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TMI Blog2011 (6) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively. That is, the cost of the relevant assets stood claimed as an application of income for a preceding and/or the current year. The issue calling for consideration in the present set of appeals, therefore, is the maintainability in law of the deduction qua depreciation allowance, claimed by the assessee-trust under section 32(1), in respect of assets, the entire cost of which stands allowed by way of application of income under section 11(1) of the Act. The cost of asset/s having been allowed, its WDV was nil, so that there was no amount available on which depreciation could be claimed in its respect. The same would even otherwise amount to a double deduction, prohibited by law, as explained by the apex court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 43. The Assessing Officer (AO), accordingly, disallowed the depreciation claimed, while allowing the application of income, including qua the cost of the capital assets, at the claimed amount. The same stood deleted, or confirmed, in appeal by the ld. CIT(A), finding the decision in the case of CIT v. Institute of Banking Personnal Selection (IBPS) [2003] 264 ITR 110/131 Taxman 386 (Bom.), cited before him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in fact applied for the acquisition of a capital asset? So however, going by the Tribunal's view (in the case of Lissie Medical Institutions (supra) refer para 4.6 of the order), while in the case of former (i.e., with such a direction), the assessee would stand to be allowed depreciation on the capital asset/s acquired out of the said funds, it would not in the case of the latter, even as the contribution in both the cases stands applied similarly. In either case, the same having been applied or utilized thus, the non-allowance of depreciation in the latter case would lead to a difference in the income subject to tax to the extent of depreciation disallowed. That is, a mere direction by the donor would alter the donee's assessable income, even as the same stands utilized by the donor in the same manner, and which is not comprehensible and, in any case, could not be the intent of law. The provision of section 11(1)(d) was necessitated by the omission of the words 'not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution in section 2(24)(iia) by Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989, so tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said order by the Tribunal (supra) has been read and, further, in the background and the backdrop of the Tribunal's findings in that case, taking liberty to freely refer/advert to the same. Further on, we shall, as is incumbent on us, meet the two arguments raised before us by the ld. AR, which constitute the assessee's case before us. 4.2 The first argument is that the allowance of depreciation and deduction qua the application of income (on the assets on which the same is claimed), does not amount to or result in a double deduction, so as to be hit by the decision by the Apex Court in the case of Escorts Ltd. (supra). The said issue stands discussed at para 4.5 of the order by the Tribunal in the case of Lissie Medical Institutions (supra). It, with reference to the decision in the case of Escorts Ltd. (supra), explained that the import and purport of the two claims, i.e., depreciation on capital asset/s as well as the deduction qua the cost of the said capital assets, is the same, and to the same effect, i.e., the write off of the underlying capital expenditure. The distinction sought to be drawn by the ld. AR, is, to our mind, non-existent. If the capital asset/s is a part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of a deduction, i.e., required to a allowed for computing income subject to tax under the Act, which also finds support from the insertion of section 11(1)(d). It is, as such, not a question of a mere direction, as the ld. AR would put it, but of classifying the receipt of the trust into two distinct categories, i.e., 'regular' and 'toward capital'. How else, one may ask, could the law seek to distinguish the two, except on the basis of the application incidental and subject to which the same stands received? Further, if the said distinction is with reference to an earlier date, i.e., prior to 1-4-1989, as sought to be clarified before us, it does not detract from, rather, only reinforces the same; the law becoming more explicit from that date, removing any ambiguity that may have persisted in the matter. Continuing further, the resultant difference, i.e., depreciation being allowable in one case and not in the other, amount as it does to a double deduction, arises out of the very nature of the source of funding, and the difference in the law in relation thereto. The same rather than being prejudicial to a charitable trust, is beneficial thereto, inasmuch as the law 're ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the law itself specifically provides for, i.e., is contrary to the express provisions of law. Further, the finding of the two claims as representing a deduction qua the same expenditure, which stands extensively discussed at para 4.5 of the Tribunal's said order, meeting each of the arguments raised, is essentially a matter of fact. It points out that the user of an asset for the intended purpose/s, a pre-requisite for a claim of depreciation in its respect, is also necessary to validate the claim (in respect of the capital expenditure) qua the application of income, as no charitable purpose would stand to be served where the capital asset acquired thus, and retained, is not used for the objects of the trust; concluding as under :- "4.5.5 In our view, there is, as such, a clear case of double deduction, and not considering it as so would be a travesty of the concept of income. The proposition for non-double deduction (of the same expenditure), as also explained by the Apex Court, is basic and fundamental to the Act. It would be akin to taxing the same income twice." In other words, a complete congruence of identity and rationale marks or attends the two claims, being only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity, so that the depreciation claimed cannot be with reference to section 32, but only as applicable under general principles. However, that would not detract from or impact the said finding in any manner, as the nature of the depreciation, either way, remains the same; the only difference being in the rate/s of depreciation, even as discussed by the Tribunal at para 4.4 of its order in the case of Lissie Medical Institutions (supra). 4.4 We next state our reasons as to why the decisions additionally brought to our notice in the present appeals, i.e., in addition to those cited and considered by us in the case of Lissie Medical Institutions (supra), which we have gone through, have not been able to persuade us to change our view in the matter. (a) The first decision is in the case of CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad.) (PB pgs. 18 to 29). The said decision, as apparent from the questions referred by the Tribunal to the hon'ble court, as well as what stands held by it, is the manner in which the accumulation of income under section 11(1)(a) of the Act is to be computed. The hon'ble court held that the same has to be arriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitely obtain; the donee-entity being not obliged to apply the same to claim exemption in its respect, being exempt per se. Where, however, the same is from regular (as distinct from corpus) funds, the entity is not obliged to maintain the same as a part of its capital structure, so that its utilisation for its purposes - whether by way of capital or revenue expenditure - would merit exemption under section 11 to the extent so applied. No tax liability, thus, is attracted qua the said income. It is in fact immaterial whether the application is toward revenue or capital expenditure, and the two are equivalent; the only relevant consideration being that the expenditure is toward the objects of the trust. In fact, realistically speaking, a continued user of the asset for the intended purpose/s, i.e., where the capital expenditure results in one, is the underlying presumption essential to satisfy the condition of the application of the income for the stated object(s). That, however, would be the end of the matter, as in the case of revenue expenditure, and no further claim qua depreciation would arise. On the other hand, where the charitable institution - at its option - wishes that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at what can be said to be available 'for application' with it, so that there is no overlap between the two. That the user (of the asset) for the stated purpose is an implicit requirement to satisfy the essential condition for a claim toward the application of income for the stated object, completes the case of a complete identity between the two claims, deduction for which it is being simultaneously sought, even as found in the case of Escorts Ltd. (supra). In fact, the cited decision supports the Revenue's case. Firstly it explains, even as stated by us at para 4.2 above, that determination of income and its application are different concepts, and are not to be mixed up. Further, the application of income, if any, would have to be excluded in arriving at the income which is subject to application in any year. Secondly, it clarifies even as the Tribunal does, at para 4.5.3 of its order in the case of Lissie Medical Institutions (supra), that the trust can apply only what is available with it, i.e., no more or no less, subject to any extraneous expenditure, i.e., which is not for the purpose of the trust. (b) In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) and Tiny Tots Educational Society (supra) (PB pgs. 63 to 71) stand already discussed while considering the assessee's case as made before us with reference thereto (refer paras 3.1, 4.2). The decision in the case of Bhoruka Public Welfare Trust (supra) (PB pgs. 72 to 78), upholds the assessee's claim on the basis of principles of commercial accounting, even as no business was being carried on by it, and which stood allowed by the hon'ble court with reference to the decision, among others, in the case of Society of the Sisters of St. Anne (supra). The decision in the case of CIT v. Munisuvrat Jain [1994], Tax. L.R. 1084 (Bom.) (PB pgs. 79-84) is also to the same effect. The proposition is not disputed, and nowhere impinges on the issue at large, as sought to be explained vide paras 2, 4.2, as well as the foregoing part (a) of this para (4.4). In addition, both these decisions, i.e., by the hon'ble High Courts of Calcutta and Bombay, as also in the case of Rao Bahadur Calavala Cunnan Chetty Charities (supra), are for years prior to assessment year 1989-90, wherefrom the need for maintenance of corpus by the charitable institutions has since been specifically recognised by la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). Per its elaborate decision, the apex court upheld the retrospectivity, as the same did not, in its view, amount to or result in either a new levy or taking away or divestment of any existing right. There is a fundamental, though unwritten, axiom, it stood explained by it, that no Legislation would have intended a double deduction in respect of the same business outgoing, and it was impossible to conceive otherwise, i.e., unless clearly so expressed. In other words, the intention of non-double deduction is the given status, and is to be presumed, unless there is an express provision to the contrary in a particular case, and which was not so in the case(s) before it. The retrospective amendment was, therefore, held to be only clarificatory, and valid. The assessee's contention is, thus, not valid. In fact, the ld. CIT(A) has allowed its claim, relying on the decision in the case of Institute of Banking (supra), and wherein no claim (of double deduction) was raised and there is no reference to the decision in the case of Escorts Ltd. (supra), therein. The ld. first appellate authority has, in fact, therefore, not met the Revenue's case in the said case in any manner. 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