TaxTMI 
TaxTMI 
2017 (9) TMI 1030
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....has grossly erred in confirming the additions made by A.O. holding that hostel/ mess facility for students is separate business activity in terms of section 11 (4A) merely on irrelevant consideration like surplus should have been reimbursed to students or used to reduce fee or giving contents of some website about fall in demand for rooms at Meerut etc, even after accepting that maintenance of such hostel is mandatory as per the concerned controlling Authority and it was an integral and inalienable part of educational activity. Thus finding is perverse. 3. That the learned assessing officer has failed to appreciate the fact that maintaining hostel/mess facility to students is an essential & integral part of "education" u/s 2(15) of the Act and not a separate business activity covered under section 11(4A) as also accepted in the past assessments and there is no change in law about the first three limbs of section 2(15) even after 01.04.2009, hence overall surplus of the society as worked out in Income & Expenditure account of the society and consequently used and invested in the fulfillment of the main objectives of the society resulting into application of income and as such exe....
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....tation activities and business, which requires separate books of accounts to be maintained. He therefore relied on the decision of trustees, Loka Shikshan trust versus CIT 101 ITR 234. That educational activity means systematic education only. After holding so, he examined the income and expenditure account of hostel receipts and expenses and determined the net surplus of the hostel activities at Rs. 9887973/- and charged tax on it as business income of the assessee. 4. It was further held by him that the assessee trust has claimed a depreciation of Rs. 57079339/- in its income and expenditure account. Therefore explanation was asked from the assessee that why depreciation should not be disallowed for the reason that hundred percent application of capital expenditure has already been allowed to the assessee in the year of investment and now once again claim of the depreciation on the same assets amounts to double deduction. Therefore, following the decision of the Hon'ble Supreme Court in case of escorts Ltd and Querela High Court decision in case of Iessi medical institutions. Versus CIT, the depreciation of Rs. 5 707 9339/- was disallowed. 5. Consequently, assessment order unde....
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....o 2017 d. Ramun education society versus additional Commissioner of income tax ITA No. 4641/DEL/2015. Date of order. 15/2/2017 e. friends charitable society versus ACIT ITA No. 4640/DEL/2015 9. In view of this, the claim of the Ld. authorized representative v was both the issues are covered in favour of the assessee. 10. Ld. departmental representative vehemently relied upon the order of the lower authorities. 11. We have carefully considered the rival contentions and perused the orders of the lower authorities and other judicial pronouncement placed before us. In the grounds No. 1 - 3 assessee is contesting that addition made by the Ld. assessing officer treating hostel places provided to college student as business of the society and text the alleged surplus of Rs. 9887873/- as business income of the appellant. It was not the case of the revenue that assessee has rented out these hostels to the students who are not parted education in the above institutes. It was also not the case of revenue that assessee is primarily engaged in the business of providing hostel facilities to the students. The above issue is no more res Integra in view of the decision of the Hon'ble Karnata....
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....ety which is mainly engaged in business activities and these activities are subservient to the main object of education of the trust. In the result 1 - 3 of the appeal of the assessee are allowed. 12. Ground No. 4 of the appeal of the assessee is against disallowance made by the assessing officer of depreciation on the assets which have already been claimed and allowed to the assessee as application of funds. Hon'ble Delhi high court's decision in the case of DDIT versus Indraprastha Cancer Society in ITA number 240 /2014 dated 18/11/2014 squarely covered is issue in favour of the assessee where the Hon'ble Delhi High Court after considering all the cases relied upon by the revenue. In this particular case, including the case of Hon'ble Supreme Court in escorts Ltd versus union of India, was considered and after that it was held as under "2. The respondent-assessees are charitable institutions to whom Sections 11 to 13 and other relevant provisions of the Income Tax Act, 1961 (Act, for short) apply. The issue raised in the present appeals is whether a charitable institution, which has purchased capital assets and treated the amount spent Director Of Income Tax ... vs M/S Indra....
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....ion arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the "total income" as defined in Section 2(45) of the Act and that the word "income" is a wider term than the expression "profits and gains of business or profession". Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The circular No.5-P (LXX6) of 1968, dated July 19,1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under: "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....
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....ation of income for charitable purposes, the depreciation so claimed has to be written back as income available. In fact, going by the several decisions of the various High Courts, we are sure that based on these decisions all the charitable institutions will be generating unaccounted income equal to the depreciation amount claimed on an year to year basis which is nothing but black money. This aspect is not seen considered in any of these decisions. We, therefore, sought the views from the Central Board of Direct Taxes. Senior Standing counsel Sri.P.K.R.Menon, appearing for the Revenue produced clarification obtained from the Central Board wherein they have stated as follows: "The Central Board of Direct Taxes is of the considered view that where an assessee has acquired an asset through application of income and has also claimed this amount as expenditure in its income expenditure account, depreciation on such asset would not be allowable to the assessee. Such notional statutory deductions like depreciation, if claimed as deduction while computing the income of the 'the property held under trust' under the relevant head of income, is required to be added back while comp....
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....11(1) says that the former shall not be included in the latter, of the person in receipt of the income. The expression " total income " has been defined under s. 2(45) of the Act to mean " the total amount of income referred to in s. 5 computed in the manner laid down in this Act ". The word " income " is defined under s. 2(24) of the Act to include profits and gains, dividends, voluntary payment received by trust, etc. It may be noted that profits and gains are generally used in terms of business or profession as provided u/s. 28. The word " income ", therefore, is a much wider term than the expression ",profits and gains of business or profession ". Net receipt after deducting all the necessary expenditure of the trust (sic). There is a broad agreement on this proposition. But still the contention for the Revenue is that the depreciation allowance being a notional income (expenditure ?) cannot be allowed to be debited to the expenditure account of the trust. This contention appears to proceed on the assumption that the expenditure should necessarily involve actual delivery of or parting with the money. It seems to us that it need not necessarily be so. The expenditure should b....
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.... Under the cash basis only cash transactions are recorded. It is only cash receipts and cash payments which find entries in the books of account. Mercantile system of accounting was explained by the Supreme Court in Keshav Mills Ltd. v. CIT [1953]23 ITR 230 at 230 in the following words : "The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it, is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. It is not in dispute that if the mercantile system is followed, the depreciation allowance in respect of the trust property should be allowed. xxxxxxxxxxxxxxxx The depreciation if it is not allowed as a necessary deduction for computing the income from the charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The Board al....
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....on of black money." 10. We also note that the Kerala High Court, in fact, has noted the clarifications which were earlier issued by the Board in respect of 1968 circular. It is clear from the reasoning given by the Kerala High Court that they have not gone by the express language of Section 11(a) and have purposively interpreted the provision." 7. Reference was once again made to the decision of the Supreme Court in Escorts Limited (supra) and provisions of Section 35(2B)(c) were quoted and it was observed that the language of the sub-clause (c) was clear and lucid but conspicuously different from section 11(1) of the Act. It has been observed in Indian Trade Promotion Organisation (supra) : 11. Clause a of Section 11(1) stipulates that income derived from property held under trust wholly for charitable or religious purposes is to be applied for such purposes in India and where such income is set aside or accumulated, it should not be in excess of 15% of the income from such property. Thus, there is an embargo and probation from accumulating or setting apart income derived from property held under trust beyond 15% of income from such property. If there is a violation of th....
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....(c) Where a deduction allowed for any previous year under this sub-section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under [clause (ii) of sub- section (1)] of section 32 for the same or any subsequent previous year." 13. The language of the sub-clause c to Section 35(2B) is conspicuous and entirely different and wordings are clear and lucid. The language of Section 11(1), as noticed above, is distinguished and not worded in a similar manner. In Escorts Ltd. (supra), the Supreme Court was considering the said specific provision and the wordings therein. While dealing with the term "expenditure" and noticing the language it was held that no duplication or double deduction should be allowed towards depreciation in the same or subsequent year. Thus, the issue was decided against the assessee. Language of Explanation 1 to Section 43(1) can also be referred to and we notice that the language of the said explanation is absolutely different from the language used in Clause (a) to Section 11(1). Section 11(1)(a) is a peculiar provision which postulates application of income and it is not dealing with expend....
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....chase is valid and taken into consideration for the purpose of ensuring compliance, i.e., application of money or funds and is not a factor which determines and decides the quantum of income derived from property held under trust. Computation of income is separate and distinct and has to be made on commercial basis by applying provisions of the Act." 9. To our mind, therefore, the issue has been examined in depth and detail twice and thus there is no error in the impugned orders passed by the Tribunal. However, learned counsel for the Revenue has drawn our attention to the decision dated 18th March, 2014 in ITA No. 322-323/2013 titled Director of Income Tax (Exemption) versus Charanjiv Charitable Trust, wherein it has been held: "30. So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced. The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the CIT (Appeals) as well as the assessing officer. It was their view that allowing depreciation in respect of assets, the cost of which was earlier allowed as deduction as application of income of the trust, would a....
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....me. We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets." 10. The aforesaid paragraph refers to the decision in the case of Vishwa Jagriti Mission (supra) but ratio was distinguished on the ground that in the said case the Court was concerned with computation of income of a charitable trust/institution on commercial principles and if so whether depreciation on fixed assets used for charitable purposes should be allowed as a deduction. The consensus of judicial opinion on the said aspect was referred to. It is noticeable that in Charanjiv Charitable Trust (supra) it stands observed that the Tribunal overlooked the fact that the cost of asset had been allowed as a "deduction" and thereafter depreciation was being claimed. The said case, therefore, appears to be a peculiar one wherein deduction as expenditure and depreciation was being claimed simultaneously, while computing the taxable income under the head "profits and gains from business". The said decision dated 18th March, 2014 does not refer to the decision in Indian Trade Promotion Organisation (supra) which was decided on 27th November, 2013. The judgm....
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....ive of the issue involved in all appeals:- '(a) Whether on the facts and circumstances of the case, the Tribunal was right in allowing double deduction without considering the principles laid down in 199 ITR 43(SC)?' 3. The issue before us relates to the grant of depreciation to an entity seeking exemption in terms of section 11 of the Income Tax Act. (in short 'Act') which deals with the assessment of Income from property held for charitable or religious purposes. The relevant parts of Section 11 read as follows:- 1. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; ....... ....... (4) For the purposes of this section "property held ....
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....application of this sub-section retrospectively in regard to assessment years prior to 01.04.2015 is the subject matter of challenge in TCA.No.949 of 2015 to which we shall advert presently. 5. Section 11 was inserted in the Income Tax Act 1961 providing for an exemption in respect of income from property held under trust wholly for charitable and religious purposes. 'Charitable purposes' is defined in terms of section 2(15) of the Act to mean relief of the poor, education, medical relief and the advancement of any other object of general public utility. The clause has been modified over the years such that in its present form, it includes within its ambit yoga and the preservation of environment, monuments or places or objects of artistic or historic interest. The object of Section 11 is thus laudable and seeks to extend a benefit to entities engaging in activity of a specified nature. In the present batch of appeals there is no dispute in this regard. 6. We have heard Mr.J.Narayanaswamy appearing on behalf of the Revenue and several counsels appearing on behalf of the assesses and set out in brief the submissions advanced. 7. Mr. J.Narayanaswamy would contend that th....
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....uring these years the assessee could not get any depreciation in relation thereto. In respect of assets acquired in previous year relevant to assessment year 1968-69 and thereafter, their cost was written off in the previous year of acquisition and no depreciation could be allowed in that year. This is clear from the statute. Equally, it is not envisaged, and indeed, it would be meaningless to say, that depreciation could be allowed on them thereafter with a further absurdity that it could be allowed starting with the original cost of the asset despite its user for scientific research and the allowances made under the 'scientific research' clause. In our view, there was no difficulty at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier.' 10. Reliance was placed by Mr. Narayanaswamy on paragraph 7 of the judgment that reads as follows:- 'I find it difficult to agree with the reas....
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....cision of the Kerala High Court in the case of Lissie Medical Institutions Vs. Commissioner of Income Tax, Kochi, (348 ITR 344) = 2012-TIOL-303-HC-KERALA-IT which had concluded the issue in favour of the Revenue. The Kerala High Court had this to say; 'In fact the net effect is that after writing off full value of the capital expenditure on acquisition of assets as application of income for charitable purposes and when the assessee again claims the same amount in the form of depreciation, such notional claim becomes cash surplus available with the assessee, which goes outside the books of accounts of the Trust unless it is written back which is not done." ......... ........... "We have no doubt in our mind that business income of charitable trust also has to be computed in the same manner as provided u/s 29 of the Income Tax Act. However, the issue that requires consideration is when the expenditure incurred for acquisition of depreciable assets itself is treated as application of income for charitable purposes u/s 11(1)(a) of the Act, should not the cost of such assets to be treated as nil for the assessee and in that situation depreciation to be granted turns out to be nil. H....
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....the case in an assessment under section 11 of the Act. He would also point out that the Department had filed petitions for Special Leave challenging the decisions of the Punjab and Haryana High Court favouring the assessee that had been dismissed whereas, the Special Leave Petitions filed by the assessee challenging the decision of the Kerala High Court and other cases following the decision of the Kerala High Court in Lissie Medical Institutions (supra) had been admitted by the Supreme Court. Thus according to him, the Supreme Court had clearly recognized the error in the decision of the Kerala High Court. 16. Mr. R. Kumar, appearing for the assessee/respondent in TCA.No.993 of 2015 would point out that the orders of the Income Tax Appellate Tribunal in the same assessee's case for the previous years on the identical issue, had considered the judgment of the Supreme Court in Escorts and had distinguished the same. The aforesaid orders of the Tribunal dated 25.03.2011 have attained finality. Thus, while adopting the arguments of other counsels, he would add that the principle of consistency stood violated in his case. 17. Mr.N.V.Balaji, would address us specifically on Accou....
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....may be regarded as that part of the cost of the asset which will not be recoverable when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure incurred in acquiring the asset over its effective lifetime, and the amount of provision made in respect of an accounting period is extended to represent the proportion of such expenditure which has expired during that period. 21. The necessity of providing for depreciation emanates from the fact that once an asset ceases to be effective, it will have to be replaced. Providing for depreciation would ensure setting aside out of the revenue of an accounting period, the estimated amount by which the capital investment has expired during that period. This provision, incurred for the use of that asset for the purpose of earned profit should be charged against those profits as and when earned. Spicer, and Pegler, at page 45, states as follows:- 'If depreciation is not provided for, the books will not contain a true record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against the profits; having been purchased, the asset is, in effect, th....
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....25. As noted by us earlier, the judgment of the Supreme Court in Escorts turns on an entirely different position of law and would not impact the issue being discussed in the present case. 26. We are supported in our view by a plethora of decisions of various High Courts - the Bombay High Court in the case of CIT v. Munisuvrat Jain (1994 Tax Law Reporter 1084) and DIT (Exem) Vs. Framjee Cawasjee Institute (109 CTR 463); Karnataka High Court in CIT Vs. Society of the Sisters of St.Anne (146 ITR 28); Madhyapradesh High Court in CIT Vs. Raipur Pallottine Society (180 ITR 579); Gujarath High Court in CIT Vs. Sheth Manilal rachhnoddas Vishram Bhavan Trust 198 ITR 598 = 2003-TIOL-944-HC-AHM-IT; Punjab and Haryana High court in CIT Vs. Market Committee Pipli (330 ITR 16) and CIT Vs. Tiny Tots Education Society (330 ITR 21) = 2010-TIOL-550-HC-P&H-IT; Madhyapradesh High Court in CIT Vs. Devi Sakuntala Tharal Charitable Foundation (358 ITR 452) and the Calcutta High Court in CIT Vs. Silluguri Regulated Market Committee (366 ITR 51). In addition, the Delhi High Court in DIT Vs. Vishwa Jagriti Mission 262 CTR 558 = 2012-TIOL-271-HC-DEL-IT and the Karnnataka High Court in DIT (Exem) Vs Al-Ame....
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....basis of the original return which had omitted to take into account the excess application of previous years as application for the present year and the assessment was completed on the basis of the original return alone. The Commissioner of Income Tax (Appeals), adjudicated the issue on merits, deciding the same against the assessee which order was confirmed by the Income Tax Appellate Tribunal. 31. A recent amendment to section 139(5) reads thus; 'Following sub-section (5) shall be substituted for the existing subsection( 5) of section 139 by the Finance Act, 2016 w.e.f. 1.4.2017. (5) If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year form the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.' 32. The import of the above amendment is that a return may be revised both in cases of original returns filed under sub section (1) or under sub section (4) within the extended period of one year from the end of the relevant assessment year or before completion of a....
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....are registered and have been availing benefits of the exemption regime to not apply their income, which is derived from property held under trust, for charitable purposes. In such circumstances, when the income becomes taxable, a claim of exemption under general provisions of section 10 in respect of such income is preferred and tax on such income is avoided. This defeats the very objective and purpose of placing the conditions of application of income, etc., in respect of income derived from property held under trust in the first place. 7.4.1 Sections 11, 12 and 13of the income-tax Act are special provisions governing institutions which are being given benefit of tax exemption. It is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibility has undesirable effects on the objects of the regulations and leads to litigation. .... ..... 7.6 Applicability. - These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment yea....
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....the issues are covered in favour of the assessee. 10. Ld. departmental representative vehemently relied upon the order of the lower authorities. 11. We have carefully considered the rival contentions and perused the orders of the lower authorities and other judicial pronouncement placed before us. In the grounds No. 1 - 3 assessee is contesting that addition made by the Ld. assessing officer treating hostel places provided to college student as business of the society and text the alleged surplus of Rs. 9887873/- as business income of the appellant. It was not the case of the revenue that assessee has rented out these hostels to the students who are not parted education in the above institutes. It was also not the case of revenue that assessee is primarily engaged in the business of providing hostel facilities to the students. The above issue is no more res Integra in view of the decision of the Hon'ble Karnataka High Court in CIT versus Karnataka lingayat education society in ITA No. 5004/2012 dated 15/10/2014 wherein it has been held that providing hostel to the students/staff working for the society's incidental to achieve the object of providing education, namely the obje....
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.... made by the assessing officer of depreciation on the assets which have already been claimed and allowed to the assessee as application of funds. Hon'ble Delhi high court's decision in the case of DDIT versus Indraprastha Cancer Society in ITA number 240 /2014 dated 18/11/2014 squarely covered is issue in favour of the assessee where the Hon'ble Delhi High Court after considering all the cases relied upon by the revenue. In this particular case, including the case of Hon'ble Supreme Court in escorts Ltd versus union of India, was considered and after that it was held as under "2. The respondent-assessees are charitable institutions to whom Sections 11 to 13 and other relevant provisions of the Income Tax Act, 1961 (Act, for short) apply. The issue raised in the present appeals is whether a charitable institution, which has purchased capital assets and treated the amount spent Director Of Income Tax ... vs M/S Indraprastha Cancer Society on 18 November, 2014 Indian Kanoon - http://indiankanoon.org/doc/138934819/ 1 on purchase of the capital asset as application of income, is entitled to claim depreciation on the same capital asset utilised for business. Revenue submits that this w....
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....ed in Section 2(45) of the Act and that the word "income" is a wider term than the expression "profits and gains of business or profession". Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The circular No.5-P (LXX6) of 1968, dated July 19,1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under: "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 purpose 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. It should be noted, ....
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....income equal to the depreciation amount claimed on an year to year basis which is nothing but black money. This aspect is not seen considered in any of these decisions. We, therefore, sought the views from the Central Board of Direct Taxes. Senior Standing counsel Sri.P.K.R.Menon, appearing for the Revenue produced clarification obtained from the Central Board wherein they have stated as follows: "The Central Board of Direct Taxes is of the considered view that where an assessee has acquired an asset through application of income and has also claimed this amount as expenditure in its income expenditure account, depreciation on such asset would not be allowable to the assessee. Such notional statutory deductions like depreciation, if claimed as deduction while computing the income of the 'the property held under trust' under the relevant head of income, is required to be added back while computing the income for the purpose of application in the income expenditure account. This would imply that a correct figure of surplus from the trust property is reflected in the Income & Expenditure account of the trust to determine the income for the purpose of application under section ....
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.... word " income " is defined under s. 2(24) of the Act to include profits and gains, dividends, voluntary payment received by trust, etc. It may be noted that profits and gains are generally used in terms of business or profession as provided u/s. 28. The word " income ", therefore, is a much wider term than the expression ",profits and gains of business or profession ". Net receipt after deducting all the necessary expenditure of the trust (sic). There is a broad agreement on this proposition. But still the contention for the Revenue is that the depreciation allowance being a notional income (expenditure ?) cannot be allowed to be debited to the expenditure account of the trust. This contention appears to proceed on the assumption that the expenditure should necessarily involve actual delivery of or parting with the money. It seems to us that it need not necessarily be so. The expenditure should be understood as necessary outgoings. The depreciation is nothing but decrease in value of property through wear, deterioration or obsolescence and allowance is made for this purpose in book keeping, accountancy, etc. In Spicer & Pegler's Book-keeping and Accounts, 17th Edn., pp. 44, 45....
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....antile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it, is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. It is not in dispute that if the mercantile system is followed, the depreciation allowance in respect of the trust property should be allowed. xxxxxxxxxxxxxxxx The depreciation if it is not allowed as a necessary deduction for computing the income from the charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The Board also appears to have understood the " income " u/s. 11(1) in its commercial sense. The relevant portion of the Circular No. 5-P (LXX-6) of 1968, dated July 19, 1968, reads: "Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word 'income....
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....posively interpreted the provision." 7. Reference was once again made to the decision of the Supreme Court in Escorts Limited (supra) and provisions of Section 35(2B)(c) were quoted and it was observed that the language of the sub-clause (c) was clear and lucid but conspicuously different from section 11(1) of the Act. It has been observed in Indian Trade Promotion Organisation (supra) : 11. Clause a of Section 11(1) stipulates that income derived from property held under trust wholly for charitable or religious purposes is to be applied for such purposes in India and where such income is set aside or accumulated, it should not be in excess of 15% of the income from such property. Thus, there is an embargo and probation from accumulating or setting apart income derived from property held under trust beyond 15% of income from such property. If there is a violation of the said provision, proportionate income is deemed to be taxable and not exempt under Section 11(1). The language of the Section is peculiar and proceeds on its own wording. This aspect has been highlighted and pointed out in the judgment of Commissioner of Income Tax vs. Society of The Sisters of St. Anne (supra). Deci....
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....ause c to Section 35(2B) is conspicuous and entirely different and wordings are clear and lucid. The language of Section 11(1), as noticed above, is distinguished and not worded in a similar manner. In Escorts Ltd. (supra), the Supreme Court was considering the said specific provision and the wordings therein. While dealing with the term "expenditure" and noticing the language it was held that no duplication or double deduction should be allowed towards depreciation in the same or subsequent year. Thus, the issue was decided against the assessee. Language of Explanation 1 to Section 43(1) can also be referred to and we notice that the language of the said explanation is absolutely different from the language used in Clause (a) to Section 11(1). Section 11(1)(a) is a peculiar provision which postulates application of income and it is not dealing with expenditure as such. The legislative desire is that money should be applied for the purpose of charity. In Escorts Ltd.(supra), the Supreme Court had observed that they were concerned with expenditure and since the entire costs of the capital assets had been allowed and had been set off against the business profit in five years or in on....
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....of the Act." 9. To our mind, therefore, the issue has been examined in depth and detail twice and thus there is no error in the impugned orders passed by the Tribunal. However, learned counsel for the Revenue has drawn our attention to the decision dated 18th March, 2014 in ITA No. 322-323/2013 titled Director of Income Tax (Exemption) versus Charanjiv Charitable Trust, wherein it has been held: "30. So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced. The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the CIT (Appeals) as well as the assessing officer. It was their view that allowing depreciation in respect of assets, the cost of which was earlier allowed as deduction as application of income of the trust, would actually amount to double deduction on the basis of the ruling of the Supreme Court in Escorts Ltd. vs. UOI (supra). In respect of the additions to the fixed assets made during the previous year relevant to the assessment year 2006-07, the CIT (Appeals) held that since the cost of the assets was not allowed as a deduction by way of applicati....
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....me of a charitable trust/institution on commercial principles and if so whether depreciation on fixed assets used for charitable purposes should be allowed as a deduction. The consensus of judicial opinion on the said aspect was referred to. It is noticeable that in Charanjiv Charitable Trust (supra) it stands observed that the Tribunal overlooked the fact that the cost of asset had been allowed as a "deduction" and thereafter depreciation was being claimed. The said case, therefore, appears to be a peculiar one wherein deduction as expenditure and depreciation was being claimed simultaneously, while computing the taxable income under the head "profits and gains from business". The said decision dated 18th March, 2014 does not refer to the decision in Indian Trade Promotion Organisation (supra) which was decided on 27th November, 2013. The judgment in the case of Indian Trade Promotion Organisation (supra) was not cited and referred to. The judgment in the case of Charanjiv Charitable Trust (supra) is authored by the same Judge, who has also authored the decision in the case of Vishwa Jagriti Mission (supra). It is obvious that in Charanjiv Charitable Trust (supra), the Division Be....
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....ome Tax Act. (in short 'Act') which deals with the assessment of Income from property held for charitable or religious purposes. The relevant parts of Section 11 read as follows:- 1. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; ....... ....... (4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income....
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....es' is defined in terms of section 2(15) of the Act to mean relief of the poor, education, medical relief and the advancement of any other object of general public utility. The clause has been modified over the years such that in its present form, it includes within its ambit yoga and the preservation of environment, monuments or places or objects of artistic or historic interest. The object of Section 11 is thus laudable and seeks to extend a benefit to entities engaging in activity of a specified nature. In the present batch of appeals there is no dispute in this regard. 6. We have heard Mr.J.Narayanaswamy appearing on behalf of the Revenue and several counsels appearing on behalf of the assesses and set out in brief the submissions advanced. 7. Mr. J.Narayanaswamy would contend that the provisions of section 32 granting depreciation have not been made specifically applicable to section 11. According to him, the provisions of Section 11 extend a benefit to an assessee by way of exemption and granting depreciation in addition would amount to a double benefit that has to be specifically conferred. He would rely on the judgment of the Supreme Court in the case of Escorts Limited ....
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.... meaningless to say, that depreciation could be allowed on them thereafter with a further absurdity that it could be allowed starting with the original cost of the asset despite its user for scientific research and the allowances made under the 'scientific research' clause. In our view, there was no difficulty at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier.' 10. Reliance was placed by Mr. Narayanaswamy on paragraph 7 of the judgment that reads as follows:- 'I find it difficult to agree with the reasoning of the assessees. Acceding to it would amount to placing an unreasonable interpretation upon the relevant provisions and to negating the intention of Parliament. I find it difficult to agree that the Indian Legislature - as also the Parliament made a conscious departure from the English Amendment with the idea of providing an additional benefit to induce the Indian asse....
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....assets as application of income for charitable purposes and when the assessee again claims the same amount in the form of depreciation, such notional claim becomes cash surplus available with the assessee, which goes outside the books of accounts of the Trust unless it is written back which is not done." ......... ........... "We have no doubt in our mind that business income of charitable trust also has to be computed in the same manner as provided u/s 29 of the Income Tax Act. However, the issue that requires consideration is when the expenditure incurred for acquisition of depreciable assets itself is treated as application of income for charitable purposes u/s 11(1)(a) of the Act, should not the cost of such assets to be treated as nil for the assessee and in that situation depreciation to be granted turns out to be nil. However, if depreciation provided is claimed on notional cost after the assessee claims 100% of the cost incurred for it as application of income for charitable purposes, the depreciation so claimed has to be written back as income available. In fact, going by the several decisions of the various High Courts, we are sure that based on these decisions al....
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....gh Court and other cases following the decision of the Kerala High Court in Lissie Medical Institutions (supra) had been admitted by the Supreme Court. Thus according to him, the Supreme Court had clearly recognized the error in the decision of the Kerala High Court. 16. Mr. R. Kumar, appearing for the assessee/respondent in TCA.No.993 of 2015 would point out that the orders of the Income Tax Appellate Tribunal in the same assessee's case for the previous years on the identical issue, had considered the judgment of the Supreme Court in Escorts and had distinguished the same. The aforesaid orders of the Tribunal dated 25.03.2011 have attained finality. Thus, while adopting the arguments of other counsels, he would add that the principle of consistency stood violated in his case. 17. Mr.N.V.Balaji, would address us specifically on Accounting Standard 6 dealing with Depreciation Accounting issued by the Institute of Chartered Accountants of India and made mandatory on or after 1.4.1995 in the following terms: 'The reference to commercial, industrial or business enterprises in the aforesaid paragraph is in the context of the nature of activities carried on by the enterpri....
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.... to represent the proportion of such expenditure which has expired during that period. 21. The necessity of providing for depreciation emanates from the fact that once an asset ceases to be effective, it will have to be replaced. Providing for depreciation would ensure setting aside out of the revenue of an accounting period, the estimated amount by which the capital investment has expired during that period. This provision, incurred for the use of that asset for the purpose of earned profit should be charged against those profits as and when earned. Spicer, and Pegler, at page 45, states as follows:- 'If depreciation is not provided for, the books will not contain a true record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against the profits; having been purchased, the asset is, in effect, then hired by capital to revenue, and the true profit cannot be ascertained until an analogous charge for the use of the asset has been made. Moreover, unless provision is made for depreciation, the Balance Sheet will not present a true and fair view of the state of affairs, since the assets will be shown at an amount which is in ....
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..... Munisuvrat Jain (1994 Tax Law Reporter 1084) and DIT (Exem) Vs. Framjee Cawasjee Institute (109 CTR 463); Karnataka High Court in CIT Vs. Society of the Sisters of St.Anne (146 ITR 28); Madhyapradesh High Court in CIT Vs. Raipur Pallottine Society (180 ITR 579); Gujarath High Court in CIT Vs. Sheth Manilal rachhnoddas Vishram Bhavan Trust 198 ITR 598 = 2003-TIOL-944-HC-AHM-IT; Punjab and Haryana High court in CIT Vs. Market Committee Pipli (330 ITR 16) and CIT Vs. Tiny Tots Education Society (330 ITR 21) = 2010-TIOL-550-HC-P&H-IT; Madhyapradesh High Court in CIT Vs. Devi Sakuntala Tharal Charitable Foundation (358 ITR 452) and the Calcutta High Court in CIT Vs. Silluguri Regulated Market Committee (366 ITR 51). In addition, the Delhi High Court in DIT Vs. Vishwa Jagriti Mission 262 CTR 558 = 2012-TIOL-271-HC-DEL-IT and the Karnnataka High Court in DIT (Exem) Vs Al-Ameen Charitable Fund Trust (2016) 67 taxmann.com 160 = 2016-TIOL-463-HC-KAR-IThave accepted the claim of the assessee distinguishing both the judgment of the Supreme Court in Escorts as well as that of the Kerala High Court. 27.In view of the discussion above, the question of law is answered in favour of the assesse....
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....same against the assessee which order was confirmed by the Income Tax Appellate Tribunal. 31. A recent amendment to section 139(5) reads thus; 'Following sub-section (5) shall be substituted for the existing subsection( 5) of section 139 by the Finance Act, 2016 w.e.f. 1.4.2017. (5) If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year form the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.' 32. The import of the above amendment is that a return may be revised both in cases of original returns filed under sub section (1) or under sub section (4) within the extended period of one year from the end of the relevant assessment year or before completion of assessment, whichever is earlier. The amendment is intended to confer a benefit on an assessee and the retrospective application thereof has to be examined by the assessing authority. We remand this issue to the file of the assessing authority for the limited purpose of examining the applicability of the amendment ext....
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....ferred and tax on such income is avoided. This defeats the very objective and purpose of placing the conditions of application of income, etc., in respect of income derived from property held under trust in the first place. 7.4.1 Sections 11, 12 and 13of the income-tax Act are special provisions governing institutions which are being given benefit of tax exemption. It is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibility has undesirable effects on the objects of the regulations and leads to litigation. .... ..... 7.6 Applicability. - These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-2016 and subsequent assessment years. 35. Para 7.6 of the Circular states that the amendment would apply to assessment year 2015-16 and subsequent assessment years. Reliance was placed on the judgment of the Supreme Court in CIT Vs. Alom Extrusions Ltd (2009) and CIT vs Vatika Township (367 ITR 46....