The assistant Commissioner of Income Tax (Exemption0 Circle- 1, Mangalore V. M/s Anjuman E Islams , Hubli

ITA 1702/BANG/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7031 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 18-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR AJITH ADDITIONAL
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition
• Section: 32; 12; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER ITA NOS. AND ASSESSMENT YEARS APPELLANT RESPONDENT 1701/BANG/2017 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS), CIRCLE 1, MANGALURU. M/S. ANJUMAN-E-ISLAM, 2 ND FLOOR, ANJUMAN COMPLEX, HUBLI 580 020. PAN : AAAAA 4108 Q 1702/BANG/2017 2011-12 -DO- -DO- 1698/BANG/2017 2012-013 -DO- -DO- REVENUE BY : SHRI. KUMAR AJITH, ADDITIONAL CIT ASSESSEE BY : SHRI. NARENDRA SHARMA, ADVOCATE DATE OF HEARING : 13.12.2017 DATE OF PRONOUNCEMENT : 22.12.2017 O R D E R PER SUNIL KUMAR YADAV, JM : THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) ON COMMON GROUNDS. IN ITA NOS.1701 AND 1702/BANG/2 017, THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) MAINLY ON TWO IS SUES, ONE IS WITH REGARD TO DISALLOWANCE OF DEPRECIATION AND THE OTHER IS CARRY FORWARD OF EXCESS EXPENDITURE/APPLICATION/DEFICIT/LOSSES. BUT IN ITA NO.1698/BANG/2017, THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A) ON ONE GROUND I.E., DISALLOWANCE OF DEPRECIATION. I, HOWEVER, FOR THE SAKE OF REFERENC E, EXTRACT THE GROUNDS RAISED IN APPEAL NO.1701/BANG/2017: ITA NOS. 1698, 1701 & 1702/BANG/2017 PAGE 2 OF 7 1) ON DISALLOWANCE OF DEPRECIATION: 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING DEPRECIATION IN RESPECT OF ASSETS WHICH HAVE ALREADY BEEN ALLOWED AS APPLICATION OF INCOME IN ITS ENTIRETY IN EARLIER YEARS. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) IS CORRECT IN ALLOWING DEPRECIATION WHICH AM OUNTS TO DOUBLE DEDUCTION WHEN ALREADY FULL EXPENDITURE HAS BEEN ALLOWED IN EARLIE R YEARS. 3. THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THA T THE HON'BLE KERALA HIGH COURT IN THE CASE OF I,ISSIE MEDICAL INTUITIONS VS. CIT ( 348 ITR 344) HAS HELD THAT DEPRECIATION CANNOT BE ALLOWED ON ASSETS, WHERE COS T OF SUCH ASSETS HAS ALREADY BEEN ALLOWED AS APPLICATION OF INCOME IN THE YEAR O F ACQUISITION/ PURCHASE OF ASSET. 4. THE CIT(A) HAS FAILED TO APPRECIATE THAT THE HON '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 RES EARCH U/S 35(1)(IV)[CORRESPONDING TO SECTION 10(2) (XIV) OF T HE I.T. ACT, 1922) HELD THAT ANY EXPENDITURE OF A CAPITAL NATURE (OR INCURRED TO WARDS PURCHASE OF CAPITAL ASSETS) ON SCIENTIFIC RESEARCH ALLOWED AS DEDUCTION U/S 35( 1)(IV) CANNOT BE ALLOWED ONCE AGAIN AS DEDUCTION IN THE FORM OF DEPRECIATION ON SUCH CA PITAL ASSETS. WHILE DOING SO, IT WAS OBSERVED BY THE HON'BLE SUPREME COURT THAT NO L EGISLATURE COULD HAVE AT ALL INTENDED A DOUBLE DEDUCTION IN REGARD TO THE SAME B USINESS OUTGOING AND IF IT IS INTENDED, IT WOULD BE CLEARLY EXPRESSED IN THE STAT UTE ITSELF. ACCORDINGLY, IT WAS HELD THAT EVEN IN ABSENCE OF CLEAR STATUTORY INDICATION TO CONTRARY, STATUTE SHOULD NOT BE READ SO AS TO PERMIT AN ASSESSEE TWO DEDUCTIONS I.E . ONCE IN THE FORM OF EXPENDITURE INCURRED TOWARDS PURCHASE OF CAPITAL ASSETS AND SEC ONDLY, IN THE FORM OF DEPRECIATION ON SUCH CAPITAL ASSETS. IT WAS ALSO HE LD THAT EVEN BEFORE THE AMENDMENT OF THE ACT IN THE FORM OF INSERTION OF CLAUSE (IV) OF SUB SECTION (2) OF SECTION 35 BY FINANCE ACT, 1980, PROHIBITING ALLOWANCE OF DEPRECI ATION, THE ACT DID NOT PERMIT A DEDUCTION FOR DEPRECIATION IN RESPECT OF COST OF CA PITAL ASSET ACQUIRED FOR THE PURPOSE OF SCIENTIFIC RESEARCH TO THE EXTENT SUCH C OST HAD BEEN WRITTEN OFF/ CLAIMED AS DEDUCTION U/S 35(1)(IV) ON THE GROUND THAT THE AMEN DMENT ONLY SET OUT MORE CLEARLY AND CATEGORICALLY WHAT THE PROVISION INTEND ED EVEN EARLIER. 2) ON CARRY FORWARD OF EXCESS EXPENDITURE/APPLICAT ION/DEFICIT/LOSS:- A) THE C1T (A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW SET-OFF OF EXCESS EXPENDITURE/APPLICATION PERTAINING TO CURRENT ASST. YEAR AND EARLIER YEARS AGAINST THE INCOME OF THE FUTURE ASST.YEAR WITHOUT APPRECIATING THE FACT THAT AS PER THE SCHEME OF TAXATION OF CHARITABLE OR RELIGIOUS TRUST/INSTIT UTION AS CODIFIED U/S.11,12 AND 13, THERE IS NO PROVISION FOR COMPUTING LOSS FROM PROPE RTY HELD UNDER TRUST/INSTITUTION ON ACCOUNT OF EXCESS APPLICATION OF INCOME/FUNDS OF TH E TRUST ITA NOS. 1698, 1701 & 1702/BANG/2017 PAGE 3 OF 7 B) THE CIT (A) HAS FAILED TO APPRECIATE THE FACT TH AT THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENVISAGED U/S 15 T O 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUS T/INSTITUTION FOR THE PURPOSE OF CLAIMING EXEMPTION UNDER SEC.11, 12 AND 13 AND, THE REFORE, THE PROVISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOURCE AGAINST THE INCO ME FROM ANOTHER SOURCE, SET-OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET-OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YEARS AS E NVISAGED U/S 70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS/INSTITUTION S. C) THE C1T (A) HAS FAILED TO DISCUSS THE ISSUE IN D ETAIL BRINGING OUT THE FACTS AND APPLYING THE RELEVANT PROVISIONS OF THE ACT, BUT CA ME TO A CONCLUSION THAT EXCESS EXPENDITURE/EXCESS APPLICATION SHALL BE ALLOWED TO BE CARRIED FORWARD AND SET-OFF AGAINST THE INCOME OF THE FUTURE ASSESSMENT YEARS A ND, THEREBY, RENDERING THE ORDER PERVERSE. 2. DURING THE COURSE OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE INVITED MY ATTENTION THAT BOTH THESE GROUNDS ARE COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF JYOTHY CHARITABLE TRUST VS. DCIT IN ITA NO.662/BANG/2015 AND BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF ALL SAINTS CHURCH, 148 ITR 786 (KAR) AND SOCIETY OF SISTERS OF ST. ANN, 14 6 ITR 28 (KAR) WITH THE SUBMISSION THAT TRIBUNAL HAS EXAMINED THESE ISSUES IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS IN THE FAVOUR OF THE ASSESSEE ON BOT H THE ISSUES. THEREFORE, THE ORDER OF THE CIT(A) BE CONFIRMED AS IT WAS IN CONSO NANCE WITH THE FINDING OF THE TRIBUNAL. 3. THE LEARNED DR PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INTUITIONS VS. CIT 24 TAXMANN.COM 9 IN SUPPORT OF HIS CONTENTION THAT IF THE ASSESSEE TREA TS EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURP OSES UNDER SECTION 11(I)(A) OF THE ACT, THEN ASSESSEE CANNOT CLAIM DEPRECIATION ON VALUE OF SUCH ASSETS. 4. BESIDES, HE PLACED HEAVY RELIANCE UPON THE ORDER OF THE AO. ITA NOS. 1698, 1701 & 1702/BANG/2017 PAGE 4 OF 7 5. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS AND THE JUDGMENTS REFERRED TO BY THE PARTIES, I FIND THAT TRIBUNAL HAS EXAMINED BOTH THE ISSUES IN HIS ORDER IN THE LI GHT OF JUDGMENT OF THE JURISDICTIONAL HIGH COURT AND THE JUDGMENT OF THE H ONBLE KERALA HIGH COURT IN THE CASE OF DDIT (EXEMPTION) VS. LISSIE MEDICAL INS TITUTIONS (348 ITR 344) AND CATEGORICALLY HELD THAT DEPRECIATION IS TO BE ALLOW ED ON THE ASSETS ACQUIRED ON APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITIO N. THE RELEVANT OBSERVATION OF THE ORDER OF THE TRIBUNAL IS EXTRACTED HEREUNDER FO R THE SAKE OF REFERENCE: 4. THE AO HOWEVER, HELD THAT ALLOWANCE OF DEPRECIA TION WHEN THE COST HAS ALREADY BEEN RECOVERED BY WAY OF EXEMPTION AS APPLICATION O F INCOME AMOUNTS TO DOUBLE DEDUCTION AND DOUBLE BENEFIT ON THE SAME ASSET. THE AO REFERRED TO THE DECISION OF THE OF HON'BLE HIGH COURT OF KERALA IN THE CASE OF DDIT(E) V. LISSIE MEDICAL INSTITUTIONS, 348 ITR 344 (KER) WHEREIN IT WAS HELD THAT ALLOWING DEPRECIATION OF A DEPRECIABLE ASSET WHEN THE COST OF ACQUISITION OF D EPRECIABLE ASSET WAS ALLOWED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE AMOUNT S TO DOUBLE DEPRECIATION AND THEREFORE DEPRECIATION CANNOT BE ALLOWED. THE AO AL SO DISTINGUISHED THE CASES CITED BY THE ASSESSEE. 5. ON APPEAL BY THE ASSESSEE, THE CIT(A), CONFIRMED THE ORDER OF THE AO. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS REFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE RELEVANT GROUND OF APPEAL RAISED BY THE ASSESSEE IS GROUND NO.2 RELATING TO DISALLOWANCE OF DEPRECIA TION. 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 I SSUE 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 I SSUE 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 APPLIC ATION OF INCOME IN THE YEAR OF ITS ACQUISITION. THE AO TOOK THE VIEW THAT ALLOWING DEP RECIATION WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTION AND PLACED RELIANCE ON TH E 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 D EPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING INCOME OF CH ARITABLE 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 S ECTION 11(1) HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER, THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INC OME. IT WAS SO HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). IT WAS HELD IN CIT VS. TINY TOTS EDUCATION SOCIETY ITA NOS. 1698, 1701 & 1702/BANG/2017 PAGE 5 OF 7 (2011) 330 ITR 21 (P&H), FOLLOWING CIT VS. MARKET C OMMITTEE, PIPLI(2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 THAT DEPREC IATION CAN BE CLAIMED BY A CHARITABLE INSTITUTION IN DETERMINING PERCENTA GE OF FUNDS APPLIED FOR THE PURPOSE OF CHARITABLE OBJECTS. CLAIM FOR DEPRECIATI ON WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUI SHED BY THE HONBLE COURT IN THE AFORESAID DECISIONS. 21. THE ISSUE RAISED BY THE REVENUE IN THE GROUND O F 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 HONBLE PUNJAB & HARYANA HIGH COURT AFTE R CONSIDERING SEVERAL DECISIONS ON THAT ISSUE AND ALSO THE DECISI ON OF THE HONBLE 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 FUN DS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF TRUSTS IN TERMS OF SECTI ON 11 OF THE ACT. THE HONBLE PUNJAB & HARYANA HIGH COURT MADE A REFERENC E TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LT D. (SUPRA) AND OBSERVED THAT THE HONBLE SUPREME COURT WAS DEALING WITH A CASE OF TWO DEDUCTIONS UNDER DIFFERENT PROVISIONS OF THE ACT, O NE U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITUR E OF A CAPITAL NATURE INCURRED ON SCIENTIFIC RESEARCH U/S. 35(1)(IV) OF T HE ACT. THE HONBLE COURT THEREAFTER HELD THAT A TRUST CLAIMING DEPRECIATION CANNOT BE EQUATED WITH A CLAIM FOR DOUBLE DEDUCTION. THE HONBLE PUNJAB & HA RYANA HIGH COURT HAS ALSO MADE A REFERENCE TO THE DECISION OF THE HON'BL E KARNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF SISTERS OF ANNE, 1 46 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 DE BITED 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. 8. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SINC E BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE (NO.2) ACT, 20 14 W.E.F. 1.4.2015 BY INSERTION OF SUB-SECTION (6) TO SECTION 11 OF THE A CT, WHICH READS AS UNDER:- (6) IN THIS SECTION WHERE ANY INCOME IS REQUIRED T O 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. 9. AS ALREADY STATED, THE AFORESAID AMENDMENT IS PR OSPECTIVE AND WILL APPLY ONLY FROM A.Y. 2015-16. IN VIEW OF THE ABOVE LEGAL POSIT ION, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) HAS TO BE REVERSED. CONSEQUENT LY GROUNDS NO.2 RAISED BY THE ASSESSEE IS ALLOWED. ITA NOS. 1698, 1701 & 1702/BANG/2017 PAGE 6 OF 7 6. THEREFORE, FOLLOWING THE VIEW TAKEN BY THE TRIBU NAL, I DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY I CONFIRM TH E ORDER OF THE CIT(A) WHO HAS ADJUDICATED THE ISSUES IN TERMS OF FINDING OF THE T RIBUNAL. 7. SO FAR AS THE OTHER ISSUES REGARDING CARRY FORWA RD OF EXCESS APPLICATION OF INCOME FOR SET OFF AS APPLICATION OF INCOME IN SUBS EQUENT YEARS IS CONCERNED, THE ISSUE WAS ALSO EXAMINED BY THE TRIBUNAL IN ITS ORDE R IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND HAS FINALLY ALLOWED TO CARRY FOR WARD EXCESS APPLICATION OF INCOME FOR SET OFF AS APPLICATION OF INCOME IN SUBS EQUENT YEARS. THE RELEVANT OBSERVATION OF THE TRIBUNAL IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: 13. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11 (1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME S HOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITABLE PURPOSES AS CONTEMPL ATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOM E IS ADJUSTED TO MEET THE EXPENSES INCURRED FOR CHARITABLE OR RELIGIOUS PURPO SES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURPOSES HAVE BEEN INCURRED IN TH E EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUBSEQUENT YEAR CAN BE SAID TO BE APPLIED F OR CHARITABLE OR RELIGIOUS PURPOSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE IN OTHER WORDS, THE SET-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEA RS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO A PPLICATIORL OF INCOME OF SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION 164 ITR 439 (RAJ) CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ,). IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION 264 ITR 110 (BORN) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UND ER S. 11 EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLICATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCO ME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. AD1T 248 1TR 368 (MAD ), THE HON'BLE MADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRINCIPLES, THA T S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCURRED ON REL IGIOUS OR CHARITABLE PURPOSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST TH E INCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT THE LOSS INCURRED UNDER ON E HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FROM THE SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRED WAS FOR RELIGIOUS OR CHARITABL E PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUS T IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE OF LOSS OF AN EARL IER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUENT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND I N ORDER TO INCUR THAT ITA NOS. 1698, 1701 & 1702/BANG/2017 PAGE 7 OF 7 EXPENDITURE, THE TRUST SHOULD HAVE AN INCOME. SO LO NG AS THE EXPENDITURE INCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDITURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF W HICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LIABLE TO TAX. THE EXPENDITU RE, IF INCURRED IN AN EARLIER YEAR IS ADJUSTED AGAINST THE INCOME OF A LA TER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES FROM THE INCOME OF THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTU AL EXPENDITURE WAS IN THE EARLIER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TR UST SUCH EARLIER EXPENDITURE HAD BEEN SET OFF AGAINST THE OF THE SUBSEQUENT YEAR. TH E EXPENDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RELIED ON THE DECISION IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR.). 14. WE ARE THEREFORE OF THE VIEW THAT THERE IS MERI T IN GROUND NO.3 RAISED BY THE ASSESSEE. ACCORDINGLY, THE SAME IS ALLOWED. 8. SINCE THE TRIBUNAL HAS TAKEN A PARTICULAR VIEW I N A SIMILAR SET OF FACTS, I FIND NO JUSTIFICATION TO TAKE A CONTRARY VIEW IN THIS AP PEAL. ACCORDINGLY, I CONFIRM THE ORDER OF THE CIT(A). 9. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2017. SD/- (SUNIL KUMAR YADAV) JUDICIAL MEMBER BANGALORE. DATED: 22 ND DECEMBER, 2017. /NSHYLU/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. DR 4. CIT 5. GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.