Itxa/435/2018 Of Commissioner Of Income Tax- (Exemption), Pune v. Shri Balaji Society

VARSHADEEPAKGAIKWADDigitally signed byVARSHA DEEPAKGAIKWADDate: 2022.09.3010:36:23 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 435 OF 2018 Commissioner of Income Tax-… Appellant (exemption), Pune V/s. Shri Balaji Society …Respondent ------------------- Mr. Suresh Kumar for the Appellant. --------------------- CORAM:DHIRAJ SINGH THAKUR &VALMIKI SA MENEZES, JJ. P.C. : DATED:SEPTEMBER 15 , 2022. . This is an appeal filed under section 260(A) of the Income Tax Act, 1961 against the order dated 30[th] June 2017 passed by theIncome Tax Appellate Tribunal, Pune Bench, whereby the appealpreferred by the appellant has been dismissed. 2.The following substantial questions of law have beenproposed for our consideration:- A. Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT is right in holding thatthe provision of section 13(1)(c) and 13(2)(c) of the I.T.Act were not attracted in this case despite the fact thatpayments were made on account of advertisement to prohibited person? B. Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is right in holding thatthe assessee was allowed to claim exemption under section11 of the Act despite the fact that the payment were madeto prohibited persons as defined under section 13(1)(c)and 13(2)(c) of the I.T. Act? ble ITAT is right in holding that the assessee was allowed to claim exemption under section11 of the Act despite the fact that the payment were madeto prohibited persons as defined under section 13(1)(c) C. Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT is right in allowing theappeal of the assessee by ignoring the fact that assessee ble ITAT is right in allowing the like charitable or religious institutions are governed byalmost the separate or independent provisions of section11, 12, 12A, 12AA & 13 and these provisions are independent code in itself in Chapter III of the Income TaxAct, 1961 and claim of depreciation under section 32comes under Chapter IV of the Act under the head ‘D’ -profit and Gains of Business or Profession and depreciation D’ - is allowed when capital assets are used for the purpose of business? D. Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT is right in allowing the ble ITAT is right in allowing the appeal of the assessee by ignoring the fact that in the case of charitable or religious institutions, the assessee is noteligible for any type of depreciation as the entireexpenditure for the purchase of capital assets is allowed asa deduction and the same is treated as application ofincome under section 11(1) and claiming depreciation onthe same capital assets tantamount to double deduction and is not as per law as these capital assets are not usedfor the purpose of business or profession as provided undersection 32(1)? for the purpose of business or profession as provided under E. Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT is right in holding thatboth depreciation and application of income are to beconsidered separately to determine the correct incomewithout appreciating that the same tantamount to doublededuction which is not correct as per the relevantprovisions of the I.T. Act? ble ITAT is right in holding that deduction which is not correct as per the relevant F.Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT is right in dismissing theappeal filed by the revenue on the issue of disallowance ofdepreciation placing reliance on their own decisionwithout appreciating the fact that the Hon’ble Supreme Whether on the facts and in the circumstances of the ble ITAT is right in dismissing the appeal filed by the revenue on the issue of disallowance of ble Supreme Court in the case of Escorts Ltd. & another V/s. Union of India (199 ITR 43), while dealing with the issue of ble ITAT is right in holding that deduction which is not correct as per the relevant F.Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT is right in dismissing theappeal filed by the revenue on the issue of disallowance ofdepreciation placing reliance on their own decisionwithout appreciating the fact that the Hon’ble Supreme Whether on the facts and in the circumstances of the ble ITAT is right in dismissing the appeal filed by the revenue on the issue of disallowance of ble Supreme Court in the case of Escorts Ltd. & another V/s. Union of India (199 ITR 43), while dealing with the issue of allowance of expenditure on scientific research under section 35(1)(iv) {corresponding to section 10(2)(xiv) of the IT Act, 1922} held that any expenditure of a capital nature (or incurred towards purchase of capital assets) on scientific research allowed as deduction under section35(1)(iv) cannot be allowed once again as deduction inthe form of depreciation on such capital assets? 3.Learned counsel for the appellant fairly stated that thequestions of law proposed as ‘A, B and D’ were also raised in IncomeTax Appeal No. 762 of 2016 and Income Tax Appeal No. 782 of 2016for the earlier assessment years 2008-2009 and 2009-2010 weredismissed vide judgment and order dated 11[th] December 2018.However it was urged that the Tribunal had failed to decide one question which was raised before it. The said question of law reads as under :- 3.Whether on the facts and in the circumstances of thecase and in law, the Ld CIT(A) was justified in allowingdepreciation on an asset already treated as application ofincome. 4.However, it has been brought to our notice that the issuehas been concluded by this Court in the Case of ‘CIT v. Institute Of’1Banking Personnel Selection (IBPS)’. It was held : “3. As stated above, the first question whichrequires consideration by this Court is: whetherdepreciation was allowable on the assets, the cost ofwhich has been fully allowed as application of incomeunder section 11 in the past years? In the case of CIT v.Munisuvrat Jain1994 Tax Law Reporter, 1084 the factswere as follows. The assessee was a Charitable Trust. Itwas registered as a Public Charitable Trust. It was alsoregistered with the Commissioner of Income Tax, Pune.The assessee derived income from the temple propertywhich was a Trust property. During the course of assessment proceedings forassessment years 1977-78, 1978-79 and 1979-80, theassessee claimed depreciation on the value of thebuilding @2½% and they also claimed depreciation onfurniture @ 5%. The question which arose before theCourt for determination was : whether depreciationcould be denied to the assessee, as expenditure onacquisition of the assets had been treated as applicationof income in the year of acquisition? It was held by theBombay High Court that section 11of the Income TaxAct makes provision in respect of C.A. No. 7186/ 2014etc. computation of income of the Trust from theproperty held for charitable or religious purposes and it During the course of assessment proceedings forassessment years 1977-78, 1978-79 and 1979-80, theassessee claimed depreciation on the value of thebuilding @2½% and they also claimed depreciation onfurniture @ 5%. The question which arose before theCourt for determination was : whether depreciationcould be denied to the assessee, as expenditure onacquisition of the assets had been treated as applicationof income in the year of acquisition? It was held by theBombay High Court that section 11of the Income TaxAct makes provision in respect of C.A. No. 7186/ 2014etc. computation of income of the Trust from theproperty held for charitable or religious purposes and it also provides for application and accumulation ofincome. On the other hand, section 28of the IncomeTax Act deals with chargeability of income from profitsand gains of business andsection 29provides thatincome from profits and gains of business shall becomputed in accordance with section 30to section 43C.That, section 32(1)of the Act provides for depreciationin respect of building, plant and machinery owned bythe assessee and used for business purposes. It furtherprovides for deduction subject tosection 34. In thatmatter also, a similar argument, as in the present case,was advanced on behalf of the revenue, namely, thatdepreciation can be allowed as deduction only undersection 32of the Income Tax Act and not under generalprinciples. The Court rejected this argument. It washeld that normal depreciation can be considered as alegitimate deduction in computing the real income ofthe assessee on general principles or undersection11(1)(a)of the Income Tax Act The Court rejected theargument on behalf of the revenue that section 32oftheIncome Tax Act was the only section granting benefit ofdeduction on account of depreciation. It was held thatincome of a Charitable Trust derived form building,plant and machinery and furniture was liable to becomputed in normal commercial manner although theTrust may not be carrying on any business and theassets in respect whereof depreciation is claimed maynot be business assets. In all such cases, section 32ofthe Income Tax Act providing for depreciation forcomputation of income derived from business orprofession is not applicable. However, the income of theTrust is required to be computed under section 11oncommercial principles after providing for allowance fornormal depreciation and deduction thereof from grossincome of the Trust. In view of the aforestatedjudgment of the Bombay High Court, we answerquestion No. 1 in the affirmative i.e., in favour of theassessee and against the Department.” 5.This view was noticed with approval by the Hon’bleSupreme Court in the case of ‘Commissioner of Income Tax-III, Pune v.Rajasthan & Gujarati Charitable Foundation Poona’’2. 6.In view of the settled position of law, the appeal is found tobe without merits and is dismissed accordingly. (VALMIKI SA MENEZES, J) (DHIRAJ SINGH THAKUR , J)