IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 1715 of 2009()
1. THE COMMISSIONER OF INCOME TAX,
... Petitioner
Vs
1. SREE CHITRA THIRUNAL COLLEGE OF
... Respondent
For Petitioner :SRI.JOSE JOSEPH, SC, FOR INCOME TAX
For Respondent : No Appearance
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN
Dated :27/10/2009
O R D E R
(C.R)
C.N. RAMACHANDRAN NAIR &
V.K.MOHANAN, JJ.
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I.T.A No.1715 & 1732 OF 2009
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Dated, the 27th day of October, 2009
JUDGMENT
Ramachandran Nair, J.
The connected appeals filed by the Revenue are against
the common orders of the Income Tax Appellate Tribunal
declaring eligibility mainly for the benefit of depreciation for the
respondent-assessee, a charitable institution, and granting
exemption to the assessee under section 12 of the Income Tax
Act.
2. We have heard the Standing counsel appearing for the
appellant and have gone through the impugned orders of the
Tribunal and that of the lower authorities.
3. The respondent is a Trust formed by the Government of
Kerala in coordination with the KSRTC, a Government of Kerala
undertaking (functioning under Government control). Since the
respondent Trust is engaged in conducting Engineering college
which claimed exemption under section 11 of the Act and the
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Trust was granted the benefit by issuing registration in it’s favour
under section 12 of the I.T.Act, in the returns filed for the
assessment years 2001-2002 and 2003-2004, respondent-assessee
claimed depreciation on buildings, furniture etc. However, the
assessing officer rejected the claim holding that since the income
received by the assessee is exempt under section 11 of the Act, the
assessee is not entitled to get depreciation. Besides denying
depreciation, the assessing officer made an addition of
Rs.84,96,000/- towards fees due from KSRTC. For the
assessment year 2003-2004, the additional issue raised was with
regard to carry forward of income, which according to the Assessing
Officer, was in excess to the limit prescribed under section 11(2)(a)
of the Act. However, in first appeal, the CIT(Appeals) allowed the
appeals on all the grounds raised and the Tribunal on second
appeals filed by the Revenue, confirmed the same against which
these appeals are filed.
4. The first contention raised by the Revenue is that the
assessee being a Trust enjoying exemption under section 11 of the
Act is not entitled to claim depreciation. The Standing counsel
submitted that the assessee was engaged only in running
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educational institution and, so much so, it’s activity cannot be
called business to qualify it for deduction for depreciation under
section 32 of the Act. Education carried on other than for profit, is
not treated as a business under the Act, and that is why, separate
exemption subject to conditions is provided to educational
institutions up to a certain limit under section 10(23C) (iiiad) of the
I.T.Act. Apparently, the respondent is running only an educational
institution and educational activities carried on by it does not
appear to be for profit, and so much so, it is entitled to exemption
up to the limit provided in the above provisions stated above. But
neither the assessing authority nor the Department has considered
the assessee’s entitlement for exemption under the above
provisions and so much so, we have to consider the case only with
respect to the assessee’s institution as a Charitable Trust enjoying
exemption under section 11 of the I.T.Act.
5. There is nothing to indicate that charitable institutions
enjoying income tax exemption should not carry on business or
their activities should not lead to any surplus to qualify it for
exemption. Any institution with Education, medical relief, relief of
the poor or the advancement of any other object of general public
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utility as it’s objects qualify it as a charitable institution for
exemption from income tax under section 2(15) of the I.T.Act. It is
very common that the net result of running of educational
institutions, hospitals etc. may result in surplus. However,
charitable institutions which carry on these activities enjoy
exemption under Section 11 if they carry over surplus in excess of
the income utilised for chartable purposes for application of
subsequent years subject to certain limit prescribed in the Act.
There is no bar against the charitable institutions claiming
deductions and rebate available under the Act which includes
depreciation under section 32 of the Act. Depreciation is nothing
but a deduction for wear and tear on the value of fixed assets like
buildings, furniture, plant and machinery etc. used for the
purposes of business or profession. We have already expressed
the view that educational institution is entitled to depreciation in
respect of fixed assets like building, furniture etc. because
educational activity in the strict sense has to be treated only as
business. It is also worthwhile to note that in Commissioner of
Income Tax v. Institute of Banking (264 ITR 110), it was held
that charitable institutions enjoying registration under Section 12A
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of the IT Act is entitled to deduction towards depreciation. Further,
real profit in a commercial activity has to be computed by following
normal accounting practices and policies and under sound
commercial accounting principles, in the computation of profits, an
establishment is entitled to depreciation for fixed assets used in
the business, no matter, the activity was carried on with profit
motive or not. In this view of the matter, we uphold the order of
the Tribunal declaring eligibility of the respondent for depreciation
benefits available under section 32 of the IT Act.
6. On the question raised pertaining to addition made in
the assessment deleted by the first appellate authority and
confirmed by the Tribunal, we find from the Tribunal’s order that
the amount representing fees receivable by the respondent from
KSRTC was written off by the respondent. It is not known
whether the fees shown as payable to the respondent by the
KSRTC for earlier years is towards the fee for training the
employees of the Corporation. In any case it is the finding of the
Tribunal that the amount was written off by the assessee in earlier
years, and, in fact, it is not seen in it’s balance sheet as
receivable from KSRTC. In view of this finding of the Tribunal,
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we do not find any justification for the Department treating this as
income of the assessee and we confirm the Tribunal’s order on
this issue as well.
7. The last ground raised in the appeal for the year 2003-04
is that the income carried forward is in excess of the limit which
was reduced from 25% to 15% with effect from assessment year
2003-04. The only reason for disallowance of the claim in the
assessment is that the assessee has not shown the purpose for
which the amount is carried over. However, it is the finding of the
Tribunal that the respondent-assessee has only one object, that is,
running of the educational institution which is a charitable
institution and, so much so, the Tribunal held that the amount
carried forward can be only for educational purpose which is
accepted by the department in the hands of the assessee as a
charitable object. We do not find any justification to take a view
different from what was taken by the Tribunal, because, the
revenue has no case that the assessee is likely to utilise the fund
for any other purpose in violation of the objects of the Trust. The
Trustees include the Minister for Transport as Chairman,
Secretaries of the Department of Transport, Finance, Managing
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Director of a Government Corporation like KSRTC etc.
Consequently, we dismiss both the appeals filed by the
Revenue.
C.N.RAMACHANDRAN NAIR
JUDGE
V.K.MOHANAN,
JUDGE
kvm/-
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V.K.MOHANAN, J.
O.P.No.
JUDGMENT
Dated:..