insertion of sub-section (6) to Section 11

of the Act, no depreciation is allowable on any item of

income, regardless of whether it is applied, accumulated or

set apart for application; that thus, it is irrelevant whether

the purchase was considered towards application in the

earlier years.

years prior to the year in question, it had claimed

exemption u/s 10(23C)(iiiab), which fact is not in dispute;

that this being so, no question arises of the assessee having

claimed cost incurred on acquisition of fixed assets as

application of income; that even otherwise, the assessee has

not claimed expenditure incurred on acquisition of fixed

assets as revenue expenditure in its Receipt & Expenditure

Account in any preceding year; and that this being the

factual position, the ld. CIT(A) has clearly erred in

upholding the disallowance of depreciation as application of

income.

ITA 870/CHD/2019 A.Y. 2015-16 33 33. The ld. DR on the other hand has placed reliance on

the CIT(A)’s order in this regard also.

(supra) dated 21.10.2016 stands passed by this Bench in

the assessee's case for assessment years 2006-07 to 2012-

13, in ITA Nos. 1110 to 1116/CHD/2014. A copy of the

said order has been placed at ACL PB -1, pages 1-2. Order

(supra) (dated 17.01.2018 has been passed by this Bench in

the assessee's case, in the second round, for assessment

years 2006-07 to 2012-13, in ITA Nos. 1391 to

1397/CHD/2017. A copy thereof has been placed at ACL

PB -1, pages 3-5. Copy of order (supra) dated 21.10.2016

stands passed by this Bench (authored by one of us – ld.

A.M.) in the assessee's own case, for assessment year 2013-

14, in ITA No. 214/CHD/2020. Copy has been placed at

ACL PB –II pages 72-78.

earlier years (the year under consideration is A.Y. 2015-16),

the assessee had claimed exemption u/s 10(23C)(iiiab) and

not u/s 10(23C)(vi), as has been done in the year under

consideration. As such, as rightly contended, there is no

ITA 870/CHD/2019 A.Y. 2015-16 34 question of the assessee having claimed cost incurred on

acquisition of fixed assets as application of income.

35.1 Otherwise too, we do not find the ld. CIT(A) to be

correct when he observes that since with the insertion of

sub-section (6) in Section 11 of the Act, no depreciation is

allowable on any item of income, regardless of whether it is

applied, accumulated or set apart for application, it is

relevant whether the purchase was considered towards

application in the earlier years. In our humble view, this

proposition, rather, is clearly opposite to what has been

stated in the provisions contained in Section 11(6) of the

Act, where it has been provided that, “Where u/s 11, any

income is required to be applied or accumulated or set

apart for any application, then, for such purposes, 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 Section 11 in the same or any other previous

year. Simply put, as per the provisions of Section 11(6), if

acquisition of an asset has been claimed as application of

income u/s 11 by the assessee in the concerned assessment

year or in any other previous year, depreciation would not

ITA 870/CHD/2019 A.Y. 2015-16 35

be allowed. In the present case, as observed from the

record and as not disputed before us, no such claim was

made by the assessee regarding application of income u/s

11 either in the year under consideration or in any of the

earlier years.

35.2 Still otherwise, again, as rightly contended on behalf

of the assessee and not disputed by the Department, the

assessee had not claimed expenditure incurred on

acquisition of fixed assets as revenue expenditure in the

Receipt & Expenditure Account, in any of the earlier years.

35.3 The aforesaid being the undisputed factual position,

the assessee is again correct in pleading that the ld. CIT(A)

went wrong in confirming the disallowance of depreciation

as application of income. Accordingly, the disallowance of

depreciation amounting to Rs.51,69,258/- as application of

income is hereby ordered to be deleted. Ground No.4 is

accepted.

Order pronounced on 04th January,2024.

Sd/- Sd/-

(VIKRAM SINGH YADAV) (A.D.JAIN ) VICE PRESIDENT ACCOUNTANTMEMBER “Poonam”

ITA 870/CHD/2019 A.Y. 2015-16 36

FIT FOR PUBLICATION

Sd/- Sd/- (VIKRAM SINGH YADAV) (A.D.JAIN ) ACCOUNTANTMEMBER VICE PRESIDENT “Poonam”

आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. .��यथ�/ The Respondent 3. आयकर आयु�/ CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar