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2019 (6) TMI 665

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..... 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 - ITAT BANGALORE] we uphold the order of the learned CIT(A) in allowing the assessee’s claim to carry forward of current year’s deficit along with earlier year’s deficit for set off to the subsequent years. Consequently, the ground No.2 raised by Revenue in this appeal is dismissed. - I.T.A. No.2688/Bang/2017 - Dated:- 12-6-2019 - Shri N. V. Vasudevan, Vice President And Shri Jason P Boaz, Accountant Member For the Assessee : Shri. M. Sridhar Kamath, CA For the Revenue : Shri. Pradeep Kumar, CIT ORDER PER SHRI JASON P BOAZ, A.M. : This appeal by Revenue is directed against the order of CIT(A), Mangaluru, dated18.09.2017 for assessment year 2010-11. 2. Briefly stated, the facts of the case are as under:- 2.1 The assessee, a charitable trust, recognized under section 12A of the Income Tax Act, 1961 (in short the Act ) an .....

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..... h 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 such capital assets. While doing so, it was observed by the Hon'ble Supreme Court that no legislature could have at all intended a double deduction in regard to the same business outgoing and if it is intended, it would be clearly expressed in the statute itself. Accordingly, it was held that even in absence of clear statutory indication to contrary, statute should not be read so as to permit an assessee two deductions i.e. once in the form of expenditure incurred towards purchase of capital assets and secondly, in the form of depreciation on such capital assets. It was also held that even before the amendment of the Act in the form of insertion of clause (iv) of sub section (2) of section 35 by Finance Act, 1980, prohibiting allowance of depreciation, the Act did not permit a deduction for depreciation in respect of cos .....

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..... f 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 Institutions (2012) 348 ITR 344 (Kerala), wherein it was held that allowing depreciation on an assets when the cost of acquisition of the said asset was allowed as application of income for charitable purpose in the year of acquisition would amount to double deduction and therefore depreciation cannot be allowed. 4.1.2 On appeal, the assessee while reiterating its claim for being allowing deduction of depreciation on assets, inter alia, placed reliance on the following decisions of the Hon'ble Karnataka High Court and other High Courts and of the Co-ordinate benches of this Tribunal. (i) DIT (Exemption) & Other Vs. Al-Ameen Charitable Fund Trust (and connected Appeals)(2016) 383 ITR 517 (Kar). (ii) CIT Vs. Society of Sisters of St. Anne (1984) 146 ITR. (iii) Karnataka Reddy Janasangha Vs. DIT (E) (ITA No.220/Bang/2 .....

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..... ue 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 double deduction and placed reliance on the decision of Hon ble Supreme Court in Esc 'is Ltd. (supra). The CIT(A), however, allowed the claim of assessee On Further appeal by the Revenue the Tribunal held as 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 s the income. It was so held by the Hon'ble Karnataka High Court in the case of CIT v. Society o .....

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..... s 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 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 bee- claimed as an application of income under this section in the same or any other previous year." 9. 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) does not call for any interference. Consequently grounds No.2 to 2.5 raised by the Revenue are dismissed." 4.1.5 Similar views have been laid down and upheld by the Hon'ble Karnataka High Court in the case of DIT (Exemptions) Vs. Al-Ameen Charitable Fund Trust (Supra). In this case, the Hon'ble jurisdictional High Court has held that the assessee Trust s claim for de .....

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..... essee 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 7/4/2017. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. We find that the issue before us of carry forward of current year s deficit (excess application over income) along with brought forward deficit of earlier years for set off to subsequent years; is covered in favour of the assessee and against Revenue by the decisions of the Co-ordinate Benches of this Tribunal in the cases of City Hospital Charitable Trust in ITA No.676/Bang/2014 dated 20.03.2015; Jyothi Charitable Trust (60 taxmann.com 165) and the case of ITO (Exemption) Vs. Shraddha Trust in ITA No.899/Bang/2016 dated 07.04.2017. In the case of Shraddha Trust (supra), the Co-ordinate Bench at para 8 of its order has held as under:- 8. The final grounds of appeal rela .....

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..... 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 religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be .....

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