TMI Blog2018 (8) TMI 1894X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the judgment in CIT (Exemptions) v. Ohio University Christ College [ 2018 (11) TMI 1055 - KARNATAKA HIGH COURT] Income derived from the trust property has also got to be com puted on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for char itable 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 pur poses 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) - I. T. A. No. 397 of 2018. - - - Dated:- 14-8-2018 - Dr. Vineet Kothari And Mrs. S. Sujatha JJ. For the Appellants : E. I. Sanmathi , Advocate JUDGMENT DR. VINEET KOTHARI J. - 1. The learned counsel for the appellants at the bar submits that the controversy raised in the present case is covered by a decision of this court. 2. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable 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 the assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed deprecia tion 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 the Bombay High Court that section 11 of the Income-tax Act makes a provision in respect of com putation of income of the trust from the property held for charitable or religious purposes and it also provides for application and accu mulation of income. On the other hand, section 28 of the Income-tax Act deals with chargeability of income from profits and gains of busi ness and section 29 provides that income from profits and gains of business shall be computed in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tri bunal, however, took the view that when the Income-tax Officer stated that full expenditure had been allowed in the year of acquisi tion 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. Consequently, Question No. 2 is answered in the affirm ative, i.e., in favour of the assessee and against the Department. After hearing learned counsel for the parties, we are of the opin ion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same.' Since the issue regarding claim of depreciation in the hands of the charitable trust is no longer res integra, we are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 cer tain 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 the subsequent years, including the assessment years 2008-09 and 2009-10 which are under consideration. We find that the issue before us is directly related to the issue decided by the hon'ble Karnataka High Court in the case of Society of the Sisters of St. Anne (supra) cited by the assessee. In the said case, the hon'ble Karnataka High Court at paras 8 to 10 thereof has held as under : . . . Further, the Central Board of Direct T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 sec tion 11(1) in its commercial sense. The relevant portion of the Circular No. 5-P(LXX-6) of 1968, dated July 19, 1968 (See Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn. page 85) 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 deb its made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 com puted on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for char itable 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 pur poses 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)'. In view of the controversy covered by the above decisions of this court, we are of the opinion that the substantial question of law as suggested by the appellants does not now arise for our further consideration in the pre sent appeal. The appeal filed by the Revenue is accordingly disposed of in terms of the aforesaid judgments of this court. No costs. Copy of this order be s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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