Trust denied tax exemption for allopathic income; segregation required. Depreciation only for Ayurvedic activities.

The Tribunal ruled that the trust, primarily engaged in allopathic medical activities deviating from its original objects of promoting Ayurvedic medicine, was not entitled to exemption under sections 11 and 12 of the Income-tax Act. Income and expenditure from allopathic medical relief had to be segregated. Regarding depreciation on fixed assets, the Tribunal allowed it for Ayurvedic activities but not for allopathic activities, following different legal precedents. The appeal was partly allowed, denying exemption for allopathic income and disallowing depreciation on assets used for allopathic medical relief.

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Issues Involved:
1. Exemption under sections 11 and 12 of the Income-tax Act, 1961.
2. Deduction of depreciation on fixed assets.

Detailed Analysis:

Issue 1: Exemption under sections 11 and 12 of the Income-tax Act, 1961

Background and Revenue's Argument:
The revenue contended that the assessee-trust, created under a Will to promote Sanskrit and Ayurvedic medicine, had deviated from its original objects. The trust's activities predominantly involved providing medical relief through the allopathic system of medicine, which was not in accordance with the trust's original objects. Consequently, the registration granted to the assessee was no longer valid, and the exemption under sections 11 and 12 should not be allowed.

Assessee's Argument:
The assessee argued that it was still adhering to its object of improving the Ayurvedic system of medicine and that the use of allopathic medicine was in aid of this objective. The trust claimed that providing medical relief through allopathic medicine was also a charitable purpose under section 2(15) of the Act, and hence, it should be entitled to the exemption.

Tribunal's Findings:
The Tribunal noted that the trust's predominant activities had shifted from Ayurvedic to allopathic medicine, and the object of promoting Sanskrit was not followed at all. It concluded that the trust had exceeded its objects as per the Will, and thus, the activities were not in accordance with the mandate of the Will.

Legal Precedents and Interpretation:
The Tribunal referred to various legal precedents, including:
- M. Visvesvaraya Industrial Research & Development Centre v. ITAT
- Cane Development Council v. CIT
- CIT v. Red Rose School
- New Life In Christ Evangelistic Association (NLC) v. CIT
- Aggarwal Mitra Mandal Trust v. DIT (Exemption)
- Surat Tennis Club v. Asstt. CIT

These cases established that registration under section 12A does not automatically entitle an assessee to exemption under sections 11 and 12. The AO must examine each year whether the activities are in accordance with the objects of the trust.

Conclusion:
The Tribunal held that since the trust's activities predominantly involved allopathic medicine, which was beyond the scope of its original objects, the income and expenditure from these activities must be segregated. The trust was not entitled to exemption under sections 11 and 12 for the income derived from allopathic medical relief.

Issue 2: Deduction of Depreciation on Fixed Assets

Background and Revenue's Argument:
The revenue argued that the assessee claimed depreciation on fixed assets whose full cost had been allowed as an application of income in earlier years under section 11. Citing the Supreme Court's decision in Escorts Ltd. v. Union of India, the revenue contended that allowing depreciation would result in a double deduction.

Assessee's Argument:
The assessee relied on the decision in CIT v. Institute of Banking Personnel Selection (IBPS), where it was held that depreciation on assets, the cost of which had been fully allowed as an application of income under section 11, should be allowed.

Tribunal's Findings:
The Tribunal noted that different courts had different views on this issue. It referred to the decisions in:
- Escorts Ltd. v. Union of India
- Dy. DIT (Exemption) v. Adi Sankara Trust
- CIT v. Institute of Banking Personnel Selection (IBPS)

The Tribunal concluded that for activities related to allopathic medicine, the decision in Escorts Ltd. applied, and depreciation was not admissible. However, for activities related to Ayurvedic medicine, the decision in Institute of Banking Personnel Selection (IBPS) was followed, and depreciation was allowed.

Conclusion:
The Tribunal held that depreciation on assets used for providing relief through the Ayurvedic system of medicine or research was deductible, notwithstanding that the cost had been allowed to be written off in the past under section 11(1)(a). However, for assets used in allopathic medical relief, depreciation was not admissible.

Final Judgment:
The appeal was partly allowed, with the Tribunal ruling that the assessee was not entitled to exemption under sections 11 and 12 for income derived from allopathic medical relief and that depreciation on assets used for allopathic activities was not deductible.

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