TMI Blog2017 (12) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. 2. Briefly the facts of the case are that the assessee is running an educational institution in the name of Pallavi Model School at Secunderabad and has been granted registration u/s 12A of the Act w.e.f. 01/04/1995. It filed its return of income on 30/09/2009 claiming exemption u/s 11 and admitted nil income. A survey u/s 133A was conducted in the case of the assessee on 21/10/2011. The AO rejected the claim of exemption u/s 11 on the ground that assessee has given advance to M/s Shalivahana Associates, in which, one of the trustee is holding substantial interestand also disallowed the depreciation claimed by the assessee. He assessed the total income of the assessee at ₹ 60,95,011/-. 3. When the assessee carried the matter in appeal before the CIT(A), the CIT(A) upheld the action of the AO with regard to denial of exemption u/s 11 on the ground that it has given advance to M/s Shalivahana Associates of ₹ 32,07,995/- and disallowance of depreciation. CIT(A) allowed the claim of exemption u/s 11 with regard to contributions to the building fund of ₹ 3,20,000/-. 4. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that all the transactions were interest free and they had not resulted in any net benefit to Shalivahana Associates and therefore, there was no violation of sec. 13(1)(c). The AR submitted that had interest been charged on these transactions, the interest payable by the assessee would have been ₹ 4,63,122/- and interest receivable would have been Rs, 1,274/- so that it was the trust which was a benefited through these transactions. The AR also submitted that the reference by the AO to section 13(2)(a) was inappropriate since the transactions were effected in a running account and were not in the nature of a loan. The AR relied on few case law before the CIT(A), which were mentioned at page 4 of CIT(A) s order. 8. After considering the submissions of the assessee, the CIT(A) observed that the AR of the assessee has not specified the nature of transactions which the assessee had undertaken with Shalivahana Associates which resulted in maintaining the running account. He further observed that without any such financial transactions in the course of which money was paid or received from Shalivahana Associates, the transaction with this party necessarily takes the charac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivahana Associates regularly for its requirement and whenever there is surplus, the assessee used to return the advances. To this effect, a copy of the ledger account is placed on record (refer pages 27 to 42 of paper book). We find that assessee has issued two cheques on the last dates of the year (30th 31st March, 2009) for ₹ 50 25 lakhs respectively in favour of Shalivahana Associates (refer page 42 of the paper book). Since cheques were issued on the last dates of the FY, the outstanding balance at the end of the year becomes receivable for the first time to the extent of ₹ 32,07,995/-. It is clear from the record that the funds remitted to the concern in which the trustee is holding substantial interest. Whether income is so used or applied is a question to be decided on the facts and circumstances of each case. The legislature, however, also creates a fiction and enumerates in clause (a) to (h) of sub-section (2), a list of circumstances in which the income shall be deemed to have been used or applied for the benefit of specified persons. The clause (a) deals with any part of income or property is lent or continues to be, to any person referred in sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12. As regards ground No. 3 regarding disallowance of claim of depreciation of ₹ 10,11,041/-, the AO observed that depreciation had been claimed by the assessee on assets, the cost of which had already been claimed as application of income. The AO, therefore, held that this would amount to double deduction in view of the decision in the case of Escorts Ltd. Vs. UOI, 199 ITR 43 (SC) and disallowed the depreciation. 13. The CIT(A) following the decision of the ITAT, Hyderabad in the case of ACIT Vs. Sri Venkat Sai Educational Society and others (ITA No. 1440/Hyd/2011 and others dated 09/04/2012) upheld the disallowance of depreciation. 14. Considered the rival submissions and perused the material facts on record. We have considered the Escorts Ltd. (supra), on which reliance placed by the ld. DR, wherein the Hon ble Supreme Court has adjudicated that the assessee cannot claim double benefit claiming deduction u/s 32 and u/s 35 at the same time. The intention of legislature is not to extend double benefit by observing that the deduction of the allowance on scientific research assets and that of depreciation are basically of the same nature intended to enable the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which had been fully allowed as application of income under section 11 in the past years. In this connection, the relevant part of the Head Note on pages 110 and 111 is reproduced as follows : Normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income-Tax Act, 1961. Income of a charitable trust derived from building plant and machinery and furniture is liable to be computed in a 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 Act providing for depreciation, for computation of income derived from business or profession is not applicable. However, the income of the trust is required to be computed under section 11on commercial principles after providing for allowance for normal depreciation and deduction thereof from the gross income of the trust. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. The Commissioner (Appeals) held that deduction for computing income to preserve the corpus of the trust was permissible and did not amount to double benefit. This view was upheld by the Tribunal observing that application of income was not computation of income of the charitable institution. Therefore, the question whether depreciation was to be allowed or not, had nothing to do with the application of income. The income was always to be computed on commercial principles and as per the system of accounting followed by the assessee, subject always to the statutory provisions. On further appeal by the Revenue before the High Court, dismissing the appeal, it was held that the assessee was not claiming double deduction on account of depreciation. The income of the assessee being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust. It could not be held that double benefit was given in allowing the claim for depreciation for computing income for purposes of section 11. 6. CIT Vs Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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