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TMI Blog2011 (12) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee read as follows:- "1. That the impugned appellate order passed by the ld. CIT (Appeals) is bad in law and wrong on facts; 2. That the findings of the ld. CIT (Appeals) are based on conjectures, surmises, are perverse of unreasonable and are vitiated in law; 3. That on the facts and in the circumstances of the case, the ld. CIT (Appeals) has erred in law in upholding the action of the assessing officer in treating Rs. 2,30,00,000/- as taxable income under section 11(3) of the Income Tax Act, 1961; 4. That the CIT (Appeals) has grossly erred in law that the same income or funds are required to be applied which were accumulated after holding that application of FIFO method is not applicable. The findings of the CIT(A) are self-contradictory; 5. That on the facts and in the circumstances of the case, the ld. CIT (Appeals) has erred in law in upholding the action of the assessing officer in not allowing depreciation on fixed assets amounting to Rs. 16,03,236/-. " 3. The first issue for consideration relates to upholding the action of the assessing officer in treating Rs. 2,30,00,000/- as taxable income under section 11(3) of the Income Tax Act, 1961 [h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was required to invest funds accumulated in specified securities. The accumulation was apparently kept in deposit account in bank as on 31st March, 2002, which was evident from schedule D of the balance sheet for assessment year 2002-03, which showed balance in deposit account amounting to Rs. 6,64,25,761/-. The assessing officer, therefore, concluded that the assessee had invested excess funds in bank deposits, which indicated that accumulated funds could be identified with the particular deposits made out of those funds. The quantum of deposit only went on increasing in subsequent years. The computation of income filed by the assessee for assessment years 2003-04, 2004-05 and 2005-06 never mentioned the particular year whose accumulation were utilized for purchase of assets. The assessee was required to establish the co-relation. However, no such explanation with documentary evidence was submitted. The assessing officer on the basis of the above facts noted that the assessee was accumulating funds under section 11(2) regularly. The funds accumulated earlier were utilized for expenditure. In the absence of documentary evidence to the contrary, which could only be made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee was asked to establish by cash-flow that the funds which were accumulated in financial year 2001-02 had been spent as specified in form No. 10. Since the assessee had requested for accumulation till 31st March, 2007 it was mandatory on the part of the assessee to spend this amount as stated in form No. 10. However, the assessee could not establish by cash flow statement that the income accumulated in assessment year 2002-03 had been utilized before 31st March, 2007. No evidence was filed to support the contention of the assessee. The ld. CIT (Appeals), therefore, upheld the addition of Rs. 2,30,00,000/- made by the assessing officer. 5. Before us the ld. AR of the assessee submitted that the assessee had accumulated income of Rs. 2,30,00,000/- under section 11(2) of the Act for a period of five years i.e. from 1/04/2002 to 31st March, 2007. Therefore, no addition can be made in assessment year 2007-08. Under section 11(3), if any income accumulated in section 11(2) is applied for the purpose other than charitable or religious purposes or ceased to be accumulate or set apart for application thereto or ceases to remain invested or deposited in any of the forms or mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable, we feel it proper to set aside the issue to the file of the assessing officer with the directions to examine the accumulation of income from financial year 1996-97 to 31st March, 2002 during which an amount of Rs. 7,29,28,867/- has been accumulated. The assessing officer is directed to identify the amount spent during the financial year 20-02-03 to 2005-06 whether it has been spent or applied out of income accumulated during financial year 2001-02 or out of earlier accumulations. The assessee is directed to provide the full details i.e. form No. 10, the details of forms or modes of investment of the funds so accumulated, the period of accumulation and as to how the accumulated funds were to be utilized. In case the assessee does not give details, the assessing officer will be free to decide the issue on merits after affording the assessee a reasonable opportunity of being heard. 7. The next issue for consideration relates to upholding the action of the AO in not allowing depreciation on fixed assets amounting to Rs. 16,03,236/-. The assessing officer noted that the assessee had regularly claimed application of surplus funds for the purpose of capital expenditure in earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded in the total income of the previous year of the person in receipt of the income. Under section 11(2) the trust or institution can accumulate income for specific purpose for a specific period subject to fulfillment of certain conditions prescribed under the law. The Legislature has employed the word 'applied' in section 11(1)(a). Hon'ble Supreme Court in the case of HEH Nizams Religious Endowment Trust v. CIT [1966] 59 ITR 582 held that the word 'applied' in the context of section 11 means the income is 'actually applied' for the charitable or religious purposes of the trust. In CIT v. Ramchandra Poddar Charitable Trust [1987] 164 ITR 666/[1986] 26 Taxman 512 (Cal.) the trust donated shares which were purchased in an earlier year out of accumulative profits. Hon'ble High Court held that such donation not related to income of the current year could not amount to application of income for the purposes of section 11. Therefore in view of decisions of Hon'ble Supreme Court and Calcutta High Court income of the current year 'actually applied' for charitable or religious purposes subject to fulfillment of other conditions will be exempt from Income Tax under section 11(1)(a) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and used for the purposes of business or profession. Therefore, the depreciation is allowable in the case where the assessee carries on the business or profession. Accordingly, the provisions of section 32 which have applicability to head of income in Chapter IV particularly profits and gains of business or profession, cannot be imported to Chapter III under which income which does not form part of total income is to be computed. Hon'ble Supreme Court in the case of Escorts Ltd. (supra) observed that there is a fundamental, though un-written, axiom that no Legislature could have at all intended a double deduction in regard to the same business out-going; and, if it is intended, it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions - both under section 10(2)(vi) and section 10(2)(xiv) of the 1922 Act or under section 32(1)(ii) and section 35(2)(iv) of the Act qua the same expenditure. 13.2 Under section 11(1)(a) of the Act when income is applied for acquisition of capital asset which is treated as applied , the claim of depreciation on same in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Escorts Ltd. (supra). The depreciation being notional expenditure will not fall under the expression 'actually applied' as held by Hon'ble Supreme Court in the case of HEH Nizam's Religious Endowment Trust (supra). Therefore, in our considered opinion, depreciation is not allowable in respect of an asset acquired by charitable institution where the cost of acquisition was treated as application of income. 14. However, Hon'ble Punjab Haryana High Court in the case of Tiny Tots Education Society (supra) has held that depreciation is allowable in the case of charitable institutions. Though, in our considered opinion, allowance of depreciation on an amount which was treated as application of income in the year in which capital asset was acquired is not permissible, but since Hon'ble Punjab and Haryana High Court has held that depreciation will be allowable in the case of charitable institutions and the decision of Hon'ble High Court in the absence of any contrary decision of jurisdictional High Court or Hon'ble Supreme Court on the issue, has to be followed by the Tribunal being lower in hierarchy. Respectfully following the decision of Hon'ble Punjab Haryana High Court ..... 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