ITO, COIMBATORE vs. COIMBATORE MULTIPURPOSE SOCIAL SERVICE SOCIETY, COIMBATORE

per the Memorandum, the predominant object of the assessee-

society is education. It is not clear from the orders of the lower

authorities whether the assessee was running any educational

institution. Even though the Ld.counsel claims that the assessee is

providing funds to the students, it is not clear from the orders of the

lower authorities whether such funds are provided by way of or

scholarship or any other form of assistance. This Tribunal is of the

considered opinion that the activity of the assessee-society has to

be examined in the light of the Memorandum of the assessee-

society before examining the claim under Section 11 of the Act. It

also needs to be examined whether the establishment of Working

Women Hostel would fall under the head “public utility service”

under Section 2(15) of the Act. Since these aspects were not

examined by the authorities below and the facts are not clear from

the orders of the lower authorities with regard to activity of the

assessee, this Tribunal is of the considered opinion that the

Assessing Officer has to re-examine the issue and he has to bring

out the entire facts with regard to object and activity of the

assessee-society on record.

5 I.T.A. No.1965/Mds/14 I.T.A. No.2222/Mds/14 6. Accordingly, the orders of the lower authorities are set aside

and the entire claim of deduction under Section 11 of the Act is

remitted back to the file of the Assessing Officer. The Assessing

Officer shall re-examine the issue afresh in the light of the

Memorandum of the assessee-society and the activity which is

actually carried on by the assessee and thereafter decide the issue

in accordance with law after giving reasonable opportunity to the

assessee.

No.2222/Mds/2014, the only issue arises for consideration is with

regard to the claim of depreciation on the asset on which the

assessee claims deduction under Section 11 as application of

income.

assessee claimed depreciation under Section 32 of the Act.

However, the Assessing Officer rejected the claim of the assessee

on the ground that the investment made by the assessee for

acquiring capital asset was already allowed under Section 11 as

application. Therefore, the cost of asset becomes NIL. The Ld.

D.R. further submitted that the depreciation has to be computed

only on the Written Down Value of the capital asset. Since the

6 I.T.A. No.1965/Mds/14 I.T.A. No.2222/Mds/14 Written Down Value is NIL, on allowing the entire cost as application

of income under Section 11 of the Act, the computation itself fails.

The Ld. D.R. has placed reliance on the judgment of the Apex Court

in J.K. Synthetics Ltd. v. Union of India (1993) 199 ITR 43 and also

the judgment of Kerala High Court in Lissie Medical Institutions v.

CIT (2012) to taxmann.com 9.

assessee, submitted that the taxable income of the assessee has to

be computed in a commercial form after allowing all permissible

deductions under the provisions of Income-tax Act. According to

the Ld. counsel, depreciation under Section 32 of the Act is an

allowance that has to be deducted for arriving at taxable income. If

anything remains after allowing depreciation, the same has to be

allowed under Section 11 of the Act as application of income.

Referring to the decision of this Bench of the Tribunal in ITO v.

KGISL Ltd. in I.T.A. No.1813/Mds/2012 dated 3.6.2013, the

Ld.counsel submitted that on identical circumstances, this Tribunal

found that there are divergent judicial opinions by the various High

Courts, therefore, by following the judgment of Apex Court in the

case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192, allowed

the claim of the assessee.

7 I.T.A. No.1965/Mds/14 I.T.A. No.2222/Mds/14

perused the relevant material on record. It is not in dispute that the

cost of acquisition of capital asset was allowed under Section 11 of

the Act as application of income. Therefore, in the books, the cost

of capital asset on which the assessee has claimed depreciation

has to be taken as NIL. Section 11 of the Act, on which the

assessee earlier claimed deduction on the cost of asset as

application of income, falls in Chapter III of the Act. In fact, Chapter

III of the Act deals with income which does not form part of the total

income. Therefore, when a charitable institution applies its income

for acquisition of capital asset, the same cannot form part of the

total income since Section 11 provides for exemption as application

of income. It is not in dispute that the assessee claimed the cost of

the asset as application of income under Section 11 of the Act.

depreciation on capital asset falls under Chapter IV (D) of the Act.

In fact, Chapter IV of the Act provides for computation of total

income. Therefore, for the purpose of computation of total income,

the expenditures provided in Sections 28 to 44DB of the Act have to

be allowed depending upon the activity of the assessee. Section 32

of the Act which provides for depreciation is also falling in Chapter

8 I.T.A. No.1965/Mds/14 I.T.A. No.2222/Mds/14 IV (D) of the Act. Therefore, for the purpose of computation of total

income, depreciation has also to be allowed on the capital asset. In

fact, depreciation has to be allowed on the value of the capital

asset. This Tribunal is of the considered opinion that Chapter III of

the Act deals with an income which does not form part of total

income, while Chapter IV deals with situation for computation of

total income. Hence, an income which does not form part of total

income as the same was exempted under Section 11 as application

of income, this Tribunal is of the considered opinion that the

assessee cannot claim depreciation under Section 32 of the Act. In

other words, Section 11 which falls in Chapter III overrides Section

32 which falls in Chapter IV(D) of the Act. Therefore, this Tribunal is

of the considered opinion that the assessee cannot claim

depreciation, especially when the cost of asset was allowed as

application of income under Section 11 of the Act. In fact, the Apex

Court in J.K. Synthetics Ltd.(supra) had examined the issue and

observed as follows at para 11:-

“For the reasons discussed above we are of the view that, even before the 1980-amendment, the Act did not permit a deduction for depreciation in respect of the cost of a capital asset acquired for purposes of scientific research to the extent such cost has been written off under section 10(2)(xiv)/35(1) and (2). Prior to 1968, such assets qualified for an allowance of one-fifth of the cost of the asset in five

9 I.T.A. No.1965/Mds/14 I.T.A. No.2222/Mds/14

previous years starting with that of its acquisition and during these years the assessee could not get any depreciation in relation thereto. In respect of assets acquired in previous year relevant to the assessment year 1968-69 and thereafter, their cost was written off in the previous year of acquisition and no depreciation could be allowed in that year. This is clear from the statute. Equally, it is not envisaged, and indeed, it would be meaningless to say, that depreciation could be allowed on them thereafter with a further absurdity that it could be allowed starting with the original cost of the asset despite its user for scientific research and the allowances made under the 'scientific research' clause. In our view, there was no difficulty at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some over- enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier. We are, for the reasons discussed above, unable to approve of the cryptic view expressed by the Karnataka High Court in Indian Telephone Industries Ltd. 's case (supra) or the view taken by the Bombay High Court in CIT v. Mico Products (P.) Ltd. [1991] 187 ITR 517.”

A division Bench of this Tribunal had an occasion to consider this issue in The Anjuman-E-Himayath-E-Islam v. ADIT in I.T.A.No.

2271/Mds/2014 dated 02.06.2015 and considered this aspect

elaborately and observed as follows:-

“6.3 We have heard both the parties and carefully perused the materials available on record. Chapter-III refers to “income which does not form part of total income”. Section-11 of the Act placed under Chapter-III deals with ‘income from property held for charitable or religious purpose’. Section-11(1)(a) provides that income derived from the property held under trust wholly for

10 I.T.A. No.1965/Mds/14 I.T.A. No.2222/Mds/14

charitable or religious purpose, to the extent to which such income is applied, shall not be included in its total income. The Act also provides that upto 15% of the gross income received is accumulated and then the same shall also be exempt from the income of the trust. From the above it is clear that provision of the Act in Chapter-III deals with the manner in which the income of the assessee trust has to be applied in order to exempt such income from the total income. It is not a case of computation of income chargeable to tax as per the provisions Chapter IV under the head “C-Income from house property”. Therefore while determining the “income” of the assessee trust and its “application of income” for the purpose of claiming exemption U/s.11(1)(a) of the Act, the provisions of Chapter-IV - Sections 22 to 27 of the Act which is applicable for computing the income chargeable to tax under the head ‘income from house property’ will not be attracted. However, provisions of section 22 to 27 of the Act will come into play when the assessee is not entitled to the benefit of Section-11(1)(a) of the Act and when such income of the Trust is chargeable to tax under the head “income from house property”. It is pertinent to mention here that Hon’ble Calcutta High Court supra has held that income contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Accordingly, while arriving at the rental income of the assessee-trust any expenditure incurred whatsoever related to the rental income has to be allowed as deduction and the net income which is the real income, will be treated as the income of the Trust. From our above discussion the ground raised by the assessee on this issue will not survive and therefore, the order of the Revenue is upheld.”

Trust may not be applicable to the facts of the case. Accordingly,

the order of the CIT(Appeals) is set aside and that of the Assessing

Officer is restored. A similar view was taken by Cochin Bench of

11 I.T.A. No.1965/Mds/14 I.T.A. No.2222/Mds/14 this Tribunal in Shri Thomas George Muthoot v. ACIT in I.T.A. No.63 & 64/Coch/2014 dated 28.08.2014.

Order pronounced on 21st August, 2015 at Chennai.

sd/- (एन.आर.एस. गणेशन) (N.R.S. Ganesan) �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 21st August, 2015.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. Assessee 2. Assessing Officer 3. आयकर आयु�त (अपील)/CIT(A)-I, Coimbatore 4. आयकर आयु�त/CIT-I, Coimbatore 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.