Sri Ranganathar Trust, CHENNAI V. ITO, Coimbatore

ITA 1832/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8244 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 17-06-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Cost of acquisition; Scheme of amalgamation; Capital expenditure
• Section: 12A; 32; 63

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU R L REDDY , JUDICIAL MEMBER I T.A. NO S . 1 832 AND 1833 /MDS/201 6 A SSESSMENT YEAR :20 1 0 - 1 1 AND 2011 - 12 M/S. SRI RANGANATHAR TRUST, 12/45, THADAGAM ROAD, EDAYARPALAYAM, COIMBATORE 641 025. [PAN: AA GTS9410E ] VS. THE INCOME TAX OFFICER , COMPANY WARD I, C OIMBA TORE . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S. SRIDHAR , ADVOCATE / RESPONDENT BY : SHRI SUPRIYO PAL , J CIT / DATE OF HEARING : 08 . 0 9 .201 6 / DATE OF P RONOUNCEMENT : 26 . 1 0 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : BOTH THE APPEAL S FILED BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDER S OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS ) 2 , C OIMBATORE , BOTH DATED 3 0 . 0 3 .20 1 6 RELE VANT TO THE ASSESSMENT YEAR 20 1 0 - 1 1 AND 2011 - 12 . THE ONLY EFFECTIVE GROUND RAISED IN BOTH THE APPEAL S OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION CLAIMED AS APPLICATION OF INCOME . I.T.A. NO S . 1832 & 1833/M/16 2 I.T.A. NO. 1832/MDS /2016 [A.Y. 2010 - 11] 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRUST REGISTERED UNDER SECTION 12A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] AND FILED ITS RETURN OF INCOME DECLARING NIL INCOME. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUT INY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 23.09.2011. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER HAS OBSERVED THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS DEDUCTED DEPRECIATION ON ASSETS AMOUNTING TO .63,39, 795/ - FROM THE GROSS RECEIPTS, CLAIMING IT AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE DEPRECIATION CANNOT BE CLAIMED AS APPLICATION OF INCOME SINCE THE FULL VALUE OF THE ASSET WAS ALREADY CLAIMED AS APPLICATION OF INCOME IN THE YEAR OF PURCHASE OF THE ASSETS AND THEREFORE, THE DEDUCTION OF DEPRECIATION CLAIMED AGAINST GROSS RECEIPTS AMOUNTS TO DOUBLE DEDUCTION AND THEREFORE NOT ALLOWABLE. HE FURTHER HELD THAT THE DEPRECIATION AMOUNT, BEING NON - CASH EX PENSES , THERE IS NO OUTGOING OF CASH AND THAT REMAINS WITH THE TRUST ITSELF AND THEREFORE, CANNOT BE CONSIDERED TO HAVE BEEN EXPENDED TOWARDS CHARITABLE PURPOSES. ON THESE REASONING, THE ASSESSING OFFICER REJECTED THE CLAIM OF TREATING DEPRECIATION AS APPL ICATION OF INCOME AND WENT AHEAD TO CONSIDER WHETHER, AFTER EXCLUDING DEPRECIATION, NOT LESS THAN 85% OF THE GROSS RECEIPTS HAVE BEEN APPLIED FOR CHARITABLE PURPOSES FOR EXEMPTING WHOLE OF THE INCOME UNDER SECTION 11 OF THE ACT. SINCE THE ASSESSEE SATISFY THE ABOVE CONDITION AND BY I.T.A. NO S . 1832 & 1833/M/16 3 FOLLOWING THE RATIO LAID DOWN BY THE HON BLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS V. CIT 348 ITR 344 , THE ASSESSING OFFICER HAS ASSESSED THE INCOME AT NIL AND COMPLETED THE ASSESSMENT . 3. THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) FOR BOTH THE ASSESSMENT YEARS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO BY CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENT, THE LD. CIT(A) HAS HELD THAT THE DEPRECIATION WAS NOT ALLOWABLE SINCE THE COST OF ASSET WAS ALREADY ALLOWED AS DEDUCTION TOWARDS APPLICATION OF INCOME AND DISMISSED THE APPEAL FILED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL FOR BOTH THE ASSESSMENT YEARS. WHILE REITERATING THE GROUNDS RAISED BY THE ASSESSEE, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THERE WAS NO DOUBLE CLAIM FO DEDUCTION IN THE PROCESS OF CHARGING THE DEPRIVATION AND OUGHT TO HAVE APPRECIATED THAT THE INCOME FOR THE PURPOSE OF TAX EXEMPTION COMPUTATION UNDER SECTION 11 OF THE ACT SHOULD BE ARRIVED AT ON COMMERCIAL PRINCIPLES AND PLEADED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. 5. PER CONTRA, BY RELYING ON THE DECISION OF THE COORDINATE BENCH OF TH E TRIBUNAL IN THE CASE S OF TAMIL NADU CRICKET ASSOCIATION V. DDIT(E) [2015] 60 TAXMANN.COM 287 (CHENNAI - TRIB) AND DDIT(E) V. VELS INSTITUTE OF SCIENCE, I.T.A. NO S . 1832 & 1833/M/16 4 TECHNOLOGY & ADVANCED STUDIES [2015] 64 TAXMANN.COM 46 (CHENNAI - TRIB) , THE LD. DR HAS SUBMITTED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE CONFIRMED. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ISSUE RAISED BY THE ASSESSEE IS WITH REGARD TO ALLOWANCE OF DEPRECIATION CLAIMED ON ASSETS AS INCOME APPLIED FOR CHARITABLE PURPOSES BOTH UNDER SECTION 11 AND SECTION 32 OF THE ACT . IN THE ASSESSMENT ORDER, BY RELYING ON THE DECISION IN THE CASE OF HINDUSTAN TRUST 201 ITR 564, WHEREIN THE HON BLE CALCUTTA HIGH COURT HAS HELD THAT THE INCOME FROM P ROPERTY HELD BY THE TRUST HAS TO BE ARRIVED AT IN A NORMAL COMMERCIAL MANNER AND THERE IS NO SCOPE FOR COMPUTING THE INCOME FROM PROPERTY BY COMPLYING WITH THE PROVISIONS OF SECTION 14 OF THE ACT, THE ASSESSING OFFICER HAS OBSERVED THAT THE COMPUTATION OF THE INCOME OF A REGISTERED CHARITABLE/RELIGIOUS TRUST IS GOVERNED BY THE PROVISIONS CONTAINED IN SECTION 11 TO 13 OF THE ACT AND IT IS A SELF - CONTAINED CODE AND OTHER PROVISIONS OF COMPUTATION DO NOT COME INTO OPERATION IN COMPUTING THE INCOME OF SUCH TRUS T. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE PROVISIONS OF SECTION 11 ARE DISTINCT FROM THAT OF SECTION 14 OF THE ACT. THE DEDUCTIONS OR ALLOWANCES THAT ARE PROVIDED IN CHAPTER IV [I.E., SECTION 14 TO 59] CANNOT BE APPLIED FOR DETERMINING THE INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT. MOREOVER, THE PROVISION OF DEPRECIATION UNDER SECTION 32 OF THE I.T.A. NO S . 1832 & 1833/M/16 5 ACT IS A SPECIALLY PERMITTED ALLOWANCE WHILE COMPUTING THE INCOME UNDER THE HEAD BUSINESS OR PROFESSION BECAUSE IN SUCH A SITUATION THE CAPITAL EXPE NDITURE CANNOT BE ALLOWED AS DEDUCTION. UNDER THE PROVISIONS OF SECTION 11 OF THE ACT, THE ACTUAL EXPENDITURE ALONE IS TO BE CONSIDERED AS APPLICATION AND NOT THE NOTIONAL EXPENDITURE/ALLOWANCES LIKE DEPRECIATION. FURTHER HE OBSERVED THAT THE DEPRECIATION AMOUNT, WHICH IS NOT A CASH EXPENSE, REMAINS WITH THE TRUST ITSELF AND HENCE NOT UTILIZED FOR THE CHARITABLE PURPOSES OF THE TRUST. THIS IS BORNE BY THE A CT THAT THE ASSESSEE TRUST, FOR THAT MATTER MAJORITY OF THE TRUSTS, CLAIM EXCESS APPLICATION FOR MANY YEARS MEANING THEREBY THE TRUSTS ARE SPENDING THE CASH AVAILABLE WITH THEM IN THE FORM OF DEPRECIATION, WHICH IS NOT EXPLICIT IN THE STATEMENT OF ACCOUNTS. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER HELD THAT THE COST OF ACQUISITION OF ASSET IS FULLY ALLO WED AS APPLICATION, THE CLAIM OF DEPRECIATION AMOUNTS TO DOUBLE DEDUCTION AND THE DOUBLE DEDUCTION CANNOT BE CLAIMED UNLESS AND OTHERWISE IT WAS EXPRESSLY AND SPECIFICALLY PROVIDED FOR IN THE ACT. ONCE 100% DEDUCTION OF COST OF ACQUISITION OF ASSET FROM TH E INCOME OF THE TRUST IS CLAIMED, THEN THE COST OF ASSET BECOMES NIL AND HENCE NO DEPRECIATION CAN BE CALCULATED ON THE 100% DEPRECIATED ASSET. THEREFORE, THE CLAIM OF DEPRECIATION WAS REJECTED. 7. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND B Y FOLLOWING VARIOUS CASE LAW INCLUDING THE DECISIONS IN THE CASE OF TAMIL NADU CRICKET I.T.A. NO S . 1832 & 1833/M/16 6 ASSOCIATION V. DDIT(E) (SUPRA) AND DDIT(E) V. VELS INSTITUTE OF SCIENCE, TECHNOLOGY & ADVANCED STUDIES (SUPRA), THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFIC ER. WE HAVE CAREFULLY PERUSED THE DECISIONS OF THE COORDINATE BENCH, WHEREIN IN BOTH THE CASES THE LD. ACCOUNTANT MEMBER WAS PARTY TO THE ABOVE ORDERS OF THE BENCH, IN WHICH , BY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF TAMIL NADU CRICK ET ASSOCIATION V. DDIT(E) (SUPRA), IN THE CASE OF DDIT(E) V. VELS INSTITUTE OF SCIENCE, TECHNOLOGY & ADVANCED STUDIES (SUPRA), THE TRIBUNAL HAS HELD AS UNDER: 10. THE ASSESSEE HAS FILED THE CROSS - OBJECTION CLAIMING DEPRECIATION TO THE EXTENT OF . 5,25,30,554/ - . 11. ADMITTEDLY, THE ASSESSEE - TRUST IS REGISTERED AS CHARITABLE INSTITUTION AND IT IS CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT. THE CLAIM OF THE ASSESSEE UNDER SECTION 11 OF THE ACT IS ALLOWED BY THE CIT(APPEALS) WHICH WAS CONFIRMED BY THIS TRIBUNAL IN THE EARLIER PART OF THIS ORDER. IT IS NOT THE CASE OF THE ASSESSEE THAT IT IS NOT DOING ANY BUSINESS. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE IS NOT ENTITLED FOR ANY DEPRECIATION UNDER SECTION 32 OF TH E ACT. IN FACT, THIS BENCH OF THE TRIBUNAL IN THE CASE OF TAMIL NADU CRICKET ASSOCIATION V. DDIT(EXEMPTIONS)[2015] 60 TAXMANN.COM 287 (CHENNAI TRIB) HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE. THIS TRIBUNAL, VIDE ITS ORDER DATED 14TH AUGUST, 2015 I N I.T.A. NOS.1535 TO 1537/MDS/2014, RECORDED ITS FINDING WHICH IS AS FOLLOWS: 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. LET S FIRST TAKE ASSESSMENT YEAR 2008 - 09. THE ASSESSEE IS CLAIMING DEPRECIATION UNDER SECTION 32 OF THE ACT. FOR THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING SECTION 32 HEREUNDER: - 32 (1) IN RESPECT OF DEPRECIATION OF - (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE BEING TANGIBLE ASSETS; I.T.A. NO S . 1832 & 1833/M/16 7 (II) KNOW - HOW, PATENTS, COPYRIG HTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998,OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED - (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED. (II) IN T HE CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED: PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED UNDER THIS CLAUSE IN RESPECT OF -- (A) ANY MOTOR CAR MANUFACTURED OUTSIDE INDIA, WHERE SUCH MOTOR CAR IS ACQ U IRED BY THE ASSESSEE AFTER THE 28TH DAY OF FEBRUARY, 1975 5BUT BEFORE THE 1ST DAY OF APRIL, 2001, UNLESS IT IS USED -- (I) IN A BUSINESS OF RUNNING IT ON HIRE FOR TOURISTS; OR(II) OUTSIDE INDIA IN HIS BUSINESS OR PROFESSION IN ANOTHER COUNTRY ; AND(B) ANY MA CHINERY OR PLANT IF THE ACTUAL COST THEREOF IS ALLOWED AS A DEDUCTION IN ONE OR MORE YEARS UNDER AN AGREEMENT ENTERED INTO BY THE CENTRAL GOVERNMENT UNDER SECTION 42: PROVIDED FURTHER THAT WHERE ANY ASSET REFERRED TO IN CLAUSE (I) 6OR CLAUSE (II) OR CLAUS E (IIA), AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB - SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO FIFTY PER CENT. OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE: PROVIDED ALSO THAT WHERE AN ASSET BEING COMMERCIAL VEH ICLE IS ACQUIRED BY THE ASSESSEE ON OR AFTER THE 1ST DAY OF OCTOBER, 1998, BUT BEFORE THE 1ST DAY OF APRIL, 1999, AND IS PUT TO USE BEFORE THE 1ST DAY OF APRIL, 1999, FOR THE PURPOSES OF BUSINESS OR PROFESSION, THE DEDUCTION IN RESPECT OF SUCH ASSET SHALL BE ALLOWED ON SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. I.T.A. NO S . 1832 & 1833/M/16 8 EXPLANATION FOR THE PURPOSES OF THIS PROVISO, - (A) THE EXPRESSION 'COMMERCIAL VEHICLE' MEANS 'HEAVY GOODS VEHICLE', 'HEAVY PASSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHIC LE', 'MEDIUM GOODS VEHICLE' AND 'MEDIUM PASSENGER MOTOR VEHICLE' BUT DOES NOT INCLUDE 'MAXI CAB', 'MOTOR - CAB', 'TRACTOR' AND 'ROAD - ROLLER' ; (B) THE EXPRESSIONS 'HEAVY GOODS VEHICLE', 'HEAVY PASSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHICLE', 'MEDIUM GOODS V EHICLE', 'MEDIUM PASSENGER MOTOR VEHICLE', 'MAXI - CAB', 'MOTOR - CAB', 'TRACTOR' AND 'ROAD - ROLLER' SHALL HAVE THE MEANINGS RESPECTIVELY AS ASSIGNED TO THEM IN SECTION 2 OF THE MOTOR VEHICLES ACT, 1988 (59 OF 1988). PROVIDED ALSO THAT, IN RESPECT OF THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1991, THE DEDUCTION IN RELATION TO ANY BLOCK OF ASSETS UNDER THIS CLAUSE SHALL, IN THE CASE OF A COMPANY, BE RESTRICTED TO SEVENTY - FIVE PER CENT.OF THE AMOUNT CALCULATED AT THE PE RCENTAGE, ON THE WRITTEN DOWN VALUE OF SUCH ASSETS, PRESCRIBED UNDER THIS ACT IMMEDIATELY BEFORE THE COMMENCEMENT OF THE TAXATION LAWS (AMENDMENT) ACT, 1991. PROVIDED ALSO THAT THE AGGREGATE DEDUCTION, IN RESPECT OF DEPRECIATION OF BUILDINGS, MACHINERY, P LANT OR FURNITURE, BEING TANGIBLE ASSETS OR KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ALLOWABLE TO THE PREDECESSOR AND THE SUCCESSOR IN THE CASE OF SUCCESSION REFERRED TO IN CLAUSE (XIII), CLAUSE (XIIIB) AND CLAUSE (XIV) OF SECTION 47 OR SECTION 170 OR TO THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY IN THE CASE OF AMALGAMATION, OR TO THE DEMERGED COMPANY AND THE RESULTING COMPANY IN THE CASE O F DEMERGER, AS THE CASE MAY BE, SHALL NOT EXCEED IN ANY PREVIOUS YEAR THE DEDUCTION CALCULATED AT THE PRESCRIBED RATES AS IF THE SUCCESSION OR THE AMALGAMATION OR THE DEMERGER, AS THE CASE MAY BE, HAD NOT TAKEN PLACE, AND SUCH DEDUCTION SHALL BE APPORTIONE D BETWEEN THE PREDECESSOR AND THE SUCCESSOR, OR THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY, OR THE DEMERGED COMPANY AND THE RESULTING COMPANY, AS THE CASE MAY BE, IN THE RATIO OF THE NUMBER OF DAYS FOR WHICH THE ASSETS WERE USED BY THEM. I.T.A. NO S . 1832 & 1833/M/16 9 EXPLANA TION 1. WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK, IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTU RE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. EXPLANATION 2. FOR THE PURPOSES OF THIS SUB - SECTION 'WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS' SHALL HAVE THE SAME MEANING AS IN CLAUSE (C) OF SUB - SECTION (6) OF SECTION 43; EXPLANATION 3. FOR THE PURP OSES OF THIS SUB - SECTION, 10THE EXPRESSIONS 'ASSETS' SHALL MEAN - (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE ; (B) INTANGIBLE ASSETS, BEING KNOW - HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. EXPLANATION 4. FOR THE PURPOSES OF THIS SUB - SECTION, THE EXPRESSION 'KNOW - HOW' MEANS ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL - WELL OR OTHER SOURCES OF MINERAL DEPOSITS (INCLUDING SEARCHING FOR DISCOVERY OR TESTING OF DEPOSITS FOR THE WINNING OF ACCESS THERETO) ; EXPLANATION 5. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE PROVISIONS OF THIS SUB - SECTION SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCOME ; (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT. OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II) : I.T.A. NO S . 1832 & 1833/M/16 10 PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF - (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON ; OR(B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESID ENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST - HOUSE ; OR(C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES ; OR(D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECI ATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR ; (III) IN THE CASE OF ANY BUILDING, MACHINERY, PLANT OR FURNITURE IN RESPECT OF WHICH DEPRECIATION IS CLAIMED AND ALLOWED UNDER CLAUSE (I) AND WHICH IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED IN THE PREVIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHICH IT IS FIRST BROUGHT INTO USE), THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF SUCH BUILDING, MACHINERY, PLANT OR FURNITURE, TOGETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY, FALL SHORT OF THE WRITTEN DOWN VALUE THEREOF : PROVIDED THAT SUCH DEFICIENCY IS ACTUALLY WRITTEN OFF IN THE BOOKS OF THE ASSESSEE. EXPLANATION F OR THE PURPOSES OF THIS CLAUSE, - (1) 'MONEYS PAYABLE' IN RESPECT OF ANY BUILDING, MACHINERY, PLANT OR FURNITURE INCLUDES (A) ANY INSURANCE, SALVAGE OR COMPENSATION MONEYS PAYABLE IN RESPECT THEREOF ; (B) WHERE THE BUILDING, MACHINERY, PLANT OR FURNITURE IS SOLD, THE PRICE FOR WHICH IT IS SOLD, SO, HOWEVER, THAT WHERE THE ACTUAL COST OF A MOTOR CAR IS, IN ACCORDANCE WITH THE PROVISO TO CLAUSE (1) OF SECTION 43, TAKEN TO BE TWENTY - FIVE THOUSAND RUPEES, THE MONEYS PAYABLE IN RESPECT OF SUCH MOTOR CAR SHALL BE TAKEN TO BE A SUM WHICH BEARS TO THE AMOUNT FOR WHICH THE MOTOR CAR IS SOLD OR, AS THE CASE MAY BE, THE AMOUNT OF ANY INSURANCE, SALVAGE OR COMPENSATION MONEYS PAYABLE IN RESPECT THEREOF (INCLUDING THE AMOUNT OF SCRAP VALUE, IF ANY) THE SAME PROPORTION AS THE AMOUNT OF TWENTY - FIVE THOUSAND RUPEES B EARS TO THE ACTUAL COST I.T.A. NO S . 1832 & 1833/M/16 11 OF THE MOTOR CAR TO THE ASSESSEE AS IT WOULD HAVE BEEN COMPUTED BEFORE APPLYING THE SAID PROVISO ; (2) 'SOLD' INCLUDES A TRANSFER BY WAY OF EXCHANGE OR A COMPULSORY ACQUISITION UNDER ANY LAW FOR THE TIME BEING IN FORCE BUT DOES NOT INCLUDE A TRANSFER, IN A SCHEME OF AMALGAMATION, OF ANY ASSET BY THE AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY WHERE THE AMALGAMATED COMPANY IS 8AN INDIAN COMPANY OR IN A SCHEME OF AMALGAMATION OF A BANKING COMPANY, AS REFERRED TO IN CLAUSE (C) OF S ECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949), WITH A BANKING INSTITUTION AS REFERRED TO IN SUB - SECTION (15) OF SECTION 45 OF THE SAID ACT, SANCTIONED AND BROUGHT INTO FORCE BY THE CENTRAL GOVERNMENT UNDER SUB - SECTION (7) OF SECTION 45 OF THAT ACT, OF ANY ASSET BY THE BANKING COMPANY TO THE BANKING INSTITUTION. (2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB - SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB - SECTION (2) OF SECTION 72 AND SUB - SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFE CT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. IN VIEW OF SECTION 32 OF THE ACT, DEPRECIATION HAS TO BE ALLOWED ONLY IN RESPECT OF AN ASSET OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. IN THIS CASE, IT IS NOT A CASE OF THE ASSESSEE THAT THEY ARE NOT DOING ANY BUSINESS OR PROFESSION. THE ASSESSEE IS CATEGORICALLY MAKING A STATEMENT THAT THEY ARE CHARITABLE ORGANIZATION ENGAGED ITSELF IN PUBLIC UTILITY SERVICE. ONCE THE ASSESSEE CLAIMS THAT IT IS A CHARITABLE ORGANIZATION AND NOT ENGAGED IN BUSINESS OR PROFESSION, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE PROVISIONS OF SECTION 32 HAVE NO APPLICATION AT ALL. THE PROVISIONS OF SECTION 32 IN FACT WERE NOT BROUGHT TO THE NOTICE OF THIS TR IBUNAL WHILE DECIDING THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 AND ALSO THE DECISION OF SRI MARIAMMAN EDUCATIONAL HEALTH AND CHARITABLE TRUST (SUPRA). IN FACT, THIS TRIBUNAL EXAMINED THE ISSUE ELABORATELY IN I.T.A. NO S . 1832 & 1833/M/16 12 THE ANJUMAN - E - HIMAYATH - E - ISLAM V. AD IT IN I.T.A. NO.2271/MDS/ 2014 BY ORDER DATED 2ND JULY, 2015 AND FOUND THAT WHEN THE ASSESSEE IS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT, IT IS NOT ELIGIBLE FOR DEPRECIATION UNDER SECTION 32 OF THE ACT. FOR THE PURPOSE OF CONVENIENCE, WE ARE RE PRODUCING THE DECISION TAKEN BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ANJUMAN - E - HIMAYATH - E - ISLAM (SUPRA): - 5.2 WE FIND THIS ISSUE IS ELABORATELY DISCUSSED IN THE CASE OF LISSIE MEDICAL INSTITUTION VS. CIT REPORTED IN [2012] 348 ITR 344(KER.)A ND HELD THE ISSUE AGAINST THE ASSESSEE. WHILE DOING SO, THE HON BLE KERALA HIGH COURT HAD CONSIDERED THE CIRCULAR NO.5P(LLX - 6) DATED 19.06.1968 WHICH HAS NOT BEEN CONSIDERED BY THE OTHER DECISIONS. THE CIRCULAR NO. 5P(LLX - 6) IS REPRODUCED HEREIN BELOW FOR REFERENCE: - 1. CIRCULAR NO. 5 - P (LXX - 6) OF 1968, DATED 19 - 6 - 1968. SUBJECT : SECTION 11 CHARITABLE TRUSTS INCOME REQUIRED TO BE APPLIED FOR CHARITABLE PURPOSE INSTRUCTIONS REGARDING. IN BOARD'S CIRCULAR NO. 2 - P(LXX - 5) OF 1963, DATED THE 15TH MAY, 1963, IT WAS EXPLAINED THAT A RELIGIOUS OR CHARITABLE TRUST CLAIMING EXEMPTION UNDER SECTION 11(1) OF THE INCOME - TAX ACT, 1961, MUST SPEND AT LEAST 75 PER CENT OF ITS TOTAL INCOME, FOR RELIGIOUS OR CHARITABLE PURPOSES. IN OTHER WORDS, IT WAS NOT PERMITTED TO ACCU MULATE MORE THAN 25 PER CENT OF ITS TOTAL INCOME. THE QUESTION HAS BEEN RECONSIDERED BY THE BOARD AND THE CORRECT LEGAL POSITION IS EXPLAINED BELOW. 2. SECTION 11(1) PROVIDES THAT SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63 'THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR . . . '. THE REFERENCE IN SUB - SECTION (A) IS INVARIABLY TO 'INCOME' AND NOT TO 'TOTAL INCOME'. THE EXPRESSION 'TOTAL INCOME' HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(45) OF THE ACT AS 'THE TOTAL AM OUNT OF INCOME . . . COMPUTED IN THE MANNER LAID DOWN IN THIS ACT'. IT WOULD ACCORDINGLY BE INCORRECT TO ASSIGN TO THE WORD 'INCOME' USED IN SECTION 11(1)(A), THE SAME MEANING AS HAS BEEN SPECIFICALLY ASSIGNED TO THE EXPRESSION 'TOTAL INCOME' VIDE SECTION 2(45). 3. IN THE CASE OF A BUSINESS UNDERTAKING HELD UNDER TRUST, ITS 'INCOME' WILL BE THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDERTAKING. UNDER SECTION 11(4), ANY INCOME OF THE BUSINESS UNDERTAKING DETERMINED BY THE INCOME - TAX OFFICER IN ACCORDANCE I.T.A. NO S . 1832 & 1833/M/16 13 W ITH THE PROVISIONS OF THE ACT, WHICH IS IN EXCESS OF THE INCOME AS SHOWN IN ITS ACCOUNTS, IS TO BE DEEMED TO HAVE BEEN APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS, AND HENCE IT WILL BE CHARGED TO TAX UNDER SUB - SECTION (3). AS ONLY THE INCOME DIS CLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11(1), THE PERMITTED ACCUMULATION OF 25 PER CENT WILL ALSO BE CALCULATED WITH REFERENCE TO THIS INCOME. 4. WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPERTY, INTEREST ON SECURITIES, CAPIT AL GAINS, OR OTHER SOURCES, THE WORD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATIONS THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBIT S MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDED BACK WILL BECOME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PUR POSES OTHER THAN THOSE OF THE TRUST. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TRUST FROM OUT OF THE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LESS THAN 75 PER CENT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMP TION UNDER SECTION 11(1). 5. TO SUM UP, THE BUSINESS INCOME OF THE TRUST AS DISCLOSED BY THE ACCOUNTS PLUS ITS OTHER INCOME COMPUTED ABOVE, WILL BE THE 'INCOME' OF THE TRUST FOR PURPOSES OF SECTION 11(1). FURTHER, THE TRUST MUST SPEND AT LEAST 75 PER CENT OF THIS INCOME AND NOT ACCUMULATE MORE THAN 25 PER CENT THEREOF. THE EXCESS ACCUMULATION, IF ANY, WILL BECOME TAXABLE UNDER SECTION 11(1). AFTER CONSIDERING THE CIRCULAR, THE HON BLE KERALA HIGH COURT HELD AS FOLLOWS: - HELD, THAT AFTER WRITING OFF THE FULL VALUE OF THE CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND WHEN THE ASSESSEE AGAIN CLAIMED THE SAME AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL CLAIM BECAME A CASH SURPLUS AVAILABLE WITH THE AS SESSEE, WHICH WAS OUTSIDE THE BOOKS OF ACCOUNT OF THE TRUST UNLESS IT WAS WRITTEN BACK WHICH WAS NOT DONE BY THE ASSESSEE. IT WAS NOT PERMISSIBLE FOR A CHARITABLE INSTITUTION TO GENERATE INCOME OUTSIDE THE BOOKS IN THIS FASHION AND THERE WOULD BE VIOLATION OF SECTION 11(1)(A). IT WAS FOR THE ASSESSEE TO WRITE BACK THE DEPRECIATION AND IF THAT I.T.A. NO S . 1832 & 1833/M/16 14 WAS DONE, THE ASSESSING OFFICER WOULD MODIFY THE ASSESSMENT DETERMINING HIGHER INCOME AND ALLOW RECOMPUTED INCOME WITH THE DEPRECIATION WRITTEN BACK BY THE ASSESSEE TO BE CARRIED FORWARD FOR SUBSEQUENT YEARS FOR APPLICATION FOR CHARITABLE PURPOSES. FURTHER HON BLE CALCUTTA HIGH COURT HAS HELD IN THE CASE DCIT VS. GIRDHARILAL SHEWNARAINTANTIA TRUST REPORTED IN [1993] 199 ITR 15(CAL.) THAT THE INCOME CONTEMPLATED BY THE PROVISIONS OF SECTION 11 IS THE REAL INCOME AND NOT THE INCOME AS ASSESSED OR ASSESSABLE. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE KERALA HIGH COURT AND TAKING CUE FROM THE DECISION OF THE HON BLE CALCUTTA HIGH COURT, WE DO NOT FIND ANY HES ITATION TO CONFIRM THE ORDER OF THE LD. CIT(A) AND ALSO THE VIEWS EXPRESSED BY HIM IN HIS ORDER. ACCORDINGLY THIS APPEAL IS HELD IN FAVOUR OF THE REVENUE. 12. APART FROM THAT, WHEN THE ASSESSEE CLAIMS THE COST OF THE CAPITAL EXPENDITURE AS EXEMPTION UND ER SECTION 11 OF THE ACT, THEN THE COST OF THE CAPITAL ASSET BECOMES NIL. ADMITTEDLY, DEPRECIATION UNDER SECTION 32 OF THE ACT HAS TO BE ALLOWED ONLY ON WRITTEN DOWN VALUE OF THE ASSET. WHEN THE WRITTEN DOWN VALUE OF THE ASSET BECOMES NIL SINCE THE ENTIR E COST WAS ALLOWED AS APPLICATION OF INCOME UNDER SECTION 11 OF THE ACT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE CANNOT BE ANY FURTHER CLAIM FOR DEDUCTION UNDER SECTION 32 OF THE ACT. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 32 OF THE ACT TOWARDS DEPRECIATION. HOWEVER, IT IS MADE CLEAR THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. 12. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION. 8. IN VIEW OF THE ABOVE CONCURRENT FINDINGS OF THE TRIBUNAL THAT WHERE THE ASSESSEE TRUST WAS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT, IT WAS NOT ENTITLED TO CLAIM FOR DEPRECIATION UNDER SECTION 32 OF THE ACT, WHICH WAS FOLLOWED BY THE LD. CIT(A) AND NOT CONTROVERTED BY THE LD. COUNSEL FOR THE I.T.A. NO S . 1832 & 1833/M/16 15 ASSESSEE OR FILED ANY HIGHER COURT S DECISION HAVING MODIFIED OR REVERTED , WE FI ND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. THUS, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 9. O N SIMILAR FACTS AND CIRCUMSTANCES, THE ASSESSEE HAS ALSO RAISED AN IDENTICAL ISSUE FOR THE ASSESSMENT YEAR 2011 - 1 2 IN I.T.A. NO. 1833/MDS/2016. BY FOLLOWING THE ABOVE DECISION FOR THE ASSESSMENT YEAR 2010 - 11, THE GROUND RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2011 - 12 IS ALSO DISMISSED. 10 . IN THE RESULT, BOTH THE APPEAL S FILED BY THE ASSESSEE ARE DISMISSED . ORDER PRONOUNCED ON THE 26 TH OCTOBER , 2016 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 26. 1 0 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.