Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI JASON P. BOAZ
Per Asha Vijayaraghavan, Judicial Member
This appeal by the assessee is directed against the order dated 30.10.2014 of the CIT(Appeals), LTU, Bangalore for the assessment year 2011-12.
The assessee is a public charitable trust registered under section 12A of the Income-tax Act, 1961. It is engaged in charitable activities in the
ITA No.356/Bang/2015 Page 2 of 12
nature of publishing and distributing high quality low cost books. For the AY 2011-12, the assessee had gross receipts of Rs. 3.22 crores. It spent Rs.
3.07 crores towards the objectives of the trust. It filed the return of income on 29.09.2011 for AY 2011-12 declaring total income at Nil.
While completing the assessment the Assessing Officer held
accumulation of income u/s 11(1)(a) at the rate of 15% and made disallowance of depreciation claimed as application.
Before the CIT(Appeals), the ld. AR for the assessee submitted that
the AO disallowed the depreciation claim to the extent of Rs. 3,69,987/- on a presumption that the assessee has claimed capital expenditure towards
application of income and in fact, the assessee has not claimed capital expenditure towards application of income either in current year or earlier
years. Hence the question of claim of double benefit of deduction does not
arise. The ld. AR for the assessee relied on the decision of the Hon’ble Karnataka High Court in the case of CIT v. Society of the Sisters of St.
Anne (146 ITR 28), the Hon’ble Bombay High Court decision in the case of CIT v. Munisuvrat Jain (1994) Tax LR 1084, the Hon’ble Punjab and
Haryana High Court decision in the case of CIT v. Market Committee, Pipli (330 ITR 16) and the jurisdictional Bangalore Bench of the ITAT in the case
of Sri Adichunchanagiri Shikshana Trust v. ACIT (ITA No.775/Bang/2009).
It was further submitted that the AO also calculated the accumulation of income @ 15% of net income after reducing revenue
ITA No.356/Bang/2015 Page 3 of 12
expenditure. In support of its contention, the assessee relied on the following decisions of the Hon’ble Supreme Court wherein it has been held that “accumulation of 15% of the income derived from the property / voluntary contribution has to be calculated on the income derived by the charitable trust and not on amount remained after expending money on charitable purposes”:
a. CIT v. Program for Community Organization (248 ITR 1); b. CIT v. P. Krishna Warriar (53 ITR 176).
Reliance was also placed on the decision of the Special Bench of Mumbai ITAT in the case of Bai Sonabai Hirji Agiary Trust v. ITO, 93 ITD 70, wherein the ruling of the Hon’ble Supreme Court in the case of CIT v. Program for Community Organization (supra) was followed.
The CIT(Appeals) held that the impugned expenses in the assessee’s case are not in the shape of application since they are in the shape of expenses necessary for earning the income to be applied for charitable purposes. The reference to “commercial basis” and “not total income” as the meaning of ‘income’ to be taken into account for purposes of exemption u/s 11 is exactly what the AO has been stating in his order whereby he has co-related the expenses needed to earn income instead of following the concept of “total income”. He also referred to para 3.2 of the assessee’s written submissions which read as follows:-
ITA No.356/Bang/2015 Page 4 of 12
“3.2 The gross receipts of the trust will not be available fully and cannot be fully set apart as the expenditure for running the activities of the trust are necessary for earning such income. Further, after meeting such expenses any surplus available with the trust can be considered as income of the trust.”
In view of the above, the CIT(Appeals) confirmed the order of the AO.
Aggrieved, the assessee is in appeal before us in ground No.3.
We have heard both the parties. We find that the issue is covered by the decision of the coordinate Bench of this Tribunal in the case of Jyothy Charitable Trust in ITA No.662/Bang/2015, order dated 14.08.2015 wherein it has been held as under:-
“15. The issue to be decided is therefore as to whether for the purpose of computing accumulation of income of 15% under Sec.11(1)((a) of the Act, one has to take the gross receipts or gross receipts after expenditure for charitable purpose i.e., the net receipts. This is issue is no longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO 93 ITD 0070 (SB). The facts in the aforesaid case were that the assessee was a public charitable trust enjoying exemption under s. 11 of the IT Act. As per the requirement of s. 11(1) of the IT Act, as it prevailed at that point of time, the assessee had to apply 75 per cent of its income for the objects and purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent of its income, which was subject to fulfillment of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of
ITA No.356/Bang/2015 Page 5 of 12
income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- “9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon’ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held as under : "Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of Rs. 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of Rs. 87,010. For the aforesaid reasons, the civil appeal is dismissed." It is clear from the above that deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier, affirmed the decision of Kerala High Court in (1997) 141 CTR (Ker) 502 : (1997) 228 ITR 620 (Ker) (supra) wherein it is held as under : "At the outset, the statutory language of s. 11(1)(a) of the IT Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such purposes in India. It is thereafter the statutory provision proceeds further that such income is not to be understood to be in excess of 25 per cent of the income from such properties. In other words, the
ITA No.356/Bang/2015 Page 6 of 12
very language of the statutory provision under consideration sets apart 25 per cent of the income from the source of property with reference to the extent to which such income is applied for such purposes, charitable or religious. In other words, for the purpose of s. 11(1)(a) of the Act, the income in terms of relevance would be the income of the trust from and out of which 25 per cent is set apart in accordance with the spirit of the statutory provision." This means that, when it is established that trust is entitled to full benefit of exemption under s. 11(1), the said trust is to get the benefit of twenty-five per cent and this twenty-five per cent has to be understood as income of the trust under the relevant head of s. 11(1). In other words, income that is not to be included for the purpose of computing the total income would be the amount expended for purposes of trust in India. Their Lordships in the above case have emphasized on the clear and unambiguous language of s. 11(1)(a) and decided the matter on the basis of the same. It has been held that as per the statutory language of the above section the income which is to be taken for purpose of accumulation is the income derived by the trust from property. If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and not "total income" as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is Rs. 3,42,174. Twenty five
ITA No.356/Bang/2015 Page 7 of 12
per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon’ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust vs. CIT (supra). No reason whatsoever has been given by the Revenue authorities for deducting Rs. 2,17,126 in this case for purposes of s. 11(1)(a). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme Court referred to above. The circular of CBDT has also been considered by the Hon’ble Kerala High Court in its decision referred to above. Accordingly the question referred to is answered in the affirmative and in favour of the assessee.” 16. The aforesaid decision clearly supports the plea of the Assessee. Following the same, we hold that the accumulation u/s.11(1)(a) of the Act should be allowed as claimed by the Assessee. Ground No.4 raised by the Assessee is accordingly allowed.
Respectfully following the decision of the coordinate Bench of this Tribunal in the case of Jyothy Charitable Trust (supra), we allow ground No.3 raised by the assessee.
The next issue is with respect to disallowance of depreciation claim of Rs.3,69,987. The AO held that the assessee has been claiming double deduction by first showing the outlay on capital asset as application of income and, thereafter claiming depreciation on the capital asset as well relying on the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. arid Anr. vs Union of India and Ors 199 ITR 43 and the decision of the Hon’ble Kerala High Court in ITA No.42 of 2011 in the case of Lissie Medical Institution.
ITA No.356/Bang/2015 Page 8 of 12
Aggrieved, before the CIT(Appeals), the assessee in support of its claim relied on the Hon’ble jurisdictional High Court decision in the case of
CIT v. Society of Sisters of St. Anne, 146 ITR 28 which was followed by the Bangalore Bench of the Tribunal in the case of ACIT v. S.
Adichunchunagiri Sikshana Trust, 19 ITR (Trib) 828 and DDIT v. Cutchi
Memom Union, 38 taxmann.com 276. Reliance was also placed on the Punjab and Haryana High Court’s decision in case of CIT v. Market
Committee Pipli, 330 ITR 16 and the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Munisuvrat Jam (1994) Tax LR 1084.
The CIT(Appeals) held that the decisions relied upon by the
assessee are not applicable in the present case and distinguished the same. Relying on the Hon’ble Supreme Court’s decision in the case of
Escorts Ltd. (supra), the CIT(A) was of the view that claim of depreciation u/s. 32 of the Act along with capital expenditure on scientific research u/s.
35(1)(v) on the same asset would amount to double deduction. He
concluded that the claim of depreciation along with application of income for capital expenditure represents a double deduction which is not
envisaged under the I.T. Act. He observed that the Hon’ble Delhi High Court decision in the case of DIT(Exemption) v. Charanjiv Charitable Trust
(2014) 43 taxmann.com 300 also supported this position. He also pointed out to the amended provisions by the Finance Act, 2014 by introduction of
sub-section 6 to section 11 w.e.f. 1.4.2015. He therefore upheld the order
of the AO.
ITA No.356/Bang/2015 Page 9 of 12
Aggrieved, the assessee is in appeal before us in ground No.2. The ld. counsel for the assessee submitted that the lower authorities erred in not allowing the claim of depreciation, though the assessee had not claimed capital expenditure on the fixed assets as application of income.
We have heard both the parties. We find that this issue is also covered by the decision of the coordinate Bench of this Tribunal in the case of Jyothy Charitable Trust (supra), wherein at paras 7 & 8 of the order, it was held as follows:-
“7. We have heard the submissions of the ld. DR, who relied on the order of AO. We have considered the order of the AO. Identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of assessee. On further appeal by the Revenue, the Tribunal held as follows:- “20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income. It was so held by the Hon’ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT
ITA No.356/Bang/2015 Page 10 of 12
vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit. The decision of the Hon’ble Supreme Court in the case of Escorts Ltd. 199 ITR 43 (SC) have been referred to and distinguished by the Hon’ble Court in the aforesaid decisions. 21. The issue raised by the revenue in the ground of appeal is thus no longer res integra and has been decided by the Hon’ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H). The Hon’ble Punjab & Haryana High Court after considering several decisions on that issue and also the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra), came to the conclusion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon’ble Punjab & Haryana High Court made a reference to the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon’ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon’ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon’ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference. 22. Consequently, ground No.5 raised by the revenue is dismissed.”
ITA No.356/Bang/2015 Page 11 of 12
We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of sub-section (6) to section 11 of the Act, which reads as under:- “(6) In this section where any income is required to be applied or 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 any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.”
As already stated, the aforesaid amendment is prospective and will apply only from A.Y. 2015-16. In view of the above legal position, we are of the view that the order of the CIT(A) has to be reversed. Consequently ground No.2 raised by the Assessee is allowed.”
Respectfully following the decision of the coordinate Bench of this Tribunal cited supra, we allow ground No.2 raised by the assessee.
In the result, the appeal by the assessee is allowed.
Pronounced in the open court on this 28th day of October, 2015.
Sd/- Sd/-
( JASON P. BOAZ ) (ASHA VIJAYARAGHAVAN ) Accountant Member Judicial Member
Bangalore, Dated, the 28th October, 2015.
/D S/
ITA No.356/Bang/2015 Page 12 of 12
Copy to:
Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar, ITAT, Bangalore.