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TMI Blog2013 (12) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... eing no error in the assessment order dated 5.12.2008 under section 143(3), the DIT erred in invoking section 263 of the Act. 2. Without prejudice, the Director of Income Tax (E) ought to have appreciated that without admitting the assessment order under section 143(3), may at best be an order prejudicial but that being not an erroneous order, the provisions of section 263 are not attracted and therefore the DIT's order is required to be set aside. 3. Without prejudice, the Director of Income Tax (E) ought to have appreciated that the appellant is a Trust; the surplus is not computed as business income; Secondly, the application of investments in the assets is allowed by virtue of section 11 of the Act; and to arrive at the realistic surp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that may be urged at the time of hearing, the appellant prays that the appeal may be allowed." 3. Briefly stated the facts are as follows:- The assessee is a trust. Return of income for Assessment Year 2006-07 was filed on 20.2.2007 declaring NIL income. The assessment was taken up for scrutiny by issuance of notice under section 143(2) of the Act. The assessment was completed under section 143(3) of the Act vide order dated 5/12/2008 accepting NIL income declared. Subsequently, the DIT (Exemptions) noticed that the assessee-trust had claimed capital expenditure of Rs.2,21,81,241/- and also depreciation on assets amounting to Rs.1,61,04,398/- as application of funds towards the objects of the trust. This, according to The Director of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. It was further contended that the Supreme Court decision relied on by The Director of Income-tax (Exemptions) is not applicable to the facts of the case, since in the case of the trust, the surplus is to be computed in the commercial sense i.e. as per the book income and not total income as defined in section 2(45) of the Act without reference to the heads of income specified in section 14 of the Act. 5. The Director of Income-tax (Exemptions) however objected the contentions/objections raised by the assessee-trust. The relevant finding of The Director of Income-tax (Exemptions) reads as follows:- " 5. In Para No.2 of its submission, the assessee contends that the surplus is required to be computed on commercial principles and deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved by the order of The Director of Income-tax (Exemptions) is in appeal before us. 7. The learned AR submitted that the issue in question is squarely covered by the judgement of the Hon'ble jurisdictional High Court in the case of (i) CIT v Society of the Sisters of St. Anne (1984) 146 ITR 28 (Kar); (ii) CIT v Institute of Banking (2003) 264 ITR 110 (Bom.) and (iii) The Director of Income-tax (Exemptions) v Framjee Cawasjee Institute (1993) 109 CTR (Bom) 463. 8. The learned DR on the other hand submitted that the recent order of the Cochin Bench of the Tribunal in the case of DDIT(E), Range -2, Ernakulam v Lissie Medical Institutions in ITA No.1010/Coch/2008 & Co. No.6/COch/2009 is directly on the issue. The Cochin Bench of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide for deducting depreciation to arrive at income. The income so arrived at (after deducting the depreciation) is to be applied for charitable purpose. Capital expense is application of the income so determined. The application of the income so determined cannot be stated to be a deduction to arrive at the income. The depreciation is to be deducted to determine the income under section 11 of the Act and it is not an application of income. Therefore, there is no double deduction as claimed by the DIT(E) in his order. 9.1 The controversy, according to us, is squarely covered by the judgment of the Hon'ble Bombay High Court in the case of CIT v Institute of Banking 264 ITR 110. The Hon'ble Bombay High Court was considering the following qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal and the appellate authority decided the matter in favour of assessee. The decision of the appellate authority was confirmed by the Tribunal. 9.3 On reference, the Bombay High Court held "that the Tribunal was right in law in directing the Assessing Officer to allow depreciation on the assets, the cost of which had been fully allowed as application of income under section 11 in the past years". 9.4 The Hon'ble jurisdictional High Court in the case of CIT v Society of the Sisters of St. Anne 146 ITR 26 had categorically held that the amount of depreciation debited to the accounts of a charitable institution is to be deducted to arrive at the available income for the purpose of application to charitable and religious purposes. The dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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