TaxTMI 
TaxTMI 
TaxTMI 
2012 (8) TMI 990
X X X X Extracts X X X X
X X X X Extracts X X X X
.... got any such permission from the Charity Commissioner in this regard, and reliance is placed on the decision of Bombay High Court in CIT v/s Pruthvi Trust, 124 ITR 48. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the claim of the assessee for depreciation on assets amounting to Rs. 19,48,496 the cost of which was already allowed as application and thereby resulted in allowing double deduction for the same outgoing, which is against the principle laid down in the judgment of Hon'ble Supreme Court in the case of Escorts Ltd. v/s Union of India, 199 ITR 43. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the claim of the assessee of repayment of loan amounting to Rs. 2,91,57,058 as application of income wherein the cost of asset for which loan was taken stood already allowed as application of income, and thereby resulted in double deduction for the same outgoing which is against the principle laid in the judgment of Hon'ble Supreme Court in the case of Escorts Ltd. v/s Union of India, 199 ITR 43." 2. Facts relevant for adjudication of the issues involved are that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bay Public Trusts Act, 1950 (for short "the Trust Act"), wherein it was required to obtain permission of the Charity Commissioner about taking interest free loan from the managing trustee. The assessee trust was under the impression that interest free loan taken from the managing trustee does not require any specific permission of the Charity Commissioner. Thereafter, on the basis of legal advise, the assessee trust applied before the Charity Commissioner after passing a resolution. Thereafter several reminders have also been sent from time to time right from the year 2003 to 2005. In the year 2005, a show cause notice was issued by the Charity Commissioner and the reply by the assessee trust was submitted. All these documents were placed before the Assessing Officer. Regarding claim for depreciation, the assessee submitted that this issue stands settled by the judgment of Hon'ble Jurisdictional High Court in CIT v/s Institute of Banking Personnel Selection, [2003] 264 ITR 110 (Bom.) and DIT v/s Framjee Cawasjee Institute, [1993] 109 CTR 463 (Bom.). It was clarified that the judgment of the Hon'ble Supreme Court in Escorts Ltd. (supra) was passed on different facts and the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taxed the entire surplus along with the donation, etc. 6. Before the learned Commissioner (Appeals), the assessee trust, on the issue of denial of exemption under section 11 of the Act, reiterating its contentions and submitted that insofar as forfeiture of exemption under section 11 of the Act is concerned, the same is erroneous in law & on facts as the judgment of Hon'ble Jurisdictional High Court in Pruthivi Trust (supra) was rendered in altogether different context and will not be applicable in its case. The issue was entirely different, as in that case the Hon'ble Court has held that the trustees were carrying on the business which was not authorised by the trust deed and, therefore, the assessee trust was not entitled to exemption under section 11 of the Act, whereas, no such business was carried out beyond the trust deed. In the assessee's case, the assessee trust merely had taken interest free unsecured loan from the managing trustee for which there is no prohibition in the trust deed. Regarding the formalities under the Trusts Act, it was submitted that the same was completed in the year 2003 and under the Income Tax Act, 1961, there is no specific provision tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under section 32 of the Act. He thus, directed the Assessing Officer to allow depreciation of Rs. 19,48,496. 9. Lastly, on the issue of re-payment of loan of Rs. 2,91,57,058, as application of income, the learned Commissioner (Appeals) held that the CBDT Circular no.100 dated 24th January 1973, clarifies that re-payment of loan will amount to application of income. Further, the judgment of Hon'ble Gujarat High Court in Shri Plot Swetamber Murti Pujak Jain Mandal (supra) and other High Court judgments are directly on this issue. He thus directed the Assessing Officer to treat the re-payment of loan taken in earlier years as application of income. 10. Before us, the learned Departmental Representative, on the first ground submitted that the money borrowed from the managing trustee was in violation of specific provisions of the Trusts Act and, therefore, the judgment relied on by the Assessing Officer in Pruthivi Trust (supra), is applicable. Further, the case laws relied on by the assessee trust before the learned Commissioner (Appeals) are not applicable as the Assessing Officer is not probing into the objects, but only pointing out that such an act of the assessee violates the pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... learned Counsel for the assessee on the first ground of appeal submitted that the judgment of Pruthivi Trust (supra) is not applicable as the same was in the context of violation of trust deed and here it is the case of a technical lapse under the Trusts Act. According to the Income Tax Act, 1961, such lapse cannot be a ground for denying the exemption under section 11 of the Act. On this issue, he relied upon the decision of the Tribunal which has been referred to by the learned Commissioner (Appeals) in his order. 13. On the second ground, he submitted that not only this issue is directly covered by the judgment of Hon'ble Jurisdictional High Court Institute of Banking Personnel Selection (supra), but also plethora of decisions of the Tribunal, Mumbai Bench, copies of which were placed in the paper book. He further submitted that, in the recent judgment of Hon'ble Punjab & Haryana High Court in CIT v/s Market Committee, Pipli, [2011] 330 ITR 16 (P&H), this issue came up for consideration wherein the Hon'ble High Court has distinguished the case of Escorts Ltd. (supra) and clearly held that the claim of depreciation by a charitable institution is to be allowed as application....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase of the Assessing Officer that there was a bar in the trust deed or in the objects for taking unsecured loans. Thus, the judgment of Hon'ble Jurisdictional High Court in Pruthivi Trust (supra) is not applicable at all. Further, the Hon'ble Supreme Court in Surat City Gymkhana (supra) wherein the judgment of Hon'ble Gujarat High Court in Hiralal Bhagwati (supra), has been upheld, lays down the proposition that once the registration of trust under section 12A of the Act has been granted, the Assessing Officer cannot make further probe the object of the trust as the registration itself is a fait accompli. Further, it is noticed that the learned Commissioner (Appeals) has relied upon the decision of the Tribunal in Bombay Stock Exchange (supra) wherein there was an adverse observation of JPC and SEBI regarding lapse and irregularities in the working of the Stock Exchange, the Tribunal held that benefit of section under section 11 of the Act cannot be denied on such remarks. Thus, the findings given by the learned Commissioner (Appeals), on this score, are hereby upheld and ground no.1, raised by the Revenue is dismissed. 17. Regarding ground no.2, i.e., allowability of depr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eneral 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 s. 11(1)(a) of the IT Act. The Court rejected the argument on behalf of the Revenue that s. 32 of the IT Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a charitable trust derived from 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, s. 32 of the IT 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 s. 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the trust. In view of the aforestated judgment of the Bombay High Court, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....med by the assessee as canvassed by the revenue, It could not be held that double benefit was given in allowing claim for depreciation for computing income for purposes of section 11. CASE REVIEW CIT v. Raipur Pallottine Society [1989] 180 ITR 579 (MP); CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad): CIT v. Seth Manual Ranchhoddas Vishram Bhawan Trust [1992] 198 ITR 598 (Gui.); CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Kar.); CIT v. Institute of Banking [2003] 264 ITR 110 (Bom) relied on. Escorts Ltd. v. UOI [1993] 199 ITR 43 (SC) distinguished. [emphasis added] 19. Further, it is noticed that following the aforesaid judgments, the ITAT, Mumbai Bench, in ITO v/s Parmeshwaridevi Gordhandas Garodia, ITA no.4108/Mum./2010, order dated 10th August 2011, has observed and held as under:- "4. We have carefully considered the facts and the rival contentions. In CIT vs. Institute of Banking (supra), the Bombay High Court held that while computing the income of a trust, both the capital expenditure on acquisition of assets and the depreciation on the said assets were allowable, the capital expenditure being allowed as application of income ....