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TMI Blog2010 (2) TMI 1156X X X X Extracts X X X X X X X X Extracts X X X X ..... the preliminary issue in favour of the revenue, there is no need for us to decide the other points on merit. Appeals by the revenue for assessment years 2002- 03 to 2005-06 are allowed. Claim of depreciation on new assets - We respectfully following the decision of the Hon'ble Bombay High Court in the case of Institute of Banking [ 2003 (7) TMI 52 - BOMBAY HIGH COURT] , we hold that the CIT (A) was justified in allowing the assessee's claim of depreciation on new assets put into use during the accounting year, even if the entire cost of these assets have been claimed by the assessee and allowed as an application of the income for charitable purposes. This ground of the revenue is allowed. Carry forward of deficit of earlier years , this ground of the revenue is liable to be dismissed. In the other cases for the AY 2002-03 to 2005-06, we allowed the appeal of the revenue for the reason that the order was passed u/s.154 and the issue was beyond the scope of section 154. Coming to AY 2006-07, this ground by the revenue is to be dismissed because, merit we have held that though the point is to be decided in assessee's favour for earlier years, since it is a debata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the assessee in the application filed u/s.154, that in the return (a) Donation received of ₹ 2,93,99,450 (b) Endowment Fund receipts of ₹ 41,300 and (c) Profit on sale of shares of ₹ 1,63,22,821 were omitted to be included, were non-existent since these items of income were included in the total receipts of ₹ 892m84m700, and therefore, there was no cause of action for filing application u/s.154. iv) The learned Commissioner of Income-tax(A) erred in allowing assessee's application u/s.154 even though the issue of allowing carry forward of deficit of earlier years, for set off against the surplus of subsequent years, is a debatable issue on which more than one interpretation is possible and hence is against the ratio of the Hon'ble Apex Court in the case of T. S. Balaram, ITO v. Volkart Brothers (1971) 82 ITR 50 (SC). v) The learned Commissioner of Income-tax(A) erred in directing the Assessing Officer to allow carry forward of deficit of earlier assessment years for set off against the surplus of subsequent assessment years, even though there is no provision in the Income tax Act to allow carry forward of such deficit, and the number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical). For all the four years assessee has shown nil taxable income. Return was processed u/s.143(1) of the Act. Subsequently assessee filed a rectification application dt.17.11.2008 and claimed deficit amounting to ₹ 10,21,28,627/- should be allowed to be carried forward and requested the Assessing Officer to rectify the same. The Assessing Officer rejected the claim of set off of brought forward losses vide order u/s.154, dt.29.1.2009. Aggrieved by the above order assessee approached the first appellate authority. 4. Before the Commissioner of Income-tax(A), the assessee submitted that the appeal against 154 order was consequential to the assessment order of the Assessing Officer for the Assessment Year 2006-07. The Commissioner of Income-tax(A) noted that the The Assessing Officer rejected the assessee's contention that earlier assessment years' computation is incorrect for the reason that computation for each relevant years were made on the basis of the statement filed along with the return. The claim vide letter dt.14.10.2008 that during the Assessment Year 2002-03 the assessee made contribution of ₹ 15 crores to Dr. T. M. A. Pai Convention Centre t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .10.2008, the appellant has filed letter dt.17.11.2008 wherein, the appellant has shown the gross receipts and expenses and also details of yearwise deficits to be carried forward. All these details have also been furnished during the course of appellant proceedings. 6. Coming to the facts it is to be seen that the order of the Commissioner of Income-tax(A) for Assessment Year 2006-07 dt.19.3.2009 was anterior to the common order u/s/154 which is now in appeal before the Tribunal. In the order dt.19.3.09 for the Assessment Year 2006-07, the Commissioner of Income-tax(A) held the donations given by a trust to another trust having 12AA registration and recognition u/s.80G, would amount to application of the income by the doner trust for the furtherance of its objectives. Considering this, the Commissioner of Income-tax(A) held the contribution made by the assessee to TMA Pai Convention Centre, a unit of Manipal Academy of Higher Education (MAHE for short) for various years is to be treated as application of income. As regards the depreciation he held this is to be allowed in addition to the cost of assets. If these two claims are considered in earlier years then the income declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation order passed by the Assessing Officer u/s.154 (the orders relevant for the assessment years under consideration) denying the carry forward of the deficit are not correct and it is against the provisions of law. The Commissioner of Income-tax(A) directed the Assessing Officer to verify the deficit and allow the carry forward of deficit represented by excess of expenditure over income for all the four years and allow the benefit of set off in the assessment year 2006-07. The revenue is in appeal before us. 8. In respect of Assessment Year 2006-07, the case was selected for scrutiny and the Assessing Officer vide his letter dt.14.10.2008 worked out the deficit to be carried forward for the Assessment Years 2002-03 and onwards. The assessee submitted before the Commissioner of Income-tax(A) that assessee has not claimed the deficit to be carried forward against the income of the subsequent years. However, the assessee submitted the claim was correctly made for all the years. It was further submitted that it was at the instance of ITA.480 to 485/B/09 CO.28 to 33/B/09 Page - 11 ITA.486 to 491/B/09 CO.34 to 39/B/09 the Assessing Officer the rectification application was file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification application so as to set right the mistakes if any committed, so that the correct amount of 'deficit' could be carried forward for the Assessment Year 2006-07. The assessee submitted that the Assessing Officer should have allowed the entire unabsorbed depreciation to be carried forward amounting to ₹ 10,21,81,627/-. In support of the view, assessee relied on the decisions mentioned in para 5 of the Commissioner of Income-tax(A)'s order. The assessee also objected the finding of the Assessing Officer that donation to another charitable trust to carry on activities of that trust, the objects of which are identical as the trust making the donation, cannot be considered as application of the income. The assessee relied on instructions received by the CBDT No.1132, dt.5.1.1978, for the proposition that such donations are to be considered as application of the income. The assessee also relied on the following decisions: i) CIT v. Sarladevi Sarabhai Trust (172 ITR 698) (Guj); ii) CITv. Hindusthan Charity Trust (139 ITR 913) (Cal); iii) CIT v. Motriseva Trust (242 ITR 20) (Mad); iv) CITv.Thanthi Trust (239 ITR 502) (SC); v) CITv. Shri Ram Memorial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second issue, the learned counsel submitted that the stand of the revenue that the assessee did not claim the carry forward in the original return and the claim was made for the first time through application u/s.154 of the Act which was time barred and there is no provision under the Income tax to allow carry forward of the loss of the preceding years any excess expenditure/application of the preceding years were not to be set off against the subsequent years' surplus. Though the assessee has not specifically sought for any carry forward benefit, for the assessment years up to 2005-06 the assessee filed the return of income where the surplus was determined and the application was made during the years have been declared. In the earlier years the assessee had not specifically sought for any carry forward benefit. Surplus is being determined for the purpose of section 11 and not u/s.28. While processing the assessment for the Assessment Year 2006-07 the Assessing Officer raised the issue and in order to enable the Assessing Officer to ascertain the excess application in the preceding year the assessee filed application u/s.154 to enable the Assessing Officer to quantify such exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Bombay High Court. The Hon'ble Madras High Court decision reported in Govindu Naicker Estate (supra) also supports the case of the assessee he submitted. The assessee is enjoying exemption u/s.10(23C)(vi). Thus no income for the relevant assessment year is liable to be taxed as exemption continues to be in operation for the relevant assessment years. Hence the learned counsel for the assessee submitted the appeal by the revenue is to be dismissed. 13. Considering the rival submissions we are of the view that all the appeals preferred by the revenue is to be allowed. The assessee is relying on the decision of the Bombay High Court in the case of Institute of Banking (supra) whereas the revenue is relying on the decision of the Tribunal, Bombay Bench in VII ITO v. Trustees of Sathya Sai Trust in (1990) 33 ITD 320. In this case the Tribunal held the deficit arising as a result of excess spending for charitable purposes will not form part of the income and the same cannot be carried forward. With regard to the point whether excess spending will form or not form part of the total income and, therefore, it could be carried forward or not is decided by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.482 to 484/Bang/2009-M/s. Academy of General Education - Assessment Years 2003-04 to 2005-06 : 16. Since the facts are identical to the appeal in ITA.481/Bang/2009 decided by us in the superceding paragraphs, following the same, we allow these appeals by the revenue. ITA No.486 to 490/Bang/2009-M/s. Dr. T. M. A Pai Foundation- Assessment Years 2001-02 to 2005-06 : 17. Since the facts are identical to the appeal in ITA.481/Bang/2009 decided by us in the superceding paragraphs, following the same, we allow these appeals by the revenue. ITA No.485/Bang/2009-M/s. Academy of General Education- Assessment Year 2006-07 : 18. This is an appeal by the revenue against the order of the Assessing Officer u/s.143(3). The facts briefly for this year are as under. The assessee filed the return of income on 30.10.2006 declaring receipt of ₹ 3,84,28,818/-. The excess of income over expenditure was ₹ 1,00,20,122/- was shown. The assessee claimed the set off of brought forward unabsorbed expenses against the surplus. The return was processed u/s.143(1) and subsequently the case was selected for scrutiny. The assessee's status is treated as AOP trust. While processing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Year 2002-03 assessee disclosed capital expenditure and contribution made to Dr. T. M. A. Pai Convention Centre amounting to ₹ 15 crores. While passing the order for various assessment years, it has not been mentioned in any of the assessment orders that the deficit is to be carried forward. Normally in the case of business income the Assessing Officer mentions the details of brought forward and carried forward business loss and depreciation separately for the reason while giving set off first the business loss should be deducted against the current income and depreciation can be carried forward as there is no limit of 8 assessment years in the case of set off of business loss. However, in the case of a trust the carry forward is only of the deficit and there is no limit as such like what is provided under sections 70 to 79 of the Act. The notion stated by the Assessing Officer in his order will not deprive the assessee's right of set off of the surplus against the brought forward deficit of the previous years. Hence the decision in the case of Goetze (India) Ltd., (supra) has no applicability in the instant case of the assessee. It was further informed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the legislature has made no omission, the Court has no right to supply and fill the gap. With the above observation he rejected the assessee's claim. The assessee took up the matter in appeal before the Commissioner of Income-tax(A). 20. Considering the fact that similar issue was agitated before the Commissioner of Income-tax(A) in the case of Manipal Education Network for the Assessment Year 2006-07, in ITA No.35/UDP/08- 09, dt.13.3.2009, wherein he held the Assessing Officer was not justified in denying the depreciation claimed as well as set off of excess expenditure incurred during the assessment years. He directed the Assessing Officer to allow the claim of the assessee in the instant case as well. While coming to the above conclusion mainly he noted that in order to avail exemption u/s.11, a charitable trust must apply 85% of the income derived property held by the trust wholly for charitable or religious purposes in India. Thus, it was not only prudent but also essential for the purpose of arriving at income available for application towards objects of the trust and to deduct depreciation in accordance with the ordinary commercial principles. So as to arrive at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee of set off for the reason that there was no provision in the Income tax Act, 1961 to allow the claim. While coming to the above conclusion he also considered the decision of the Tribunal, Bangalore Bench in the case of Medical Relief Society of South Kanara in ITA nos.1239 to 1243/Bang/2007- The Commissioner of Income-tax(A) held that the facts in the instant case is similar to Manipal Education Network wherein the Assessing Officer was directed to allow depreciation. While giving relief to the assessee Commissioner of Income-tax(A) has taken note of the stand of the Assessing Officer that substantial amount has been claimed as exempted u/s.10(23C)(vi) and there are no claims made by the assessee in the earlier assessment years for carry forward of excess expenditure for set off against the surplus of the subsequent years. The assessee in the reply not only contended that in the statement of income the assessee has not only claimed set off of unabsorbed expenses but also shown yearwise amounts of unabsorbed expenses to be carried forward. If the Assessing Officer has not specified the amount, that will not deprive the assessee the benefit of set off. The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment fees and profits and sale of shares is nothing but realisaiton of capital assets and therefore, the same is also required to be allowed as capital receipts. 27. We are of the view that this ground by the revenue is to be dismissed. According to the revenue, Commissioner of Income- tax(A) erred in not considering the provisions of section 11(1)(d) of the Act which excludes only voluntary contributions made with a specific direction that the same should form part of the corpus fund of the trust. According to the revenue, further Commissioner of Income- tax(A) went wrong in holding that the donations are capital receipts but without giving a finding that these donations were received with a specific direction that they should form the corpus fund of the trust. However, this ground by the revenue is dismissed in the light of the above quoted para of the Commissioner of Income-tax(A) wherein he had given the specific finding that donations were collected with a specific direction, towards development fees and profits. This ground is dismissed. 28. In the result, appeal by the revenue is allowed in part. ITA No.491/Bang/2009-M/s. Dr. T. M. A Pai Foundation- Assessment Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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