DCIT (EXEMPTION), NEW DELHI vs. INSTITUTE OF SISTERS OF CHARITY, NEW DELHI

Aggrieved by the order dated 13.06.2016 in appeal no. 124/2015-16 Revenue preferred this appeal on the following grounds: 1. “On the facts and in the circumstances of the case and in law the Ld.CIT (A) has erred in allowing the appeal of the assessee by ignoring the fact that in the case of charitable or religious institutions, the assessee is not eligible for any type of depreciation as the entire expenditure for the purchase of capital assets is allowed as a deduction and the same is treated as application of income u/s 11(1) and claiming depreciation on the same capital assets is a double deduction 1 32(1).

2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in ignoring the fact that assessee like charitable or religious institutions are governed by almost the separate or independent provisions of section 11, 12, 12A, 12AA & 13 and these provisions are independent code in itself in Chapter III of the Income Tax Act, 1961. The income and expenditure is computed on the basis of application of income for charitable or religious purposes and the deduction is allowed of the entire expenditure including the capital expenditure for purchase of capital assets u/s 11(1).

3. The assessee craves leave to add, to alter or amend any ground of appeal

raised above at the time of hearing.”

2. Briefly stated facts are that the assessee is a trust running various educational institutions and medical & social work centers. The assessment u/s 143(3) was completed at ‘NIL’ income by the Assessing Officer ADIT (Exemption) for the A.Y. 2011-12 by an order dated 31.01.2014. Later on the DCIT (Exemption), the then Assessing Officer, on perusal of Assessment record find that the order of assessment dated 31.01.2014 was erroneous. The DCIT (E) noticed that the earlier Assessing Officer had completed the assessment allowing the depreciation claim of the assessee amounting to Rs. 2,19,57,951/-. He was of the view that since the assessee is claiming expenditure on account of purchase of fixed assets, the depreciation shouldn’t have been allowed. The DCIT(E), passed the Rectification Order u/s 154 of the Income Tax Act, 1961 and recomputed the total income at Rs. 2,19,57,951/- vide order dated 24.03.2015 and issued the demand notice amounting to Rs. 1,02,39,060/- for the AY 2011- 12.

Cancer Society in order dated 18.11.2014 and held that in computing the income of a charitable trust, depreciation of assets owned by the trust is a necessary deduction on commercial principles and the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. Revenue is challenging such a finding in this appeal.

That the Ld. Assessing officer has failed to appreciate the difference between the Income chargeable to tax and the application of Income which is a condition for the purpose of exemption u/s 11. Application of income is not a computation of income and the provision of application of income would come into play only after the income chargeable to tax is determined.”