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2013 (9) TMI 404 - AT - Income TaxAccumulation of income - total income 2(45) versus Income u/s 11(1) - charitable institution - benefit of standard deduction under income from house property for the purpose of accumulation of income - Deduction u/s. 24(a) - Computation of income of trust - Held that - While Sec.2(45) of the Act specifically defines total income the expression used in section 11(1) is only income. Accordingly, it would be incorrect to assign to the word income used in section 11(1)(a), the same meaning as has been specifically assigned to the expression total income in Sec.2(45) of the Act. The income from property held for charitable or religious purposes cannot be equated with the income which is computed under the general provisions of the IT Act in respect of other assessees. In a case where an assessee-trust has income from different sources and a part of such income comes within the ambit of taxation, it will not be possible to earmark any part of such income to a particular head. Such income has to be computed in a normal commercial manner. Therefore, the question of allowing any statutory deductions as contemplated by the different provisions of the IT Act dealing with different heads of income cannot arise while deciding the percentage of application or accumulation under section 11 - Following decision of DIT Vs. Girdharilal Shewnarain Tantia Trust 1991 (6) TMI 8 - CALCUTTA High Court - Decided in favour of Revenue. Disallowance of depreciation - Held that - If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income - Following decision of CIT v. Market Committee, Pipli 2010 (7) TMI 374 - Punjab and Haryana High Court - Decided against Revenue.
Issues Involved:
1. Applicability of Section 24(a) deduction for charitable trusts. 2. Allowability of depreciation while computing income of charitable trusts. Issue-wise Detailed Analysis: 1. Applicability of Section 24(a) Deduction for Charitable Trusts: The revenue appealed against the CIT(Appeals) decision allowing the assessee, a charitable trust, to claim a deduction under Section 24(a) of the Income Tax Act while computing income from house property. The primary contention was that the income of charitable institutions claiming exemption under Section 11 should be computed based on commercial principles, not under the heads of income specified in Section 14. The revenue argued that the CIT(Appeals) erred in not appreciating that the income under Section 11(1) refers to income from property held under trust, which must be applied for charitable purposes, rendering Section 24(a) deductions inapplicable. The assessee countered that Section 24(a) does not restrict its application to any particular assessee, and even a charitable trust can avail of this deduction. The CIT(Appeals) agreed with the assessee, stating there is no prohibition under the IT Act against such a benefit for charitable trusts. Upon review, the Tribunal highlighted that the method of computing income for charitable trusts is distinct from other assesses, emphasizing the commercial concept of income rather than the heads of income under Section 14. It referred to multiple judicial precedents and CBDT Circular No.5P (LXX-6), which clarified that income for charitable trusts should be understood in its commercial sense. The Tribunal concluded that the CIT(Appeals) erred in allowing the deduction under Section 24(a) and allowed the revenue's grounds on this issue. 2. Allowability of Depreciation While Computing Income of Charitable Trusts: The revenue also contested the CIT(Appeals) decision permitting the assessee to claim depreciation on assets, arguing it would result in double deduction since the expenditure for acquiring these assets was already considered as application of income. The AO had disallowed the depreciation claim based on the Supreme Court's decision in Escorts Ltd. v. UOI, which held that double deduction for the same expenditure was not permissible. The assessee argued that there was no double deduction and that depreciation is a necessary deduction to preserve the corpus of the trust, as it represents a decrease in the value of property through wear, deterioration, or obsolescence. The CIT(Appeals) sided with the assessee, allowing the depreciation claim. The Tribunal upheld the CIT(Appeals) decision, citing judicial precedents, including the Karnataka High Court's ruling in CIT v. Society of Sisters of St. Anne, which held that income for purposes of Section 11(1) must be computed in a normal commercial manner, allowing for depreciation. The Tribunal also referred to the Punjab & Haryana High Court's decision in CIT v. Market Committee, Pipli, which distinguished the Supreme Court's Escorts Ltd. decision, concluding that depreciation claims by charitable trusts do not equate to double deduction. Thus, the Tribunal dismissed the revenue's ground on this issue. Conclusion: The appeal by the revenue was partly allowed, disallowing the Section 24(a) deduction for the assessee but upholding the allowance of depreciation.
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