Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: TAX RATES - GOODS TAXABLE @ 4% :: cpt :: TDS :: due date for vat payment :: ACCOUNTING STANDARDS :: VAT RATES :: list of goods taxed at 4% :: articles on VAT and GST in India :: form 3cd :: empanelment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARD :: VAT Audit :: Central Excise rule to resale the machines to a new company :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes
 
 
From the Courts »
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)
 Ashok Prapann Sharma vs. CIT (Supreme Court)a
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21

DIRECTOR OF INCOME TAX (EXEMPTION) Vs. M/S INDRAPRASTHA CANCER SOCIETY
December, 08th 2014
*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 INCOME TAX APPEAL NO. 240/2014

                                              Reserved on: 28th October, 2014
%                                        Date of Decision:18th November, 2014


         DIRECTOR OF INCOME TAX (EXEMPTION)             ..... Appellant
                  Through Mr. Kamal Sawhney, Sr. Standing Counsel.

                                      Versus

         M/S INDRAPRASTHA CANCER SOCIETY             ..... Respondent
                  Through Ms. Shashi M. Kapila, Mr. R.R. Maurya and
                  Mr. Pravesh Sharma, Advocates.

         INCOME TAX APPEAL NOS. 348/2014, 463/2014, 464/2014

         DIRECTOR OF INCOME TAX (EXEMPTION)             ..... Appellant
                  Through Mr. Kamal Sawhney, Sr. Standing Counsel.

                                      Versus

         M/S SANSKRITI EDUCATIONAL SOCIETY                    ..... Respondent
                  Through Nemo.

         INCOME TAX APPEAL NO. 406/2014

         DIRECTOR OF INCOME TAX (EXEMPTION)             ..... Appellant
                  Through Mr. Kamal Sawhney, Sr. Standing Counsel.

                                      Versus

         M/S ABUL KALAM AZAD ISLAMIC AWAKENING
                                          ...... Respondent
                  Through Nemo.


         CORAM:
         HON'BLE MR. JUSTICE SANJIV KHANNA
         HON'BLE MR. JUSTICE V. KAMESWAR RAO
ITA No. 240/2014+ connected appeals                             Page 1 of 20
         SANJIV KHANNA, J.:

         This common order, in relation to the aforesaid appeals, is on the

point of admission. It is noticeable that in the case of M/s Sanskriti

Educational Society, ITA Nos. 463/2014 and 464/2014, the appeals filed

by the Revenue are belated and applications have been filed for

condonation of delay. In these two appeals and ITA No. 348/2014 filed

against M/s Sanskriti Educational Society, notice has not been served on

the said respondent, but as we were inclined to dismiss the Revenues

appeals, we have heard arguments on behalf of the Revenue. In ITA

240/2014 and ITA 406/2014, the respondents i.e. M/s Indraprastha Cancer

Society and M/s Abul Kalalm Azad Islamic Awakening, have been duly

served.

2.       The respondent-assessees are charitable institutions to whom

Sections 11 to 13 and other relevant provisions of the Income Tax Act,

1961 (Act, for short) apply. The issue raised in the present appeals is

whether a charitable institution, which has purchased capital assets and

treated the amount spent on purchase of the capital asset as application of

income, is entitled to claim depreciation on the same capital asset utilised

for business. Revenue submits that this would amount to double deduction.




ITA No. 240/2014+ connected appeals                           Page 2 of 20
3.       This High Court in Director of Income Tax versus Vishwa Jagriti

Mission (2013) 262 CTR 558 has held that the claim for depreciation

should be allowed as per principles relating to commercial accountancy,

when computing business income. Reliance placed by the Revenue on the

decision of the Supreme Court in Escorts Limited versus Union of India,

(1993) 199 ITR 43 (SC), was dispelled and distinguished. In Escorts

Limited (supra) the claim for depreciation under Section 32 of the Act was

denied as the entire expenditure on the capital asset had been allowed

under Section 35(2)(iv) of the Act while computing business profit and

loss. Secondly, the Supreme Court was not concerned with the case of a

charitable trust/institution, and the question as to whether income under the

head "profits and gains of business" should be computed on commercial

principles in order to determine the amount of income available for

application for charitable purposes. Decisions of other High Courts in CIT

versus Sheth Manilal Ranchhoddas Vishram Bhavan Trust, (1992) 198

ITR 598 (Guj.), CIT versus Raipur Pallottine Society, (1989) 180 ITR 579

(MP), CIT versus Society of the Sisters of ST. Anne, (1984) 146 ITR 28

(Kar.), CIT versus Trustee of H.E.H. the Nizam's Supplemental

Religious Endowment Trust, (1981) 127 ITR 378 (AP) and CIT versus

Rao Bahadur Calavala Cunnan Chetty Charities, (1982) 135 ITR 485




ITA No. 240/2014+ connected appeals                            Page 3 of 20
(Mad.) were referred to in affirmation of the legal ratio. It was, inter alia,

held:-

              "11. .........The only question is whether the income of the
              assessee should be computed on commercial principles and
              in doing so whether depreciation on fixed assets utilised for
              the charitable purposes should be allowed. On this issue,
              there seems to be a consensus of judicial thinking as is seen
              from the authorities relied upon by the CIT(Appeals) as well
              as the Tribunal. In CIT vs. The Society of the Sisters of St.
              Anme (Supra), an identical question arose before the
              Karnataka High Court. There the society was running a
              school in Bangalore and was allowed exemption under
              Section 11. The question arose as to how the income
              available for application to charitable and religious purposes
              should be computed. Jagannatha Setty, J. speaking for the
              Division Bench of the Court held that income derived from
              property held under trust cannot be the "total income" as
              defined in Section 2(45) of the Act and that the word
              "income" is a wider term than the expression "profits and
              gains of business or profession". Reference was made to the
              nature of depreciation and it was pointed out that
              depreciation was nothing but decrease in the value of
              property through wear, deterioration or obsolescence. It was
              observed that depreciation, if not allowed as a necessary
              deduction for computing the income of charitable
              institutions, then there is no way to preserve the corpus of
              the trust for deriving the income. The circular No.5-P (LXX-
              6) of 1968, dated July 19,1968 was reproduced in the
              judgment in which the Board has taken the view that the
              income of the trust should be understood in its commercial
              sense. The circular is as under:-

                     "Where the trust derives income from house
                     property, interest on securities, capital gains, or
                     other sources, the word ,,income should be
                     understood in its commercial sense, i.e., book
                     income, after adding back any appropriations or
                     applications thereof towards the purpose of the
ITA No. 240/2014+ connected appeals                                    Page 4 of 20
                     trust or otherwise, and also after adding back any
                     debits made for capital expenditure incurred for the
                     purposes of the trust or otherwise. It should be
                     noted, in this connection, that the amounts so added
                     back will become chargeable to tax u/s. 11(3) to the
                     extent that they represent outgoings for purposes
                     other than those of the trust. The amounts spent or
                     applied for the purposes of the trust from out of the
                     income computed in the aforesaid manner, should
                     be not less than 75 per cent. Of the latter, if the
                     trust is to get the full benefit of the exemption u/s.
                     11(1)."

4.       Accordingly, the appeal was dismissed after observing that no

contrary judgment has been brought to the notice of this Court.


5.       The High Court of Kerala in Lissie Medical Institutions versus

Commissioner of Income Tax, (2012) 348 ITR 344 (Ker) has taken a

different view, inter alia, holding as under:-

              "5. It is settled position through several decisions of High
              Courts and Supreme Courts that when business is held in
              trust by charitable institutions income from business has to
              be computed by granting deductions provided u/s 30 to
              43D as provided under S.29 of the Income Tax Act.

              6.    Senior counsel Sri.A.K.J.Nambiar appearing for the
              assessee submitted that the assessee has been filing income
              tax returns for several years including the assessment year
              2005-2006, and disallowance is made only for this year.
              Since business income has to be as stated in S.29 by
              granting all deductions provided u/s 30 to 43D which
              includes depreciation u/s 32, assessee is entitled is the case
              pressed before us by the Senior counsel appearing for the
              assessee. We have no doubt in our mind that business
              income of charitable trust also has to be computed in the
              same manner as provided u/s 29 of the Income Tax Act.
ITA No. 240/2014+ connected appeals                                      Page 5 of 20
              However, the issue that requires consideration is when the
              expenditure incurred for acquisition of depreciable assets
              itself is treated as application of income for charitable
              purposes u/s 11(1)(a) of the Act, should not the cost of such
              assets to be treated as nil for the assessee and in that
              situation depreciation to be granted turns out to be nil.
              However, if depreciation provided is claimed on notional
              cost after the assessee claims 100% of the cost incurred for
              it as application of income for charitable purposes, the
              depreciation so claimed has to be written back as income
              available. In fact, going by the several decisions of the
              various High Courts, we are sure that based on these
              decisions all the charitable institutions will be generating
              unaccounted income equal to the depreciation amount
              claimed on an year to year basis which is nothing but black
              money. This aspect is not seen considered in any of these
              decisions. We, therefore, sought the views from the
              Central Board of Direct Taxes. Senior Standing counsel
              Sri.P.K.R.Menon, appearing for the Revenue produced
              clarification obtained from the Central Board wherein they
              have stated as follows:

                           "The Central Board of Direct Taxes is of the
                     considered view that where an assessee has
                     acquired an asset through application of income
                     and has also claimed this amount as expenditure
                     in its income expenditure account, depreciation
                     on such asset would not be allowable to the
                     assessee. Such notional statutory deductions
                     like depreciation, if claimed as deduction while
                     computing the income of the 'the property held
                     under trust' under the relevant head of income, is
                     required to be added back while computing the
                     income for the purpose of application in the
                     income expenditure account. This would imply
                     that a correct figure of surplus from the trust
                     property is reflected in the Income & Expenditure
                     account of the trust to determine the income for
                     the purpose of application under section 11 of the
                     Income Tax Act. This would reduce the
ITA No. 240/2014+ connected appeals                                       Page 6 of 20
                     possibility of revenue leakage which may be a
                     cause for generation of black money."




6.       Noticing the aforesaid judgment as well as circular/clarification

dated 2nd Feb, 2012 issued by the Central Board of Direct Taxes, a Division

Bench of this Court re-examined the entire issue in ITA No. 7/2013,

Director of Income Tax (Exemption) versus Indian Trade Promotion

Organisation, and other connected matters, decided on 27th November,

2013. The said order records that the Bench was initially inclined to accept

the submission made of the Revenue, but for several reasons mentioned

and recorded, declined to interfere and refer the question/ ratio accepted in

Vishwa Jagriti Mission (supra), to a larger bench. This Court referred to

the following example to explain the controversy in question:-

              "5. ... In order to appreciate the contention raised by the
              Revenue, we would like to give one example which would
              clarify the contention or the issue raised before us. An
              assessee, a charitable institution, say has income from
              property held under Trust of Rs.1,00,000/-. As per mandate
              of clause ,,a, 85% of the said amount i.e. Rs.85,000/- should
              be spent in the said financial year. The said assessee spends
              and acquires a capital asset for Rs.50,000/-. The purchase
              price for acquisition of the capital asset i.e. Rs.50,000/- is
              treated as application of income for the purpose of clause ,,a
              to Section 11(1). On the capital asset, the assessee also claims
              depreciation say @ 20%. Accordingly, the assessee claims
              that the application of income would include Rs.10,000/-
              which is to be allowed as depreciation as to this extent, the
              asset purchased has depreciated. In other words, Rs.60,000/-
              is to be treated as application of money for the purpose of
              clause ,,a to Section 11(1)."

ITA No. 240/2014+ connected appeals                                    Page 7 of 20
Thereafter, reference was made to the following quotation from the

judgment of the Karnataka High Court in Society of the Sisters of St. Anne

(supra) :-


                  "It is clear from the above provisions that the income
                  derived from property held under trust cannot be the
                  total income because s. 11(1) says that the former
                  shall not be included in the latter, of the person in
                  receipt of the income. The expression " total income "
                  has been defined under s. 2(45) of the Act to mean "
                  the total amount of income referred to in s. 5
                  computed in the manner laid down in this Act ". The
                  word " income " is defined under s. 2(24) of the Act
                  to include profits and gains, dividends, voluntary
                  payment received by trust, etc. It may be noted that
                  profits and gains are generally used in terms of
                  business or profession as provided u/s. 28. The word
                  " income ", therefore, is a much wider term than the
                  expression ",profits and gains of business or
                  profession ". Net receipt after deducting all the
                  necessary expenditure of the trust (sic).

                  There is a broad agreement on this proposition. But
                  still the contention for the Revenue is that the
                  depreciation allowance being a notional income
                  (expenditure ?) cannot be allowed to be debited to the
                  expenditure account of the trust. This contention
                  appears to proceed on the assumption that the
                  expenditure should necessarily involve actual
                  delivery of or parting with the money. It seems to us
                  that it need not necessarily be so. The expenditure
                  should be understood as necessary outgoings. The
                  depreciation is nothing but decrease in value of
                  property through wear, deterioration or obsolescence
                  and allowance is made for this purpose in book
                  keeping, accountancy, etc. In Spicer & Pegler's
                  Book-keeping and Accounts, 17th Edn., pp. 44, 45 &
                  46, it has been noted as follows :
ITA No. 240/2014+ connected appeals                                    Page 8 of 20
                         "Depreciation is the exhaustion of the effective
                         life of a fixed asset owing to ' use ' or
                         obsolescence. It may be computed as that part
                         of the cost of the asset which will not be
                         recovered when the asset is finally put out of
                         use. The object of providing for depreciation is
                         to spread the expenditure, incurred in acquiring
                         the asset, over its effective lifetime; the
                         amount of the provision, made in respect of an
                         accounting period, is intended to represent the
                         proportion of such expenditure, which has
                         expired during that period. "



                         "At the end of its effective life, the assets
                         ceases to earn revenue, i.e., the capital value
                         has expired and the asset will have to be
                         replaced or a substitute found provision for
                         depreciation is the setting aside, out of the
                         revenue of an accounting period, the estimated
                         amount by which the capital invested in the
                         asset has expired during that period. It is the
                         provision made for the loss or expense incurred
                         through rising the asset for earning profits, and
                         should, therefore, be charged against those
                         profits as they are earned. "



                         "If depreciation is not provided for, the books
                         will not contain a true record of revenue or
                         capital. If the asset were hired instead of
                         purchased, the hiring fee would be charged
                         against the profits; having been purchased the
                         asset is, in effect, then hired by capital to
                         revenue,     and the true profit cannot be
                         ascertained until a suitable charge for the use
                         of the asset has been made. Moreover, unless
                         provision is made for depreciation, the balance-
                         sheet will not present a true and fair view of
ITA No. 240/2014+ connected appeals                                      Page 9 of 20
                         the state of affairs ; assets should be shown at a
                         figure which represent that part of their value
                         on acquisition, which has not yet expired. "



                  In CIT v Indian Jute Mills Association [1982] 134
                  ITR 68, the Calcutta High Court, while constructing
                  the expression " expenditure incurred " in s. 44A of
                  the Act, observed :

                         "depreciation claimed shall include the
                         expenditure incurred."       There are only two
                         recognised methods of accounting : (1) cash
                         basis, and (ii) mercantile basis. Under the cash
                         basis only cash transactions are recorded. It is
                         only cash receipts and cash payments which
                         find entries      in the books of account.
                         Mercantile system of accounting was explained
                         by the Supreme Court in Keshav Mills Ltd. v.
                         CIT [1953]23 ITR 230 at 230 in the following
                         words :

                          "The mercantile system of accounting or what
                         is otherwise known as the double entry system
                         is opposed to the cash system of book keeping
                         under which a record is kept of actual cash
                         receipts and actual cash payments, entries
                         being made only when money is actually
                         collected or disbursed. That system brings into
                         credit what is due, immediately it becomes
                         legally due and before it, is actually received
                         and it brings into debit expenditure the amount
                         for which a legal liability has been incurred
                         before it is actually disbursed.

                         It is not in dispute that if the mercantile system
                         is followed, the depreciation allowance in
                         respect of the trust property should be allowed.

                         xxxxxxxxxxxxxxxx


ITA No. 240/2014+ connected appeals                                       Page 10 of 20
                         The depreciation if it is not allowed as a
                         necessary deduction for computing the income
                         from the charitable institutions, then there is no
                         way to preserve the corpus of the trust for
                         deriving the income. The Board also appears
                         to have understood the " income " u/s. 11(1) in
                         its commercial sense. The relevant portion of
                         the Circular No. 5-P (LXX-6) of 1968, dated
                         July 19, 1968, reads:

                         "Where the trust derives income from house
                         property, interest on securities, capital gains, or
                         other sources, the word 'income' should be
                         understood in its commercial sense, i.e., book
                         income, after adding back any appropriations
                         or applications thereof towards the purpose of
                         the trust or otherwise, and also after adding
                         back any debits made for capital expenditure
                         incurred for the purposes of the trust or
                         otherwise.It should be             noted, in this
                         connection, that the amounts so added back will
                         become chargeable to tax u/s. 11(3) to the
                         extent that they represent outgoings for
                         purposes other than those of the trust. The
                         amounts spent or applied for the purposes of
                         the trust from out of the income computed in
                         the aforesaid manner, should be not less than
                         75 per cent. of the latter, if the trust is to get the
                         full benefit of the exemption u/s. 11(1). "



This court thereafter referred to the circular/clarification dated 2nd

February, 2012 by the CBDT, issued after decision of Kerala High Court in

Lisse Medical ( supra) and has expounded as under:-

                   "9. After the decision of the Kerala High Court in Lissie
                   Medical Institution vs. CIT (supra), the Board issued a

ITA No. 240/2014+ connected appeals                                          Page 11 of 20
                   fresh circular or clarification dated 02.02.2012 and has
                   observed:-


                         "The view of the CBDT to be conveyed to the
                       Court in this regard is as under:-

                            The Central Board of Direct Taxes is of the
                           considered view that where an assessee has
                           acquired an asset through application of
                           income and has also claimed this amount as
                           expenditure in its income expenditure
                           account, depreciation on such asset would not
                           be allowable to the assessee. Such notional
                           statutory deductions like depreciation, if
                           claimed as deduction while computing the
                           income of "the property held under trust"
                           under the relevant head of income, is required
                           to be added back while computing the income
                           for the purpose of application in the income
                           expenditure account. This would imply that a
                           correct figure of surplus from the trust
                           property is reflected in the Income and
                           Expenditure account of the trust to determine
                           the income for the purpose of application
                           under section 11 of the Income Tax Act. This
                           would reduce the possibility of revenue
                           leakage which may be a cause for generation
                           of black money."


                   10. We also note that the Kerala High Court, in fact, has
                   noted the clarifications which were earlier issued by the
                   Board in respect of 1968 circular. It is clear from the
                   reasoning given by the Kerala High Court
                   that they have not gone by the express language of
                   Section 11(a) and have purposively interpreted the
                   provision."




ITA No. 240/2014+ connected appeals                                    Page 12 of 20
7.       Reference was once again made to the decision of the Supreme

Court in Escorts Limited (supra) and provisions of Section 35(2B)(c) were

quoted and it was observed that the language of the sub-clause (c) was

clear and lucid but conspicuously different from section 11(1) of the Act.

It has been observed in Indian Trade Promotion Organisation (supra) :-


                  11. Clause ,,a of Section 11(1) stipulates that income derived from
                  property held under trust wholly for charitable or religious
                  purposes is to be applied for such purposes in India and where such
                  income is set aside or accumulated, it should not be in excess of
                  15% of the income from such property. Thus, there is an embargo
                  and probation from accumulating or setting apart income derived
                  from property held under trust beyond 15% of income from such
                  property. If there is a violation of the said provision, proportionate
                  income is deemed to be taxable and not exempt under Section
                  11(1). The language of the Section is peculiar and proceeds on its
                  own wording. This aspect has been highlighted and pointed out in
                  the judgment of Commissioner of Income Tax vs. Society of The
                  Sisters of St. Anne (supra). Decision in the case of Escorts Ltd.
                  (supra) was considered by the Delhi High Court in DIT vs. Vishwa
                  Jagriti Mission (supra) decided on 29th March, 2012 and was
                  distinguished for the following reasons.

                           "13. The judgment of the Supreme Court in
                           Escorts Limited Vs. Union of India (supra)
                           has been rightly held to be inapplicable to the
                           present case. There are two reasons as to why
                           the judgment cannot be applied to the present
                           case. Firstly, the Supreme Court was not
                           concerned with the case of a charitable
                           trust/institution involving the question as to
                           whether its income should be computed on
                           commercial principles in order to determine
                           the amount of income available for application
                           to charitable purposes. It was a case where the
                           assessee was carrying on business and the
ITA No. 240/2014+ connected appeals                                      Page 13 of 20
                           statutory computation provisions of Chapter
                           IV-D of the Act were applicable. In the
                           present case, we are not concerned with the
                           applicability of these provisions. We are
                           concerned only with the concept of
                           commercial income as understood from the
                           accounting point of view. Even under normal
                           commercial accounting principles, there is
                           authority for the proposition that depreciation
                           is a necessary charge in computing the net
                           income. Secondly, the Supreme Court was
                           concerned with the case where the assessee
                           had claimed deduction of the cost of the asset
                           under Section 35(1) of the Act, which allowed
                           deduction for capital expenditure incurred on
                           scientific research. The question was whether
                           after claiming deduction in respect of the cost
                           of the asset under Section 35(1), can the
                           assessee again claim deduction on account of
                           depreciation in respect of the same asset. The
                           Supreme Court ruled that, under general
                           principles of taxation, double deduction in
                           regard to the same business outgoing is not
                           intended unless clearly expressed. The present
                           case is not one of this type, as rightly
                           distinguished by the CIT(Appeals)."



                12. We would like to reproduce Section 35 (2B)(c).
                       "Section 35(2B)(a) ..................................

                           (b).........................................................

                           (c) Where a deduction allowed for any
                           previous year under this sub-section in respect
                           of expenditure represented wholly or partly by
                           an asset, no deduction shall be allowed in
                           respect of that asset under [clause (ii) of sub-
                           section (1)] of section 32 for the same or any
                           subsequent previous year."
ITA No. 240/2014+ connected appeals                                                       Page 14 of 20
                13. The language of the sub-clause ,,c to Section 35(2B) is
                    conspicuous and entirely different and wordings are clear and
                    lucid. The language of Section 11(1), as noticed above, is
                    distinguished and not worded in a similar manner. In Escorts
                    Ltd. (supra), the Supreme Court was considering the said
                    specific provision and the wordings therein. While dealing with
                    the term "expenditure" and noticing the language it was held
                    that no duplication or double deduction should be allowed
                    towards depreciation in the same or subsequent year. Thus, the
                    issue was decided against the assessee. Language of Explanation
                    1 to Section 43(1) can also be referred to and we notice that the
                    language of the said explanation is absolutely different from the
                    language used in Clause (a) to Section 11(1). Section 11(1)(a) is
                    a peculiar provision which postulates application of income and
                    it is not dealing with expenditure as such. The legislative desire
                    is that money should be applied for the purpose of charity. In
                    Escorts Ltd.(supra), the Supreme Court had observed that they
                    were concerned with expenditure and since the entire costs of
                    the capital assets had been allowed and had been set off against
                    the business profit in five years or in one previous year, it was
                    unconceivable that the depreciation should be allowed again on
                    the same asset."


8.       Decisions of other High Courts in Commissioner of Income Tax

versus Tiny Tots Education Society, (2011) 330 ITR 21 (P&H) and

Commissioner of Income Tax versus Institute of Banking, (2003) 264

ITR 110 (Bom.) in which the ratio as expounded in the case of Vishwa

Jagriti Mission (supra) was accepted and affirmed, were noticed. Referring

to the decision of the Kerala High Court in Lissie Medical Institutions

(supra) it was observed:-


ITA No. 240/2014+ connected appeals                                    Page 15 of 20
                  15. "Kerala High Court was also conscious of the said decisions
                  and the fact that Section 11(1)(a) had been interpreted in a different
                  manner. It was in these circumstances that the Kerala High Court
                  in the last portion of paragraph 6, as quoted above, has stated that
                  the assessee would be entitled to write back depreciation and if
                  done, the Assessing Officer would modify the assessment
                  determining the higher income and allow recomputation of
                  depreciation written back for the purpose of application of income
                  for charitable purposes in future or subsequent years. This may
                  lead to its own difficulties and problems as suddenly the entire
                  depreciation written off would have to be added first and then in
                  one year substantial application of income would be required. This
                  may be impractical and would disturb the working of many a
                  charitable institutions.     The legal interpretation which has
                  continued since 1984, if disturbed and implemented, would not
                  appropriately resolved.      Consistency and certainty is more
                  appropriate.

                  16. The equally plausible and consistent interpretation of clause (a)
                  of Section 11(1) of the Act is that income derived from property
                  must be calculated as per the principles of the Act. The said clause
                  is not a computation provision and does not disturb the "income"
                  earned or available but postulates that the "income" as computed in
                  accordance with the provisions of the Act to the extent of 86%
                  must be applied. Application of income may include purchase of a
                  capital asset.    The said purchase is valid and taken into
                  consideration for the purpose of ensuring compliance, i.e.,
                  application of money or funds and is not a factor which determines
                  and decides the quantum of income derived from property held
                  under trust. Computation of income is separate and distinct and
                  has to be made on commercial basis by applying provisions of the
                  Act."





9.       To our mind, therefore, the issue has been examined in depth and

detail twice and thus there is no error in the impugned orders passed by the

Tribunal.       However, learned counsel for the Revenue has drawn our

attention to the decision dated 18th March, 2014 in ITA No. 322-323/2013
ITA No. 240/2014+ connected appeals                                      Page 16 of 20
titled Director of Income Tax (Exemption) versus Charanjiv Charitable

Trust, wherein it has been held:-

              "30. So far as the claim of depreciation is concerned the
              decision of the Tribunal cannot be countenanced. The
              Tribunal has overlooked that the cost of the assets has
              already been allowed as a deduction as application of
              income, as held by the CIT (Appeals) as well as the
              assessing officer. It was their view that allowing
              depreciation in respect of assets, the cost of which was
              earlier allowed as deduction as application of income of the
              trust, would actually amount to double deduction on the
              basis of the ruling of the Supreme Court in Escorts Ltd. vs.
              UOI (supra). In respect of the additions to the fixed assets
              made during the previous year relevant to the assessment
              year 2006-07, the CIT (Appeals) held that since the cost of
              the assets was not allowed as a deduction by way of
              application of income, depreciation should be allow. The
              CIT (Appeals) has thus made a distinction between assets
              the cost of which was allowed as deduction as application
              of income and assets, the cost of which was not so allowed.
              The Tribunal has not kept this distinction in view, but has
              proceeded to rely upon a judgment of this Court in DIT vs.
              Vishwa Jagrati Mission (supra). In the judgment of this
              Court the question was whether the income of the assessee,
              which was a charitable trust, should be computed on
              commercial principles and if so, whether depreciation on
              fixed assets used for charitable purposes should be allowed
              as a deduction. This Court noticed that there was a
              consensus of judicial opinion on this aspect and held, after
              referring to those authorities as well as a circular of the
              CBDT issued on 19.07.1968, that while computing the
              income of the trust available for application for charitable
              purposes, depreciation on assets used for charitable
              purposes should be allowed. The point to be noticed is that
              in this judgment, this Court referred to and distinguished
              the judgment of the Supreme Court in Escorts Ltd. (supra)
              on the ground that in Escorts (supra), the Supreme Court
ITA No. 240/2014+ connected appeals                                   Page 17 of 20
              was concerned with a case where the deduction of the cost
              of the asset was allowed under Section 35(1) as capital
              expenditure incurred on scientific research and, therefore,
              no deduction for depreciation on the very same assets was
              held allowable under general principles of taxation, as it
              would amount to double deduction. The judgment of this
              Court in DIT vs. Vishwa jagrati Mission reinforces the
              principle that if the cost of the asset has been allowed as
              deduction by way of application of income then
              depreciation on the same asset cannot be allowed in the
              computation of the income of the trust. The distinction has
              not been kept in view by the Tribunal which seems to have
              erroneously relied on the judgment of this Court to direct
              allowance of depreciation even in respect of assets, the cost
              of which has already been allowed as application of
              income. We accordingly hold that the Tribunal was not
              justified in directing the allowance of depreciation in
              respect of such assets."

10.      The aforesaid paragraph refers to the decision in the case of Vishwa

Jagriti Mission (supra) but ratio was distinguished on the ground that in

the said case the Court was concerned with computation of income of a

charitable trust/institution on commercial principles and if so whether

depreciation on fixed assets used for charitable purposes should be allowed

as a deduction. The consensus of judicial opinion on the said aspect was

referred to. It is noticeable that in Charanjiv Charitable Trust (supra) it

stands observed that the Tribunal overlooked the fact that the cost of asset

had been allowed as a "deduction" and thereafter depreciation was being

claimed. The said case, therefore, appears to be a peculiar one wherein

deduction        as     expenditure   and   depreciation     was    being     claimed

ITA No. 240/2014+ connected appeals                                    Page 18 of 20
simultaneously, while computing the taxable income under the head

"profits and gains from business". The said decision dated 18th March,

2014 does not refer to the decision in Indian Trade Promotion

Organisation (supra) which was decided on 27th November, 2013. The

judgment in the case of Indian Trade Promotion Organisation (supra) was

not cited and referred to.            The judgment in the case of Charanjiv

Charitable Trust (supra) is authored by the same Judge, who has also

authored the decision in the case of Vishwa Jagriti Mission (supra). It is

obvious that in Charanjiv Charitable Trust (supra), the Division Bench

could not have taken a different view on the legal ratio as interpreted in

Vishwa Jagriti Mission (supra). Further, the decisions in the case of

Vishwa Jagriti Mission and Indian Trade Promotion Organisation

(supra) being prior in point of time would act as binding precedents and

could not have been overruled or dissented from by a coordinate Division

Bench.


11.      By Finance (No. 2) Act of 2014, sub-section (6) to Section 11 stands

inserted with effect from 1st April, 2015 to the effect that where any

income is required to be applied, accumulated or set apart for application,

then for such purposes the income shall be determined without any

deduction or allowance by way of depreciation or otherwise in respect of

an asset, the acquisition of which has been claimed as application of

ITA No. 240/2014+ connected appeals                            Page 19 of 20
income under this Section in the same or any other previous year. The

legal position, therefore, would undergo a change in terms of Section

11(6), which has been inserted and applicable with effect from 1st April,

2015 and not to the assessment years in question. The newly enacted sub-

section relates to application of income.


12.      In these circumstances, we do not find any merit in the appeals in the

case of Indraprastha Cancer Society, Abul Kalam Azad Islamic Awakening

and in the case of M/s Sanskriti Educational Society (ITA No. 348/2014).

Similarly, we do not think it is necessary and required that we should issue

notice in the application for condonation of delay filed in the case of M/s

Sanskriti Educational Society (ITA Nos. 463 and 464/2014) as on merits

the Revenue is not entitled to succeed. In these appeals, the applications

for condonation of delay shall be treated as dismissed and as a sequitur the

appeals will be treated as dismissed.




                                               (SANJIV KHANNA)
                                                     JUDGE


                                               (V. KAMESWAR RAO)
                                                     JUDGE
NOVEMBER 18th, 2014
VKR


ITA No. 240/2014+ connected appeals                              Page 20 of 20

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Sitemap

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions