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TMI Blog2017 (9) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... f the lower authorities and held that transport and hostel facilities surplus cannot be considered as business income of the assessee society which is mainly engaged in business activities and these activities are subservient to the main object of education of the trust. In the result 1 – 3 of the appeal of the assessee are allowed. Disallowance of depreciation on the assets which have already been claimed and allowed to the assessee as application of funds - Held that:- Allowance of depreciation on assets on assessee trust allowed. No double deduction. See DDIT versus Indraprastha Cancer Society [2014 (11) TMI 733 - DELHI HIGH COURT] - Decided in favour of assessee. - ITA No. 4639/Del/2015 - - - Dated:- 15-9-2017 - SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Ashwani Taneja, Adv For The Revenue : Shri Anshu Prakash, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)-Ghaziabad dated 29.05.2015 for the Assessment Year 2011-12. 2. The assessee has raised the following grounds of appeal:- 1. That on the facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undred percent application of the value of capital expenditure in the year of investment thereby inviting disallowance of the depreciation on such capital expenditure quoting double deduction. During the course of assessment proceedings, the Society s council has submitted details of Gross Income and its Application of income of relevant year and preceeding five years to justify that addition in Fixed Assets could not be utilized as application of income in past years due to excess utilization in past years, hence the same could not be termed as double claim of depreciation. Hence the disallowance of the depreciation is not only unjustified but it is illegal and bad in the eyes of law. 3. Assessee society is running and engineering college it is registered with registrar of societies as well as under section 12AA of the income tax act. Assessee filed its return of income declaring nil income. Assessee s case was picked up for scrutiny and it was noted by the Ld. assessing officer that assessee is apart from educational activities also provide hostel and transport facilities to the students in its college. After seeking the explanation of the assessee, the Ld. AO was of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the finding of the Ld. assessing officer. However, he allowed relief to the assessee with respect to the expenditure of ₹ 1 204120/-. Therefore, assessee being aggrieved with the order of the Ld. CIT A is in appeal before us. 7. Ld. authorized representative vehemently submitted hostel activities are subservient to the main object of the education carried on by the assessee and therefore it cannot be said to be business income. He relied upon following decisions to support his contentions:- a. CIT versus Karnataka Lingayata education society ITA No. 5, 0, 04/2012 dated 15/10/2014 of Karnataka High Court b. Dr KN Modi Institute of pharmaceutical educational and research trust versus JCIT ITA No. 4232/del/2015 dated 26/04/2017 c. Surajmal Memorial education society versus CIT, ITA No. 2136/del/2016 dated 30/05/2016 d. DDIT (exemption) versus the young woman, Christian Association of India ITA number 02/04/2008/del/2013 dated 29 to 2016 e. IT (exemption) versus Suhasini charitable trust, Swami Narayanan Akshardham temple ITA No. 4330/del/2012 dated 17/03/2016 f. DIT (exemption) versus Lala Lajpatrai Memorial trust ITA number 02/03/2007/2013 dated 13/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the society. We are also supported by our view by the decision of the Hon ble Allahabad High Court in IIT versus state of UP, (1976) 38 STC 428 (All) wherein question arose in Indian Institute of Technology v. State of U.P. (1976) 38 STC 428 (All) with respect to the visitors' hostel maintained by the Indian Institute of Technology where lodging and boarding facilities were provided to persons who would come to the Institute in connection with education and the academic activities of the Institute. It was observed that the statutory obligation of maintenance of the hostel, which involved supply, and sale of food was an integral part of the objects of the Institute nor could the running of the hostel be treated as the principal activity of the Institute. The Institute could not be held to be doing business. Further meals being supplied in a hostel to the scholars, visitors, guest faculty etc. can not be exigible to sales tax where main activity is academics as held in Scholars home Senior Secondary School 42 VST 530. Further, the reliance placed by the lower authorities on the decision of the Hon ble Madras High Court in case of DCIT versus Wellington charitable trust is also m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to commercial accountancy, when computing business income . Reliance placed by the Revenue on the decision of the Supreme Court in Escorts Limited versus Union of India, ( 1993 ) 199 ITR 43 ( SC ) , was dispelled and distinguished . In Escorts Limited ( supra ) the claim for depreciation under Section 32 of the Act was denied as the entire expenditure on the capital asset had been allowed under Section 35 ( 2 )( iv ) of the Act while computing business profit and loss . Secondly, the Supreme Court was not concerned with the case of a charitable trust / institution, and the question as to whether income under the head profits and gains of business should be computed on commercial principles in order to determine the amount of income available for application for charitable purposes . Decisions of other High Courts in CIT versus Sheth Manilal Ranchhoddas Vishram Bhavan Trust, ( 1992 ) 198 ITR 598 ( Guj .) , CIT versus Raipur Pallottine Society, ( 1989 ) 180 ITR 579 ( MP ) , CIT versus Society of the Sisters of ST . Anne, ( 1984 ) 146 ITR 28 ( Kar .) , CIT versus Trustee of H . E . H . the Niz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes of the trust or otherwise . It should be noted, in this connection, that the amounts so added back will become chargeable to tax u / s . 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 u / s . 11 ( 1 ). 4 . Accordingly, the appeal was dismissed after observing that no contrary judgment has been brought to the notice of this Court . 5 . The High Court of Kerala in Lissie Medical Institutions versus Commissioner of Income Tax, ( 2012 ) 348 ITR 344 ( Ker ) has taken a different view, inter alia, holding as under : 5 . It is settled position through several decisions of High Courts and Supreme Courts that when business is held in trust by charitable institutions income from business has to be computed by granting deductions provided u / s 30 to 43D as provided under S . 29 of the Income Tax Act . 6 . Senior counsel Sri . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 . 6 . Noticing the aforesaid judgment as well as circular / clarification dated 2nd Feb, 2012 issued by the Central Board of Direct Taxes, a Division Bench of this Court re - examined the entire issue in ITA No . 7 / 2013, Director of Income Tax ( Exemption ) versus Indian Trade Promotion Organisation, and other connected matters, decided on 27th November, 2013 . The said order records that the Bench was initially inclined to accept the submission made of the Revenue, but for several reasons mentioned and recorded, declined to interfere and refer the question / ratio accepted in Vishwa Jagriti Mission ( supra ) , to a larger bench . This Court referred to the following example to explain the controversy in question : 5 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the expenditure account of the trust . This contention appears to proceed on the assumption that the expenditure should necessarily involve actual delivery of or parting with the money . It seems to us that it need not necessarily be so . The expenditure should be understood as necessary outgoings . The depreciation is nothing but decrease in value of property through wear, deterioration or obsolescence and allowance is made for this purpose in book keeping, accountancy, etc . In Spicer Pegler's Book - keeping and Accounts, 17th Edn . , pp . 44, 45 46, it has been noted as follows : Depreciation is the exhaustion of the effective life of a fixed asset owing to ' use ' or obsolescence . It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use . The object of providing for depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective lifetime; the amount of the provision, made in respect of an accounting period, is intended to represent the proportion of such expenditure, which has expired during that period . At the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en incurred before it is actually disbursed . It is not in dispute that if the mercantile system is followed, the depreciation allowance in respect of the trust property should be allowed . xxxxxxxxxxxxxxxx The depreciation if it is not allowed as a necessary deduction for computing the income from the charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income . The Board also appears to have understood the income u / s . 11 ( 1 ) in its commercial sense . The relevant portion of the Circular No . 5 - P ( LXX - 6 ) of 1968, dated July 19, 1968, reads : Where the trust derives income from house property, interest on securities, capital gains, or other sources, the 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 u / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) was clear and lucid but conspicuously different from section 11 ( 1 ) of the Act . It has been observed in Indian Trade Promotion Organisation ( supra ) : 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 from property held under trust beyond 15 % of income from such property . If there is a violation of the said provision, proportionate income is deemed to be taxable and not exempt under Section 11 ( 1 ). The language of the Section is peculiar and proceeds on its own wording . This aspect has been highlighted and pointed out in the judgment of Commissioner of Income Tax vs . Society of The Sisters of St . Anne ( supra ). Decision in the case of Escorts Ltd . ( supra ) was considered by the Delhi High Court in DIT vs . Vishwa Jagriti Mission ( supra ) decided on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious 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 ) is a peculiar provision which postulates application of income and it is not dealing with expenditure as such . The legislative desire is that money should be applied for the purpose of charity . In Escorts Ltd .( supra ) , the Supreme Court had observed that they were conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 9 . To our mind, therefore, the issue has been examined in depth and detail twice and thus there is no error in the impugned orders passed by the Tribunal . However, learned counsel for the Revenue has drawn our attention to the decision dated 18th March, 2014 in ITA No . 322 - 323 / 2013 titled Director of Income Tax ( Exemption ) versus Charanjiv Charitable Trust, wherein it has been held : 30 . So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced . The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the CIT ( Appeals ) as well as the assessing officer . It was their view that allowing depreciation in respect of assets, the cost of which was earlier allowed as deduction as app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has already been allowed as application of income . We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets . 10 . The aforesaid paragraph refers to the decision in the case of Vishwa Jagriti Mission ( supra ) but ratio was distinguished on the ground that in the said case the Court was concerned with computation of income of a charitable trust / institution on commercial principles and if so whether depreciation on fixed assets used for charitable purposes should be allowed as a deduction . The consensus of judicial opinion on the said aspect was referred to . It is noticeable that in Charanjiv Charitable Trust ( supra ) it stands observed that the Tribunal overlooked the fact that the cost of asset had been allowed as a deduction and thereafter depreciation was being claimed . The said case, therefore, appears to be a peculiar one wherein deduction as expenditure and depreciation was being claimed simultaneously, while computing the taxable income under the head profits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as dismissed and as a sequitur the appeals will be treated as dismissed . 13. On this issue, Hon madras High court recently in DIT V M/s MEDICAL TRUST OF THE SEVENTH DAY ADVENTISTS [2017-TIOL-1665-HC-MAD-IT ] has held as under :- 2 . In so far as the issue is common across appeals, we set out below the question of law in T . C . A . No . 475 to 478 of 2011 as representative of the issue involved in all appeals :- ' ( a ) Whether on the facts and circumstances of the case, the Tribunal was right in allowing double deduction without considering the principles laid down in 199 ITR 43 ( SC ) ?' 3 . The issue before us relates to the grant of depreciation to an entity seeking exemption in terms of section 11 of the Income Tax Act . ( in short 'Act ) which deals with the assessment of Income from property held for charitable or religious purposes . The relevant parts of Section 11 read as follows :- 1 . ( 1 ) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income - ( a ) income d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss undertaking in the property held under trust and the determination of income therefrom . Sub Section 5 sets out the acceptable forms and modes of investment for the purposes of proper application . Sub - section 6, inserted by Finance II Act, 2014 with effect from 1 . 4 . 2015, states that the income to be determined for the purposes of application or accumulation shall not include a deduction or allowance by way of depreciation or otherwise in respect of any asset, the acquisition of which has been claimed as an application of an income under the provisions of section 11 in the same or any other previous year . The application of this sub - section retrospectively in regard to assessment years prior to 01 . 04 . 2015 is the subject matter of challenge in TCA . No . 949 of 2015 to which we shall advert presently . 5 . Section 11 was inserted in the Income Tax Act 1961 providing for an exemption in respect of income from property held under trust wholly for charitable and religious purposes . 'Charitable purposes is defined in terms of section 2 ( 15 ) of the Act to mean relief of the poor, education, medical relief and the adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended 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 s . 10 ( 2 )( vi ) and s . 10 ( 2 )( xiv ) under the 1922 Act or under s . 32 ( 1 )( ii ) and 35 ( 2 )( iv ) of the 1922 Act qua the same expenditure . ...... ..... '15 . For the reasons discussed above, we are of the view that, even before the 1980 - amendment, the Act did not permit a deduction for depreciation in respect of the cost of a capital asset acquired for purposes of scientific research to the extent such cost has been written off under S . 10 ( 2 ) ( xiv )/ 35 ( 1 ) ( 2 ). Prior to 1968, such assets qualified for an allowance of one - fifth of the cost of the asset in five previous years starting with that of its acquisition and during these years the assessee could not get any depreciation in relation thereto . In respect of assets acquired in previous year relevant to assessment year 1968 - 69 and thereafter, their cost was written off in the previous year of acquisition and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases where a full deduction has been allowed in relation to a capital asset under other sections ( as for example, section 35 which permits a deduction in respect of capital expenditure for scientific research ) , the tax payers have contended that such deduction is independent of the allowance by way of depreciation . In our view, the intention of the legislature is not to allow a double deduction ( of 20 %) in respect of the same asset, once under section 35 and, again, by way of depreciation under section 35 . If and to the extent that there is any anomaly or contrary view possible on a construction of section 35, we recommend that the law should be clarified to provide that no depreciation under section 35 shall be allowable in respect of capital expenditure for scientific research qualifying for deduction under section 35 . 11 . He would argue that that granting depreciation simultaneous with exemption under section 11 would result in a relief over and above 100 % of the income which was not permissible under statute . 12 . Our attention was drawn to the decision of the Kerala High Court in the case of Lissie Medical Institutions Vs . C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Vs . Institute of Banking Personnel Selection ( 2003 ) ( 264 ITR 110 ). A distinction was sought to be made between computation in terms of Section 2 ( 45 ) defining 'total income , and computation of 'income in terms of section 11 of the Act . Referring to the scheme of section 11, he would contend that the provisions thereof constituted a complete code which took into account the application of depreciation as a commercial principle and not necessarily one of accountancy . 14 . Mr . J . Balachander would refer to the decisions of the Kerala High Court in Catholic Diocese of Tiruvalla V . State of Kerala ( 209 ITR 596 ) and Andhra Pradesh High Court in CIT v . Trustee of H . E . H . Nizamm's Supplemental Religious Endowment Trust ( 127 ITR 378 ) , in support of his submission that commercial principles of accounting are to be applied in computing income for the purposes of section 11 . He would refer to the Accounting Standards issued by the Institute of Chartered Accountants of India ( in short ICAI ) to the effect that depreciation was a mandatory charge in the computation of income of a Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply to those activities which are not of commercial, industrial or business nature, ( e . g . , an activity of collecting donations and giving them to flood affected people .) It is also clarified that exclusion of an entity from the applicability of the Accounting Standards would be permissible only if no part of the activity of such entity was commercial, industrial or business in nature . For the removal of doubts, it is clarified that even if a very small proportion of the activities of an entity was considered to be commercial, industrial or business in nature, then it could not claim exemption from the application of Accounting Standards . The Accounting Standards would apply to all its activities including those which were not commercial, industrial or business in nature . 18 . This was clarified by the 'Technical Guide on Internal Audit for not - forprofit organizations issued by the Internal Audit Standards Board of the ICAI recommending that the Accounting Standards setting out wholesome principles of accounting including depreciation should be followed by all non - profit organisations irrespective of whether any part of their activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the total receipts net of expenditure and depreciation incurred in earning the receipts, and secondly the stage of application to Charitable / Religious objects . The two stages are distinct and are required to be complied with consecutively in order to determine the correct income and its application . 23 . The question before the Supreme Court in the matter of Escorts related to duel claims under section 35 of the Act in relation to the same asset the first, weighted deduction and the second, depreciation . Thus, two benefits were extended in respect of the very same asset . We are faced with an entirely different and distinct position in the present batch of appeals one that involves a claim for exemption in respect of income earned from property held for charitable or religious purposes . We see no double benefit that is extended to the assessee in this regard . 24 . Truth to tell, this Court in the matter of Calavala Cunnan Charities, has decided the question now under consideration in favour of the assessee and we could well have decided this Batch of appeals simply on the strength of the aforesaid decision . We are however persuade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and against the revenue . TCA . No . 949 of 2015 28 . T . C . A . No . 949 of 2015 has been filed by the assessee raising the following two substantial questions of law . '1 . Whether on the facts and circumstances of the case, the Tribunal was right in disallowing the claim of depreciation on assets acquired by way of application of funds in the earlier years, contrary to judgments of several High Courts? 2 . Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the excess application of the earlier year could not be set off against the income of the current year contrary to the judgment of this Honourable Court in the case of Matriseva Trust ( 2000 ) 242 ITR 20 ( Mad ) ? 29 . Learned senior counsel appearing for M / s . St . Thomas Orthodox Syrian Cathedral Parish Trust, the assessee, Mrs . Pushya Sitaraman would contend that the excess application of earlier years was liable to set off against the income of the current year and relied on the decision of the jurisdictional High Court in the case of Commissioner of Income Tax Vs . Matriseva Trust ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore completion of assessment, whichever is earlier . The amendment is intended to confer a benefit on an assessee and the retrospective application thereof has to be examined by the assessing authority . We remand this issue to the file of the assessing authority for the limited purpose of examining the applicability of the amendment extracted above . If the amendment is found applicable to the assessee, the rationale of the decision of this Court in Matriseva ( supra ) shall be applied on merits . 33 . Adverting to question No . 1, the Tribunal has, in denying the benefit of depreciation to the assessee, applied the provisions of sub section 6 of section 11 reading as follows; ' ( 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 . .... 34 . The short point that arises for decision is whether the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility has undesirable effects on the objects of the regulations and leads to litigation . . .. 7 . 6 Applicability . - These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015 - 2016 and subsequent assessment years . 35 . Para 7 . 6 of the Circular states that the amendment would apply to assessment year 2015 - 16 and subsequent assessment years . Reliance was placed on the judgment of the Supreme Court in CIT Vs . Alom Extrusions Ltd ( 2009 ) and CIT vs Vatika Township ( 367 ITR 466 ) = 2014 - TIOL - 78 - SC - IT - CB for the proposition that an amendment that increases the liability of an assessee is liable to be applied only prospectively . Mr . Narayanaswamy would object stating that the amendment had been inserted to a correct an existing anomaly and thus was clearly clarificatory, and consequently retrospective in operation . 36 . We do not agree with the Revenue . The amendment, inserted specifically with effect from Assessment Year 2015 - 2016 seeks to disturb a vested right that has accrued to the assesee . The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of providing hostel facilities to the students. The above issue is no more res Integra in view of the decision of the Hon ble Karnataka High Court in CIT versus Karnataka lingayat education society in ITA No. 5004/2012 dated 15/10/2014 wherein it has been held that providing hostel to the students/staff working for the society s incidental to achieve the object of providing education, namely the object of the society. In view of this we are of the opinion that providing of hostel facilities and transport facilities to the student and staff member of the educational Institute cannot be considered as business activity but is subservient to the object of educational activities performed by the society. We are also supported by our view by the decision of the Hon ble Allahabad High Court in IIT versus state of UP, (1976) 38 STC 428 (All) wherein question arose in Indian Institute of Technology v. State of U.P. (1976) 38 STC 428 (All) with respect to the visitors' hostel maintained by the Indian Institute of Technology where lodging and boarding facilities were provided to persons who would come to the Institute in connection with education and the academic activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present appeals is whether a charitable institution, which has purchased capital assets and treated the amount spent Director Of Income Tax ... vs M/S Indraprastha Cancer Society on 18 November, 2014 Indian Kanoon - http://indiankanoon.org/doc/138934819/ 1 on purchase of the capital asset as application of income, is entitled to claim depreciation on the same capital asset utilised for business. Revenue submits that this would amount to double deduction. 3. This High Court in Director of Income Tax versus Vishwa Jagriti Mission (2013) 262 CTR 558 has held that the claim for depreciation should be allowed as per principles relating to commercial accountancy, when computing business income. Reliance placed by the Revenue on the decision of the Supreme Court in Escorts Limited versus Union of India, (1993) 199 ITR 43 (SC), was dispelled and distinguished. In Escorts Limited (supra) the claim for depreciation under Section 32 of the Act was denied as the entire expenditure on the capital asset had been allowed under Section 35(2)(iv) of the Act while computing business profit and loss. Secondly, the Supreme Court was not concerned with the case of a charitable trust/institution, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The circular is as under: Where the trust derives income from house property, interest on securities, capital gains, or other sources, the 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 u/s. 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 u/s. 11(1). 4. Accordingly, the appeal was dismissed after observing that no contrary judgment has been brought to the notice of this Court. 5. The High Court of Kerala in Lissie Medical Institutions versus Commissioner of Income Tax, (2012) 348 ITR 344 (Ker) has taken a different view, inter alia, holding as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions like depreciation, if claimed as deduction while computing the income of the 'the property held under trust' under the relevant head 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 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. 6. Noticing the aforesaid judgment as well as circular/clarification dated 2nd Feb, 2012 issued by the Central Board of Direct Taxes, a Division Bench of this Court re-examined the entire issue in ITA No. 7/2013, Director of Income Tax (Exemption) versus Indian Trade Promotion Organisation, and other connected matters, decided on 27th November, 2013. The said order records that the Bench was initially inclined to accept the submission made of the Revenue, but for several reasons mentioned and recorded, declined to interfere and refer the question/ ratio accepted in Vishwa J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be debited to the expenditure account of the trust. This contention appears to proceed on the assumption that the expenditure should necessarily involve actual delivery of or parting with the money. It seems to us that it need not necessarily be so. The expenditure should be understood as necessary outgoings. The depreciation is nothing but decrease in value of property through wear, deterioration or obsolescence and allowance is made for this purpose in book keeping, accountancy, etc. In Spicer Pegler's Book-keeping and Accounts, 17th Edn., pp. 44, 45 46, it has been noted as follows : Depreciation is the exhaustion of the effective life of a fixed asset owing to ' use ' or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective lifetime; the amount of the provision, made in respect of an accounting period, is intended to represent the proportion of such expenditure, which has expired during that period. At the end of its effective life, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation allowance in respect of the trust property should be allowed. xxxxxxxxxxxxxxxx The depreciation if it is not allowed as a necessary deduction for computing the income from the charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The Board also appears to have understood the income u/s. 11(1) in its commercial sense. The relevant portion of the Circular No. 5-P (LXX-6) of 1968, dated July 19, 1968, reads: Where the trust derives income from house property, interest on securities, capital gains, or other sources, the 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 u/s. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 from property held under trust beyond 15% of income from such property. If there is a violation of the said provision, proportionate income is deemed to be taxable and not exempt under Section 11(1). The language of the Section is peculiar and proceeds on its own wording. This aspect has been highlighted and pointed out in the judgment of Commissioner of Income Tax vs. Society of The Sisters of St. Anne (supra). Decision in the case of Escorts Ltd. (supra) was considered by the Delhi High Court in DIT vs. Vishwa Jagriti Mission (supra) decided on 29th March, 2012 and was distinguished for the following reasons. 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 quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided 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) is a peculiar provision which postulates application of income and it is not dealing with expenditure as such. The legislative desire is that money should be applied for the purpose of charity. In Escorts Ltd.(supra), the Supreme Court had observed that they were concerned with expenditure and since the entire costs of the capital assets had been allowed and had been set off against the business profit in five years or in one previous year, it was unconceivable that the depreciation should be allowed again on the same asset. 8. Decisions of other High Courts in Commissioner of Income Tax versus Tiny Tots Education Society, (2011) 330 ITR 21 (P H) and Commissioner of Income Tax versus Institute of Banking, (2003) 264 ITR 110 (Bom.) in which the ratio as expounded in the case of Vishwa Jagriti Mission (supra) was accepted and affirmed, were noticed. Referring to the decision of the Kerala High Court in Lissie Medical Institutions (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be countenanced. The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the CIT (Appeals) as well as the assessing officer. It was their view that allowing depreciation in respect of assets, the cost of which was earlier allowed as deduction as application of income of the trust, would actually amount to double deduction on the basis of the ruling of the Supreme Court in Escorts Ltd. vs. UOI (supra). In respect of the additions to the fixed assets made during the previous year relevant to the assessment year 2006-07, the CIT (Appeals) held that since the cost of the assets was not allowed as a deduction by way of application of income, depreciation should be allow. The CIT (Appeals) has thus made a distinction between assets the cost of which was allowed as deduction as application of income and assets, the cost of which was not so allowed. The Tribunal has not kept this distinction in view, but has proceeded to rely upon a judgment of this Court in DIT vs. Vishwa Jagrati Mission (supra). In the judgment of this Court the question was whether the income of the assessee, which was a charitable trust, shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, appears to be a peculiar one wherein deduction as expenditure and depreciation was being claimed simultaneously, while computing the taxable income under the head profits and gains from business . The said decision dated 18th March, 2014 does not refer to the decision in Indian Trade Promotion Organisation (supra) which was decided on 27th November, 2013. The judgment in the case of Indian Trade Promotion Organisation (supra) was not cited and referred to. The judgment in the case of Charanjiv Charitable Trust (supra) is authored by the same Judge, who has also authored the decision in the case of Vishwa Jagriti Mission (supra). It is obvious that in Charanjiv Charitable Trust (supra), the Division Bench could not have taken a different view on the legal ratio as interpreted in Vishwa Jagriti Mission (supra). Further, the decisions in the case of Vishwa Jagriti Mission and Indian Trade Promotion Organisation (supra) being prior in point of time would act as binding precedents and could not have been overruled or dissented from by a coordinate Division Bench. 11. By Finance (No. 2) Act of 2014, sub-section (6) to Section 11 stands inserted with effect from 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; ....... ....... (4) For the purposes of this section property held under trust includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit to entities engaging in activity of a specified nature. In the present batch of appeals there is no dispute in this regard. 6. We have heard Mr.J.Narayanaswamy appearing on behalf of the Revenue and several counsels appearing on behalf of the assesses and set out in brief the submissions advanced. 7. Mr. J.Narayanaswamy would contend that the provisions of section 32 granting depreciation have not been made specifically applicable to section 11. According to him, the provisions of Section 11 extend a benefit to an assessee by way of exemption and granting depreciation in addition would amount to a double benefit that has to be specifically conferred. He would rely on the judgment of the Supreme Court in the case of Escorts Limited and another Vs. Union of India and others (SC) (1999 ITR 43) which deals with the grant of depreciation to an assessee also claiming weighted deduction under section 35(1) of the Act in respect of expenditure incurred on scientific research. 8. The provision, as it originally stood, placed no restriction on the claim of weighted deduction simultaneous with the claim of depreciation. While this is so, it was felt that such double claim wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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.' 10. Reliance was placed by Mr. Narayanaswamy on paragraph 7 of the judgment that reads as follows:- 'I find it difficult to agree with the reasoning of the assessees. Acceding to it would amount to placing an unreasonable interpretation upon the relevant provisions and to negating the intention of Parliament. I find it difficult to agree that the Indian Legislature - as also the Parliament made a conscious departure from the English Amendment with the idea of providing an additional benefit to induce the Indian assessees to invest more in scientific research. I find the argument rather convoluted. If the intention of the Legislature/Parliament was to provide more than 100% deduction, they would have said so, as they have done in cases where they provided for what is called weighted deduction'. (For example, See section 35(B) of 1961 Act). A double deduction cannot be a matter of inference, it must be provided for in clear and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of charitable trust also has to be computed in the same manner as provided u/s 29 of the Income Tax Act. However, the issue that requires consideration is when the expenditure incurred for acquisition of depreciable assets itself is treated as application of income for charitable purposes u/s 11(1)(a) of the Act, should not the cost of such assets to be treated as nil for the assessee and in that situation depreciation to be granted turns out to be nil. However, if depreciation provided is claimed on notional cost after the assessee claims 100% of the cost incurred for it as application of income for charitable purposes, the depreciation so claimed has to be written back as income available. In fact, going by the several decisions of the various High Courts, we are sure that based on these decisions all the charitable institutions will be generating unaccounted income equal to the depreciation amount claimed on an year to year basis which is nothing but black money. This aspect is not seen considered in any of these decisions.' 13. The contentions of the learned counsels for the assessees are as follows: ( i) Mr. Sridhar would state that in computing the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the orders of the Income Tax Appellate Tribunal in the same assessee's case for the previous years on the identical issue, had considered the judgment of the Supreme Court in Escorts and had distinguished the same. The aforesaid orders of the Tribunal dated 25.03.2011 have attained finality. Thus, while adopting the arguments of other counsels, he would add that the principle of consistency stood violated in his case. 17. Mr.N.V.Balaji, would address us specifically on Accounting Standard 6 dealing with Depreciation Accounting issued by the Institute of Chartered Accountants of India and made mandatory on or after 1.4.1995 in the following terms: 'The reference to commercial, industrial or business enterprises in the aforesaid paragraph is in the context of the nature of activities carried on by the enterprise rather than with reference to its objects. It is quite possible that an enterprise has charitable objects but it carries on, either wholly or in part, activities of a commercial, industrial or business nature in furtherance of its objects. The Board believes that Accounting Standards apply in respect of commercial, industrial or business activities of any ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by which the capital investment has expired during that period. This provision, incurred for the use of that asset for the purpose of earned profit should be charged against those profits as and when earned. Spicer, and Pegler, at page 45, states as follows:- '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 an analogous 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, since the assets will be shown at an amount which is in excess of the true amount of the unexpired expenditure incurred on their acquisition.' 22. The claim of depreciation is thus part of standard accounting practice which is required for fair presentation of a company's financials. The computation of income in the case of an entity to which section 11 is applicable would be in two sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avan Trust 198 ITR 598 = 2003-TIOL-944-HC-AHM-IT ; Punjab and Haryana High court in CIT Vs. Market Committee Pipli (330 ITR 16) and C IT Vs. Tiny Tots Education Society (330 ITR 21) = 2010-TIOL-550-HC-P H-IT ; Madhyapradesh High Court in CIT Vs. Devi Sakuntala Tharal Charitable Foundation (358 ITR 452) and t he Calcutta High Court in CIT Vs. Silluguri Regulated Market Committee (366 ITR 51). In addition, the Delhi High Court in DIT Vs. Vishwa Jagriti Mission 262 CTR 558 = 2012-TIOL-271-HC-DEL-IT and the Karnnataka High Court in DIT (Exem) Vs Al-Ameen Charitable Fund Trust (2016) 67 taxmann.com 160 = 2016-TIOL-463-HC-KAR-IT have accepted the claim of the assessee distinguishing both the judgment of the Supreme Court in Escorts as well as that of the Kerala High Court. 27.In view of the discussion above, the question of law is answered in favour of the assessee and against the revenue. TCA.No.949 of 2015 28. T.C.A.No.949 of 2015 has been filed by the assessee raising the following two substantial questions of law. '1. Whether on the facts and circumstances of the case, the Tribunal was right in disallowing the claim of depreciation on assets acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year form the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.' 32. The import of the above amendment is that a return may be revised both in cases of original returns filed under sub section (1) or under sub section (4) within the extended period of one year from the end of the relevant assessment year or before completion of assessment, whichever is earlier. The amendment is intended to confer a benefit on an assessee and the retrospective application thereof has to be examined by the assessing authority. We remand this issue to the file of the assessing authority for the limited purpose of examining the applicability of the amendment extracted above. If the amendment is found applicable to the assessee, the rationale of the decision of this Court in Matriseva (supra) shall be applied on merits. 33. Adverting to question No.1, the Tribunal has, in denying the benefit of depreciation to the assessee, applied the provisions of sub sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions governing institutions which are being given benefit of tax exemption. It is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibility has undesirable effects on the objects of the regulations and leads to litigation. . .. 7.6 Applicability. - These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-2016 and subsequent assessment years. 35. Para 7.6 of the Circular states that the amendment would apply to assessment year 2015-16 and subsequent assessment years. Reliance was placed on the judgment of the Supreme Court in CIT Vs. Alom Extrusions Ltd (2009) and CIT vs Vatika Township (367 ITR 466) = 2014-TIOL-78-SC-IT-CB for the proposition that an amendment that increases the liability of an assessee is liable to be applied only prospectively. Mr. Narayanaswamy would object stating that the amendment had been inserted to a correct an existing anomaly and thus was clearly c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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