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Krishna Charitable Society Versus Addl. CIT, Range-1, Ghaziabad

2017 (9) TMI 1030 - ITAT DELHI

Exemption u/s 11 - transport and hostel facilities surplus considered as business income of the assessee society - proof of charitable activities - Held that:- As observed that the statutory obligation of maintenance of the hostel, which involved supply, and sale of food was an integral part of the objects of the Institute nor could the running of the hostel be treated as the principal activity of the Institute. The Institute could not be held to be doing business. Further meals being supplied i .....

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ging and boarding as they are engaged in education activities. Therefore we reverse the finding of the lower authorities and held that transport and hostel facilities surplus cannot be considered as business income of the assessee society which is mainly engaged in business activities and these activities are subservient to the main object of education of the trust. In the result 1 3 of the appeal of the assessee are allowed. - Disallowance of depreciation on the assets which have already .....

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PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)-Ghaziabad dated 29.05.2015 for the Assessment Year 2011-12. 2. The assessee has raised the following grounds of appeal:- 1. That on the facts and circumstances of the case and in the law the learned Commissioner of income-tax (Appeals) has grossly erred in confirming the additions made by Assessing Officer treating Hostel facility provided to college students as business of the appellant s .....

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nsideration like surplus should have been reimbursed to students or used to reduce fee or giving contents of some website about fall in demand for rooms at Meerut etc, even after accepting that maintenance of such hostel is mandatory as per the concerned controlling Authority and it was an integral and inalienable part of educational activity. Thus finding is perverse. 3. That the learned assessing officer has failed to appreciate the fact that maintaining hostel/mess facility to students is an .....

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and as such exempt under the provisions of section 11 to 13 of the Act and learned Commissioner of Income- tax (Appeals) has also confirmed the view taken by Assessing officer. 4. That the Learned Commissioner of Income-tax ( Appeals) has also erred on facts and in law to confirm the disallowance made by Assessing officer ₹ 5,70,79,339/- being the deprecation as claimed by debiting the same to the Income & Expenditure Account of the Society for the purposes of working out the surplus i .....

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ive years to justify that addition in Fixed Assets could not be utilized as application of income in past years due to excess utilization in past years, hence the same could not be termed as double claim of depreciation. Hence the disallowance of the depreciation is not only unjustified but it is illegal and bad in the eyes of law. 3. Assessee society is running and engineering college it is registered with registrar of societies as well as under section 12AA of the income tax act. Assessee file .....

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erefore according to him the transportation and hostel running itself is not an educational activity and cairn at the most be said to be incidental to the object of the trust. Therefore, according to him the provisions of subsection 4A of section 11 apply to these activities. He further held that educational activity and hostel in transportation activities are separable and the duties of running hostel and transportation activities and business, which requires separate books of accounts to be ma .....

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its income and expenditure account. Therefore explanation was asked from the assessee that why depreciation should not be disallowed for the reason that hundred percent application of capital expenditure has already been allowed to the assessee in the year of investment and now once again claim of the depreciation on the same assets amounts to double deduction. Therefore, following the decision of the Hon ble Supreme Court in case of escorts Ltd and Querela High Court decision in case of Iessi m .....

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depreciation. With respect to the running of the hostel activities is a business activity. He relying on the decision of the Madras High Court in case of director of income tax versus Wallington charitable trust 330 ITR 24 upheld the finding of the Ld. assessing officer. However, he allowed relief to the assessee with respect to the expenditure of ₹ 1 204120/-. Therefore, assessee being aggrieved with the order of the Ld. CIT A is in appeal before us. 7. Ld. authorized representative vehe .....

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on society versus CIT, ITA No. 2136/del/2016 dated 30/05/2016 d. DDIT (exemption) versus the young woman, Christian Association of India ITA number 02/04/2008/del/2013 dated 29 to 2016 e. IT (exemption) versus Suhasini charitable trust, Swami Narayanan Akshardham temple ITA No. 4330/del/2012 dated 17/03/2016 f. DIT (exemption) versus Lala Lajpatrai Memorial trust ITA number 02/03/2007/2013 dated 13/04/2016 of Bombay High Court g. Hiranadnani foundation V ACIT ITA No. 563/am/2016 dated 27/05/2016 .....

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15 dated 10 to 2017 d. Ramun education society versus additional Commissioner of income tax ITA No. 4641/DEL/2015. Date of order. 15/2/2017 e. friends charitable society versus ACIT ITA No. 4640/DEL/2015 9. In view of this, the claim of the Ld. authorized representative v was both the issues are covered in favour of the assessee. 10. Ld. departmental representative vehemently relied upon the order of the lower authorities. 11. We have carefully considered the rival contentions and perused the or .....

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o not the case of revenue that assessee is primarily engaged in the business of providing hostel facilities to the students. The above issue is no more res Integra in view of the decision of the Hon ble Karnataka High Court in CIT versus Karnataka lingayat education society in ITA No. 5004/2012 dated 15/10/2014 wherein it has been held that providing hostel to the students/staff working for the society s incidental to achieve the object of providing education, namely the object of the society. I .....

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76) 38 STC 428 (All) with respect to the visitors' hostel maintained by the Indian Institute of Technology where lodging and boarding facilities were provided to persons who would come to the Institute in connection with education and the academic activities of the Institute. It was observed that the statutory obligation of maintenance of the hostel, which involved supply, and sale of food was an integral part of the objects of the Institute nor could the running of the hostel be treated as .....

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e, the only activity of that particular trust was renting out of the property and not education. We are also not averse to considering the latest legal developments too where in the recently introduced new legislation of Goods and service tax it is provided that no GST would be chargeable on the hostel fees etc recovered from the Students, faculties and other staff for lodging and boarding as they are engaged in education activities. Therefore we reverse the finding of the lower authorities and .....

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application of funds. Hon ble Delhi high court s decision in the case of DDIT versus Indraprastha Cancer Society in ITA number 240 /2014 dated 18/11/2014 squarely covered is issue in favour of the assessee where the Hon ble Delhi High Court after considering all the cases relied upon by the revenue. In this particular case, including the case of Hon ble Supreme Court in escorts Ltd versus union of India, was considered and after that it was held as under 2. The respondent-assessees are charitab .....

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the same capital asset utilised for business. Revenue submits that this would amount to double deduction. 3. This High Court in Director of Income Tax versus Vishwa Jagriti Mission (2013) 262 CTR 558 has held that the claim for depreciation should be allowed as per principles relating to commercial accountancy, when computing business income. Reliance placed by the Revenue on the decision of the Supreme Court in Escorts Limited versus Union of India, (1993) 199 ITR 43 (SC), was dispelled and di .....

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t of income available for application for charitable purposes. Decisions of other High Courts in CIT versus Sheth Manilal Ranchhoddas Vishram Bhavan Trust, (1992) 198 ITR 598 (Guj.), CIT versus Raipur Pallottine Society, (1989) 180 ITR 579 (MP), CIT versus Society of the Sisters of ST. Anne, (1984) 146 ITR 28 (Kar.), CIT versus Trustee of H.E.H. the Nizam's Supplemental Religious Endowment Trust, (1981) 127 ITR 378 (AP) and CIT versus Rao Bahadur Calavala Cunnan Chetty Charities, (1982) 135 .....

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sters of St. Anme (Supra), an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under Section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the total income as defined in Section 2(45) of the Act and t .....

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circular No.5-P (LXX6) of 1968, dated July 19,1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under: Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word income should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the .....

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latter, if the trust is to get the full benefit of the exemption u/s. 11(1). 4. Accordingly, the appeal was dismissed after observing that no contrary judgment has been brought to the notice of this Court. 5. The High Court of Kerala in Lissie Medical Institutions versus Commissioner of Income Tax, (2012) 348 ITR 344 (Ker) has taken a different view, inter alia, holding as under: 5. It is settled position through several decisions of High Courts and Supreme Courts that when business is held in t .....

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includes depreciation u/s 32, assessee is entitled is the case pressed before us by the Senior counsel appearing for the assessee. We have no doubt in our mind that business income of charitable trust also has to be computed in the same manner as provided u/s 29 of the Income Tax Act. However, the issue that requires consideration is when the expenditure incurred for acquisition of depreciable assets itself is treated as application of income for charitable purposes u/s 11(1)(a) of the Act, shou .....

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charitable institutions will be generating unaccounted income equal to the depreciation amount claimed on an year to year basis which is nothing but black money. This aspect is not seen considered in any of these decisions. We, therefore, sought the views from the Central Board of Direct Taxes. Senior Standing counsel Sri.P.K.R.Menon, appearing for the Revenue produced clarification obtained from the Central Board wherein they have stated as follows: The Central Board of Direct Taxes is of the c .....

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f application in the income expenditure account. This would imply that a correct figure of surplus from the trust property is reflected in the Income & Expenditure account of the trust to determine the income for the purpose of application under section 11 of the Income Tax Act. This would reduce the possibility of revenue leakage which may be a cause for generation of black money. 6. Noticing the aforesaid judgment as well as circular/clarification dated 2nd Feb, 2012 issued by the Central .....

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rger bench. This Court referred to the following example to explain the controversy in question: 5. ... In order to appreciate the contention raised by the Revenue, we would like to give one example which would clarify the contention or the issue raised before us. An assessee, a charitable institution, say has income from property held under Trust of Rs.1,00,000/-. As per mandate of clause a, 85% of the said amount i.e. Rs.85,000/should be spent in the said financial year. The said assessee spen .....

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ated as application of money for the purpose of clause a to Section 11(1). Thereafter, reference was made to the following quotation from the judgment of the Karnataka High Court in Society of the Sisters of St. Anne (supra) : 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 expression total income has been d .....

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. 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 parting with the money. It seems to us that it need not nece .....

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puted 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. At the end of its effective life, the assets ceases to earn revenue, i.e., the capit .....

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ll not contain a true record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against the profits; having been purchased the asset is, in effect, then hired by capital to revenue, and the true profit cannot be ascertained until a suitable charge for the use of the asset has been made. Moreover, unless provision is made for depreciation, the balance- sheet will not present a true and fair view of the state of affairs ; assets should be shown at .....

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ipts and cash payments which find entries in the books of account. Mercantile system of accounting was explained by the Supreme Court in Keshav Mills Ltd. v. CIT [1953]23 ITR 230 at 230 in the following words : The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. Tha .....

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itable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The Board also appears to have understood the income u/s. 11(1) in its commercial sense. The relevant portion of the Circular No. 5-P (LXX-6) of 1968, dated July 19, 1968, reads: Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word 'income' should be understood in its commercial sense, i.e., book income, after adding back .....

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in the aforesaid manner, should be not less than 75 per cent. of the latter, if the trust is to get the full benefit of the exemption u/s. 11(1). This court thereafter referred to the circular/clarification dated 2nd February, 2012 by the CBDT, issued after decision of Kerala High Court in Lisse Medical ( supra) and has expounded as under: 9. After the decision of the Kerala High Court in Lissie Medical Institution vs. CIT (supra), the Board issued a fresh circular or clarification dated 02.02.2 .....

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erty held under trust under the relevant head of income, is required to be added back while computing the income for the purpose of application in the income expenditure account. This would imply that a correct figure of surplus from the trust property is reflected in the Income and Expenditure account of the trust to determine the income for the purpose of application under section 11 of the Income Tax Act. This would reduce the possibility of revenue leakage which may be a cause for generation .....

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bserved that the language of the sub-clause (c) was clear and lucid but conspicuously different from section 11(1) of the Act. It has been observed in Indian Trade Promotion Organisation (supra) : 11. Clause a of Section 11(1) stipulates that income derived from property held under trust wholly for charitable or religious purposes is to be applied for such purposes in India and where such income is set aside or accumulated, it should not be in excess of 15% of the income from such property. Thus .....

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. Decision in the case of Escorts Ltd. (supra) was considered by the Delhi High Court in DIT vs. Vishwa Jagriti Mission (supra) decided on 29th March, 2012 and was distinguished for the following reasons. 13. The judgment of the Supreme Court in Escorts Limited Vs. Union of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a c .....

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e as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in r .....

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....... (b)......................................................... (c) Where a deduction allowed for any previous year under this sub-section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under [clause (ii) of sub- section (1)] of section 32 for the same or any subsequent previous year. 13. The language of the sub-clause c to Section 35(2B) is conspicuous and entirely different and wordings are clear and lucid. The la .....

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be referred to and we notice that the language of the said explanation is absolutely different from the language used in Clause (a) to Section 11(1). Section 11(1)(a) is a peculiar provision which postulates application of income and it is not dealing with expenditure as such. The legislative desire is that money should be applied for the purpose of charity. In Escorts Ltd.(supra), the Supreme Court had observed that they were concerned with expenditure and since the entire costs of the capital .....

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ed and affirmed, were noticed. Referring to the decision of the Kerala High Court in Lissie Medical Institutions (supra) it was observed: 15. Kerala High Court was also conscious of the said decisions and the fact that Section 11(1)(a) had been interpreted in a different manner. It was in these circumstances that the Kerala High Court in the last portion of paragraph 6, as quoted above, has stated that the assessee would be entitled to write back depreciation and if done, the Assessing Officer w .....

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legal interpretation which has continued since 1984, if disturbed and implemented, would not appropriately resolved. Consistency and certainty is more appropriate. 16. The equally plausible and consistent interpretation of clause (a) of Section 11(1) of the Act is that income derived from property must be calculated as per the principles of the Act. The said clause is not a computation provision and does not disturb the income earned or available but postulates that the income as computed in ac .....

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Act. 9. To our mind, therefore, the issue has been examined in depth and detail twice and thus there is no error in the impugned orders passed by the Tribunal. However, learned counsel for the Revenue has drawn our attention to the decision dated 18th March, 2014 in ITA No. 322-323/2013 titled Director of Income Tax (Exemption) versus Charanjiv Charitable Trust, wherein it has been held: 30. So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced. The .....

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ed assets made during the previous year relevant to the assessment year 2006-07, the CIT (Appeals) held that since the cost of the assets was not allowed as a deduction by way of application of income, depreciation should be allow. The CIT (Appeals) has thus made a distinction between assets the cost of which was allowed as deduction as application of income and assets, the cost of which was not so allowed. The Tribunal has not kept this distinction in view, but has proceeded to rely upon a judg .....

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n 19.07.1968, that while computing the income of the trust available for application for charitable purposes, depreciation on assets used for charitable purposes should be allowed. The point to be noticed is that in this judgment, this Court referred to and distinguished the judgment of the Supreme Court in Escorts Ltd. (supra) on the ground that in Escorts (supra), the Supreme Court was concerned with a case where the deduction of the cost of the asset was allowed under Section 35(1) as capital .....

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nction has not been kept in view by the Tribunal which seems to have erroneously relied on the judgment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has already been allowed as application of income. We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets. 10. The aforesaid paragraph refers to the decision in the case of Vishwa Jagriti Mission (supra) but ratio was distinguished .....

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nd thereafter depreciation was being claimed. The said case, therefore, appears to be a peculiar one wherein deduction as expenditure and depreciation was being claimed simultaneously, while computing the taxable income under the head profits and gains from business . The said decision dated 18th March, 2014 does not refer to the decision in Indian Trade Promotion Organisation (supra) which was decided on 27th November, 2013. The judgment in the case of Indian Trade Promotion Organisation (supra .....

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) being prior in point of time would act as binding precedents and could not have been overruled or dissented from by a coordinate Division Bench. 11. By Finance (No. 2) Act of 2014, sub-section (6) to Section 11 stands inserted with effect from 1st April, 2015 to the effect that where any income is required to be applied, 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 respe .....

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Cancer Society, Abul Kalam Azad Islamic Awakening and in the case of M/s Sanskriti Educational Society (ITA No. 348/2014). Similarly, we do not think it is necessary and required that we should issue notice in the application for condonation of delay filed in the case of M/s Sanskriti Educational Society (ITA Nos. 463 and 464/2014) as on merits the Revenue is not entitled to succeed. In these appeals, the applications for condonation of delay shall be treated as dismissed and as a sequitur the .....

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ng the principles laid down in 199 ITR 43(SC)?' 3. The issue before us relates to the grant of depreciation to an entity seeking exemption in terms of section 11 of the Income Tax Act. (in short 'Act ) which deals with the assessment of Income from property held for charitable or religious purposes. The relevant parts of Section 11 read as follows:- 1. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year o .....

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held under trust includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be appli .....

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vesting or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely : - (i)...... (ii)...... . ...... (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 .....

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II Act, 2014 with effect from 1.4.2015, states that the income to be determined for the purposes of application or accumulation shall not include a deduction or allowance by way of depreciation or otherwise in respect of any asset, the acquisition of which has been claimed as an application of an income under the provisions of section 11 in the same or any other previous year. The application of this sub-section retrospectively in regard to assessment years prior to 01.04.2015 is the subject mat .....

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t in its present form, it includes within its ambit yoga and the preservation of environment, monuments or places or objects of artistic or historic interest. The object of Section 11 is thus laudable and seeks to extend a benefit to entities engaging in activity of a specified nature. In the present batch of appeals there is no dispute in this regard. 6. We have heard Mr.J.Narayanaswamy appearing on behalf of the Revenue and several counsels appearing on behalf of the assesses and set out in br .....

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ia and others (SC) (1999 ITR 43) which deals with the grant of depreciation to an assessee also claiming weighted deduction under section 35(1) of the Act in respect of expenditure incurred on scientific research. 8. The provision, as it originally stood, placed no restriction on the claim of weighted deduction simultaneous with the claim of depreciation. While this is so, it was felt that such double claim was not the intention of Legislature and the provisions of Section 35(2) (iv) were amende .....

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ndamental, though 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 it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions - both under s.10(2)(vi) and s.10(2)(xiv) under the 1922 Act or under s.32(1)(ii) and 35(2)(iv) of the 1922 Act - qua the same expenditure. ...... ..... & .....

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ssessee could not get any depreciation in relation thereto. In respect of assets acquired in previous year relevant to assessment year 1968-69 and thereafter, their cost was written off in the previous year of acquisition and no depreciation could be allowed in that year. This is clear from the statute. Equally, it is not envisaged, and indeed, it would be meaningless to say, that depreciation could be allowed on them thereafter with a further absurdity that it could be allowed starting with the .....

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s as they stood earlier.' 10. Reliance was placed by Mr. Narayanaswamy on paragraph 7 of the judgment that reads as follows:- 'I find it difficult to agree with the reasoning of the assessees. Acceding to it would amount to placing an unreasonable interpretation upon the relevant provisions and to negating the intention of Parliament. I find it difficult to agree that the Indian Legislature - as also the Parliament made a conscious departure from the English Amendment with the idea of pr .....

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d having to its unusual nature and its serious impact on the Revenues of the State. ........ ........ 'That the Parliament never intended to provide for a double deduction is also the opinion of the Direct Tax Law Committee. In its interim report, (December, 1977) the Committee (popularly known as 'Choksi Committee') had this to say in para 3.29 of its report: 3.29.- Our attention has also been drawn to certain anomalous situations in the matter of allowance of depreciation. In certa .....

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der section 35. If and to the extent that there is any anomaly or contrary view possible on a construction of section 35, we recommend that the law should be clarified to provide that no depreciation under section 35 shall be allowable in respect of capital expenditure for scientific research qualifying for deduction under section 35. 11. He would argue that that granting depreciation simultaneous with exemption under section 11 would result in a relief over and above 100 % of the income which w .....

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e assessee again claims the same amount in the form of depreciation, such notional claim becomes cash surplus available with the assessee, which goes outside the books of accounts of the Trust unless it is written back which is not done. ......... ........... We have no doubt in our mind that business income of charitable trust also has to be computed in the same manner as provided u/s 29 of the Income Tax Act. However, the issue that requires consideration is when the expenditure incurred for a .....

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available. In fact, going by the several decisions of the various High Courts, we are sure that based on these decisions all the charitable institutions will be generating unaccounted income equal to the depreciation amount claimed on an year to year basis which is nothing but black money. This aspect is not seen considered in any of these decisions.' 13. The contentions of the learned counsels for the assessees are as follows: (i) Mr. Sridhar would state that in computing the income of an e .....

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(45) defining 'total income , and computation of 'income in terms of section 11 of the Act. Referring to the scheme of section 11, he would contend that the provisions thereof constituted a complete code which took into account the application of depreciation as a commercial principle and not necessarily one of accountancy. 14. Mr. J. Balachander would refer to the decisions of the Kerala High Court in Catholic Diocese of Tiruvalla V. State of Kerala (209 ITR 596) and Andhra Pradesh High .....

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s of Escorts (supra) from the present case on the ground that by virtue of granting weighted deduction under section 35, the asset itself was effaced which is not the case in an assessment under section 11 of the Act. He would also point out that the Department had filed petitions for Special Leave challenging the decisions of the Punjab and Haryana High Court favouring the assessee that had been dismissed whereas, the Special Leave Petitions filed by the assessee challenging the decision of the .....

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ue, had considered the judgment of the Supreme Court in Escorts and had distinguished the same. The aforesaid orders of the Tribunal dated 25.03.2011 have attained finality. Thus, while adopting the arguments of other counsels, he would add that the principle of consistency stood violated in his case. 17. Mr.N.V.Balaji, would address us specifically on Accounting Standard 6 dealing with Depreciation Accounting issued by the Institute of Chartered Accountants of India and made mandatory on or aft .....

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respect of commercial, industrial or business activities of any enterprise, irrespective of whether it is profit oriented or is established for charitable or religious purposes. Accounting Standards will not, however, apply to those activities which are not of commercial, industrial or business nature, (e.g., an activity of collecting donations and giving them to flood affected people.) It is also clarified that exclusion of an entity from the applicability of the Accounting Standards would be .....

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e. 18. This was clarified by the 'Technical Guide on Internal Audit for not-forprofit organizations issued by the Internal Audit Standards Board of the ICAI recommending that the Accounting Standards setting out wholesome principles of accounting including depreciation should be followed by all non- profit organisations irrespective of whether any part of their activity might be commercial, industrial or business in nature. 19. We have heard the arguments in detail and carefully perused the .....

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tive lifetime, and the amount of provision made in respect of an accounting period is extended to represent the proportion of such expenditure which has expired during that period. 21. The necessity of providing for depreciation emanates from the fact that once an asset ceases to be effective, it will have to be replaced. Providing for depreciation would ensure setting aside out of the revenue of an accounting period, the estimated amount by which the capital investment has expired during that p .....

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ue profit cannot be ascertained until an analogous charge for the use of the asset has been made. Moreover, unless provision is made for depreciation, the Balance Sheet will not present a true and fair view of the state of affairs, since the assets will be shown at an amount which is in excess of the true amount of the unexpired expenditure incurred on their acquisition.' 22. The claim of depreciation is thus part of standard accounting practice which is required for fair presentation of a c .....

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n. 23. The question before the Supreme Court in the matter of Escorts related to duel claims under section 35 of the Act in relation to the same asset - the first, weighted deduction and the second, depreciation. Thus, two benefits were extended in respect of the very same asset. We are faced with an entirely different and distinct position in the present batch of appeals - one that involves a claim for exemption in respect of income earned from property held for charitable or religious purposes .....

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ons (supra). Though the attention of the Division Bench of the Kerala High court was drawn to the decision in Rao Bahadur Calavala Cunnan Chetty Charities (supra) and several decisions along similar lines, the court was persuaded to take a contrary view preferring to follow the rationale of the judgment of the Supreme Court in the case of Escorts (supra). 25. As noted by us earlier, the judgment of the Supreme Court in Escorts turns on an entirely different position of law and would not impact t .....

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am Bhavan Trust 198 ITR 598 = 2003-TIOL-944-HC-AHM-IT; Punjab and Haryana High court in CIT Vs. Market Committee Pipli (330 ITR 16) and CIT Vs. Tiny Tots Education Society (330 ITR 21) = 2010-TIOL-550-HC-P&H-IT; Madhyapradesh High Court in CIT Vs. Devi Sakuntala Tharal Charitable Foundation (358 ITR 452) and the Calcutta High Court in CIT Vs. Silluguri Regulated Market Committee (366 ITR 51). In addition, the Delhi High Court in DIT Vs. Vishwa Jagriti Mission 262 CTR 558 = 2012-TIOL-271-HC-D .....

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o substantial questions of law. '1. Whether on the facts and circumstances of the case, the Tribunal was right in disallowing the claim of depreciation on assets acquired by way of application of funds in the earlier years, contrary to judgments of several High Courts? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the excess application of the earlier year could not be set off against the income of the current year contrary to the .....

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my, learned counsel appearing for the Department does not seriously object to the argument advanced on merits, he would raise a technical objection to the effect that in the present case, the claim was made under a revised return. The original return of income was filed only on 31.10.2007 beyond 31.10.2006 when it was due and as such would debar the consideration of the claim made in the revised return. 30. Records reveal that the original return was filed on 31.10.2007 and a revised return was .....

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o take into account the excess application of previous years as application for the present year and the assessment was completed on the basis of the original return alone. The Commissioner of Income Tax (Appeals), adjudicated the issue on merits, deciding the same against the assessee which order was confirmed by the Income Tax Appellate Tribunal. 31. A recent amendment to section 139(5) reads thus; 'Following sub-section (5) shall be substituted for the existing subsection( 5) of section 1 .....

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tion (1) or under sub section (4) within the extended period of one year from the end of the relevant assessment year or before completion of assessment, whichever is earlier. The amendment is intended to confer a benefit on an assessee and the retrospective application thereof has to be examined by the assessing authority. We remand this issue to the file of the assessing authority for the limited purpose of examining the applicability of the amendment extracted above. If the amendment is found .....

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wance 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. .... 34.The short point that arises for decision is whether the provisions of Section 11(6) inserted by Finance (No.2) Act, 2014 w.e.f. 1.4.2015, operate prospectively with effect from assessment year 2015-16 or retrospectively with respect to earlier years as well. In this regard, M/s.Pushya Sitaraman, lea .....

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general provision of exemptions which are contained in section 10 of the Income-tax Act vis-à-vis the specific and special exemption regime provided in sections 11 to 13 of the said Act. As indicated above, the primary objective of providing exemption in case of charitable institution is that income derived from the property held under trust should be applied and utilized for the object or purpose for which the institution or trust has been established. In many cases it had been noted th .....

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espect of income derived from property held under trust in the first place. 7.4.1 Sections 11, 12 and 13of the income-tax Act are special provisions governing institutions which are being given benefit of tax exemption. It is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibi .....

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d (2009) and CIT vs Vatika Township (367 ITR 466) = 2014-TIOL-78-SC-IT-CB for the proposition that an amendment that increases the liability of an assessee is liable to be applied only prospectively. Mr. Narayanaswamy would object stating that the amendment had been inserted to a correct an existing anomaly and thus was clearly clarificatory, and consequently retrospective in operation. 36. We do not agree with the Revenue. The amendment, inserted specifically with effect from Assessment Year 20 .....

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-2016 only. 14. Therefore in view of the above two decisions of the Hon ble high courts, we reverse the finding of the lower authority and direct the Ld. assessing officer to delete the disallowance of these 5707 9339/- being the amount of depreciation claimed by the assessee on the assets on which deduction is application of income has already been granted. In the result ground No. 4 of the appeal of the assessee is allowed. 15. In the result appeal of the assessee is allowed. Order pronounced .....

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ety versus ACIT ITA No. 4640/DEL/2015 9. In view of this, the claim of the Ld. authorized representative v was both the issues are covered in favour of the assessee. 10. Ld. departmental representative vehemently relied upon the order of the lower authorities. 11. We have carefully considered the rival contentions and perused the orders of the lower authorities and other judicial pronouncement placed before us. In the grounds No. 1 - 3 assessee is contesting that addition made by the Ld. assessi .....

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view of the decision of the Hon ble Karnataka High Court in CIT versus Karnataka lingayat education society in ITA No. 5004/2012 dated 15/10/2014 wherein it has been held that providing hostel to the students/staff working for the society s incidental to achieve the object of providing education, namely the object of the society. In view of this we are of the opinion that providing of hostel facilities and transport facilities to the student and staff member of the educational Institute cannot .....

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persons who would come to the Institute in connection with education and the academic activities of the Institute. It was observed that the statutory obligation of maintenance of the hostel, which involved supply, and sale of food was an integral part of the objects of the Institute nor could the running of the hostel be treated as the principal activity of the Institute. The Institute could not be held to be doing business. Further meals being supplied in a hostel to the scholars, visitors, gue .....

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oo where in the recently introduced new legislation of Goods and service tax it is provided that no GST would be chargeable on the hostel fees etc recovered from the Students, faculties and other staff for lodging and boarding as they are engaged in education activities . Therefore we reverse the finding of the lower authorities and held that transport and hostel facilities surplus cannot be considered as business income of the assessee society which is mainly engaged in business activities and .....

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overed is issue in favour of the assessee where the Hon ble Delhi High Court after considering all the cases relied upon by the revenue. In this particular case, including the case of Hon ble Supreme Court in escorts Ltd versus union of India, was considered and after that it was held as under 2. The respondent-assessees are charitable institutions to whom Sections 11 to 13 and other relevant provisions of the Income Tax Act, 1961 (Act, for short) apply. The issue raised in the present appeals i .....

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Jagriti Mission (2013) 262 CTR 558 has held that the claim for depreciation should be allowed as per principles relating to commercial accountancy, when computing business income. Reliance placed by the Revenue on the decision of the Supreme Court in Escorts Limited versus Union of India, (1993) 199 ITR 43 (SC), was dispelled and distinguished. In Escorts Limited (supra) the claim for depreciation under Section 32 of the Act was denied as the entire expenditure on the capital asset had been all .....

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8 ITR 598 (Guj.), CIT versus Raipur Pallottine Society, (1989) 180 ITR 579 (MP), CIT versus Society of the Sisters of ST. Anne, (1984) 146 ITR 28 (Kar.), CIT versus Trustee of H.E.H. the Nizam's Supplemental Religious Endowment Trust, (1981) 127 ITR 378 (AP) and CIT versus Rao Bahadur Calavala Cunnan Chetty Charities, (1982) 135 ITR 485 (Mad.) were referred to in affirmation of the legal ratio. It was, inter alia, held: 11. .........The only question is whether the income of the assessee sho .....

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on under Section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the total income as defined in Section 2(45) of the Act and that the word income is a wider term than the expression profits and gains of business or profession . Reference was made to the nature of depreciation and it was p .....

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erstood in its commercial sense. The circular is as under: Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word income should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in .....

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been brought to the notice of this Court. 5. The High Court of Kerala in Lissie Medical Institutions versus Commissioner of Income Tax, (2012) 348 ITR 344 (Ker) has taken a different view, inter alia, holding as under: 5. It is settled position through several decisions of High Courts and Supreme Courts that when business is held in trust by charitable institutions income from business has to be computed by granting deductions provided u/s 30 to 43D as provided under S.29 of the Income Tax Act. .....

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t business income of charitable trust also has to be computed in the same manner as provided u/s 29 of the Income Tax Act. However, the issue that requires consideration is when the expenditure incurred for acquisition of depreciable assets itself is treated as application of income for charitable purposes u/s 11(1)(a) of the Act, should not the cost of such assets to be treated as nil for the assessee and in that situation depreciation to be granted turns out to be nil. However, if depreciation .....

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his aspect is not seen considered in any of these decisions. We, therefore, sought the views from the Central Board of Direct Taxes. Senior Standing counsel Sri.P.K.R.Menon, appearing for the Revenue produced clarification obtained from the Central Board wherein they have stated as follows: The Central Board of Direct Taxes is of the considered view that where an assessee has acquired an asset through application of income and has also claimed this amount as expenditure in its income expenditure .....

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ture account of the trust to determine the income for the purpose of application under section 11 of the Income Tax Act. This would reduce the possibility of revenue leakage which may be a cause for generation of black money. 6. Noticing the aforesaid judgment as well as circular/clarification dated 2nd Feb, 2012 issued by the Central Board of Direct Taxes, a Division Bench of this Court re-examined the entire issue in ITA No. 7/2013, Director of Income Tax (Exemption) versus Indian Trade Promot .....

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, we would like to give one example which would clarify the contention or the issue raised before us. An assessee, a charitable institution, say has income from property held under Trust of ₹ 1,00,000/-. As per mandate of clause a, 85% of the said amount i.e. ₹ 85,000/should be spent in the said financial year. The said assessee spends and acquires a capital asset for ₹ 50,000/-. The purchase price for acquisition of the capital asset i.e. ₹ 50,000/- is treated as applica .....

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from the judgment of the Karnataka High Court in Society of the Sisters of St. Anne (supra) : 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 expression total income has been defined under s. 2(45) of the Act to mean the total amount of income referred to in s. 5 computed in the manner laid down in this Act .....

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till 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 parting with the money. It seems to us that it need not necessarily be so. The expenditure should be understood as necessary outgoings. The depreciation is nothing but decrease in value of prop .....

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ding 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. At the end of its effective life, the assets ceases to earn revenue, i.e., the capital value has expired and the asset will have to be replaced or a substitute found provision for depreciation is the setting aside, ou .....

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inst the profits; having been purchased the asset is, in effect, then hired by capital to revenue, and the true profit cannot be ascertained until a suitable charge for the use of the asset has been made. Moreover, unless provision is made for depreciation, the balance- sheet will not present a true and fair view of the state of affairs ; assets should be shown at a figure which represent that part of their value on acquisition, which has not yet expired. In CIT v Indian Jute Mills Association [ .....

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in Keshav Mills Ltd. v. CIT [1953]23 ITR 230 at 230 in the following words : The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it, is actually received and it brings into de .....

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understood the income u/s. 11(1) in its commercial sense. The relevant portion of the Circular No. 5-P (LXX-6) of 1968, dated July 19, 1968, reads: Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word 'income' should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made .....

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u/s. 11(1). This court thereafter referred to the circular/clarification dated 2nd February, 2012 by the CBDT, issued after decision of Kerala High Court in Lisse Medical ( supra) and has expounded as under: 9. After the decision of the Kerala High Court in Lissie Medical Institution vs. CIT (supra), the Board issued a fresh circular or clarification dated 02.02.2012 and has observed: The view of the CBDT to be conveyed to the Court in this regard is as under: The Central Board of Direct Taxes .....

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pplication in the income expenditure account. This would imply that a correct figure of surplus from the trust property is reflected in the Income and Expenditure account of the trust to determine the income for the purpose of application under section 11 of the Income Tax Act. This would reduce the possibility of revenue leakage which may be a cause for generation of black money. 10. We also note that the Kerala High Court, in fact, has noted the clarifications which were earlier issued by the .....

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been observed in Indian Trade Promotion Organisation (supra) : 11. Clause a of Section 11(1) stipulates that income derived from property held under trust wholly for charitable or religious purposes is to be applied for such purposes in India and where such income is set aside or accumulated, it should not be in excess of 15% of the income from such property. Thus, there is an embargo and probation from accumulating or setting apart income derived from property held under trust beyond 15% of in .....

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ed on 29th March, 2012 and was distinguished for the following reasons. 13. The judgment of the Supreme Court in Escorts Limited Vs. Union of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to d .....

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position that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in respect of the cost of the asset under Section 35(1), can the assessee again claim deduction on account of depreciation in respect of .....

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ub-section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under [clause (ii) of sub- section (1)] of section 32 for the same or any subsequent previous year. 13. The language of the sub-clause c to Section 35(2B) is conspicuous and entirely different and wordings are clear and lucid. The language of Section 11(1), as noticed above, is distinguished and not worded in a similar manner. In Escorts Ltd. (supra), the Supreme .....

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o Section 11(1). Section 11(1)(a) is a peculiar provision which postulates application of income and it is not dealing with expenditure as such. The legislative desire is that money should be applied for the purpose of charity. In Escorts Ltd.(supra), the Supreme Court had observed that they were concerned with expenditure and since the entire costs of the capital assets had been allowed and had been set off against the business profit in five years or in one previous year, it was unconceivable .....

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ved: 15. Kerala High Court was also conscious of the said decisions and the fact that Section 11(1)(a) had been interpreted in a different manner. It was in these circumstances that the Kerala High Court in the last portion of paragraph 6, as quoted above, has stated that the assessee would be entitled to write back depreciation and if done, the Assessing Officer would modify the assessment determining the higher income and allow recomputation of depreciation written back for the purpose of appl .....

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certainty is more appropriate. 16. The equally plausible and consistent interpretation of clause (a) of Section 11(1) of the Act is that income derived from property must be calculated as per the principles of the Act. The said clause is not a computation provision and does not disturb the income earned or available but postulates that the income as computed in accordance with the provisions of the Act to the extent of 86% must be applied. Application of income may include purchase of a capital .....

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rs passed by the Tribunal. However, learned counsel for the Revenue has drawn our attention to the decision dated 18th March, 2014 in ITA No. 322-323/2013 titled Director of Income Tax (Exemption) versus Charanjiv Charitable Trust, wherein it has been held: 30. So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced. The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the .....

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sets was not allowed as a deduction by way of application of income, depreciation should be allow. The CIT (Appeals) has thus made a distinction between assets the cost of which was allowed as deduction as application of income and assets, the cost of which was not so allowed. The Tribunal has not kept this distinction in view, but has proceeded to rely upon a judgment of this Court in DIT vs. Vishwa Jagrati Mission (supra). In the judgment of this Court the question was whether the income of th .....

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used for charitable purposes should be allowed. The point to be noticed is that in this judgment, this Court referred to and distinguished the judgment of the Supreme Court in Escorts Ltd. (supra) on the ground that in Escorts (supra), the Supreme Court was concerned with a case where the deduction of the cost of the asset was allowed under Section 35(1) as capital expenditure incurred on scientific research and, therefore, no deduction for depreciation on the very same assets was held allowable .....

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ance of depreciation even in respect of assets, the cost of which has already been allowed as application of income. We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets. 10. The aforesaid paragraph refers to the decision in the case of Vishwa Jagriti Mission (supra) but ratio was distinguished on the ground that in the said case the Court was concerned with computation of income of a charitable trust/institution on commerci .....

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and depreciation was being claimed simultaneously, while computing the taxable income under the head profits and gains from business . The said decision dated 18th March, 2014 does not refer to the decision in Indian Trade Promotion Organisation (supra) which was decided on 27th November, 2013. The judgment in the case of Indian Trade Promotion Organisation (supra) was not cited and referred to. The judgment in the case of Charanjiv Charitable Trust (supra) is authored by the same Judge, who ha .....

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vision Bench. 11. By Finance (No. 2) Act of 2014, sub-section (6) to Section 11 stands inserted with effect from 1st April, 2015 to the effect that where any income is required to be applied, 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 an asset, the acquisition of which has been claimed as application of income under this Section in the same or any other previo .....

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, we do not think it is necessary and required that we should issue notice in the application for condonation of delay filed in the case of M/s Sanskriti Educational Society (ITA Nos. 463 and 464/2014) as on merits the Revenue is not entitled to succeed. In these appeals, the applications for condonation of delay shall be treated as dismissed and as a sequitur the appeals will be treated as dismissed. 13. On this issue, Hon madras High court recently in DIT V M/s MEDICAL TRUST OF THE SEVENTH DAY .....

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exemption in terms of section 11 of the Income Tax Act. (in short 'Act ) which deals with the assessment of Income from property held for charitable or religious purposes. The relevant parts of Section 11 read as follows:- 1. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, .....

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be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section .....

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...... (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. 4. The various sub-sections of section 11 stipulate the methodology for computing the income applied to chari .....

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ot include a deduction or allowance by way of depreciation or otherwise in respect of any asset, the acquisition of which has been claimed as an application of an income under the provisions of section 11 in the same or any other previous year. The application of this sub-section retrospectively in regard to assessment years prior to 01.04.2015 is the subject matter of challenge in TCA.No.949 of 2015 to which we shall advert presently. 5. Section 11 was inserted in the Income Tax Act 1961 provid .....

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c or historic interest. The object of Section 11 is thus laudable and seeks to extend a benefit to entities engaging in activity of a specified nature. In the present batch of appeals there is no dispute in this regard. 6. We have heard Mr.J.Narayanaswamy appearing on behalf of the Revenue and several counsels appearing on behalf of the assesses and set out in brief the submissions advanced. 7. Mr. J.Narayanaswamy would contend that the provisions of section 32 granting depreciation have not bee .....

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on 35(1) of the Act in respect of expenditure incurred on scientific research. 8. The provision, as it originally stood, placed no restriction on the claim of weighted deduction simultaneous with the claim of depreciation. While this is so, it was felt that such double claim was not the intention of Legislature and the provisions of Section 35(2) (iv) were amended to provide that where a deduction was allowed for any previous year in terms of Section 35(1), no depreciation was liable to be allow .....

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going; and if it is intended it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions - both under s.10(2)(vi) and s.10(2)(xiv) under the 1922 Act or under s.32(1)(ii) and 35(2)(iv) of the 1922 Act - qua the same expenditure. ...... ..... '15.For the reasons discussed above, we are of the view that, even before the 1980-amendment, the Act did not permit a deduction for .....

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1968-69 and thereafter, their cost was written off in the previous year of acquisition and no depreciation could be allowed in that year. This is clear from the statute. Equally, it is not envisaged, and indeed, it would be meaningless to say, that depreciation could be allowed on them thereafter with a further absurdity that it could be allowed starting with the original cost of the asset despite its user for scientific research and the allowances made under the 'scientific research' cl .....

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I find it difficult to agree with the reasoning of the assessees. Acceding to it would amount to placing an unreasonable interpretation upon the relevant provisions and to negating the intention of Parliament. I find it difficult to agree that the Indian Legislature - as also the Parliament made a conscious departure from the English Amendment with the idea of providing an additional benefit to induce the Indian assessees to invest more in scientific research. I find the argument rather convolut .....

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tended to provide for a double deduction is also the opinion of the Direct Tax Law Committee. In its interim report, (December, 1977) the Committee (popularly known as 'Choksi Committee') had this to say in para 3.29 of its report: 3.29.- Our attention has also been drawn to certain anomalous situations in the matter of allowance of depreciation. In certain cases where a full deduction has been allowed in relation to a capital asset under other sections (as for example, section 35 which .....

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that the law should be clarified to provide that no depreciation under section 35 shall be allowable in respect of capital expenditure for scientific research qualifying for deduction under section 35. 11. He would argue that that granting depreciation simultaneous with exemption under section 11 would result in a relief over and above 100 % of the income which was not permissible under statute. 12. Our attention was drawn to the decision of the Kerala High Court in the case of Lissie Medical In .....

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ee, which goes outside the books of accounts of the Trust unless it is written back which is not done. ......... ........... We have no doubt in our mind that business income of charitable trust also has to be computed in the same manner as provided u/s 29 of the Income Tax Act. However, the issue that requires consideration is when the expenditure incurred for acquisition of depreciable assets itself is treated as application of income for charitable purposes u/s 11(1)(a) of the Act, should not .....

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able institutions will be generating unaccounted income equal to the depreciation amount claimed on an year to year basis which is nothing but black money. This aspect is not seen considered in any of these decisions.' 13. The contentions of the learned counsels for the assessees are as follows: (i) Mr. Sridhar would state that in computing the income of an entity attracting the provisions of section 11, the principles of commercial accounting were liable to be followed. He would rely on the .....

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11, he would contend that the provisions thereof constituted a complete code which took into account the application of depreciation as a commercial principle and not necessarily one of accountancy. 14. Mr. J. Balachander would refer to the decisions of the Kerala High Court in Catholic Diocese of Tiruvalla V. State of Kerala (209 ITR 596) and Andhra Pradesh High Court in CIT v.Trustee of H.E.H.Nizamm's Supplemental Religious Endowment Trust (127 ITR 378), in support of his submission that c .....

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lf was effaced which is not the case in an assessment under section 11 of the Act. He would also point out that the Department had filed petitions for Special Leave challenging the decisions of the Punjab and Haryana High Court favouring the assessee that had been dismissed whereas, the Special Leave Petitions filed by the assessee challenging the decision of the Kerala High Court and other cases following the decision of the Kerala High Court in Lissie Medical Institutions (supra) had been admi .....

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ted 25.03.2011 have attained finality. Thus, while adopting the arguments of other counsels, he would add that the principle of consistency stood violated in his case. 17. Mr.N.V.Balaji, would address us specifically on Accounting Standard 6 dealing with Depreciation Accounting issued by the Institute of Chartered Accountants of India and made mandatory on or after 1.4.1995 in the following terms: 'The reference to commercial, industrial or business enterprises in the aforesaid paragraph is .....

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ished for charitable or religious purposes. Accounting Standards will not, however, apply to those activities which are not of commercial, industrial or business nature, (e.g., an activity of collecting donations and giving them to flood affected people.) It is also clarified that exclusion of an entity from the applicability of the Accounting Standards would be permissible only if no part of the activity of such entity was commercial, industrial or business in nature. For the removal of doubts, .....

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andards Board of the ICAI recommending that the Accounting Standards setting out wholesome principles of accounting including depreciation should be followed by all non- profit organisations irrespective of whether any part of their activity might be commercial, industrial or business in nature. 19. We have heard the arguments in detail and carefully perused the documents relied upon as well as case law cited. 20. Depreciation, as defined in Spicer and Pegler's Book-Keeping and Accounts is t .....

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nditure which has expired during that period. 21. The necessity of providing for depreciation emanates from the fact that once an asset ceases to be effective, it will have to be replaced. Providing for depreciation would ensure setting aside out of the revenue of an accounting period, the estimated amount by which the capital investment has expired during that period. This provision, incurred for the use of that asset for the purpose of earned profit should be charged against those profits as a .....

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r depreciation, the Balance Sheet will not present a true and fair view of the state of affairs, since the assets will be shown at an amount which is in excess of the true amount of the unexpired expenditure incurred on their acquisition.' 22. The claim of depreciation is thus part of standard accounting practice which is required for fair presentation of a company's financials. The computation of income in the case of an entity to which section 11 is applicable would be in two stages. F .....

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the same asset - the first, weighted deduction and the second, depreciation. Thus, two benefits were extended in respect of the very same asset. We are faced with an entirely different and distinct position in the present batch of appeals - one that involves a claim for exemption in respect of income earned from property held for charitable or religious purposes. We see no double benefit that is extended to the assessee in this regard. 24. Truth to tell, this Court in the matter of Calavala Cun .....

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an Chetty Charities (supra) and several decisions along similar lines, the court was persuaded to take a contrary view preferring to follow the rationale of the judgment of the Supreme Court in the case of Escorts (supra). 25. As noted by us earlier, the judgment of the Supreme Court in Escorts turns on an entirely different position of law and would not impact the issue being discussed in the present case. 26. We are supported in our view by a plethora of decisions of various High Courts - the .....

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CIT Vs. Tiny Tots Education Society (330 ITR 21) = 2010-TIOL-550-HC-P&H-IT; Madhyapradesh High Court in CIT Vs. Devi Sakuntala Tharal Charitable Foundation (358 ITR 452) and the Calcutta High Court in CIT Vs. Silluguri Regulated Market Committee (366 ITR 51). In addition, the Delhi High Court in DIT Vs. Vishwa Jagriti Mission 262 CTR 558 = 2012-TIOL-271-HC-DEL-IT and the Karnnataka High Court in DIT (Exem) Vs Al-Ameen Charitable Fund Trust (2016) 67 taxmann.com 160 = 2016-TIOL-463-HC-KAR-IT .....

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laim of depreciation on assets acquired by way of application of funds in the earlier years, contrary to judgments of several High Courts? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the excess application of the earlier year could not be set off against the income of the current year contrary to the judgment of this Honourable Court in the case of Matriseva Trust (2000) 242 ITR 20(Mad)? 29. Learned senior counsel appearing for M/s.S .....

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al objection to the effect that in the present case, the claim was made under a revised return. The original return of income was filed only on 31.10.2007 beyond 31.10.2006 when it was due and as such would debar the consideration of the claim made in the revised return. 30. Records reveal that the original return was filed on 31.10.2007 and a revised return was filed on 19.2.2008. Notice under Section 148 was issued on 13.9.2010, in response to which, the assessee filed the original return date .....

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e basis of the original return alone. The Commissioner of Income Tax (Appeals), adjudicated the issue on merits, deciding the same against the assessee which order was confirmed by the Income Tax Appellate Tribunal. 31. A recent amendment to section 139(5) reads thus; 'Following sub-section (5) shall be substituted for the existing subsection( 5) of section 139 by the Finance Act, 2016 w.e.f. 1.4.2017. (5) If any person, having furnished a return under sub-section (1) or sub-section (4), dis .....

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ion of assessment, whichever is earlier. The amendment is intended to confer a benefit on an assessee and the retrospective application thereof has to be examined by the assessing authority. We remand this issue to the file of the assessing authority for the limited purpose of examining the applicability of the amendment extracted above. If the amendment is found applicable to the assessee, the rationale of the decision of this Court in Matriseva (supra) shall be applied on merits. 33. Adverting .....

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er this section in the same or any other previous year. .... 34.The short point that arises for decision is whether the provisions of Section 11(6) inserted by Finance (No.2) Act, 2014 w.e.f. 1.4.2015, operate prospectively with effect from assessment year 2015-16 or retrospectively with respect to earlier years as well. In this regard, M/s.Pushya Sitaraman, learned senior counsel and other learned counsels appearing for the assesses refer to the provisions of Circular 1 of 2015dated 21.1.2015 ( .....

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tion regime provided in sections 11 to 13 of the said Act. As indicated above, the primary objective of providing exemption in case of charitable institution is that income derived from the property held under trust should be applied and utilized for the object or purpose for which the institution or trust has been established. In many cases it had been noted that trusts or institutions which are registered and have been availing benefits of the exemption regime to not apply their income, which .....

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l provisions governing institutions which are being given benefit of tax exemption. It is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibility has undesirable effects on the objects of the regulations and leads to litigation. …. ….. 7.6 Applicability. - These .....

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