M/S Aishwarya Vignan Educational ... vs Assessee

ITA No.1267 of 2014 Aishwarya Vignan Educational Society Hyderabad

IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad 'A' Bench, Hyderabad

Before Shri P.M. Jagtap, Accountant Member & Smt.Asha Vijayaraghavan, Judicial Member

ITA No.1267/Hyd/2014 (Assessment year: 2010-11)

M/s. Aishwarya Vignan Dy. Director of Income Educational Society Vs. Tax (Exemptions)-II Hyderabad Hyderabad PAN- AAATA 8718 K (Appellant) (Respondent)

For Assessee : Shri S. Rama Rao For Revenue : Shri Ramakrishna Bandi, DR

Date of Hearing : 17/03/2015 Date of Pronouncement : 20/03/2015

ORDER

Per Smt. Asha Vijayaraghavan, J.M.

This appeal is preferred by the assessee against the order of

the CIT (A)-IV Hyderabad dated 10.04.2014 passed u/s 143(3) of

the Act, for A.Y 2010-11.

2. The assessee is a society registered u/s 12AA of the Act

and filed its return of income on 13.09.2011. AO held that since

the assessee was engaged in running various educational

institutions, it was eligible for exemption u/s 10(23C)(vi) and not

u/s 11 and since it had not obtained requisite approval u/s

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10(23C)(vi), assessee was not entitled to any exemption. Further,

AO also disallowed the depreciation and assessed the total

income at Rs.4,01,49,420.

3. On further appeal before the CIT (A) with respect to

disallowing of depreciation of Rs.1,40,72,707, AO noted that the

cost of assets had earlier been claimed as application of income,

but that the assessee had also claimed depreciation of

Rs.1,91,82,769 on that. AO relied on the decision in the case of

Escorts Ltd. vs. Union of India (199 ITR 43) and the jurisdictional

ITAT in the case of Dy. Director of Income-tax(Exemption)

Hyderabad, V/s. Exhibition Society, Hyderabad for the

assessment year 2006-07 vide order dated 22nd March, 2012 in

ITA No.1195/Hyd/2009, and held that since the assessee

claimed the total value of the assets being applied for charitable

purpose in the year, the claim of depreciation could not be

allowed. AO also noted that since the entire surplus for the

current year was being brought to tax, the depreciation of

Rs.51,10,062 on the assets procured during the year was

allowed.

4. During the proceedings before the CIT (A), the ld AR

submitted that the decision in the case of Escorts Ltd. Vs. Union

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of India (199 ITR 43)(SC) was distinguishable and relied on the

decision in the case of CIT vs. Market Committee, Pipli (330 ITR

16) (P&H HC). The ld CIT (A) held as follows:

"6.3 I find that the ITAT, Hyderabad has considered this issue in the case of ACIT vs. Sri Venkata Sai Educational Society and others (ITA No.1440/Hyd/2011 and others, dated 9.4.2012) and held that where the entire cost of the asset stands allowed by way of application of income u/s 11(1), the depreciation claimed by the assessee u/s 32(1) is not allowable. In arriving at this decision, the ITAT referred to and relied on the following decisions:

i) Jaipur Stock Exchange 108 TTJ 393 (JP) ii) Mahila Sidh Nirman Yojana v IAC 50 ITD 472 (Del)

iii) DCIT v. Adi Sankara Trust 46 SOT 230 (Cochin)

In the appellant's case, it is undisputed that the cost of the assets had already been claimed as application of income. Under the circumstances, respectfully following the view of the jurisdictional bench of the ITAT, the disallowance of depreciation by the AO is upheld".

5. We heard both the parties. It has been held in CIT vs.

Gujrati Samaj (Regd.) 349 ITR 559 (MP H.C) as follows:

"Depreciation is nothing but decrease in the value of property through wear, deterioration or obsolescence and allowance is made for this purpose in book keeping, accountancy, etc. It 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 ; the amount of the provision, made in respect of an accounting period, is intended to represent the

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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".

6. In the case of CIT vs. Institute of Banking Personnel

Selection (IBPS) (264 ITR 110 (Bom.) H.C. has held that

depreciation on assets are allowable. In the case of CIT vs. Seth

Manilal Ranchhoddas Vishram Bhvan Trust (198 ITR 598 the

Gujarat High Court held as follows:

"The income from the properties held under trust have to be arrived at in the normal commercial manner without classification under the various heads set out in section 14 of the Income Tax Act, 1961.The expression "income" has to be understood in the popular or general sense and not in the sense in which the income is arrived at for the purpose of assessment to tax by application of some artificial provisions either giving or denying deduction. The computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chapter III. 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".

7. Similar view has been taken in the case of CIT vs. Market

Committee, Pipli (330 ITR 16) (P&H H.C), CIT vs. Institute of

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Banking Personnel Selection (IBPS) 264 ITR 110 (Bom.)(H.C) and

in the case of Director of Income-tax (Exemptions) vs. G.K.

Charities (214 Taxmann 555 (Bom.). Following the ratios of the

above said decisions of the various High Courts and relying on

the principles that the Court has to adopt that interpretation

which favours the assessee, as cited in the case of CIT vs.

Vegetable Products Ltd (88 ITR 192), we are of the opinion that

the CIT (A) erred in disallowing the depreciation claimed by the

assessee.

8. In the result, assessee's appeal is allowed.

Order pronounced in the Open Court on 20th March, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 20th March, 2015.

Vnodan/sps Copy to:

1. M/s. Aishwarya Vignan Educational Society, H.No.8-3- 164/D/46 Flat No.102 Sushila Sadan Apartments, Kalyan Nagar, Vengal Rao Nagar, Hyderabad

2. Dy. Director of Income Tax (Exemption)-II, 3rd Floor Aayakar Bhavan, Basheerbagh,Hyderabad

3. The CIT (A)-IV Hyderabad

4. The Director of Income Tax (Exemptions) Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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