Date Of Judgment 30-08-2018 I.t.a v. M/S. Karnataka Water & Sanitation Pooled Fund

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 30 DAY OF AUGUST 2018. PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| 1.T.A.No.11 OF 2018 BETWEEN: 1.|Pr.Commiuissioner of Income Tax (Exemptions) Bengaluru. 2.|The Assistant Commissioner of | Income Tax (Exemptions) Circle-1(1), Bengaluru. ...Appellant (By Mr.Sanmathi E I, Adv.) AND: M/s. Karnataka Water &sanitation Pooled Fund,silver Jubilee Block,p[nd]floor, Unity Building Annexe, |0[rd]cross, Mission Road, |Bengaluru. ...Responden (By Mr.S.Parthasarathi, Adv.) Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 2/12 This Income Tax Appeal is filed under Section 260-A ofIncome Tax Act 1961, arising out of order dated 07.07.2017 |passed in ITA No.1607/Bng/2016, for the Assessment Year2011-2012, praying to decide the foregoing question of lawand/or such other questions of law as may be formulated bythe Hon'ble Court as deemed fit and set aside the appellateorder dated 07.07.2017 passed by the Income Tax AppellateTribunal, 'A' Bench, Bengaluru, in appeal proceedings No.ITANo.1607/Bng/2016 for Assessment Year 2011-2012, assought for in this appeal; and to grant such other relief asdeemed fit, in the interest ofjustice. | This I.T.A. coming on for hearing, this dayS.Sujatha Jdelivered the following:-. JUDGMENT Mr.Sanmathi E.I.,Adv. for Appellants —RevenueMr.S.Parthasarathi, Adv. for Respondent -—Assessee 1.Revenue has filed this appeal raising purported substantial questions of law under|Section 260-Aot theIncome Tax Act, 1961 arising from the order of learned|Tribunal dated07.07.20171nNITA No.1607/Bang/2016forthe Assessment Year 2011-2012 —-Assistant Commissioner of Income-tax (E) vs. M/s. Karnataka Water & Sanitation| Pooled Fund. Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 3/12 2 |The suggested substantial question of law in thememo of appeal of Revenue is quoted below for readyreference: - “Whether on the facts and in the circumstances ofthe case the Tribunal is right in holding thatprovisions relating to set-off of loss from one headagainst income from another head and carryforward of excess application/ deficit for set off insubsequent years as envisaged under section 70 to79 of the Act are applicable to the charitable trustue the assessee herein by following its earlier ordereven when the normal computation of income underrespective heads as envisaged under section 15 too9 are not applicable to the computation of incomein respect of Trusts as per section 11, 12 and 13?” 3.|The learned counsel for Revenue submits that thecontroversy raised in the present appeal is covered by adecision oT|thisCourtin.ITANo.231/2018(D.D|14.08.2018), In the case ofPr. Commissioner of Income-Tax (Exemptions) and Another vs. M/s Green Wood High| Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 4/12 School. The relevant portion of the said order is extracted.hereunder for ready reference: 63This Court in the case of‘Commissioner ofIncome Tax-III, Pune v. Rajasthan & GujaratiCharitableFoundationPoona’[2018]|8&9taxmann.com 127 [SC)with regard to allowabilityand Depreciation in the hands of Religious andCharitable Trust held as under: 3.|The learned counsel for Revenue submits that thecontroversy raised in the present appeal is covered by adecision oT|thisCourtin.ITANo.231/2018(D.D|14.08.2018), In the case ofPr. Commissioner of Income-Tax (Exemptions) and Another vs. M/s Green Wood High| Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 4/12 School. The relevant portion of the said order is extracted.hereunder for ready reference: 63This Court in the case of‘Commissioner ofIncome Tax-III, Pune v. Rajasthan & GujaratiCharitableFoundationPoona’[2018]|8&9taxmann.com 127 [SC)with regard to allowabilityand Depreciation in the hands of Religious andCharitable Trust held as under: EDLearnedCounselattheBarsubmitted that so far as_ the _ issregarding claim of Depreciation undersection 32 of the Act is concerned, thecontroversy 1s no longer res integra, havingbeen settled by the Hon’ble Supreme Courtin the case of‘Commisstoner of Income|Tax-III, Pune v. Rajasthan & GujaratiCharitable Foundation Poona’ [2018]89 taxmann.com 127 » by which the|Hon’ble Supreme Court has affirmed the|view taken by the Bombay High Court in“Commissioner ofIncome.TaxDvDInstituteof|BankingPersonnel Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 5/12 Selection (IBPS)’ [2003] 131 Taxman 386 [Bom.|. Ihe relevant portion of thesaid Judgment of Bombay High Court asquoted by the Hon'ble Supreme Court andaffirmed1Squotedbelow|forreadyreference. “In the said judgment, [Bombay|High Court! the contention of theDepartment predicated on doublebenefit was turned down in thefollowing manner: 3. As.statedabove,thefirst,questionwhichrequires consideration by this court 1s :)whetherdepreciationLUGSallowable on the assets, the cost ofwhich has been fully allowed as|application of income under section)11 in the past years? In the case of|CIT v. Munisuvrat Jaqin 1994 TaxLaw Reporter, 1084 the facts wereas follows. The assessee was aiCharitable Trust. It was registered| Date of Judgment 30-08-2018 I.T.A.No.11/2018 Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 6/12 as qa Public Charitable Trust. It wasalsoregisteredwiththeCommussioner, Pune.The assesseederived income from the templeproperty which was a Trustproperty.During the course ofassessmentproceedingsforassessment years 1977-785, 197679 and 1979-80,|the assesseeclaimeddepreciationO©Mthevalue of the building at the rateof 2.5 per cent' and they alsoclaimed depreciation on furniture at)the rate of 5 per cent. The question|which arose before the court for'determinationWas,whetherdepreciation could be denied to theASSESSEE, LS|expenditureOrlacquisition of the assets had been)treated as application of income in|the year of acquisition? It was held|by the Bombay High Court that)section 11 of the Income Tax Actmakes|provisionin|respectof| Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 7/12 computation of income of the Trust)from the properly held for charitableor religious purposes and it also)provides|forapplicationandaccumulation of income. On_ theother hand, section 28 of theIncomeTax|Actdeals.withchargeability of income from profits|and gains of business and section)29 provides that income from profits:and gains of business shall be)computedin|accordancewithsection 30 to section 43C, That,|section 32(1) of the Act provides fordepreciation in respect of building,|plant and machinery owned by theassessee and used for the business|purposes. It further provides fordeduction subject to section 34. In|thatmatteralso,(Osimilarargument, as in the present case,|was advanced on behalf of the|revenue, namely, that depreciation|can be allowed as deduction only| Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 8/12 Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 8/12 under section 32 of the Income Tax) Actand|not.undergeneralprinciples. The court rejected thisargument. It was held that normal)depreciation can be considered as a)legittmate deduction in computing|the real income of the assessee on'general principles or under section11(1)(a) of the Income Tax Act. The|court rejected the argument onbehalf of the revenue that section)32 of the Income Tax Act was theonly section granting benefit of|deductionOFraccountof|depreciation.ItLUaSheldthatincomeof|(OCharitable|Trust|derived from building, plant and)machinery and furniture was liable|tobe|computedin|normalcommercial manner although theTrust may not be carrying on any|business and the assets in respect)whereof depreciation is_ claimedmay not be business assets. In all| Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 9/12 such cases, section 32 of theIncomeTaxActprovidingfordepreciationforcomputation|of|income derived from business or)profession1S not.applicable.However, the income of the Trust is.required to be computed undersection 11 on commercial principles:after providing for allowance fornormal depreciation and deductionthereof from gross income of the|Trust. In view of the aforestated|Judgment of the Bombay HighCourt, we answer question No. 1 in|the affirmative t.e., in favour of the|aASSCSSCCandagainstthedepartment.” 4With regard to carrying forward of thelosses for being set off against the income of thecharitable trust for the present Assessment Year,the controversy is covered by the Judgment in Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 10/12 Commissioner of Income Tax (Exemptions) and|another Vs. Ohio University Christ College|rendered on17.07.2018IN|ITA.No.312/2016and ITA No.313/2016, In which this Court held as|under:| 18. In view of the aforesaid findingsof the learned Tribunal, allowing anyexpenditure of the earlier year which hasbeen brought forward and set off in theyear under consideration, is a Justified|finding of fact based on the_ correctinterpretation of law and the judgmentrelied upon by it rendered by the cognateBench. Therefore, the same does not call|for interference. A similar view was also|taken by the Division Bench of BombayHigh Court inCommissioner of Income-tax v. Institute of Banking (2003) 264ITR 110,wherein the Division Bench ofBombay High Court held that the income|derived from the trust property has alsogot|tobe.computedOncommercial Date of Judgment 30-08-2018 I.T.A.No.11/2018 Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 11/12 principles and if commercial principles are|applied, then adjustment of expensesincurred by the trust for charitable andreligijouS purposes in the earlier yearsagainst the income earned by the trust inthe subsequent year will have to beregarded as application of income of the)trust for charitable and religious purposes|in the subsequent year. In view of the controversy covered by theabove decisions of this Court, we are of the opinionthat the substantial question of law as suggestedby the appellants does not now arise for ourfurtherconsideration in the present appeal.” 4In view of the aforesaid, we are of the opinion that no substantial question of law arises for our furtherconsideration in the present case also. Pr. Commissioner of Income Tax (Exemptions) & Another Vs. M/s. Karnataka Water & Sanitation Pooled Fund. 12/12 5The appeal filed by the Revenue is accordinglydismissedin terms of the aforesaid judgments of this Court. No costs. dn/- Sd/-.JUDGE Sd/-.JUDGE|