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TMI Blog2012 (4) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... J. For Appellant: Mr. Abhishek Maratha, Sr.Standing counsel with Ms. Anshul Sharma, Advocate. R.V. EASWAR, J.: The respondent-assessee is a society registered under the Societies Registration Act, 1860 vide order in Regn. No. S-24228 dated 10th May, 1993. For the purposes of assessment to income tax it is assessed in the status of Association of persons . It had filed an application in Form No.10A on 21st December, 2005 for grant of registration under Section 12A of the Income Tax Act, 1961 ( Act‟ for short). Registration was applied for from the date of incorporation of the society. The application was, however, rejected by the Director of Income Tax (Exemption), Delhi vide order passed on 22nd August, 2006 under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose. Taking note of the submission, the Assessing Officer proceeded to compute the income of the assessee as it would be normally computed under the head profits and gains of business‟. He then referred to the provisions of Section 37(1) under which any expenditure incurred wholly and exclusively for the purpose of the business was allowed as a deduction in computing the profits and gains of the business. Since the assessee itself had admitted vide its letter dated 26th November, 2008 that no specific expenses were incurred for earning the income, the Assessing Officer was not in a position to allow any deduction on account of the expenses. However, accepting the position that some expenditure would have necessarily been incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be applied 102,644,155 Less: Amounts spent/applied towards charitable 65,442,711 Add : Amount spent for acquisition of fixed 59,245,036 Total amount spent/applied during the year 124,687,747 Restricted to available surplus 102,644,155 Taxable income NIL On the basis of the above working, it was claimed that the entire income was exempt under Section 11. In particular it was pointed out that the claim of depreciation has to be allowed since the income of the trust should be computed on the basis of commercial principles. In support of the claim, reliance was placed by the assessee on the following authorities:- 1) Commissioner of Income Tax v. Sheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income should be computed on commercial principles. There was no double deduction claimed by the assessee as can happen when a claim for deduction of capital expenditure is made under Section 35 and depreciation on the very same asset created by the expenditure is claimed under Section 32. In this view of the matter, he directed the Assessing Officer to allow the claim of depreciation. 10. The revenue preferred an appeal before the Tribunal and contended that the CIT(Appeals) was wrong in allowing the depreciation. The Tribunal referred to the fact that the decision of the CIT(Appeals) to allow the depreciation was based on several authorities including some orders of the Delhi Benches of the Tribunal and felt bound by those orders. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains of business or profession . Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The circular No.5-P (LXX-6) of 1968, dated July 19,1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under:- Where the trust derives income from house property, interest on securities, cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. 13. The judgment of the Supreme Court in Escorts Limited Vs. Union of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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