Ita/1715/2009 Of The Commissioner Of Income Tax, Tvm v. Sree Chitra Thirunal College Of Eng

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN TUESDAY, THE 27TH OCTOBER 2009 / 5TH KARTHIKA 1931 ITA.No. 1715 of 2009() ---------------------- ITA.785/COCH/2007 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT --------------------------------------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT ------------------------- SREE CHITRA THIRUNAL COLLEGE OF ENGINEERING,PAPPANAMCODE,TRIVANDRUM. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 27/10/2009, ALONG WITH ITA NO.1732/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: (C.R) C.N. RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. ---------------------------------------- I.T.A No.1715 & 1732 OF 2009 ---------------------------------------- Dated, the 27[th] day of October, 2009 JUDGMENT Ramachandran Nair, J. The connected appeals filed by the Revenue are againstthe common orders of the Income Tax Appellate Tribunaldeclaring eligibility mainly for the benefit of depreciation for therespondent-assessee, a charitable institution, and grantingexemption to the assessee under section 12 of the Income TaxAct. 2. We have heard the Standing counsel appearing for theappellant and have gone through the impugned orders of theTribunal and that of the lower authorities. 3. The respondent is a Trust formed by the Government ofKerala in coordination with the KSRTC, a Government of Keralaundertaking (functioning under Government control). Since therespondent Trust is engaged in conducting Engineering collegewhich claimed exemption under section 11 of the Act and the ITA 1715 &1732/09 Trust was granted the benefit by issuing registration in it's favourunder section 12 of the I.T.Act, in the returns filed for theassessment years 2001-2002 and 2003-2004, respondent-assesseeclaimed depreciation on buildings, furniture etc. However, theassessing officer rejected the claim holding that since the incomereceived by the assessee is exempt under section 11 of the Act, theassessee is not entitled to get depreciation. Besides denyingdepreciation, the assessing officer made an addition ofRs.84,96,000/- towards fees due from KSRTC. For theassessment year 2003-2004, the additional issue raised was withregard to carry forward of income, which according to the AssessingOfficer, was in excess to the limit prescribed under section 11(2)(a)of the Act. However, in first appeal, the CIT(Appeals) allowed theappeals on all the grounds raised and the Tribunal on secondappeals filed by the Revenue, confirmed the same against whichthese appeals are filed. 4. The first contention raised by the Revenue is that theassessee being a Trust enjoying exemption under section 11 of theAct is not entitled to claim depreciation. The Standing counselsubmitted that the assessee was engaged only in running 4. The first contention raised by the Revenue is that theassessee being a Trust enjoying exemption under section 11 of theAct is not entitled to claim depreciation. The Standing counselsubmitted that the assessee was engaged only in running educational institution and, so much so, it's activity cannot becalled business to qualify it for deduction for depreciation undersection 32 of the Act. Education carried on other than for profit, isnot treated as a business under the Act, and that is why, separateexemption subject to conditions is provided to educationalinstitutions up to a certain limit under section 10(23C) (iiiad) of theI.T.Act. Apparently, the respondent is running only an educationalinstitution and educational activities carried on by it does notappear to be for profit, and so much so, it is entitled to exemptionup to the limit provided in the above provisions stated above. Butneither the assessing authority nor the Department has consideredthe assessee's entitlement for exemption under the aboveprovisions and so much so, we have to consider the case only withrespect to the assessee's institution as a Charitable Trust enjoyingexemption under section 11 of the I.T.Act. 5. There is nothing to indicate that charitable institutionsenjoying income tax exemption should not carry on business ortheir activities should not lead to any surplus to qualify it forexemption. Any institution with Education, medical relief, relief ofthe poor or the advancement of any other object of general public ITA 1715 &1732/09 utility as it's objects qualify it as a charitable institution forexemption from income tax under section 2(15) of the I.T.Act. It isvery common that the net result of running of educationalinstitutions, hospitals etc. may result in surplus. However,charitable institutions which carry on these activities enjoyexemption under Section 11 if they carry over surplus in excess ofthe income utilised for chartable purposes for application ofsubsequent years subject to certain limit prescribed in the Act.There is no bar against the charitable institutions claimingdeductions and rebate available under the Act which includesdepreciation under section 32 of the Act. Depreciation is nothingbut a deduction for wear and tear on the value of fixed assets likebuildings, furniture, plant and machinery etc. used for thepurposes of business or profession. We have already expressedthe view that educational institution is entitled to depreciation inrespect of fixed assets like building, furniture etc. becauseeducational activity in the strict sense has to be treated only asbusiness. It is also worthwhile to note that in Commissioner ofIncome Tax v. Institute of Banking (264 ITR 110), it was heldthat charitable institutions enjoying registration under Section 12A of the IT Act is entitled to deduction towards depreciation. Further,real profit in a commercial activity has to be computed by followingnormal accounting practices and policies and under soundcommercial accounting principles, in the computation of profits, anestablishment is entitled to depreciation for fixed assets used inthe business, no matter, the activity was carried on with profitmotive or not. In this view of the matter, we uphold the order ofthe Tribunal declaring eligibility of the respondent for depreciationbenefits available under section 32 of the IT Act. of the IT Act is entitled to deduction towards depreciation. Further,real profit in a commercial activity has to be computed by followingnormal accounting practices and policies and under soundcommercial accounting principles, in the computation of profits, anestablishment is entitled to depreciation for fixed assets used inthe business, no matter, the activity was carried on with profitmotive or not. In this view of the matter, we uphold the order ofthe Tribunal declaring eligibility of the respondent for depreciationbenefits available under section 32 of the IT Act. 6. On the question raised pertaining to addition made inthe assessment deleted by the first appellate authority andconfirmed by the Tribunal, we find from the Tribunal's order thatthe amount representing fees receivable by the respondent fromKSRTC was written off by the respondent. It is not knownwhether the fees shown as payable to the respondent by theKSRTC for earlier years is towards the fee for training theemployees of the Corporation. In any case it is the finding of theTribunal that the amount was written off by the assessee in earlieryears, and, in fact, it is not seen in it's balance sheet asreceivable from KSRTC. In view of this finding of the Tribunal, we do not find any justification for the Department treating this asincome of the assessee and we confirm the Tribunal's order onthis issue as well. 7. The last ground raised in the appeal for the year 2003-04is that the income carried forward is in excess of the limit whichwas reduced from 25% to 15% with effect from assessment year2003-04. The only reason for disallowance of the claim in theassessment is that the assessee has not shown the purpose forwhich the amount is carried over. However, it is the finding of theTribunal that the respondent-assessee has only one object, that is,running of the educational institution which is a charitableinstitution and, so much so, the Tribunal held that the amountcarried forward can be only for educational purpose which isaccepted by the department in the hands of the assessee as acharitable object. We do not find any justification to take a viewdifferent from what was taken by the Tribunal, because, therevenue has no case that the assessee is likely to utilise the fundfor any other purpose in violation of the objects of the Trust. TheTrustees include the Minister for Transport as Chairman,Secretaries of the Department of Transport, Finance, Managing ITA 1715 &1732/09 -:7:- Director of a Government Corporation like KSRTC etc. Consequently, we dismiss both the appeals filed by theRevenue. C.N.RAMACHANDRAN NAIR JUDGE V.K.MOHANAN, JUDGE kvm/- ITA 1715 &1732/09 -:8:- V.K.MOHANAN, J. O.P.No. JUDGMENT Dated:..