Sri Rangalatchumi Educational Trust, CHENNAI v. CIT, CHENNAI

ITA 89/CHNY/2009 | 2004-2005
Pronouncement Date: 25-03-2011 | Result: Allowed

Appeal Details

RSA Number 8921714 RSA 2009
Assessee PAN AABTS8450R
Bench Chennai
Appeal Number ITA 89/CHNY/2009
Duration Of Justice 2 year(s) 2 month(s) 3 day(s)
Appellant Sri Rangalatchumi Educational Trust, CHENNAI
Respondent CIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 25-03-2011
Date Of Final Hearing 14-03-2011
Next Hearing Date 14-03-2011
Assessment Year 2004-2005
Appeal Filed On 21-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI (BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER) .. I.T.A. NOS. 681 & 682/MDS/2010 ASSESSMENT YEARS : 2006-07 & 2007-08 M/S SRI RENGALATCHUMI EDUCATIONAL TRUST NO.16 MARIAMMAN KOVIL ST. K.K. NAGAR (WEST) CHENNAI 600 078. PAN : AABTS8450R (APPELLANT) V. THE INCOME TAX OFFICER OSD (EXEMPTIONS)-III CHENNAI 600 034. (RESPONDENT) I.T.A. NOS. 89 & 90/MDS/2009 ASSESSMENT YEARS : 2004-05 & 2005-06 M/S SRI RENGALATCHUMI EDUCATIONAL TRUST NEW NO.58 & OLD NO.74 6 TH CROSS STREET TRUSTPURAM CHENNAI 600 024. PAN : AABTS8450R (APPELLANT) V. THE INCOME TAX OFFICER OSD (EXEMPTIONS)-III CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI V.D. GOPAL RESPONDENT BY : SHRI TAPAS KUMAR DUTTA O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : IN THESE APPEALS FILED BY THE ASSESSEE FOR THE IM PUGNED ASSESSMENT YEARS A COMMON GROUND HAS BEEN TAKEN. THE ISSUE I.T.A. NOS. 681 & 682/MDS/10 I.T.A. NOS. 89 & 90/MDS/09 2 RAISED BY THE ASSESSEE THROUGH THIS COMMON GROUND I S THAT THE CIT(APPEALS) AS WELL AS THE A.O. FELL IN ERROR IN N OT ALLOWING THE CLAIM OF DEPRECIATION FOR THE RESPECTIVE ASSESSMENT YEARS FOR A REASON THAT COST OF ACQUISITION OF THE CAPITAL ASSET ON WHICH T HE CLAIM OF DEPRECIATION WAS MADE WAS EARLIER ALLOWED TO THE A SSESSEE AS A DEDUCTION WHILE COMPUTING ITS INCOME UNDER SECTION 11 OF THE INCOME-TAX ACT 1961 (HEREINAFTER CALLED THE ACT) . 2. SHORT FACTS APROPOS ARE THAT ASSESSEE A TRUST H OLDING REGISTRATION UNDER SECTION 12A(A) OF THE ACT HAD C LAIMED DEPRECIATION WHILE COMPUTING ITS INCOME FOR THE RESPECTIVE ASSES SMENT YEARS. A.O. WAS OF THE OPINION THAT WHEN THE COST OF ADDIT ION TO ASSETS WAS CLAIMED BY THE ASSESSEE AS APPLICATION OF INCOME FO R THE RESPECTIVE ASSESSMENT YEARS ASSESSEE COULD NOT FURTHER CLAIM DEPRECIATION ON THE VERY SAME ASSETS. RELIANCE WAS PLACED ON THE D ECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V. ESCORTS (1 99 ITR 43)(SC). APPEALS OF THE ASSESSEE BEFORE THE CIT(APPEALS) WER E UNSUCCESSFUL. ACCORDING TO CIT(APPEALS) THE DECISION OF DELHI BE NCH OF THIS TRIBUNAL IN THE CASE OF MAHILA SIDH NIRMAN YOJNA V. IAC (50 ITD 472) AS WELL AS THE DECISION OF HON'BLE APEX COURT IN TH E CASE OF ESCORTS (SUPRA) WENT AGAINST IT. HE THEREFORE UPHELD THE ORDERS OF THE A.O. I.T.A. NOS. 681 & 682/MDS/10 I.T.A. NOS. 89 & 90/MDS/09 3 3. NOW BEFORE US THE LEARNED A.R. STRONGLY ASSAIL ING THE ORDERS OF THE CIT(APPEALS) SUBMITTED THAT THE CLAIM MADE FOR DEPRECIATION WAS FOR USE OF THE ASSETS WHILE CLAIM FOR THE CAPIT AL OUTGO AS AN APPLICATION WAS ON A DIFFERENT FOOTING. ACCORDING TO HIM JUST BECAUSE CAPITAL EXPENDITURE WAS CONSIDERED AS APPLICATION O F INCOME IT COULD NOT BE SAID THAT ASSESSEE WOULD NOT BE ENTITLED TO CLAIM DEPRECIATION THEREON. 4. PER CONTRA THE LEARNED D.R. SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. ACCORDING TO HIM THE CLAIM OF THE ASSESSEE IF ALLOWED WOULD RESULT IN DOUBLE DEDUCTION. 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. FOR THE PURPOSE OF DETERMINING THE INCOME OF A TRUS T ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT INCOME ARISI NG FROM PROPERTY HELD UNDER TRUST CONSTITUTES THE INCOME OF THE TRU ST. IT WILL MEAN INCOME FROM PROPERTY BUSINESS DIVIDENDS INTEREST ON SECURITIES OR OTHER INTEREST. IN OTHER WORDS THE INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT IS THE INCOME AS PER THE ACCOUNTS OF THE TRUST. IT MEANS INCOME IN THE COMMERCIAL SENSE WITHOUT REFE RENCE TO THE HEADS OF INCOME SPECIFIED IN SECTION 14 OF THE ACT I.E. THE BOOK I.T.A. NOS. 681 & 682/MDS/10 I.T.A. NOS. 89 & 90/MDS/09 4 INCOME AND NOT TOTAL INCOME AS DEFINED IN SECTION 2 (45) OF THE ACT. THIS POSITION IS CONFIRMED IN CIT V. TRUSTEES OF H. E.H. NIZAMS SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST (1981) 127 I TR 378 (A.P.) CIT V. RAO BAHADUR CALAWALA CUNNAN CHETTY CHARITIES (1982) 135 ITR 485 (MAD.) AND CIT V. ESTATE OF V.L. ETHIRAJ (1 982) 136 ITR 12 (MAD.). THIS POSITION IS ALSO CONFIRMED BY THE CBD T VIDE ITS CIRCULAR NO.5-P (LXX-6) DATED 19 TH JUNE 1968. THE CONCEPT OF COMMERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIAT ION ON ASSETS OF THE TRUST. DEPRECIATION ON ASSETS OF A TRUST IS TO BE DEDUCTED FOR THE PURPOSE OF CALCULATING INCOME OF A TRUST. THIS IS BECAUSE OF THE FACT THAT THE CONCEPT OF COMMERCIAL INCOME NECESSARILY E NVISAGES DEDUCTION OF DEPRECIATION ON ASSETS OF THE TRUST. EVEN REASONABLE DEPRECIATION ON ASSETS AND INTEREST ON SINKING FUND OR REPAIRS RESERVE ARE TO BE DEDUCTED AS HELD BY THE MUMBAI BE NCH OF THIS TRIBUNAL IN BALKAN-JI-BARI (1979) 2 TAXMAN 377(BOM. ). HON'BLE BOMBAY HIGH COURT HAD REJECTED A REFERENCE APPLICAT ION OF THE REVENUE IN THE CASE OF CIT V. FRAMJEE CAWASJEE INST ITUTE (1993) 109 CTR 463 HOLDING THAT THE ANSWER TO THE QUESTION WH ETHER DEPRECIATION WAS ALLOWABLE TO A CHARITABLE TRUST WA S SELF-EVIDENT EVEN IF THE CAPITAL VALUE OF THE ASSETS ON WHICH DE PRECIATION WAS CLAIMED HAD BEEN ALLOWED AS A DEDUCTION UNDER SECTI ON 11 AS AN I.T.A. NOS. 681 & 682/MDS/10 I.T.A. NOS. 89 & 90/MDS/09 5 APPLICATION OF INCOME FOR RELIGIOUS OR CHARITABLE P URPOSES. ONCE AGAIN IN CIT V. INSTITUTE OF BANKING PERSONNEL SELE CTION (IBPS) 264 ITR 110 HON'BLE BOMBAY HIGH COURT HELD THAT DEPREC IATION SHOULD BE ALLOWED EVEN ON ASSETS THE COST OF WHICH HAD BE EN ALLOWED AS EXEMPT UNDER SECTION 11 IN THE PRECEDING YEARS. TH EIR LORDSHIP ALSO HELD THAT DEPRECIATION SHOULD BE ALLOWED EVEN ON AS SETS RECEIVED ON TRANSFER FROM ANOTHER CHARITABLE TRUST ON WHICH NO COST WAS BORNE BY THE ASSESSEE TRUST. OTHER HIGH COURTS WHICH HAVE A LSO TAKEN THE VIEW THAT DEPRECIATION IS DEDUCTIBLE ARE HON'BLE KA RNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF THE SISTERS OF ST. ANNE (1984) 146 ITR 28 AND HON'BLE MADHYA PRADESH HIGH COURT IN THE CAS E OF CIT V. RAJPUR PALLOTTINE SOCIETY (1989) 180 ITR 579. IN C IT V. SETH MANILAL RANCHHODDAS VISHRAM BHOVAN TRUST (1992) 105 CTR (GU J) 303 IT WAS HELD BY HON'BLE GUJARAT HIGH COURT THAT DEPRECI ATION SHOULD BE ALLOWED WHILE COMPUTING SUCH INCOME UNDER SECTION 1 1(I)(A) OF THE ACT. ASSESSING OFFICERS STAND THAT PROVISION OF COMPUTATION OF INCOME UNDER SECTION 11 DOES NOT CONTAIN ANY PROVI SION WHICH MAY ENTITLE AN ASSESSEE TO CLAIM WEIGHTED DEDUCTION FOR ANY EXPENSES INCURRED IS NOT ACCEPTABLE AS SECTION 11 PROVIDES THAT THE INCOME OF THE TRUST IS TO BE COMPUTED ON COMMERCIAL BASIS I.E . AS PER NORMAL ACCOUNTING PRINCIPLES. NORMAL ACCOUNTING PRINCIPLE S CLEARLY PROVIDE I.T.A. NOS. 681 & 682/MDS/10 I.T.A. NOS. 89 & 90/MDS/09 6 FOR DEDUCTING DEPRECIATION TO ARRIVE AT INCOME. IN COME SO ARRIVED AT (AFTER DEDUCTING DEPRECIATION) IS TO BE APPLIED FOR CHARITABLE PURPOSE. CAPITAL EXPENSE IS APPLICATION OF THE INCOME SO DET ERMINED. SO THERE IS NO DOUBLE DEDUCTION OR DOUBLE CLAIM OF THE SAME AMOUNT AS APPLICATION. THUS DEPRECIATION IS TO BE DEDUCTED T O ARRIVE AT INCOME AND IT IS NOT APPLICATION OF INCOME. NO DOUBT DEP ARTMENT HAS RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA). HOWEVER IN THIS CASE THE ISSUE BEFORE HO N'BLE SUPREME COURT WAS THAT WHETHER BOTH DEPRECIATION UNDER SECT ION 32 AND CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH UNDER SE CTION 35(1)(IV) CAN BE CLAIMED AS DEDUCTION. REFERENCE TO THIS DECISIO N CANNOT BE DRAWN AS IN THE CASE OF ESCORTS (SUPRA) BOTH WERE DEDUCTI ONS UNDER THE HEAD BUSINESS INCOME WHEREAS IN CASE OF A CHARITA BLE TRUST DEPRECIATION IS A DEDUCTION TO ARRIVE AT INCOME AND CAPITAL EXPENDITURE IS APPLICATION OF SUCH INCOME. THE AFO RESAID DECISION IN THE CASE OF ESCORTS LTD. CANNOT BE APPLIED TO DETER MINE TAXABLE INCOME FOR A TRUST AS THE PROVISIONS TO DETERMINE T AXABLE INCOME OF THE TRUST ARE TOTALLY DIFFERENT AND NORMAL PROVISIO NS FOR COMPUTING INCOME UNDER FIVE HEADS CANNOT BE APPLIED. THUS TH E ASSESSEE IS ELIGIBLE FOR CLAIMING DEPRECIATION FOR ALL THESE AS SESSMENT YEARS. THE I.T.A. NOS. 681 & 682/MDS/10 I.T.A. NOS. 89 & 90/MDS/09 7 ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND T HE A.O. IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION. 7. IN THE RESULT ALL THE FOUR APPEALS FILED BY THE ASSESSEE STAND ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 25 TH MARCH 2011. SD/- SD/- (HARI OM MARATHA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 25 TH MARCH 2011. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-XII CHENNAI- 34/ DIT (EXEMPTION) CHENNAI/D.R./GUARD FILE