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2016 (6) TMI 256 - ITAT KOLKATA

2016 (6) TMI 256 - ITAT KOLKATA - TMI - Revision u/s 263 - as per CIT(A) AO allowing depreciation as allowable expenditure against receipts of the Assessee - trust during the previous year was erroneous and prejudicial to the interest of the revenue - Held that:- If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of pr .....

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) that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit.

In view of the aforesaid decisions on the issue, we are of the view that the order of the respondent cannot be sustained. The amendment by the Finance Act (No.2), 2014 by insertion of Sec.11(6) of the Act specifically providing for not allowing any deduction or allowance by way of depr .....

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16, ITA No.620/Kol/2016, ITA No.620/Kol/2016 - Dated:- 1-6-2016 - Shri N. V. Vasudevan, Judicial Member And Shri M. Balaganesh, Accountant Member For the Assessee : Mr. S. M. Surana, Advocate For the Revenue : Mr. Snehotpal Datta, JCIT ORDER Per N.V. Vasudevan, Judicial Member The Assessee had filed the above stay application praying for an order of stay of recovery of outstanding demand of ₹ 24,07,700/-. When the stay application came up for hearing, with the consent of parties the appeal .....

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sessment u/s.143(3) of the Act, determining total income of the Assessee at ₹ 41,615/-. The Assessee had claimed depreciation of ₹ 68,43,455/- as allowable expenditure against receipts of the Assessee during the previous year. The same was allowed by the AO in the assessment completed u/s.143(3) of the Act by order dated 30.6.2014. 3. The CIT (E), Kolkata, the respondent herein was of the view that the aforesaid order of the AO allowing depreciation of ₹ 68,43,455/- as allowabl .....

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s the cost of acquisition was allowed as application of funds for charitable purpose would amount to allowing double deduction, once at the time of acquisition of the asset as application for charitable purpose and again in the form of depreciation on the very same cost over a number of years of life of the asset. The respondent was of the view that the decision of the Hon ble Supreme Court in the case of Escorts Limited & another Vs. Union of India 199 ITR 43 was squarely applicable, wherei .....

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ld that depreciation can be claimed even on assets whose cost of acquisition in the previous year in which it was acquired had been claimed by the assessee as capital expenditure and as application of funds towards the objects of the trust and allowed as such in such assessments. The following are some of the judicial pronouncements referred to by the Assessee in its reply to the show cause notice u/s.263 of the Act. (i) CIT Vs. Institute of Banking Personnel Selection (IBPS) (2003) 264 ITR 110( .....

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jiv Charitable Trust 43 Taxmann.com 300 (Del.) In the aforesaid decisions a view was taken the view that where capital expenditure on acquisition of depreciable asset is considered as application of income for charitable purpose, allowing depreciation on the very same capital asset would not amount to double allowance. The assessee also pointed out that the decision of Escorts Ltd. (supra) will not be applicable as it was rendered on a different set of facts. 5. The respondent however, held that .....

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itable purpose amounts to double depreciation and therefore depreciation cannot be allowed. The respondent also distinguished the cases cited by the Assessee as follows: 3.11 Let us now discuss the High Court orders stated that claim of depreciation is allowable even if the cost of the assets are taken as application. Such cases are mentioned in SI no. [ix] to (xi) under Para 3.8. The Ld. A/R placed reliance on 2 cases this list. 3.12. In the case of DIT(E) vs. Framjee Cawasjee Institute (supra) .....

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t was that depreciation can be claimed u/s 32 of the Act. Therefore an entity whose income is computed according to the commercial principle, (like trusts registered u/s 12A of the Act) and not in accordance with Chapter IV of the Act. is not entitled to claim of depreciation. In this case the Hon' ble Bombay High Court restricted its decision on this issue and decided that depreciation is allowoble although the assessee is not covered under Chapter IV of the Act. The Hon'ble Bombay High .....

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Court decided against the revenue on this issue but the relevant judgment of apex court in Escorts Ltd. (supra) were not brought to the notice of the Hon ble Mumbai High Court. So these judgment was made per incurium, But as no Special leave Petition was filed by department before the Hon'ble Supreme Court of India, it gave rise to the notion (all over Tax India) that deportment had accepted the said judgements and henceforth it is the good law. However the department in reality did not acce .....

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application. In that case tile following judgments were referred: i. ClT vs. Institute of Banking Personnel Selection reported in 264 ITR 110 {Mumbai} [2004] ii. CIT Vs. Market Committee, Pipli reported in 330 ITR 16 (Punjab & Haryana) [2011 ] iii. CIT vs. Trustee of H.E.H. Nizam's Supplemental Religious Endowment Trust reported in 127 ITR 378 (A.P.) [1981] iv. ClT vs. Rcao Bahadur Calavala Cunnan Chetty Charities reported in [1982) 135 ITR 485 [Mad} v. ClT vs. Bhoruka Public Welfare Tru .....

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ons vs. Commissioner of Income Tax (supra) and Chiranjiv Charitable Trust (supra) were neither referred to nor discussed. Further, although the name of Escorts Ltd. (supra) was mentioned in the list of cases referred to, not a single line of discussion was made on this case in the body of the order. The detail of the order of the Apex Court was not brought to the attention of the Hon'ble Kolkata High Court. 3.14 In the case of Market Committee, Pipli (supra) the Hon'ble Punjab & Hary .....

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of the Hon'ble Court. Allowing claim of depreciation as allowable expenses mean the assessee is getting a benefit of 85% of such claim. While allowing the claim of depreciation as application the assessee gets 100% benefit of such claim. Thereby in essence if remains a case of double deduction on one outgoing. In one case it's a case of 100% double deduction in another 85% of double deduction. But tin both the cases allowance of claim of depreciation (either as expenses or as applicatio .....

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se 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. 7. According to the respondent the aforesaid amendment was clarificatory in nature. The respondent however did not hold that the amendment is retrospective but merely observed that since the amendment is clarificatory the intention of the legislature was always that the no double deduction should be allowed to an Assessee. In coming to the above .....

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tting deduction of entire capital expenditure as deduction u/s.35(2)(iv) of the Act were also claiming simultaneously allowance or deduction in respect of the same expenditure once again under section 32 of the Act on account of depreciation on the very same asset. There was a controversy as to whether such a claim for depreciation was valid or not. Finance (No. 2) Act, 1980 intervened. It amended section 35(2)(iv) to read as follows: "(iv) where a deduction is allowed for any previous year .....

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held in the affirmative. The further question before the Hon ble Court was what is the effect of the statutory amendment by insertion of Sec.35A(2)(iv) of the Act. The Hon ble Court held that even in absence of clear statutory indication to contrary, statute should not be read so as to permit an assessee two deductions viz., both under sections 32(1)(ii) and 35(2)(iv) of Act, qua same expenditure. The respondent therefore held that the legislature would never have intended to give double deducti .....

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depreciation in this year was claimed to justify or to make up the application of income. No such claim was made in preceding and succeeding years as sufficient assets purchased were available for application. 3.21 Hence, the income of the assessee is computed as below : Total Receipts as per Income & Expenditure A/C. Rs.3,8435,539 Less : Revenue & Capital Expenditure Rs.2,68,03,157 Rs.1,16,32,382 Less: Statutory accumulation @15% of ₹ 3,84,35,539 ₹ 57,65,330 Revised Total I .....

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e AO on the assets, completely by passing the judgment of the jurisdictional High Court which was binding on him to maintain judicial discipline. 3. For that even otherwise the order of the Ld. CIT(E) is bad in law when he himself refers to two opinions on the issue of allowability of the depreciation on the assets which was rightly allowed by the AO. 4. For that on the facts and circumstances of the case the disallowance made by the CIT may be deleted. 5. For that on the facts and in the circum .....

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he Assessee reiterated the stand of the Assessee as reflected in the reply to the show cause notice u/s.263 of the Act. 11. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1 .....

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itution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit. The decision of the Hon ble Supreme Court in the case of Escorts Ltd. 199 ITR 43 (SC) has been referred to and distinguished by the Hon ble Court in the aforesaid decisions. The issue raised by the respondent in the impugned order is no longer res integra and has been decided by the Hon ble Punjab & Haryana High Court in the case of CIT v. Market .....

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made a reference to the decision of the Hon ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon .....

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iliguri Vs. Siliguri Regulated Market Committee (supra), the Hon ble Jurisdictional High Court has also taken the same view. The respondent has however observed in his order that the Calcutta High Court in the aforesaid decisions has not properly considered the decision in the case of Escorts Ltd.(supra). Such observations in our view would not be appropriate and cannot be the basis not to follow the decision of Hon ble High Court. 12. In view of the aforesaid decisions on the issue, we are of t .....

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onfers powers on the CIT which are in the nature of supervisory powers in order to protect the interest of the Revenue. The CIT is empowered to call for and examine the records of any proceeding under the Act. He can then exercise his powers in revision, if he is satisfied that any order passed by the AO is erroneous and prejudicial to the interest of the Revenue. The Supreme Court has held that both these elements - erroneous and prejudicial to the interests of the Revenue - must be satisfied f .....

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