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DCIT (Exemption) -2 (1) , Mumbai Versus Society of the Servant of the Holy Spirit

2016 (7) TMI 955 - ITAT MUMBAI

Claim of depreciation denied to assessee trust - Held that:- We find that Hon’ble jurisdictional High Court in the case of CIT vs Institute of Banking Personal (2003 (7) TMI 52 - BOMBAY High Court) and CIT vs Plot Swetamber Murti Pujak Mandal (1993 (11) TMI 17 - GUJARAT High Court ) decided the issue in favour of the assessee. - 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 .....

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vour of assessee. - ITA NO.205/Mum/2016 - Dated:- 13-6-2016 - Shri Joginder Singh, Judicial Member, and Shri Ashwani Taneja, Accountant Member For The Revenue : Smt. N.V. Nadkarni-DR For The Assessee : None ORDER Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 13/11/2015 of the Ld. First Appellate Authority, Mumbai. 2. During hearing of this appeal, nobody represented the assessee, in spite of issuance of registered AD notice, therefore, we have no optio .....

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trust is registered u/s 12A of the Income Tax Act, 1961 (hereinafter the Act), declared income of ₹ 66,733/- in its return filed on 29/09/2008 annexed with income and expenditure account, audited balance sheet. The ld. Assessing Officer completed the assessment vide order 15/12/2010 u/s 143(3) of the Act taxing the income and disallowing the claim of depreciation. On appeal, before the Ld. Commissioner of Income Tax (Appeal), the claim of the assessee was allowed against which the Revenue .....

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the issue in favour of the assessee. Before coming to any conclusion and the facts available on record, we find that the Hon ble jurisdictional High court in the case of Institute of Banking Personal (supra) held as under:- This reference is made at the instance of the Revenue under section 256(1) of the Income-tax Act, 1961, under which the following three questions have been referred to us for our opinion: "1 Whether, on the facts and in the circumstances of the case, the Tribunal was rig .....

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er, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the assessee to carry forward the deficit of earlier year and set it off against the surplus of subsequent years when the same was not allowable in the case of the assesseetrust in whose case income exempted under section 11 of the Income-tax Act, 1961?" Facts: The assessee is a charitable trust For the accounting year ending December 31, 1984 (assessment year 1984-85) a return of income was .....

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s of RBI, Central Recruitment Board, Banking Services Recruitment Board, etc The object of the assessee is charitable in nature The income of the assessee is exempt under section 11 of the Income-tax Act The assessee had claimed depreciation which was rejected by the Assessing Officer on the ground that capital expenditure incurred during the accounting year was allowed as a deduction from the income of the assessee and, therefore, the claim of the assessee for depreciation on buildings was disa .....

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itures on the ground that full deduction had been allowed in respect of capital cost of furniture and fixtures and if the depreciation is allowed, as claimed by the assessee, it would result in double deduction Further, during the assessment year in question the assessee had carried forward the deficit of the earlier years and had adjusted the deficit of the earlier years against the surplus of the subsequent years which was disallowed by the Assessing Officer on the ground that such carry forwa .....

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matter in favour of the assessee The decision of the appellate authority was confirmed by the Tribunal Hence, this reference has come before the court at the instance of the Department Findings: As stated above, the first question which requires consideration by this court is: whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years? In the case of CIT v Munisuvrat Jain [1994] Tax LR 1084 (Bom), the fac .....

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hich arose before the court for determination was: whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been treated as application of income in the year of acquisition? It was held by the Bombay High Court that section 11 of the Income-tax Act makes a provision in respect of computation of income of the trust from property held for charitable or religious purposes and it also provides for application and accumulation of income On the other hand, .....

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esent case, was advanced on behalf of the Revenue, namely, that depreciation can be allowed as deduction only under section 32 of the Income-tax 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 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-ta .....

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business or profession is not applicable However, the income of the trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the trust In view of the aforestated judgment of the Bombay High Court, we answer question No 1 in the affirmative, ie, in favour of the assessee and against the Department Question No 2 herein is identical to the question which was raised before the Bombay H .....

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e went in appeal before the Appellate Assistant Commissioner The appeal was rejected The Tribunal, however, took the view that when the Income-tax Officer stated that full expenditure had been allowed in the year of acquisition of the assets, what he really meant was that the amount spent on acquiring those assets had been treated as "application of income" of the trust in the year in which the income was spent in acquiring those assets This did not mean that in computing income from t .....

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xpenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in the subsequent year for charitable purposes? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilisation of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religi .....

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or carry forward of losses was relevant That, in the case of a charitable trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of the subsequent years We do not find any merit in this argument of the Department Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purpos .....

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urt in the case of CIT v Shri Plot Swetamber Murti Pujak Jain Mandai [1995] 211 ITR 293 Accordingly, we answer question No 3 in the affirmative, ie, in favour of the assessee and against the Department Accordingly, reference is disposed of with no order as to costs. In the light of the above decision, the judicial discipline demands that the Tribunal is expected to follow the decision from Hon ble Jurisdictional High Court. So far as, the contention of the ld. DR that the Ld. Commissioner of Inc .....

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