TMI Blog1983 (8) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... he Sisters of St. Anne, Bangalore ". It is a charitable institution running a school. It was assessed as an association of persons for the assessment year 1977-78.The assessee filed a return of income on August 6, 1977, declaring " nil " income. The gross receipt as per income, and expenditure statement was shown as Rs. 1,93,185. Expense claimed as allowance under s. 11(1) was shown as Rs. 1,37,389. While arriving at this figure, depreciation of Rs. 5,781 was claimed in the statement of accounts as a debit in respect of the school building. The ITO disallowed that claim stating that depreciation is required to be allowed only when the income is computed under the head " Business " falling under s. 28 of the I.T. Act, 1961. He also observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... san, learned counsel for the Revenue, while challenging the correctness of the, order of the Tribunal, submitted that the word "income " in s. 11 (1)(a) must represent the money that is available for being applied to charitable or religious purposes and that income should be construed as the actual receipts plus the actual expenses. The notional expenses like depreciation is not an expense that is relevant for arriving at the real income referred to in s. 11(1)(a). Mr. Prasad, for the assessee, and Mr. Sarangam, as intervener, on the other hand, urged that the word " income " in s. 11 (1)(a) cannot be understood to exclude the depreciation merely because the subsequent word " income " is succeeded by the word " applied ". The income that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of 25 per cent. of the income will be exempt. Apart from these provisions for free accumulation the trust has also got right of additional accumulation. The relevant provisions are contained in sub-s. (2) of s. 11 of the Act. The Explanation to s. 1l(1) makes it clear that in computing the 25 per cent. of the income which may be accumulated or set apart, all voluntary contributions referred to in s. 12 are to be deemed to be a part of the income. Under the provisions effective up to the assessment year 1975-76, a charitable or religious trust was entitled to claim that the application of the trust's income in the three months' period immediately following the end of the relevant previous year should be treated as an applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 2(24) of the Act to include profits and gains, dividends, voluntary payment received by trust, etc. It may be noted that profits and gains are generally used in terms of business or profession as provided u/s. 28. The word " income ", therefore, is a much wider term than the expression ",profits and gains of business or profession ". Net receipt after deducting all the necessary expenditure of the trust (sic). There is a broad agreement on this proposition. But still the contention for the Revenue is that the depreciation allowance being a notional income (expenditure ?) cannot be allowed to be debited to the expenditure account of the trust. This contention appears to proceed on the assumption that the expenditure should necessarily i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits as they are earned." " If depreciation is not provided for, the books will not contain true record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against the profits; having been purchased the asset is, in effect, then hired by capital to revenue, and the true profit cannot be ascertained until a suitable charge for the use of the asset has been made. Moreover, unless provision is made for depreciation, the balance-sheet will not present a true and fair view of the state of affairs ; assets should be shown at a figure which represent that part of their value on acquisition, which has not yet expired." In CIT v Indian Jute Mills Association [1982] 134 ITR 68, the Calcutta High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to support the contention of Mr. Srinivasan. Explanation to s. 11(1)(a), on the contrary, takes note of the income not received in a particular 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 I.T. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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