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The Deputy Commissioner of Income Tax, Circle 1, Udupi Versus M/s. Academy of General Education

2015 (9) TMI 272 - ITAT BANGALORE

Depreciation claim denied - as at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition thus allowing depreciation would amount to allowing double deduction - assessee is a charitable trust with objects to provide education - CIT(A) allowed claim - Held that:- The issue raised by the revenue in the ground of appeal is thus no longer res integra and has been decided in the case of CIT v. Market Committee, Pipli .....

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scorts Ltd. (supra) observed that as dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon’ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. Also see CIT v. Society of Sisters of Anne (1983 (8) TMI 44 - KARNATAKA High Court)- Decided against revenue.
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has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. See CIT Vs. Society of Sisters of St. Anne ((1983 (8) TMI 44 - KARN .....

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running several educational institutions. In the course of assessment u/s. 143(3) of the Act for AY 2011-2012 the AO noticed from the details of depreciation claimed, that the depreciation was claimed on assets, the cost of acquisition of the said assets had been claimed by the assessee as capital expenditure towards application of funds towards the objects of the trust and allowed as such. According to the AO, allowing such a claim would amount to allowing double deduction. On the facts of the .....

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Society of Sisters of St. Ann, 146 ITR 28 (Kar) has taken the view that where capital expenditure on acquisition of depreciable asset is considered as application of income for charitable purpose, allowing depreciation on the very same capital asset would not amount to double allowance. The assessee also pointed out that the decision of Escorts Ltd. (supra) will not be applicable as it was rendered on a different set of facts. 4. The AO however, held that allowance of depreciation when the cost .....

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d therefore depreciation cannot be allowed. The AO also distinguished the cases cited by the Assessee. 5. On appeal by the Assessee, the CIT(A), following the decisions rendered in the case of St.Ann s Convent 349 ITR 559 (Karn) and Dr.T.M.A. Pal Foundation, Manipal in ITA No. 481 to 485/Bangh/2009 dated 16.2.2010 held that the claim of the Assessee for depreciation has to be allowed. 6. Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal. 7. We .....

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on was considered as application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of 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 ch .....

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6 ITR 28 (Kar). It was held in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit. The decision of the Hon ble Supreme Court in the case of Escorts Ltd. 199 ITR 43 (SC) have been refer .....

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usion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon ble Punjab & Haryana High Court made a reference to the decision of the Hon ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for d .....

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e has to be computed in 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 CIT(A) 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 w.e.f. 1.4.201 .....

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id amendment is prospective and will apply only from A.Y. 2015-16. In view of the above legal position, we are of the view that the order of the CIT(A) does not call for any interference. Consequently grounds No.2.1 to 2.5 raised by the Revenue are dismissed. 10. The other issue that arises for consideration in this appeal which is projected by the Revenue in grounds of appeal, is as to whether the CIT(Appeals) was justified in holding that assessee, a trust, is entitled to carry forward expendi .....

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o the AO there was no provision in the Act for carry forward of excess expenditure of earlier year to be adjusted against income of the subsequent year and he therefore denied the claim of the Assessee. 11. On appeal by the assessee, the CIT(A) directed the AO to allow claim of the assessee and in doing so, followed the decision rendered by the ITAT Bangalore in the case of Dr.T.M.A. Pai Foundation, Manipal in ITA No. 481 to 485/Bangh/2009 dated 16.2.2010. 12. Aggrieved by the order of CIT(A), t .....

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e should have been applied for charitable or religious purpose only in the year in which the income has arisen. The application for charitable purposes as contemplated in section 11(1)(a) takes place in the 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 subsequ .....

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). In CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom) that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment would be application of income for subsequent years and that depreciation is allowable on the assets the cost of which has been fully allowed as application of income under s. 11 in past years. In Govindu Naicker Estate VS. ADIT 248 ITR 368 (Ma .....

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