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Assistant Commissioner of Income-Tax (Exemption) Versus Vishwachetan Foundation IBMR

2016 (6) TMI 792 - ITAT BANGALORE

Depreciation allowable under Section 11 - whether claim of depreciation by assessee trust would amount to double deduction? - Held that:- As decided in DIT (Exemptions) v. Al-Ameen Charitable Fund Trust [2016 (3) TMI 462 - KARNATAKA HIGH COURT ] 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 wea .....

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sioner of Income-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 res .....

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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 appreciating the intention of the Legislature not to allow double deduction at any point of time and, therefore, for bringing clarity on the issue, the law has been amended with effect from the assessment year 2015-16. 4) Whether the hon'ble Commissioner of Income-tax (Appeals) was correct .....

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Income-tax (Appeals) was correct in holding that the commercial principles are applicable and depreciation is allowable to charitable trust when in cases of trust which are covered by the provisions of section 11, section 12 and section 13 only application of income during the year is allowable under section 11 of the Act and depreciation being a notional expenditure is not allowable. 3. The assessee is running education institutions and charitable activities. The assessee filed its return of in .....

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mption under section 11 at the time of acquisition of asset being application of income then the claim of depreciation would amount to double deduction. 4. The assessee challenged the action of the Assessing Officer before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) allowed the claim of the assessee by following the decision of this Tribunal as well as the decision of the hon'ble Bombay High Court in case of DIT (Exemption) v. G. K. R. Charities [2013] .....

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ons 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 asse .....

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far back as in the year 1984, in the case of CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Karn) wherein the Division Bench of this court has held thus (page 31 of 146 ITR) : 'It is clear from the above provisions that the income derived from property held under trust cannot be the total income because section 11(1) says that the former shall not be included in the latter, of the person in receipt of the income. The expression "total income" has been defined under s .....

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quot;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 partin .....

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set owing to 'use' or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread 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 .....

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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) and held thus (page 20 of 330 ITR) : 'In the present case, the assessee is not claiming double deducti .....

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It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the assessee.' The High Court of Bombay in the case of Institute of Banking (supra) after placing reliance on the judgment of CIT v. Munisuvrat Jain [1994] Tax LR 1084 (Bom) on an identical issue, held (page 114 of 264 ITR) : 'In that matter also, a similar argument, as in .....

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Income-tax 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 a 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, section 32 of the Income-tax Act providing for depreciation for computation of income d .....

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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) : 'T .....

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nion, the other provisions of the Act to which reference has been made-some of which were inserted after the present controversy started-are not helpful and we have to construe the real scope of the provisions with which we are concerned. We think that all misconception will vanish and all the provisions will fall into place, if we bear in mind a fundamental, through unwritten, axiom that no Legislature could have at all intended a double deduction in regard to the same business outgoing, and if .....

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section 35(2)(iv) of the 1961 Act a contra-indication which permits a disallowance of depreciation only in the previous years in which the other allowance is actually allowed ? We think the answer is an emphatic 'no' and that the purpose of the words above referred to is totally different. If, as contended for by the assessees, there can be no objection in principle to allowances being made under both the provisions as their nature and purpose are different, then the interdict disallowi .....

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illogical and unjustified on the basis suggested by the assessees. On the other hand, if we accept the principle we have outlined earlier, viz., that, there is a basic legislative scheme, unspoken but clearly underlying the Act, that two allowances cannot be, and are not intended to be, granted in respect of the same asset or expenditure, one will easily see the necessity for the limitation imposed by the quoted words. For, in this view, where the capital asset is one of the nature specified, th .....

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s 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 .....

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e applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.' The plain language of the amendment establishes the intent of the Legislature in denying the depreciation deduction in computing the income of charitable trust is t .....

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foresaid section contain a primary condition that for grant of exemption in respect of income derived from property held under trust, such income should be applied for the charitable purposes in India, and where such income cannot be so applied during the previous year, it has to be accumulated in the prescribed modes. It is proposed to insert sub-sections (6) and (7) in the said section so as to provide that- (i) where any income is required to be applied or accumulated or set apart for applica .....

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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 t .....

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purpose. Therefore, double benefit is claimed by the trusts and institutions under the existing law. The provisions need to be rationalised to ensure that double benefit is not claimed and such notional amount does not get excluded from the condition of application of income for charitable purpose.' Paragraphs 7.5, 7.5.1, 7.6 of the Central Board of Direct Taxes Circular reported in [2015] 371 ITR (St.) 22 makes it clear that the said amendment shall take effect from April 1, 2015, and will .....

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is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the Legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India v. Indian .....

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to be retrospective in nature. However, we are confronted with any such situation here. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed .....

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