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TMI Blog2018 (3) TMI 1520X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of computation of accumulation of income of 15% u/s. 11(1)(A) Claim of depreciation to assessee trust to be allowed. - Assessee appeal allowed. - ITA No.1381/Bang/2017 And ITA No.1464/Bang/2017 - - - Dated:- 23-3-2018 - SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Assessee : Shri S . V . Ravishankar, Advocate For The Revenue : Dr . P . V . Pradeep Kumar, Addl . CIT ORDER Per Sunil Kumar Yadav, Judicial Member These appeals are preferred by the assessee and the revenue against the order of the CIT(Appeals) pertaining to assessment year 2012-13. Since these appeals were heard together, these are being disposed of through this consolidated order. We, however, prefer to adjudicate them one after the other. ITA No . 1381 / Bang / 2017 2. This appeal is preferred by the assessee assailing the order of the CIT(Appeals) inter alia on the following grounds:- 1 . The Order passed by the learned Hon'ble Commissioner of Income Tax [ Appeal ] - 14 in so far as it is against the appellant is opposed to law, equity, weight o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v . DCIT in ITA No . 662 / Bang / 2015 in which it has been held that net receipts are to be taken into account for computing the accumulation of income of 15% u/s. 11(1)(a) of the Act. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- 15 . The third issue that arises for consideration in this appeal is as to whether 15 % accumulation for application in future has to be calculated on gross receipts or net receipts after deduction of revenue expenditure . The Assessee claimed accumulation of income for application for charitable purpose at 15 % of the gross receipts . The AO was of the view that accumulation will be allowed only to the extent of 15 % of the income after revenue expenditure . In other words income to be set apart u / s . 11 ( 1 )( a ) of the Act has to be computed at 15 % of the net income i . e . , gross receipts minus revenue expenditure and not on the gross receipts as claimed by the Assessee . Since in the case of the Assessee, the gross receipts after revenue expenditure was nil, the AO denied the benefit of accumulation to the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs . 2,57,376, would constitute its property and it is entitled to accumulate twenty - five per cent thereout . It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of Rs . 87,010 . For the aforesaid reasons, the civil appeal is dismissed . It is clear from the above that deduction of twenty - five per cent was held to be allowable not on total income as computed under the IT Act . Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated . Their Lordships, as noted earlier, affirmed the decision of Kerala High Court in ( 1997 ) 141 CTR ( Ker ) 502 : ( 1997 ) 228 ITR 620 ( Ker ) ( supra ) wherein it is held as under : At the outset, the statutory language of s . 11 ( 1 )( a ) of the IT Act, 1961, relates to the income derived by the trust from property . The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded . The income available to the assessee before it was applied is directed to be taken and the same in the present case is Rs . 3,42,174 . Twenty five per cent of the above income is to be allowed as a deduction . Similar view has also been taken by the Hon ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust vs . CIT ( supra ). No reason whatsoever has been given by the Revenue authorities for deducting Rs . 2,17,126 in this case for purposes of s . 11 ( 1 )( a ). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme Court referred to above . The circular of CBDT has also been considered by the Hon ble Kerala High Court in its decision referred to above . Accordingly the question referred to is answered in the affirmative and in favour of the assessee . 18 . The aforesaid decision clearly supports the plea of the Assessee . Following the same, we hold that the accumulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Escorts Ltd . another Vs . Union of India ( 199 ITR 43 ) , while dealing with the issue of allowance of expenditure on scientific research u / s 35 ( 1 )( iv ) [ corresponding to section 10 ( 2 ) ( xiv ] of the I . T . Act, 1922 ] held that any expenditure of a capital nature ( or incurred towards purchase of capital assets ) on scientific research allowed as deduction u / s 35 ( 1 )( iv ) cannot be allowed once again as deduction in the form of depreciation on such capital assets . While doing so, it was observed by the Hon'ble Supreme Court that no legislature could have at all intended a double deduction in regard to the same business outgoing and if it is intended, it would be clearly expressed in the statute itself . Accordingly, it was held that even in absence of clear statutory indication to contrary, statute should not be read so as to permit an assessee two deductions i . e . once in the form of expenditure incurred towards purchase of capital assets and secondly, in the form of depreciation on such capital assets . It was also held that even before the amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d strength from the decision of the Hon'ble Kerala High Court in Lissie Medical Institutions ( supra ) which followed the arguments of the Hon'ble Apex Court the in the case of Escorts Ltd ( supra ). The Hon'ble Delhi High Court has also endorsed this position in case of DIT ( Exemption ) Vs . Charanjiv Charitable Trust ( 2014 ) 43 Taxmann . com 300 . I have nothing new to add to this debate . 4 . 3 The decisions of the jurisdictional High Court as applicable to the facts of the present matter have been analyzed . The first decision is that of Society of Sisters of St . Anne dt . 26 . 08 . 1983 for AY 1977 - 78 . It is seen that the latest decision of the Hon'ble High Court in case of AI Ameen Charitable Fund Trust has only followed and reiterated ( para 20 ) this decision of 1983 . 4 . 4 In the case of Society of Sisters of St . Anne, the period involved was AY 1977 - 78 and the issue before the Hon'ble Court was different from that involved in the present appeal . There the ITO had disallowed depreciation stating that such a notional expenditure was onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded that in the absence of depreciation allowance, a trust had no means of preserving its corpus for deriving income . After 01 . 04 . 1989, the Income Tax Act had, in Sec . 1l ( 1 )( d ) , very consciously introduced a means of preserving the trust's corpus by providing for corpus donations not to be treated as income . Under the changed situation post 01 . 04 . 1989, therefore, the claim of depreciation is not the sole method available for financing the corpus . Whenever a trust receives donations with a specific direction that it be treated as corpus, such corpus donations are available for maintaining the capital base of the trust . Hence, after 01 . 04 . 1989 the Hon'ble High Court's judgment in case of Society of Sisters of St . Anne cannot be applied without examination of the facts in a case involving a claim of depreciation . 4 . 8 The facts of the case must be scrutinized to see whether any corpus donation was available when the trust was making a claim for depreciation . If it was, the depreciation should be reduced / adjusted to the extent of such availability of corpus donation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lability of corpus fund is also Similarly to be followed . 4 . 11 With regard to the decisions of other High Courts it is seen that they have basically followed either the Hon'ble Karnataka High Court decision in case of Sisters of St . Anne ( by Madhya Pradesh HC and Punjab Harayana HC ) or the Madras HC in case of Rao Bahadur Calavala Cunnan Chetty Charities ( by Calcutta HC ) or both ( by Gujarat HC ). In case of Bombay HC neither of these two decisions has been followed - instead the Hon'ble HC has only cited the Board's Circular of 1968 . It may be mentioned that the Madras HC decision is not specifically on the issue of depreciation but only on the broad principle that income from properties held under trust would have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by Sec . 14 . 4 . 12 The financial statement of the appellant for FY 2011 - 12 shows that no corpus donation has been received during the year . Hence, the entire claim of depredation is admissible in terms of the discussion made supra . This ground, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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