TMI Blog2020 (1) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of cars to be qualified for exemption u/s. 11(1A) - HELD THAT:- The consideration received was deducted from block of assets which is apparent from the details of depreciation as per Tax Audit Report which depreciation was claimed on the reduced value after deducting ₹ 8,40,000/-. Needless to repeat, sale consideration of a depreciable asset is to be reduced from the block of asset which is part of the process of the computation of depreciation. The assessee duly reduced the said sale consideration from the block of assets which is not in dispute. In view of the above the amount of ₹ 8,40,000/- separately added as income has rightly been deleted by ld CIT(A). Claim of depreciation is to be allowed even if the cost of the asset is treated as application. We note that section 11 (1A) is on the utilization of the net consideration, therefore the capital gains qualify for exemption u/s 11 (1A) of the Act A dministrative and establishment expenses allowance in computation for determination of quantum of accumulation u/s. 11(1)(a) - HELD THAT:- Advertisement expenses claimed by assessee is normal and expected for a school to advertise about its features so tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l bus service is only used to drop and pick up the students. Similarly, hostel facility is provided to the needy students. These services are part and parcel of the school and cannot be termed as business and hence the provision of section 11(4)/ (4A) of the Act is not attracted in this instant case. The main objective of the school is to impart education. The activity of running school bus and providing hostel facility is directly and proximately connected with the objective of imparting education. These are incidental activities for attainment of the objective of the assessee trust. We note that school bus and hostel activities are incidental to the attainment of objectives of the trust, hence, we do not find any infirmity in the order of CIT(A)in deleting the addition - Decided in favour of assessee. - ITA No.2002/Kol/2017 - - - Dated:- 10-1-2020 - Shri A.T. Varkey, JM And Dr. A.L. Saini, AM For the Appellant : Shri Radhey Shyam, CIT For the Respondent : Shri S. M. Surana, Advocate ORDER PER DR. A. L. SAINI, AM: The captioned appeal filed by the revenue, pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstitute, add or abridge and/or rescind any or all of the grounds of appeal during any stage of appeal. 3. Ground nos. 1 and 2 raised by the revenue relates to grant of relief to the assessee on account of depreciation amounting to ₹ 2,84,67,351/-. 4. Brief facts qua the issue are that during the assessment proceedings, the AO noticed that assessee trust, in the course of its activities, acquired different assets, which were purchased with the surplus funds available. The entire expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes under section 11(1)(a) of the Act, in the respective years in which such assets were procured. In addition to this, assessee trust in its computation of income and expenditure account had claimed depreciation amounting to ₹ 2,84,67,351/- as application of income. Therefore, the AO was of the view that the practice so followed by the assessee has resulted into double deduction. That is, when acquisition of assets is treated as application of income for charitable purposes, the value of assets stands fully written off, and over and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 11, read with section 32, of the Income-tax Act, 1961 - Charitable or religious trust - Income from property held under (Depreciation allowance) - Whether object of section 11 is to feed public charity and by permitting computation of income in a commercial manner, object of feeding public charity is achieved - Held, yes - Whether a building used for purpose of charity diminishes in value over time like any other building and, therefore, allowing depreciation for such diminitation of value would keep corpus of trust intact otherwise corpus of trust itself in course of time may get dissipated - Held, yes - Whether therefore, depreciation is to be allowed on assets cost of which had already been treated as application of income for charitable purpose - Held, yes [Paras 11 and 12] [In favour of assessee] As regards whether the inserted sub-section (6) could have retrospective application, judicial decisions have held that it cannot be interpreted so. This section is not retrospective in effect which is evident from the amendment itself. The insertion is prospective w.e.f. 01.04.2015 as held by the Hon`ble Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, AO made addition of 8,40,000/- under the head capital gain on sale of old assets. 9. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in further appeal before us. 10. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. Learned DR reiterated the stand taken by the assessing officer. We note that assessee trust, during the year, sold three cars being capital asset for ₹ 8,40,000/-. The Assessing Officer has treated the entire sale consideration as capital gain on sale of asset. The ld. Counsel submitted before us that as per the rules of depreciation, the consideration received on sale of assets is to be reduced from WDV of the block of assets, the assessee reduced the same from WDV and on the reduced WDV depreciation was claimed. It has been held in a number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner. The administrative and establishment expenses which are allowable under normal commercial principle but cannot be a part of application of income u/s 11 as these are not directly and proximately related to the proclaimed objective of the trust. The AO was of the view that, administrative establishment expenses being attributable to earning income are deductible from gross receipt to determine the net income available for application for charitable purposes for the purpose of calculation of allowable accumulation of 15% under section 11(l)(a) of the Act. Therefore, AO held that following expenses were neither directly or proximately connected with the charitable activities and therefore is taken as administrative and establishment expenses, the particulars of these expenses are given below: Sl. No. Particulars Amount (Rs.) 1. Advertisement 3,28,034 2. Audit Fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us . 14. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on the other hand the ld. Counsel for the assessee relied on the order of the ld CIT(A). We note that ld CIT(A) deleted the addition made by AO observing the following: So here too- it is presumption, so choose and pick. Advertisement: It is normal and expected for a school to advertise. How else would be general public know about it. Audit fees: Audit is statutory; so the fess necessary. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a the issue are that during the scrutiny proceedings the AO noticed that assessee claimed set off of earlier years excess of expenditure over income with the income of this year. The claim of such set off is ₹ 6,04,16,031/. However, in the computation of income filed along with the return of income no such claim of set off of earlier year s deficit was made. The claim was made during the proceeding u/s 143(3) of the Act. Therefore, AO was of the view that the assessee cannot make any fresh claim which was not in the return of income other than filing a revised return of income. The Hon ble Supreme court has been specific on this issue in the case of Goetz (India) Ltd. vs. CIT on 24thMarch, 2006 reported in [2006] 284 ITR 323 (SC). Further the assessee cannot base a fresh claim of this year by digging out facts from earlier years, proceeding of which has long been barred by limitation of time. In those years the returned and assessed income was Nil and not at loss. In view of all the above, the claim of the assessee in respect of set off of earlier years excess of expenditure over income with the income of this year was not allowed by assessing officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o set off the loss but excess amount was utilized in the earlier year in anticipation of generation of the income in the subsequent year. Therefore the assessee trust is entitled to set off the carry forward application of income. We note that Hon`ble High court of Madras in the case of Matriseva Trust[2003] 128 Taxman 261 (Madras) held as follows: 5. With regard to the second question, the Tribunal has held that the trust is entitled to set off the amount of excess application of the last year against the deficiency of ₹ 82,516 of the present assessment year. When similar questions came up before the Rajasthan High Court and the Gujarat High Court in the cases of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 and CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 239, respectively, both the Rajasthan High Court and the Gujarat High Court have answered the questions in favour of the assessee and against the revenue. 6. Following the aforesaid decisions of the Rajasthan and the Gujarat High Courts, we answer the second question referred to us in favour of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Various judicial decisions directly on this issue recent decisions, extracts therefrom: We note that ld CIT(A) did not direct the AO to allow setoff. As per ld CIT(A) the issue for set off will not arise; for the revised assessed income upon giving effect to his appeal order, because as per the return of income furnished by the appellant, the income was to the tune of Rs. Nil. However, after going through the judicial precedents, as noted above, it clear that such claim for set off is allowable to the assessee trust, therefore, we direct the AO to allow the set off benefit to the assessee trust. 21. Ground no. 6 raised by the Revenue is as follows: 6. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing loss of ₹ 1,14,75,323/- from the business of running school bus and loss of ₹ 20,56,394/- from running of hostel qualified for exemption u/s. 11(4A) of the Income Tax Act, 1961 ignoring that no separate account was submitted along with the return of income as required in the provision. 22. Brief facts qua the issue are that durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nature of such incidental activity is business, therefore he made addition to the total income of the assessee trust. We note that assessing officer has himself stated in his order that these are pure business activities but pertaining to attainment of the objective of the trust. Hence, it is abundantly clear from the order of the AO that school bus service and hostel service is pertaining to attainment of the objective of the trust. We note that the school bus service is only used to drop and pick up the students. Similarly, hostel facility is provided to the needy students. These services are part and parcel of the school and cannot be termed as business and hence the provision of section 11(4)/ (4A) of the Act is not attracted in this instant case. The main objective of the school is to impart education. The activity of running school bus and providing hostel facility is directly and proximately connected with the objective of imparting education. These are incidental activities for attainment of the objective of the assessee trust. 25. Theld CIT(A) has rightly deleted the addition observi ..... 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