Case Law Details
Annaimullai Educational and Social Service Trust Vs ITO (ITAT Chennai)
Admittedly, the assessee is a trust but it is not registered. It got registered u/s.12AA of the Act by CIT (Exemptions), Chennai only on 11.07.2018. The registration is effective from assessment year 2018-19. Hence in the relevant assessment year 2017-18, the assessee is not a registered trust u/s.12AA of the Act. Admittedly, the assessee is running an educational institute and its gross receipt is to the tune of Rs.2,11,38,336/-. The AO while framing assessment allowed administration expenses of Rs.1,85,97,333/- but he disallowed depreciation, which ultimately was confirmed by CIT(A) only on one reason that depreciation cannot be allowed u/s.32 of the Act, as the assessee is not carrying on any business. From the facts, it is clear that the assessee is running educational institute and its gross receipts are to the tune of Rs.2,11,38,336/-. It means that the assessee is engaged in the business and it has been assessed as AOP. Once the assessee is assessed as an AOP and no exemption has been allowed u/s.11 of the Act, the entire receipts are to be assessed as business receipt and consequently, depreciation has to be allowed. In view of the above, I’m of the view that the assessee is entitled for the claim of depreciation in this year i.e., Assessment year 2017-18. Hence, I direct the AO to allow depreciation as claimed by assessee after verifying the facts. In term of the above, the appeal of the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Appeal No. NFAC/2016-17/10089724 dated 04.11.2022. The return of income was processed and intimation u/s.143(1) of the Income Tax Act, 1961 (hereinafter the ‘Act’) was issued by the Deputy Commissioner, Income Tax, CPC, Bangalore for the assessment year 2017-18 vide order dated 31.03.2019.
2. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming action of the CPC, Bangalore disallowing depreciation amounting to Rs.25,11,323/- u/s.143(1) of the Act.
3. Brief facts are that the assessee is an unregistered trust. Admittedly, assessee has shown gross receipts and claimed expenditure which has been allowed by CPC while issuing intimation u/s.143(1) of the Act. The assessee is a trust and got registered u/s.12AA of the Act only on 11.07.20 18 relevant to assessment year 2018-19 by CIT(Exemptions), Chennai. Hence, for the relevant assessment year 2017-18, the assessee was not a registered trust u/s.12AA of the Act. The assessee trust filed its return of income for the relevant assessment year 2017-18 disclosing net income of Rs.29,680/- i.e., surplus from running an educational institute. The trust has gross total receipts of Rs.2,11,38,336/-. Against this gross receipt, the assessee has claimed administrative expenses of Rs.1,85,97,333/- and depreciation of Rs.25,11,323/-. The CPC, Bangalore allowed administrative expenses of Rs.1,85,97,333/- but disallowed depreciation of Rs.25,11,323/- while processing return u/s.143(1) of the Act. Aggrieved, assessee preferred appeal before CIT(A).
4. The CIT(A) after considering the facts of the case confirmed the action of the AO by holding that the assessee is not carrying on any business or profession and hence, depreciation cannot be allowed u/s.32 of the Act. For this, he observed in para 5.4 as under:-
“5.4 I have carefully considered the facts of the case and the claim made by the appellant. The appellant trust was not registered u/s 1 2AA of the Act during the relevant year. Against the gross receipt, the expenditure has been allowed by CPC. However, depreciation is not a real expenditure, but a notional one. The appellant is not carrying out any Business or Profession. Hence, depreciation cannot be allowed u/s 32 of the I.T. Act. CPC has correctly added back the amount of depreciation claimed. The claim that entire capital expenditure should have been allowed is also not correct. For charitable entities, expenditure of capital nature are also considered as application as the same are incurred for the objects of the trust. AS the trust was not registered u/s 12AA of the Act in the relevant year, the capital expenditure could not have been allowed as application. Hence, the grounds raised are not allowed.
Aggrieved, assessee is in appeal before the Tribunal.
5. When this appeal was called for hearing, none is present from assessee’s side. I noted from the grounds that the assessee has contended that it is a non-registered trust and registration is effective from assessment year 2018-19 whereas relevant assessment year is 2017-18, the income of the trust should have been assessed as regular AOP and depreciation should have been As contended in the grounds of appeal alternatively, that if depreciation was allowed then the capital expenditure should have been allowed as application of income and it should have been considered if 85% of the income is applied towards charitable purpose or not. But as contended in the grounds restricting its arguments, that once assessee has been assessed as regular AOP, depreciation should have been allowed from business receipts.
6. On the other hand, the ld. Senior DR heavily relied on the assessment order and the order of CIT(A).
7. I have heard ld. Senior DR and gone through facts and circumstances of the case. Admittedly, the assessee is a trust but it is not registered. It got registered u/s.12AA of the Act by CIT(Exemptions), Chennai only on 11.07.2018. The registration is effective from assessment year 2018-19. Hence in the relevant assessment year 2017-18, the assessee is not a registered trust u/s.12AA of the Act. Admittedly, the assessee is running an educational institute and its gross receipt is to the tune of Rs.2,11,38,336/-. The AO while framing assessment allowed administration expenses of Rs.1,85,97,333/- but he disallowed depreciation, which ultimately was confirmed by CIT(A) only on one reason that depreciation cannot be allowed u/s.32 of the Act, as the assessee is not carrying on any business. From the facts, it is clear that the assessee is running educational institute and its gross receipts are to the tune of Rs.2,11,38,336/-. It means that the assessee is engaged in the business and it has been assessed as AOP. Once the assessee is assessed as an AOP and no exemption has been allowed u/s.11 of the Act, the entire receipts are to be assessed as business receipt and consequently, depreciation has to be allowed. In view of the above, I’m of the view that the assessee is entitled for the claim of depreciation in this year i.e., Assessment year 2017-18. Hence, I direct the AO to allow depreciation as claimed by assessee after verifying the facts. In term of the above, the appeal of the assessee is allowed.
8. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23rd February, 2023 at Chennai.
