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TMI Blog2015 (12) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.2. The learned Commissioner of Income-tax (Appeals) erred in not following the ratio laid down by the hon'ble apex court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 43 (SC)- wherein it is held that a double deduction cannot be presumed in the absence of a clear statutory indication. 2.3. The learned Commissioner of Income-tax (Appeals) failed to take cognizance of the fact that allowing of total cost of the asset as an application of income and allowing of depreciation on the value of such assets in the same year results in double deduction and is not admissible in the absence of clear statutory indication. 2.4. The learned Commissioner of Income-tax (Appeals) erred in not following the ratio laid down by the hon'ble Kerala High Court in the case of Lissie Medical Institutions v. CIT I. T. A. No. 42 of 2011 dated February 17, 2012 [2012] 348 ITR 344 (Ker) wherein it is held that in order to reflect the true income to be available for application for charitable purposes, the assessee should write back in the accounts the depreciation amount to form part of income to be accounted for applications for charitable purposes. 2.5. The learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al interpretative process. Gain on revaluation of investments 4.1. The learned Commissioner of Income-tax (Appeals) erred in not considering the fact that during the year the assessee has gained an amount of Rs. 71,46,120 on revaluation of investments which is credited to the income and expenditure account. 4.2. The learned Commissioner of Income-tax (Appeals) erred in not taking cognizance of the fact that the assessee cannot adopt dual method of valuation of investments, i.e., one for computing the income and expenditure account and other for arriving at the income for Income-tax purpose. 4.3. The learned Commissioner of Income-tax (Appeals) erred in not taking cognizance of the fact that in the assessment year 2001-02 the provision debited in the income and expenditure account was dis allowed, provision being not an allowable expenditure whereas the fact in the assessee's case for the year under consideration is that gain on revaluation of investments is accounted for in the books of account but reduced from the computation of income for Income-tax purpose. 5. For these and other grounds that may be urged at the time of hearing the orders of the Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by considering all the decisions which were relied upon by this Tribunal in the case of Asst. CIT v. Shri Adichunchanagiri Shikshana Trust [2012] 19 ITR (Trib) 828 (Bang). 8. The learned Departmental representative submitted that the hon'ble High Court has observed that when the expenditure incurred for acquisition of depreciable assets itself is treated as application of income for charitable purpose under section 11(1)(a) of the Income-tax Act, 1961 then, the cost of such asset should be treated as nil. 9. The learned Departmental representative has thus, contended that while the income of the trust has to be computed in the commercial sense and the capital expenditure was allowed as application of income for charitable purpose, then, the claim of depreciation on such expenditure is not permissible being a double deduction. 10. On the other hand, the learned authorised representative has submitted that the decision of the hon'ble Supreme Court in the case of Escorts Ltd. [1993] 199 ITR 43 (SC) is not applicable in case of a trust because the said decision was on the issue of allowability of claim of depreciation on an expenditure on which the claim under section 35 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure for acquiring of the asset would amount to double deduction when the assessee has already claimed the said capital expenditure as application of income. We find that in a series of other judgments including the judgments of the hon'ble Bombay High Court and the hon'ble Punjab and Haryana High Court as well as the other decisions as relied upon by the learned authorised representative, a contrary view has been taken by holding that the claim of depreciation on the capital expenditure would not amount to double deduction even if the said capital expenditure was claimed as deduction on account of application of income. Thus, it is clear that there are divergent views by different High Courts on this issue however, the judgment and rulings of the jurisdictional High Court is binding on this Tribunal. In the case of CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Karn) the hon'ble jurisdictional High Court while dealing with the issue of allowability of claim of depreciation has held as under (page 31) : "It is clear from the above provisions that the income derived from property held under trust cannot be the total income because section11( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod, the esti mated amount by which the capital invested in the asset has expired during that period. It is the provision made for the loss or expense incurred through using the asset for earning profits, and should, therefore, be charged against those profits as they are earned.' 'If depreciation is not provided for, the books will not contain a true record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against the profits ; having been purchased, the asset is, in effect, then hired by capital to revenue, and the true profit cannot be ascertained until a suitable charge for the use of the asset has been made. Moreover, unless provision is made for depreciation, the balance sheet will not present a true and fair view of the state of affairs ; assets should be shown at a figure which represents that part of their value on acquisition, which has not yet expired.' In CIT v. Indian Jute Mills Association [1982] 134 ITR 68 (Cal), the Calcutta High Court, while construing the expression 'expenditure incurred' in section 44A of the Act, observed : 'depreciation claimed shall include the expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word "income" should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent. of the latter, if the trust is to get the full benefit of the exemption under section 11(1).' In CIT v. Trustee of H. E. H. The Nizam's Supplemental Religious Endowment Trust [1981] 127 ITR 378 (AP), the Andhra Pradesh High Court has accepted the accounts maintained in respect of the trust in conformity with the principles of accountancy for the purpose of determining the income derived from the property held in trust. In CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad) at 495, the Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Appellate Tribunal, Bangalore Bench in the case of Deputy Director of Income-tax (Exemption) v. Cutchi Memon Union [2013] 60 SOT 260 (Bang-Trib), wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the Assessing Officer denied depreciation on the ground that at the time of acquir ing the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The Assessing Officer took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of the hon'ble Supreme Court in Escorts Ltd. [1993] 199 ITR 43 (SC). The Commissioner of Income-tax (Appeals), however, allowed the claim of the assessee. On further appeal by the Revenue, the Tribunal held as follows : '20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the Commissioner of Income-tax (Appeals) on the above issue does not call for any interference. 22. Consequently, ground No. 5 raised by the Revenue is dismissed.' 8. We may also add that the legal position has since been amended by a prospective amendment by the Finance (No. 2) Act, 2014 with effect from April 1, 2015 by insertion of sub-section (6) to section 11 of the Act, which reads as under : '(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.' 9. As already stated, the aforesaid amendment is prospective and will apply only from the assessment year 2015-16. In view of the above legal position, we are of the view that the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. Hence, even if the expenses for such purposes have been incurred in the earlier years and the said expenses are adjusted against the income of a subsequent year, the income of such subsequent year can be said to be applied for charitable or religious purposes in the year in which such adjustment takes place. In other words, the set-off of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to application of income of such later year. The above is the position of law as held in the case of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 (Raj) ; CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 293 (Guj). In CIT v. Institute of Banking [2003] 264 ITR 110 (Bom), it was held that in case of charitable trust whose income is exempt under section 11, excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment would be applica tion of income for subsequent years and that depreciation is allowable on the assets the cost of which has been full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t [2015] 42 ITR (Trib) 583 (Bang), we uphold the order of the Commissioner of Income-tax (Appeals) on this issue. 20. Ground No. 4 regarding gain on revaluation of investments treated as income of the assessee. During the course of assessment proceedings the Assessing Officer noted that the assessee has deducted a sum of Rs. 71,46,120 from its gross income. On query, the assessee explained that the gain on revaluation of investments as per the market value as on March 31, 2011, was accounted however, it was not actually realised. The assesse claimed that it is only a book adjustment and no real income was realised and hence, the same was reduced from the gross receipts. The Assessing Officer did not accept the explanation of the assessee and added back the said amount to the assessee's returned income. 21. On appeal, the Commissioner of Income-tax (Appeals) deleted the addition made by the Assessing Officer. 22. We have heard the learned Departmental representative as well as learned authorised representative and considered the relevant material on record. The learned authorised representative has relied upon the judgment of the hon'ble Supreme Court in case of Indo Rama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chartered Accountants of India which is in conformity with section 211 of the Companies Act. The said adjustment was primarily in the nature of contra adjustment in the profit and loss account and not a case of effective credit in the profit and loss account (as contemplated in clause (i) of Explanation). The credit in the profit and loss account implies that the profit and loss account per se has been effectively credited by the said amount. Thus, the amount withdrawn from any reserve must in effect impact the net profit as shown in the profit and loss account. As per the accounting principles, the contra adjustment does not at all affect any particular account to which it has been carried. Unless an adjustment has the effect of increasing the net profit as shown in the profit and loss account, that entry cannot be said to be a credit to the profit and loss account and, therefore, though the amount has been literally credited to the profit and loss account, however, in substance there is no credit to the profit and loss account. Minimum alternate tax provisions were introduced as number of zero tax companies had grown. It was found that companies had earned substantial book profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of the assessee were revalued in the earlier assessment year 2000-01 (i.e. financial year ending March 31, 2000) and amount of enhancement in valuation was Rs. 288,58,19,000 which was credited to the revaluation reserve. In other words, at the time of revaluation of assets, the said figure of Rs. 288,58,19,000 was added to the historical cost of assets on the asset side of the balance- sheet and in order to equalise both sides of the balance-sheet the revaluation reserve to that extent was created on the liability side. Thus, the figure of profit remained untouched so far as the revalua tion of assets to the tune of Rs. 288,58,19,000 is concerned. The profits were not increased by the said amount when the asset was revalued. During the assessment year in question, i.e., assessment year 2001- 02, an amount of Rs. 26,11,74,000, being the differential depreciation, was transferred out of the said revaluation reserve of Rs. 288,58,19,000 and credited to the profit and loss account which the Assessing Officer disallowed by placing reliance on the proviso to clause (i) of the Explanation to section 115JB(2). Consequently, the Assessing Officer added back the said amount of Rs. 26,11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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