The Commissioner Of Income Tax-Ii v. M/S Desh Bhagat Memorial Education Trust

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.346 of 2008 (O&M) & other connected cases beingI.T.A. No.318 of 2009 and I.T.A. No.155 of 2010 Date of decision: 10.8.2010 The Commissioner of Income Tax-II Vs. M/s Desh Bhagat Memorial Education Trust. -----Appellant. -----Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Ms. Urvashi Dhugga, Standing Counselfor the revenue. for the revenue. Ms. Radhika Suri, Advocatefor the assessee. --- ADARSH KUMAR GOEL, J. 1. This order will dispose of I.T.A. Nos.346 of 2008,I.T.A. No.318 of 2009 and I.T.A. No.155 of 2010, as commonquestion of law is involved. 2. I.T.A. No.346 has been preferred by the revenueunder Section 260-A of the Income Tax Act, 1961 (for short, “theAct”) against the order dated 28.9.2007 in I.T.A.No.140/CHD/2007 passed by the Income Tax Appellate Tribunal,Chandigarh, proposing to raise following substantial question oflaw:- “Whether on the facts and the circumstances of thecase and in law, the depreciation on the capital assetsis also to be considered as application of income for charitable purpose when it does not represent anycash expenditure on charity and when entire cost ofcapital assets have already been considered and isbeing considered as application of income?” 3. The assessee is a society registered under Section12-AA of the Act. The assessee claimed depreciation on thecapital assets which was not allowed by the Assessing Officer onthe ground that income of the assessee being exempt, allowingthe claim of depreciation will amount to giving of double benefit.Reliance was placed on judgment of the Hon’ble Supreme Courtin Escorts Ltd.v. Union of India[1993] 199 ITR 43. The appealof the assessee was allowed by the CIT(A), which order has beenaffirmed by the Tribunal. The Tribunal held that even if income ofthe assessee was exempt, claim for depreciation had to beallowed on business principles for determination of extent ofapplication of income of the assessee to comply with the statutoryrequirements. It was observed:- “....Depreciation allowance is a concession granted bythe state in the computation of income based on manyfactors relevant to a wholesome fiscal administration.Depreciation is allowance as a deduction bothaccording to accountancy principal and according tothe Indian Income Tax Act, because otherwise, onewould not have a true picture of the real income. Forthis proposition, reliance can be placed upon decisionof the Hon’ble Apex Court in the case of CIT vs. AlpsTheatre (65 ITR 377) SC, Parthas Trust vs CIT (169the state in the computation of income based on manyfactors relevant to a wholesome fiscal administration.Depreciation is allowance as a deduction bothaccording to accountancy principal and according tothe Indian Income Tax Act, because otherwise, onewould not have a true picture of the real income. Forthis proposition, reliance can be placed upon decisionof the Hon’ble Apex Court in the case of CIT vs. AlpsTheatre (65 ITR 377) SC, Parthas Trust vs CIT (169 ITR 334) (Kerala) (FB). The Hon’ble Madhya PradeshHigh Court in the case of Raipur Pallottine Society (8)CTR (MP) 127 clearly held that a charitable trust isentitled to depreciation in respect of assets held by it.In view of these facts, the assessee is having a strongcase in its favour; consequently the assessee isentitled to depreciation and TDS deduction.” 4. Learned counsel for the revenue submitted that theTribunal erred in upholding the claim for depreciation, ignoring themandate of judgment of the Hon’ble Supreme Court in EscortLtd’s case . 5. Learned counsel for the assessee supported the viewtaken by the Tribunal. ITR 334) (Kerala) (FB). The Hon’ble Madhya PradeshHigh Court in the case of Raipur Pallottine Society (8)CTR (MP) 127 clearly held that a charitable trust isentitled to depreciation in respect of assets held by it.In view of these facts, the assessee is having a strongcase in its favour; consequently the assessee isentitled to depreciation and TDS deduction.” 4. Learned counsel for the revenue submitted that theTribunal erred in upholding the claim for depreciation, ignoring themandate of judgment of the Hon’ble Supreme Court in EscortLtd’s case . 5. Learned counsel for the assessee supported the viewtaken by the Tribunal. 6. We are of the view that the Tribunal was justified inallowing depreciation and judgment of the Hon’ble Supreme Courtin EscortsLtd’s case is distinguishable. The matter wasconsidered in recent judgment of this Court dated 5.7.2010 inI.T.A. No.535 of 2009The Commissioner of Income Tax,Karnal v. Market Committee, Pipli, wherein after consideringthe case law on the point, the judgment in Escort wasdistinguished. It was observed:- “9. In the present case, the assessee is notclaiming double deduction on account of depreciationas has been suggested by learned counsel for theRevenue. The income of the assessee being exempt,the assessee is only claiming that depreciation should be reduced from the income for determining thepercentage of funds which have to be applied for thepurposes of the trust. There is no double deductionclaimed by the assessee as canvassed by theRevenue. Judgment of the Hon’ble Supreme Court inEscorts Ltd. and another(supra) is distinguishablefor the above reasons. It cannot be held that doublebenefit is given in allowing claim for depreciation forcomputing income for purposes of Section 11. Thequestions proposed have, thus, to be answeredagainst the revenue and in favour of the assessee. 7. In view of above, the question proposed on behalf ofthe revenue is answered against the revenue and in favour of theassessee. 8. The appeals are dismissed. 9. A photocopy of this order be placed on the files ofeach connected case. (ADARSH KUMAR GOEL) JUDGE August 10, 2010MITTAL )ashwani ( AJAY KUMAR JUDGE