2016 (6) TMI 1457 - AT - Income Tax

Exemption u/s 11 - claim of depreciation - double deduction - assessee is a charitable trust with the object of promoting and developing sports health and fitness awareness and also to impart coaching and training in various sports activities along with conducting sports competition arranging tournaments etc - HELD THAT - As relying on case of Institute of Banking Personal 2003 (7) TMI 52 - BOMBAY HIGH COURT income derived from the trust property also has to be computed on commercial principle and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in earlier years against the income earned by the trust in subsequent years 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 section 11 and that such adjustment will have to be excluded from the income of the trust u/s 11(1)(a) therefore respectfully following the decision from Hon ble jurisdictional High Court we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal). We affirm the same. - Decided against revenue.

Summary

Issues Involved:
1. Allowing the claim of depreciation.
2. Allowing carry forward of the deficit of excess expenditure.

Issue-wise Detailed Analysis:

1. Allowing the Claim of Depreciation:

The primary issue raised by the Revenue pertains to the allowance of the claim of depreciation amounting to Rs.5,13,92,267/- for the Assessment Year 2010-11 and Rs.5,01,50,153/- for the Assessment Year 2011-12. The Revenue contends that this allowance contradicts the principle laid down by the Hon'ble Supreme Court in Escorts Ltd. vs UOI (199 ITR 43)(SC), which states that double deduction cannot be presumed unless specifically provided by law. The Revenue argues that the First Appellate Authority's decision to allow depreciation, relying on the jurisdictional High Court's decision in CIT vs Institute of Banking Personal Services (264 ITR 110)(Bom.), ignores the ratio laid down by the Apex Court.

The Tribunal considered the rival submissions and noted that the assessee is a charitable trust registered under the Income Tax Act, 1961, and engaged in promoting sports and health awareness. The assessee had claimed depreciation on assets whose cost had already been allowed as application of income under Section 11 in past years. The Assessing Officer disallowed the claim on the grounds of double deduction.

On appeal, the Commissioner of Income Tax (Appeal) upheld the assessee's claim, relying on the jurisdictional High Court's decision in CIT vs Institute of Banking Personal Services, which allows depreciation on assets even if their cost has been fully allowed as application of income under Section 11 in previous years. The Tribunal affirmed this view, emphasizing judicial discipline and the necessity to follow the jurisdictional High Court's decision. The Tribunal dismissed the Revenue's contention that the First Appellate Authority ignored other High Court decisions, stating that the remedy for the Revenue lies elsewhere if aggrieved by the High Court's decision.

2. Allowing Carry Forward of the Deficit of Excess Expenditure:

The second issue involves the allowance of carry forward of the deficit of excess expenditure from earlier years to be set off against the income of subsequent years. The Revenue argued that such carry forward is not permissible for a charitable trust as its income is not assessable under the head "Profits and gains of business."

The Tribunal referred to the jurisdictional High Court's decision, which held that income derived from trust property should be computed on commercial principles. If commercial principles are applied, the adjustment of expenses incurred for charitable purposes in earlier years against the income of subsequent years should be regarded as application of income for charitable purposes in the subsequent year. This view aligns with the benevolent provisions of Section 11 of the Act and is supported by the Gujarat High Court's decision in CIT v Shri Plot Swetamber Murti Pujak Jain Mandal (211 ITR 293)(Gujarat).

The Tribunal concluded that the Commissioner of Income Tax (Appeal) correctly allowed the carry forward of the deficit, following the jurisdictional High Court's decision. The Tribunal found no infirmity in the First Appellate Authority's conclusion and affirmed the same.

Conclusion:

The Tribunal dismissed the Revenue's appeals, upholding the First Appellate Authority's decision to allow the claim of depreciation and the carry forward of the deficit of excess expenditure. The Tribunal emphasized the importance of following the jurisdictional High Court's decision and maintaining judicial discipline. The order was pronounced in the open court on 08/06/2016.