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2019 (6) TMI 665

ng its income u/s 11 even though the amount spent on acquisition of the said capital asset was already allowed as application of income in furtherance of the objects/charitable activities of the assessee trust in the year of acquisition. In coming to this view, we place reliance on the decisions of CIT Vs. Society of Sisters of St. Anne [1983 (8) TMI 44 - KARNATAKA HIGH COURT] , Al-Ameen Charitable Fund Trust [2016 (3) TMI 462 - KARNATAKA HIGH COURT] and Karnataka Reddy Janasangha [2016 (3) TMI 462 - KARNATAKA HIGH COURT] and the decisions of City Hospital Charitable Trust [2015 (6) TMI 235 - ITAT BANGALORE] and Jyothi Charitable [2015 (7) TMI 859 - ITAT BANGALORE] which have decided the issue in favour of the assessee and against revenue on the issue of the assessee being entitled to be allowed depreciation on assets, the cost of which has already been claimed as application of income u/s 11 of the Act. - Decided against revenue. Carry forward of current year’s deficit along with earlier year’s deficit for set off to the subsequent years - HELD THAT:- Following the decision of the co-ordinate bench of this Tribunal in the case of Shraddha Trust [2017 (4) TMI 1289 - ITA .....

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ciation in respect of assets which have already been allowed as application of income in its entirety in earlier years. 2. Whether in the facts and circumstances of the case and in law, the learned CIT(A) is correct in allowing depreciation which amounts to double deduction when already full expenditure has been allowed in earlier years. 3. 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. 4. 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 research u/s 35(1)(iv) [corresponding to section 10(2) (xiv) of the I.T. Act, 1922] held that any expenditure of a capital nature (or incurred towards purchase of capital assets) on scientific research allowed as deduction u/s 35(1)(iv) cannot be allowed once again as deduction in the form of depreciation on s .....

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failed to discuss the issue in detail bringing out the facts and applying the relevant provisions of the Act, but came to a conclusion that excess expenditure/excess application shall be allowed to be carried forward and set-off against the income of the future assessment years and, thereby, rendering the order perverse. 4. Ground No.1 - Depreciation on Fixed assets 4.1.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. On an appreciation of the material on record, it is seen that the AO disallowed the assessee's claim for deduction on account of depreciation on assets, since he was of the view that as the cost of acquisition of the said assets had been claimed as capital expenditure towards application of funds in furtherance of the objects of the trust; and allowing the assessee's claim of depreciation would amount to allowing double deduction. In coming to this view the AO placed reliance on the decision of the Hon'ble Apex Court in Escorts Ltd., (1993) 199 ITR 43 (SC). Reliance was also placed on the decision of the Hon'ble Kerala High Court in the case of Lissie Medical .....

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dered as application of income, therefore if depreciation was to be allowed on the said assets it would amount to allowing double deduction. In coming to this conclusion, the AO placed reliance on the decision of the Hon'ble Apex Court in Escorts Ltd. (Supra). The co-ordinate bench, while considering and upholding the asessee's trusts claim that it is entitled for deprecation on assets the cost of which has been claimed as application of income u/s 11 of the Act held as under at para 7 to 9 of its order:- "7. We have heard the submission, of the Id. DR, who relied on the order of AO. We have considered the order of the AO. Identical issue come up for consideration before ITAT Bangalore Bench in the case of Iv, D/T(Exemptions) v. Cutchi Memon Union [2013] 60 SOT 260/38 taxmann.com 276 (Bang), wherein similar issue has been dealt with this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as a application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing .....

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e other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)( v) of the Act. The Hon'ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon'ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision oil issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference. 22. Consequently, ground No 5 raised by the revenue is dismissed ' 8. We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w. e.. 1 1.2015 by insertion 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 application, then, for such .....

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sessee being entitled to be allowed depreciation on assets, the cost of which has already been claimed as application of income u/s 11 of the Act. We consequently uphold the order of the learned CIT(A) on this issue and consequently, Revenue s ground of appeal No.1 is dismissed. 5. Ground No.2 - Carry forward of current year s deficient (excess application over income) and earlier years deficit to subsequent years 5.1 The Id DR was heard in support of grounds raised (Supra) and relied on the findings rendered by the AO. 5.2 According to the learned AR for the assessee, the assessee is entitled to carry forward the current year s deficit (excess of expenditure over income) and current year s deficit for set off against assessee s income the subsequent years. It is submitted that the said issue is covered in favour of the assessee and against Revenue by the decision of the Co-ordinate bench of this Tribunal in the cases of City Hospital Charitable Trust in ITA No.676/Bang/2014 dated 30.05.2015; Jyothy Charitable Trust in ITA No.522/Bang/2014 dated 11.06.2015; Manipal Academy of Higher Education in ITA No.658/Bang/2014 dated 24/7/2015 and Shraddha Trust in ITA No.899/Bang/2016 dated 7 .....

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that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier in years can be adjusted against income of subsequent years and such adjustment would be application of income for subsequent years and that depreciation is allowable on the assets the cost of which has been fully allowed as application of income under s. 11 in past years. In Govindu Naicker Estate v. Asstt.. DIT [2001] 248 ITR 368[1999] 105 Taxman 719 (Mad.), the Hon'ble Madras High Court held that the income of the trust has to be arrived 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. .....

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