2012 (10) TMI 786 - AT - Income Tax

Tribunal Upholds Income Tax Decisions on Franchise Fees, Depreciation, and Deficit

The Tribunal upheld the decisions of the Ld. Commissioner of Income Tax (A) on all three issues, based on legal principles, precedents, and the specific ... Franchisee fees - satellite schools which are running under the name and logo of Delhi Public School - CIT(A) deleted the addition - Held that:- As decided in assessee's own case that the amount received by the assessee society from various satellite schools which are running under the name and logo of DPS having a different managerial set up than the assessee DPS society was considered as not liable to tax and additions made by the Assessing Officer in this regard had been deleted following principle of consistency - AO has not brought any substantial or incriminating cause against the assessee society which supported him in his action to consider the fee received from satellite schools liable to be taxed in the hands of assessee society - in favour of assessee. Depreciation - capital expenditure treated to have been applied for the object of the trust, allowance of depreciation will amount to double deduction - CIT(A) allowed the claim - Held that:- As decided in D.I.T. vs. Vishwa Jagriti Mission [2012 (4) TMI 289 - DELHI HIGH COURT] claim of depreciation on fixed assets utilized for the charitable purposes has to be allowed while arriving at the income available for application to charitable and religious purposes, since the income of the society should be computed on the basis of commercial principles. Claim to depreciation for determination percentage of funds to be applied for purposes of trust is permissible – Not a case of double benefit - in favour of assessee. No provision for set off losses u/s. 11, 12 & 13 - Held that:- As decided in D.I.T. vs. Raghuvanshi Charitable Trust [2010 (7) TMI 158 - DELHI HIGH COURT] the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against the income earned by the trust in the subsequent year would amount to applying the income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made and will have to be excluded from the income of the trust u/s 11(1)(a) - in favour of assessee. Issues:1. Addition of franchisee fees received by the DPS Society.2. Allowance of depreciation in a case where capital expenditure has been treated as applied for trust's object.3. Allowing the deficit of earlier assessment.Analysis:Issue 1:The first issue pertains to the addition of franchisee fees received by the DPS Society. The Tribunal noted that the issue had been previously decided in favor of the assessee in their own case for the preceding year. The Tribunal observed that the Assessing Officer had not provided substantial reasons for deviating from the previous stand taken by the revenue authorities. The Commissioner of Income Tax (A) rightly followed the judgments of ITAT and the first appellate authority, holding that the fees received from satellite schools were not liable to tax. The Tribunal upheld the decision of the Ld. Commissioner of Income Tax (A) based on the principle of consistency, dismissing the Revenue's appeal.Issue 2:The second issue concerns the allowance of depreciation in a case where capital expenditure was treated as applied for the trust's object. The Tribunal referenced previous judgments and held that the Assessing Officer had disregarded the fact that the assessee was a charitable society. It was emphasized that allowing depreciation would not result in double deduction. The Tribunal agreed with the Ld. Commissioner of Income Tax (A) that the claim of depreciation was not a double deduction and should be reduced from the income for determining the percentage of funds to be applied for the trust's objects. The Tribunal dismissed the Revenue's appeal, upholding the decision of the Ld. Commissioner of Income Tax (A) based on legal precedents and the principle of consistency.Issue 3:The final issue revolves around allowing the deficit of an earlier assessment, which the Assessing Officer disallowed citing no provision for set off losses under relevant sections of the Income Tax Act. The Ld. Commissioner of Income Tax (A) referred to a decision of the Jurisdictional High Court and ruled in favor of the assessee. The Tribunal, after considering the precedent set by the Hon'ble Jurisdictional High Court, upheld the decision of the Ld. Commissioner of Income Tax (A), dismissing the Revenue's appeal.In conclusion, the Tribunal upheld the decisions of the Ld. Commissioner of Income Tax (A) on all three issues, based on legal principles, precedents, and the specific circumstances of the case. The Revenue's appeal was dismissed in its entirety.