2020 (1) TMI 610 - AT - Income Tax

Tribunal affirms CIT(A) decisions on depreciation, capital gains, and expenses, dismissing revenue's appeal.

DCIT (Exemption), Circle-1 (1), Kolkata Versus Maa Saraswati Gyan Mandir Education Society

The Tribunal upheld the CIT(A)'s decisions on various issues, including granting relief on depreciation, allowing depreciation on assets with nil ... Exemption u/s 11 - Depreciation to assessee trust - HELD THAT:- We note that sub-section (6) to section 11 was inserted by the Finance (no. 2) Act, 2014, w.e.f. 01.04.2015, which states that if acquisition of assets had been claimed as application, then depreciation is not allowable. We note that the said sub-section(6) of section 11 is applicable w.e.f. 01.04.2015 but in assessee`s case under consideration the assessment year is 2012-13, therefore amended section 11(6) does not apply to the assessee. Hence, the decision of the jurisdictional High Court of Calcutta in CIT vs. Siliguri Regulated Market Committee [2014 (8) TMI 686 - CALCUTTA HIGH COURT] will hold good, wherein it was held that the claim of depreciation is to be allowed even if the cost of the asset is treated as application. As regards whether the inserted sub-section (6) could have retrospective application, judicial decisions have held that it cannot be interpreted so. This section is not retrospective in effect which is evident from the amendment itself. Capital gain on sale of cars to be qualified for exemption u/s. 11(1A) - HELD THAT:- The consideration received was deducted from block of assets which is apparent from the details of depreciation as per Tax Audit Report which depreciation was claimed on the reduced value after deducting ₹ 8,40,000/-. Needless to repeat, sale consideration of a depreciable asset is to be reduced from the block of asset which is part of the process of the computation of depreciation. The assessee duly reduced the said sale consideration from the block of assets which is not in dispute. In view of the above the amount of ₹ 8,40,000/- separately added as income has rightly been deleted by ld CIT(A). Claim of depreciation is to be allowed even if the cost of the asset is treated as application. We note that section 11 (1A) is on the utilization of the net consideration, therefore the capital gains qualify for exemption u/s 11 (1A) of the Act Administrative and establishment expenses allowance in computation for determination of quantum of accumulation u/s. 11(1)(a) - HELD THAT:- Advertisement expenses claimed by assessee is normal and expected for a school to advertise about its features so that general public may know about it. Payment of audit fees is statutory obligation. Conveyance expenses is incurred, for teachers / staff, and administrative workers. Other expenses are incidental expenses. License Fees is necessary for the school to function. Professional charges are incurred as considered necessary by the school. Expenses of the society are incurred so that the school may run and function properly. These expenses are necessary to achieve the objective of the assessee trust. That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue is dismissed. Allowing to set off of earlier loss against the principles that loss is negative profit and when profit is exempted, loss is also exempted - HELD THAT:- CIT(A) did not direct the AO to allow setoff. As per ld CIT(A) the issue for set off will not arise; for the revised assessed income upon giving effect to his appeal order, because as per the return of income furnished by the appellant, the income was to the tune of Rs. Nil. However, after going through the judicial precedents, as noted above, it clear that such claim for set off is allowable to the assessee trust, therefore, we direct the AO to allow the set off benefit to the assessee trust. Loss from the business of running school bus and loss from running of hostel qualified for exemption u/s. 11(4A) - HELD THAT:- We note that assessee trust is providing school bus service to the students and also providing hostel facility for students on payment basis. The main objective of the school is to impart education. However, AO was of the view that activity of running school bus and providing hostel facility is not directly and proximately connected with the objective of imparting education. These services are provided against fees therefore AO noted that nature of such incidental activity is business, therefore he made addition to the total income of the assessee trust. We note that assessing officer has himself stated in his order that “these are pure business activities but pertaining to attainment of the objective of the trust.” Hence, it is abundantly clear from the order of the AO that school bus service and hostel service is pertaining to attainment of the objective of the trust. School bus service is only used to drop and pick up the students. Similarly, hostel facility is provided to the needy students. These services are part and parcel of the school and cannot be termed as business and hence the provision of section 11(4)/ (4A) of the Act is not attracted in this instant case. The main objective of the school is to impart education. The activity of running school bus and providing hostel facility is directly and proximately connected with the objective of imparting education. These are incidental activities for attainment of the objective of the assessee trust. We note that school bus and hostel activities are incidental to the attainment of objectives of the trust, hence, we do not find any infirmity in the order of CIT(A)in deleting the addition - Decided in favour of assessee. Issues Involved:1. Relief on account of depreciation amounting to Rs. 2,84,67,351.2. Claim of depreciation on assets with nil acquisition cost.3. Exemption of capital gain of Rs. 8,40,000 on sale of cars under Section 11(1A).4. Allowance of administrative and establishment expenses of Rs. 3,54,12,977.5. Set off of earlier loss of Rs. 6,04,16,031.6. Allowance of losses from school bus and hostel services under Section 11(4A).Detailed Analysis:1. Relief on Account of Depreciation:The revenue challenged the relief granted by the CIT(A) regarding depreciation of Rs. 2,84,67,351. The AO had disallowed the depreciation, arguing that it resulted in double deduction since the cost of assets was already treated as application of income for charitable purposes. The Tribunal noted that Section 11(6) of the Act, which disallows such depreciation, was applicable from AY 2015-16 and not relevant for AY 2012-13. The Tribunal upheld the decision of the CIT(A) based on the jurisdictional High Court's ruling in CIT vs. Siliguri Regulated Market Committee, which allowed depreciation even if the asset's cost was treated as application of income.2. Claim of Depreciation on Assets with Nil Acquisition Cost:The Tribunal reiterated that the insertion of Section 11(6) was prospective from 01.04.2015 and not retrospective. Thus, the depreciation claim for AY 2012-13 was valid. The Tribunal cited various judicial precedents, including decisions by the Delhi High Court and Karnataka High Court, supporting the non-retrospective application of Section 11(6).3. Exemption of Capital Gain on Sale of Cars:The AO added Rs. 8,40,000 as capital gain from the sale of cars, arguing that the sale proceeds were not utilized to acquire new assets as required under Section 11(1A). The CIT(A) deleted this addition, and the Tribunal upheld this decision. The Tribunal noted that the sale consideration was deducted from the block of assets, which is consistent with the depreciation rules. The Tribunal concluded that the capital gains qualify for exemption under Section 11(1A).4. Allowance of Administrative and Establishment Expenses:The AO disallowed Rs. 3,54,12,977 in administrative and establishment expenses, arguing they were not directly related to charitable purposes. The CIT(A) deleted the addition, and the Tribunal upheld this decision. The Tribunal found that expenses such as advertisement, audit fees, conveyance, and professional charges were necessary for the functioning of the school and thus directly related to its charitable objectives.5. Set Off of Earlier Loss:The AO disallowed the set off of earlier years' losses amounting to Rs. 6,04,16,031, citing that such a claim was not made in the return of income and referred to the Supreme Court's decision in Goetz (India) Ltd. The CIT(A) allowed the set off, and the Tribunal upheld this decision. The Tribunal cited judicial precedents, including the Bombay High Court and Madras High Court, which allowed the set off of earlier years' excess expenditure over income.6. Allowance of Losses from School Bus and Hostel Services:The AO disallowed losses from school bus services (Rs. 1,14,75,323) and hostel services (Rs. 20,56,394), arguing that these were business activities requiring separate books of accounts. The CIT(A) deleted the addition, and the Tribunal upheld this decision. The Tribunal noted that these services were incidental to the attainment of the trust's objectives and thus did not attract the provisions of Section 11(4)/(4A). The Tribunal found that these activities were part and parcel of the school's operations and directly connected to its educational objectives.Conclusion:The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The Tribunal found no infirmity in the CIT(A)'s orders, which were consistent with judicial precedents and the applicable provisions of the Income Tax Act.