Dawat E Hadiyah, Mumbai vs Department Of Income Tax

सर्वश्री आय.सी.शभमव, रेखम सदस्म के सभक्ष BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER आमकय अऩीर सं./ITA Nos.3421&3422/Mum/2015 ( नििाारण वषा / Assessment Years :2010-11 & 2011-12) ACIT(Exemptions)-1(1), Vs.Dawat E. Hadiyah, Badri Mumbai-12 Mahal, 3rd Floor, Dr. Dadabhoy Nowrojee Road, Fort, Mumbai-400001 स्थममी रेखम सं ./ जीआइआय सं ./ PAN/GIR No. : AAATD 1489 N (अऩीरमथी /Appellant) .. (प्रत्मथी / Respondent)

यमजस्र् की ओर से /Revenue by : Shri Jasbir Singh Chouhan ननधमवरयती की ओर से /Assessee by : Shri F.B.Andhyarujina

सुनर्मई की तमयीख / Date of Hearing : 23/07/2015 घोषणम की तमयीख/Date of Pronouncement 30/07/2015

आदे श / O R D E R

These are the appeals filed by the revenue against the order of

CIT(A) for the A.Y.2010-11 & 2011-2012 in the matter of order passed

u/s.143(3) of the I.T.Act, 1961.

2. In ITA No.3422/Mum/2015, the Revenue has come forward with the

following grounds of appeal :-

1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) erred in allowing the appeal of the assessee on account of disallowing depreciation on fixed assets of Rs. 23,25,84,521/- in contravention of the decision of Escorts Vs UOI 199 ITR 43, wherein it was held that since section 11 of the Income-Tax Act provides for deduction capital expenditure incurred on assets acquired for the objects of the trust as application and does not specifically & expressly provide for double deduction on account of depreciation on the same very assets acquired from such capital expenditure, no deduction shall be allowed u/s 32 for the same or any other 2 ITA Nos.3421&3422/15

previous year in respect of that assets as it amounts to claiming a double deduction."

2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), erred in allowing the depreciation, when the Delhi High Court in the case of Charanjiv Charitable Trust and Kerala High Court in the case Lissie medical Institutions Vs CIT 76 DTR (Ker) 372 has decided the issue in the favour of the department after considering the decision of Hon'ble Supreme Court in the case of Escorts Ltd. (199 ITR 43).

3. "Whether on the facts of the case and in law the Id. CIT(A) erred in allowing the carry forward of deficit of Rs. 278,24,26,641/- and allowing set off against the income of the subsequent years allowing the deficit will tantamount to double deduction on account of expenditure out of exempt income. "

4. "Whether, on the facts and circumstances of the case and in law, the Id.CIT(A) erred in allowing to carry forward of deficit on account of excess expenditure and directing the Assessing Officer to allow carry forward of deficit on account of excess expenditure without appreciating the fact that this would have the effect of granting double benefit to the assessee, first as 'accumulation' of income u/s II(l)(a) or as corpus donations u/s 11(1)(d) in early years /current year and then as' application of income u/s 11(l)(a) in the subsequently years which was legally not permissible?

5. "Whether, on the facts and circumstances of the case and in law, the Id.CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit, ignoring the fact that there was no express provisions in the Act, 1961 permitting allowance of such claim.

6. The appellant prays that the order of the Commissioner of Income-Tax (Appeals)- 1Mumbai, be set aside and that of the Assessing Officer be restored."

3. As common grounds have been taken in both the years, therefore,

both appeals are being heard together and are now decided by this

consolidated order.

4(i) The facts of the case are that the assessee is a trust which is

engaged in religious charitable activities for the welfare of Dawaoodi

Bohra community and other communities. It filed return of income on 30th

September,2011 along with the Income and Expenditure Account, 3 ITA Nos.3421&3422/15

Balance Sheet and Audit Report in Form No.10B declaring total income at

deficit of Rs.2,782,426,641/-. It also claimed carried forward of earlier

years excess of expenditure of Rs.21,289,728,242/- in the computation of

income filed along with the return of income. The trust is registered as a

Charitable Organization with DIT (Exemption), Mumbai u/s. 12A of the

Income Tax Act, 1961. The Assessee has accordingly claimed exemption

u/s. 11 of the Income Tax Act,1961.

4(ii) For the Assessment Year 2011-2012 the Appellant had claimed

depreciation of Rs.23,25,84,521/-, which the learned AO has disallowed

considering the same as double deduction.

4(iii) The Appellant has claimed Deficit of Rs.201,37,85,581/- of the

current year as the same is Arrived at after application of Income as per

principles of section 11-13 which the ld. AO has taken as nil.

Now we take the appeal groundwise :-

5. Ground Nos. 1 & 2 are related with double deduction of

depreciation and is dealt with simultaneously.

5.1 The assessee is a trust engaged in charitable activities and

registered u/s.12A of the Income Tax Act. During the year the assessee

invested in fixed assets and claimed the same as application of income

while filing the return. Furthermore, the assessee also claimed

depreciation of Rs.23,21,54,114/- on same fixed assets during the year

which the ld. AO has disallowed citing as double deduction. The ld. AO

has mentioned as under :-

I have considered the reply of the Assessee and also the ratio of jurisdictional High Court in the matter of CIT v/s Institute of Banking 4 ITA Nos.3421&3422/15

Personal Selection as reported in 264 ITR 110 (Bom). However, the Hon'ble Apex Court in 199 ITR 43 Union Bank of India Vs. Escorts Limited has held that double deduction cannot be allowed under any circumstances. It may also be pertinent to mention that the ratio of 264 ITR 110 (Bom) was pronounced by the Hon'ble Jurisdictional High Court without taking into consideration the ratio of Hon'ble Apex Court in 199 ITR 43. It may also be further pertinent to mention that the jurisdiction in the 264 ITR 110 (Bom) was accepted by the Department in view of low tax effect involved and not in view of the merits of the case. Therefore relying on the ratio of the Apex Court in 199 ITR 43 Escorts Limited V/s Union Bank of India, since the claim of depreciation of RS.23,21,54,114/- amounts to double deduction. Therefore, the same is disallowed.

5.2 Aggrieved with the order of the ld. AO, the assessee filed appeal

before the ld. CIT(A). The ld. CIT(A) allowed the appeal of assessee. In

this appellate order, the ld. CIT(A) mentioned as under :-

5.2 I have considered the facts and circumstances of the case, the assessment order of the A.O and the submissions of the appellant. The decision of the Hon. Jurisdictional High Court on the issue of allowance of depreciation is in favour of the appellant. The AO has not given any other reason for disallowance of depreciation and relied on the decision of the Hon. Apex Court in Escorts Limited case (199 ITR). However, the appellant has further relied on decision in the case of DIT(E) vs. Najam Baug Trust (Bom.). In fact the decision of the Hon. Jurisdiction Court in CIT Vs. Institute of Banking Personnel Selection (2003) 185 CTR 492 (Bom) is applicable in this case. As per decision of the Hon. Higher judicial authorities on this issue, deprecation is allowable as claimed by the appellant. Therefore, Ground No. 2 of appeal is allowed for both the years."

5.3 Aggrieved with the order of CIT(A), the Revenue filed second

appeal before us.

5.4 Ld. AR submitted that the depreciation claimed is as per

established accounting principle and based on various judgment of High

Court. The income being exempt, depreciation should be reduced for

determining the correct income computation. Depreciation is a charge

which ought to be allowed in order to reflect the trusts correct profits. Ld.

AR further contended that the Supreme Court in CIT vs. Williamson

Financial Services (2008) 297 ITR 17 (SC) has held that in order to arrive 5 ITA Nos.3421&3422/15

at correct income for the purposes of Section 11 deductions and

provisions of Section 15 to Section 59 had to be considered. Thus

depreciation has to be taken into consideration to arrive at the correct

income. As per ld. AR, in order to arrive at correct application of income

under Section 11 on commercial principles normal depreciation should be

considered from gross income of the trust.

CIT . Institute of Banking (2003) 264 ITR 1·10 (Born). CIT . Institute of Banking. Personnel Section (2003) 185 CTR 492 (Born).

ITO v. Trustees of Mar at hi Mission (1982) 80 ITD 539 (Born)

Further the contention of ld. AR was that the ITO has wrongly considered

Union of India v/s. Escorts Limited 199 ITR 43(SC) which is totally

distinguishable and does not refer to the issue of depreciation at all.

Hence the said decision has no applicability to the issue of grant of

depreciation. The ld. AR further submitted that in assessee's own case in

earlier years, C.I.T.(A)/Tribunal allowed the depreciation, and the matter

stands, concluded.

5.5 We have heard both the parties. Judicial pronouncements cited at

bar and relied on by lower authorities had also been deliberated. The ld.

DR relied heavily on the judgment of Hon'ble Apex Court in the case of

Union of India Vs. Escorts Ltd., 199 ITR 43, whereby it was held that

double deduction cannot be allowed.

5.6 On the other hand, ld. AR relied on the judgment of jurisdictional

High Court in the matter of CIT Vs. Institute of Banking Personnel

Selection, 264 ITR 110 (Bom). The ld. AR also referred to the case of

DIT(E) Vs. Najam Baug Trust, judgment dated 14-2-2015, wherein the 6 ITA Nos.3421&3422/15

Hon'ble Bombay High Court has opined that no fault can be found in the

order of the Tribunal relying on the judgment of the Hon'ble High Court in

the case of Institute of Banking Personal Selection, 264 ITR 110. Thus,

the Hon'ble High Court did not even admit the appeal. The ld. AR further

pointed out that the amendment in clause 6 to Section 11 of the Income

Tax Act, 1961 has been brought into effect from 1-4-2015 and prior to that

depreciation is to be allowed. The assessee also put forward following

judgments in its favour :-

i) CIT Vs. Munisuvarat Jain (1994) TaxLR 1084 (Bom);

ii) CIT Vs. Institute of Banking (2003) 264 ITR 110 (Bom);

iii) CIT Vs. Public Welfare Trust (1999) 240 ITR 513 (Cal);

iv) CIT Vs. Birla Janahit Trust (1994) 208 ITR 372 (Cal);

v) CIT Vs. Seth Manilal Ranchhoddas Vishram Bhavan Trust (1992) 198 ITR 598 (Guj);

vi) CIT Vs. society of Sisters of St. Anne (1984) 146 ITR 28 (Ker);

vii) CIT Vs. St. George Forana Church (1988) 170 62 (Ker); and

viii) CIT Vs. Rao Bahadur Calavala Chetty Charities (1982) 135 ITR 485 (Mad)

5.7 The sole contention of the ld. DR is that jurisdiction in the case

reported in 264 ITR 110 (Bom) was accepted by the department in view of

the low tax involved. He further relied on decision of Kerala High Court in

the case of Lissi Medical Institution (supra) and Delhi High Court decision

in the case of Charanjiv Charitable Trust (supra). The ld. AR has further

relied on the decision in the case of DIT(E) Vs. Najam Baug Trust (Bom).

5.8 It is pertinent to note here that by way of amendment in Finance Act

2014 in Section 11(6) of the Act, depreciation will not be allowed while

computing application of income w.e.f.1-4-2015. Thus, the amended

provisions are applicable w.e.f.A.Y.2015-2016. However, the section does

not mention anything for applicability prior to A.Y.2015-16 cases. So 7 ITA Nos.3421&3422/15

cases prior to A.Y.2015-2016 have to be decided as per the law

applicable during that period. Recently Hon'ble Delhi High Court in the

case of Indraprastha Cancer Society in ITA No.240 of 2014, order dated

18-11-2014 held as under with respect to application of amended

provisions of law :-

1. By Finance (No. 2) Act of 2014, sub-section (6) to Section 11 stands inserted with effect from 1st April, 2015 to the effect that where any income is required to be applied, accumulated or set apart for application, then for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of an asset, the acquisition of which has been claimed as application of income under this Section in the same or any other previous year. The legal position, therefore, would undergo a change in terms of Section 11(6), which has been inserted and applicable with effect from 1st April, 2015 and not to the assessment years in question. The newly enacted sub- section relates to application of income.

In view of the above amended provision, which is applicable w.e.f.

Assessment Year 2015-2016, we do not find any infirmity in the order of

CIT(A) for allowing assessee's claim for depreciation relying on the

decision of jurisdictional High Court in respect of assessment years falling

prior to 2015-2016. The decision of the Hon'ble jurisdictional High Court in

the case of CIT Vs. Institute of Banking Personnel (2003) 185 CTR 492

(Bom) is squarely applicable in this case.

5.9 It is pertinent to mention here that in this case Hon'ble Delhi High

Court while allowing assessee's claim for depreciation has already been

dealt with the decision of Hon'ble Kerala High Court in the case of Lissie

Medical Institutions, 245 KLR 525 as relied on by the ld. DR. Hon'ble High

Court has further observed that decision of Hon'ble Supreme Court in the 8 ITA Nos.3421&3422/15

case of Escorts Ltd. (supra) is not applicable to the facts of the present

case and observed as under :-

"13. 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-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)."

5.10 Hon'ble Kerala High Court has also dealt with the decision of

Hon'ble Delhi High Court in the case of Charanjiv Charitable Trust, order

dated 18-3-2015 as relied on by the ld. DR and observed that it has not

discussed earlier decision of Delhi High Court in the case of Vishwa

Jagrati Mission, 262 CTR (Del) 558 and Indian Trade Promotion

Organisation, ITA No. 7/2013, being prior in point of time would act as

binding precedents. In view of the above discussions, we do not find any

infirmity in the order of CIT(A) for allowing assessee's claim for deduction

of interest. Ground Nos. 1 & 2 of the appeal are dismissed. 9

ITA Nos.3421&3422/15

6. Ground Nos.3, 4 & 5. These grounds are on the same dispute and

thus will be dealt in simultaneously. During the year, the assessee has

deficit of Rs.2,78,24,26,641/- which it carried forward to the next year to

be set off against the income of the subsequent years.

6.1 The ld. AO has objected above action of the assessee and passed

his assessment order mentioning therein :-

"It is seen that the above claim is presumably based on the provisions under Section 72 provided in Chapter VI of I. T. Act, which provides for 'Carry Forward & Set off of Business Losses' dealing with Business Income. The provisions of Section 11, 12 and 13 dealing with Income of Charitable Institutions are silent about any such provision and do not provide for the carry forward and set off of losses/excess application of a particular year against the income of subsequent years. It is seen that the Assessee is placing the reliance on the ratio of Hon'ble Mumbai High Court in 264 ITR 110 Institute of Banking Personnel Vs CIT. It is further seen that in the aforesaid ratio, no SLP was filed by the department on the ground of low tax effect, not on merits of the issue. Therefore, there being no provision for carry forward of excess application as loss u/s.11 to the subsequent years, the same is disallowed."

6.2 Aggrieved with the order of ld. AO the assessee filed appeal with

the ld. CIT(A). In his order, the ld. CIT(A) allowed the appeal of assessee.

He mentioned as under :-

"6.2 I have considered the facts and circumstances of the case, the assessment order of the A.O and the submissions of the appellant. The issue of excess application of earlier years to be carried forward is decided in favour of the appellant in the decision of the higher judicial forums as referred and relied by the appellant. Therefore, respectfully following the decisions relied upon by the appellant and applicable under the facts and circumstances of the case, Ground Nos. 3 and 4 for both the years i.e. A.Yrs. 2010-11 and 2011-12 are allowed. However, the A.O is directed to verify the claim of c/f of earlier year deficits amounting to Rs. Rs.2,01,37,85,581/- upto A.Y. 2010-11 and Rs~ 2,78,24,26,641/- upto A.Y. 2011-12, that such amounts are part of 'excess expenditure of earlier years', and such amounts are liable to be considered as part of 'application of income' in the respective years. It may further be verified that such excess expenditure of earlier years claimed is out of income of the respective years."

6.3 Aggrieved with the order of ld. CIT(A) the revenue filed appeal with this Bench.

10

ITA Nos.3421&3422/15

6.4 The assessee submitted as below :-

(i) The carry forward of this excess application as deficit/loss to the

subsequent years is required to be in compliance with the provisions for

the Act. Hence the deficit of the current year is to be allowed to be carry

forward to subsequent years.

(ii) It is settled law that excess of expenditure in earlier year can be

adjusted against income of subsequent year. Such adjustment is to be

treated as application of income in such subsequent year for charitable

purposes.

(iii) This proposition is laid down in CIT v. Shri Plot Swetamber Murti

Pujak Jain Mandal (1995) 211 ITR 293 (Guj) CIT v. Shri Plot Swetamber

Murti Pujak Jain Manda1 (1994) 119 CTR (Guj) 144. CIT v. Maharana of

Mewar Charitable Foundation (1987) 164 ITR 439 (Raj) CIT v. Maharana

of Mewar Charitable Foundation (1987) 60 CTR (Raj) 40.

(iv) Hence the Deficit as per computation of income is correctly shown

at Rs.2,782,426,641/-. The question of disallowance of depreciation of

Rs.23,25,84,521/- does not arise as it is as per commercial principles and

based on judicial pronouncement. The current year deficit and earlier

years deficit should be allowed as per computation of Income.

(v) The assessee further submitted as below :-

"1. The ITO at page 6 of his order has clearly mentioned that there is no specific provision for carry forward of loss and the decision of Institute of Banking was not acceptable to the Department but was not challenged before the Supreme Court.

2. The ITO(E)(l) was of the view that carry forward of loss would not be allowed in view of the fact that 'The provisions of Section 11,12 & 13 dealing with income of Charitable Institutions are silent about any such provision and do not provide for the carry forward and set off of 11 ITA Nos.3421&3422/15

losses/excess application of a particular year against the income of subsequent years. It is seen that the Assessee is placing the reliance on the ratio of Hon'ble Mumbai High Court in 264 ITR 110 Institute of Banking Personal vis. CIT. It is further seen that in the aforesaid ratio, no SLP was filed by the department on the ground of low tax effect, not on merits of the issue. Therefore, there being no provision for carry forward of excess application as loss/deficit u/s. 11 to the subsequent years, the same is liable to be disallowed. '

3. It may be noted that identical questions of law with identical argument have been digested in the order by the High Court of Bombay in Director of Income Tax (E) Vis. Najam Baug Trust, and thereto the Appeal of the Department was dismissed.

4. In light of the above, the Assessee is entitled to claim carry forward loss in the light of the decision of Institution of Banking 264 ITR 110 (Bom) and reconfirmed and reaffirmed in case of DIT(E) V/s. Najam Baug.

6.5 The ld. DR reiterated the order of ld. AO and emphasized that loss

on charitable activities cannot be allowed to be carried forward on the line

of commercial establishment u/s.72 of the Act.

6.6 I have considered the argument put forward by both the parties.

The issue of excess application of income of earlier years to be carried

forward is decided in favour of the assessee in the decision of Higher

Judicial Forum as referred to and relied by the CIT(A). Therefore,

respectfully following the decision relied upon by the CIT(A) and

applicable under the facts and circumstances of the case, these grounds

of the Revenue are dismissed.

7. In the result, both appeals of the department are dismissed.

Order pronounced in the open court on this 30/07/2015.

Sd/-

(आय.सी.शभमव) (R.C.SHARMA) ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनमंक Dated 30/07/2015 प्र.कु.मभ/pkm, नन.स/ PS 12 ITA Nos.3421&3422/15

आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :

1. अऩीरमथी / The Appellant

2. प्रत्मथी / The Respondent.

3. आमकय आमक् ु त(अऩीर) / The CIT(A), Mumbai.

4. आमकय आमक् ु त / CIT

5. वर्बमगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai

6. गमर्व पमईर / Guard file.

आदे शािसार/ BY ORDER, सत्ममवऩत प्रनत //True Copy/

उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुंफई / ITAT, Mumbai