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TMI Blog2015 (8) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... would be required. This may be impractical and would disturb the working of many a charitable institutions. The legal interpretation which has continued since 1984, if disturbed and implemented, would not appropriately resolved. Consistency and certainty is more appropriate. Decision in the case of Escorts Ltd. (supra) was considered by the Delhi High Court in DIT vs. Vishwa Jagriti Mission [2012 (4) TMI 289 - DELHI HIGH COURT] decided on 29th March, 2012 and was distinguished. The equally plausible and consistent interpretation of clause (a) of Section 11(1) of the Act is that income derived from property must be calculated as per the principles of the Act. The said clause is not a computation provision and does not disturb the income earned or available but postulates that the income as computed in accordance with the provisions of the Act to the extent of 86% must be applied. Application of income may include purchase of a capital asset. The said purchase is valid and taken into consideration for the purpose of ensuring compliance, i.e., application of money or funds and is not a factor which determines and decides the quantum of income derived from property held under tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the financial year itself and they should not carry forward the funds beyond 15%. Accordingly, if an assessee had acquired an asset and price paid was treated as application of income and had also claimed the said amount as expenditure in its income expenditure account, depreciation on the asset should not be allowable as application of income under Section 11(1)(a) of the Act. 4. Revenue relies upon decision of the Kerala High Court in Lissie Medical Institution vs. CIT (2012) 348 ITR 344 (Ker). The said decision, no doubt, supports the proposition propounded by the Revenue and we would like to reproduce the following observations:- 5. Senior counsel, Sri A. K. J. Nambiar, appearing for the assessee, submitted that the assessee has been filing income-tax returns for several years including the assessment year 2005-06, and disallowance is made only for this year. Since business income has to be as stated in section 29 by granting all deductions provided under sections 30 to 43D which includes depreciation under section 32, the assessee is entitled is the case pressed before us by the senior counsel appearing for the assessee. We have no doubt in our mind that business incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income for charitable purposes and over and above if depreciation is claimed on such assets, so much of the depreciation allowed will generate income outside the books of account and unless the depreciation is simultaneously written back by the assessee as income available for application for charitable purposes in the next year, there will be violation of section 11(1)(a) of the Act. We find that the hon'ble Supreme Court has clearly stated this position, though not in the same context. In the decision in Escorts Ltd. v. Union of India [1993] 199 ITR 43 (SC) relied on by the Tribunal wherein the hon'ble Supreme Court states as follows (page 60) : The mere fact that a baseless claim was raised by some over enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier. For the forgoing reasons, we dispose of the appeal by confirming the order of the Tribunal. However, as rightly pointed out by the counsel for the assessee the system of allowing depreciation was followed by the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of this Court in DIT vs. Vishwa Jagriti Mission, ITA No.140/2012 (Del.). 7. The controversy in question is not new and has been subject matter of judicial opinion and decisions from 1984. In the said year Karnataka High Court in Commissioner of Income Tax vs. Society of The Sisters of St. Anne 146 ITR 28 (Kar) had after referring to the provisions in question, held:- It is clear from the above provisions that the income derived from property held under trust cannot be the total income because s. 11(1) says that the former shall not be included in the latter, of the person in receipt of the income. The expression total income has been defined under s. 2(45) of the Act to mean the total amount of income referred to in s. 5 computed in the manner laid down in this Act . The word income is defined under s. 2(24) of the Act to include profits and gains, dividends, voluntary payment received by trust, etc. It may be noted that profits and gains are generally used in terms of business or profession as provided u/s. 28. The word income , therefore, is a much wider term than the expression ,profits and gains of business or profession . Net receipt afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce-sheet will not present a true and fair view of the state of affairs ; assets should be shown at a figure which represent that part of their value on acquisition, which has not yet expired. In CIT v Indian Jute Mills Association [1982] 134 ITR 68, the Calcutta High Court, while constructing the expression expenditure incurred in s. 44A of the Act, observed : depreciation claimed shall include the expenditure incurred. There are only two recognised methods of accounting : (1) cash basis, and (ii) mercantile basis. Under the cash basis only cash transactions are recorded. It is only cash receipts and cash paymentswhich find entries in the books of account. Mercantile system of accounting was explained by the Supreme Court in Keshav Mills Ltd. v. CIT [1953]23 ITR 230 at 230 in the following words : The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead of income, is required to be added back while computing the income for the purpose of application in the income expenditure account. This would imply that a correct figure of surplus from the trust property is reflected in the Income and Expenditure account of the trust to determine the income for the purpose of application under section 11 of the Income Tax Act. This would reduce the possibility of revenue leakage which may be a cause for generation of black money.? 10. We also note that the Kerala High Court, in fact, has noted the clarifications which were earlier issued by the Board in respect of 1968 circular. It is clear from the reasoning given by the Kerala High Court that they have not gone by the express language of Section 11(a) and have purposively interpreted the provision. 11. Clause a of Section 11(1) stipulates that income derived from property held under trust wholly for charitable or religious purposes is to be applied for such purposes in India and where such income is set aside or accumulated, it should not be in excess of 15% of the income from such property. Thus, there is an embargo and probation from accumulating or setting apart income derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............................. (b)......................................................... (c) Where a deduction allowed for any previous year under this sub- section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under [clause (ii) of sub-section (1)] of section 32 for the same or any subsequent previous year.? 13. The language of the sub-clause c to Section 35(2B) is conspicuous and entirely different and wordings are clear and lucid. The language of Section 11(1), as noticed above, is distinguished and not worded in a similar manner. In Escorts Ltd. (supra), the Supreme Court was considering the said specific provision and the wordings therein. While dealing with the term expenditure and noticing the language it was held that no duplication or double deduction should be allowed towards depreciation in the same or subsequent year. Thus, the issue was decided against the assessee. Language of Explanation 1 to Section 43(1) can also be referred to and we notice that the language of the said explanation is absolutely different from the language used in Clause (a) to Section 11(1). Section 11(1)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a) of Section 11(1) of the Act is that income derived from property must be calculated as per the principles of the Act. The said clause is not a computation provision and does not disturb the income earned or available but postulates that the income as computed in accordance with the provisions of the Act to the extent of 86% must be applied. Application of income may include purchase of a capital asset. The said purchase is valid and taken into consideration for the purpose of ensuring compliance, i.e., application of money or funds and is not a factor which determines and decides the quantum of income derived from property held under trust. Computation of income is separate and distinct and has to be made on commercial basis by applying provisions of the Act. 17. In ITA No. 336/2013 Director of Income Tax (Exemption) Vs. M/s. International Goudiya Vedanta Trust, Revenue has raised an additional question relating to subscription of ₹ 2400/- received from the members. The Tribunal held that the subscription should be treated as a part of the corpus. Keeping in view the small amount involved, we are not inclined to decide this controversy in the present appeal and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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