* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 240/2014
Reserved on: 28th October, 2014
% Date of Decision:18th November, 2014
DIRECTOR OF INCOME TAX (EXEMPTION) ..... Appellant
Through Mr. Kamal Sawhney, Sr. Standing Counsel.
Versus
M/S INDRAPRASTHA CANCER SOCIETY ..... Respondent
Through Ms. Shashi M. Kapila, Mr. R.R. Maurya and
Mr. Pravesh Sharma, Advocates.
INCOME TAX APPEAL NOS. 348/2014, 463/2014, 464/2014
DIRECTOR OF INCOME TAX (EXEMPTION) ..... Appellant
Through Mr. Kamal Sawhney, Sr. Standing Counsel.
Versus
M/S SANSKRITI EDUCATIONAL SOCIETY ..... Respondent
Through Nemo.
INCOME TAX APPEAL NO. 406/2014
DIRECTOR OF INCOME TAX (EXEMPTION) ..... Appellant
Through Mr. Kamal Sawhney, Sr. Standing Counsel.
Versus
M/S ABUL KALAM AZAD ISLAMIC AWAKENING
...... Respondent
Through Nemo.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO
ITA No. 240/2014+ connected appeals Page 1 of 20
SANJIV KHANNA, J.:
This common order, in relation to the aforesaid appeals, is on the
point of admission. It is noticeable that in the case of M/s Sanskriti
Educational Society, ITA Nos. 463/2014 and 464/2014, the appeals filed
by the Revenue are belated and applications have been filed for
condonation of delay. In these two appeals and ITA No. 348/2014 filed
against M/s Sanskriti Educational Society, notice has not been served on
the said respondent, but as we were inclined to dismiss the Revenues
appeals, we have heard arguments on behalf of the Revenue. In ITA
240/2014 and ITA 406/2014, the respondents i.e. M/s Indraprastha Cancer
Society and M/s Abul Kalalm Azad Islamic Awakening, have been duly
served.
2. The respondent-assessees are charitable institutions to whom
Sections 11 to 13 and other relevant provisions of the Income Tax Act,
1961 (Act, for short) apply. The issue raised in the present appeals is
whether a charitable institution, which has purchased capital assets and
treated the amount spent on purchase of the capital asset as application of
income, is entitled to claim depreciation on the same capital asset utilised
for business. Revenue submits that this would amount to double deduction.
ITA No. 240/2014+ connected appeals Page 2 of 20
3. This High Court in Director of Income Tax versus Vishwa Jagriti
Mission (2013) 262 CTR 558 has held that the claim for depreciation
should be allowed as per principles relating to commercial accountancy,
when computing business income. Reliance placed by the Revenue on the
decision of the Supreme Court in Escorts Limited versus Union of India,
(1993) 199 ITR 43 (SC), was dispelled and distinguished. In Escorts
Limited (supra) the claim for depreciation under Section 32 of the Act was
denied as the entire expenditure on the capital asset had been allowed
under Section 35(2)(iv) of the Act while computing business profit and
loss. Secondly, the Supreme Court was not concerned with the case of a
charitable trust/institution, and the question as to whether income under the
head "profits and gains of business" should be computed on commercial
principles in order to determine the amount of income available for
application for charitable purposes. Decisions of other High Courts in CIT
versus Sheth Manilal Ranchhoddas Vishram Bhavan Trust, (1992) 198
ITR 598 (Guj.), CIT versus Raipur Pallottine Society, (1989) 180 ITR 579
(MP), CIT versus Society of the Sisters of ST. Anne, (1984) 146 ITR 28
(Kar.), CIT versus Trustee of H.E.H. the Nizam's Supplemental
Religious Endowment Trust, (1981) 127 ITR 378 (AP) and CIT versus
Rao Bahadur Calavala Cunnan Chetty Charities, (1982) 135 ITR 485
ITA No. 240/2014+ connected appeals Page 3 of 20
(Mad.) were referred to in affirmation of the legal ratio. It was, inter alia,
held:-
"11. .........The only question is whether the income of the
assessee should be computed on commercial principles and
in doing so whether depreciation on fixed assets utilised for
the charitable purposes should be allowed. On this issue,
there seems to be a consensus of judicial thinking as is seen
from the authorities relied upon by the CIT(Appeals) as well
as the Tribunal. In CIT vs. The Society of the Sisters of St.
Anme (Supra), an identical question arose before the
Karnataka High Court. There the society was running a
school in Bangalore and was allowed exemption under
Section 11. The question arose as to how the income
available for application to charitable and religious purposes
should be computed. Jagannatha Setty, J. speaking for the
Division Bench of the Court held that income derived from
property held under trust cannot be the "total income" as
defined in Section 2(45) of the Act and that the word
"income" is a wider term than the expression "profits and
gains of business or profession". Reference was made to the
nature of depreciation and it was pointed out that
depreciation was nothing but decrease in the value of
property through wear, deterioration or obsolescence. It was
observed that depreciation, if not allowed as a necessary
deduction for computing the income of charitable
institutions, then there is no way to preserve the corpus of
the trust for deriving the income. The circular No.5-P (LXX-
6) of 1968, dated July 19,1968 was reproduced in the
judgment in which the Board has taken the view that the
income of the trust should be understood in its commercial
sense. The circular is as under:-
"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
ITA No. 240/2014+ connected appeals Page 4 of 20
trust or otherwise, and also after adding back any
debits 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 u/s. 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, should
be not less than 75 per cent. Of the latter, if the
trust is to get the full benefit of the exemption u/s.
11(1)."
4. Accordingly, the appeal was dismissed after observing that no
contrary judgment has been brought to the notice of this Court.
5. The High Court of Kerala in Lissie Medical Institutions versus
Commissioner of Income Tax, (2012) 348 ITR 344 (Ker) has taken a
different view, inter alia, holding as under:-
"5. It is settled position through several decisions of High
Courts and Supreme Courts that when business is held in
trust by charitable institutions income from business has to
be computed by granting deductions provided u/s 30 to
43D as provided under S.29 of the Income Tax Act.
6. Senior counsel Sri.A.K.J.Nambiar appearing for the
assessee submitted that the assessee has been filing income
tax returns for several years including the assessment year
2005-2006, and disallowance is made only for this year.
Since business income has to be as stated in S.29 by
granting all deductions provided u/s 30 to 43D which
includes depreciation u/s 32, assessee is entitled is the case
pressed before us by the Senior counsel appearing for the
assessee. We have no doubt in our mind that business
income of charitable trust also has to be computed in the
same manner as provided u/s 29 of the Income Tax Act.
ITA No. 240/2014+ connected appeals Page 5 of 20
However, the issue that requires consideration is when the
expenditure incurred for acquisition of depreciable assets
itself is treated as application of income for charitable
purposes u/s 11(1)(a) of the Act, should not the cost of such
assets to be treated as nil for the assessee and in that
situation depreciation to be granted turns out to be nil.
However, if depreciation provided is claimed on notional
cost after the assessee claims 100% of the cost incurred for
it as application of income for charitable purposes, the
depreciation so claimed has to be written back as income
available. In fact, going by the several decisions of the
various High Courts, we are sure that based on these
decisions all the charitable institutions will be generating
unaccounted income equal to the depreciation amount
claimed on an year to year basis which is nothing but black
money. This aspect is not seen considered in any of these
decisions. We, therefore, sought the views from the
Central Board of Direct Taxes. Senior Standing counsel
Sri.P.K.R.Menon, appearing for the Revenue produced
clarification obtained from the Central Board wherein they
have stated as follows:
"The Central Board of Direct Taxes is of the
considered view that where an assessee has
acquired an asset through application of income
and has also claimed this amount as expenditure
in its income expenditure account, depreciation
on such asset would not be allowable to the
assessee. Such notional statutory deductions
like depreciation, if claimed as deduction while
computing the income of the 'the property held
under trust' under the relevant head of income, is
required to be added back while computing the
income for the purpose of application in the
income expenditure account. This would imply
that a correct figure of surplus from the trust
property is reflected in the Income & Expenditure
account of the trust to determine the income for
the purpose of application under section 11 of the
Income Tax Act. This would reduce the
ITA No. 240/2014+ connected appeals Page 6 of 20
possibility of revenue leakage which may be a
cause for generation of black money."
6. Noticing the aforesaid judgment as well as circular/clarification
dated 2nd Feb, 2012 issued by the Central Board of Direct Taxes, a Division
Bench of this Court re-examined the entire issue in ITA No. 7/2013,
Director of Income Tax (Exemption) versus Indian Trade Promotion
Organisation, and other connected matters, decided on 27th November,
2013. The said order records that the Bench was initially inclined to accept
the submission made of the Revenue, but for several reasons mentioned
and recorded, declined to interfere and refer the question/ ratio accepted in
Vishwa Jagriti Mission (supra), to a larger bench. This Court referred to
the following example to explain the controversy in question:-
"5. ... In order to appreciate the contention raised by the
Revenue, we would like to give one example which would
clarify the contention or the issue raised before us. An
assessee, a charitable institution, say has income from
property held under Trust of Rs.1,00,000/-. As per mandate
of clause ,,a, 85% of the said amount i.e. Rs.85,000/- should
be spent in the said financial year. The said assessee spends
and acquires a capital asset for Rs.50,000/-. The purchase
price for acquisition of the capital asset i.e. Rs.50,000/- is
treated as application of income for the purpose of clause ,,a
to Section 11(1). On the capital asset, the assessee also claims
depreciation say @ 20%. Accordingly, the assessee claims
that the application of income would include Rs.10,000/-
which is to be allowed as depreciation as to this extent, the
asset purchased has depreciated. In other words, Rs.60,000/-
is to be treated as application of money for the purpose of
clause ,,a to Section 11(1)."
ITA No. 240/2014+ connected appeals Page 7 of 20
Thereafter, reference was made to the following quotation from the
judgment of the Karnataka High Court in Society of the Sisters of St. Anne
(supra) :-
"It is clear from the above provisions that the income
derived from property held under trust cannot be the
total income because s. 11(1) says that the former
shall not be included in the latter, of the person in
receipt of the income. The expression " total income "
has been defined under s. 2(45) of the Act to mean "
the total amount of income referred to in s. 5
computed in the manner laid down in this Act ". The
word " income " is defined under 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 involve actual
delivery of or parting with the money. It seems to us
that it need not necessarily be so. The expenditure
should be understood as necessary outgoings. The
depreciation is nothing but decrease in value of
property through wear, deterioration or obsolescence
and allowance is made for this purpose in book
keeping, accountancy, etc. In Spicer & Pegler's
Book-keeping and Accounts, 17th Edn., pp. 44, 45 &
46, it has been noted as follows :
ITA No. 240/2014+ connected appeals Page 8 of 20
"Depreciation is the exhaustion of the effective
life of a fixed asset owing to ' use ' or
obsolescence. It may be computed as that part
of the cost of the asset which will not be
recovered when the asset is finally put out of
use. The object of providing for depreciation is
to spread the expenditure, incurred in acquiring
the asset, over its effective lifetime; the
amount of the provision, made in respect of an
accounting period, is intended to represent the
proportion of such expenditure, which has
expired during that period. "
"At the end of its effective life, the assets
ceases to earn revenue, i.e., the capital value
has expired and the asset will have to be
replaced or a substitute found provision for
depreciation is the setting aside, out of the
revenue of an accounting period, the estimated
amount by which the capital invested in the
asset has expired during that period. It is the
provision made for the loss or expense incurred
through rising the asset for earning profits, and
should, therefore, be charged against those
profits as they are earned. "
"If depreciation is not provided for, the books
will not contain a 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
ITA No. 240/2014+ connected appeals Page 9 of 20
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 Court, while constructing
the expression " expenditure incurred " in s. 44A of
the Act, observed :
"depreciation claimed shall include the
expenditure incurred." There are only two
recognised methods of accounting : (1) cash
basis, and (ii) mercantile basis. Under the cash
basis only cash transactions are recorded. It is
only cash receipts and cash payments which
find entries in the books of account.
Mercantile system of accounting was explained
by the Supreme Court in Keshav Mills Ltd. v.
CIT [1953]23 ITR 230 at 230 in the following
words :
"The mercantile system of accounting or what
is otherwise known as the double entry system
is opposed to the cash system of book keeping
under which a record is kept of actual cash
receipts and actual cash payments, entries
being made only when money is actually
collected or disbursed. That system brings into
credit what is due, immediately it becomes
legally due and before it, is actually received
and it brings into debit expenditure the amount
for which a legal liability has been incurred
before it is actually disbursed.
It is not in dispute that if the mercantile system
is followed, the depreciation allowance in
respect of the trust property should be allowed.
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ITA No. 240/2014+ connected appeals Page 10 of 20
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 " income " u/s. 11(1) in
its commercial sense. The relevant portion of
the Circular No. 5-P (LXX-6) of 1968, dated
July 19, 1968, 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 debits 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 u/s. 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, should be not less than
75 per cent. of the latter, if the trust is to get the
full benefit of the exemption u/s. 11(1). "
This court thereafter referred to the circular/clarification dated 2nd
February, 2012 by the CBDT, issued after decision of Kerala High Court in
Lisse Medical ( supra) and has expounded as under:-
"9. After the decision of the Kerala High Court in Lissie
Medical Institution vs. CIT (supra), the Board issued a
ITA No. 240/2014+ connected appeals Page 11 of 20
fresh circular or clarification dated 02.02.2012 and has
observed:-
"The view of the CBDT to be conveyed to the
Court in this regard is as under:-
The Central Board of Direct Taxes is of the
considered view that where an assessee has
acquired an asset through application of
income and has also claimed this amount as
expenditure in its income expenditure
account, depreciation on such asset would not
be allowable to the assessee. Such notional
statutory deductions like depreciation, if
claimed as deduction while computing the
income of "the property held under trust"
under the relevant head of income, is required
to be added back while computing the income
for the purpose of application in the income
expenditure account. This would imply that a
correct figure of surplus from the trust
property is reflected in the Income and
Expenditure account of the trust to determine
the income for the purpose of application
under section 11 of the Income Tax Act. This
would reduce the possibility of revenue
leakage which may be a cause for generation
of black money."
10. We also note that the Kerala High Court, in fact, has
noted the clarifications which were earlier issued by the
Board in respect of 1968 circular. It is clear from the
reasoning given by the Kerala High Court
that they have not gone by the express language of
Section 11(a) and have purposively interpreted the
provision."
ITA No. 240/2014+ connected appeals Page 12 of 20
7. Reference was once again made to the decision of the Supreme
Court in Escorts Limited (supra) and provisions of Section 35(2B)(c) were
quoted and it was observed that the language of the sub-clause (c) was
clear and lucid but conspicuously different from section 11(1) of the Act.
It has been observed in Indian Trade Promotion Organisation (supra) :-
11. Clause ,,a of Section 11(1) stipulates that income derived from
property held under trust wholly for charitable or religious
purposes is to be applied for such purposes in India and where such
income is set aside or accumulated, it should not be in excess of
15% of the income from such property. Thus, there is an embargo
and probation from accumulating or setting apart income derived
from property held under trust beyond 15% of income from such
property. If there is a violation of the said provision, proportionate
income is deemed to be taxable and not exempt under Section
11(1). The language of the Section is peculiar and proceeds on its
own wording. This aspect has been highlighted and pointed out in
the judgment of Commissioner of Income Tax vs. Society of The
Sisters of St. Anne (supra). Decision in the case of Escorts Ltd.
(supra) was considered by the Delhi High Court in DIT vs. Vishwa
Jagriti Mission (supra) decided on 29th March, 2012 and was
distinguished for the following reasons.
"13. The judgment of the Supreme Court in
Escorts Limited Vs. Union of India (supra)
has been rightly held to be inapplicable to the
present case. There are two reasons as to why
the judgment cannot be applied to the present
case. Firstly, the Supreme Court was not
concerned with the case of a charitable
trust/institution involving the question as to
whether its income should be computed on
commercial principles in order to determine
the amount of income available for application
to charitable purposes. It was a case where the
assessee was carrying on business and the
ITA No. 240/2014+ connected appeals Page 13 of 20
statutory computation provisions of Chapter
IV-D of the Act were applicable. In the
present case, we are not concerned with the
applicability of these provisions. We are
concerned only with the concept of
commercial income as understood from the
accounting point of view. Even under normal
commercial accounting principles, there is
authority for the proposition that depreciation
is a necessary charge in computing the net
income. Secondly, the Supreme Court was
concerned with the case where the assessee
had claimed deduction of the cost of the asset
under Section 35(1) of the Act, which allowed
deduction for capital expenditure incurred on
scientific research. The question was whether
after claiming deduction in respect of the cost
of the asset under Section 35(1), can the
assessee again claim deduction on account of
depreciation in respect of the same asset. The
Supreme Court ruled that, under general
principles of taxation, double deduction in
regard to the same business outgoing is not
intended unless clearly expressed. The present
case is not one of this type, as rightly
distinguished by the CIT(Appeals)."
12. We would like to reproduce Section 35 (2B)(c).
"Section 35(2B)(a) ..................................
(b).........................................................
(c) Where a deduction allowed for any
previous year under this sub-section in respect
of expenditure represented wholly or partly by
an asset, no deduction shall be allowed in
respect of that asset under [clause (ii) of sub-
section (1)] of section 32 for the same or any
subsequent previous year."
ITA No. 240/2014+ connected appeals Page 14 of 20
13. The language of the sub-clause ,,c to Section 35(2B) is
conspicuous and entirely different and wordings are clear and
lucid. The language of Section 11(1), as noticed above, is
distinguished and not worded in a similar manner. In Escorts
Ltd. (supra), the Supreme Court was considering the said
specific provision and the wordings therein. While dealing with
the term "expenditure" and noticing the language it was held
that no duplication or double deduction should be allowed
towards depreciation in the same or subsequent year. Thus, the
issue was decided against the assessee. Language of Explanation
1 to Section 43(1) can also be referred to and we notice that the
language of the said explanation is absolutely different from the
language used in Clause (a) to Section 11(1). Section 11(1)(a) is
a peculiar provision which postulates application of income and
it is not dealing with expenditure as such. The legislative desire
is that money should be applied for the purpose of charity. In
Escorts Ltd.(supra), the Supreme Court had observed that they
were concerned with expenditure and since the entire costs of
the capital assets had been allowed and had been set off against
the business profit in five years or in one previous year, it was
unconceivable that the depreciation should be allowed again on
the same asset."
8. Decisions of other High Courts in Commissioner of Income Tax
versus Tiny Tots Education Society, (2011) 330 ITR 21 (P&H) and
Commissioner of Income Tax versus Institute of Banking, (2003) 264
ITR 110 (Bom.) in which the ratio as expounded in the case of Vishwa
Jagriti Mission (supra) was accepted and affirmed, were noticed. Referring
to the decision of the Kerala High Court in Lissie Medical Institutions
(supra) it was observed:-
ITA No. 240/2014+ connected appeals Page 15 of 20
15. "Kerala High Court was also conscious of the said decisions
and the fact that Section 11(1)(a) had been interpreted in a different
manner. It was in these circumstances that the Kerala High Court
in the last portion of paragraph 6, as quoted above, has stated that
the assessee would be entitled to write back depreciation and if
done, the Assessing Officer would modify the assessment
determining the higher income and allow recomputation of
depreciation written back for the purpose of application of income
for charitable purposes in future or subsequent years. This may
lead to its own difficulties and problems as suddenly the entire
depreciation written off would have to be added first and then in
one year substantial application of income would be required. This
may be impractical and would disturb the working of many a
charitable institutions. The legal interpretation which has
continued since 1984, if disturbed and implemented, would not
appropriately resolved. Consistency and certainty is more
appropriate.
16. The equally plausible and consistent interpretation of clause (a)
of Section 11(1) of the Act is that income derived from property
must be calculated as per the principles of the Act. The said clause
is not a computation provision and does not disturb the "income"
earned or available but postulates that the "income" as computed in
accordance with the provisions of the Act to the extent of 86%
must be applied. Application of income may include purchase of a
capital asset. The said purchase is valid and taken into
consideration for the purpose of ensuring compliance, i.e.,
application of money or funds and is not a factor which determines
and decides the quantum of income derived from property held
under trust. Computation of income is separate and distinct and
has to be made on commercial basis by applying provisions of the
Act."
9. To our mind, therefore, the issue has been examined in depth and
detail twice and thus there is no error in the impugned orders passed by the
Tribunal. However, learned counsel for the Revenue has drawn our
attention to the decision dated 18th March, 2014 in ITA No. 322-323/2013
ITA No. 240/2014+ connected appeals Page 16 of 20
titled Director of Income Tax (Exemption) versus Charanjiv Charitable
Trust, wherein it has been held:-
"30. So far as the claim of depreciation is concerned the
decision of the Tribunal cannot be countenanced. The
Tribunal has overlooked that the cost of the assets has
already been allowed as a deduction as application of
income, as held by the CIT (Appeals) as well as the
assessing officer. It was their view that allowing
depreciation in respect of assets, the cost of which was
earlier allowed as deduction as application of income of the
trust, would actually amount to double deduction on the
basis of the ruling of the Supreme Court in Escorts Ltd. vs.
UOI (supra). In respect of the additions to the fixed assets
made during the previous year relevant to the assessment
year 2006-07, the CIT (Appeals) held that since the cost of
the assets was not allowed as a deduction by way of
application of income, depreciation should be allow. The
CIT (Appeals) has thus made a distinction between assets
the cost of which was allowed as deduction as application
of income and assets, the cost of which was not so allowed.
The Tribunal has not kept this distinction in view, but has
proceeded to rely upon a judgment of this Court in DIT vs.
Vishwa Jagrati Mission (supra). In the judgment of this
Court the question was whether the income of the assessee,
which was a charitable trust, should be computed on
commercial principles and if so, whether depreciation on
fixed assets used for charitable purposes should be allowed
as a deduction. This Court noticed that there was a
consensus of judicial opinion on this aspect and held, after
referring to those authorities as well as a circular of the
CBDT issued on 19.07.1968, that while computing the
income of the trust available for application for charitable
purposes, depreciation on assets used for charitable
purposes should be allowed. The point to be noticed is that
in this judgment, this Court referred to and distinguished
the judgment of the Supreme Court in Escorts Ltd. (supra)
on the ground that in Escorts (supra), the Supreme Court
ITA No. 240/2014+ connected appeals Page 17 of 20
was concerned with a case where the deduction of the cost
of the asset was allowed under Section 35(1) as capital
expenditure incurred on scientific research and, therefore,
no deduction for depreciation on the very same assets was
held allowable under general principles of taxation, as it
would amount to double deduction. The judgment of this
Court in DIT vs. Vishwa jagrati Mission reinforces the
principle that if the cost of the asset has been allowed as
deduction by way of application of income then
depreciation on the same asset cannot be allowed in the
computation of the income of the trust. The distinction has
not been kept in view by the Tribunal which seems to have
erroneously relied on the judgment of this Court to direct
allowance of depreciation even in respect of assets, the cost
of which has already been allowed as application of
income. We accordingly hold that the Tribunal was not
justified in directing the allowance of depreciation in
respect of such assets."
10. The aforesaid paragraph refers to the decision in the case of Vishwa
Jagriti Mission (supra) but ratio was distinguished on the ground that in
the said case the Court was concerned with computation of income of a
charitable trust/institution on commercial principles and if so whether
depreciation on fixed assets used for charitable purposes should be allowed
as a deduction. The consensus of judicial opinion on the said aspect was
referred to. It is noticeable that in Charanjiv Charitable Trust (supra) it
stands observed that the Tribunal overlooked the fact that the cost of asset
had been allowed as a "deduction" and thereafter depreciation was being
claimed. The said case, therefore, appears to be a peculiar one wherein
deduction as expenditure and depreciation was being claimed
ITA No. 240/2014+ connected appeals Page 18 of 20
simultaneously, while computing the taxable income under the head
"profits and gains from business". The said decision dated 18th March,
2014 does not refer to the decision in Indian Trade Promotion
Organisation (supra) which was decided on 27th November, 2013. The
judgment in the case of Indian Trade Promotion Organisation (supra) was
not cited and referred to. The judgment in the case of Charanjiv
Charitable Trust (supra) is authored by the same Judge, who has also
authored the decision in the case of Vishwa Jagriti Mission (supra). It is
obvious that in Charanjiv Charitable Trust (supra), the Division Bench
could not have taken a different view on the legal ratio as interpreted in
Vishwa Jagriti Mission (supra). Further, the decisions in the case of
Vishwa Jagriti Mission and Indian Trade Promotion Organisation
(supra) being prior in point of time would act as binding precedents and
could not have been overruled or dissented from by a coordinate Division
Bench.
11. By Finance (No. 2) Act of 2014, sub-section (6) to Section 11 stands
inserted with effect from 1st April, 2015 to the effect that where any
income is required to be applied, accumulated or set apart for application,
then for such purposes the income shall be determined without any
deduction or allowance by way of depreciation or otherwise in respect of
an asset, the acquisition of which has been claimed as application of
ITA No. 240/2014+ connected appeals Page 19 of 20
income under this Section in the same or any other previous year. The
legal position, therefore, would undergo a change in terms of Section
11(6), which has been inserted and applicable with effect from 1st April,
2015 and not to the assessment years in question. The newly enacted sub-
section relates to application of income.
12. In these circumstances, we do not find any merit in the appeals in the
case of Indraprastha Cancer Society, Abul Kalam Azad Islamic Awakening
and in the case of M/s Sanskriti Educational Society (ITA No. 348/2014).
Similarly, we do not think it is necessary and required that we should issue
notice in the application for condonation of delay filed in the case of M/s
Sanskriti Educational Society (ITA Nos. 463 and 464/2014) as on merits
the Revenue is not entitled to succeed. In these appeals, the applications
for condonation of delay shall be treated as dismissed and as a sequitur the
appeals will be treated as dismissed.
(SANJIV KHANNA)
JUDGE
(V. KAMESWAR RAO)
JUDGE
NOVEMBER 18th, 2014
VKR
ITA No. 240/2014+ connected appeals Page 20 of 20
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