TMI Blog2019 (4) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... o got to be computed on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment had been made having regard to the benevolent provisions contained in section 11 of the Act and such adjustment will have to be excluded from the income of the trust under section 11(1)(a) - Decided against revenue - I.T.A. No. 852 of 2017. - - - Dated:- 21-8-2018 - Dr. Vineet Kothari And Mrs. S. Sujatha JJ. For the Appellants : Sanmathi E. I, Advocate ORDER DR. VINEET KOTHARI J. - 1. The learned counsel for the appellants submits that the questions raised in the present appeal is covered by the decisions of this court. 2. The proposed substantial questions of law in the memo of appeal of the Revenue are quoted hereinbelow for ready reference : 1. Whether on the facts and in the circumstances of the case the Tribunal is right in holding that provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court) the contention of the Department predicated on double benefit was turned down in the following manner (page 113 of 264 ITR) : As stated above, the first question which requires consideration by this court is : whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years ? In the case of CIT v. Munisuvrat Jain [1994] Tax LR 1084 (Bom) the facts were as follows. The assessee was a charitable trust. It was registered as a public charitable trust. It was also registered with the Commissioner, Pune. The assessee derived income from the temple property which was a trust property. During the course of assessment proceedings for assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed depreciation on the value of the building at the rate of 2.5 per cent. and they also claimed depreciation on furniture at the rate of 5 per cent. The question which arose before the court for determination was : whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been treated as application of income in the year of acquisition ? It was held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the facts were as follows : The assessee was a trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the trust. The Income-tax Officer held that depreciation could not be taken into account because, full capital expenditure had been allowed in the year of acquisition of the assets. The assessee went in appeal before the Assistant Appellate Commissioner. The appeal was rejected. The Tribunal, however, took the view that when the Income-tax Officer stated that full expenditure had been allowed in the year of acquisition of the assets, what he really meant was that the amount spent on acquiring those assets had been treated as 'application of income' of the trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by, the Bombay High Court in the above judgment. Hence, question No. 2 is covered by the decision of the Bombay High Court in the above judgment. Consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Appeals) allowed the amortization of the expenditure as claimed by the asses see and deleted the disallowance made by the Assessing Officer by placing reliance on the decision of the hon'ble Karnataka High Court in the case of CIT v. Society of the Sisters of St. Anne reported in [1984] 146 ITR 28 (Karn) and CBDT Circular No. 5-P (LXX)-6 of 1968. We have heard the rival contentions of both the learned Depart mental representatives for the Revenue and the learned authorised representative for the assessee and perused and carefully considered the material on record, including the judicial pronouncements cited. The facts of the issue before us is that the assessee had incurred certain preliminary expenditure in the year of setting up of the trust. The same is amortised by the assessee-trust over a period of 5 years from the year of incurring of expenditure. The fact of amortization was not disputed by the Assessing Officer in the assessment proceedings for the assessment year 2007-08 where the entire amount was added back claiming 1/5th of the expenditure. The unamortized expenditure has been brought forward and set off as application of income in sub sequent y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular year. It lends support to the contention of the assessee that accounting need not be on cash basis only. Section 11(4) is not intended to explain how the accounts of the business undertaking should be maintained. It is intended only to bring to tax the excess income computed under the provisions of the Act in respect of business undertaking. The depreciation if it is not allowed as a necessary deduction for computing the income from the charitable 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' under section 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 for capital expenditure incurred for the purposes of the trust or other wise. It should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 11 on 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 incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment had been made having regard to the benevolent provisions contained in section 11 of the Act and such adjustment will have to be excluded from the income of the trust under section 11(1)(a)'. 5. Since all the proposed questions are covered by the aforesaid two decisions of this court, we do not think that any substantial questions of law arises for our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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