TMI Blog2015 (6) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the capital assets, despite the fact that at the time when the capital assets were acquired, the same were treated as application of income in those years. The assessee is a charitable trust running educational institutions. In the course of assessment u/s. 143(3) of the Act for AY 2010-11 2011-12 the AO noticed from the details of depreciation claimed, that the depreciation was claimed on assets, the cost of acquisition of the said assets had been claimed by the assessee as capital expenditure towards application of funds towards the objects of the trust and allowed as such. According to the AO, allowing such a claim would amount to allowing double deduction. On the facts of the present case, he was of the view that the decision of the Hon ble Supreme Court in the case of Escorts Limited another Vs. Union of India 199 ITR 43 is squarely applicable, wherein it has been categorically held that when deduction u/s 35(2)(iv) is allowed in respect of capital expenditure on scientific research, no depreciation is allowable u/s 32 on the same asset. 3. The assessee pointed out before CIT(A) that Hon'ble High Court of Karnataka in the case of All Saints Church, 148 ITR 78 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows:- 20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, 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 of St. Anne 146 ITR 28 (Kar). It was held in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P H) : (2011) 238 CTR (P H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit. The decision of the Hon ble Supreme Court in the case of Escorts Ltd. 199 ITR 43 (SC) have been referred to and distinguished by the Hon ble Court in the aforesaid decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of sub-section (6) to section 11 of the Act, which reads as under:- (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. 11. 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) is not just and proper. The claim of the Assessee for deduction on account of depreciation is therefore directed to be allowed. Consequently the first issue is decided in favour of the Assessee. 12. The next issue raised by the Assessee in its grounds of appeal in the appeal relating to AY 2011-12 is with regard to disallowance of accumulation of income u/s 11(1)(a) of the Act. Sec.11(1)( a) of the Act provides as follows: 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- 9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held as under : Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of ₹ 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of ₹ 87,010. For the aforesaid reasons, the civil appeal is dismissed. It is clear fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption under s. 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on commercial basis and not total income as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of ₹ 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is ₹ 3,42,174. Twenty five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust vs. CIT (supra). No reason whatsoever has been given by the Revenue authorities for deducting ₹ 2,17,126 in this case for purposes of s. 11(1)(a). The d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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