AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2018 (2) TMI 161
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act vide order dated 11.03.2014; wherein the Assessing Officer (i) restricted the accumulation u/s 11 of the Act upto the extent of 15% of net receipts only; (ii) disallowed depreciation claimed on fixed assets and (iii) did not allow the assessee's claiming for carry forward of excess application of income for set off as application against income of subsequent years. 2.2 Aggrieved by the order of assessment for Assessment Year 2011- 12 dated 11.03.2014, the assessee preferred an appeal before the CIT(A)-14, LTU, Bangalore on the above three issues; i.e. (i) disallowance of depreciation; (ii) the restriction accumulation u/s. 11(1)(a) of the Act on net instead of gross receipts and (iii) the denial of carry forward of excess application for set off as application against income of subsequent years. The ld. CIT(A) allowed the assessee's appeal on the aforesaid issues (supra) vide the impugned order dated 22.02.2016. 3. Aggrieved by the order of the CIT(A)-14, LTU, Bangalore dated 22.02.2016 for Assessment Year 2011-12, the Revenue has preferred this appeal, raising the following grounds:- "Net receipts Vs. Gross receipts i) Whether, in the given facts and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has held that depreciation cannot be allowed on assets, where cost of such assets has already been allowed as application of income in the year of acquisition/ purchase of asset. (ii). The CIT(A) has failed to appreciate that the Hon'ble Supreme Court in the case of Escorts Ltd. & another 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 pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....titution for the purpose of claiming exemption under section 11, 12 and 13 and, therefore, the provisions relating to set-off of loss from one source against the income from another source, set-off of loss horn one head against income from another head and carry forward and set-off of loss against the income of subsequent years as envisaged u/s 70 to 79 are also not applicable to the charitable trusts/institutions. ii) Whether, in the given facts and circumstances, the CIT(A) is correct in law without appreciating the fact that the issue of application of income more than the come computed does not arise, except in a case where the assessee has incurred huge amount of capital expenditure sourced out of borrowed or corpus donations or 15% of income set 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come for application for charitable purposes to the extent of 15% of gross receipts u/s. 11(1)(a) of the Act and not 15% of net receipts as held by the AO. 4.3.3 The issue to be decided by us is as to whether for the purpose of accumulation of income for application for charitable purposes u/s. 11(1)(a) of the Act is to be allowed at 15% of gross receipts or net receipts i.e.; gross receipts less Revenue expenditure. We find that the issue in question was considered and adjudicated by a co-ordinate bench of the Tribunal in the case of Mary Immaculate Society and in its order in ITA Nos. 240 & 241/Bang/2015 dated 23.06.2015 held that the assessee is to be allowed accumulation of income for application for charitable purposes u/s. 11(1)(a) of the Act at 15% of gross receipts following the decision of the ITAT Special Bench in the case of Bai Sonabai Hirji Agiary Trust v ITO, 93 ITD 0070 (SB). In its order (supra), the co-ordinate bench has held as under at paras 15 and 16 thereof:- "15. The issue to be decided is therefore as to whether for the purpose of computing accumulation of income of 15% under Sec.11(1)((a) of the Act, one has to take the gross receipts or gross re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier affirmed the decision of Kerala High Court in (1997) 141 CTR (Ker) 502: (1997) 228 ITR 620 (Ker) (supra) wherein it is held as under: At the outset, the statutory language of s. 11(1)(a) of the IT Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such purposes in India. It is thereafter the statutory provision proceeds further that such income is not to be understood to be in excess of 25 per cent of the income from such properties. It other words, the very language of the statutory provision under consideration sets apart 25 per cent of the income from the source of property with reference to the extent to which such income is applied for such purposes, charitable or religious, In other words, for the purpose of s. 11(1)(a) of the Act, the income in terms of relevance would be the income of the trust from and out of which 25 per cent is set apart in accordance with the spirit of the statutory provisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....decision referred to above. Accordingly the question referred to is answered in the affirmative and in favour of the assessee." 16. The aforesaid decision clearly supports the plea of the Assessee. Following the same, we hold that the accumulation u/s. 11(1)(a) of the Act should be allowed as claimed by the Assessee." 4.3.4 Respectfully following the decision of the co-ordinate bench in the case of Mary Immaculate Society (supra), we hold and direct the AO that the accumulation u/s. 11(1)(a) of the Act is to be allowed at 15% of gross receipts, as claimed by the assessee. Consequently, grounds raised by the Revenue are dismissed. 5. Claim for Depreciation 5.1 In the year under consideration, the assessee had claimed depreciation on fixed assets. On examination thereof, the AO was observed that the assessee had claimed double deduction by first showing the outlay for acquisition of the capital assets as application of income and thereafter, also claimed depreciation on the capital assets. The AO rejected the assessee's claim of depreciation placing reliance on the decisions of the Hon'ble Court in the case of Escorts and Another Vs. UOT & Others (199 ITR 43) and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as under:- "11. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that this issue has been considered by this Tribunal in a series of decisions. In the case of M/s CMR Janardhana Trust (supra), the Tribunal has again considered and decided this issue in paras 15 to 17 asunder: "15. We have heard the submissions of the Id. OR, who relied on the order of CIT)A) and the decision of the Hon'ble Delhi High Court in the case of DIT(E) Vs. Charanjiv Charitable Trust (2014) 83 taxmann.com 300 (Delhi). We have considered the order of the CIT(A). Identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal, in the aforesaid case, the assessee claimed depredation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of Its acquisition. The AO took the view that allowing depredation would amount to allowing double deduction and placed reliance on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon'ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction The Hon'ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, Income has to be computed In normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above Issue does not call for any interference. 22. Consequently, ground No.5 raised by the revenue is dismissed." 16. It is no doubt true that the Hon'ble Delhi High Court in the case of Charanjiv Charitable Trust (supra) has taken a contrary view but then when two views are possible on an issue, the view favourable to the Assessee has to be followed, The decision of the Hon'ble Punjab & Haryana High Court is in favour of the Assessee and has followed the decision of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plication against income in subsequent years is not permissible since there is no specific provision in this regard in either sections 11 and 13 of the Act which are in respect of assessment of trusts and, therefore, contended that assessee's claim be rejected. Strong support was placed to the orders of the AO on this issue. 6.2 According to the ld AR for the assessee, there is no error in the impugned order of the ld CIT(A) on this issue, as the assessee is entitled to carry forward the excess/surplus application of funds for set off as application against income of subsequent years. It is submitted that the said issue is covered in favour of the assessee by the decision of the Co-ordinate bench of this Tribunal in the case of ITO (Exemption) Vs. Shraddha Trust in ITA No.899/Bang/2016 dated 7/4/2017 City Hospital Charitable Trust (2015) 42 ITR (Trib) 583 Bangalore and Joythi Charitable Trust in 60 taxmann.com 165, Bangalore. 6.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. We find that the issue before us of carry forward of surplus application of income to subsequent years is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Hon'ble Madras High Court held that the income of the trust has to be arrived at having due regard to the commercial principles, that s. Ii is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can he adjusted against the income of the subsequent year. The principle that the loss incurred tinder one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only he achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax, the expenditure, if incurred in an earlier year is adjusted against the income of a l....