IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: ‘E’ NEW DELHI

BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER
AND

SHRI KULDIP SINGH, JUDICIAL MEMBER
[Through Video Conferencing]

ITA No.645/Del./2017
Assessment Year: 2012-13

DCIT (Exemption), Vs. Nav Nirman Sewa Samiti,
Circle-2(1), BN-9(East), Shalimar Bagh,
New Delhi Delhi
PAN :AAAAN6370R
(Appellant) (Respondent)

Appellant by Ms. Pramita M. Biswas, CIT(DR)
Respondent by None

Date of hearing 13.04.2021
Date of pronouncement 11.05.2021

ORDER

PER O.P. KANT, AM:

This appeal by the Revenue is directed against order dated
25/11/2016 passed by the Learned CIT(Appeals)-40, New Delhi
[in short ‘the Ld. CIT(A)’] for assessment year 2012-13 raising
following grounds:

1. On the facts and circumstances of the case and in law, Ld. CIT(A)
has erred in law in allowing the claim of carry forward of losses
disregarding the fact that set-off and carry forward of losses are
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dealt with by the provisions of section 70 to 74 of the Income Tax
Act.

2. On the facts and circumstances of the case and in law, Ld. CIT(A)
has erred in law and fact that allowing depreciation of fixed
assets is tantamount double deduction as the expenditure on
fixed assets is already allowed.

3. The appellant craves leave to add, to alter or amend any ground
of appeal raised above at the time of hearing.

2. Briefly stated facts of the case are that the assessee society
is registered under section 12A of the Income-tax Act, 1961 (in
short ‘the Act’) with effect from 16/10/2008. The aims and
objects of the society include develop and prescribe for a wide
spectrum of courses of study for purpose of general vocational
and continuing education. For the year under consideration, the
assessee filed return of income on 30/09/2012 declaring nil
income. The return of income filed by the assessee was selected
for scrutiny assessment. The scrutiny assessment under section
143(3) of the Act was completed on 26/03/2015, wherein,
depreciation of ₹ 2,59,19,069/- and carry forward of the deficit of
₹ 22,14,49,902/- was declined to the assessee by the Assessing
Officer. The assessee preferred appeal before the Ld. CIT(A), who
allowed both above claim of the assessee following judicial
precedents. Aggrieved, with the finding of the Ld. CIT(A), the
Revenue is in appeal before the Income Tax Appellate Tribunal [in
short ‘the Tribunal’] raising the grounds as reproduced above.
3. Before us, none appeared on behalf of the assessee.
4. We have heard submission of the learned Departmental
Representative and perused the relevant material on record.

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Regarding the ground No. 1 of the appeal, the finding of the Ld.

CIT(A) is reproduced as under:

“4.1 Ground no. 1 of the appeal challenges the disallowance of
claim of depreciation amounting to Rs. 2,59,19,069/-.

4.1.1 I have considered the order of the Assessing Officer and the
submissions of the appellant. Provisions relating to allowability of
depreciation under the Income-tax Act and provisions governing
income from property held for charitable or religious purposes have
also been referred.

4.1.2 Depreciation is an allowance for reduction in the value of
assets arising out of the wear and tear of a capital asset due to the
asset being put to use and passage of time. Depreciation is allowed
under the Income-tax Act while computing income under the head
"Profits and gains of business or profession" subject to fulfillment of
two basic conditions:

(i) The assessee owns the asset; and
(ii) The asset is put to use for the purpose of business or
profession.

4.1.3 Charitable trusts or institutions are governed by the provisions
of sections 11, 12, 12A, 12AA and 13 under Chapter III of the
Income-tax Act. These sections constitute a complete code governing
the grant, cancellation or withdrawal of registration, providing
exemption of income and also conditions subject to which a
charitable trust or institution is required to function in order to be
eligible for exemption. Section ll(l)(a) provides for exemption to the
extent income derived from the property held under trust is applied
for charitable purposes. Subject to fulfillment of conditions laid down
in section 11, exemption is available in respect of income irrespective
of whether the expenditure incurred is revenue or capital in nature.
Hence, exemption is available even when the income is applied for
acquiring a capital asset. In view of this, charitable institutions were
not eligible for depreciation.

4.1.4 This view has been clarified in Para 7.5 of the Explanatory
Notes to the provisions of the Finance (No. 2) Act, 2014 issued vide
Circular No. 1/2015 dated 21st January, 2015. Section 11 was
amended by the Finance (No. 2) Act, 2014 whereby a new sub-
section' has been inserted which provides that under section 11,
income for the purposes of its application shall be determined
without any deduction or allowance by way of depreciation or
otherwise in respect of any asset, acquisition of which has been
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claimed as an application of income under section 11 in the same or
any other previous year. Para 7.5 of the said Explanatory Notes is
reproduced as under:

"7.5 The second issue which had arisen was that the existing
scheme of section 11 as well as section 10(23C) of the Income-
tax Act provided exemption in respect of income when it is
applied to acquire a capital asset. Subsequently, while
computing the income for purposes of these sections, notional
deduction by way of depreciation etc. was being claimed and
such amount of notional deduction was not being applied for
charitable purpose. As a result, double benefit was being
claimed by the trusts and institutions. Therefore, these
proihsions were required to be rationalized to ensure that
double benefit is not claimed and such notional amount does
not get excluded from the condition of application of income for
charitable purpose."

4.1.5 There are many conflicting judgments of various Hon'ble High
Courts, including of the jurisdictional High Court, both in favour and
against allowability of depreciation. The Hon'ble Delhi High Court, in
the case of Director of Income Tax (Exemption) vs. Charanjiv
Charitable Trust [2014] 267 CTR 305, have held 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
computation of income of the trust (Para 30). However, in a
subsequent decision, the Hon'ble Delhi High Court, in the case of
DIT(Exemption) vs. Indraprastha Cancer Society in IT A No. 240,
348, 406, 463 & 464/2014 vide the order dated 18.11.2014, have
held that the assessee is eligible for depreciation in the case of
charitable or religious institution also.

4.1.6 A bare reading of the provisions relating to income from
property held for charitable purposes shows that depreciation per se
was not allowed as a deduction in the case of charitable or religious
institutions. This issue has been laid to rest by amendment to
section 11 by the Finance (No. 2) Act, 2014 which is effective from
the assessment year 2015-16 and subsequent years. However,
relying on the latest decision of the Hon'ble Delhi High Court in the
matter of DIT (Exemption) vs. Indraprastha Cancer Society (supra),
the claim of depreciation of the appellant is allowed. Ground ofp
Appeal No. 1 hence, allowed.”

4.1 We find that the Ld. CIT(A) following the decision of the

Hon’ble Jurisdictional High Court in the case of DIT (Exemption)

Vs Indraprastha Cancer Society (supra), has allowed the claim
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of the assessee of the depreciation, despite claiming by assessee

of capital expenditure corresponding to the depreciation as

application of funds for charitable purposes while calculating

excess of income over expenditure in terms of section 11 of the

Act. We may also like to mention that Hon’ble Supreme Court in

the case of Rajasthan and Gujarati Charitable Foundation

Poona reported in 402 ITR 441(SC) has allowed benefit of the

depreciation while claiming exemption under section 11 of the

Act. The relevant finding of the Hon’ble Supreme Court is

reproduced as under:

“1. These are the petitions and appeals filed by the Income Tax
Department against the orders passed by various High Courts
granting benefit of depreciation on the assets acquired by the
respondents-assessees. It is a matter of record that all the
assessees are charitable institutions registered under Section 12A of
the Income Tax Act (hereinafter referred to as 'Act'). For this reason,
in the previous year to the year with which we are concerned and in
which year the depreciation was claimed, the entire expenditure
incurred for acquisition of capital assets was treated as application
of income for charitable puruposes under Section 11(1)(a) of the Act.
The view taken by the Assessing Officer in disallowing the
depreciation which was claimed under Section 32 of the Act was
that once the capital expenditure is treated as application of income
for charitable purposes, the assessees had virtually enjoyed a 100
per cent write off of the cost of assets and, therefore, the grant of
depreciation would amount to giving double benefit to the assessee.
Though it appears that in most of these cases, the CIT (Appeals) had
affirmed the view, but the ITAT reversed the same and the High
Courts have accepted the decision of the ITAT thereby dismissing
the appeals of the Income Tax Department. From the judgments of
the High Courts, it can be discerned that the High Courts have
primarily followed the judgment of the Bombay High Court in
'Commissioner of Income Tax v. Institute of Banking Personnel
Selection (IBPS)' [(2003) 131 Taxman 386 (Bombay)]. In the said
judgment, the contention of the Department predicated on double
benefit was turned down in the following manner:

3. As stated above, the first question which requires
consideration by this Court is: whether depreciation was
allowable on the assets, the cost of which has been fully
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allowed as application of income under section 11 in the past
years? In the case of CIT v. Munisuvrat Jain 1994 Tax Law
Reporter, 1084 the facts were as follows. The assessee was a
Charitable Trust. It was registered as a Public Charitable
Trust. It was also registered with the Commissioner of Income
Tax, Pune. The assessee derived income from the temple
property which was a Trust property. During the course of
assessment proceedings for assessment years 1977-78,
1978-79 and 1979-80, the assessee claimed depreciation on
the value of the building @2½% and they also claimed
depreciation on furniture @ 5%. The question which arose
before the Court for determination was : whether depreciation
could be denied to the assessee, as expenditure on acquisition
of the assets had been treated as application of income in the
year of acquisition? It was held by the Bombay High Court
that section 11 of the Income Tax Act makes provision in
respect of computation of income of the Trust from the property
held for charitable or religious purposes and it also provides
for application and accumulation of income. On the other
hand, section 28 of the Income Tax Act deals with
chargeability of income from profits and gains of business and
section 29 provides that income from profits and gains of
business shall be computed in accordance with section 30 to
section 43C. That, section 32(1) of the Act provides for
depreciation in respect of building, plant and machinery
owned by the assessee and used for business purposes. It
further provides for deduction subject to section 34. In that
matter also, a similar argument, as in the present case, was
advanced on behalf of the revenue, namely, that depreciation
can be allowed as deduction only under section 32 of the
Income Tax Act and not under general principles. The Court
rejected this argument. It was held that normal depreciation
can be considered as a legitimate deduction in computing the
real income of the assessee on general principles or under
section 11(1)(a) of the Income Tax Act The Court rejected the
argument on behalf of the revenue that section 32of the
Income Tax Act was the only section granting benefit of
deduction on account of depreciation. It was held that income
of a Charitable Trust derived form building, plant and
machinery and furniture was liable to be computed in normal
commercial manner although the Trust may not be carrying on
any business and the assets in respect whereof depreciation
is claimed may not be business assets. In all such cases,
section 32 of the Income Tax Act providing for depreciation for
computation of income derived from business or profession is
not applicable. However, the income of the Trust is required to
be computed under section 11 on commercial principles after
providing for allowance for normal depreciation and deduction
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thereof from gross income of the Trust. In view of the
aforesatated judgment of the Bombay High Curt, we answer
question No. 1 in the affirmative i.e., in favour of the assessee
and against the Department.

4. Question No. 2 herein is identical to the question which was
raised before the Bombay High Court in the case of Director of
Income-tax (Exemption) v. FramjeeCawasjee Institute [1993]
109 CTR 463. In that case, the facts were as follows: The
assessee was the Trust. It derived its income from depreciable
assets. The assessee took into account depreciation on those
assets in computing the income of the Trust. The ITO held that
depreciation could not be taken into account because, full
capital expenditure had been allowed in the year of
acquisition of the assets. The assessee went in appeal before
the Assistant Appellate Commissioner. The Appeal was
rejected. The Tribunal, however, took the view that when the
ITO stated that full expenditure had been allowed in the year
of acquisition of the assets, what he really meant was that the
amount spent on acquiring those assets had been treated as
'application of income' of the Trust in the year in which the
income was spent in acquiring those assets. This did not
mean that in computing income from those assets in
subsequent years, depreciation in respect of those assets
cannot be taken into account. This view of the Tribunal has
been confirmed by the Bombay High Court in the above
judgment. Hence, Question No. 2 is covered by the decision of
the Bombay High Court in the above Judgment. Consequently,
Question No. 2 is answered in the Affirmative i.e., in favour of
the assessee and against the Department.”

After hearing learned counsel for the parties, we are of the opinion
that the aforesaid view taken by the Bombay High Court correctly
states the principles of law and there is no need to interfere with the
same.

It may be mentioned that most of the High Courts have taken the
aforesaid view with only exception thereto by the High Court of
Kerala which has taken a contrary view in 'Lissie Medical
Institutions v. Commissioner of Income Tax'.

It may also be mentioned at this stage that the legislature, realising
that there was no specific provision in this behalf in the Income Tax
Act, has made amendment in Section 11(6) of the Act vide Finance
Act No. 2/2014 which became effective from the Assessment Year
2015-2016. The Delhi High Court has taken the view and rightly so,
that the said amendment is prospective in nature.
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It also follows that once assessee is allowed depreciation, he shall
be entitled to carry forward the depreciation as well.”

4.2 In view of the above, we do not find any error in the order of

the Ld. CIT(A) on the issue in dispute in following the decision of

the Hon’ble Jurisdictional High Court, and accordingly, we

uphold the same. The ground of the appeal of the Revenue is

accordingly dismissed.

5. Regarding second ground, the finding of the Ld. CIT(A) on

the issue in dispute is reproduced as under:

“4.2.1 I have considered the order of the Assessing Officer and
submissions of the appellant. Assessing Officer has denied carry
forward of deficit but has not cited any reasons for this decision.
Charitable trusts or institutions are governed by the provisions of
sections 11, 12, 12A, 12AA and 13 under Chapter III of the Income-
tax Act. These sections constitute a complete code governing the
grant, cancellation or withdrawal of registration, providing
exemption of income and also conditions subject to which a
charitable trust or institution is required to function in order to be
eligible for exemption. In these sections, there is no provision for
adjustment of brought forward loss or carry forward of loss of
current year to be adjusted against the income of subsequent year.
However, various Hon'ble High Court have taken a view that income
is to be computed in accordance with commercial principles and as
such adjustment of brought forward loss/deficit and carry forward
loss/deficit is to be allowed. Such decisions, some of which have
also been relied upon by the appellant, are as under:

i. CIT vs. Maharana ofMewar Charitable Foundation, 164 ITR
439 (Raj) 1987.

ii. CIT vs. Shri Plot Swetamaber Murti Pujak Jain Mandal, 211
ITR 293 (Guj) 1995.

ill. CIT vs. Matrisewa Trust, 242 ITR 20 (Mad) 2000
w. Govindu Naicker Estate vs. ADIT, 248 ITR 110 (Bom) 2003.
v. CIT vs. Institute of Banking, 264 ITR 110 (Bom) 2003.
vi. DIT vs. Raghuvanslii Charitable Trust, 197 Taxmann.com

170 (Delhi) 2011
vii CIT vs. Gujarat Samaj, 349 ITR 559 (MP) 2012”
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5.1 We find that Ld. CIT(A) while arriving at his finding, has
followed decision of the Hon’ble Jurisdictional High Court in the
case of DIT Vs Raghuvanshi Charitable Trust (supra), which is a
binding precedent. In our opinion, there is no error in the order of
Ld. CIT(A) on the issue in dispute, and accordingly, we uphold the
same. The ground of the appeal of the Revenue is accordingly
dismissed.
6. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 11th May, 2021

Sd/- Sd/-
(KULDIP SINGH) (O.P. KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 11th May, 2021. Asst. Registrar, ITAT, New Delhi

RK/-(DTDS)

Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR