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2016 (6) TMI 792

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..... tax (Appeals), Hubli, for the assessment year 2009-10. 2. The Revenue has raised the following grounds : 1) Whether, on the facts and in the circumstances of the case, the hon'ble Commissioner of Income-tax (Appeals) was correct in not following the decisions of the hon'ble Supreme Court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 43 (SC) wherein the hon'ble Supreme Court has categorically held when deduction under section 35(2)(iv) is allowed in respect of capital expenditure on scientific research, no depreciation is allowable under section 32 on the same asset and in the absence of clear statutory indication to the contrary, the statute should not be read as to permit an assessee two deductions ? 2) Whether the hon'ble Commissioner of Income-tax (Appeals) was correct in not following the decision of the Kerala High Court in the case of Lissie Medical Institutions v. CIT [2012] 348 ITR 344 (Ker) (ITA No. 42 of 2011) wherein the other judicial pronouncements by various High Courts were held to be not applicable holding that the issue of double deduction was not before them ? 3) Whether the Income-tax Appellate Tribunal was right in not .....

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..... [2003] 264 ITR 110 (Bom). 5. Aggrieved by the impugned order of the Commissioner of Income-tax (Appeals), the Revenue is in appeal before us. 6. We have heard learned Departmental representative as well as the learned authorised representative and considered the relevant material on record. The learned authorised representative of the assessee has pointed out that this issue is now covered by the decisions of the hon'ble High Courts as well as the Tribunal including the latest decision of the jurisdictional High Court in the case of DIT (Exemptions) v. Al-Ameen Charitable Fund Trust [2016] 383 ITR 517 (Karn) ; [2016] 238 Taxman 148. 7. We find that the hon'ble jurisdictional High Court in the case of DIT (Exemptions) v. Al-Ameen Charitable Fund Trust (supra) has held that while acquiring the capital assets what is allowed as exemption is the income out of which such acquisition of asset is made and when the depreciation deduction is allowed in the subsequent years, it is for the losses or the expenses representing the wear and tear of such capital asset incurred, if not allowed then there is no way to preserve the corpus of the trust for deriving its income. 8. .....

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..... ad the expenditure, incurred in acquiring the asset, over its effective lifetime ; the amount of the provision, made in respect of an accounting period, is intended to represent the proportion of such expenditure, which has expired during that period .' Similar view is taken by the other High Courts, viz., Gujarat, Punjab and Haryana, Delhi, Madras, Calcutta and Madhya Pradesh in the following judgments. (1) DIT (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR (Bom) 463 ; (2) CIT v. Raipur Pallottine Society [1989] 180 ITR 579 (MP) ; (3) CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598 (Guj) ; (4) CIT v. Bhoruka Public Welfare Trust [1999] 240 ITR 513 (Cal); (5) CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad) ; and (6) CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P H) ; [2011] 238 CTR (P H) 103. Allowing depreciation in subsequent years, on the capital asset, which has already availed the benefit of deduction in computing the income of the trust in the year of its acquisition is considered by the Punjab and Haryana High Court in the case of Market Committee, Pipli (supra) a .....

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..... forestated judgment of the Bombay High Court, we answer question No. 1 in the affirmative, i.e., in favour of the assessee and against the Department.' The judgment in Escorts Ltd.'s case (supra) was rendered by the apex court in the context of section 10(2)(vi) and section 10(2)(xiv) of the 1922 Act or under section 32(1)(ii) and section 35(2)(iv) of the 1961 Act. It was the case of the assessee claiming a specified percentage of the written down value of the asset as depreciation besides claiming deduction in 5 consecutive years of the expenditure incurred on the acquisition of the capital asset used for scientific research. In such circumstances, the apex court held thus (page 57 of 199 ITR) : 'There is an apparent plausibility about these arguments, parti cularly in the context of the alleged departure in the language used in section 10(2)(xiv) from that employed in section 20 of the U. K. Finance Act, 1944. We may, however, point out that the last few underlined words of the English statute show that there is really no difference between the English and Indian Acts ; the former also in terms prohibits depreciation only so long as the assets are used for s .....

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..... sity for the limitation imposed by the quoted words. For, in this view, where the capital asset is one of the nature specified, the assessee can get only one of the two allowances in question but not both.' Section 11 of the Act deals with application of income different from revenue expenditure or allowance. Thus, the judgment of the apex court in the case of Escorts Ltd. (supra) is distinguishable and as such is not applicable to the charitable trusts where income is to be computed under Chapter III of the Act. Accordingly, the judgment of Lissie Medical Institutions case (supra) based on Escorts Ltd. case (supra), is not applicable to the facts of the present case. It is also to be noticed that while in the year of acquiring the capital asset, what is allowed as exemption is the income out of which such acquisition of asset is made and when depreciation deduction is allowed in the subsequent years, it is for the losses or expenses representing the wear and tear of such capital asset incurred if, not allowed then there is no way to preserve the corpus of the trust for deriving its income as held in Society of the Sisters of St. Anne's case (supra). This judgment .....

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..... me under section 12A (as it stood before its amendment by the Finance (No. 2) Act, 1996) and the said registration is in force for any previous year, then, nothing contained in section 10 (other than clause (1) and clause (23C) thereof) shall operate to exclude any income derived from the property held under trust from the total income of the person in receipt thereof for that previous year. This amendment will take effect from 1st April, 2015, and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years.' The Memorandum Explaining the Provisions in the Finance (No. 2) Bill, 2014, reads thus (see [2014] 365 ITR (St.) 149, 171) : 'The second issue which has arisen is that the existing scheme of section 11 as well as section 10(23C) provides exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation, etc., is claimed and such amount of notional deduction remains to be applied for charitable purpose. Therefore, double benefit is claimed by the trusts and institutions under the existing law. The prov .....

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..... to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.' The apex court in the said judgment, while interpreting the proviso, whether to be applied retrospectively or prospectively, has considered the notes on clauses appended, the Finance Bill and the understanding of the Central Board of Direct Taxes in this regard. The apex court has also taken cognizance of the fact that the Legislature is fully aware of 3 concepts in so far as amendments made to a statute : (i) prospective amendments with effect from a fixed date ; (ii) retrospective amendments with effect from a fixed anterior date ; and (iii) clarificatory amendments which are prospective in nature. Keeping in view, the aforesaid principles enunciated by the apex court, in Vatika Township (P.) Ltd.& .....

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