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2016 (7) TMI 1046 - KARNATAKA HIGH COURT

2016 (7) TMI 1046 - KARNATAKA HIGH COURT - TMI - Entitlement to claim depreciation on capital assets by assessee trust - Held that:- Tribunal is right in law in holding that assessee is entitled to claim depreciation on capital assets. See COMMISSIONER OF INCOME-TAX vs. VATIKA TOWNSHIP P.LTD.[2014 (9) TMI 576 - SUPREME COURT] - ITA NO. 384 OF 2016 - Dated:- 28-6-2016 - MR. JAYANT PATEL AND MR. B. SREENIVASE GOWDA JJ. Appellants (By Sri. E.I. Sanmathi, Adv.) JUDGMENT JAYANT PATEL J. The appellant .....

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e appellants. 3. Learned counsel for the appellants fairly concedes that the Tribunal in the impugned order has relied upon its decision in the case of ACIT -vs- Shri Adichunchunagiri Shikshana Trust in ITA Nos.774 & 775 (Bang) 2011. 4. Learned counsel further brought to our notice that the aforesaid decision of the Tribunal was challenged by the Department before this Court in ITA No.1/2013. This Court vide order dated 22.02.2016 has dismissed the appeal. 5. We may record that this Court in .....

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c) of the Act. The question herein revolves around Section 11 of the Act. For the purpose of narrating the facts, we are considering ITA No.62/2010. 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 aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Banga .....

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sment 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. ITA No.431/2013, ITA Nos.56/2013 and 108/2014 are filed by the revenue challenging the orders passed .....

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s 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 for the revenue would contend that the depreciation is not allowable as deduction in computing the total income of a charit .....

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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, application of income is allowed under Section 11 of the Act, no depreciation can be allowed under Section 32 of the Act. Reliance .....

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ol. 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 - IV of the Act deals with the income under the five heads of income enumerated under Section 14. The exemption entitlement under .....

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n 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 for the assessee has placed reliance on the following Judgments: [1] COMMISSIONER OF INCOME-TAX vs. VATIKA TOWNSHIP P.LTD., [(2014) 367 ITR 466 (S .....

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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 under trust cannot be the total income because S.11(1) says that the former shall not be included in the latter, of the person in receipt of the income. The expre .....

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er 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 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 inv .....

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f 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; 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 p .....

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] 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 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 t .....

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n 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 Bombay in the case of Institute of Banking (supra) after placing reliance on the Judgment of CIT vs Muniswarat Jain (1994 TLR 1084) on an identical issue, held:- In that mat .....

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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 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 deprec .....

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(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 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: Ther .....

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ovisions of the Act to which reference hasbeen 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 hear 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 it is intended .....

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a-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 disallowing a double deduction will be meaningless even i .....

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sessees. 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, the assessee can get only one of the two allowances in questio .....

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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 Sisters of St.Anne [supra]. This judgment of co-ordinate Bench .....

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termined 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 intent of the legislature in denying the depreciation deduction in computing the income of Charitable Trust is to be effective from 1.4.2015. This view is further supported by the Notes on Clauses in Finance [No.2} .....

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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 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, acqui .....

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ll 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 Memo explaining the provisions in Finance [No.2] Bill, 2014 reads thus: The second issue which has arisen is that the existing scheme of section 11 as well as section 10(23C) provides exemption .....

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ed 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 apply in relation to the assessment year 2015-16 and subsequent assessment years. 24. The Constitution Bench of the Apex Court in Vatika Township [P] Ltd., s case [supra], had laid down general principles concerning retrospectivity in Parag .....

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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 Association, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was a .....

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t 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 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 ari .....

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