TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 1520
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant's case. 2. The appellant denies to the amount of net surplus of Rs. [42,96,723/-] or as may be determined after giving effect to CIT(A) order is not correct on the facts of the case. 3. The learned CIT [A] failed to appreciate that the deduction of 15% under section 11 [1] [a] is to be calculated on the gross receipts and not on amount left after application towards expenses incurred for the objects of the trust, under the facts and circumstances of the case. 4. The learned CIT [A] failed to appreciate that the issue whether the provisions of the gross receipts or on the net receipts has been decided by the Hon'ble Co-Ordinate Bench of decision of this Hon'ble Tribunal in the case of Jyothi Charitable Trust in 662/Bang/2015, order dated 14/08/2015, Capuchin Friar Services of Society [ITA No.367/Bang/2015], St. Charles Medical Society Nirmal Hospital [ITA No.364/Bang/2015] and Mary Immaculate Society [ITA No.240 & 241/Bang/2015] which has held that the accumulation of 15% under section 11 [1][a] of the Act has to be computed on the gross receipts and not on the net receipts, which is squarely covered in favour of the appellant and failed to apply a binding d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO 93 ITD 0070 (SB). The facts in the aforesaid case were that the assessee was a public charitable trust enjoying exemption under s. 11 of the IT Act. As per the requirement of s. 11(1) of the IT Act, as it prevailed at that point of time, the assessee had to apply 75 per cent of its income for the objects and purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent of its income, which was subject to fulfillment of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- "9. Coming to the merits of the issue, we are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st is to get the benefit of twenty-five per cent and this twenty-five per cent has to be understood as income of the trust under the relevant head of s. 11(1). In other words, income that is not to be included for the purpose of computing the total income would be the amount expended for purposes of trust in India. Their Lordships in the above case have emphasized on the clear and unambiguous language of s. 11(1)(a) and decided the matter on the basis of the same. It has been held that as per the statutory language of the above section the income which is to be taken for purpose of accumulation is the income derived by the trust from property. If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and not "total income" as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Reve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the purpose of computation of accumulation of income of 15% u/s. 11(1)(A) of the Act. ITA 1464/Bang/2017 7. This appeal is preferred by the revenue assailing the order of CIT(Appeals) inter alia on the following grounds:- "1. Whether in the facts and circumstances of the case and in law, the learned CIT(A) erred in allowing depreciation in respect of assets which have already been allowed as application of income in its entirety in earlier years. 2. Whether in the facts and circumstances of the case and in law, the learned CIT(A) is correct in allowing depreciation which amounts to double deduction when already full expenditure has been allowed in earlier years. 3. The CIT(A) has failed to appreciate the fact that the Hon'ble Kerala High Court in the case of Lissie Medical Intuitions Vs. CIT (348 ITR 344) 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. 4. 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 allowanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... upon the Hon'ble Apex Court's judgment in the case of Escorts Ltd. (supra). This decision was delivered in the context of claim of deduction u/s.35(l)(iv) but had made general observations about the claim of double deduction which is not allowable under the Income Tax Act. The claim of deduction for depreciation by entities claiming exemption u/s. 11, has been sought to be differentiated from the decision of Escorts Ltd., by some High Courts such as the Hon'ble Punjab & Haryana High Court in case of Market Committee Pipli (supra). This differentiation has been supported by the jurisdictional ITAT starting with the case of Cutchi Memon Union (Supra) which was further reaffirmed in Jyothy Charitable Trust (supra) and a swathe of other cases. The ADs have also derived strength from the decision of the Hon'ble Kerala High Court in Lissie Medical Institutions (supra) which followed the arguments of the Hon'ble Apex Court the in the case of Escorts Ltd (supra). The Hon'ble Delhi High Court has also endorsed this position in case of DIT(Exemption) Vs. Charanjiv Charitable Trust (2014) 43 Taxmann.com 300. I have nothing new to add to this debate. 4.3 The decisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income .. " (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. 4.7 Prior to 01.04.1989, the Hon'ble Apex Court had very rightly concluded that in the absence of depreciation allowance, a trust had no means of preserving its corpus for deriving income. After 01.04.1989, the Income Tax Act had, in Sec. 1l(1)(d), very consciously introduced a means of preserving the trust's corpus by providing for corpus donations not to be treated as income. Under the changed situation post 01.04.1989, therefore, the claim of depreciation is not the sole method available for financing the corpus. Whenever a trust receives donations with a specific direction that it be treated as corpus, such corpus donations are available for maintaining the capital base of the trust. Hence, after 01.04.1989 the Hon'ble High Court's judgment in case of Society of Sisters of St. Anne cannot be applied without examination of the facts in a case involving a claim of depreciation. ....