TaxTMI 
TaxTMI 
2018 (8) TMI 191
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....re Rs. 6,43,34,410/- 2. Prior Period expenses Rs. 99,52,992/- 3. Income tax Rs.3,21,04,919/- 4. Provision of deferred tax Rs. 11,14,774/- 5. Depreciation Rs.3,54,91,335/- 3. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). 4. Before the CIT(A), it was submitted that the issue of denial of exemption u/s 11 is squarely covered in favour of the assessee by the orders of ITAT in ITA No. 1712/Hyd/2014 dated 30/06/2015 for AY 2011-12, which was confirmed by the AP High Court in ITA No. 168 of 2015 dated 04/11/2015 and also the order of CIT(A) - 9 for AY 2012-13. 5. After considering the submissions of the assessee and following the order of ITAT (supra), the CIT(A) directed the AO to allow exemption u/s 11, prior period expenses of Rs. 99,52,992/-, payment of tax and deferred tax of Rs. 3,21,04,919/- and depreciation at Rs. 3,54,91,335/-. 6. Aggrieved by the order of CIT(A), the revenue is in appeal before us raising the following grounds of appeal: For AY 2013-14 "1. The order of the Ld. CIT(A)is erroneous both on facts and in law. 2. CIT(A) erred in considering that Technological Services provided by the society to Banking Secto....
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....ion under the provisions of Sec. 11 of the Act. 21. The next ground of appeal relates to the disallowance of prior period expenses of Rs. 1,26,807/- and deferred tax liability of Rs. 5,01,728/- and provision for income-tax of Rs. 4,63,00,000/-. It appears the A.O. has disallowed these expenses on the ground that appellant society was not entitled to exemption under the provisions of Sec. 11 of the Act. In the preceding para, we already held that the appellant society is entitled for exemption under the provisions of Section 11 of the Act. Once it is held that the appellant society is eligible for exemption u/s. 11 of the Act, as a logical corollary, the income of the appellant society has to be computed on commercial principles as held by the Hon'ble Supreme Court in the case of CIT v. Programme for Community Organization (2001) 248 ITR 1. If the commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the appellant society for charitable purposes in the earlier year against income earned by the appellant society in the subsequent year will have to be regarded as application of income of the appellant soc....
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....he assessee is registered under section 12AA of the Income-tax Act. There is also no dispute that the assessee has shown all the receipts in income-expenditure account and claimed various expenses in its computation of income, while declaring excess of income over expenditure. It is also not in dispute that the income of the assessee-trust has to be computed with reference to the provisions of sections 11 and 13. Therefore, the principles governing the computation of income under the head "Business" may not apply to the computation of income under the above provisions, since the income of a charitable institution has to be computed under ordinary principles of commercial accounting, and depreciation has to be allowed on depreciable assets held by a charitable institution to arrive at the income of 75 per cent. (now 85 per cent.) which is required to be applied for charitable purpose. In the decision of the hon'ble Supreme Court in the case of Escorts Ltd./J.K. Synthetics Ltd. (supra), the hon'ble Supreme Court was to consider the issue wherein the depreciation was also claimed on an asset which was claimed as a deduction while using for research, as "capital expenditure on ....
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....y the hon'ble Punjab and Haryana High Court. 13. This issue has elaborately been discussed by the hon'ble Delhi High Court in the case of Vishwa Jagriti Mission (supra) and took a over view of the existing decisions on the issue while holding as under : "11. The Revenue is in appeal against the aforesaid order of the Tribunal. We are not inclined to admit the appeal and frame any substantial question of law since none arises from the order of the Tribunal. There is no dispute that the assessee has been granted registration under section 12AA vide order dated September 11, 2009, and, therefore, it was entitled to exemption of its income under section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so whether depreciation on fixed assets utilised for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the Commissioner of Income-tax (Appeals) as well as Tribunal. In CIT v. The Society of the Sisters of St. Anme, an identical question arose before the Karnataka High Court. There the society was running....
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....R 579 (MP) has held, following the judgment of the Karnataka High court cited above, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. 13. The judgment of the Supreme Court in Escorts Ltd. v. Union of India [1993] 199 ITR 43 (SC) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on the busin....