TMI Blog2012 (8) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11 of the Act ignoring the fact that the assessee was found to have violated the provisions of section 36A(3) of the Bombay Public Trust Act, wherein the trust is under the legal obligation to obtain permission of the Charity Commissioner to raise loans for the trust and the assessee trust had never got any such permission from the Charity Commissioner in this regard, and reliance is placed on the decision of Bombay High Court in CIT v/s Pruthvi Trust, 124 ITR 48. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the claim of the assessee for depreciation on assets amounting to ₹ 19,48,496 the cost of which was already allowed as application and thereby resulted in allowing double deduction for the same outgoing, which is against the principle laid down in the judgment of Hon'ble Supreme Court in the case of Escorts Ltd. v/s Union of India, 199 ITR 43. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the claim of the assessee of repayment of loan amounting to ₹ 2,91,57,058 as application of income wherein the cost of asset for which loan was taken stood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it had taken interest free loan from the managing trustee in order to meet excess of expenditure over income of the trust, which was taken in the financial years 2002 03, 2003 04 and 2004 05 for sum aggregating to ₹ 2,91,57,050. Some time, in the month of October 2003, the assessee trust was informed about the provisions of Bombay Public Trusts Act, 1950 (for short the Trust Act ), wherein it was required to obtain permission of the Charity Commissioner about taking interest free loan from the managing trustee. The assessee trust was under the impression that interest free loan taken from the managing trustee does not require any specific permission of the Charity Commissioner. Thereafter, on the basis of legal advise, the assessee trust applied before the Charity Commissioner after passing a resolution. Thereafter several reminders have also been sent from time to time right from the year 2003 to 2005. In the year 2005, a show cause notice was issued by the Charity Commissioner and the reply by the assessee trust was submitted. All these documents were placed before the Assessing Officer. Regarding claim for depreciation, the assessee submitted that this issue stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. Lastly, on the issue of allowability of claim of re payment of loan, the Assessing Officer held that the same amounts to double deduction which is not permissible in view of the judgment of Hon'ble Jurisdictional High Court in Escorts Ltd. (supra). Accordingly, the Assessing Officer forfeited the exemption under section 11 of the Act and taxed the entire surplus along with the donation, etc. 6. Before the learned Commissioner (Appeals), the assessee trust, on the issue of denial of exemption under section 11 of the Act, reiterating its contentions and submitted that insofar as forfeiture of exemption under section 11 of the Act is concerned, the same is erroneous in law on facts as the judgment of Hon'ble Jurisdictional High Court in Pruthivi Trust (supra) was rendered in altogether different context and will not be applicable in its case. The issue was entirely different, as in that case the Hon ble Court has held that the trustees were carrying on the business which was not authorised by the trust deed and, therefore, the assessee trust was not entitled to exemption under section 11 of the Act, whereas, no such business was carried out beyond the trust deed. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Personnel Selection (supra) is squarely applicable and the judgment of Hon'ble Supreme Court in Escorts Ltd. (supra) was rendered totally on a different footing wherein the Hon'ble Supreme Court was dealing with 100% cost of scientific research allowed as revenue expenditure under section 35 of the Act and further allowance of depreciation under section 32 of the Act. He thus, directed the Assessing Officer to allow depreciation of ₹ 19,48,496. 9. Lastly, on the issue of re payment of loan of ₹ 2,91,57,058, as application of income, the learned Commissioner (Appeals) held that the CBDT Circular no.100 dated 24th January 1973, clarifies that re payment of loan will amount to application of income. Further, the judgment of Hon ble Gujarat High Court in Shri Plot Swetamber Murti Pujak Jain Mandal (supra) and other High Court judgments are directly on this issue. He thus directed the Assessing Officer to treat the re payment of loan taken in earlier years as application of income. 10. Before us, the learned Departmental Representative, on the first ground submitted that the money borrowed from the managing trustee was in violation of specific provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing depreciation of the assets of all the subsequent years on one go. The depreciation is to be allowed on the cost of the capital over a period of years and once the capital has already been allowed, there is no question of allowing depreciation. On the issue of deduction of re payment of loan amount, he reiterated the same submissions. 12. On the other hand, the learned Counsel for the assessee on the first ground of appeal submitted that the judgment of Pruthivi Trust (supra) is not applicable as the same was in the context of violation of trust deed and here it is the case of a technical lapse under the Trusts Act. According to the Income Tax Act, 1961, such lapse cannot be a ground for denying the exemption under section 11 of the Act. On this issue, he relied upon the decision of the Tribunal which has been referred to by the learned Commissioner (Appeals) in his order. 13. On the second ground, he submitted that not only this issue is directly covered by the judgment of Hon'ble Jurisdictional High Court Institute of Banking Personnel Selection (supra), but also plethora of decisions of the Tribunal, Mumbai Bench, copies of which were placed in the paper book. He f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, there is no requirement under the Act that the provisions of other Acts have to be complied with. The Hon'ble Jurisdictional High Court in Pruthivi Trust (supra) found that the assessee trust was carrying on the business of manufacturing and marketing produce for making profit without any authorisation given in the trust deed. Here, in the present case, it is not the case of the Assessing Officer that there was a bar in the trust deed or in the objects for taking unsecured loans. Thus, the judgment of Hon'ble Jurisdictional High Court in Pruthivi Trust (supra) is not applicable at all. Further, the Hon'ble Supreme Court in Surat City Gymkhana (supra) wherein the judgment of Hon ble Gujarat High Court in Hiralal Bhagwati (supra), has been upheld, lays down the proposition that once the registration of trust under section 12A of the Act has been granted, the Assessing Officer cannot make further probe the object of the trust as the registration itself is a fait accompli. Further, it is noticed that the learned Commissioner (Appeals) has relied upon the decision of the Tribunal in Bombay Stock Exchange (supra) wherein there was an adverse observation of JPC and SEBI reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t provides for depreciation in respect of building, plant and machinery owned by the assessee and used for the business purposes. It further provides for deduction subject to s. 34. In that matter also, a similar argument, as in the present case, was advanced on behalf of the Revenue, namely, that depreciation can be allowed as deduction only under s. 32 of the IT Act and not under general principles. The Court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under s. 11(1)(a) of the IT Act. The Court rejected the argument on behalf of the Revenue that s. 32 of the IT Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a charitable trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, s. 32 of the IT Act providing for depreciation for computation of income derived from business or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: Held that the assessee was not claiming double deduction on account of depreciation as had been suggested by the revenue. The income of the assessee being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust. There was no double deduction claimed by the assessee as canvassed by the revenue, It could not be held that double benefit was given in allowing claim for depreciation for computing income for purposes of section 11. CASE REVIEW CIT v. Raipur Pallottine Society [1989] 180 ITR 579 (MP); CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad): CIT v. Seth Manual Ranchhoddas Vishram Bhawan Trust [1992] 198 ITR 598 (Gui.); CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Kar.); CIT v. Institute of Banking [2003] 264 ITR 110 (Bom) relied on. Escorts Ltd. v. UOI [1993] 199 ITR 43 (SC) distinguished. [emphasis added] 19. Further, it is noticed that following the aforesaid judgments, the ITAT, Mumbai Bench, in ITO v/s Parmeshwaridevi Gordhandas Garodia, ITA no.4108/Mum./2010, order dated 10th August 2011, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Punjab Haryana High Court and the Bombay High Court cited above, we affirm the decision of the CIT(A) and dismiss the appeal filed by the revenue with no order as to costs. 20. There are other catena of case laws wherein it has been categorically held that allowing of depreciation is application of money and it does not amount to double deduction. It has now been settled principle of law that when there are two different decisions of High Courts, one favourable to the assessee should be followed. Thus, respectfully following the aforesaid judgments, we are unable to agree with the contentions raised by the learned Departmental Representative and the findings of the Assessing Officer. Thus, the finding of the learned Commissioner (Appeals), on this score, is also upheld and ground no.2, raised by the Revenue is dismissed. 21. The last issue relates to application of income on re payment of loan of ₹ 29,15,70,500. This issue has been decided by the Assessing Officer on the same line and reasoning, as has been raised in the second issue i.e., allowability of depreciation. From the perusal of the order passed by the learned Commissioner (Appeals), it can be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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