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Cites 5 docs
Cit vs Ambuja Darla Karsog Mangu ... on 25 January, 2008
Section 11(1)(a) in The Income- Tax Act, 1995
Christian Medical College And ... vs Regional Provident Fund ... on 7 January, 1988
Escorts Limited And Anr. Etc. Etc vs Union Of India And Ors on 22 October, 1992
The Income- Tax Act, 1995

Income Tax Appellate Tribunal - Ahmedabad
Sardar Patel Charitable Trust, ... vs Department Of Income Tax on 19 July, 2013

आयकर अपीलीय अिधकरण,

अिधकरण, अहमदाबाद Ûयायपीठ डȣ,

डȣ, अहमदाबाद ।

IN THE INCOME TAX APPELLATE TRIBUNAL

" D " BENCH, AHMEDABAD

BEFORE SHRI D.K. TYAGI, JUDICIAL MEMBER And

SHRI A.K. GARODIA, ACCOUNTANT MEMBER

आयकर अपील सं./I.T.A. Nos.285 & 286/Ahd/2013 (Assessment Years : 2008-09 & 2009-10 respectivel y ) ITO (Exemption) बनाम/ Sardar Public Charitable Bhavnagar Vs. Trust

Jashonath Chowk Nr.Navanala Bhavnagar - 364 001 Khojawadi Botad - 364 710

ःथायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AADTS 0605A (अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent)

अपीलाथȸ ओर से / Appellant by : Shri R.K.Vohra, DR ू×यथȸ कȧ ओर से/Respondent by : Shri Pritesh Shah, AR

सुनवाई कȧ तारȣख / Date of Hearing : 08/07/2013 घोषणा कȧ तारȣख /Date of Pronouncement : 19/07/2013

आदे श / O R D E R

PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER:

Both these appeals are filed by the Revenue which are directed against the combined order of ld.CIT(A)-XXI Ahmedabad dated 02/11/2012 for Assessment Years 2008-09 & 2009-10. Since a common issue is involved, both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. Grounds raised by the Revenue are identical in both the years except difference in amount and, hence, the grounds are reproduced from ITA No.285/Ahd/2013 for AY 2008-09.

ITA Nos.285 & 286/Ahd/2013

ITO (Exemption) Bhavnagar vs.

Sardar Public Charitable Trust

Asst.Years - 2008-09 & 2009-10

-2-

The Ld.CIT(A) has erred in law and on facts in allowing the appeal of the assessee.

i) The Ld.Commissioner of Income-Tax (Appeals) has erred in law and on facts in deleting the disallowance of depreciation of Rs.10,37,852/- made by the Assessing Officer.

ii) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in allowing depreciation on the assets, the cost of which has already been allowed as a deduction on account of application of income as this would amount to double deduction in view of the decision of the Hon'ble Supreme Court in the case of Escorts Ltd., 199 ITR 43 and the decision of Kerala High Court in the case of Lissie Medical Institutions vs. Commissioner of Income-tax, Kochi, 348 ITR 344.

iii) Whether, on the facts and in the circumstances of the case, deduction of depreciation u/s.32 which falls under the head "Profit and Gains from business and profession" of the Income Tax Act, 1961, would be available to a charitable trust whose income is otherwise not assessable under the above head.

iv) On the facts and circumstances of the case, the Ld.Commissioner of Income-Tax (Appeals) ought to have upheld the order of the Assessing Officer.

v) It is, therefore, prayed that the order of the Ld.Commissioner of Income-Tax (Appeals) may be set aside and that of the Assessing Officer be restored.

2. The ld.DR of the Revenue supported the assessment order and reliance was placed on two judgements which are cited by the Revenue in Ground No.(ii). Ld.AR of the assessee supported the order of the ld.CIT(A).

ITA Nos.285 & 286/Ahd/2013

ITO (Exemption) Bhavnagar vs.

Sardar Public Charitable Trust

Asst.Years - 2008-09 & 2009-10

-3-

3. We have considered the rival submissions. We find that this issue was decided by the ld.CIT(A) as per paragraph Nos.4.2 & 4.3 of his order which are reproduced below for the sake of ready reference:-

"4.2. The issue of allowability of depreciation in the case of Charitable Trust came up recently before the Hon'ble ITAT, Ahmedabad "B" Bench vide ITA No.1190/Ahd/2010 in the case of Parul Arogya Seva Mandal Trust. In this appeal, the appellant has taken the following grounds which were reproduced herein as under:

"1. The learned CIT (Appeals) has grossly erred in law and on facts of the case in confirming the disallowance made by the AO of the appellant's legitimate claim for depreciation of Rs.2,44,99,739/-, in utter disregard to the judgement of the Hon'ble High Court of Gujarat in the case of CIT Vs. Seth Manilal Ranchhoddas Vishram Bhavan Trust (198 ITR 598) which is binding on all Income-tax authorities in the State of Gujarat.

2. The learned CIT(Appeals) has grossly erred in law and on facts of the case in confirming the disallowance made by the AO of the appellant's legitimate claim for depreciation of Rs.2,44,99,739/- in utter disregard to the judgement of the ITAT, Ahmedabad Bench - A dated 24.7.2009 in ITA Nos.2331/Ahd/2004, 84/Ahd/2006, 2782/Ahd/2007 and 3208/Ahd/2007 in the case of Ahmedabad South Indian Association, which judgement is binding on all Income-tax authorities in the State of Gujarat."

The Hon'ble ITAT vide its order dated 15.06.2012 has observed as under:- "4. Now the assessee is in appeal before us. The A.R. for the assessee has filed the gist in the case of following judgements:

1. CIT vs. Sheth Manilal anchhoddas Vishram Bhavan Trust 198 ITR 598 (Guj).

2. CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities 135 ITR 485 (Madras High Court)

3. Shrimad Vallabh Vishwa Dharma Sanstha vs. ACIT 102 TTJ (Ahd) 653

4. Deputy CIT & Ors. Vs. Market Committee 13 DTR 157 (Del) (Trib.)

5. CIT vs. Market Committee 330 ITR 16

6. CIT vs. Tiny Tots Education Society in ITA No.93 of 2010 (Punjab & Haryana Courts)

ITA Nos.285 & 286/Ahd/2013

ITO (Exemption) Bhavnagar vs.

Sardar Public Charitable Trust

Asst.Years - 2008-09 & 2009-10

-4-

7. CIT vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom).

He also filed a copy of ITAT "C" Bench, Ahmedabad decision in the case of Adharshila Education & Charitable Trust in ITA No.1443/Ahd/2008, A.Y. 2005-06 & 810/Ahd/2009, A.Y. 2006-07, order dated 06.05.2011 in which similar issue has been allowed by following decision in ITA No.2221/Ahd/2008, A.Y. 2005-06, order dated 30.11.2010 observing as under:

"9. We have considered the rival submissions and perused the material on record. In our considered view, there is no case for interference in the order of ld.CIT(A).

10. The issue of depreciation on the assets owned by the assessee trust and used in their activities is allowable in view of the two judgments referred to by the assessee in the written submissions. In addition to this, above view is supported by the decision of Hon'ble Madhya Pradesh high Court in CIT vs. Raipur Pallottine Society (1989) 180 ITR 579 (M.P.) wherein Hon'ble High Court held as under:

"Depreciation is the exhaustion of the effective life of a fixed asset owing to "use" or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure incurred in acquiring the asset over its effective lifetime and the amount of provision made in respect of accounting period is intended to represent the proportion of such expenditure which has expired during that period. If depreciation is not allowed as a necessary deduction in computing the income of a charitable trust, then there would be no way to preserve the corpus of the trust. A charitable trust is, therefore, entitled to depreciation in respect of the assets owned by it.

In CIT vs. Institute of Banking Personnel Selection (supra), Hon'ble Bombay High Court has held as under:

"Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in s.11 and that such adjustment will have to be excluded from the income of the trust under s. 11(1)(a) vs. Shri Plot Swetamber Murti Pujak ITA Nos.285 & 286/Ahd/2013

ITO (Exemption) Bhavnagar vs.

Sardar Public Charitable Trust

Asst.Years - 2008-09 & 2009-10

-5-

Jain Mandal (1994) 119 CTR (Guj.) 144 (1995) 211 ITR 293 (Guj.) concurred with".

5. Ld.D.R. Vehemently argued to confirm the order of ld.CIT(A).

6. We have perused the orders of authorities below and gone through the case law cited by both the side. The assessee had already been allowed assets as expenditure/application of fund. When full value of assets had been adjusted as a expenditure or application of fund, no assets remained to be depreciated. We are respectfully following the decision of Gujarat High Court as well as 'C' Bench decision in above case, in which depreciation has been allowed even capital assets allowed fully as an expenditure. Being judicial precedent, we also allow this appeal in favour of the assessee.

4.3. Further, the AO has relied on the decision of Hon'ble Supreme Court in the case of Escorts Ltd. vs. Union of India (1993) 199 ITR 43 (SC) while disallowing the depreciation of capital assets held by charitable trust. This aspect was also elaborated by Hon'ble ITAT "C" Bench, Ahmedabad in appeal No.1322/Ahd/2011 in the case of Sardar Patel Institute of Public Administration for Asst.Year 2008-09. The Hon'ble ITAT vide para-4 has observed as under:

"Before us Ld.CIT-DR has supported the assessment order and made submission that the view of the Assessing Officer was correct. On the contrary, that the view of the assessee argued that the judgement of Hon'ble Supreme Court in the case of Escorts Ltd.(supra) is not applicable in the present case. The AR further argued that in the identical facts and circumstances of Hon'ble Punjab and Haryana High Court has distinguished the judgment of the Hon'ble Supreme Court in favour of the assessee. The Ld.AR has relied upon the following case laws:-

i) CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust 198 ITR 590(Guj.)

ii) CIT vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom) iii) CIT vs. Society of the Sisters of Anne 146 ITR 28 (Ker.) iv) CIT vs. Raipur Pallottine Society 180 ITR 579 (MP) v) CIT vs. Market Committee, Pipli 330 ITR 16 (P&H) vi) CIT vs. Tiny Tots Education Society 330 ITR 21 (P&H)

We have considered facts and circumstances of the case and submissions made by the respective Representatives of the parties. The Assessing Officer ITA Nos.285 & 286/Ahd/2013

ITO (Exemption) Bhavnagar vs.

Sardar Public Charitable Trust

Asst.Years - 2008-09 & 2009-10

-6-

has disallowed the claim following the judgment passed by the Hon'ble Supreme Court in the case of Escorts Ltd. (supra). We find the Hon'ble High Court Punjab and Haryana has distinguished the judgment of the Hon'ble Supreme Court in the case of CIT vs. Tiny Tots Education Scoiety 330 ITR 21 (P&H). In view of the fact that the issue has already been settled by the Hon'ble High Court of Punjab & Haryana respectfully following the ratio laid therein we had no infirmity into the impugned order of the Ld.CIT(A). Therefore, the present appeal stands dismissed. We find no infirmity in the order of the Ld.CIT(A). In view of the above, the appeal of the Revenue is dismissed."

4.3. Considering the above, the AO is directed to allow the claim of depreciation of Rs.10,37,852/- for Asst.Year 2008-09 and Rs.8,41,331/- for Asst.Year 2009-10."

4. From the above paras of the order of ld.CIT(A, we find that ld.CIT(A) has decided this issue by following Tribunal order in which the Tribunal has inturn followed two judgements of Hon'ble Madhya Pradesh High Court and Hon'ble Bombay High Court. We find that it is also noted by the ld.CIT(A) that the AO has placed reliance on a judgement of Hon'ble Apex Court rendered in the case of Escorts Ltd. 199 ITR 43(SC) and thereafter, he has noted that as per the judgement of Hon'ble Punjab & Haryana High Court rendered in the case of CIT vs. Tiny Tots Education Society 330 ITR 21 (P&H), the judgement of Hon'ble Apex Court has been distinguished. Hence, we find that out of two judgements on which reliance has been placed by ld.DR of the Revenue which are cited-supra in ground No.(ii) of Revenue's appeal, one judgement of Hon'ble Apex Court has already been distinguished by Hon'ble Punjab & Haryana High Court. Regarding second judgement of Hon'ble Kerala High Court rendered in the case of Lissie Medical Institutions vs. CIT 348 ITR 344(Ker.), we find that in this case, the issue ITA Nos.285 & 286/Ahd/2013

ITO (Exemption) Bhavnagar vs.

Sardar Public Charitable Trust

Asst.Years - 2008-09 & 2009-10

-7-

has been decided by the Hon'ble Kerala High Court on the basis that if depreciation is allowed to a charitable-trust, then it will result into a possibility of revenue leakage and generation of cash surplus and of black-money. We fail to understand that how allowing the depreciation can result into cash surplus because depreciation is allowed by way of reducing book value of the asset and there is no effect on cash availability as a result of allowing the depreciation. In the present case also, this is not the case of AO that allowing the depreciation will result into any cash surplus which will go outside the books of accounts of the assessee-trust. Hon'ble Kerala High Court has already noted a judgement of Hon'ble Jurisdictional High Court rendered in the case of CIT vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust 198 ITR 598 (Guj.) in addition to various other judgements of various other High Courts and all the judgements were brushed aside by the Hon'ble Kerala High Court on this basis that in these judgements, this aspect was not considered that allowing the depreciation will result into cash surplus going outside the books of accounts. In our considered opinion, when a binding judgment of Hon'ble Gujarat High Court is there, we have to follow the same in preference to any judgement of any other High Court unless there is a judgement of Hon'ble Apex Court which is contrary to the jdugement of Hon'ble Jurisdictional High Court. In the present case, only a judgment of Hon'ble Kerala High Court has been cited before us by the Revenue which is contrary to the judgement of Hon'ble Jurisdictional High Court but sitting in Gujarat, we are bound by the judgement of Hon'ble Gujarat High Court and, hence, we follow the same in preference to this judgment of Hon'ble Kerala High Court. ITA Nos.285 & 286/Ahd/2013

ITO (Exemption) Bhavnagar vs.

Sardar Public Charitable Trust

Asst.Years - 2008-09 & 2009-10

-8-

Moreover, as per the judgement of Hon'ble Kerala High Court, it has been stated that allowing the depreciation will result into cash surplus being available with the assessee which goes outside the books of accounts of the trust. But we have already noted above that allowing the depreciation is having no impact on cash availability with the assessee. Moreover, there is one more basis given by the Hon'ble Kerala High Court in this judgement that allowing the depreciation will result into allowing of double deduction because once the deduction has been allowed at the time of purchase of asset by treating the same as application of income and, therefore, allowing the depreciation on the same asset will result into allowing of double deduction. In our considered opinion, this observation is also without any basis because allowing the deduction on purchase of assets as application of income u/s.11(1) is not equivalent to allowing deduction for the purpose of computing income, but in fact, the income remains same and the only effect of considering acquisition of asset as application of income is that such income is treated as exempt income. Hence, it cannot be said that allowing exemption u/s.11(1) of the Act in respect of acquisition of asset on this basis that it is application of income is akin to allowing deduction of an expenditure but it is in fact an incentive provision allowing the charitable-trust the benefit of having exempt income. It is already held by the Hon'ble Gujarat High Court in the case cited above that the income of the assessee-trust has to be computed on commercial principles and therefore, depreciation has to be allowed. ITA Nos.285 & 286/Ahd/2013

ITO (Exemption) Bhavnagar vs.

Sardar Public Charitable Trust

Asst.Years - 2008-09 & 2009-10

-9-

4.1. As per above discussion, it is clear that depreciation has to be allowed as per the decision of Hon'ble Gujarat High Court which is binding on us and it is not resulting into allowing of double deduction. We, therefore, decline to interfere with the order of the ld.CIT(A) on this issue in both the years.

5. In the result, both the appeals of the Revenue are dismissed.

Sd/- Sd/- ( D.K. TYAGI ) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER

Ahmedabad; Dated 19/ 7 /2013

टȣ.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS

आदे श कȧ ूितिलǒप

ूितिलǒप अमेǒषत/Copy

षत of the Order forwarded to :

1. अपीलाथȸ / The Appellant

2. ू×यथȸ / The Respondent.

3. संबंिधत आयकर आयुƠ / Concerned CIT

4. आयकर आयुƠ(अपील) / The CIT(A)-XXI, Ahmedabad

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड[ फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स×याǒपत ूित //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar)

उप/

आयकर अपीलीय अिधकरण,

अिधकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation dated ......09.07.13(dictation-pad 14 pages attached with file)

2. Date on which the typed draft is placed before the Dictating Member 10.7.13.................. Other Member.....................

3. Date on which the approved draft comes to the Sr.P.S./P.S.................

4. Date on which the fair order is placed before the Dictating Member for pronouncement......

5. Date on which the fair order comes back to the Sr.P.S./P.S......19.7.13

6. Date on which the file goes to the Bench Clerk.................. 19.7.13

7. Date on which the file goes to the Head Clerk..................................

8. The date on which the file goes to the Assistant Registrar for signature on the order..........................

9. Date of Despatch of the Order..................