TaxTMI 
TaxTMI 
2017 (4) TMI 1289
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....Vs. Union of India (199 ITR 43), while dealing with the issue of allowance of expenditure on scientific research u/s 35 (1) (iv) [corresponding to section 10(2) (xiv) Of the I.T. Act, 1922] held that any expenditure of a capital nature (or incurred towards purchase of capital assets) on scientific research allowed as deduction u/s 35(1)(iv) cannot be allowed once again as deduction in the form of depreciation on such capital assets. While doing so, it was observed by the Hon'ble Supreme Court that no legislature could have at all intended a double deduction in regard to the same business outgoing and if it is intended, it would be clearly expressed in the statute itself. Accordingly, it was held that even in absence of clear statutory indication to contrary, statute should not be read so as to permit an assessee two deductions i.e. once in the form of expenditure incurred towards purchase of capital assets and secondly, in the form of depreciation on such capital assets. It was also held that even before the amendment of the Act in the form of insertion of clause (iv) of sub section (2) of section 35 ....
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.... i) Whether, in the given facts and circumstances, the CIT (A) is correct in law in not considering the Board Circular on this issue i.e. Board Circular no. 12-(PXX-7 of 1968) dated 26.11.1968, on which the AO placed reliance for disallowance of accumulation /set apart of income u/s 11(1)(a) wherein it is clearly explained that if a trust fails to comply with accumulation provisions u/s 11(2), then the entire income accumulated would be liable to assessment u/s 11(3), including 15% of income set apart or accumulated u/s 11 (1)(a), and, therefore, rendered a perverse decision. ii) Whether, in the given facts and circumstances, the CIT(A) is correct in law in holding that the provisions of sub-section (1) and (2) Of section 11 operate independently, and, therefore, disallowance of accumulation u/s 11(2) has no effect on allowance of set apart/accumulation u/s 11 (1)(a). iii) Whether, in the given facts and circumstances, the CIT(A) is correct in law in ignoring the fact that in case the assessee is claiming 15% of income set-apart/ accumulation on the basis of gross receipts, the as....
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.... apart over a period of time. However, expenditure incurred out of the above sources cannot be termed as application of funds out of the income earned in a particular assessment year inasmuch as loan borrowed does not fall under the category of income earned by the assessee, corpus fund donation does not come under income by virtue of section 11(1)(d) and 15% of income set apart in earlier assessment year cannot be construed as income of the current year and 15% set apart out of the current year income is also excluded from income available for application. As such, the concept of application is only to show that the income is fully utilized rather than claiming excess expenditure either revenue or capital over and above the income so as to claim excess application or deficit/loss to be forward to subsequent assessment years. Even in the case of excess application by virtue of borrowed Funds/corpus fund donations/ 15% set apart of earlier years, the income of the assessee cannot be converted to loss but at best it can be made Nil. Hence, the carry forward of excess application of income ....
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.... involved in this case is no more res integra. This question was considered by this Court as far back as in the year 1984, in the case of Society of the Sister's of St.Anne (supra) wherein the Division Bench of this Court has held thus: '9. It is clear from the above provisions that the income derived from property held under trust cannot be the total income because s. 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). 10. There is a broad agreement on this proposition. But still the contenti....
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....ot claiming double deduction on account of depreciation as has been suggested by learned counsel for the Revenue. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. Judgment of the Hon'ble Supreme Court in Escorts Ltd., & Anr. (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the assessee.' 17. High Court of Bombay in the case of Institute of Banking (supra) after placing reliance on the Judgment of CIT v. Muniswarat Jain (1994 TLR 1084) on an identical issue, held:- 'In that matter also, a similar argument, as in the present case, was advanced on behalf of the revenue, namely, that depreciation can be allowed as deduction only under section 32 of the Income Tax Act and not under general princ....
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.... the present controversy started - are not helpful and we have to construe the real scope of the provisions with which we are concerned. We think that all misconception will vanish and all the provisions will fall into place, if we hear in mind a fundamental, through 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 clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions both under S. 10(2)(vi) and S. 10(2)(xiv) under the 1922 Act or under S. 32(1)(ii) and 35(2)(iv) of the 1922 Act - qua the same expenditure. Is then the use of the words "in respect of the same previous year" in clause (d) of the proviso to S. 10(2)(xiv) of the 1922 Act and S. 35(2)(iv) of the 1961 Act contra-indication which permits a disallowance of depreciation only in the previous years in which the other allowance is actually allowed. We think the answer is an emphatic 'no' and that the purpose of the words above referred to is totally different. If, as contended for by the assessees,....
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....ments advanced by the Revenue apprehending double deduction is totally misconceived. 21. Section 11[6] inserted with effect from 1.4.2015 by Finance Act No. 2/2014, reads as under: '(6) In this section where any income is required to be applied or 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 any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.' 22. The plain language of the amendment establishes the intent of the legislature in denying the depreciation deduction in computing the income of Charitable Trust is to be effective from 1.4.2015. This view is further supported by the Notes on Clauses in Finance [No. 2] Bill, 2014, memo explaining provisions and circulars issued by the Central Board of Direct Taxes in this regard. Clause No. 7 of the Notes on Clauses reads thus: 'Clause 7. of the Bill seeks to amend section 11 of the Income-tax Act relating Income from property held for charitable or religious purposes. The exi....
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....ar reported in 371 ITR 22 makes it clear that the said amendment shall take effect from 1.4.2015 and will accordingly apply in relation to the assessment year 2015-16 and subsequent assessment years. 24. The Constitution Bench of the Apex Court in Vatika Township (P.) Ltd.'s case (supra), had laid down general principles concerning retrospectivity in Paragraphs 33 and 34, and the same is extracted hereunder: '33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, the doctrine of fairness was held to be relevant factor to construe....
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....ns, we answer the question of law in favour of the Assessee and against the Revenue. 27. In the result, all the appeals are dismissed." 5. In view of the above, as the questions are already covered by the decision of this Court as conceded by the learned Counsel for the appellants-Revenue, it cannot be said that any substantial question of law would arise for consideration." The decision of the CIT(A) is in consonance with the law laid down by the Hon'ble jurisdictional High Court in the case of Karnataka Reddy Janasangha (supra) in the above case. We do not find any fallacy in the reasoning adopted by the CIT(A). Hence, the grounds of appeal No.1 to 4 are dismissed. 7. The other grounds of appeal relates to Whether accumulation of income should be on gross receipt or net income after deducting the expenditure, is covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Programme for Community Organisation (248 ITR 1)(SC) wherein it was held that 25% should be calculated on the gross receipts of income and not on the net income. Therefore, these grounds of appeal raised by the revenue are dismissed. 8. The final grounds of appeal ....