1981 (2) TMI 109 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of depreciation on assets owned by the assessee-trust.
2. Accumulation of surplus income u/s 11(2).
3. Treatment of grants from Government and local authorities as income.

Summary:

1. Allowance of Depreciation on Assets Owned by the Assessee-Trust:
The revenue challenged the Commissioner (Appeals)' decision to allow depreciation of Rs. 84,882 on the assets owned by the assessee-trust. The ITO had denied this claim on the grounds that the trust was not carrying on any business and had already received full deduction for capital expenditure on assets. The Commissioner (Appeals) allowed the depreciation, stating that income for the purpose of section 11 should be determined on commercial principles, which includes depreciation as a normal outgoing. The Tribunal upheld the Commissioner (Appeals)' decision, emphasizing that determination of income and application of income are distinct concepts, and depreciation should be allowed in computing the income of the trust.

2. Accumulation of Surplus Income u/s 11(2):
The revenue contended that the Commissioner (Appeals) erred in holding that the entire surplus of Rs. 6,82,241 could be accumulated u/s 11(2) when only Rs. 4,22,682 was actually invested from the current year's income. The ITO had determined the surplus by deducting the opening bank balance from the closing balance. The Commissioner (Appeals) found this approach incorrect, noting that the accumulation began from the assessment year 1974-75 and the entire surplus was deposited with a scheduled bank. The Tribunal agreed with the Commissioner (Appeals), stating that the ITO's basis for determining the surplus was erroneous and the entire surplus as per the audited statement qualified for deduction u/s 11(2).

3. Treatment of Grants from Government and Local Authorities as Income:
The assessee-trust argued that grants amounting to Rs. 10,50,311 should not be considered as income. The ITO treated the grants as income u/s 12, which deems all voluntary contributions as income derived from property held under trust. The assessee contended that grants-in-aid lacked the character of income and should not be included in the income determination. The Tribunal held that grants-in-aid must be treated as income, citing sections 12 and 2(24)(iia) which create a legal fiction treating such contributions as income. The Tribunal also noted that the grants were intended to meet the expenditure of the institution, thus forming part of the income for application purposes u/s 11(2).

Conclusion:
The Tribunal dismissed both the appeal by the revenue and the cross-objection by the assessee, upholding the decisions of the Commissioner (Appeals) on all issues.