TaxTMI 
TaxTMI 
2013 (9) TMI 404
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.... of allowance of deduction U/s 24 (a) of the Act does not arise while computing income U/s 11. 3) The learned CIT (A) has erred in not following the CBDT Circular in No.5 LXX-6 dated 19.06.1968 wherein it is clarified that the method of computing the income of a charitable trust is different from the computation in case of other assesses. In the case of trust, commercial concept of income has to be considered. 4) The decisions relied on by the CIT (A) actually favours the department as the High Courts have categorically held that the income derived from trust property must be determined on commercial principles. In fact the Calcutta High Court in its decisions in 159 ITR 280 and 199 ITR 215 have referred to the CBDT Circular in No.5 LXX-6 dated 19.06.1968 which is favorable to the department. 5) The learned CIT(A) has erred in not following the decision of the Hon'ble Supreme Court in the case of Escorts Limited & another vs. Union of India 199 ITR 43. Without prejudice, the CIT(A) erred in not appreciating the fact that depreciation being a notional expenditure is not allowable." 3. Grounds No.1 to 4 of the concise grounds is with regard to the action of the CIT(Appeals....
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....r the application of income for charitable purposes has to be examined. Reference was also made by the assessee to the decision of the Hon'ble Calcutta High Court in the case of CIT v. Jayashree Charity Trust, 159 ITR 280 (Cal), wherein it was held that for the purpose of section 11 of the Act, it is only a real income which has been actually received by the assessee that has to be considered and application of such real income for charitable purpose ascertained. Reference was also made to CBDT Circular bearing No.5-P(LXX-VI) dated 19.05.1998 which was referred to by the Hon'ble Calcutta High Court in the case of DIT v. Girdharlal Shewnarain Tantia Trust (1993) 199 ITR 0215 (Cal) and the Hon'ble High Court held that income in section 11(1)(a) has to be understood in a commercial sense. Reference was also made to the decision of Gujarat High Court in the case of CIT v. Ganga Charity Trust Fund, 162 ITR 612 (Guj), wherein identical proposition that all outgoings must be deducted and only the surplus income that remains in the hands of the trustees should be considered as available for application. Reference was also made to the order dated 03.07.1972 of the CIT(Appeals), ....
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....otal income" the expression used in section 11(1) is only income. Accordingly, it would be incorrect to assign to the word 'income' used in section 11(1)(a), the same meaning as has been specifically assigned to the expression 'total income' in Sec.2(45) of the Act. The CBDT in Circular No.5P (LXX-6), dated 19.6.1968 has also adopted the same approach. The same is as follows: "In the case of a business undertaking held under trust, its "income" disclosed by the account will be eligible for exemption under Section 11(1). The permitted accumulation of 25 per cent will also be calculated with reference to this income. 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 purposes 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. 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 th....
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.... income derived from property held under trust for charitable or religious purposes is exempt from income-tax to the extent such income is actually applied to such purposes during the previous year itself or within the three months next following. As "income" includes "capital gains", a charitable or religious trust would forfeit exemption from income-tax in respect of its income by way of capital gains unless such income is also applied for the purposes of the trust during the stipulated period. By sub-section (1A), it has been provided that, in a case where a capital asset being property held under trust for charitable or religious purposes is transferred and the whole or any part of the net consideration for the transfer (i.e., full value of consideration as reduced by the expenditure incurred wholly and exclusively in connection with the transfer) is utilised for acquiring another capital asset to be held as part of the corpus of the trust, the capital gain arising from the transfer will be regarded as having been applied to charitable or religious purposes. Where the whole of such net consideration is utilised in acquiring the new capital asset, the entire amount of the capita....
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....expression "income" occurs, there has been some divergence in the meaning given to that expression on account of the particular context involved. In the context of section 11, which contemplates application or accumulation of income for charitable or religious purpose, it has necessarily to be the income as accounted for in the accounts and not as computed under the I.T. Act. Hence, for the purpose of section 11(1) the expression "income" has to be understood in the popular or general sense, i.e., in the sense what is actually available in the hands of the assessee subject, of course, to any adjustment for expenses extraneous to the trust. It is only the income as available to the assessee and, as stated in Lord Chetwode vs. IRC (1977) 1 All ER 638, over which the assessee has power to enjoy which can be applied or accumulated for charitable purposes. Moreover, wherever the statute contemplated the income being computed in the manner set out in the provisions of the Act, appropriate words are used. Such is not the case with section 11(1). Hence, income from the properties held under trust would have to be arrived at in the normal commercial manner without reference to the provision....
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....re. The Hon'ble Court held that legislature could not have envisaged double deduction qua same expenditure. Relying on the aforesaid decision, the AO disallowed the claim of the assessee for deduction on account of depreciation. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(Appeals). 17. Before the CIT(Appeals), the assessee submitted that there was no double deduction claimed on the same expenditure and that the decision of the Hon'ble Supreme Court in the case of Escorts Ltd. (supra) will not be applicable to the case of the assessee. 18. The CIT(Appeals) accepted the contention of the assessee and held that the assessee was entitled to depreciation. Aggrieved by the order of the CIT(A), the revenue has raised ground No.5 before the Tribunal. 19. We have heard the rival submissions. The learned DR relied on the order of the AO. The learned counsel for the Assessee reiterated submissions made before CIT(A) and the order of the CIT(A). 20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the tru....