2015 (12) TMI 1365 - AT - Income Tax

Depreciation on the asset put into use - assessee is a registered charitable trust - Held that - As decided in CIT Karnataka I Versus Society Of The Sisters Of St. Anne 1983 (8) TMI 44 - KARNATAKA High Court it is not in dispute that if the mercantile system is followed the depreciation allowance in respect of the trust property should be allowed - Decided in favour of assessee Carry forward of deficit - Held that - There is no dispute that an identical issue was considered and decided by this Tribunal in favour of the assessee in the case of Dr. T.M.A Pai Foundation Manipal 2010 (2) TMI 1156 - ITAT BANGALORE the object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expend iture 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 later year it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year even though the actual expenditure was in the earlier years if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. - Decided against revenue Revaluation of investments treated as income of the assessee - Held that - Mere revaluation of asset would not increase income or receipt of the assessee until and unless the said gain of revaluation is realised. Therefore the gain on revaluation of the asset/investments without actual realisation cannot be treated as income of the assessee - Decided against revenue

Issues Involved:
1. Depreciation on assets.
2. Carry forward of deficit.
3. Gain on revaluation of investments.

Detailed Analysis:

Depreciation on Assets:
The primary issue raised by the Revenue was the claim of depreciation on assets put into use during the accounting year, which the assessee had already claimed as application of income for charitable activities. The Revenue argued that this resulted in a double deduction, which is not permissible without clear statutory indication, citing the Supreme Court's decision in Escorts Ltd. v. Union of India [1993] and the Kerala High Court's decision in Lissie Medical Institutions v. CIT [2012]. The Assessing Officer disallowed the depreciation claim of Rs. 70,40,56,376, considering it as a double deduction.

The Commissioner of Income-tax (Appeals) allowed the claim by following the Tribunal's order in Asst. CIT v. Shri Adichunchanagiri Shikshana Trust [2012]. The Tribunal noted that various High Courts, including the jurisdictional Karnataka High Court in CIT v. Society of the Sisters of St. Anne [1984], have held that depreciation on assets used for charitable purposes does not amount to double deduction. The Tribunal also referenced recent decisions affirming this view, including the Bombay High Court's ruling in DIT (Exemptions) v. Shri Vile Parle Kelavani Mandal [2015]. Consequently, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, dismissing the Revenue's grounds on this issue.

Carry Forward of Deficit:
The second issue concerned the carry forward of the deficit of Rs. 9,33,27,87,598, which the assessee sought to set off against future income. The Assessing Officer rejected this claim, citing the absence of a provision in the Income-tax Act allowing such carry forward. The Commissioner of Income-tax (Appeals) allowed the claim, referencing the Tribunal's decision in Dr. T. M. A Pai Foundation and the assessee's own case in the previous assessment year.

The Tribunal upheld this decision, citing the Tribunal's ruling in Asst. CIT v. City Hospital Charitable Trust [2015], which followed precedents from various High Courts, including the Rajasthan High Court in CIT v. Maharana of Mewar Charitable Foundation [1987] and the Bombay High Court in CIT v. Institute of Banking [2003]. The Tribunal affirmed that excess expenditure over income in earlier years can be adjusted against income of subsequent years, thus supporting the Commissioner of Income-tax (Appeals)'s decision.

Gain on Revaluation of Investments:
The final issue was the gain of Rs. 71,46,120 from the revaluation of investments, which the assessee had credited to the income and expenditure account but reduced from the computation of income for tax purposes, claiming it was a notional gain without actual realization. The Assessing Officer added this amount back to the assessee's income.

The Commissioner of Income-tax (Appeals) deleted this addition, and the Tribunal upheld this decision. The Tribunal referred to the Supreme Court's judgment in Indo Rama Synthetics (I.) Ltd. v. CIT [2011], which emphasized that notional gains on revaluation without actual realization do not constitute real income. Thus, the Tribunal concluded that the gain on revaluation of investments, without actual realization, cannot be treated as income, dismissing the Revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, upholding the Commissioner of Income-tax (Appeals)'s decisions regarding the allowance of depreciation on assets, the carry forward of deficit, and the exclusion of notional gains from revaluation of investments from taxable income.

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