2021 (2) TMI 270 - AT - Income Tax

Tribunal Upholds CIT(A) Order in Favor of Assessee, Emphasizes Consistency with Precedents

Dy. CIT (Exemptions) Circle-2 (1), New Delhi. Versus The Delhi Public School Society

Dy. CIT (Exemptions) Circle-2 (1), New Delhi. Versus The Delhi Public School Society - TMI Issues Involved:1. Nature of franchisee fee receipts as business income.2. Claim of carry forward of losses.3. Allowance of depreciation on fixed assets.Detailed Analysis:1. Nature of Franchisee Fee Receipts as Business Income:The Revenue contended that the receipts from franchisee fees should be treated as business income under sub-section 4A of section 11 of the Income Tax Act, as the assessee failed to maintain separate books of accounts as per sub-section 12A of section 2. The Learned Commissioner of Income Tax (Appeals) [CIT(A)] had previously ruled in favor of the assessee. The Appellate Tribunal (ITAT) noted that in the assessee's own case for Assessment Year 2013-14, the Co-ordinate Bench of ITAT, Delhi, had already decided this issue in favor of the assessee, stating that the franchisee fees were not business income. The Tribunal referenced multiple judicial precedents, including the Delhi High Court and Supreme Court rulings, which supported the assessee's position.2. Claim of Carry Forward of Losses:The Revenue argued against the CIT(A)'s decision to allow the carry forward of losses, claiming that the set-off and carry forward of losses should be governed by sections 70 to 74 of the Income Tax Act. The Tribunal observed that the issue had been previously settled in favor of the assessee by the Co-ordinate Bench of ITAT, Delhi, for Assessment Year 2013-14. The Tribunal cited the case of DIT vs. Raghuvanshi Charitable Trust (Delhi High Court), which allowed the carry forward of deficits and their adjustment against future income, treating it as an application of income for charitable purposes under section 11(1)(a).3. Allowance of Depreciation on Fixed Assets:The Revenue contended that allowing depreciation on fixed assets amounted to double deduction since the expenditure on fixed assets had already been allowed. The Tribunal referenced the precedent set by the Delhi High Court in CIT vs. Indraprastha Cancer Society and the Supreme Court ruling in CIT vs. Rajasthan & Gujarati Charitable Foundation Poona, which allowed depreciation on assets even when capital expenditure for acquiring those assets was treated as an application of income for charitable purposes. The ITAT upheld the CIT(A)'s decision to allow depreciation, aligning with these judicial precedents.Conclusion:The Tribunal, after considering the arguments from both sides and reviewing the relevant judicial precedents, decided all the issues in favor of the assessee. The appeal by the Revenue was dismissed, and the CIT(A)'s order was upheld. The Tribunal emphasized that the issues in dispute were already settled in the assessee's favor in previous years, and no new distinguishing facts were presented for the current assessment year.Final Order:The appeal was dismissed, and the issues were decided in favor of the assessee, following the judicial precedents and maintaining consistency with prior rulings in the assessee's own case. The order was pronounced in the open court on 25/01/2021 and written order on 28/01/2021.