M/s RAMS Education Foundation , Bangalore V. Income TAx Officer Ward-2 (Exemption) , Bangalore

ITA 1381/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5397 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 15-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: S V RAVISHANKAR
• Keywords: Capital asset; Depreciation; Charitable institution; Benefit of exemption; Revenue expenditure
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER ITA NO. 1381/BANG/2017 ASSESSMENT YEAR : 2012 - 13 M/S. RAMS EDUCATION FOUNDATION, BEHIND VAIKUNTA KALYANA SOUDHA, GOKULA, BANGALORE 560 004. PAN: AAATR 5602D VS. THE INCOME TAX OFFICER (EXEMPTIONS), WARD 2, BANGALORE. APP ELLANT RESPONDENT ITA NO.1464/BANG/2017 ASSESSMENT YEAR : 2012 - 13 THE INCOME TAX OFFICER (EXEMPTIONS), WARD 2, BANGALORE. VS. M/S. RAMS EDUCATION FOUNDATION, BEHIND VAIKUNTA KALYANA SOUDHA, GOKULA, BANGALORE 560 004. PAN: AAATR 5602D APPELLANT RESPONDENT ASSESSEE BY : SHRI S.V. RAVISHANKAR, ADVOCATE REVENUE BY : DR. P.V. PRADEEP KUMAR, ADDL. CIT DATE OF HE ARING : 19.03.2018 DATE OF PRONOUNCEMENT : 23 . 0 3 .201 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE APPEALS ARE PREFERRED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE CIT(APPEALS) PERTAINING TO ASSESSMENT YEAR ITA NOS.1381 & 1464/BANG/2017 PAGE 2 OF 14 2012-13. SINCE THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. ITA NO.1381/BANG/2017 2. THIS APPEAL IS PREFERRED BY THE ASSESSEE ASSAILI NG THE ORDER OF THE CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THE ORDER PASSED BY THE LEARNED HON'BLE COMMISS IONER OF INCOME TAX [APPEAL] -14 IN SO FAR AS IT IS AGAINST THE APPELLANT IS OPPOSED TO LAW, EQUITY, WEIGHT OF EVIDENCE, PROBABI LITIES AND THE FACTS AND CIRCUMSTANCES IN THE APPELLANT'S CASE. 2. THE APPELLANT DENIES TO THE AMOUNT OF NET SURPLU S OF RS. [42,96,723/-] OR AS MAY BE DETERMINED AFTER GIVING EFFECT TO CIT(A) ORDER IS NOT CORRECT ON THE FACTS OF THE CAS E. 3. THE LEARNED CIT [A] FAILED TO APPRECIATE THAT TH E DEDUCTION OF 15% UNDER SECTION 11 [1] [A] IS TO BE CALCULATED ON THE GROSS RECEIPTS AND NOT ON AMOUNT LEFT AFTER APPLICATION T OWARDS EXPENSES INCURRED FOR THE OBJECTS OF THE TRUST, UND ER THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE LEARNED CIT [A] FAILED TO APPRECIATE THAT TH E ISSUE WHETHER THE PROVISIONS OF THE GROSS RECEIPTS OR ON THE NET RECEIPTS HAS BEEN DECIDED BY THE HON'BLE CO-ORDINATE BENCH O F DECISION OF THIS HON'BLE TRIBUNAL IN THE CASE OF JYOTHI CHAR ITABLE TRUST IN 662/BANG/2015, ORDER DATED 14/08/2015, CAPUCHIN FRI AR SERVICES OF SOCIETY [ITA NO.367/BANG/2015], ST. CHARLES MEDI CAL SOCIETY NIRMAL HOSPITAL [ITA NO.364/BANG/2015] AND MARY IMM ACULATE SOCIETY [ITA NO.240 & 241/BANG/2015] WHICH HAS HELD THAT THE ACCUMULATION OF 15% UNDER SECTION 11 [1][A] OF THE ACT HAS TO BE COMPUTED ON THE GROSS RECEIPTS AND NOT ON THE NET R ECEIPTS, WHICH IS SQUARELY COVERED IN FAVOUR OF THE APPELLANT AND FAILED TO APPLY A BINDING DECISION IS NOT CORRECT IN LAW ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. ITA NOS.1381 & 1464/BANG/2017 PAGE 3 OF 14 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR SUBSTITUTE ANY OF THE GROUNDS URGED ABOVE. 6. IN VIEW OF THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL, THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED IN THE INTEREST OF JUSTICE AN D EQUITY. 3. THOUGH VARIOUS GROUNDS ARE RAISED, BUT THEY ALL RELATE TO THE ISSUE AS TO WHETHER FOR THE PURPOSE OF ACCUMULATION OF INCOM E OF 15% U/S. 11(1)(A) OF THE INCOME-TAX ACT [HEREINAFTER REFERRED TO AS THE ACT], ONE HAS TO TAKE THE GROSS RECEIPT OR THE NET RECEIPT AFTER REDUCING THE EXPENDITURE INCURRED FOR CHARITABLE PURPOSES FROM THE GROSS RECEIPTS. 4. DURING THE COURSE OF HEARING, OUR ATTENTION WAS INVITED THAT THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF JYOTHI CHARITABLE TRUST V. DCIT IN ITA NO.662/BANG/2015 IN WHICH IT HAS BEEN HELD THAT NET RECEIPTS ARE TO BE TAKEN INTO ACCOUNT FOR COMPUTING THE ACCUMULATION OF INCOME OF 15% U/S. 11(1)(A) OF THE ACT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDE R FOR THE SAKE OF REFERENCE:- 15. THE THIRD ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER 15% ACCUMULATION FOR APPLICATION I N FUTURE HAS TO BE CALCULATED ON GROSS RECEIPTS OR NET RECEIPTS AFT ER DEDUCTION OF REVENUE EXPENDITURE. THE ASSESSEE CLAIMED ACCUMULAT ION OF INCOME FOR APPLICATION FOR CHARITABLE PURPOSE AT 15 % OF THE GROSS RECEIPTS. THE AO WAS OF THE VIEW THAT ACCUMULATION WILL BE ALLOWED ONLY TO THE EXTENT OF 15% OF THE INCOME AFT ER REVENUE EXPENDITURE. IN OTHER WORDS INCOME TO BE SET APART U/S.11(1)(A) OF THE ACT HAS TO BE COMPUTED AT 15% OF THE NET INCOME I.E., GROSS RECEIPTS MINUS REVENUE EXPENDITURE AND NOT ON THE G ROSS RECEIPTS AS CLAIMED BY THE ASSESSEE. SINCE IN THE CASE OF TH E ASSESSEE, THE GROSS RECEIPTS AFTER REVENUE EXPENDITURE WAS NIL, T HE AO DENIED THE BENEFIT OF ACCUMULATION TO THE ASSESSEE. ITA NOS.1381 & 1464/BANG/2017 PAGE 4 OF 14 16. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO. HENCE GROUND NO.4 RAISED BY THE AS SESSEE BEFORE THE TRIBUNAL. 17. THE ISSUE TO BE DECIDED IS THEREFORE AS TO WHET HER 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 PUR POSE I.E., THE NET RECEIPTS. THIS IS ISSUE IS NO LONGER RES INTEGRA AN D HAS BEEN DECIDED BY THE SPECIAL BENCH MUMBAI IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST VS. ITO 93 ITD 0070 (SB). THE FA CTS IN THE AFORESAID CASE WERE THAT THE ASSESSEE WAS A PUBLIC CHARITABLE TRUST ENJOYING EXEMPTION UNDER S. 11 OF THE IT ACT. AS PE R THE REQUIREMENT OF S. 11(1) OF THE IT ACT, AS IT PREVAI LED AT THAT POINT OF TIME, THE ASSESSEE HAD TO APPLY 75 PER CENT OF I TS 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. WHI LE CALCULATING THE AFORESAID 25 PER CENT, THE IMPORTANT QUESTION W HICH AROSE WAS AS TO WHETHER FOR THIS PURPOSE, THE GROSS INCOME EA RNED BY THE ASSESSEE IS RELEVANT OR THE INCOME AS COMPUTED IN A CCORDANCE WITH THE PROVISIONS OF IT ACT. IN OTHER WORDS, WHET HER OUTGOINGS FROM OUT OF GROSS INCOME WHICH ARE IN THE NATURE OF APPLICATION OF INCOME, SHOULD BE FIRST DEDUCTED FROM THE GROSS INC OME AND 25 PER CENT OF ONLY THE REMAINING AMOUNT SHOULD BE ALL OWED 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 TH E VIEW THAT THE SAME IS CLEARLY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PROGRA MME 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 RELIGIO US TRUST IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF ITS INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PRE SENT PURPOSES, THE DONATIONS THE ASSESSEE RECEIVED, IN T HE SUM OF RS. 2,57,376, WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT THEREOU T. IT IS ITA NOS.1381 & 1464/BANG/2017 PAGE 5 OF 14 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 A S COMPUTED UNDER THE IT ACT. ANY AMOUNT OR EXPENDITURE, WHICH WAS APPLICATION OF INCOME, IS NOT TO BE CONSI DERED FOR DETERMINING TWENTY FIVE PER CENT TO BE ACCUMULA TED. THEIR LORDSHIPS, AS NOTED EARLIER, AFFIRMED THE DEC ISION OF KERALA HIGH COURT IN (1997) 141 CTR (KER) 502 : (19 97) 228 ITR 620 (KER) (SUPRA) WHEREIN IT IS HELD AS UND ER : 'AT THE OUTSET, THE STATUTORY LANGUAGE OF S. 11(1)(A ) OF THE IT ACT, 1961, RELATES TO THE INCOME DERIVED BY THE T RUST FROM PROPERTY. THE TRUST IS REQUIRED TO BE WHOLLY F OR CHARITABLE OR RELIGIOUS PURPOSES, AND THE INCOME IS EXPECTED TO HAVE RELATION TO THE EXTENT TO WHICH SU CH 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 OTH ER WORDS, THE 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 PU RPOSE OF S. 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELEV ANCE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WH ICH 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 O F COMPUTING THE TOTAL INCOME WOULD BE THE AMOUNT EXPENDED FOR PURPOSES OF TRUST IN INDIA. THEIR LORD SHIPS IN THE ABOVE CASE HAVE EMPHASIZED ON THE CLEAR AND UNAMBIGUOUS LANGUAGE OF S. 11(1)(A) AND DECIDED THE ITA NOS.1381 & 1464/BANG/2017 PAGE 6 OF 14 MATTER ON THE BASIS OF THE SAME. IT HAS BEEN HELD T HAT 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 BECOME S EVIDENT THAT ANY EXPENDITURE WHICH IS IN THE SHAPE OF APPLI CATION OF INCOME IS NOT TO BE TAKEN INTO ACCOUNT. HAVING F OUND THAT TRUST IS ENTITLED TO EXEMPTION UNDER S. 11(1), WE ARE TO GO TO THE STAGE OF INCOME BEFORE APPLICATION THEREO F AND TAKE INTO ACCOUNT 25 PER CENT OF SUCH INCOME. THEIR LORDSHIPS HAVE POINTED THAT THE SAME HAS TO BE TAKE N ON 'COMMERCIAL' BASIS AND NOT 'TOTAL INCOME' AS COMPUT ED UNDER THE IT ACT. THEIR LORDSHIPS IN THE DECIDED CAS E REJECTED THE CONTENTION OF THE REVENUE THAT THE SUM OF RS 1,70,369 WHICH WAS SPENT AND APPLIED BY THE ASSESSE E 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 APPLICATI ON OF INCOME ARE TO BE EXCLUDED. THE INCOME AVAILABLE TO THE ASSESSEE BEFORE IT WAS APPLIED IS DIRECTED TO BE TA KEN AND THE SAME IN THE PRESENT CASE IS RS. 3,42,174. TWENT Y FIVE PER CENT OF THE ABOVE INCOME IS TO BE ALLOWED AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE MADHYA PRADESH HIGH COURT IN PARSI ZORASTRI AN 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 TAK E INTO ACCOUNT THE DECISION OF THE SUPREME COURT REFERRED TO ABOVE. THE CIRCULAR OF CBDT HAS ALSO BEEN CONSIDERE D BY THE HONBLE KERALA HIGH COURT IN ITS DECISION REFER RED TO ABOVE. ACCORDINGLY THE QUESTION REFERRED TO IS ANSWE RED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 18. THE AFORESAID DECISION CLEARLY SUPPORTS THE PLE A OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ACC UMULATION U/S.11(1)(A) OF THE ACT SHOULD BE ALLOWED AS CLAIME D BY THE ASSESSEE. GROUND NO.4 RAISED BY THE ASSESSEE IS ACC ORDINGLY ALLOWED. ITA NOS.1381 & 1464/BANG/2017 PAGE 7 OF 14 5. THOUGH THE LD. DR HAS CONTENDED THAT THE CIT(APP EALS) WHILE ADJUDICATING THE ISSUE HAS CONSIDERED THIS ORDER OF THE TRIBUNAL AND HAS DISTINGUISHED THE SAME, THEREFORE THIS ORDER CANNOT BE RELIED ON. 6. HAVING CAREFULLY EXAMINED THE ORDER OF THE CIT(A PPEALS) IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF JYOTHY CHARITABLE TRUST (SUPRA) AND THE SPECIAL BENCH ORDER OF THE TRIBUNAL IN THE CASE OF IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST VS. ITO, 93 ITD 0070 (SB) , WE FIND THAT THOUGH THE CIT(APPEALS) HAS MADE A REFERENCE TO THI S ORDER, BUT HE HAS NOT SPECIFICALLY POINTED OUT ANY REASONS FOR NOT FOLLOW ING THE SAME. WHEN THE TRIBUNAL HAS TAKEN A PARTICULAR VIEW, THE CIT(APPEA LS) IS SUPPOSED TO FOLLOW THE SAME INSTEAD OF TAKING A CONTRARY VIEW. WE ARE THEREFORE OF THE CONSIDERED OPINION THAT THE IMPUGNED ISSUE IS SQUAR ELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL, THEREFORE BY FOLLO WING THE SAME, WE DIRECT THE AO TO CONSIDER THE NET RECEIPT FOR THE PURPOSE OF COMPUTATION OF ACCUMULATION OF INCOME OF 15% U/S. 11(1)(A) OF THE ACT. ITA 1464/BANG/2017 7. THIS APPEAL IS PREFERRED BY THE REVENUE ASSAILIN G THE ORDER OF CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING DEPRECIAT ION IN RESPECT OF ASSETS WHICH HAVE ALREADY BEEN ALLOWED AS APPLIC ATION OF INCOME IN ITS ENTIRETY IN EARLIER YEARS. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) IS CORRECT IN ALLOWING DEPR ECIATION WHICH AMOUNTS TO DOUBLE DEDUCTION WHEN ALREADY FULL EXPEN DITURE HAS BEEN ALLOWED IN EARLIER YEARS. ITA NOS.1381 & 1464/BANG/2017 PAGE 8 OF 14 3. THE CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT THE HON'BLE KERALA HIGH COURT IN THE CASE OF LISSIE MED ICAL INTUITIONS VS. CIT (348 ITR 344) HAS HELD THAT DEPR ECIATION CANNOT BE ALLOWED ON ASSETS, WHERE COST OF SUCH ASS ETS HAS ALREADY BEEN ALLOWED AS APPLICATION OF INCOME IN TH E YEAR OF ACQUISITION/ PURCHASE OF ASSET. 4. THE CIT(A) HAS FAILED TO APPRECIATE THAT THE HO N'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNION OF INDIA (199 ITR 43), WHILE DEALING WITH THE ISSUE OF ALLOWANCE OF EXPENDITURE ON SCIENTIFIC RESEARCH U/S 35(1)(IV) [CORRESPONDING TO SECTION 10(2) (XIV] OF THE I.T. ACT, 1922] HELD THAT ANY EXPENDITURE OF A CAPITAL NATURE (OR INCURRED TOWARD S PURCHASE OF CAPITAL ASSETS) ON SCIENTIFIC RESEARCH ALLOWED AS D EDUCTION U/S 35(1)(IV) CANNOT BE ALLOWED ONCE AGAIN AS DEDUCTION IN THE FORM OF DEPRECIATION ON SUCH CAPITAL ASSETS. WHILE DOING SO, IT WAS OBSERVED BY THE HON'BLE SUPREME COURT THAT NO LEGIS LATURE COULD HAVE AT ALL INTENDED A DOUBLE DEDUCTION IN REGARD T O THE SAME BUSINESS OUTGOING AND IF IT IS INTENDED, IT WOULD B E CLEARLY EXPRESSED IN THE STATUTE ITSELF. ACCORDINGLY, IT WA S HELD THAT EVEN IN ABSENCE OF CLEAR STATUTORY INDICATION TO CONTRAR Y, STATUTE SHOULD NOT BE READ SO AS TO PERMIT AN ASSESSEE TWO DEDUCTI ONS I.E. ONCE IN THE FORM OF EXPENDITURE INCURRED TOWARDS PURCHASE O F CAPITAL ASSETS AND SECONDLY, IN THE FORM OF DEPRECIATION ON SUCH CAPITAL ASSETS. IT WAS ALSO HELD THAT EVEN BEFORE THE AMEND MENT OF THE ACT IN THE FORM OF INSERTION OF CLAUSE (IV) OF SUB SECT ION (2) OF SECTION 35 BY FINANCE ACT, 1980, PROHIBITING ALLOWANCE OF D EPRECIATION, THE ACT DID NOT PERMIT A DEDUCTION FOR DEPRECIATION IN RESPECT OF COST OF CAPITAL ASSET ACQUIRED FOR THE PURPOSE OF S CIENTIFIC RESEARCH TO THE EXTENT SUCH COST HAD BEEN WRITTEN OFF/ CLAIM ED AS DEDUCTION U/S 35(1)(IV) ON THE GROUND THAT THE AMENDMENT ONLY SET OUT MORE CLEARLY AND CATEGORICALLY WHAT THE PROVISION INTEND ED EVEN EARLIER. 8. THOUGH VARIOUS GROUNDS ARE RAISED, BUT THEY ALL RELATE TO THE CLAIM OF DEPRECIATION RAISED BY THE ASSESSEE WHICH WAS DISAL LOWED ON THE GROUND THAT IT AMOUNTS TO DOUBLE DEDUCTION IN THE LIGHT OF THE FACT THAT THE EXPENDITURE HAVE ALREADY BEEN ALLOWED IN THE EARLIE R YEARS. DURING THE COURSE OF HEARING, OUR ATTENTION WAS INVITED THAT T HIS ISSUE IS SQUARELY ITA NOS.1381 & 1464/BANG/2017 PAGE 9 OF 14 COVERED BY THE ORDER OF THE TRIBUNAL AND THE JUDGME NT OF THE JURISDICTIONAL HIGH COURT. 9. THE LD. DR PLACED RELIANCE UPON THE ORDER OF THE AO. 10. HAVING CAREFULLY EXAMINED THE ORDERS OF THE AUT HORITIES BELOW IN THE LIGHT OF THE JUDGMENT OF THE HIGH COURT AND OTHER O RDERS OF THE TRIBUNAL IN WHICH IT HAS BEEN CATEGORICALLY HELD THAT THE ENTIR E CLAIM OF DEPRECIATION HAS TO BE ALLOWED. THE RELEVANT OBSERVATIONS OF TH E CIT(APPEALS) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 4.2 THE ISSUE OF CLAIM OF DEPRECIATION BY TRUSTS HAS SEEN MULTIPLE ARGUMENTS. THE AOS HAVE MOSTLY RELIED UPON THE HON'BLE APEX COURT'S JUDGMENT IN THE CASE OF ESCORT S LTD. (SUPRA). THIS DECISION WAS DELIVERED IN THE CONTEXT OF CLAIM OF DEDUCTION U/S.35(L)(IV) BUT HAD MADE GENERAL OBSERV ATIONS ABOUT THE CLAIM OF DOUBLE DEDUCTION WHICH IS NOT ALLOWABL E UNDER THE INCOME TAX ACT. THE CLAIM OF DEDUCTION FOR DEPRECIA TION BY ENTITIES CLAIMING EXEMPTION U/S. 11, HAS BEEN SOUGH T TO BE DIFFERENTIATED FROM THE DECISION OF ESCORTS LTD., B Y SOME HIGH COURTS SUCH AS THE HON'BLE PUNJAB & HARYANA HIGH CO URT IN CASE OF MARKET COMMITTEE PIPLI (SUPRA). THIS DIFFERENTIA TION HAS BEEN SUPPORTED BY THE JURISDICTIONAL ITAT STARTING WITH THE CASE OF CUTCHI MEMON UNION (SUPRA) WHICH WAS FURTHER REAFFI RMED IN JYOTHY CHARITABLE TRUST (SUPRA) AND A SWATHE OF OTH ER CASES. THE ADS HAVE ALSO DERIVED STRENGTH FROM THE DECISION OF THE HON'BLE KERALA HIGH COURT IN LISSIE MEDICAL INSTITUTIONS (S UPRA) WHICH FOLLOWED THE ARGUMENTS OF THE HON'BLE APEX COURT TH E IN THE CASE OF ESCORTS LTD (SUPRA). THE HON'BLE DELHI HIGH COUR T HAS ALSO ENDORSED THIS POSITION IN CASE OF DIT(EXEMPTION) VS . CHARANJIV CHARITABLE TRUST (2014) 43 TAXMANN.COM 300. I HAVE NOTHING NEW TO ADD TO THIS DEBATE. 4.3 THE DECISIONS OF THE JURISDICTIONAL HIGH COURT AS APPLICABLE TO THE FACTS OF THE PRESENT MATTER HAVE BEEN ANALYZED. THE FIRST DECISION IS THAT OF SOCIETY OF SISTERS OF ST. ANNE DT. 26.08.1983 FOR AY 1977-78. IT IS SEEN THAT THE LATE ST DECISION OF THE HON'BLE HIGH COURT IN CASE OF AI AMEEN CHARITAB LE FUND ITA NOS.1381 & 1464/BANG/2017 PAGE 10 OF 14 TRUST HAS ONLY FOLLOWED AND REITERATED (PARA 20) TH IS DECISION OF 1983. 4.4 IN THE CASE OF SOCIETY OF SISTERS OF ST. ANNE, THE PERIOD INVOLVED WAS AY 1977-78 AND THE ISSUE BEFORE THE HO N'BLE COURT WAS DIFFERENT FROM THAT INVOLVED IN THE PRESENT APP EAL. THERE THE ITO HAD DISALLOWED DEPRECIATION STATING THAT SUCH A NOTIONAL EXPENDITURE WAS ONLY APPLICABLE FOR COMPUTATION OF INCOME UNDER THE HEAD 'BUSINESS' FALLING U/S.28 AND NOT FOR 'INC OME FROM PROPERTY HELD UNDER TRUST' UNDER SEC.11(1) WHICH CO NTEMPLATED ACTUAL EXPENDITURE/APPLICATION OF INCOME. THE HON'B LE COURT EXAMINED THE PRINCIPLES OF MERCANTILE ACCOUNTING AN D THE MEANING OF 'DEPRECIATION' FROM THE LITERATURE ON BO OK KEEPING AND ACCOUNTS (PARA 14-16) AND CONCLUDED THAT 'IT IS NOT IN DISPUTE THAT IF THE MERCANTILE SYSTEM IS FOLLOWED THE DEPRE CIATION ALLOWANCE IN RESPECT OF THE TRUST PROPERTY SHOULD B E ALLOWED' (PARA 17). THIS WAS MEANT TO COUNTER THE REVENUE'S INSISTENCE 'THAT THERE ARE ENOUGH INDICATIONS IN SEC. 11 TO EX CLUDE THE MERCANTILE SYSTEM OF ACCOUNTING' (PARA 18). 4.5 THE ABOVE DISCUSSION AROUND THE APPLICATION OF MERCANTILE ACCOUNTING FOR COMPUTING A TRUST'S INCOME U/S.11(L) FOLLOWING GENERAL COMMERCIAL PRINCIPLES WAS USED BY THE HON'B LE COURT TO SUPPORT THE CLAIM OF DEPRECIATION BY THE TRUST. THE QUESTION OF DOUBLE DEDUCTION, WHICH IS AT THE HEART OF THE AO'S ARGUMENTS IN THE PRESENT MATTER, WAS NEVER UNDER CONSIDERATION N OR EVEN DISCUSSED BY THE HONBLE APEX COURT IN THIS JUDGEME NT. 4.6 A NOTABLE OBSERVATION OF THE HON'BLE SUPREME C OURT IN THIS DECISION, HOWEVER, IS VERY PERTINENT TO THE PR ESENT APPEAL. AT PARA 19, IT WAS OBSERVED AS FOLLOWS: 'THE DEPRECIATION IF IT IS NOT ALLOWED AS A NECESSA RY DEDUCTION (OR COMPUTING THE INCOME FROM THE CHARITA BLE INSTITUTION, THEN THERE IS NO WAY TO PRESERVE THE C ORPUS OF THE TRUST FOR DERIVING THE INCOME.' THE ABOVE OBSERVATION WAS RELEVANT FOR AY 1977-78 W HEN SEC. 11 (L)(D), (WHICH WAS INSERTED WITH EFFECT FROM 01. 04.1989) DID NOT EXIST. ITS PROVISIONS READ AS FOLLOWS: ITA NOS.1381 & 1464/BANG/2017 PAGE 11 OF 14 SEC.11(1) SUBJECT TO THE PROVISIONS OF SEC.60 TO 63, THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF TH E INCOME .. ' (D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION. 4.7 PRIOR TO 01.04.1989, THE HON'BLE APEX COURT HA D VERY RIGHTLY CONCLUDED THAT IN THE ABSENCE OF DEPRECIATI ON ALLOWANCE, A TRUST HAD NO MEANS OF PRESERVING ITS CORPUS FOR DER IVING INCOME. AFTER 01.04.1989, THE INCOME TAX ACT HAD, IN SEC. 1 L(1)(D), VERY CONSCIOUSLY INTRODUCED A MEANS OF PRESERVING THE TR UST'S CORPUS BY PROVIDING FOR CORPUS DONATIONS NOT TO BE TREATED AS INCOME. UNDER THE CHANGED SITUATION POST 01.04.1989, THEREF ORE, THE CLAIM OF DEPRECIATION IS NOT THE SOLE METHOD AVAILABLE FO R FINANCING THE CORPUS. WHENEVER A TRUST RECEIVES DONATIONS WITH A SPECIFIC DIRECTION THAT IT BE TREATED AS CORPUS, SUCH CORPUS DONATIONS ARE AVAILABLE FOR MAINTAINING THE CAPITAL BASE OF THE T RUST. HENCE, AFTER 01.04.1989 THE HON'BLE HIGH COURT'S JUDGMENT IN CASE OF SOCIETY OF SISTERS OF ST. ANNE CANNOT BE APPLIED WI THOUT EXAMINATION OF THE FACTS IN A CASE INVOLVING A CLAI M OF DEPRECIATION. 4.8 THE FACTS OF THE CASE MUST BE SCRUTINIZED TO SEE WHETHER ANY CORPUS DONATION WAS AVAILABLE WHEN THE TRUST WA S MAKING A CLAIM FOR DEPRECIATION. IF IT WAS, THE DEPRECIATION SHOULD BE REDUCED/ADJUSTED TO THE EXTENT OF SUCH AVAILABILITY OF CORPUS DONATIONS. SINCE THE HON'BLE HIGH COURT IN CASE OF AI AMEEN CHARITABLE FUND TRUST HAS FOLLOWED ITS EARLIER JUDG EMENT IN CASE OF SOCIETY OF SISTERS OF ST. ANNE, IT NATURALLY FOL LOWS THAT THIS LATER JUDGEMENT WILL ALSO BE APPLIED WITH DUE CONSI DERATION TO THE SPECIFIC FACTS OF THE CASE LE. WHETHER THE CLAIM OF DEPRECIATION EXISTS ALONGSIDE THE AVAILABILITY OF CORPUS DONATIO NS OR NOT. IF THERE IS NO CORPUS DONATION THE ASSESSEE'S CLAIM OF DEPRECIATION WILL BE ADMITTED FOLLOWING THE RATIO OF THE HON'BLE HIGH COURT'S DECISION. 4.9 THE DECISION OF THE JURISDICTIONAL ITAT BENCH IN CASE OF JYOTHY CHARITABLE TRUST (SUPRA) IS CITED IN SUPPORT OF THE CLAIM OF DEPREDATION. IT HAS ALSO BEEN FOLLOWED BY MY PREDEC ESSOR IN ITA NOS.1381 & 1464/BANG/2017 PAGE 12 OF 14 GRANTING RELIEF TO MANY TRUST CASES IN THEIR CLAIM OF DEPRECIATION. ON CONSIDERATION OF THE FULL FACTS OF THE PRESENT M ATTER AND THE FACTS AND ISSUES INVOLVED IN THE HON'BLE ITAT'S DEC ISION, I RESPECTFULLY BEG TO MODERATE MY STANDPOINT FOR THE REASON GIVEN BELOW. 4.10 IN THE DECISION IN CASE OF JYOTHY CHARITABLE TRUST, THE HON'BLE ITAT HAS RELIED UPON ITS EARLIER DECISION I N CASE OF CUTCHI MEMON UNION (SUPRA). IN THE LATTER CASE, THE HON'BLE TRIBUNAL HAD TAKEN THE SAME ARGUMENT AS IN THE CASE OF SOCIETY OF SISTERS OF ST. ANNE I.E. DEPRECIATION IS THE ONLY A VENUE AVAILABLE TO A TRUST FOR PRESERVING ITS CORPUS. THE ITAT OBSE RVED IN PARA 20 AS FOLLOWS: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTIO N FOR COMPUTING INCOME OF CHARITABLE INSTITUTIONS, THEN T HERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERI VING THE INCOME AS IT IS NOTHING BUT A DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR, DETERIORATION, OR OBSOLESCEN CE. 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 WHI LE COMPUTING SUCH INCOME. THE EARLIER DISCUSSION ON THE APPLICABILITY OF THE DECISION IN CASE OF SOCIETY OF SISTERS OF ST. ANNE WILL BE APPLICABL E TO THE DECISIONS ON THE DEPRECIATION ISSUE BY THE HON'BLE ITAT, BANGALORE. THE NUANCE REQUIRED IN TERMS OF APPLICAT ION OF THIS JUDGEMENT TO THE FACTS OF A CASE INVOLVING AVAILABI LITY OF CORPUS FUND IS ALSO SIMILARLY TO BE FOLLOWED. 4.11 WITH REGARD TO THE DECISIONS OF OTHER HIGH C OURTS IT IS SEEN THAT THEY HAVE BASICALLY FOLLOWED EITHER THE HON'BL E KARNATAKA HIGH COURT DECISION IN CASE OF SISTERS OF ST. ANNE (BY MADHYA PRADESH HC AND PUNJAB & HARAYANA HC) OR THE MADRAS HC IN CASE OF RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIE S (BY CALCUTTA HC) OR BOTH (BY GUJARAT HC). IN CASE OF BO MBAY HC NEITHER OF THESE TWO DECISIONS HAS BEEN FOLLOWED - INSTEAD THE HON'BLE HC HAS ONLY CITED THE BOARD'S CIRCULAR OF 1 968. IT MAY BE MENTIONED THAT THE MADRAS HC DECISION IS NOT SPE CIFICALLY ON THE ISSUE OF DEPRECIATION BUT ONLY ON THE BROAD PRI NCIPLE THAT ITA NOS.1381 & 1464/BANG/2017 PAGE 13 OF 14 'INCOME FROM PROPERTIES HELD UNDER TRUST WOULD HAVE TO BE ARRIVED AT IN THE NORMAL COMMERCIAL MANNER WITHOUT REFERENCE TO THE PROVISIONS WHICH ARE ATTRACTED BY SEC.14.' 4.12 THE FINANCIAL STATEMENT OF THE APPELLANT FOR FY 2011-12 SHOWS THAT NO CORPUS DONATION HAS BEEN RECEIVED DUR ING THE YEAR. HENCE, THE ENTIRE CLAIM OF DEPREDATION IS ADMISSIBL E IN TERMS OF THE DISCUSSION MADE SUPRA. THIS GROUND, THEREFORE, SURVIVES. 11. SINCE THE CIT(APPEALS) HAS DECIDED THE ISSUE FO LLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT, WE FIND NO INFIRMITY IN HIS ORDER. WE THEREFORE CONFIRM THE ORDER OF THE CIT(APPEALS). 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THAT OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF MARCH, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 23 RD MARCH, 2018. / D ESAI S MURTHY / ITA NOS.1381 & 1464/BANG/2017 PAGE 14 OF 14 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.