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COMMISSIONER OF INCOME TAX (EXEMPTIONS) , BANGALORE AND THE ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTIONS) , BANGALORE Versus M/s. BANGALORE BAPTIST HOSPITAL SOCIETY

2016 (7) TMI 710 - KARNATAKA HIGH COURT

Depreciation on assets put into use - assets have been claimed by the assessee as an application of income for charitable activities - Held that:- Allowing exemption on the application of income on the capital asset acquired during the relevant year and further, allowing depreciation in the subsequent years, at any stretch of imagination, could not be construed as double deduction. - Allowing depreciation in subsequent years, on the capital asset, which has already availed the benefit of ded .....

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ee as canvassed by the Revenue. 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. - 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 .....

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y the Revenue apprehending double deduction is totally misconceived. - Section 11[6] of the Act is prospective in nature denying the depreciation deduction in computing the income of Charitable Trust and operates with effect from 01.04.2015. This is further clarified when compared with certain other provisions which have been made retrospectively in the same Finance Act. - Decided against revenue - ITA NO.3/2016 - Dated:- 16-6-2016 - MR. JAYANT PATEL AND R. B.SREENIVASE GOWDA, JJ. FOR THE AP .....

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charitable activities and the amendment made in 2012 in I.T. Act will also hold that assessee is not entitled for depreciation on assets put to use?" 2. We have heard Mr. E.I. Sanmathi, learned Counsel appearing for the appellants-Revenue. 3. The learned Counsel for the appellants-Revenue fairly concedes that the similar questions came to be considered by this Court in case of The Director of Income Tax Vs. Al-Ameen Charitable Fund Trust in ITA No.62/2010and allied matters and vide its dec .....

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. The assessees in all these appeals are the charitable institutions registered under Section 12AA and 10(23)(c) of the Act. The question herein revolves around Section 11 of the Act. For the purpose of narrating the facts, we are considering. The assessments for the assessment year 2005-06 were concluded under Section 144 of the Act denying exemption under Section 10(23) of the Act. The addition of income was made on account of disallowance of depreciation by the Assessing Officer. 4. Being agg .....

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milarly, in ITA Nos. 233-234/2013, ITA No. 1/2013, ITA No. 433/2013, ITA No. 414/2010, on the assessment orders denying exemption under Section 11, read with Section 10(23c) of the Act and making an addition of income on account of disallowance of depreciation, the assessee preferred appeals which were allowed in favour of the assessee. Revenue challenged the said orders of the CIT(Appeals) before the Tribunal unsuccessfully. The orders passed by the Tribunal are challenged in these appeals. 8. .....

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epreciation is allowable under Section 11 of the Act, and there is no double claim of capital expenditure as held by the Assessing Officer and the principles enunciated by the Apex Court in Escorts Ltd., 199 ITR 43 was not applicable and the principles enunciated by this Hon'ble Court in Society of Sisters St. Ann's 146 ITR 18 was applicable?" 10. Heard the learned counsel appearing for the parties and perused the material on record. 11. Learned counsel Sri. K.V. Aravind appearing f .....

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uted in terms of Section 32 of the Act. He also places reliance on Section 37 of the Act to point out that any expenditure not being expenditure of the nature described in Sections 30 to 36, not being in the nature of capital expenditure or personal expenses of the assessee expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head 'Profit and gains of business or profession'. Applying the same analogy if, .....

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SSIE MEDICAL INSTITUTIONS vs. COMMISSIONER OF INCOME TAX ((2012) 348 ITR 0344) (3) ESCORTS LTD. vs. UNION OF INDIA ((1993) SC ITR Vol. 199) 12. On the other hand, learned counsel appearing for the assessee Sri. A. Shankar would contend that Chapter-III of the Act and Chapter-IV of the Act play in different fields. Sections 11 to 13(B) covered under Chapter-III of the Act, governs the manner of computation of total income and exemption by Charitable Trusts. Sections 14 to 59 governed by Chapter-I .....

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but under normal commercial principles as laid down by the Courts. It is further contended that allowing exemption on the application of income on the capital asset acquired during the relevant year and further, allowing depreciation in the subsequent years, at any stretch of imagination, could not be construed as double deduction. 13. Mr. Parthasarthy, learned counsel appearing for the assessee in some of the appeals adopts the arguments advanced by Mr. A. Shankar. 14. Learned counsel appearing .....

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E [(1984) 39 CTR (KAR) 9] [6] DIRECTOR OF INCOME TAX [EXEMPTION] Vs. COUNCIL OF SCIENTIFIC AND INDUSTRIAL RESEARCH in ITA No.331/2013 DD 27.11.2013 15. The question involved in this case is no more res integra. This question was considered by this Court as far back as in the year 1984, in the case of Society of the Sister's of St. Anne (supra) wherein the Division Bench of this Court has held thus: "9. It is clear from the above provisions that the income derived from property held unde .....

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be noted that profits and gains are generally used in terms of business or profession as provided u/s. 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). 10. 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 b .....

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tc. In Spicer & Pegler's Book-keeping and Accounts, 17th Edn., pp. 44, 45 & 46, it has been noted as follows : "Depreciation is the exhaustion of the effective life of a fixed asset 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; t .....

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MISSIONER OF INCOME-TAX, vs SETH MANILAL RANCHODDAS VISHRAM BHAVAN TRUST 198 ITR 598 [GUJ]; [4] COMMISSIONER OF INCOME-TAX, vs BHORUKA PUBLIC WELFARE TRUST [1999] 240 ITR 513 [CAL]; [5] COMMISSIONER OF INCOME-TAX, vs RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES 135 ITR 485 (MAD)] [6] COMMISSIONER OF INCOME-TAX vs. MARKET COMMITTEE PIPLI [(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 th .....

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to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. Judgment of the Hon'ble Supreme Court in Escorts Ltd., & Anr. (supra) is distinguishable for the above reasons. 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. 17. High Court of Bo .....

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timate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income Tax Act. The court rejected the argument on behalf of the revenue that section 32 of the 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 normal commercial manner although the Trust may not be carryi .....

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d 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." 18. The Judgment in Escorts Ltd. (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 1965 Act. It was the case of the assessee claiming a specified percentage of the written down value of the asset as depreciation besides claiming dedu .....

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no difference between the English and Indian Acts; the former also in terms prohibits depreciation only so long as the assets are used for scientific research. In our opinion, 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 .....

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expenditure. Is then the use of the words "in respect of the same previous year" in clause (d) of the proviso to S.10(2) (xiv) of the 1922 Act and S. 35(2)(iv) of the 1961 Act 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 .....

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anted under the provision relating to scientific research. The statute does not permit this. The restriction imposed would, therefore, be 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 .....

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uted under Chapter III of the Act. Accordingly, the judgment of Lissie Medical Institutions [supra] based on Escorts Ltd., [supra], is not applicable to the facts of the present case. 20. 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 ca .....

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.2015 by Finance Act No. 2/2014, reads as under: "(6) In this section where any income is required to be 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." 22. The plain language of the amendment establishes the .....

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ble or religious purposes. The existing provisions of the aforesaid 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 req .....

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n 12A [as it stood before is 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 .....

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charitable purpose. Therefore, double benefit is claimed by the trusts and institutions under the existing law. The provisions need to be rationalized to ensure that double benefit is not claimed and such notional amount does not excluded from the condition of application of income for charitable purpose". 23. Paragraphs 7.5, 7.5.1, 7.6 of Central Board of Direct Taxes Circular reported in 371 ITR 22 makes it clear that the said amendment shall take effect from 1.4.2015 and will accordingly .....

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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 & Ors. v. Indian Tobacco Associatio .....

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confronted with any such situation here. 34. 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 with the normal rule of presumption agains .....

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