Sadguru Seva Trust, Mumbai vs Department Of Income Tax

( नधा रण वष / Assessment Years : 2008-09, 2009-10 & 2010-11)

ITO -(E) 2(3), R.No.513, Piramal Chambers, ....................... अपीलाथ / Lal Baug, Parel, Mumbai-400012 Appellant

बनाम v/s

Shri Sadguru Seva Trust, 4th Floor, Mafatlal House, ................... यथ / Backbay Reclamation, Respondent Mumbai-400020

थायी लेखा सं./ Permanent Account Number - AAATS0575N

Revenue by : Shri Javed Akhtar, (DR) Respondent by : Smt. Arati Vassanji

सन ु वाई क$ तार&ख / आदे श घोषणा क$ तार&ख / Date of Hearing -27.07.2015 Date of Order -31.07.2015

आदे श / ORDER

आर.सी. शमा , लेखा सद य के !वारा / PER R.C. SHARMA, A.M.

These appeals have been filed by the Revenue against common

order dated 19.03.2015, passed by the learned Commissioner Sadguru Seva Trust

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(Appeals)-1, Mumbai, for the assessment passed under section

143(3), for the assessment years 2008-09, 2009-10 & 2010-11

respectively.

It is seen that the issues raised in all these appeals are common. For

the sake of ready reference, grounds raised by the revenue in the

appeal memo in ITA No.3387/M/2015 for the A.Y. 2008-09 are

reproduced hereunder:-

"1. Whether on the facts of the case and in law the Id.CIT(A) erred in allowing the appeal of the assessee on account of disallowing depreciation on fixed assets of Rs 1,76,73,379/- in contravention of the decision of Escorts Ltd. Vs. UOl 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 previous year in respect of that asset as it amounts to claiming a double deduction.

2. Whether, on the facts and in the circumstances of the case and in law the Id.CIT(A) erred in allowing the appeal, when the Delhi High Court in the case of Charanjiv Charitable Trust and Kerala High Court in the case of 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 ld. CIT(A) erred in allowing the carry forward of deficit of Rs. 3,22,34,482/ - 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 in the circumstances of the case and in law, the Ld 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 Sadguru Seva Trust

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have the effect of granting double benefit to the assessee, first as 'accumulation' of income u/s. 11(1)(a) or as corpus donation u/s 11 (1)(d) in earlier years/current year and then as 'application' of income u/s 11 (1)(a) in the subsequent years which was legally not permissible.?

5. Whether, on the facts and in the circumstances of the case and in law, the Ld 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 provision in the I T Act, 1961 permitting allowance of such claim.

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

7. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.

2. The grounds no. 1 & 2 of all these three appeals address the

issue of disallowance of the depreciation on fixed assets made by the

AO on the ground that the assessee had already claimed deduction of

the capital expenditure incurred on assets as application. This claim

was allowed by the CIT(A) and therefore now revenue is in appeal

before the Tribunal. Grounds No. 3, 4 & 5 of all these three appeals

deal with the issue of allowing the carry forward of deficit and allowing

the set off against the income of the subsequent years. Grounds no. 6

& 7 of all these three appeals are general and do not need any specific

adjudication.

3. I shall first take up grounds no. 1 and 2, dealing with the

disallowance of depreciation. The Brief facts as culled out from orders Sadguru Seva Trust

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of the authorities below are that the assessee is a trust claiming the

benefit of exemption u/s. 11(1) of the I.T. Act, 1961. In the

assessment order, the AO disallowed depreciation on the ground that

the assessee has already claimed benefit of capital expenditure

incurred on the acquisition of impugned capital asset as part of

application and therefore, claiming the depreciation on the same very

asset would be amounting to double deduction. Being aggrieved, the

assessee trust contested the matter before the CIT(A) and the Ld.

CIT(A) allowed the benefit of depreciation relying upon the judgment

of Hon'ble Jurisdictional High Court in CIT vs. Institute of Banking

Personal 264 ITR 110 (Bom). The operative para of the order of the

Ld CIT(A) is reproduced hereunder for the sake of ready reference:

"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 in CIT vs. Institute of Banking Personal (264 ITR 110) 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). 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, depreciation is allowable as claimed by the appellant."

4. Before me, Ld. DR has vehemently contested the order of

CIT(A). It was submitted by him that the claim of the assessee is

leading to double deduction in the sense that on the one hand, the Sadguru Seva Trust

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assessee is taking the benefit of capital expenditure incurred at the

time of acquisition of capital asset as part of application of income and

on the other hand, the assessee is simultaneously seeking to claim the

benefit of depreciation on these very assets on which he has already

taken the benefit of capital expenditure as part of application of

income. It was further submitted by him that the aforesaid judgment

of Hon'ble Bombay High Court has been passed without considering

the judgment of Hon'ble Supreme Court in the case of Escort Limited

vs. UOI (199 ITR 43) and therefore, the judgment of Hon'ble

Jurisdictional High Court is per incurium to this extent and resultantly,

the same is not binding upon the Tribunal. He further placed reliance

on the judgment of Hon'ble Delhi High Court in the case of Director of

Income Tax (E) vs. Charanjiv Charitable Trust order dated 18th March

2014 in ITA No.321/2013, ITA No.322/2013 & ITA No.323/2013 the

copy of this judgment was placed before us and specific reliance was

placed at page 35 of para 30 of this judgment. The relevant para as

relied upon by the Ld DR is reproduced hereunder for the sake of

ready reference:

"30. So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced. The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the CIT (Appeals) as well as the assessing officer. It was their view that allowing depreciation in respect of assets, the cost of which was earlier allowed as deduction as application of income the trust, Sadguru Seva Trust

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would actually amount to double deduction on the basis of the ruling of the Supreme Court in Escorts Ltd. vs. UOl (supra). In respect of the additions to the fixed assets made during the previous year relevant to the assessment year 2006-07, the CIT (Appeals) held that since the cost of the, assets was not allowed as a deduction by way of application of income, depreciation should be allow. The CIT (Appeals) has thus made a distinction between assets the cost of which was allowed as, deduction as application of income and assets, the cost of which was not so allowed. The Tribunal has not kept this distinction in view, but has proceeded to rely upon a judgment of this Court in DlT vs. Vishwa Jagrati Mission (supra). In the judgment of this Court the question was whether the, income of the assessee, which was a charitable trust, should be computed on commercial principles and if so, whether depreciation on fixed assets used for charitable' purposes should be allowed as a deduction. This Court noticed that there was a consensus of judicial opinion on this aspect and held, after referring to those authorities as well as a circular of the CBDT issued on 19.07.1968, that while computing the income of the trust available for application for charitable purposes, depreciation on assets used for charitable purposes should be allowed.

The point to be noticed is that in this judgment, this Court referred to and distinguished the judgment of the Supreme Court in Escorts Ltd. (supra) on the ground that in Escorts (supra), the Supreme Court was concerned with a case where the deduction of the cost of the asset was allowed under Section 35(1) as capital expenditure incurred on scientific research and, therefore, no deduction for depreciation on the very same assets' was held allowable under general principles of taxation, as it would amount to double deduction'. The judgment of this Court in DIT vs. Vishwajagrati Mission reinforces the principle that if the cost of the asset has been allowed as deduction by way of application of income then depreciation on the same asset cannot be allowed in the computation of the income of the trust. The distinction Has, not been kept in view by the Tribunal which seems to have erroneously relied on the judgment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has already been allowed as application of income. We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets.

Sadguru Seva Trust

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5. Further reliance was placed by Ld. DR on the judgment of

Hon'ble Kerala High Court in the case of Lissie Medical Institutions vs.

CIT in ITA No.42 of 2011 dated 17th February 2012. According to Ld.

DR, Hon'ble Kerala High Court has also followed the judgment of

Hon'ble Supreme Court in the case of Escort Limited (supra) and has

rejected the claim of depreciation. The Ld. DR further placed reliance

upon the recent amendment made in section 11 by Finance Act 2014.

He has read before us sub-section (6) inserted to section 11 w.e.f.

01.04.2015. The same is reproduced hereunder for the sake of ready

reference:

"[(6) In this section where any income is required to be applied or 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 any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year."

6. The Ld. DR requested for confirmation the order of AO and for

allowing the appeal of the department. On the other hand, Ld. Counsel

of the assessee trust made her submissions in detail and submitted

that the order of CIT(A)is very much in accordance with law and the

facts and the same needs to be upheld. Her arguments are in two

parts. One, the assesseee has been getting the benefit of claim of

depreciation in the similar manner on these very assets since last

many years. He has placed before us the copies of assessment orders Sadguru Seva Trust

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passed u/s 143(3) for A.Y. 2003-04 to A.Y. 2007-08 at paper book

pages 1 to 13. Second part of her argument is that the judgment of

Hon'ble Jurisdictional High Court is binding upon the Tribunal and

therefore the assessee is entitled for the benefit of depreciation. In

addition to the above, she has further relied upon the judgment of

other High Courts and copies of which have been placed in the paper

book as per details given below:

(I) CIT v. Institute of Banking, Bombay High Court (2003) 264 ITR 110

(ii) CIT v. Devi Sakuntala Tharal Charitable Foundation (2013) 358 ITR452 (MP)

(iii) CIT vs. Siliguri Regulated Market Committee (2014) 366 ITR 51 (Cal)

(iv) Director of Income Tax v. Vishwa Jagriti Mission (2012) 73 DTR 195 (Del.)

(v) CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (Punjab & Haryana)

(vi) CIT vs. Tiny Tots Educational Society (2011) 330 ITR 21 (Punjab & Haryana)

7. She further submitted that the decision in the case of Escort

Limited (supra) relied upon by the AO has been discussed and

distinguished in the judicial pronouncement mentioned at serial no. iv

to vi above. She further submitted that rule of consistency should also

be applied especially in view of judgment of Hon'ble Bombay High

Court in the case of CIT v. Gopal Purohit 336 ITR 287 (Bom) and Aroni

Commercial Ltd. vs. DCIT & others (2014) 362 ITR 403 (Bom). She

further submitted that the amendment made to section 11 is

prospective and is not to be applied retrospectively in the assessment Sadguru Seva Trust

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year under consideration in this appeal. She requested for confirming

the order of CIT(A) and dismissing the appeal filed by the Revenue.

I have heard both the parties at length and have going through the

judgments filed by both the parties. In my considered opinion, the

judgment of jurisdictional High Court is binding upon the Tribunal and

therefore, the assessee deserves to succeed on this ground itself. In

addition to that it is further seen by me that the judgment of Hon'ble

Supreme Court in the case of Escorts Limited, (supra) has been

discussed and distinguished by Hon'ble Delhi High court and Hon'ble

Punjab and Haryana High Court in the judgments cited by Ld. Counsel

of the assessee. The judgment of the Hon'ble jurisdictional High Court

is binding upon by the Tribunal as was held by the Hon'ble M.P. High

Court in the case of National Textile Corporation 216 CTR 153 in which

it was held that the lower courts are bound to follow the judgment of

superior courts, as per constitutional frame work of our country.

8. It is further seen by me that the Hon'ble Delhi High Court in the

case of DIT vs. Indraprastha Cancer Society in ITA NO.240/2014 dated

18th November 2014 has discussed at length the entire law available

as on that date on this issue, including the judgments relied upon by

the Ld. DR in the case of Escorts Ltd. (supra), Charanjiv Charitable

Trust, (supra) and Lissie Medical Institutions, (supra) and after

analyzing all these judgments, it was held that the assessee was Sadguru Seva Trust

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entitled for the claim of depreciation and view taken by the

jurisdictional High Court of Bombay was followed by Hon'ble Delhi High

Court in the case of Indraprastha Cancer Society, (supra). It is further

seen by me that Hon'ble Delhi High Court has also considered

amendment made by the Finance Act 2014 and it was held by Hon'ble

Delhi High Court that the amendment is prospective and cannot be

applied retrospectively. Para 11 of the said judgment is reproduced

hereunder for the sake of ready reference:-

" By Finance (no.2) Act of 2014, sub-section (6) of section 11 stands inserted with effect from 1st April, 2005 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, 20015 and not to the assessment years in question."

9. In addition to above, it is further seen by me that the assessee

has been getting the benefit of depreciation in all previous years and

therefore, as a matter of principle of consistency, the assessee should

be eligible to get the benefit of depreciation in this year as well and for

this purpose, I derive support from the judgment of Hon'ble Supreme

Court in the case of CIT v. Excel Industries Pvt. Ltd. 258 ITR 295.

Thus, viewed from all the angles, I find that the assessee is eligible to Sadguru Seva Trust

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claim depreciation and the same is directed to be allowed and grounds

raised by department are dismissed.

10. Now, I shall take up ground no.3, 4 & 6, dealing with the

provisions of the benefit of carry forward of deficit of Rs.3,22,34,482/.

It is seen that the CIT(A) has allowed the ground of the assesses in

para 6.3 which is reproduced hereunder for the sake of ready

reference:

"I have considered the facts and circumstances of the case, the assessment order of the AO and the submission 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 No.4 is allowed. However, the AO is directed to verify the claim of C/f. of earlier year deficits 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.

Before us, the Ld. DR relied upon the order of Ld. AO and on the

other hand, Ld. Counsel of the assessee relied upon the order of

CIT(A) and also on the judgment of Hon'ble Bombay High Court in the

case of CIT vs. Institute of Banking Personnel (264 ITR 110) and

submitted that the assessee was eligible for the benefit of carry

forward and that is why CIT(A) has rightly allowed the same.

Sadguru Seva Trust

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I have going through the arguments made by both the sides and it is

seen by me that the issue is covered by the aforesaid judgment of

Hon'ble Jurisdictional High Court and no contrary judgment has been

brought to my notice by the Ld DR appearing on behalf of the revenue

and therefore respectfully following the judgment of Hon'ble High

Court (Bom) I find no substance in the grounds raised by revenue and

therefore, these are dismissed and order of CIT(A) on this issue is

confirmed.

In the result, all the appeals of the revenue are dismissed.

Order pronounced in the open Court on day of July 2015.

Sd/-

आर.सी. शमा , लेखा सद य R.C. SHARMA ACCOUNTANT MEMBER

मंुबई MUMBAI, #दनांक DATED:31 .07.2015 Patel

आदे श क$ त)ल*प अ+े*षत / Copy of the order forwarded to:

(1) नधा ,रती / The Assessee; (2) राज व / The Revenue; (3) आयकर आयु.त(अपील) / The CIT(A); (4) आयकर आयु.त / The CIT, Mumbai City concerned; (5) *वभागीय त न3ध, आयकर अपील&य अ3धकरण, मुंबई / The DR, ITAT, Mumbai;