2015 (5) TMI 1197 - AT - Income Tax

Depreciation to assessee trust - According to the Revenue allowing capital expenditure at the time of acquisition of capital asset as application of income for charitable purpose and further allowing depreciation on the very same capital assets would amount to conferring double deduction - HELD THAT - Hon ble Supreme Court in the case of Escorts Ltd. 1992 (10) TMI 1 - SUPREME COURT held that a trust claiming depreciation cannot be equated with a claim for double deduction. Hon ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne 1983 (8) TMI 44 - KARNATAKA HIGH COURT held that u/s. 11(1) of the Act income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. - Decided against revenue Accumulation of 15% of the income u/s. 11(1)(a) - HELD THAT - The delegated power of rule making given in section 11(2) is only for prescribing the manner of filing the application. The power does not include fixation of time limits. Delegated legislative powers are circumscribed by the statute delegating such powers and transgression thereof can render the rules beyond the scope of such delegation. Hence we cannot fault the learned CIT(A) taking cognizance of the revised Form No.10A filed by the assessee. In any case as observed by learned CIT(A) in the case of Bharath Kalyan Pratisthan 2007 (1) TMI 98 - DELHI HIGH COURT as well as Bharat Krishak Samaj 2007 (8) TMI 8 - HIGH COURT, NEW DELHI had held that details of purpose of accumulation was not a requirement that can be read into section 11(2). Revenue has not been able to bring before us any decision of Hon ble jurisdictional High Court on this issue and therefore assessee has to be given the benefit of the decision in its favour in preference to the decisions going against it Accumulation of claim based on Form No.10 - In view of the acceptance of the claim for accumulation of claim based on Form No.10 and in view of the fact that 15% accumulation was disallowed by the AO only for the reason of rejection of accumulation of funds based on Form No.10 we are of the view that the CIT(A) was fully justified in allowing the claim of the Assessee for accumulation of 15% of the receipts.

Summary

Issues Involved:

1. Depreciation on capital assets for a charitable trust.
2. Accumulation of income under Section 11(2) of the Income Tax Act.
3. Set apart/accumulation of income under Section 11(1)(a) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Depreciation on Capital Assets for a Charitable Trust:

The primary issue in ITA No.17/Bang/2015 was whether the CIT(Appeals) was correct in directing the AO to allow depreciation on capital assets, even though the acquisition of these assets was previously treated as an application of income for charitable purposes. The Revenue contended that this would result in a double deduction, contrary to the principles laid down by the Hon'ble Supreme Court in Escorts Ltd., 199 ITR 43.

The CIT(Appeals) followed the Karnataka High Court's decision in CIT v. Society of Sisters of St. Anns, 146 ITR 28, which held that allowing depreciation on assets, even if their acquisition cost was treated as application of income, does not amount to double deduction. This view was supported by the ITAT Bangalore Bench in DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260, which emphasized that depreciation is a necessary deduction for computing the income of charitable institutions to preserve the corpus of the trust. The Tribunal also noted that the legal position has since been amended prospectively by the Finance (No.2) Act, 2014, effective from 1.4.2015, but this amendment does not apply to the assessment years in question. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

2. Accumulation of Income under Section 11(2) of the Income Tax Act:

In ITA No.72/Bang/2015, the Revenue challenged the CIT(A)'s decision to allow the accumulation of income under Section 11(2), arguing that the original Form No. 10 filed by the assessee did not specify the purposes for accumulation adequately and that the revised Form No. 10 was filed after the completion of the scrutiny assessment.

The CIT(A) found that the revised Form No. 10, filed by the assessee, specified the purposes for accumulation in detail and should be considered valid. The CIT(A) also referenced several decisions by the Delhi High Court, which held that the purposes mentioned in Form 10 need not be specific and that accumulation of income under Section 11(2) cannot be denied even if the purposes are general. The Tribunal upheld the CIT(A)'s decision, noting that the requirements under Section 11(2) were met and that the revised Form No. 10 was validly filed before the completion of the assessment.

3. Set Apart/Accumulation of Income under Section 11(1)(a) of the Income Tax Act:

The Revenue also contested the CIT(A)'s allowance of 15% accumulation of income under Section 11(1)(a), arguing that the assessee failed to fulfill the conditions for accumulation under Section 11(2) and that the entire income should be assessed under Section 11(3).

The CIT(A) clarified that the provisions of Section 11(1) and Section 11(2) operate independently. The accumulation of 15% of income under Section 11(1)(a) does not require the same conditions as the accumulation under Section 11(2). The Tribunal agreed with the CIT(A)'s interpretation, emphasizing that the 15% accumulation is independent of the conditions under Section 11(2) and should be allowed. Consequently, the Tribunal dismissed the Revenue's grounds on this issue as well.

Conclusion:

The Tribunal dismissed both appeals by the Revenue, upholding the CIT(A)'s decisions to allow depreciation on capital assets, accumulation of income under Section 11(2), and the 15% accumulation of income under Section 11(1)(a). The judgments were pronounced in the open court on May 29, 2015.