M/s. Escorts Cardiac Diseases Hospital Society, New Delhi V. ADIT (E), New Delhi

ITA 1370/DEL/2011

• Counselvise Citation: 137020114 RSA 2011
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R K KAPOOR
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Opportunity of being heard; Source of fund; Cost of acquisition; Assessment record; Revenue expenditure; Capital expenditure
• Section: 32; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH B DELHI ] BEFORE SHRI RAJPAL YADAV, JM AND SHRI K. D. RANJAN, AM I. T. APPEAL NO. 1370 (DEL) OF 2011. ASSESSMENT YEAR : 2007-08. M/S. ESCORTS CARDIAC DISEASES HOSPITAL SOCIETY , ASSTT. DIRECTOR OF INCOME-TAX, C/O. ESCORTS HEART INSTITUTE & RESEARCH CENTRE LTD. , VS. [ EXEMPTION ]; OKHLA ROAD, O K H L A, TRUST CIRCLE : 2, N E W D E L H I 110 025. N E W D E L H I. P A N / G I R NO. AAA AE 0049 G. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI PRADEEP DINODIA, C. A.; & SHRI R. K. KAPOOR, C. A.; DEPARTMENT BY : SHRI ROHIT GARG, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 07-08 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XII, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS FOLLOWS:- 1. THAT THE IMPUGNED APPELLATE ORDER PASSED BY THE LD. CIT (APPEALS) IS BAD IN LAW AND WRONG ON FACTS; 2 I. T. APPEAL NO. 1370 (DEL) OF 2011. 2. THAT THE FINDINGS OF THE LD. CIT (APPE ALS) ARE BASED ON CONJECTURES, SURMISES, ARE PERVERSE OF UNREASONABLE AND ARE VITI ATED IN LAW; 3. THAT ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN TREATING RS.2,30,00,000/- AS TAXABLE INCOME UNDER S ECTION 11(3) OF THE INCOME TAX ACT, 1961; 4. THAT THE CIT (APPEALS) HAS GROSSLY ERR ED IN LAW THAT THE SAME INCOME OR FUNDS ARE REQUIRED TO BE APPLIED WHICH WERE ACCUMUL ATED AFTER HOLDING THAT APPLICATION OF FIFO METHOD IS NOT APPLICABLE. THE FINDINGS OF THE CIT (A) ARE SELF-CONTRADICTORY; 5. THAT ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING DEPRECIATION ON FIXED ASSETS AMOUNTING TO RS.16,03,236/-. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO UPH OLDING THE ACTION OF THE ASSESSING OFFICER IN TREATING RS.2,30,00,000/- AS TAXABLE INCOME UNDER S ECTION 11(3) OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT]. THE FACTS OF THE CASE RELATING TO THIS GROUND OF APPEAL ARE THA T THE ASSESSEE SOCIETY IS REGISTERED UNDER SECTION 12 -A AND FILED RETURN OF INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION DISCLOSING NIL INCOME. TH E CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 142(1 ) OF THE ACT ASKING THE ASSESSEE TO SUBMIT DETAILS OF SURPLUS / DEFICIT OF PAST TEN YEARS AND UTILIZATION OF THE SAME IN SUBSEQUENT YEAR. ON PERUSAL OF THE STATEMENT CONTAINING AMOUNTS SET APA RT IN TERMS OF SECTION 11(2) SHOWED THAT THE ASSESSEE HAD SET APART RS.2,29,55,949/- IN FINANCIA L YEAR 2001-02 RELEVANT TO ASSESSMENT YEAR 2002-03. AS PER ASSESSMENT RECORDS FOR ASSESSMENT YEAR 2002-03 THE ASSESSEE HAD ACCUMULATED INCOME OF RS.2,30,00,000/- UNDER SECTION 11(2) OF T HE ACT. THE ASSESSING OFFICER FURTHER NOTED THAT THE AMOUNT OF RS.2,30,00,000/- ACCUMULATED UND ER SECTION 11(2) DURING THE PREVIOUS YEAR RELEVANT TO AY 2002-03 WAS NOT UTILIZED WITHIN THE PREVIOUS YEAR FALLING ON 31 ST MARCH, 2007. THE ASSESSING OFFICER EXTRACTED THE FIGURES IN RESP ECT OF UTILIZATION OF FUNDS ACCUMULATED UNDER SECTION 11(2) FOR THE LAST TEN YEARS. FROM THE FIG URES THE ASSESSING OFFICER NOTED THAT THE ASSESSEE 3 I. T. APPEAL NO. 1370 (DEL) OF 2011. HAD FAILED TO UTILIZE THE FUNDS ACCUMULATED ON 31 ST MARCH, 2002 WITHIN THE PREVIOUS YEAR ENDED ON 31 ST MARCH, 2007 RELEVANT TO ASSESSMENT YEAR 2007-08 AS PER PROVISIONS OF PROVISO TO CLAUSE (A) OF SUB SECTION (2) OF SECTION 11 OF THE ACT. T HE ASSESSEE WAS REQUIRED TO OFFER HIS COMMENTS AS TO WHY THE AMOUNT WAS NOT UTILIZED WITHIN THE PE RIOD OF FIVE YEARS. THE LD. COUNSEL FOR THE ASSESSEE FILED STATEMENT CLAIMING UTILIZATION OF FU NDS ACCUMULATED, BUT NO SUPPORTING DETAILS COULD BE PRODUCED IN SUPPORT OF SUCH STATEMENT. TH E ASSESSEE SIMPLY CLAIMED EXPENDITURE FOR ACQUISITION OF FIXED ASSETS IN FINANCIAL YEARS 2002 -03, 2003-04, 2004-05 AND 2005-06. THE ASSESSEE WAS ALSO ASKED TO ESTABLISH THE SOURCE OF FUNDS FOR EXPENDITURE OF ACQUISITION OF CAPITAL ASSETS AND ESTABLISH HIS CONTENTION THAT THE ACQUIS ITION OF CAPITAL ASSET WAS MADE OUT OF ACCUMULATED INCOME UNDER SECTION 11(2) OF THE ACT. THE ASSESSEE WAS ALSO ASKED TO ESTABLISH CO- RELATION BETWEEN ACCUMULATED FUNDS UTILISED IN ASS ESSMENT YEARS 2003-04, 2004-05 AND 2005-06 OUT OF THE FUNDS ACCUMULATED ON 31 ST MARCH, 2002. THE ASSESSING OFFICER FURTHER NOTED THAT AS PER SECTION 11(5) OF THE ACT THE ASSESSEE WAS REQUIRED TO INVEST FUNDS ACCUMULATED IN SPECIFIED SECURITIES. THE ACCUMULATION WAS APPARENTLY KEPT I N DEPOSIT ACCOUNT IN BANK AS ON 31 ST MARCH, 2002, WHICH WAS EVIDENT FROM SCHEDULE D OF THE BALA NCE SHEET FOR ASSESSMENT YEAR 2002-03, WHICH SHOWED BALANCE IN DEPOSIT ACCOUNT AMOUNTING T O RS.6,64,25,761/-. THE ASSESSING OFFICER, THEREFORE, CONCLUDED THAT THE ASSESSEE HAD INVESTED EXCESS FUNDS IN BANK DEPOSITS, WHICH INDICATED THAT ACCUMULATED FUNDS COULD BE IDENTIFIE D WITH THE PARTICULAR DEPOSITS MADE OUT OF THOSE FUNDS. THE QUANTUM OF DEPOSIT ONLY WENT ON I NCREASING IN SUBSEQUENT YEARS. THE COMPUTATION OF INCOME FILED BY THE ASSESSEE FOR ASS ESSMENT YEARS 2003-04, 2004-05 AND 2005-06 NEVER MENTIONED THE PARTICULAR YEAR WHOSE ACCUMULAT ION WERE UTILIZED FOR PURCHASE OF ASSETS. THE ASSESSEE WAS REQUIRED TO ESTABLISH THE CO-RELAT ION. HOWEVER, NO SUCH EXPLANATION WITH DOCUMENTARY EVIDENCE WAS SUBMITTED. THE ASSESSING OFFICER ON THE BASIS OF THE ABOVE FACTS NOTED THAT THE ASSESSEE WAS ACCUMULATING FUNDS UNDER SECT ION 11(2) REGULARLY. THE FUNDS ACCUMULATED EARLIER WERE UTILIZED FOR EXPENDITURE. IN THE ABSE NCE OF DOCUMENTARY EVIDENCE TO THE CONTRARY, WHICH COULD ONLY BE MADE AVAILABLE BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT FIFO METHOD WAS TO BE FOLLOWED UNDER WHICH THE EARLIEST ACCUMULATION DURING THE PERIOD OF TEN YEARS WAS TO BE TREATED AS UTILIZED IN SUBSEQUENT YEARS. THE ASSESSING OFFICER FURTHER NOTED THAT THE FUNDS ACCUMULATED IN EARLIER YEARS WERE TO BE CONSI DERED AS FUNDS UTILIZED FOR PURCHASE OF FIXED ASSETS UNLESS THE ASSESSEE PRODUCED DETAILED DOCUME NTARY EVIDENCES IDENTIFYING AND CO-RELATING THE ACCUMULATED FUNDS UPTO ASSESSMENT YEAR 2002-03 WITH THE FUNDS UTILIZED IN SUBSEQUENT YEARS. 4 I. T. APPEAL NO. 1370 (DEL) OF 2011. SINCE THE ASSESSEE COULD NOT CO-RELATE THEM, THE AS SESSING OFFICER TREATED THE AMOUNT OF RS.2,30,00,000/- AS TAXABLE WITHIN THE MEANING OF S ECTION 11(3) OF THE ACT. 4. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSING OFFICER HAD APPLIED FIFO METHOD FOR APPLICATION OF ACCUMULA TED FUNDS. THERE IS NO LEGAL SANCTITY FOR SUCH APPLICATION OF METHOD. THE ONLY REQUIREMENT O F LAW WAS THAT AN OPTION HAS TO BE EXERCISED UNDER SECTION 11(2) OF THE ACT AND THE ASSESSEE HAD TO UTILIZE THE AMOUNT TO THE EXTENT OF OPTION EXERCISED IN NEXT FIVE YEARS. THE LAW DOES NOT PUT ANY CONDITION LIKE THAT UTILIZATION OF FUNDS SHOULD BE ON THE BASIS OF FIFO. IT WAS ALSO SUBMIT TED THAT THE FIXED DEPOSITS ARE MADE NORMALLY FOR A PERIOD OF TWO, THREE, FOUR YEARS ETC. AND IF THE VIEW OF THE ASSESSING OFFICER WAS ACCEPTED, THEN PROBABLY THE ASSESSEE SHOULD NEVER MAKE FIXED DEPOSITS AND THE FUNDS SHOULD BE KEPT IN A HIGHLY LIQUIDATE STATE, WHICH WAS NOT A PRACTICAL S ITUATION. THE LD. CIT (APPEALS) EXAMINED THE CONTENTIONS OF THE ASSESSEE AND OBSERVED THAT THE P ROVISIONS OF SECTION 11(2) PRESCRIBED THAT INCOME SHOULD BE UTILIZED FOR THE PURPOSES FOR WHIC H IT WAS ACCUMULATED DURING THE RELEVANT ASSESSMENT YEAR. EACH ASSESSMENT YEAR HAS TO BE CO NSIDERED AS SEPARATE ASSESSMENT YEAR FOR THE PURPOSE OF ACCUMULATION AND THE ASSESSEE HAS TO EST ABLISH THAT THE FUNDS OF THAT PARTICULAR YEAR HAVE BEEN SPENT FOR THE PURPOSES FOR WHICH IT WAS A CCUMULATED. THEREFORE, THE REQUIREMENT UNDER THE SECTION WAS TO ESTABLISH BY CASH-FLOW THA T THE INCOME WHICH WAS ACCUMULATED HAS BEEN SPENT WITHIN THE NEXT FIVE YEARS FOR THE OBJECTS FO R WHICH IT WAS ACCUMULATED. HE FURTHER NOTED THAT THIS TASK WAS NOT A DIFFICULT ONE FOR WHICH IN COME HAD TO BE INVESTED IN FORMS OR MODES SPECIFIED IN SECTION 11(5) OF THE ACT. THE LD. CIT (APPEALS) FURTHER NOTED THAT THE ASSESSEE WAS ASKED TO ESTABLISH BY CASH-FLOW THAT THE FUNDS WHIC H WERE ACCUMULATED IN FINANCIAL YEAR 2001-02 HAD BEEN SPENT AS SPECIFIED IN FORM NO. 10. SINCE T HE ASSESSEE HAD REQUESTED FOR ACCUMULATION TILL 31 ST MARCH, 2007 IT WAS MANDATORY ON THE PART OF THE AS SESSEE TO SPEND THIS AMOUNT AS STATED IN FORM NO. 10. HOWEVER, THE ASSESSEE COULD NOT ES TABLISH BY CASH FLOW STATEMENT THAT THE INCOME ACCUMULATED IN ASSESSMENT YEAR 2002-03 HAD B EEN UTILIZED BEFORE 31 ST MARCH, 2007. NO EVIDENCE WAS FILED TO SUPPORT THE CONTENTION OF THE ASSESSEE. THE LD. CIT (APPEALS), THEREFORE, UPHELD THE ADDITION OF RS.2,30,00,000/- MADE BY THE ASSESSING OFFICER. 5 I. T. APPEAL NO. 1370 (DEL) OF 2011. 5. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAD ACCUMULATED INCOME OF RS.2,30,00,000/- UNDER SECTION 11(2) OF THE ACT FOR A PERIOD OF FIVE YEARS I.E. FROM 1/04/2002 TO 31 ST MARCH, 2007. THEREFORE, NO ADDITION CAN BE MADE I N ASSESSMENT YEAR 2007-08. UNDER SECTION 11(3), IF ANY INCOME ACCUMULATED IN SECTION 11(2) IS APPLIED FOR THE PURPOSE OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES OR CEASED TO BE AC CUMULATE OR SET APART FOR APPLICATION THERETO OR CEASES TO REMAIN INVESTED OR DEPOSITED IN ANY OF TH E FORMS OR MODES SPECIFIED UNDER SECTION 11(5) OR IS NOT UTILIZED FOR THE PURPOSE FOR WHICH IT WAS SO ACCUMULATED OR SET APART, THE SAME SHALL BE DEEM TO BE INCOME OF SUCH PERSON OF THE PR EVIOUS YEAR IN WHICH IT IS SO APPLIED OR CEASED TO BE SO ACCUMULATED OR SET APART OR CEASED TO BE S O REMAIN OR DEPOSITED, AS THE CASE MAY BE OF THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE EXPIRY OF THE PERIOD AFORESAID. THEREFORE, IT HAS BEEN SUBMITTED THAT IN A CASE WHERE INCOME IS NOT A PPLIED FOR THE OBJECTS OF THE TRUST, THE INCOME WILL BE TAXABLE IN THE PREVIOUS YEAR IMMEDIATELY FO LLOWING A PERIOD OF FIVE YEARS. THE LD. AR OF THE ASSESSEE, HOWEVER, FROM THE TABLE COULD NOT SPE CIFY AS TO WHICH YEARS ACCUMULATION WAS APPLIED IN THE RELEVANT PREVIOUS YEAR. THE LD. AR OF THE ASSESSEE, HOWEVER, SUBMITTED THAT THE ASSESSEE HAD APPLIED INCOME DURING THE PREVIOUS YEA R ENDED ON 31 ST MARCH, 2003 TO 31 ST MARCH, 2006 TOTALING TO RS.2,30,30,038/- FOR THE PURPOSE F OR WHICH THE INCOME WAS ACCUMULATED. THEREFORE, NO ADDITION CAN BE MADE IN THE YEAR UNDE R CONSIDERATION. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS) . 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE TABLE REPRODUCED IN THE ASSESSMENT ORDER IT IS SEEN THAT THE ASSESSEE HAD BEEN ACCUMULATING INCOME UNDER SECTION 11(2) OF THE ACT FROM PREVIOUS YEAR 1996-97 ONWARDS. THE ASSESSEE HAD ACCUMULATED BALANCE UPTO 31 ST MARCH, 2001 AT RS.4,99,72,918/-. THE ASSESSEE ACC UMULATED AMOUNT OF RS.2,29,55,949/- DURING PREVIOUS YEAR 200 1-02 RELEVANT TO ASSESSMENT YEAR 2002-03. THUS THE AMOUNT ACCUMULATED UPTO 31 ST MARCH, 2002 WAS AT RS.7,29,28,867/- INCLUDING THE AMOUNT ACCUMULATED UNDER SECTION 11(2) DURING ASSES SMENT YEAR 2002-03 AT RS.2.30 CRORES [RS.2,29,55,949/-]. THE ASSESSEE HAD APPLIED THE I NCOME FROM 1.4/2002 TO 31 ST MARCH, 2006 TOTALING TO RS.2,30,30,008/-. THE PERIOD AND PURP OSE FOR ACCUMULATION OF INCOME FROM FINANCIAL YEAR 1996-97 ONWARDS IS NOT AVAILABLE ON RECORD. T HEREFORE, THE AMOUNT OF RS.2,30 CRORES SPENT ON ACQUISITION OF ASSETS HAS COME FROM THE EARLIER ACCUMULATION OR OUT OF THE ACCUMULATION IN 6 I. T. APPEAL NO. 1370 (DEL) OF 2011. FINANCIAL YEAR 2001-02 IS NOT CLEAR. THE ASSESSEE HAS TO PROVE WITH EVIDENCE THAT THE AMOUNT ACCUMULATED UNDER SECTION 11(2) OF THE ACT WAS USED FOR THE PURPOSE FOR WHICH IT WAS ACCUMULATED. THIS ONUS LIES ON THE ASSESSEE. SINCE REQUISITE DETAILS ARE NOT AVAILABLE, WE FEEL IT PROPER TO SET ASIDE THE ISSUE TO THE FILE OF THE AS SESSING OFFICER WITH THE DIRECTIONS TO EXAMINE THE ACCUMULATION OF INCOME FROM FINANCIAL YEAR 1996-97 TO 31 ST MARCH, 2002 DURING WHICH AN AMOUNT OF RS.7,29,28,867/- HAS BEEN ACCUMULATED. T HE ASSESSING OFFICER IS DIRECTED TO IDENTIFY THE AMOUNT SPENT DURING THE FINANCIAL YEAR 20-02-03 TO 2005-06 WHETHER IT HAS BEEN SPENT OR APPLIED OUT OF INCOME ACCUMULATED DURING FINANCIAL YEAR 2001-02 OR OUT OF EARLIER ACCUMULATIONS. THE ASSESSEE IS DIRECTED TO PROVIDE THE FULL DETAIL S I.E. FORM NO. 10, THE DETAILS OF FORMS OR MODES OF INVESTMENT OF THE FUNDS SO ACCUMULATED, THE PERI OD OF ACCUMULATION AND AS TO HOW THE ACCUMULATED FUNDS WERE TO BE UTILIZED. IN CASE THE ASSESSEE DOES NOT GIVE DETAILS, THE ASSESSING OFFICER WILL BE FREE TO DECIDE THE ISSUE ON MERITS AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO UPHO LDING THE ACTION OF THE AO IN NOT ALLOWING DEPRECIATION ON FIXED ASSETS AMOUNTING TO RS.16,03, 236/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD REGULARLY CLAIMED APPLICATION OF SURPL US FUNDS FOR THE PURPOSE OF CAPITAL EXPENDITURE IN EARLIER YEARS. THEREFORE, DEPRECIATION WAS NOT ALLOWABLE ON CAPITAL ASSETS, WHICH WERE ACQUIRED FROM THE INCOME OF THE ASSESSEE. 8. ON APPEAL THE LD. CIT (APPEALS) OBSERVED THAT TH E ASSESSEE CANNOT CLAIM DOUBLE THE AMOUNT OF WHAT IT HAS ACTUALLY APPLIED TOWARDS CHAR ITY AS AN APPLICATION OF INCOME. HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF ESCORTS LTD. VS. UNION OF INDIA 199 ITR 43 (SC) WHEREIN IT HAS BEEN HELD THAT WHEN DEDUCTION UNDER SECTION 35(2)(IV) WAS ALLOWED IN RESPECT OF CAPITAL EXPENDITURE ON SCIENT IFIC RESEARCH, NO DEPRECIATION WAS TO BE ALLOWED UNDER SECTION 32 ON THE SAME ASSET. THE LD . CIT (A), THEREFORE, UPHELD THE DISALLOWANCE OF DEPRECIATION ON CAPITAL ASSETS ACQUIRED BY WAY O F APPLICATION OF INCOME. 7 I. T. APPEAL NO. 1370 (DEL) OF 2011. 9. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT DEPRECIATION IS ALLOWABLE ON ASSETS IN VIEW OF THE FOLLOWING DECISIONS :- 1. CIT VS. INSTITUTE OF BANKING 264 ITR 110; 2. CIT VS. MARKET COMMITTEE, PEEPLI 330 ITR 16 (P & H); & 3. CIT VS. TINY TOTS EDUCATION SOCIETY 330 ITR 21 ( P & H). 10. ON THE OTHER HAND, THE LD. SR. DR SUBMITTED THA T UNDER SECTION 11 OF THE ACT, THERE IS NO CONCEPT OF REVENUE EXPENDITURE OR CAPITAL EXPENDITU RE. THE INCOME CAN BE APPLIED FOR BOTH THE PURPOSES. HE FURTHER SUBMITTED THAT THE INCOME OF THE TRUST OR INSTITUTION HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 11, 12 A ND 13 OF THE ACT. THE PROVISIONS OF DEPRECIATION ARE APPLICABLE IN CASE WHERE BUSINESS INCOME IS COMPUTED. HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F ESCORTS LTD. VS. UNION OF INDIA (SUPRA) FOR THE PROPOSITION THAT ONCE INCOME HAS BEEN ALLOWED A S APPLICATION OF INCOME ON CAPITAL ASSETS, ALLOWANCE OF DEPRECIATION WOULD AMOUNT OF DOUBLE DE DUCTION. HE, THEREFORE, SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 11. WE HAVE HEARD BOTH THE PARTIES. UNDER SECTION 11(1)(A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA AND WHERE ANY SUC H INCOME IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTEN T TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF 15 PER CENT OF THE INCOME FROM SUCH PROPERTY, SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME. UNDER SECTION 11(2) THE TRUST OR INSTITUTION CAN ACCUMULATE INCOME FOR SPECIFIC PURPOSE FOR A SPECIFIC PERIOD SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS PRESCRIBED UNDER THE LAW. THE LEGISLATURE HAS EMPLOYED THE WORD APPLIED IN SECTION 11(1)(A). HONBLE SUPREM E COURT IN THE CASE OF HEH NIZAMS RELIGIOUS ENDOWMENT TRUST VS. CIT 59 ITR 582 (SC) H ELD THAT THE WORD APPLIED IN THE CONTEXT OF SECTION 11 MEANS THE INCOME IS ACTUALLY APPLIED FOR THE CHARITABLE OR RELIGIOUS PURPOSES OF THE TRUST. IN CIT VS. RAM CHANDRA PODDAR CHARITABLE TRUST 164 ITR 666 (CAL.) THE TRUST DONATED 8 I. T. APPEAL NO. 1370 (DEL) OF 2011. SHARES WHICH WERE PURCHASED IN AN EARLIER YEAR OUT OF ACCUMULATIVE PROFITS. HONBLE HIGH COURT HELD THAT SUCH DONATION NOT RELATED TO INCOME OF TH E CURRENT YEAR COULD NOT AMOUNT TO APPLICATION OF INCOME FOR THE PURPOSES OF SECTION 11. THEREFORE IN VIEW OF DECISIONS OF HONBLE SUPREME COURT AND CALCUTTA HIGH COURT INCOME OF THE CURRENT YEAR ACTUALLY APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES SUBJECT TO FULFILLMENT OF OTHER CONDITIONS WILL BE EXEMPT FROM INCOME TAX UNDER SECTION 11(1)(A) OF THE ACT. IT MEANS THE NOT IONAL EXPENDITURE CANNOT BE TREATED AS APPLICATION OF INCOME WITHIN THE MEANING OF SECTION 11 OF THE ACT. 12. FURTHER THE ONLY REQUIREMENT UNDER SECTION 11(1 )(A) IS THAT THE INCOME OF TRUST MUST BE ACTUALLY APPLIED TO THE CHARITABLE OR RELIGIOUS PUR POSES FOR WHICH THE PROPERTIES ARE HELD ON THE TRUST BY TRUSTEES ETC. IT DOES NOT SAY THAT APPLIC ATION OF INCOME SHOULD BE SUCH THAT IT MAY NECESSARILY RESULTS IN REVENUE EXPENDITURE. THE CH ARITABLE PURPOSE MAY, IN A GIVEN CASE, REQUIRE FOR ITS FULFILLMENT PURCHASE OF A CAPITAL ASSET AND WHERE INCOME IS APPLIED FOR PURCHASE OF SUCH A CAPITAL ASSET, IT WOULD BE STILL BE APPLICATION OF INCOME TO THE CHARITABLE PURPOSE. THUS WHERE THE DOMINANT OBJECT OF THE TRUST WAS TO ESTABLISH DHARA MSHALA FOR THE USE OF THE HINDU PUBLIC, THE AMOUNT SO SPENT BY THE TRUSTEES IN THE CONSTRUCTION OF A NEW DHARAMSHALA WAS HELD TO BE BY WAY OF APPLICATION OF INCOME OF THE TRUST PROPERTIES FO R CARRYING OUT CHARITABLE PURPOSE OF THE TRUST BY HONBLE GUJARAT HIGH COURT IN THE CASE OF SATYA VIJ AY PATEL HINDU DHARAMSHALA TRUST VS. CIT [1972] 86 ITR 683 (GUJ.). THEREFORE, A TRUST OR IN STITUTION CAN APPLY INCOME DERIVED FROM THE PROPERTY EITHER BY WAY OF REVENUE EXPENDITURE OR AC QUISITION OF CAPITAL ASSET. 13.1 CHAPTER-III OF THE INCOME TAX ACT, 1961 DEALS WITH THE INCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME. THE INCOME OF A CHARITABLE OR RELIGIOUS INSTITUTION HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 11, 12, A ND 13. CHAPTER -IV OF THE INCOME TAX ACT, 1961 DEALS WITH COMPUTATION OF TOTAL INCOME UNDER T HE HEADS (I) SALARIES; (II) INCOME FROM HOUSE PROPERTY; (III) PROFIT AND GAINS OF BUSINES S OR PROFESSION; (IV) CAPITAL GAINS; AND (V) INCOME FROM OTHER SOURCES. IN CASE OF INCOME DER IVED UNDER THE HEAD SALARIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND OTHER SOURCES, TH E PROVISIONS OF SECTION 32 ARE NOT APPLICABLE. PROVISIONS OF SECTION 32 I.E. DEPRECIATION ARE, THE REFORE, APPLICABLE IN CASE OF INCOME EARNED 9 I. T. APPEAL NO. 1370 (DEL) OF 2011. UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PRO FESSION. DEPRECIATION UNDER SECTION 32(1) IS ALLOWABLE IN RESPECT OF BOTH TANGIBLE AND INTANGIBL E ASSETS WHICH ARE OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSES OF BUSINESS OR PROFESSION. THUS FOR THE PURPOSE OF CLAIM OF DEPRECIATION TWO CONDITIONS ARE TO BE SATISFIED I.E . THE ASSETS ARE OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSES OF BUSINESS OR P ROFESSION. THEREFORE, THE DEPRECIATION IS ALLOWABLE IN THE CASE WHERE THE ASSESSEE CARRIES ON THE BUSINESS OR PROFESSION. ACCORDINGLY, THE PROVISIONS OF SECTION 32 WHICH HAVE APPLICABILITY TO HEAD OF INCOME IN CHAPTER IV PARTICULARLY PROFITS AND GAINS OF BUSINESS OR PROFESSION, CANNOT BE IMPORTED TO CHAPTER III UNDER WHICH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME IS TO BE COMPUTED. HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNION OF IND IA (SUPRA) OBSERVED THAT THERE IS A FUNDAMENTAL, THOUGH UN-WRITTEN, AXIOM THAT NO LEGIS LATURE COULD HAVE AT ALL INTENDED A DOUBLE DEDUCTION IN REGARD TO THE SAME BUSINESS OUT-GOING; AND, IF IT IS INTENDED, IT WILL BE CLEARLY EXPRESSED. IN OTHER WORDS, IN THE ABSENCE OF CLEAR STATUTORY INDICATION TO THE CONTRARY, THE STATUTE SHOULD NOT BE READ SO AS TO PERMIT AN ASSESSEE TWO DEDUCTIONS - BOTH UNDER SECTION 10(2)(VI) AND SECTION 10(2)(XIV) OF THE 1922 ACT OR UNDER SECTIO N 32(1)(II) AND SECTION 35(2)(IV) OF THE ACT QUA THE SAME EXPENDITURE. 13.2 UNDER SECTION 11(1)(A) OF THE ACT WHEN INCOME IS APPLIED FOR ACQUISITION OF CAPITAL ASSET WHICH IS TREATED AS APPLIED , THE CLAIM OF DE PRECIATION ON SAME INCOME WILL AMOUNT TO DOUBLE DEDUCTION. MOREOVER, AS HELD BY HONBLE SUP REME COURT THAT EXPRESSION APPLIED MEANS ACTUAL APPLICATION. IN OTHER WORDS IN A PART ICULAR YEAR, IF THE INCOME HAS ACTUALLY BEEN APPLIED FOR THE CHARITABLE OR RELIGIOUS PURPOS ES TO THE EXTENT OF 85 PER CENT OR IS ACCUMULATED FOR SPECIFIC PURPOSE UNDER SECTION 11(2 ), THE EXEMPTION OF WHOLE OF THE INCOME WILL BE ALLOWABLE. IN A CASE WHERE CAPITAL ASSET W AS ACQUIRED IN EARLIER YEAR AND DEPRECIATION IS CLAIMED IN SAME YEAR OR IN SUBSEQUENT YEAR, THE CLAIM OF DEPRECIATION ON THAT ASSET IS NOTIONAL EXPENDITURE AND NOT AN ACTUAL APPLICATION OF CURRENT YEARS INCOME. LET US EXPLAIN THE ABOVE IN DIFFERENT WORDS. IN CASE OF AN ASSESSEE C ARRYING ON BUSINESS OR PROFESSION, THE EXPENDITURE INCURRED ON ACQUISITION OF CAPITAL ASSE T IS NOT ALLOWABLE AS DEDUCTION AS REVENUE EXPENDITURE. IF CAPITAL EXPENDITURE HAS BEEN INCUR RED ON ACQUISITION OF AN ASSET, AND THAT ASSET IS USED FOR THE PURPOSE OF BUSINESS OR PROFESSION, DEPRECIATION WILL BE AVAILABLE. THE ONLY 10 I. T. APPEAL NO. 1370 (DEL) OF 2011. DIFFERENCE BETWEEN THE REVENUE EXPENDITURE AND CAPI TAL EXPENDITURE IS THAT REVENUE EXPENDITURE IS ALLOWED IN THE YEAR IN WHICH IT IS INCURRED WHER EAS THE DEPRECIATION IS ALLOWED ON THE LIFE OF ASSET ON A SPECIFIED RATE IN SEVERAL YEARS. IN CASE OF CHARITABLE OR RELIGIOUS INSTITUTION THERE IS NO DIFFERENCE BETWEEN THE REVENUE EXPENDITURE AN D CAPITAL EXPENDITURE. IN CASE OF A CHARITABLE INSTITUTION, IF THE ASSESSEE ACQUIRES AN ASSET BEING A BUILDING, THE VALUE THEREOF WILL BE TREATED AS APPLICATION OF INCOME IN THE YEAR OF ACQUISITION. IF THE ASSESSEE IS ALLOWED DEPRECIATION AT THE RATE OF 10 PER CENT., THE ASSES SEE WILL BE ELIGIBLE FOR THE BENEFIT OF ANOTHER RS.1,00,000/- BY WAY OF DEPRECIATION OVER THE PERIO D OF THE LIFE OF THE BUILDING WITHOUT APPLICATION OF ACTUAL INCOME BUT BY WAY OF NOTIONAL EXPENDITURE. THEREFORE, IN OUR CONSIDERED OPINION, THE ASSESSEE WILL NOT BE ELIGIBLE FOR DEPR ECIATION ON ASSETS WHICH HAVE BEEN ACQUIRED BY APPLICATION OF THE INCOME. MOREOVER, THERE IS NO PR OVISION UNDER SECTIONS 11, 12, & 13 TO ALLOW DEPRECIATION. IN THE ABSENCE OF ANY STATUTORY P ROVISION UNDER SECTIONS 11, 12, AND 13 ARE PART OF CHAPTER-III UNDER WHICH INCOME OF A CHARITABLE O R RELIGIOUS INSTITUTION IS COMPUTED, ALLOWANCE OF DEPRECIATION U/S 32(1) WOULD MEAN DOUBLE DEDUCTI ON, WHICH IS NOT PERMISSIBLE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ES CORTS LTD. (SUPRA). THE DEPRECIATION BEING NOTIONAL EXPENDITURE WILL NOT FALL UNDER THE EXPRES SION ACTUALLY APPLIED AS HELD BY HONBLE SUPREME COURT IN THE CASE OF HEH NIZAMS ENDOWMENT TRUST (SUPRA). THEREFORE, IN OUR CONSIDERED OPINION, DEPRECIATION IS NOT ALLOWABLE I N RESPECT OF AN ASSET ACQUIRED BY CHARITABLE INSTITUTION WHERE THE COST OF ACQUISITION WAS TREAT ED AS APPLICATION OF INCOME. 14. HOWEVER, HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. TINY TOTS EDUCATION SOCIETY (SUPRA) HAS HELD THAT DEPRECIATIO N IS ALLOWABLE IN THE CASE OF CHARITABLE INSTITUTIONS. THOUGH, IN OUR CONSIDERED OPINION, A LLOWANCE OF DEPRECIATION ON AN AMOUNT WHICH WAS TREATED AS APPLICATION OF INCOME IN THE YEAR IN WHICH CAPITAL ASSET WAS ACQUIRED IS NOT PERMISSIBLE, BUT SINCE HONBLE PUNJAB AND HARYANA H IGH COURT HAS HELD THAT DEPRECIATION WILL BE ALLOWABLE IN THE CASE OF CHARITABLE INSTITU TIONS AND THE DECISION OF HONBLE HIGH COURT IN THE ABSENCE OF ANY CONTRARY DECISION OF JURISDIC TIONAL HIGH COURT OR HONBLE SUPREME COURT ON THE ISSUE, HAS TO BE FOLLOWED BY THE TRIBUNAL BE ING LOWER IN HIERARCHY. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT , WE HOLD THAT DEPRECIATION WILL BE ALLOWABLE ON THE ASSETS ACQUIRED BY THE ASSESSEE BY APPLICATION OF INCOME OF THE TRUST OR 11 I. T. APPEAL NO. 1370 (DEL) OF 2011. INSTITUTION. WE, THEREFORE, SET ASIDE THE ORDER OF CIT (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 16 TH DECEMBER, 2011. SD/- S D/- [ RAJPAL YADAV ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH DECEMBER, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 12 I. T. APPEAL NO. 1370 (DEL) OF 2011.