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The Asst. Commissioner of Income Tax (Exemptions) , Circle 1, Mangaluru Versus Vishwachetan Foundation, IBMR

2016 (9) TMI 959 - ITAT BANGALORE

Disallowance of depreciation as deduction U/s.35(2)(iv) is allowed in respect of capital expenditure on scientific research - depreciation allowability to charitable trust - double deduction - Held that:- CIT(Appeals) has allowed the claim of the assessee by following the various decisions including the decision of Hon'ble Bombay High Court in the case of CIT Vs. Institute of Banking Personnel Selections (2003 (7) TMI 52 - BOMBAY High Court ) as well as the decision in the case of CIT Vs. Societ .....

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e trust - Held that:- For attracting the provisions of section 13(1)(c)(ii), the beneficiary of income or property has to be the author trust, any person who has made substantial contribution to the trust in case HUF is the author of the trust, a member of the family or any trustee of the trust or manager, any relative of any such author, founder trustee or manager. Any concern in which any of the persons referred in clause (a) to (d) has a substantial interest. Thus in the case of the assessee, .....

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lant : Shri Sunil Kumar Agarwal, JCIT (D.R) For The Respondent : Shri H. N. Khincha, C.A. ORDER Per Shri Vijay Pal Rao, J.M. : This appeal by the revenue is directed against the order dt.27.2.2015 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2010-11. 2. The revenue has raised the following grounds : (i) Whether on facts and in circumstances of the case, the Hon'ble CIT(A) was correct in not following the decision of the Hon'ble Supreme Court in the case of Escorts .....

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in the case of Lissie Medical Institutions Vs CIT, Kochi in 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? iii) Whether the !TAT was right in not appreciating the intention of legislature not to allow double deduction at any point of time and therefore, for bringing clarity on the issue, the law has been amended w.e.f. AY 2015·16. iv) Whether the Hon'ble .....

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principles are applicable and depreciation is allowable to charitable trust, when in cases of trust which are covered by provisions of section 11,12, and 13, only application of income during the year is allowable U/s 11 of the Act and depreciation being a notional expenditure is not allowable. vi) Whether the Hon'ble CIT(A) was correct in allowing the ground of the assessee and dismissing the disallowance made by the AO in respect of the interest free loans made by the trust to another tru .....

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amend all or any of the grounds of appeal before or at the time of hearing of the appeal. 3. Ground Nos.1 to 3 are regarding disallowance of depreciation. 4. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. The assessee is a charitable trust and running educational institutions. During the assessment proceedings the Assessing Officer noted that the assessee has claimed depreciation of ₹ 45,36 .....

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case of CIT Vs. Institute of Banking Personnel Selections 264 ITR 110 (Bom) as well as the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Society of the Sisters of St. Anne 146 ITR 28. We find that this issue is now settled in favour of the assessee by a series of decisions by the High Courts as well as this Tribunal. In a recent decision in the case of M/s. Moogambigai Charitable and Educational Trust Vs. Addl. DIT (Exemptions) in ITA No.1224/Bang/2015 Dt.13.7.2016 the .....

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he case of DIT(E) Vs. Charanjiv Charitable Trust (2014) 43 taxmann.com 300 (Delhi). We have considered the order of the CIT(A). Identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cos .....

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g income of charitable instituitions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income. It was so held by the Hon ble Karnataka High Court in the case of CIT Vs. Society of Sisters .....

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have been referred to and distinguished by the Hon ble Court in the aforesaid decisions. 21. The issue raised by the revenue in the ground of appeal is thus no longer res integra and has been decided by the Hon ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H). The Hon ble Punjab & Haryana High Court after considering several decisions on that issue and also the decision of the Hon ble Supreme Court in the case of Escorts Ltd. (supra), ca .....

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e u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of .....

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rary view but then when two views are possible on an issue, the view favourable to the Assessee has to be followed. The decision of the Hon ble Punjab & Haryana High Court is in favour of the Assessee and has followed the decision of the Hon ble Karnataka High Court in the case of Society of Sisters of Anne (supra). The interpretation to the contrary given by the CIT(A) on the decision of the Hon ble Karnataka High Court in the case of Society of Sisters of Anne (supra) cannot therefore be a .....

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which has been claimed as an application of income under this section in the same or any other previous year. 17. As already stated, the aforesaid amendment is prospective and will apply only from A.Y. 2015-16. In view of the above legal position, we are of the view that the order of the CIT(A) has to be reversed. Consequently grounds No.4 & 5 raised by the Assessee are allowed. There is no dispute that the amendment of section 11(6) of the Act by the Finance Act, 2014 is prospective w.e.f. .....

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₹ 35,38,144 to Vidya Bharti Foundation wherein one of the trustee namely B.N.Mahendrakal of the assessee is also a trustee and one of the trustee of Vidya Bharati Foundation is also author of assessee-trust. Thus the ld. Assessing Officer has concluded that the interest free loan given to the Vidya Bharati Foundation amounts to indirect benefit to the trustee of the assessee who is also trustee in the Vidya Bharati Foundation as well as the trustee who is an author of the assessee-trust. A .....

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ition can be made in respect of the amount advanced to the Vidya Bharati Foundation without charging interest. 6. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. The learned Departmental Representative has placed reliance on the provisions of section 13(1)(c) and 13(3) of the Act wherein the persons specified as directly or indirectly benefitted by use or applied of the income or any property of th .....

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e Assessing Officer. 7. On the other hand, the learned Authorised Representative has submitted that this amount was given to another trust which is undisputedly is running educational institutions therefore the assessee trust as well as Vidya Bharati Foundation are similar and therefore this amount is applied by the assessee towards the objective of the assessee trust. He has further submitted that even otherwise it cannot be regarded as a direct or indirect benefit to the persons as specified u .....

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tution. It is also not disputed that none of the trustees of these two trusts is getting any benefit from the affairs of the trust. Therefore providing the interest free loan/advance to another trust cannot be regarded as applying the income or asset or property of the trust for direct or indirect benefit of these trustees as alleged by the Assessing Officer. As per the provisions of Section 13(1)(c)(ii) benefit of section 11 is not available in respect of an income or any property of the trust/ .....

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on whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest .....

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