TaxTMI 
TaxTMI 
2022 (12) TMI 397
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....and the revised ROI filed by the assessee was defective. 3. Whether the Ld. CIT(A) has erred in allowing the appeal of the assessee by ignoring almost the separate or independent provisions of section 11,12,12A,12AA & 13 and these provisions are independent code in itself in Chapter III of the Income Tax Act, 1961 and claim of depreciation u/s 32 comes under chapter IV of the Act under the head 'D' - Profit and Gains of Business or Profession and depreciation is allowed when capital assets are used for the purpose of business. 4. Whether the Ld. CIT(A) has erred in allowing the appeal of the assessee by ignoring the fact that the assessee is not eligible for any type of depreciation as the entire expenditure for the purchase of capital assets is allowed as a deduction and the same is treated as application of income u/s 11(1) and claiming depreciation on the same capital asset is a double deduction and is not as per law as these capital assets are not used for the purpose of business or profession as provided u/s 32(1). 5. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in law in allowing the benefit of section 1 l(l)(a)....
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....ociety has been accepted, income has to be computed in accordance with the provisions of section 11 to 13 which would include accumulation as per section 11(1)(a) and section 11(2). The Assessing Officer is directed to re-compute the income after giving benefit of section 11 along with all the consequential benefits. Grounds of appeal nos. 5 to 7 are allowed." 6. On the issue of disallowance of depreciation on fixed assets, the Ld. CIT(A) held that the same was allowable after recording the following observation and findings: "4 3.1 The Assessing Officer has disallowed deprecation since as per the Assessing Officer, claiming of depreciation of fixed assets tantamount double deduction since the assessee as already claimed deduction of its capital expenditure being a trust. The assessee on the other hand has stated that deprecation is allowable as application of income and has relied on following decisions: i) CIT v Society of the Sisters of St. Anne (1984) 146 ITR 28 (Karn) ii) CIT v. Desh Bhagat Memorial Education Trust [2011] 12 taxmann.com 113 (Puny & lii) Asstt. CIT v. Shri Adichunchanagiri Shikshana Trust [2013] 31 taxmann.com 157 ....
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.... of any asset, acquisition of which has been claimed as an application of income under section 11 in the same or any other previous year. Para . of the said Explanatory Notes is reproduced as under. "7 5 The second issue which had arisen was that the existing scheme of section 11 as well as section 10(23C) of the Income-tax Act provided exemption respect of income when it is applied to 'acquire a capital asset. Subsequently. while computing the income for purposes notional deduction by way of depreciation etc. was being claimed and such amount of notional deduction was not being applied for charitable purpose. As a result, double benefit was being claimed by the trusts and institutions. Therefore, these provisions were required to be rationalized to ensure that double benefit is not claimed and such notional amount does not get excluded from the condition of application of income for charitable purpose." 4.3.4 There are many conflicting judgments of various Hon'ble High Courts, including that of the jurisdictional High Court, both in favour and against allowability depreciation The Hon'ble Delhi, High Court, m the case of Director of Income Tax (E....
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.... charitable purposes because the payment has been made to preserve the corpus, the existence where of is essential for the trust itself. 4.4.2 I have considered the assessment order and also the submissions of the appellant. It is settled law now that the income of the trust or institution has to be computed m a commercial hence, therefore, outgoing on account of taxes has to be recognized as application on income. In the case of DIT (E) v National Association of Software and Service Companies [(2012) 345 ITR 362 (Del)], the Hon'ble Delhi High Court have held as under: "If is true that payment of taxes is not allowable as a deduction in computing the profits of the business carried on by the assessee. There are several reasons for the prohibition. Firstly, taxes are paid after the income is earned. They, therefore, represent application of income and not expenditure incurred for the purposes of earning the income. Secondly, taxes represent the Crown's share in the profits of the businessman. Thirdly, taxes are considered as a personal obligation of the trader and, therefore, not allowable. Fourthly, there is a specific bar on taxes being allowed as a deduc....
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....cer is directed to allow the amount of Rs.38,80,27,604/-as application of income. Ground No. 3 of the appeal is allowed." 8. Regarding the disallowance of Rs.6,50,00,000/- being the expenditure of earmarked fund, the Ld. CIT(A) held that it was not sustainable by recording the following findings in paras 4.5.1 to 4.5.4:- "4.5.1 The Assessing Officer has held that application of earmarked fund cannot be considered application for the current year since they have been made out of funds which have been received in earlier years. It has also been mentioned that as per the matching concept, the expenses should have been booked in the previous year and cannot be claimed against the application of the income of the current year. 4.5.2 The appellant has stated that application of income from earmarked fund for specific projects without any specific provision under the act. It has also been mentioned that the receipts on account of earmarked fund have been included in the returned income and expenses are made out of the accumulated income of the earlier years. It has also been submitted that no matching concept is applicable in the case of assessment of trust s....
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....limb of the section 2(15) of the Act, the case of the assessee falls and to show cause why income be not treated as business income. The assessee made a lengthy submission dated 13.3.2015, relying therein, interalia on the decision of Hon'ble Delhi High Court in India Trade Promotion Organisation vs. D.G.I.T (Exemptions) (2015) 53 taxmann.com 404 (Delhi). On consideration of the above submission of the assessee the Ld. AO recorded the finding at page 14 of the order that it is established in the reply of the assessee that the prime objective of the society is to encourage Information Technology in the country and the charges received for certification of the entities carrying on activities related to information technology are not directly in the nature of business. Further, the assessee has established that the income generated from this activity is not applied for any individual benefit or transfer to the benefit of any particular person, entity or group of persons but the application is for the benefit of public at large. This amply proves that the Ld. AO accepted the claim of the assessee that the assessee is a charitable society. It was in the backdrop of such a finding of the....
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....e Hon'ble P & H High Court in CIT vs. Market Committee, Pipli (2011) 330 ITR 16 relied upon by the Ld. CIT(A). The Ld. CIT(A) has taken notice of subsection( 6) of section 11 inserted by the Finance Act, 2014 w.e.f. 1.4.2015 which has now put restriction on claim of depreciation. The amendment is only prospective applicable to AY 2015-16 and subsequent years and not to case of the assessee in which AY involved is 2012-13. We endorse the findings of the Ld. CIT(A) and hold that the grievance of the Revenue is not sustainable in so far as the present appeal of the Revenue is concerned, the amended law being inapplicable. Accordingly, we decide ground No. 3 and 4 against the Revenue. 14. Ground No. 1 relates to taxes paid and deposited which the Ld. AO disallowed observing that the taxes are eventually refundable or are not deductable as per provisions of the Act and the same cannot be considered as application of income for the purpose of deduction under section 11 of the Act. Before the Ld. CIT(A), the assessee relying on the decision of CIT vs. Janki Ammal Ayya Nadar Trust (1985) 153 ITR 159 (Mad.) submitted that tax paid out of current year's income is application for charitabl....