TMI Blog2015 (12) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in an earlier year is adjusted against the income of a later year, it 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. - Decided against revenue Revaluation of investments treated as income of the assessee - Held that:- Mere revaluation of asset would not increase income or receipt of the assessee, until and unless the said gain of revaluation is realised. Therefore, the gain on revaluation of the asset/investments without actual realisation cannot be treated as income of the assessee - Decided against revenue - I. T. A. No. 658 /Bang/ 2014 (assessment year 2011-12). - - - Dated:- 24-7-2015 - VIJAY PAL RAO (Judicial Member) and JASON P. BOAZ (Accountant Member) Farhat Hussain Qureshi, for the appellant. Sajjan Kumar Tulsiyan, for the respondent. ORDER The order of the Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) may be set aside and that of the Assessing Officer be restored by placing reliance on the recent judgment of the hon'ble High Court of Delhi in the case of DIT (Exemption) v. Charanjiv Charitable Trust dated March 18, 2014 in I. T. A. Nos. 321 to 323 of 2013 [2015] 4 ITR-OL 180 (Delhi) wherein it is held that the Tribunal was not justified in directing the allowance of depreciation in respect of assets, the cost of which has been allowed as deduction as application of income of the trust. Carry forward of deficit 3.1. The learned Commissioner of Income-tax (Appeals) erred in directing the Assessing Officer to allow carry forward of deficit of assessment years 2001-02 and onwards for set off against the surplus of assessment year 2006-07, when there is no provision in the Income-tax Act to allow carry forward of such deficit, and the number of years for which such carry forward of deficit for set off can be allowed. The learned Commissioner of Income-tax (Appeals) erred in not specifying the provisions of the Income-tax Act, while directing the Assessing Officer to allow carry forward of deficit. 3.2. The learned Commissioner of Income-tax (Appeals) erred in pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moting education and advanced studies in medicine, science, etc. The assessee- trust was granted registration under section 12AA of the Income-tax Act, 1961 and also received approval for exemption under section 10(23C)(vi) of the Income-tax Act, 1961. The assessee filed its return of income showing nil income and excess of expenditure over the income. The Assessing Officer completed the assessment under section 143(3). During the course of assessment proceedings, the Assessing Officer noted the assessee claimed depreciation on the assets, even though the entire cost of the assets were claimed by the assessee and application of income and exempt under section 11 of the Income-tax Act, 1961. Thus, the Assessing Officer was of the view that claiming capital expenditure as application of income and again claiming depreciation on the same amount results in double deduction. The Assessing Officer placed reliance on the judgments of the hon'ble Supreme Court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 43 (SC) as well as the decision of the hon'ble Kerala High Court in the case of Lissie Medical Institutions v. CIT [2012] 348 ITR 344 (Ker) and held that double ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. He has relied upon the following decisions : 1. CIT v. Institute of Banking [2003] 264 ITR 110 (Bom) ; 2. CIT v. Manav Mangal Society [2010] 328 ITR 421 (P H) ; 3. CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Karn) ; 4. Asst. CIT v. Shri Adichunchanagiri Shikshana Trust [2012] 19 ITR (Trib) 828 (Bang) ; Page No : 0025 5. CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598 (Guj) ; 6. CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 (Raj) ; 7. CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad) ; and 8. CIT v. Trustee of H. E. H. The Nizam's Supplemental Religious Endowment Trust [1981] 127 ITR 378 (AP). 11. The learned authorised representative then referred the recent decisions of the co-ordinate Bench of this Tribunal dated March 20, 2015 in case of Asst. CIT v. City Hospital Charitable Trust, Bangalore in I. T. A. No. 676(B)/2014 [2015] 42 ITR (Trib) 583 (Bang) and submitted that the Tribunal after considering the judgment of the hon'ble Kerala High Court in case of Lissie Medical Institutions v. CIT [2012] 348 ITR 344 (Ker) has decided this issue in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gains, dividends, voluntary payment received by trust, etc. It may be noted that profits and gains are generally used in terms of business or profession as provided under section 28. The word 'income', therefore, is a much wider term than the expression 'profits and gains of business or profession'. Net receipt after deducting all the necessary expenditure of the trust (sic). There is a broad agreement on this proposition. But still the contention for the Revenue is that the depreciation allowance being a notional income (expenditure ?) cannot be allowed 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 under stood 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 and Pegler's Book-keeping and Accounts, 17th Edition, pages 44, 45 and 46, it has been noted as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following words : 'The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been 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. Mr. Srinivasan, however, urged that there are enough indications in section 11 to exclude the mercantile system of accounting. The learned counsel relied upon section 11(1)(a) and section 11(4) in support of his contention. We do not think that there is anything in these sub-sections to support the contention of Mr. Srinivasan. Explanation to section 11(1)(a), on the contrary, takes note of the income not received in a particular year. It lends support to the contention of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT v. Institute of Banking [2003] 264 ITR 110 (Bom) as well as by the hon'ble Punjab and Haryana High Court in the case of CIT v. Manav Mangal Society [2010] 328 ITR 421 (P H). The view taken in the case of Institute of Banking (supra) has been reaffirmed by the hon'ble Bombay High Court in the recent decision dated March 23, 2015 in the case of DIT (Exemptions) v. Shri Vile Parle Kelavani Mandal [2015] 378 ITR 593 (Bom), by observing in para 6 as under (page 595) : 6. As far as question No. 4 is concerned, this court has repeatedly held that there is nothing like double deduction. When the assessee has acquired an asset from the income of the trust and thereafter the amount that is claimed is the depreciation on the use of the assets, such depreciation claim does not mean double deduction. The deduction earlier claimed is towards application of funds of the trust for acquiring assets. The latter is depreciation and it is permissible deduction considering the use of the assets. This has been clarified repeatedly by this court. If any reference is required then the case of CIT v. Institute of Banking [2003] 264 ITR 110 (Bom) is enough. 14. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Society [2011] 330 ITR 21 (P H), following CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P H) 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 deci sion of the hon'ble Supreme Court in the case of Escorts Ltd. [1993] 199 ITR 43 (SC) have been referred to and distinguished by the hon'ble court in the aforesaid decisions. 21. The issue raised by the Revenue in the ground of appeal is thus no longer res integra and has been decided by the hon'ble Punjab and Haryana High Court in the case of CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P H). The hon'ble Punjab and Haryana High Court after considering several decisions on that issue and also the decision of the hon'ble Supreme Court in the case of Escorts Ltd. [1993] 199 ITR 43 (SC), came to the conclusion 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 and Haryana H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any error or any illegality in the order of the Commissioner of Income-tax (Appeals), qua this issue. 16. Ground No. 3 regarding carry forward of deficit. The assessee claimed a total deficit of ₹ 9,33,27,87,598 inclusive of current year deficit to be carried forward for setting up of the same as application of income in subsequent assessment years. The Assessing Officer rejected the claim of the assessee on the ground that in the Income-tax Act, there is no provision of carry forward of excess of expenditure over income. 17. On appeal, the Commissioner of Income-tax (Appeals) has allowed the claim of the assessee by following the decision of this Tribunal dated February 16, 2010 in case of Dr. T. M. A Pai Foundation in I. T. A. No. 486 to 491(B)/2009. The Commissioner of Income-tax (Appeals) has also taken note of the fact that in the assessee's own case for the assessment year 2010-11 this issue was decided by the Commissioner of Income-tax (Appeals) in favour of the assessee. 18. We have heard the learned Departmental representative as well as the learned authorised representative and considered the relevant material on record. There is no dispute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or char itable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expend iture, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erves due to revaluation of the asset, however, the observations of the hon'ble Supreme Court are relevant on the point of actual increase in the income. The relevant observation and conclusion of the hon'ble Supreme Court are in paras 20-25 are as under (page 371) : 20. Book profit is not defined in the Act. It is income computed under the company law. By virtue of the minimum alternate tax provisions, in the case of a company whose total income as computed under the normal provisions of the Act is less than 30 per cent. of the book profit, the total income chargeable to tax will be 30 per cent. of the book profit as computed. For the purposes of section 115J, book profit will be the net profit as shown in the profit and loss account prepared in accordance with the provisions of Schedule VI to Companies Act, 1956 after certain adjustments. The net profit will be increased by Income-tax paid or payable, amount carried to any reserve, provision made for liabilities, etc., provided the amount(s) is debited to the profit and loss account. The amount so arrived at is to be reduced by item (i) to item (vii) including amounts withdrawn from reserves, if any such amount is cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the amount to the extent of the additional depreciation from the revaluation reserve to present a more healthy balance-sheet to its shareholders enabling the assessee possibly to pay out a good dividend. It is precisely to tax these kinds of companies that minimum alternate tax provisions had been introduced. The object of the minimum alternate tax provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company. Thus, the reduction sought by the assessee under clause (i) to the Explanation to section115JB(2) in respect of depreciation has been rightly rejected by the Assessing Officer. 22. Take the facts of the present case. As stated above, the revalu ation reserve of ₹ 288,58,19,000 was created during earlier assess ment year 2000-01. During the accounting year ending March 31, 2001 (assessment year 2001-02), the profits of the assessee stood at ₹ 120,18,97,000 whereas depreciation stood at ₹ 127,57,06,000. Depreciation is a no-cash charge against the profits. Thus, company had a loss of ₹ 7,38,09,000 (i.e. ₹ 127,57,06,000 of depreciation as against profit of ₹ 120,18,97,000) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stipulated that the net profit shall be reduced by the amount(s) withdrawn from any reserves, if any such amount is credited to the profit and loss account. Thus, if the reserves created had gone to increase the book profits in any year when the provisions of section 115JB were applicable, the assessee became entitled to reduce the amount withdrawn from such reserves if such withdrawal is credited to profit and loss account. Now, from the above facts, it is clear that neither the said amount of ₹ 288,58,19,000 nor ₹ 26,11,74,000 had ever gone to increase the book profits in the said year ending March 31, 2000 (being the financial year). Thus, when such amount(s) has not gone to increase the book value at the time of creation of reserve(s), there is no question of reducing the amount transferred from such revaluation reserves to the profit and loss account. Thus, the proviso to clause (i) of the Explanation to section 115JB(2) comes in the way of the claim for reduction made by the assessee. In our view, the reduction under clause (i) to the Expla nation could have been availed of only if such revaluation reserve had gone to increase the book profits. As the amount of re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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