Date Of Judgment 30-08-2018 I.t.a v. M/S.academy Of General Education

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.93 OF 2016 BETWEEN: 1.|Commissioner of Income Tax (Exemptions),Mangaluru..Mangaluru.. 2 |The Deputy Commissioner of Income Tax,Circle-1, Udupi.Circle-1, Udupi. ... Appellan (By Mr.Sanmathi E I, Adv.) AND: M/s.Academy of General Education,Academy House,Manipal.PAN: AAATA2?976P ...Responden (By Mr.S.Parthasarathi, Adv. & Mr.K.Mallaharao, Adv.) This Income Tax Appeal is filed under Section 260-A ofIncome Tax Act 1961, arising out of order dated 07.08.2015 |passed in ITA No.636/Bang/2014, for the Assessment Year Date of Judgment 30-08-2018 I.T.A.No.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 2/13 2011-2012, 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 07.08.2015 passed by the Income Tax AppellateTribunal, ‘C’ Bench, Bengaluru, in appeal proceedingsNo.636/BNG/2014 for Assessment Year 2011-12, 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.Sanmathi E.I.,Adv. for Appellants —RevenueMr.S.Parthasarathi, Adv. & Mr.K.Mallaharao, Adv. for Respondent — Assessee 1.Revenue has filed this appeal raising purportedsubstantial questions of law under|Section 260-Aot the.Income Tax Act, 1961 arising from the order of learned|Tribunal dated07.08.20151n |ITA No.636/Bang/2014fortheAssessmentYear2011-2012TheDeputyCommissioner of Income-tax vs. M/s Academy of GeneralEducation. Date of Judgment 30-08-2018 I.T.A.No.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 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 ts right|in holding that the assessee is eligible for|carry forward of deficit of the assessee to the|subsequent years when the income of acharitable or religious trust/institution 1s|required to be computed by applying general|commercial principles without referring to the|regular provisions of Income Tax as contained|under Chapter-IV and as such while arriving|at the income of a charitable or religious|trust/ institution, various heads of income ascontemplated under section 14 and specific|provisions of computation of income underrespective heads as envisaged under section|15 to 59 are not pressed into action? | aD WhetherOnthe|factsand|in|the|circumstances of the case, the Tribunal 1isright in law in holding that the assessee 1S| Date of Judgment 30-08-2018 I.T.A.No.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 4/13 entitled to carry forward of excess application|without appreciating that the provisions of|sections 7O to 80 of IT Act are not applicableto trusts as they only deal with carry forward|and set off of loss and not excess expenditure|or deficit? | Oo. WhetherOrlthefactsandin|thecircumstances of the case, the Tribunal 1isright in law in holding that assessee 1S|entitled to claim depreciation on _ capitaassets when it qmounts to double deduction|as the income of the assessee is already|exempt and amended provisions of the Act|also denies such claim for depreciation by|Trust?| 3.|The 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| Date of Judgment 30-08-2018 I.T.A.No.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. Oo. WhetherOrlthefactsandin|thecircumstances of the case, the Tribunal 1isright in law in holding that assessee 1S|entitled to claim depreciation on _ capitaassets when it qmounts to double deduction|as the income of the assessee is already|exempt and amended provisions of the Act|also denies such claim for depreciation by|Trust?| 3.|The 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| Date of Judgment 30-08-2018 I.T.A.No.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 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.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 6/13 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,questionwhichrequiresconsideration 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.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 7/13 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| 8/13 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| 9/13 8/13 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| 9/13 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.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 10/13 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.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 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.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 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.” Date of Judgment 30-08-2018 I.T.A.No.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 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. Date of Judgment 30-08-2018 I.T.A.No.93/2016 Commissioner of Income Tax (Exemptions) & Anr., Vs. M/s.Academy of General Education. 13/13 5The appeal filed by the Revenue is accordinglydismissed-in terms of the aforesaid judgments of this Court.No costs. dn/-| Sd/-.JUDGE Sd/-.JUDGE|