TMI Blog2017 (4) TMI 1289X X X X Extracts X X X X X X X X Extracts X X X X ..... inate bench of Tribunal in the case of Deputy Director of Income-tax vs. Jyothy Charitable Trust (2015 (7) TMI 859 - ITAT BANGALORE). - ITA No.899/Bang/2016 - - - Dated:- 7-4-2017 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER Appellant by : Shri G.Kamaladhar, Standing Counsel for Department O R D E R Per INTURI RAMA RAO, AM : This is an appeal appeal a filed by the revenue directed against the orders of CKT(A)-14, LTU, Bengaluru, dated 21/03/2016 for the assessment year 2011-12. 2. The revenue raised the following grounds of appeal: Disallowance of depreciation: (i) The CIT(A) has failed to appreciate the fact that the Hon'ble Kerala High Court in the case of Lissie Medical Intuitions Vs. CIT (348 ITR 344) has held that depreciation cannot be allowed on assets, where cost of such assets has already been allowed as application of income in the year Of acquisition/ purchase of asset. (ii) The CIT(A) has failed to appreciate that the Hon'ble Supreme Court in the case of Escorts Ltd. another Vs. Union of India (199 ITR 43), while dealing with the issue of allowance of expenditure on scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of Escorts Ltd. another Vs. Union of India (Supra), the amendment only set out more clearly and categorically what the legislature had intended and conveyed u/s 11(1) even earlier to the said amendment. As such, the amendment shall be considered as clarificatory in nature making it clear that the assessee is not entitled to claim double deduction in respect of same expenditure u/s 11(1) as application of income and also depreciation simultaneously. Repayment Of loan: Whether, in the given facts and circumstances, the CIT(A) is correct in law ignoring the fact that the repayment of loan is now allowable as it amounts to double deduction and adjudicated the matter merely relying On the decisions of Hon'ble High Court of Karnataka and Hon'ble Madras High Court. Net receipts Vs. Gross receipts i) Whether, in the given facts and circumstances, the CIT (A) is correct in law in not considering the Board Circular on this issue i.e. Board Circular no. 12-(PXX-7 of 1968) dated 26.11.1968, on which the AO placed reliance for disallowance of accumulation /set apart of income u/s 11(1)(a) wherein it is clearly explained that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from another source, set-off of loss from one head against income from another head and carry forward and set-off of loss against the income of subsequent years as envisaged u/s 70 to 79 are also not applicable to the charitable trusts/institutions. ii). Whether, in the given facts and circumstances, the CIT(A) is correct in law without appreciating the fact that the issue of application of income more than the income computed does not arise, except in a case where the assessee has incurred huge amount of capital expenditure sourced out of borrowed or corpus donations or 15% of income set apart over a period of time. However, expenditure incurred out of the above sources cannot be termed as application of funds out of the income earned in a particular assessment year inasmuch as loan borrowed does not fall under the category of income earned by the assessee, corpus fund donation does not come under income by virtue of section 11(1)(d) and 15% of income set apart in earlier assessment year cannot be construed as income of the current year and 15% set apart out of the current year income is also excluded from income available for application. As such, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of application of income of the trust. This issue is no more res integra as the Hon ble jurisdictional High Court, in the case of CIT vs. Karnataka Reddy Janasangha (389 ITR 229)(Kar) considering several precedents on the issue, held that the same does not amount to double deduction and the same is allowable and the amended provisions of section 11(6) of the Act are prospective in nature and operative effective from 01/04/2015. The relevant paragraph of the judgment is reproduced below: 15. The question involved in this case is no more res integra. This question was considered by this Court as far back as in the year 1984, in the case of Society of the Sister's of St.Anne (supra) wherein the Division Bench of this Court has held thus: '9. It is clear from the above provisions that the income derived from property held under trust cannot be the total income because s. 11(1) says that the former shall not be included in the latter, of the person in receipt of the income. The 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 . The word income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mad.)] (6) Commissioner of Income-Tax v. Market Committee, Pipli [(2011) 238 CTR (P H) 103 Allowing depreciation in subsequent years, on the capital asset, which has already availed the benefit of deduction in computing the income of the trust in the year of its acquisition is considered by the Punjab and Haryana High Court in the case of Market Committee, Pipli (supra) and held thus: '9. In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by learned counsel for the Revenue. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. Judgment of the Hon'ble Supreme Court in Escorts Ltd., Anr. (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 of the U.K. Finance Act, 1944. We may, however, point out that the last few underlined words of the English statute show that there is really no difference between the English and Indian Acts; the former also in terms prohibits depreciation only so long as the assets are used for scientific research. In our opinion, the other provisions of the Act to which reference has been made - some of which were inserted after the present controversy started - are not helpful and we have to construe the real scope of the provisions with which we are concerned. We think that all misconception will vanish and all the provisions will fall into place, if we hear in mind a fundamental, through unwritten, axiom that no legislature could have at all intended a double deduction in regard to the same business outgoing, and if it is intended 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. Is then the use of the words in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresenting the wear and tear of such capital asset incurred if, not allowed then there is no way to preserve the corpus of the Trust for deriving its income as held in Society of Sisters of St. Anne (supra). This judgment of co-ordinate Bench of this Court is binding on us and we have no reasons to disturb the settled position of law at this length of time/depart from the said reasoning. As such, the arguments advanced by the Revenue apprehending double deduction is totally misconceived. 21. Section 11[6] inserted with effect from 1.4.2015 by Finance Act No. 2/2014, 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.' 22. The plain language of the amendment establishes the intent of the legislature in denying the depreciation deduction in computing the income of Charitable Trust is to be effective from 1.4.2015. This view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit is claimed by the trusts and institutions under the existing law. The provisions need to be rationalized to ensure that double benefit is not claimed and such notional amount does not excluded from the condition of application of income for charitable purpose'. 23. Paragraphs 7.5, 7.5.1, 7.6 of Central Board of Direct Taxes Circular reported in 371 ITR 22 makes it clear that the said amendment shall take effect from 1.4.2015 and will accordingly apply in relation to the assessment year 2015-16 and subsequent assessment years. 24. The Constitution Bench of the Apex Court in Vatika Township (P.) Ltd.'s case (supra), had laid down general principles concerning retrospectivity in Paragraphs 33 and 34, and the same is extracted hereunder: '33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumpti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s case (supra), it would be safely held that Section 11(6) of the Act is prospective in nature and operates with effect from 01.04.2015. This is further clarified when compared with certain other provisions which have been made retrospectively in the same Finance Act. 26. For the foregoing reasons, we answer the question of law in favour of the Assessee and against the Revenue. 27. In the result, all the appeals are dismissed. 5. In view of the above, as the questions are already covered by the decision of this Court as conceded by the learned Counsel for the appellants-Revenue, it cannot be said that any substantial question of law would arise for consideration. The decision of the CIT(A) is in consonance with the law laid down by the Hon ble jurisdictional High Court in the case of Karnataka Reddy Janasangha (supra) in the above case. We do not find any fallacy in the reasoning adopted by the CIT(A). Hence, the grounds of appeal No.1 to 4 are dismissed. 7. The other grounds of appeal relates to Whether accumulation of income should be on gross receipt or net income after deducting the expenditure, is covered by the decision of the Hon ble Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at having due regard to the commercial principles, that s. 11 is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on relig ..... 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