AI Drafter 
TaxTMI 
TaxTMI 
2017 (11) TMI 1421
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....f payments to the persons referred u/s 13(3) of the I.T. Act. (ii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where the same had already been claimed as application of income in the previous years. (iii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of the Act despite of the fact that the assessee failed to prove the justification of these expenses. (iv) Whether, in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in deleting the addition of disallowance of interest u/s. 36(1)(iii) despite of the fact that assessee failed to discharge its onus of furnishing the evidence of use of the assets." (2) Appeal No. 107/2009 " (i) Whether in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in allowing the benefit of section 11(1) as charitable trust to the assessee despite of the fact that the huge surpluses earned was withdrawn by way of payments to the p....
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....t. (ii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where the same had already been claimed as application of income in the previous years. (iii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of the Act despite of the fact that the assessee failed to prove the justification of these expenses. (iv) Whether, in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in deleting the addition of disallowance of interest u/s. 36(1)(iii) despite of the fact that assessee failed to discharge its onus of furnishing the evidence of use of the assets." (5) Appeal No. 70/2010 " (i) Whether in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in allowing the benefit of section 11(1) as charitable trust to the assessee despite of the fact that the huge surpluses earned was withdrawn by way of payments to the persons referred u/s 13(3) of the I.T. Act. (ii) Whe....
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....f the case the Tribunal was justified in law in allowability of depreciation of assets u/s 32 even where the same had already been claimed as application of income in the previous years. (iii) Whether, in the facts and circumstances of the case the Tribunal was justified in law in deleting addition made for foreign travelling expenses u/s 37 of the Act despite of the fact that the assessee failed to prove the justification of these expenses. (iv) Whether, in the facts and circumstances of the case the Tribunal was justified in law and has acted perversely in deleting the addition of disallowance of interest u/s. 36(1)(iii) despite of the fact that assessee failed to discharge its onus of furnishing the evidence of use of the assets." (8) Appeal No. 235/2012 " (i) Whether in the facts and circumstances of the case the ITAT was justified in law and has acted perversely in allowing the benefit of section 11(1) as charitable trust to the assessee despite of the fact that the huge surpluses earned was withdrawn by way of payments to the persons referred u/s 13(3) of the I.T. Act. (ii) Whether, in the facts and circumstances of the case the ITAT was....
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....17 & 263/2017, the appeal are admitted on the following substantial question of law:- Appeal No.262/2017 (i) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is right in confirming the decision of Ld. CIT (A) in allowing the assessee's claim of exemption u/s 11 even though provisions of section 13 are attracted? (ii) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is right in confirming the decision of Ld. CIT (A) in allowing salary expenses to the member of Bakshi Family which is higher than reasonable? (iii) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is right in allowing contribution made to Jaipur National University during the year under consideration as application of income u/s 11 of the Act despite of the fact that the assistance provided to JNU is the violation of bye laws of society as well as violation of provision of Sec.13(1)(c) and 13(2) of the IT Act? (iv) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is right in confirming the decision of ld. CIT(A) in allowing foreign ....
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....413/- on the assets which were claimed as application u/s 11 at the time of purchase? (v) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is right in allowing the depreciation without appreciating the fact that the application of 100% expenditure of the capital assets is already allowed as capital expenditure hence further allowance of depreciation on the same capital asset would amount to double allowance? (vi) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is right in allowing the depreciation without appreciating the fact that the assessee has not carried out the business activities but the receipts utilized for charity. As there was no business, the claim of depreciation was not allowable, the deprecation is allowable only in the case of business or profession or in case of "income from other sources"? 3. Since, the matters involved common question of law and facts, they are decided by this common judgment. 4. The facts of the case are that the respondent assessee namely Mahima Shiksha Samiti is engaged in imparting education, medical facility and other general public utility ....
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....- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from sucha ctivity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year. 5.3 He also taken us to the following provisions of the Act:- Section 11 Income from property held for charitable or religious purposes . (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) 3 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 twenty- five per cent of the income from such property; (b) income derived from property held under trust in pa....
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.... benefit of any person referred to in subsection (3): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub- clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person refer- red to in sub- section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution: Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub- clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub- section (3) in so far as such use or application relates to any period before the 1st day of June, 1970 ; (d) ^1 in the case of a trust for charitable or religious purpo....
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....referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 1 43D]. 5.5 He further contended that in view of decision of SupremeCourt in Escorts Limited and anr. vs. Union of India & ors. reported in 199 ITR 49 wherein it has been held as under:- Section 32(1)(ii) provides for depreciation. As under the 1922 Act, it is allowed at a percentage of the written down value of certain capital assets employed in the business. The topic of scientific research expenditure is dealt with by Section 35. Section 35(1) provides for the deduction of four types of expenditure on scientific research and what we are concerned with is the deduction provided under Section 35(1) (iv), which is to the following effect: (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of Sub-section (2). Sub-section (2) provides that, for the purposes of Clause (iv) of Sub-section (1), one-fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditur....
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....67, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year. The effect of this amendment was only to provide that the entire amount of capital expenditure incurred in relation to scientific research was allowed as a deduction in one year instead of being spread over a period of five years as was the position earlier. 10. At this stage, the Finance (No. 2) Act, 1980 intervened. It amended Section 35(2) (iv) to read as follows: (iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under Clauses (i), (ii) and (iii) of Sub-section (1) of Section 32 for the same or any other previous year in respect of that asset. The Finance Act made this amendment retrospective w.e.f. 1-4-62, that is, the date of the commencement of the 1961 Act. The contention on behalf of the assessees was that the allowances in respect of depreciation on the one hand and in respect of capital expenditure on scientific research on the other are two totally different and independent heads of allowances. One is a notional allow....
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....e stage of the High Court. Only one reference on this topic came up before the High Courts and is reflected in the decision of the Karnataka High Court, reported as CIT v. Indian Telephone Industries Ltd. MANU/KA/0158/1980MANU/KA/0158/1980 : [1980]126ITR548(KAR) . This was a reference of the year 1977 made at the instance of the Commissioner of Income-tax and the Commissioner of Income-tax lost this reference. The High Court re-affirmed the position contended for by the assessee as the one and only possible interpretation of the statutory provisions. It is, therefore, contended that there was, and could have been, no doubt that an assessee was entitled to claim depreciation allowance in respect of such assets in respect of previous years other than those in which an allowance had been allowed under the other head. We shall revert later to this aspect of the matter. 24. The Revenue says that the deduction provided by Section 35(1)(iv) is in the alternative to the deduction provided by Cls. (i), (ii) and (iii) of Sub-section (1) and Subsection (1A) of Section 32. If one is availed of, the other is not available, not only during the year or years in which the deduction under Sectio....
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....is issue, even though one of the special leave petitions filed by the Department against one of the above decisions was dismissed by the Supreme Court. No amendment is seen made to the statute requiring the trust claiming depreciation to write back the depreciation as income of the previous year, if payment for acquisition of assets is treated as application of income for charitable purposes. 4. It is settled position through several decisions of High Courts and the Supreme Court that when business is held in trust by charitable institutions income from business has to be computed by granting deductions provided under sections 30 to 43D as provided under section 29 of the Income-tax Act. 5. Senior counsel, Sri A.K.J. Nambiar ,appearing for the assessee, submitted that the assessee has been filing income-tax returns for several years including the assessment year 2005-06, and disallowance is made only for this year. Since business income has to be as stated in section 29 by granting all deductions provided under sections 30 to 43D which includes depreciation under section 32, the assessee is entitled is the case pressed before us by the senior counsel appearing for the assesse....
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....are beneficiary or trustee or founder of the trustees will not be entitled for the expenses namely salary and other benefits which are granted like Foreign Trip and other benefits will not be allowed and they will not be covered u/s 13. In that view of the matter, it is contended that on close scrutiny of Sec.11 & 13, the expenses will not be admissible u/s 13. 6. Taking into account, he contended that the tribunal has committed serious error in allowing the appeal preferred by the assessee and dismissing the appeal preferred by the department. 7. On the issue of depreciation, he contended that in view of the Sec.28 read with Sec.23 in view of the expenses which are for charitable purpose, therefore, depreciation claimed is not business expenses and Section 32 will not be admissible to a charitable purpose in view of the fact that it is not for business purpose nor profession. 8. In that view of the matter, while relying upon the decision in Escorts and Kerala High Court (supra) he contended that in view of the two decisions, double benefit cannot be granted and the tribunal has committed serious error. 9. On Foreign Trip, it has been contended that the tribunal has not....
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....tion 11 is allowed and no tax is being charged. 17. The ld. A/R pointed out that the appellant society was granted registration under section 12A, as a charitable institution, by ld. Commissioner of Income Tax after considering and examining the objects and activities of the society. This registration under section 12A/12AA is in force even as on date. Therefore, ld. AO is not entitled to raise questions in relation to "charitable purpose" which the appellant is persuading consistently for past several years. There is no denial to the fact that the AO is entitled to examine the application of income for "charitable purpose" and can also examine the breach of any condition/falling into any disqualification criteria under section 13 but he cannot be allowed to go into the existence of the trust for "charitable purpose". This is for the reason that else it would imply that the subordinate authority has "set at naught" the judgment of a superior authority. This is against the principles of Administrative law as well as jurisprudence. The "charitable Purpose" can be questioned only by the Commissioner and he has been granted the statutory powers even to cancel the registration ....
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.... 584, this Court in the context of benefit claimed Under Section 11 of the Act held: 9. In the present case, the Assessee is not claiming any benefit Under Section 11(2) as it cannot; because in respect of this assessment year, the Assessee has not complied with the conditions laid down in Section 11(2). The Assessee, however, is entitled to claim the benefit of Section 11(1)(a). In the present case, the Assessee has applied Rs. 8 lakhs for charitable purposes in India by purchasing a building which is to be utilised as a hospital. This income, therefore, is entitled to an exemption Under Section 11(1). In addition, Under Section 11(1)(a), the Assessee can accumulate 25% of its total income pertaining to the relevant assessment year and claim exemption in respect thereof. Section 11(1)(a) does not require investment of this limited accumulation in government securities. The balance income of Rs. 1,64,210.03 constitutes less than 25% of the income for Assessment Year 1970-71. Therefore, the Assessee is entitled to accumulate this income and claim exemption from income tax Under Section 11(1)(a). We set aside the judgment of the Uttarakhand High Court dated 24th September, 2007....
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....en, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that the Revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C)read with Section 11 of the Income-tax Act." In all those appeals which have come from the High Court of Punjab and Haryana and filed by the Department of Income-tax except one from the Gujarat High Court, the High Court has followed its aforesaid judgment in Pinegrove International Charitable Trust. Since this view stands approved, all these appeals are dismissed. We, however, make it clear that observations made in para. 25, reproduced above, shall apply in these cases. One appeal is from the Gujarat High Court which has also followed the view taken by the Punjab and Haryana High Court in Pinegrove International Charitable Trust, which also stands dismissed. We also make it clear that the observations made in para. 25 in Queen's Educational Society v. CIT MANU/SC/0287/2015 : [2015] 8 SCC 47 : [2015] 372 ITR 699, 729 (SC) shall be followed. 6.2 He strongly relied on decision of this Court i....
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....elied upon the judgment in Commissioner of Income Tax-II, Jodhpur vs. Krishi Upaj Mandi Samiti (2016) 388 ITR 605 wherein it has been held as under:- "4. The assessee is a charitable institution registered under Section 12-A of the Act of 1961 and 100% capital expenditure was availed by it against the asset concerned i.e. a building. Section 32(1) of the Act of 1961 provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. Income of a charitable trust like the present assessee derived from the depreciable heads is also liable to be computed on commercial basis, however, while doing so it is to be kept in mind that ultimately assessee is a charitable institution and its income for tax purposes is required to be determined by taking into consideration provisions of Section 11 of the Act of 1961 after extending normal depreciation and deductions from its gross income. In computing the income of a charitable institution/trust depreciation of assets owned by such institution is a necessary deduction on commercial principles, hence, the amount of depreciation has to be deducted to arrive at the income available. ....
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....to the business which resulted into acquisition of an asset. The assessee had sought to claim a specified percentage of the written down value of the asset as depreciation and at the same time claimed deduction, in five consecutive years of the expenditure incurred on the acquisition of the asset. The apex Court observed: Where a capital asset used for scientific research related to the business of the assessee is also ipso facto an asset used for the purpose of the business, it is impossible to conceive of the Legislature having envisaged a double deduction in respect of the same expenditure, one by way of depreciation under Section 32 of the Income Tax Act, 1961 and other by way of allowance under Section 35(1) (iv) of a part of the capital expenditure on scientific research, even though the two heads of deduction do not completely overlap and there is some difference in the rationale of the two deductions....It was further recorded that: There is a fundamental, though unwritten, axiom that no Legislature could have at all intended a double deduction in regard to the same business outgoing; and, if it is intended, it will be clearly expressed. In other words, in the absence of....
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....e case of Vishwa Jagriti Mission (supra) . It is obvious that in Charanjiv Charitable Trust (supra) , the Division Bench could not have taken a different view on the legal ratio as interpreted in Vishwa Jagriti Mission (supra) . Further, the decisions in the case of Vishwa Jagriti Mission and Indian Trade Promotion Organisation (supra) being prior in point of time would act as binding precedents and could not have been overruled or dissented from by a coordinate Division Bench. 11. By Finance (No. 2) Act of 2014, subsection (6) to Section 11 stands inserted with effect from 1st April, 2015 to the effect that where any income is required to be applied, accumulated or set apart for application, then for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of an asset, the acquisition of which has been claimed as application of income under this Section in the same or any other previous year. The legal position, therefore, would undergo a change in terms of Section 11(6) , which has been inserted and applicable with effect from 1st April, 2015 and not to the assessment years in question. The newly enacted sub....
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....aw which was prevailing prior to 31.3.2015 will be covered by the jurisdictional high court judgments. 17. On the other issue, whether the expenses which are granted or which has been considered by the authority, he relied upon the judgment of this court in Commissioner of Income Tax, Jaipur-II vs. Consulting Engineering Group Ltd. (2014) 365 ITR 284 wherein it has been held as under:- 17. In view of what we have discussed hereinabove, on all the three issues, the Tribunal, after appreciation of evidence, has come to the conclusion that the disallowance out of job work charges, soil testing and surveying charges and directors' remuneration is not proper and it had been rightly deleted by the CIT(A) and we do not find any infirmity or perversity in the said order of the Tribunal. It is purely a finding of fact and no question of law much less substantial question of law can be said to emerge out of the said order of the Tribunal so as to call for any interference of this Court. In our view, no substantial question of law arises out of the order passed by the Tribunal. Consequently, the appeal, being devoid of merit, is hereby dismissed in limine. No order as to co....