Commercial accounting for charitable trust income permits depreciation deduction under section 11(1)(a), not house property computation rules.

While computing income of a charitable trust under section 11(1)(a) of the Income-tax Act, 1961, income is to be determined on ordinary commercial principles as real income, not by applying the special computation rules for house property income. Depreciation is a necessary charge in maintaining correct accounts and is therefore allowable as a deduction to ascertain the amount available for application to charitable purposes. The computation provisions in sections 22 to 27 do not govern this exercise. The referred questions were answered in the affirmative, against the Revenue.

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Issues: Whether, while computing income under section 11(1)(a) of the Income-tax Act, 1961, depreciation is allowable as a deduction and whether such income is to be computed on normal rules of accountancy rather than under the specific computation provisions applicable to house property income.

Analysis: The reference concerned income of a charitable trust whose receipts were mainly from immovable property. The Court noted that the expression "income" in section 11(1)(a) is to be understood in its commercial or real sense. It approved the view that depreciation is a necessary charge in maintaining correct accounts and must be deducted to ascertain the income available for application to charitable purposes. It further held that the special computation provisions under sections 22 to 27 do not control the computation of income for the purpose of section 11(1)(a), and that the income of trust property is to be arrived at in the normal commercial manner, not by applying artificial heads or deductions meant for assessment to tax.

Conclusion: Depreciation is allowable while computing income under section 11(1)(a) of the Income-tax Act, 1961, and such income is to be computed according to commercial accounting principles. The questions referred were answered in the affirmative, against the Revenue.

Ratio Decidendi: For the purpose of section 11(1)(a), income of a charitable trust must be computed on ordinary commercial principles as real income, and depreciation is an allowable deduction notwithstanding the specific computation provisions applicable under other heads.

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