ITO (E) 2(3), MUMBAI vs. MAHAVIR JAIN CHARITAKALYAN RATANASHRAM, MUMBAI

This is an appeal filed by the revenue against the order of CIT(A)-7, Mumbai dated 13/12/2016 for the A.Y.2008-09 in the matter of order passed u/s.143(3) of the IT Act.

Rival contentions have been heard and record perused. Facts in brief are that the assessee is a Charitable Trust and follows mercantile system of accounting. The main object of the Trust is to educate the children who are needy. Assessee had filed its return of income on 30.09.2008 claiming exemption u/s.11, declaring a deficit of (-) Rs.98,22,517/- alongwith Income and Expenditure Account, Balance-Sheet and Audited Report in Form No.10B was filed by the assessee. Assessee’s claim of depreciation Mahavir Jain Charitakalyan Ratnashram of assets was declined by the AO on the plea that assessee has claimed assets assets as application of income u/s.11(1)(a) of the IT Act.

By the impugned order CIT(A) deleted the disallowance after observing as under:- 4.2 I have considered the AO's order and submission made by the appellant. Appellant had claimed depreciation on fixed assets for Rs.23,42,566/- which AO had disallowed on the ground that appellant had already claimed exemption on the cost of capital expenditure as application of income u/s.11 of the Income-tax Act. Further, claiming of depreciation amounts to double deduction of tax. Hence, AO had disallowed the same relying on the Supreme Court decision in the case of Escorts Ltd. v/s. Union of India 199 ITR 43. Further, after relying on the above Supreme Court decision, Hon'ble Bombay High Court in the case of CIT vs. institute of Banking Personnel Selection (IBPS) 131 Taxmann 386 (Bom.) has held as under:- "In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a Charitable Trust, their income was assessable under self-contained code mentioned in section u to section 13 of the Income-tax Act that the income of the Charitable Trust was not assessable under the head "profits and gains of business" under section 28 in which the provision for carry forward of losses was relevant. That, in the case of a Charitable Trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of subsequent years. We do not find any merit in this argument of the Department. 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 in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section n(i)(a) of the Act. Our view is also supported by the judgement of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 293. Accordingly, we answer question No.3 in the affirmative i.e., in favour of the assessee and against the Department." On examining the above Bombay High Court case, it was held that income of the Trust should be computed u/s.11 on commercial principles after providing for allowance of normal depreciation and deduction thereof from gross income of the Trust. In view of the decision of Bombay High Court, appellant is eligible for depreciation as the High Court held that appellant's income has to be computed under normal commercial principles. Appellant is eligible for Mahavir Jain Charitakalyan Ratnashram depreciation, hence appellant's claim for depreciation of Rs.23,42,566/- may be allowed. Accordingly, the ground of appeal is allowed.