Date Of Judgment 30-08-2018 I.t.a v. M/S. Maharani Lakshmi Ammani College Trust

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.734 OF 2017 BETWEEN: 1.|Pr.Commissioner of Income Tax, Exemptions. Mission Road, Bengaluru. 2 |Dy.Commissioner of Income Tax,(Exemptions), Circle-17(2), |(Exemptions), Circle-17(2), | Bengaluru. ... Appellan (By Mr.Jeevan.J.Neeralgi, Adv.) AND: M/s.Maharani Lakshmi Ammani College Trust18[th]cross, science Post,Malleshwaram, BangalorePAN: AAATM89/1C. ...Responden This Income Tax Appeal is filed under Section 2600-A ofIncome Tax Act 1961, arising out of order dated 31.03.2017 |passed in ITA No.392/Bang/2016, for the Assessment Year2012-2013, praying to decide the foregoing question of law Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 2/13 and/or such other questions of law as may be formulated bythe Hon'ble Court as deemed fit and set aside the appellateorder dated 31.03.2017 passed by the Income Tax AppellateTribunal, 'B' Bench, Bengaluru, in appeal proceedings No. ITANo.392/Bang/2016 for Assessment Year 2012-13, as soughtfor in this appeal; and to grant such other relief as deemed fit,in the interest of justice. This I.T.A. coming on for Admission, this day|S.Sujatha Jdelivered the following:-. JUDGMENT Mr.Jeevan.J.Neeralgi,Adv. for Appellants —Revenue 1.|Revenue has filed this appeal raising purportedsubstantial questions of law underSection 260-Aot the.Income Tax Act, 1961 arising from the order of learnedTribunal dated.01.03.20171n |ITA No.392/Bang/2016forthe Assessment Year 2012-2013 —|Dy. Commissioner ofIncome Tax (Exemptions) vs. M/s. Maharant Lakshmt|Ammani College Trust. Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 3/13 oD The suggested substantial questions of law in thememo of appeal of Revenue are quoted below for readyreference:-. 1.WhetherOrlthefactsandin|thecircumstances of the case the Tribunal were|justified in law in allowing assessee’s claim.for depreciation on new assets put into use.during the accounting year relevant to this|asst. year, even though the entire cost of|these assets have been claimed by _ thassessee as an application of income for|charitable activities and has failed to take|cognizance of the fact that allowing of total|cost of the asset as an application of income|and allowing of depreciation on the value of|such assets in the same year results indouble deduction and 1s not admissible in the|absence of clear statutory indication? D2 WhetherOrlthefactsandin|thecircumstances of the case, the Tribunal were|justified in law in allowing carry forward ofexcess application of income of earlier years| 3 Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 4/13 for set off against the income of the currentyear, when there is no provision in the I.T.Actto allow carry forward of such deficit, and the|number of years for which such carry forwarddeficit of earlier years can be allowed and|even though decision relied upon by Tribunal|has not reached finality?| WhetherOnthe|factsand|in|the|circumstances of the case, the Tribunal and|CIT(A) is right in law in setting aside thedisallowance of accumulation of income/set|apart of income under section 11(1)(a) without|considering the Board Circular No. 12(PX-7) of1968) dated 26/11/1968 wherein it is clearlyexplained that if a trust fails to comply with|accumulation provisions under section 11(2)|then the entire income accumulated would be|liable to assessment under section 11(3) ofthe Act, including 15% of income set apart or|accumulated under section 11(1)(a) of the Act|and therefore a perverse decision has been|rendered by Hon ble Tribunal?| WhetherOnthe|factsand|in|the|circumstances of the case, the Tribunal and|CIT(A) is right in law in setting aside thedisallowance of accumulation of income/set|apart of income under section 11(1)(a) without|considering the Board Circular No. 12(PX-7) of1968) dated 26/11/1968 wherein it is clearlyexplained that if a trust fails to comply with|accumulation provisions under section 11(2)|then the entire income accumulated would be|liable to assessment under section 11(3) ofthe Act, including 15% of income set apart or|accumulated under section 11(1)(a) of the Act|and therefore a perverse decision has been|rendered by Hon ble Tribunal?| Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 5/13 3.|The learned counsel for Revenue submits thatsubstantial question No.3 raised in the memo of appeal is notpressed. The same is placed on record. 4The learned counsel for Revenue submits that thecontroversy raised in the present appeal is covered by adecisionOT thisCourt1nITANo.231/2018(D.D14.08.2018), In the case ofPr. Commissioner of Income-Tax (Exemptions) and Another vs. M/s Green Wood High|School. The relevant portion of the said order is extracted|hereunder for ready reference: 63This Court in the case of‘Commissioner of Income 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: 65LearnedCounselattheBarsubmitted that so far as_ the _ issregarding claim of Depreciation under Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 6/13 section 32 of the Act is concerned, thecontroversy is no longer res integra, havingbeen settled by the Hon'ble Supreme Courtin the case of‘Commissioner of IncomeTax-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“CommissionerofIncomeTaxVU.Instituteof|BankingPersonnelSelection (IBPS)’ [2003] 131 Taxman386 /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 the)Department predicated on doublebenefit was turned down in thefollowing manner: Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 7/13 3. As.statedabove,thefirst,questionwhichrequires consideration by this court 1s :)whetherdepreciationLUGS allowable 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|as a Public Charitable Trust. It was:alsoregisteredwiththe|Commussioner, Pune.The assesseederived income from the templeproperty which was a Trustproperty.During the course ofassessmentproceedingsforassessment years 1977-785, 197679 and 1979-80,|the assesseeclaimed|depreciationOoOthevalue of the building at the rateof 2.5 per cent' and they also Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 8/13 allowable 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|as a Public Charitable Trust. It was:alsoregisteredwiththe|Commussioner, Pune.The assesseederived income from the templeproperty which was a Trustproperty.During the course ofassessmentproceedingsforassessment years 1977-785, 197679 and 1979-80,|the assesseeclaimed|depreciationOoOthevalue of the building at the rateof 2.5 per cent' and they also Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 8/13 claimed depreciation on furniture at)the rate of 5 per cent. The question|which arose before the court for'determinationLUaASwhetherdepreciation could be denied to the)ASSESSEE, 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 Actmakesprovisionin|respectof|computation of income of the Trust)from the properly held for charitableor religious purposes and it also)providesforapplicationandaccumulation 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|accordancewith Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 9/13 section 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,asimularargument, as in the present case,|was advanced on behalf of the|revenue, namely, that depreciation|can be allowed as deduction only|under section 32 of the Income Tax)Actandnot.undergeneralprinciples. The court rejected thisargument. It was held that normal)depreciation can be considered as alegittmate deduction in computing|the real income of the assessee on'general principles or under section11(1})(a) of the Income Tax Act. Thecourt rejected the argument onbehalf of the revenue that section)32 of the Income Tax Act was the Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 10/13 only section granting benefit of|deductionOnaccountof|depreciation.It|Was heldthatincome|of|FICharitable|Trust|derived from building, plant and)machinery and furniture was liable|tobe.computedin|normal|commercial manner although theTrust may not be carrying on any|business and the assets in respectwhereof depreciation is_ claimedmay not be business assets. In all|such cases, section 32 of theIncomeTaxActprovidingfordepreciationforcomputationof|income derived from business or)profession1S|not.applicable.However, the income of the Trust is.required to be computed wundersection 11 on commercial principles|after providing for allowance fornormal depreciation and deduction|thereof from gross income of the|Trust. In view of the aforestated| Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 11/13 Judgment of the Bombay HighCourt, we answer question No. 1 in)the affirmative t.e., in favour of the|aSsSSCSSCandagainstthedepartment.” 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 inCommissioner 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:| Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 11/13 Judgment of the Bombay HighCourt, we answer question No. 1 in)the affirmative t.e., in favour of the|aSsSSCSSCandagainstthedepartment.” 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 inCommissioner 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_ correct Date of Judgment 30-08-2018 I.T.A.No.734/2017 Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 12/13 interpretation of law and the judgmentrelied upon by it rendered by the cognate|Bench. Therefore, the same does not call|for interference. A similar view was also|taken by the Division Bench of Bombay|High 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 alsogottobecomputedOrlcommercial 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 opinion Pr. Commissioner of Income Tax, Exemptions & Another Vs. M/s. Maharani Lakshmi Ammani College Trust 13/13 that the substantial question of law as suggestedby the appellants does not now arise for ourfurtherconsideration in the present appeal.” 5In view of the aforesaid, we are of the opinion that no substantial question of law arises for our furtherconsideration in the present case also. 6. The appeal filed by the Revenue is accordingly dismissedin terms of the aforesaid judgments of this Court. No costs. Copy of this order be sent to the Respondent-Assesseeforthwith. dn/- Sd/-.JUDGE Sd/-.JUDGE|