2021 (4) TMI 1176 - HC - Income Tax

Assessment of trust - disallowing depreciation claimed on the premise that the cost of the assets were already claimed as application of income - HELD THAT - Issue decided against revenue as relying on M/S. SRA SYSTEMS LTD. 2021 (3) TMI 977 - MADRAS HIGH COURT . Set off to excess application of income of previous Assessment Years - HELD THAT - When the assessee-Trust applies 85% of its income received by way of voluntary contributions other than the voluntary contributions received with specific directions and the income derived from property held under Trust, then, such income shall not be included in the total income of the Trust. Further, the balance 15% of such income even if accumulated or set apart shall also not be included in the total income of the Trust. The Tribunal, while dismissing the appeal, observed that when the Trust applies its fund from its corpus, accumulated fund, sundry creditors or from the loan obtained by the trust, then, such funds which are applied cannot be said to be funds applied from the income of the Trust. Further, the Tribunal held that there cannot be a case where the Trust can apply its income more than the income received by it for the purpose of section 11(1)(a) and (b) of the Act. In the Judgment reported in MATRISEVA TRUST 1999 (3) TMI 34 - MADRAS HIGH COURT the Hon'ble Division Bench of this court, while deciding the substantial questions of law as to the set off of the deficiency of funds of this year against the earlier year surplus is concerned, categorically decided the same in favour of the assessee and against the Revenue. Though the appellant-assessee relied upon the said Judgment before the Income Tax Appellate Tribunal, the Tribunal did not consider the same. The Commissioner of Income Tax (Appeals), went beyond its jurisdiction and commented on the Judgments of the High Courts. Commissioner of Income Tax (Appeals) is bound by the Judgments/Orders of the High Courts. The Commissioner of Income Tax (Appeals) was not sitting over appeal on the Judgments of the Hon'ble High Courts. If the Judgments/Orders of the High Courts are applicable to the facts and circumstances of the case pending before the Commissioner of Income Tax (Appeals), he must follow the Judgments/Orders of the Hon'ble High Courts without any deviation. The observation made by the Commissioner of Income Tax (Appeals) is unwarranted and cannot be appreciated in any manner. Thus we set aside and the matter is remitted back to the Assessing Officer to decide the matter afresh taking into consideration the ratio laid down in the Judgment of the Hon'ble Division Bench of this court reported in Matriseva Trust after giving opportunity of hearing to the appellant-assessee.

Summary

Issues Involved:
1. Disallowance of depreciation claimed by the assessee.
2. Non-allowance of set-off of excess application of income from previous assessment years.
3. Non-consideration of binding decisions by the Income Tax Appellate Tribunal and objectionable remarks by the Commissioner of Income Tax (Appeals).

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation Claimed by the Assessee:
The first issue concerns whether the Income Tax Appellate Tribunal was correct in disallowing the depreciation claimed by the assessee on the premise that the cost of the assets had already been claimed as an application of income. The court referred to the judgment in T.C.A. No.975 of 2010 [The Commissioner of Income Tax - III v. M/s. SRA Systems Ltd., Chennai] and other relevant cases, including the Supreme Court's decision in [2018] 93 taxmann.com 33 (SC) [Commissioner of Income-tax, Central – III Vs. HCL Technologies Ltd.]. These judgments established that depreciation should be allowed even if the cost of the assets was claimed as an application of income. The court decided this issue in favor of the assessee and against the Revenue.

2. Non-allowance of Set-off of Excess Application of Income from Previous Assessment Years:
The second issue pertains to whether the Income Tax Appellate Tribunal was correct in upholding the Commissioner of Income Tax (Appeals) decision to disallow the set-off of excess application of income from previous assessment years. The assessee argued that the Commissioner of Income Tax (Appeals) failed to follow the ratio laid down by the Division Bench in Commissioner of Income Tax v. Matriseva Trust, which allowed such set-offs. The court noted that the Tribunal and the Commissioner of Income Tax (Appeals) did not consider this binding precedent. The court emphasized that income should be computed as per sections 22 to 27 of the Act and that 85% of such computed income should be utilized for charitable purposes. The court concluded that the orders of the Tribunal and the Commissioner of Income Tax (Appeals) were incorrect and remitted the matter back to the Assessing Officer for fresh consideration in light of the Matriseva Trust judgment.

3. Non-consideration of Binding Decisions and Objectionable Remarks:
The third issue involves the Tribunal's failure to consider binding decisions and the Commissioner of Income Tax (Appeals)'s objectionable remarks regarding High Court judgments. The court highlighted that the Commissioner of Income Tax (Appeals) is bound by the judgments of the High Courts and should not comment on them. The court found that the Tribunal and the Commissioner of Income Tax (Appeals) should have followed the precedent set by the Matriseva Trust case. The court criticized the Commissioner of Income Tax (Appeals) for overstepping its jurisdiction and making unwarranted observations about High Court decisions. The court set aside the orders of the Tribunal and the Commissioner of Income Tax (Appeals), remitting the matter back to the Assessing Officer for fresh adjudication in accordance with the binding precedent.

Conclusion:
The court allowed the appeal, deciding all issues in favor of the assessee. The orders of the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) were set aside, and the matter was remitted back to the Assessing Officer for fresh consideration, ensuring adherence to the binding judgments, particularly the Matriseva Trust case. The court emphasized the importance of following judicial hierarchy and binding precedents.