DDIT, CHENNAI V. M/s. Bhaktavatsalam Memorial Trust, CHENNAI

ITA 1796/CHNY/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68896 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 03-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: S SRIDHAR
• Keywords: Exemption for trust; Business income; Depreciation; Charitable institution; Earning of tax free income; Capital expenditure
• Section: 12A; 12AA; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. ASSESS MENT YEAR APPELLANT RESPONDENT 1796/MDS/2012 2009-10 JOINT COMMISSIONER OF INCOME TAX (OSD) (EXEMPTIONS)-II, CHENNAI. M/S. BHAKTAVATSALAM MEMORIAL TRUST, NO.14, 31 ST STREET, PERIYAR NAGAR, KORATTUR, CHENNAI-600 080. PAN:AAATB2624D 1819/MDS/2012 2009-10 M/S. BHAKTAVATSALAM MEMORIAL TRUST, NO.14, 31 ST STREET, PERIYAR NAGAR, KORATTUR, CHENNAI-600 080. PAN:AAATB2624D JOINT COMMISSIONER OF INCOME TAX (OSD) (EXEMPTIONS)-II, CHENNAI. REVENUE BY : MR. S.DAS GUPTA, JCIT ASSESSEE BY : MR. S.SRIDHAR, ADVOCATE DATE OF HEARING : 12 TH DECEMBER, 2013 DATE OF PRONOUNCEMENT : 20 TH DECEMBER, 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JM : BOTH THESE APPEALS ARE FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME TAX (APPEALS)-XII, CHENNAI DATED 22.06.20 12 FOR THE ASSESSMENT YEAR 2009-10. FIRST WE TAKE UP THE A PPEAL FILED BY THE REVENUE. ITA NOS.1796 & 1819/MDS//2012 2 ITA NO.1796/MDS/2012:- 2. THE ONLY ISSUE IN THE APPEAL OF THE REVENUE IS T HAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT UNDER SECTI ON 11 OF THE INCOME TAX ACT. THE ASSESSING OFFICER WHILE COMPLE TING THE ASSESSMENT NOTICED THAT THE ASSESSEE TRUST ADVANCED INTEREST FREE LOANS TO CERTAIN OTHER TRUSTS. ACCORDING TO TH E ASSESSING OFFICER, SUCH ADVANCES ARE IN VIOLATION OF THE PROV ISIONS OF SECTION 13(1)(D) READ WITH SECTION 11(5) OF THE ACT . ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HE LD THAT INTEREST FREE LOANS GIVEN BY THE ASSESSEE TO OTHER CHARITABLE ORGANIZATIONS WERE REGISTERED UNDER SECTION 12A / 1 2AA OF THE ACT AND THEREFORE SUCH LOANS/ADVANCES ARE OUTSI DE THE PURVIEW/SCOPE OF SECTION 13(1)(C) / 13(1)(D) OF THE ACT. 3. THE DEPARTMENTAL REPRESENTATIVE SUPPORTING THE O RDER OF THE ASSESSING OFFICER SUBMITS THAT ADVANCING MON IES TO OTHER CHARITABLE INSTITUTION WHICH IS NOT ONE OF TH E MODES FOR INVESTMENTS SPECIFIED UNDER SECTION 11(5) OF THE AC T AND ITA NOS.1796 & 1819/MDS//2012 3 THEREFORE, THERE IS AVIOLATION OF PROVISIONS OF SEC TION 13(1)(D) READ WITH SECTION 11(5) OF THE ACT. 4. THE COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE COUNSEL ALSO SUBMITS THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAD CONSIDERED SIMILAR SITUATION IN THE CASE OF M/S. MA MALLAN EDUCATIONAL TRUST IN ITA NO.456/MDS/2012 DATED 10.5 .2012 AND IN THE CASE OF YOUNG MENS CHRISTIAN ASSOCIATIO N IN ITA NOS.294 & 2004 /MDS/2012 DATED 29.4.2013. COPIES OF THE ORDERS ARE PLACED ON RECORD. THE COUNSEL FOR THE A SSESSEE ALSO RELIED ON THE DECISION OF HONBLE DELHI HIGH C OURT IN THE CASE OF DIRECTOR OF INCOME TAX VS. ACME EDUCATIONAL SOCIETY (326 ITR 146) (DEL) IN SUPPORT OF HIS CONTENTION THAT IF LOAN IS GIVEN TO THE CHARITABLE ORGANIZATIONS REGISTERED UNDER SECTION 12A HAVING S IMILAR OBJECTS THERE IS NO VIOLATION UNDER SECTION 13(1)(D ) OF THE ACT. 5. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. THE ASSES SING OFFICER ITA NOS.1796 & 1819/MDS//2012 4 WHILE COMPLETING THE ASSESSMENT DENIED EXEMPTION UN DER SECTION 11 TO THE ASSESSEE FOR THE REASON THAT THE ASSESSEE ADVANCED INTEREST FREE LOANS TO OTHER CHARITABLE OR GANIZATIONS AND SUCH ADVANCEMENT OF LOANS ARE IN VIOLATION OF T HE PROVISIONS OF SECTION 13(1)(D) READ WITH SECTION 11 (5) OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT AD VANCEMENT OF LOANS OR INVESTMENTS WHICH ARE NOT FALLING IN AN Y ONE OF THE MODES SPECIFIED UNDER SECTION 11(5) OF THE ACT. TH E COMMISSIONER OF INCOME TAX (APPEALS) REFERRING TO V ARIOUS DECISIONS ON THE ISSUE CONCLUDED THAT ADVANCEMENT O F INTEREST FREE LOANS TO OTHER CHARITABLE ORGANIZATIO NS WHICH WERE REGISTERED UNDER SECTION 12A / 12AA ARE OUTSID E THE PURVIEW / SCOPE OF SECTION 13 (1)(C) AS WELL AS 13( 1)(D) READ WITH SECTION 11(5) OF THE ACT OBSERVING AS UNDER:- ANY TRUST WHICH IS REGISTERED AS A PUBLIC CHARITABLE TRUST AND ALSO REGISTERED UNDER SECTION 12A / 12AA OR RECOGNIZED UNDER SECTION 11 OF THE ACT CANNOT BE CONSIDERED AS A PERSON SPECIFIED U / S.13(3) OF THE ACT AND HENCE THE PROVISIONS OF SEC . 13(1)(C) CANNOT BE APPLIED IN CASE OF ANY PAYMENTS MADE TO SUCH ORGANIZATIONS WHICH IS REGISTERED AS PUBLIC CHARITABLE ORGANIZATIONS AND/ OR U/S.12A / 12AA OR RECOGNIZED UNDER SECTION 11 / 10(23C) OF THE ACT . AN ORGANIZATION WHICH IS REGISTERED AS A PUBLIC CHARITABLE TRUST AND / OR ALSO UNDER SECTION 12A / 12AA OR ITA NOS.1796 & 1819/MDS//2012 5 RECOGNIZED UNDER SECTION 11 OF THE ACT IS ENTITLED TO RESERVE FUNDS (BY WAY DONATIONS) FROM ANOTHER ORGANIZATION HAVING SIMILAR OBJECTIVES. THIS IS PERMIT T ED IN THE I T ACT ITSELF. FURTHER, SUCH PAYMENTS ARE TREATED AS APPLICATION OF INCOME FOR THE PURPOSE OF 85% OF THE INCOME U/ S . LL OF THE ACT. THIS BEING SO, ANY LOAN OR ADVANCE MADE TO SUCH ORGANIZATION, WHICH IS REGISTERED AS A PUBLIC CHARITABLE TRUST, CANNOT BE CONSIDERED AS VIOLATION U/S.13(1)(D) OF THE ACT. FURTHER RELIANCE IS ALSO P L ACED ON THE DECISION OF DELHI HIGH COURT, IN THE CASE OF DIT (EXEMPTION) VS ACME EDUCATIONAL SOCIETY (326 ITR 146) (DEL), WHERE THE HON'BLE COURT, BY APPLYING THE PRINCIPLES LAID DOWN IN CASE OF DIT VS PARIWAR SOCIETY SEWA SANSTHAN (254 ITR 268) (DEL), HELD THAT ADVANCING INTEREST FREE LOAN BY THE SOCIETY TO ANOTHER SOCIETY HAVING SIMILAR OBJECTS, IS NOT AN ' INVESTMENT' OR 'DEPOSIT' AND HENCE THERE WAS NO VIOLATION OF THE PROV I SIONS OF SECTION 13(1)(D) READ WITH SECTION 11(5) OF THE ACT TO DENY THE EXEMPTION UNDER SECTION 11. SIMILAR DECISION HAS BEEN GIVEN IN THE CASE OF SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION) VS ACIT (2010) (40 DTR (VISAKHA) (TRIB) 153) , WHERE IT WAS HELD THAT - 'ADVANCING A FUND ON INTEREST TO OTHER ORGANIZATIONS, ENGAGED IN SIMILAR ACTIVITIES, THE ASSESSEE HAS ACCOMPLISHED ITS OBJECT OF MICRO FINANCE TO THE SOCIO-ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY AND ALSO TO ALLEVIAT E POVERTY BESIDE COLLECTING THE INTEREST ON THE ADVANCED LOAN. SINCE THE REGISTRATION HAS ALREADY BEEN GRANTED TO THE ASSESSEE U/ S. 12 A THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S .11 ' IT WAS ALSO HELD BY MUMBAI A-BENCH OF ITAT IN THE CASE OF SMT . CHANDR A LEKHA SOMANI CHARITABLE TRUST V. 7 TH ITO (30 ITD (BOM) 70), THAT DONATION MADE BY ONE TRUST ITA NOS.1796 & 1819/MDS//2012 6 TO ANOTHER TRUST WILL NOT AMOUNT TO VIOLATION U / S.13(1)(C) OF THE ACT. THEREFORE, THE INTEREST FREE LOANS, G I VEN BY TH E ASSESSEE T R UST TO ITS S I ST ER / OTHER ORGANIZAT I ONS (I . E. M/S. RVS EDUCATION A L TRUST (PONDY), M/ S . K K H A D AR GHANI CHARITABLE & EDUCATION A L TRUST AND M/ S. RVS EDUCATION A L T R U ST (CHENN A I)), WOULD NOT BE HIT BY THE PROVISIONS OF S E CTION13(1)(C) OR 1 3 (1)(D) READ W ITH SECTION 11(5), IN VIEW OF THE ABOVE DISCUSSION. FURTHER , A S TH E SAI D SISTER / OTH E R ORGANIZATIONS ARE A LSO CHARITABLE ORGANIZATION AND REG I ST E R E D A S A P UB L IC CH A RITABLE TRUST (AND A LSO REGISTERED U/ S . 12A/ 12AA OF THE ACT) , TH E S AID L OA N S OR ADVANCES WILL NOT AMOUNT TO ' THE BENEFIT OF ANY PERSON SPECI F I E D U/S . 1 3 ( 3), EITHER DIRECTLY OR INDIRECTLY'. HENCE THE SAID LOANS / ADV A N CE S A R E TOTA LL Y OUTSIDE THE PURVIEW AND SCOPE OF SE C .13(1)( C ) AS W E LL AS 13(1)(D) OF TH E I T ACT. 6. WE HAVE ALSO GONE THROUGH THE CO-ORDINATE BENCH DECISION CITED ABOVE AND FIND THAT SIMILAR ISSUE HA D BEEN DECIDED BY THIS TRIBUNAL IN THE CASES OF M/S. MAMAL LAN EDUCATIONAL TRUST AND M/S. YOUNG MENS CHRISTIAN ASSOCIATION. IN THE CASE OF YOUNG MENS CHRISTIAN ASSOCIATION, FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH DECISION IN THE CASE OF M/S. MAMALLAN EDUCATIONAL T RUST, THE TRIBUNAL HELD AS UNDER:- ITA NOS.1796 & 1819/MDS//2012 7 7. IN SO FAR AS THE CONTENTION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS ADVANCED MONIES TO OTHER ASSOCIATIONS/TRUSTS, THEREFORE, THERE IS A VIOLATION UNDER SECTION 13(1)(D) IS CONCERNED, WE ARE NOT IN AGREEMENT WITH THE ASSESSING OFFICER SINCE MONIES ADVANCED BY THE ASSESSEE WERE TO THE OTHER CHARITABLE ORGANIZATIONS WHICH WERE REGISTERE D UNDER SECTION 12A AND HAVING SIMILAR OBJECTS. WE FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. MAMALLAN EDUCATIONAL TRUST IN ITA NO.456/MDS/2012 DATED 10.5.2012 HAD CONSIDERED A SIMILAR SITUATION WHERE THE ASSESSEE A CHARITABL E ORGANIZATION REGISTERED UNDER SECTION 12A ADVANCED MONEY TO ANOTHER CHARITABLE INSTITUTION, WHICH WAS ALSO REGISTERED UNDER SECTION 12A AND WHETHER IN SUCH CIRCUMSTANCES THE MONEY ADVANCED BY ONE INSTITUTION TO OTHER CAN BE SAID TO BE IN VIOLATIO N OF PROVISIONS OF SECTION 13(1) AND CONSEQUENTLY THE EXEMPTION UNDER SECTION 11 CAN BE DENIED. THE TRIBUNAL ALSO HELD AS UNDER:- 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT SECTION 13(1)(C)(II) COULD BE INV OKED ONLY WHEN ANY PART OF THE INCOME WAS USED FOR THE B ENEFIT OF TRUSTEES, OR OTHER PERSONS MENTIONED IN SECTION 13(3) OF THE ACT. AS PER THE ASSESSEE, THE TERM CONCERN MENTIONED IN SECTION 13(3) OF THE ACT DID NOT INCLU DE ANOTHER CHARITABLE TRUST. SIVARAJA RAMALINGA TRUST WAS A CHARITABLE TRUST AND THEREFORE, ANY PAYMENTS MADE T O THE SAID TRUST COULD NOT BE CONSIDERED AS A VIOLATION O F SECTION 13(1) OF THE ACT. RELIANCE WAS ALSO PLACED ON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL OF T HIS TRIBUNAL IN THE CASE OF JEPPIAAR EDUCATIONAL TRUST (SUPRA). THE CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTI ONS. ACCORDING TO HIM, THE MONEY GIVEN BY THE ASSESSEE W AS TO A CONCERN MENTIONED IN SECTION 13(3) OF THE AC T. THEREFORE, THE DECISION OF CO-ORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF JEPPIAAR EDUCATIONAL TRUST (SUPRA) SQUARELY APPLIED. HE HELD THAT THE ASSESSEE COULD NOT BE ITA NOS.1796 & 1819/MDS//2012 8 DENIED EXEMPTION UNDER SECTION 11 OF THE ACT AND DIRECTED THE A.O. TO GRANT SUCH EXEMPTION. 4. BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT IT WAS AN ACC EPTED POSITION THAT M/S SIVARAJA RAMALINGA TRUST AND ASSE SSEE- TRUST WERE HAVING SOME COMMON TRUSTEES. RELYING ON SECTION 13(3) OF THE ACT, LEARNED D.R. SUBMITTED TH AT ANY CONCERN IN WHICH ANY TRUSTEE, WHO HAD SUBSTANTIAL I NTEREST, WOULD FALL WITH THE MISCHIEF OF SECTION 13(1)(C) OF THE ACT. ASSESSEE-TRUST HAD PLACED PART OF ITS FUNDS WITH AN OTHER TRUST IN WHICH THE TRUSTEES HAD SUBSTANTIAL INTERES T AND THEREFORE, THE TRUSTEES HAD DIRECTLY OR INDIRECTLY DERIVED BENEFIT. ACCORDING TO HIM, CIT(APPEALS) FELL IN ER ROR IN ALLOWING THE ASSESSEE EXEMPTION UNDER SECTION 11 OF THE ACT. 5. PER CONTRA, A.R. STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT M/S SIVARAJA RAMALINGA TRUST, TO WHICH ASSESSEE HAD GIVEN MONEY, WAS A TRUST REGISTERED UNDER SECTION 12AA OF THE AC T. THE A.R. HAS PLACED A COPY OF ORDER UNDER SECTION 1 2AA OF THE ACT GRANTING REGISTRATION TO SUCH TRUST. TW O THINGS ARE VERY CLEAR. ONE IS THAT M/S SIVARAJA RAMALINGA TRUST WAS A TRUST AND SECOND IS THAT SOME OF THE TRUSTEES WERE COMMON. HOWEVER, IN OUR OPINION, TRUSTEES HOLD THE PROPERTY OF THE TRUST IN A FIDUCIARY CAPACITY AND N OT AS OWNERS. THE OWNERS OF THE TRUST PROPERTY WERE ALWA YS ITS BENEFICIARIES AND TRUSTEES WERE HOLDING THE PROPERT Y AND INCOME THEREFROM FOR THE BENEFIT OF BENEFICIARIES A ND NOT FOR THEMSELVES. WE CANNOT SAY THAT JUST BECAUSE TW O TRUSTS ARE HAVING COMMON TRUSTEES, THEY ARE RELATED CONCERNS. TRUST WILL NOT FALL WITHIN THE CONCEPT O F CONCERN MENTIONED IN CLAUSE (E) OF SUB-SECTION (3) OF SECTI ON 13 OF THE ACT. INVOCATION OF SECTION 13(1), IN SUCH A SI TUATION, WAS NOT AT ALL WARRANTED. CIT(APPEALS) WAS JUSTIFI ED IN RELYING ON THE DECISION OF CO-ORDINATE BENCH OF THI S ITA NOS.1796 & 1819/MDS//2012 9 TRIBUNAL IN THE CASE OF JEPPIAAR EDUCATIONAL TRUST (SUPRA) AND HOLDING THAT ASSESSEE WAS ELIGIBLE FOR EXEMPTIO N UNDER SECTIONS 11 AND 12 OF THE ACT. WE FIND NO RE ASON TO INTERFERE WITH THE ORDER OF CIT(APPEALS). 8. IN VIEW OF THE ABOVE DECISION OF THIS TRIBUNAL, WE HOLD THAT THE MONIES ADVANCED BY THE ASSESSEE TO THE OTHER TRUSTS WHICH ARE REGISTERED UNDER SECTION 12A AND HAVING SIMILAR OBJECTS CANNOT BE SAID TO BE IN VIOLATION OF PROVISIONS OF SECTION 13 (1) OF THE ACT. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO EXAMINE WHETHER OTHER ORGANIZATIONS TO WHOM THE ASSESSEE HAS LENT MONIES ARE REGISTERED UNDER SECTION 12A AND IN CASE, SUCH ORGANIZATIONS ARE REGISTERED UNDER SECTION 12A, THE EXEMPTION UNDER SECTION 11 CANNOT BE DENIED ON THIS GROUND. 7. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE HO LD THAT ADVANCEMENT OF INTEREST FREE LOANS TO OTHER CHARITA BLE INSTITUTIONS REGISTERED UNDER SECTION 12A OF THE AC T HAVING SIMILAR OBJECTS ARE NOT IN VIOLATION OF THE PROVIS IONS OF SECTION 13(1)(D) READ WITH SECTION 11(5) OF THE ACT. IN TH IS CASE, ADMITTEDLY THE OTHER CHARITABLE INSTITUTIONS TO WHO M INTEREST FREE LOANS WERE GIVEN BY THE ASSESSEE ARE REGISTERE D UNDER SECTION 12A / 12AA OF THE ACT HAVING SIMILAR OBJECT S. IN SUCH CIRCUMSTANCES, THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1)(D) READ WITH SECTION 11(5) OF THE ACT IN THE CASE OF THE ASSESSEE BY ADVANCEMENT OF SUCH INTEREST FREE LOANS TO SUCH ITA NOS.1796 & 1819/MDS//2012 10 CHARITABLE INSTITUTIONS, WE SUSTAIN THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.1819/MDS/2012 (ASSESSEES APPEAL):- 8. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTA INING THE DISALLOWANCE OF DEPRECIATION WHILE WORKING OUT THE APPLICATION OF INCOME AS PRESCRIBED IN RELATION TO PURPOSES/OBJECTIVES OF THE ASSESSEE TRUST IN TERMS OF SECTION 11(1)(A) OF THE ACT IN THE COMPUTATION OF TAXABLE I NCOME. AT THE TIME OF HEARING, THE COUNSEL FOR THE ASSESSEE S UBMITS THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF T HE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. M/S. COIMBATORE STOCK EXCHANGE LTD. IN ITA NO.1812/MDS/2 012 DATED 6.6.2013. HE ALSO SUBMITS THAT CHENNAI BENCHE S OF THIS TRIBUNAL IS CONSISTENTLY TAKING THE VIEW THAT ASSES SEE COULD CLAIM DEPRECIATION AS APPLICATION OF INCOME WHILE C OMPUTING ITS ELIGIBLE EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT. ITA NOS.1796 & 1819/MDS//2012 11 9. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE OR DER OF THE LOWER AUTHORITIES. 10. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE DECISION RELIED ON. WE FIND TH AT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE C O- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF COIM BATORE STOCK EXCHANGE LTD. (SUPRA), WHEREIN THE TRIBUNAL H ELD AS UNDER:- 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE SHORT QUESTION IS WHETHER DEPRECIATION COULD BE CLAIMED AS APPLICATION OF INCOME WHILE COMPUTING THE INCOME THAT IS ELIGIBLE FOR EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT. IN ASSESSEE'S OWN CASE, FOR ASSESSMENT YEARS 2005-06 AND 2006-07, THIS TRIBUNAL, VIDE ORDER DATED 8.2.2011, HAD HELD THAT AN ASSESSEE COULD CLAIM DEPRECIATION AS APPLICATION OF INCOME OF FUNDS WHILE COMPUTING ITS ELIGIBLE EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT. THE SAME VIEW HAS BEEN FOLLOWED BY THIS TRIBUNAL IN THE CASE OF SRI RANGANATHAR TRUST IN I.T.A. NO. 1954/MDS/2012 DATED 28.1.2013. RELEVANT PARA 6 OF THIS TRIBUNAL IS REPRODUCED HEREUNDER:- 6. WE HAVE PERUSED THE ORDERS AND HEARD RIVAL CONTENTIONS. NO DOUBT, HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS V .CIT(SUPRA), AFTER CONSIDERING THE DECISION OF HONBLE P&H HIGH COURT IN THE CASE OF M/S.TINY TOTS EDUCATION SOCIETY (SUPRA), WHICH HAD IN TURN FOLLOWED ITS OWN DECISION IN THE CASE OF MARKET COMMITTEE, PIPLI (SUPRA), HAS HELD THAT NOTIONAL CLAIM OF DEPRECIATION ON AN ASSET, THE VALUE OF ITA NOS.1796 & 1819/MDS//2012 12 WHICH WAS CLAIMED AS AN APPLICATION OF INCOME COULD NOT BE ALLOWED WHILE COMPUTING THE INCOME OF A CHARITABLE INSTITUTION. THEIR LORDSHIPS HELD S O, FOR A REASON THAT BY MAKING SUCH AN ALLOWANCE, A CHARITABLE INSTITUTION GOT A PERMISSION TO GENERATE INCOME OUTSIDE THE BOOKS. AS AGAINST THIS, HONBLE P&H HIGH COURT IN THE DECISIONS OF MARKET COMMITTEE, PIPLI(SUPRA) AND OF M/S.TINY TOTS EDUCATION SOCIETY (SUPRA) HAD HELD CLEARLY IN FAVOUR OF THE ASSESSEE THAT DEPRECIATION WAS ALLOWABLE AS UTILIZATION FOR THE PURPOSE OF COMPUTING EXEMPT INCOME UNDER SECTIONS 11 & 12 OF THE ACT. DECISIONS RELIED ON BY THE ASSESSING OFFICER FOR DISALLOWING THE CLAIM OF THE ASSESSEE WERE ALL CONSIDERED BY HONBLE P&H HIGH COURT IN THE ABOVE CASE. IN FACT, THIS ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF G.K.R. CHARITIES VS.DDIT(E) (SUPRA) WHERE IT WAS HELD AS UNDER:- 7 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT TH E TRIBUNAL IN THE ABOVE MENTIONED CASE, WHILE DECIDIN G THE SIMILAR ISSUE, HAS ALLOWED THE CLAIM OF DEPRECI ATION TO THE ASSESSEE BY OBSERVING AS UNDER: 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. FOR THE PURPOSE OF DETERMINING THE INCOME OF A TRUST ELIGIBLE FOR EXEMPTION UNDER SECT ION 11 OF THE ACT, INCOME ARISING FROM PROPERTY HELD UN DER TRUST, CONSTITUTES THE INCOME OF THE TRUST. IT WILL MEAN INCOME FROM PROPERTY, BUSINESS, DIVIDENDS, INTEREST ON SECURITIES OR OTHER INTEREST. IN OTHER WORDS, THE I NCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT IS THE INC OME AS PER THE ACCOUNTS OF THE TRUST. IT MEANS, INCOME IN THE COMMERCIAL SENSE, WITHOUT REFERENCE TO THE HEAD S OF INCOME, SPECIFIED IN SECTION 14 OF THE ACT, I.E. THE BOOK INCOME AND NOT TOTAL INCOME AS DEFINED IN SECTION 2(45) OF THE ACT. THIS POSITION IS CONFIRME D IN CIT V. TRUSTEES OF H.E.H. NIZAMS SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST (1981) 127 ITR 378 (A.P.), CIT V. RAO BAHADUR CALAWALA CUNNAN CHETTY CHARITIES (1982) 135 ITR 485 (MAD.) AND CIT V. ESTATE OF V.L. ETHIRAJ (1982)136 ITR 12 (MAD.). THI S POSITION IS ALSO CONFIRMED BY THE CBDT VIDE ITS CIRCULAR NO.5- P (LXX-6) DATED 19 TH JUNE, 1968. THE CONCEPT OF COMMERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIATION ON ASSETS OF THE TRUST. DEPRECIATION ON ASSETS OF A TRUST IS TO BE DEDUCTED FOR ITA NOS.1796 & 1819/MDS//2012 13 THE PURPOSE OF CALCULATING INCOME OF A TRUST. THIS IS BECAUSE OF THE FACT THAT THE CONCEPT OF COMMERCIAL INCOME NECESSARILY ENVISAGES DEDUCTION OF DEPRECIATION ON ASSETS OF THE TRUST. EVEN REASONABL E DEPRECIATION ON ASSETS AND INTEREST ON SINKING FUND OR REPAIRS RESERVE ARE TO BE DEDUCTED AS HELD BY TH E MUMBAI BENCH OF THIS TRIBUNAL IN BALKAN-JI-BARI (1979) 2 TAXMAN 377(BOM.). HON'BLE BOMBAY HIGH COURT HAD REJECTED A REFERENCE APPLICATION OF THE REVENUE IN THE CASE OF CIT V. FRAMJEE CAWASJEE INSTITUTE (1993) 109 CTR 463, HOLDING THAT THE ANSW ER TO THE QUESTION WHETHER DEPRECIATION WAS ALLOWABLE TO A CHARITABLE TRUST WAS SELF-EVIDENT, EVEN IF THE CA PITAL VALUE OF THE ASSETS ON WHICH DEPRECIATION WAS CLAIMED HAD BEEN ALLOWED AS A DEDUCTION UNDER SECTION 11, AS AN APPLICATION OF INCOME FOR RELIGIO US OR CHARITABLE PURPOSES. ONCE AGAIN IN CIT V. INSTITUTE OF BANKING PERSONNEL SELECTION (IBPS) 264 ITR 110, HON'BLE BOMBAY HIGH COURT HELD THAT DEPRECIATION SHOULD BE ALLOWED EVEN ON ASSETS, THE COST OF WHICH HAD BEEN ALLOWED AS EXEMPT UNDER SECTION 11 IN THE PRECEDING YEARS. THEIR LORDSHIP ALSO HELD THAT DEPRECIATION SHOULD BE ALLOWED EVEN ON ASSETS RECEIVED ON TRANSFER FROM ANOTHER CHARITABLE TRUST ON WHICH NO COST WAS BORNE BY THE ASSESSEE TRUST. OTHER HIGH COURTS WHICH HAVE ALSO TAKEN THE VIEW THAT DEPRECIATION IS DEDUCTIBLE ARE HON'BLE KARNATA KA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF THE SIS TERS OF ST. ANNE (1984) 146 ITR 28 AND HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V. RAJPUR PALLOTTINE SOCIETY (1989) 180 ITR 579. IN CIT V. SE TH MANILAL RANCHHODDAS VISHRAM BHOVAN TRUST (1992) 105 CTR (GUJ) 303 IT WAS HELD BY HON'BLE GUJARAT HIGH COURT THAT DEPRECIATION SHOULD BE ALLOWED WHIL E COMPUTING SUCH INCOME UNDER SECTION 11(I)(A) OF THE ACT. ASSESSING OFFICERS STAND THAT PROVISION OF COMPUTATION OF INCOME UNDER SECTION 11 DOES NOT CONTAIN ANY PROVISION WHICH MAY ENTITLE AN ASSESSEE TO CLAIM WEIGHTED DEDUCTION FOR ANY EXPENSES INCURRED IS NOT ACCEPTABLE AS SECTION 11 PROVIDES THAT THE INCOME OF THE TRUST IS TO BE COMPUTED ON COMMERCIAL BASIS I.E. AS PER NORMAL ACCOUNTING PRINCIPLES. NORMAL ACCOUNTING PRINCIPLES CLEARLY PROVIDE FOR DEDUCTING DEPRECIATION TO ARRIVE AT INC OME. INCOME SO ARRIVED AT (AFTER DEDUCTING DEPRECIATION) IS TO BE APPLIED FOR CHARITABLE PURPOSE. CAPITAL EXPEN SE IS APPLICATION OF THE INCOME SO DETERMINED. SO THER E IS ITA NOS.1796 & 1819/MDS//2012 14 NO DOUBLE DEDUCTION OR DOUBLE CLAIM OF THE SAME AMOUNT AS APPLICATION. THUS DEPRECIATION IS TO BE DEDUCTED TO ARRIVE AT INCOME AND IT IS NOT APPLICAT ION OF INCOME. NO DOUBT, DEPARTMENT HAS RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF ESCORT S LTD. (SUPRA). HOWEVER, IN THIS CASE THE ISSUE BEFOR E HON'BLE SUPREME COURT WAS THAT WHETHER BOTH DEPRECIATION UNDER SECTION 32 AND CAPITAL EXPENDITU RE ON SCIENTIFIC RESEARCH UNDER SECTION 35(1)(IV) CAN BE CLAIMED AS DEDUCTION. REFERENCE TO THIS DECISION CANNOT BE DRAWN AS IN THE CASE OF ESCORTS (SUPRA) BOTH WERE DEDUCTIONS UNDER THE HEAD BUSINESS INCOME WHEREAS IN CASE OF A CHARITABLE TRUST DEPRECIATION IS A DEDUCTION TO ARRIVE AT INCOME AND CAPITAL EXPENDITURE IS APPLICATION OF SUCH INCOME. THE AFORESAID DECISION IN THE CASE OF ESCORTS LTD. CANN OT BE APPLIED TO DETERMINE TAXABLE INCOME FOR A TRUST AS THE PROVISIONS TO DETERMINE TAXABLE INCOME OF THE TRUST ARE TOTALLY DIFFERENT AND NORMAL PROVISIONS F OR COMPUTING INCOME UNDER FIVE HEADS CANNOT BE APPLIED. THUS THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEPRECIATION FOR ALL THESE ASSESSMENT YEARS. THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND T HE A.O. IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION . NO DOUBT, THE DECISION OF HONBLE KERALA HIGH COURT WAS NOT CONSIDERED BY THE CO-ORDINATE BENCH. NEVERTHELESS, AS POINTED OUT BY LD. A.R. AT THE BES T, THE DECISION OF HONBLE KERALA HIGH COURT BRINGS IN A CLEAVAGE OF OPINION ON THE ISSUE WHERE THERE WAS OTHERWISE A UNITY AMONG OTHER HIGH COURTS ON THIS ISSUE. IT IS TRITE LAW WHEN THERE IS A CLEAVAGE OF OPINION ON AN ISSUE BETWEEN VARIOUS HIGH COURTS, TI LL SUCH TIME THE JURISDICTIONAL HIGH COURT HAS TAKEN A N ADVERSE VIEW, THIS TRIBUNAL CAN ELECT TO FOLLOW THE VIEW IN FAVOUR OF THE ASSESSEE. WE ARE OF THE OPINION TH AT LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO CONSIDER THE CLAIM OF DEPRECIATION AS A PART OF UTILIZATION OF THE ASSESSEE. 7. WE ARE, THEREFORE, OF THE VIEW THAT LD. CIT(APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. NO INTERFERENCE IS REQUIRED. ITA NOS.1796 & 1819/MDS//2012 15 11. FOLLOWING THE ABOVE ORDER OF THE CO-ORDINATE BE NCH OF THIS TRIBUNAL, WE ALLOW THE GROUNDS OF APPEAL OF TH E ASSESSEE ON THIS ISSUE. 12. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONSI DERING CORPUS DONATIONS RECEIVED BY THE ASSESSEE AT ` 95,00,000/- WHEN IN FACT ASSESSEE HAD RECEIVED CORPUS DONATIONS OF ` 1,77,70,000/-. 13. THE ASSESSING OFFICER WHILE COMPLETING THE ASSE SSMENT ASSESSED THE INCOME OF THE ASSESSEE INCLUDING THE C ORPUS DONATIONS OF ` 1,77,70,000/- RECEIVED BY THE ASSESSEE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) DI RECTED THE ASSESSING OFFICER TO EXCLUDE ` 95,00,000/- REPRESENTING CORPUS DONATIONS RECEIVED FOR SPECIFIC PURPOSE OF BUILDING CONSTRUCTION FROM M/S. RVS. EDUCATIONAL TRUST, POND ICHERRY AND TO CONSIDER BALANCE CORPUS DONATIONS OF ` 82,70,000/- RECEIVED WITHOUT SPECIFIC DIRECTIONS/PURPOSE AS IN COME OF THE ASSESSEE. ITA NOS.1796 & 1819/MDS//2012 16 14. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE A SSESSEE HAD RECEIVED ` 1,77,70,000/- AS CORPUS DONATIONS AND THE CORPUS DONATIONS SHALL NOT BE INCLUDED IN TOTAL INC OME AS PER THE PROVISIONS OF SECTION 11(1)(D) OF THE ACT. 15. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDER OF THE LOWER AUTHORITIES. 16. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES . THE ASSESSING OFFICER IN THE ASSESSME NT ORDER STATED THAT THE ASSESSEE HAS RECEIVED CORPUS DONATI ON OF ` 1,70,70,000/- AND THIS WAS ADDED TO CAPITAL FUND D IRECTLY WITHOUT CONSIDERING AS INCOME, THEREFORE HE TREATED THIS SUM AS INCOME OF THE ASSESSEE. THE COMMISSIONER OF INC OME TAX (APPEALS) IN HIS ORDER COMPUTED THE INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL AND WHILE DOING SO, HE HAS CONSIDERED ` 95,00,000/- ONLY AS CORPUS DONATIONS FOR THE REASON THAT ` 95,00,000/- WAS DONATED FOR SPECIFIC PURPOSE OF CONSTRUCTION OF BUILDING BY M/S. RVS EDUCATIONAL TR UST, PONDICHERRY. THE COMMISSIONER OF INCOME TAX (APPEAL S) DID ITA NOS.1796 & 1819/MDS//2012 17 NOT CONSIDER ` 82,70,000/- AS CORPUS DONATIONS OBSERVING THAT THESE CORPUS DONATIONS ARE NOT FOR SPECIFIC DIRECTIONS/PURPOSE AND THEREFORE INCLUDED ` 82,70,000/- AS INCOME OF THE ASSESSEE. 17. ON A PLAIN READING OF THE PROVISIONS OF SECTION 11(1)(D) OF THE ACT, IT IS CLEAR THAT THE INCOME IN THE F ORM OF VOLUNTARY CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT T HEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION , SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR. ON READING OF THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THERE APPEARS TO BE NO DISPUTE THAT THE DONATIONS RECEIVED ARE NOT CORP US DONATIONS. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) WAS OF THE VIEW THAT SINCE ` 82,70,000/- OUT OF CORPUS DONATIONS THERE IS NO SPECIFIC DIRECTIONS/PU RPOSES FOR WHICH IT HAS TO BE USED HE HAS CONSTRUED THAT IT SH OULD FORM PART OF INCOME THOUGH THEY ARE CORPUS DONATIONS. TH IS FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) APPEAR S TO BE NOT CORRECT. SECTION 11(1)(D) STIPULATES THAT VOLU NTARY CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT I T SHALL FORM ITA NOS.1796 & 1819/MDS//2012 18 PART OF CORPUS OF TRUST SHOULD NOT BE TREATED AS IN COME OF THE PREVIOUS YEAR. THE PROVISION DID NOT SAY THAT THE PURPOSE FOR WHICH SUCH DONATION IS GIVEN SHOULD BE SPECIFIED. T HE REQUIREMENT OF THE SECTION WILL BE SATISFIED ONCE THE DONATION IS SPECIFIC FOR CORPUS FUND. IN THE CIRCUMSTANCES, WE HOLD THAT THE ENTIRE CORPUS DONATIONS OF ` 1,77,70,000/- RECEIVED BY THE ASSESSEE SHALL NOT FORM PART OF INCOME OF THE ASSES SEE AS THEY ARE GIVEN FOR CORPUS FUND. THE GROUNDS OF APP EAL RAISED BY THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THAT OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 20 TH DAY OF DECEMBER, 2013 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY ) (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI. DATED THE 20 TH DECEMBER, 2013. SOMU COPY TO: (1) ASSESSEE (4) CIT(A) (2) ASSESSING OFFICER (5) D.R (3) CIT (6 ) G.F.