TMI Blog2018 (8) TMI 2139X X X X Extracts X X X X X X X X Extracts X X X X ..... principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. Also when the Income Tax Officer stated that full expenditure had been allowed in the year of acquisition 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. Application of income of the trust for charitable and religious purposes - Carrying forward of the losses for being set off against the income of the charitable trust for the present Assessment Year - As decided in Ohio University Christ College [ 2018 (11) TMI 1055 - KARNATAKA HIGH COURT] allowing any expenditure of the earlier year which has been brought forward and set off in the year under consideration, is a justified finding of fact based on the correct interpretation of law and the judgment relied upon by it rendered by the cognate Bench. Therefore, the same does not call for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the Tribunal were justified in law in allowing assessee s claim for depreciation on assets put into use during the accounting year relevant to this assessment year, even the legislature has specifically w.e.f 1/4/2015 has conveyed its intention not to allow depreciation as well as application of income at same time which would result in double deduction and clarification dated 2/2/2012 of CBDT strengthens the view of Revenue ? 3. This Court in case of Commissioner of Income Tax-III, Pune v. Rajasthan Gujarati Charitable Foundation Poona [2018] 89 taxmann.com 127 [SC] with regard to allowability and Depreciation in the hands of Religious and Charitable Trust held as under: 5. Learned Counsel at the Bar submitted that so far as the issue regarding claim of Depreciation under Section 32 of the Act is concerned, the controversy is no longer res integra, having been settled by the Hon ble Supreme Court in the case of Commissioner of Income Tax-III, Pune v. Rajasthan Gujarati Charitable Foundation Poona [2018] 89 taxmann.com 127 [SC], by which the Hon ble Supreme Court has affirmed the view taken by the Bombay High Court in Commissioner of Income Tax v. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples. The court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income Tax Act. The court rejected the argument on behalf of the revenue that section 32 of the Income Tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a Charitable Trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. In view of the aforestated Judgment of the Bombay High Court, we answer question No. 1 in the affirmative i.e., in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: 16. In so far as the second question proposed by the Revenue, quoted above is concerned also, we find that the Tribunal s findings in this regard do not give rise to any substantial question of law. The said findings are quoted below for ready reference : 5.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed application of income on account of expenditure of earlier years, which has been brought forward and set off in the year under consideration. The Assessing Officer disallowed the same on the ground that there is no express provision in the Act permitting the adjustment of earlier years brought forward expenses as application of income in the current year. According to the Assessing Officer, the application of income for charitable purposes must be during the relevant previous year. Since the income of the trust is exempt from tax, the question of deficit does not arise and also the trust is required to utilize 85% of the income of the previous year for charitable purposes during the year. In this view of the matter and for the above reasons, the Assessing Officer disallowed the assessee s claim of expenditure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2009-10 are dismissed. 17. In our opinion, the matter is squarely covered by a decision of the cognate Bench of this Court in the case of CIT vs. Society of the Sisters of St. Anne (1984) 16 Taxman 400 (Kar.) and (1984) 146 ITR 28, wherein the congnate Bench of this Court held that even the depreciation not involving any cash outflow is also in the character of expenditure and therefore such depreciation is nothing but decrease in the value of property through wear and tear, deterioration or obsolescence and the allowance made for that purpose in the books of accounts were deemed to be the application of funds for the purpose of Sec. 11 of the Act. The relevant portion of the said judgment is also quoted below for ready reference: 11. Mr. Srinivasan, however, urged that there are enough indications in Section 11 to exclude the mercantile system of accounting. The learned counsel relied upon sections 11(1)(a) and 11(4) in support of his contention. We do not think that there is anything in these sub-sections to support the contention of Mr. Srinivasan. Explanation to section 11(1)(a) on the contrary takes note of the income not received in a particular year. It len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also taken by the Division Bench of Bombay High Court in Commissioner of Income-tax v. Institute of Banking (2003) 264 ITR 110, wherein the Division Bench of Bombay High Court held that the income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for charitable 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 purposes in the subsequent year. The relevant portion of the said judgment of Bombay High Court is also quoted below for ready reference : Normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Inome-tax Act, 1961. Income of a charitable trust derived from building, plant and machinery and furniture is liable to be computed in a normal commercial manner although the trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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