ADIT (E), New Delhi V. Fortune Society for Development and Promotion of International Business, New Delhi

ITA 2698/DEL/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4449 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 01-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Income from undisclosed sources; Charitable institution; Maximum Marginal Rate; Rule of consistency; Question of law; Condonation of delay; Revised return; Capital expenditure
• Section: 139(5); 32; 148; 12; 2; 11; 15; 139

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI I.C.SUDHIR , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 2698/DEL/2012 (ASSESSMENT YEAR: 2007 - 08 ) ADIT(E), TC - II, NEW DELHI VS. FORTUNE SOCIETY FOR DEVELOPMENT AND PROMOTION OF INTERNATIONAL BUSINESS, G - 4, COMMUNITY CENTRE, NARAINA VIHAR, NEW DELHI PAN:AAATF0849L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANSHU PRAKASH, SR. DR REVENUE BY: SHRI SATISH KHOSLA, ADV SHRI C.N. MALIK, CA SHRI MANISH MALIK, CA DATE OF HEARING 05 /09/2017 DATE OF PRONOUNCEMENT 18 /09/2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - XII, NEW DELHI DATED 29.03.2012 FOR THE ASSESSMENT YEAR 2007 - 08. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN ALLOWING THE EXEMPTION U/S 11 OF THE ACT, WHICH WAS DENIED BY THE AO BECAUSE THE ASSESSEE TRANSFERRED THE NET PROFIT FOR NON - CHARITABLE PURPOSE WHICH IS CLEAR VIOLATION OF SECTION 11(1) AND 11(1)(B) OF THE ACT. 2. THE LD CIT(A) HAS ERRED IN ALLOWING DOUBLE DEDUCTION ON ACCOUNT OF CAPITAL EXPENDITURE ON PURCHASE OF FIXED ASSETS AND T HEN DEPRECIATION ON SAME ASSETS AS PER COMPUTATION OF INCOME OF ASSESSEE. 3. THAT THE LD CIT(A) HAS ERRED IN ALLOWING CAUTION MONEY FOR WHICH ASSESSEE COULD NOT FURNISH DETAILS. 3. THE RESPONDENT ASSESSEE IS A SOCIETY REGISTERED UNDER SECTION 12 A OF THE INCOME TAX ACT, RUNNING EDUCATIONAL INSTITUTE. IN THE NAME OF FORTUNE INSTITUTE OF INTERNATIONAL BUSINESS IN DELHI. FOR THE YEAR. IT FILED ITS RETURN OF INCOME ON 31/10/2007 SHOWING NIL INCOME AND CLAIMING EXEMPTION UNDER PAGE 2 OF 18 SECTION 11 AND 12 OF THE INCOME TAX ACT. ON SCRUTINY, THE LD. ASSESSING OFFICER NOTED THAT THAT ASSESSEE HAS TRANSFERRED DURING THE YEAR RS. 85 LACS TO INFRASTRUCTURE DEVELOPMENT FUND AND RS. 70 LAKHS TO GENERAL RESE RVE AND FURTHER HE HELD THAT AS THE ASSESSEE IS RUNNING BE EDUCATIONAL INSTITUTIONS WITH A VIEW TO EARN PROFIT WHICH IS NOTHING BUT COMMERCIAL VENTURE. THEREFORE HE DENIED THE CLAIM OF THE ASSESSEE FOR APPLICABILITY OF PROVISIONS OF SECTION 11 AND 12 OF TH E INCOME TAX ACT. THE LD. ASSESSING OFFICER ON VERIFICATION OF REGISTRATION UNDER SECTION 12 A (A) FOR VERIFICATION FOUND THAT IT WAS NOT SIGNED BY THE DCIT (EXEMPTION) BUT ITO (HQ RS) (EXEMPTION) AND HELD THAT HE IS NOT THE RIGHT, AUTHORITY TO ISSUE SUCH CERTIFICATE. HE FURTHER HELD THAT AS ASSESSEE HAS ALREADY BEEN GRANTED DEDUCTION ON ACCOUNT OF CAPITAL EXPENDITURE IN EARLIER YEARS THE CLAIM OF DEPRECIATION OF RS. 37.01 LACS IS ALSO NOT ALLOWABLE TO THE ASSESSEE. CONSEQUENTLY HE ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS. 1 95.63 LAKHS TO BE CHARGED AT MAXIMUM MARGINAL RATE TREATING THE ASSESSEE AS AN ASSOCIATION OF PERSONS. CONSEQUENTLY, THE ASSESSMENT UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 WAS PASSED ON 04/12/2009. ASSESSEE BEING AGGRIEV ED WITH THE ORDER OF THE LD. ASSESSING OFFICER PREFERRED AN APPEAL BEFORE THE LD. CIT A, WHO HELD THAT ASSESSEE IS CARRYING ON EDUCATIONAL ACTIVITIES COVERED UNDER SECTION 2 (15) OF THE INCOME TAX ACT AND MERELY TRANSFERRING THE ABOUT TO ENTRIES TO THE INF RASTRUCTURE DEVELOPMENT FUND AND GENERAL RESERVE FUND SUCH SUM HAVE NOT BEEN USED FOR THE NONCHARITABLE OBJECTS AND ASSESSEE IS ALSO ENTITLED TO THE DEDUCTION OF DEPRECIATION ALLOWANCE. REVENUE BEING AGGRIEVED WITH THE ORDER HAS PREFERRED APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY RELIED ON THE ORDER OF THE LD. ASSESSING OFFICER. THE LD. AUTHORISED REPRESENTATIVE VEHEMENTLY RELIED ON THE ORDER OF LD. CIT A. 5. THE 1 ST GROUND OF APPEAL OF THE REVENUE IS THAT LD. CIT A, HAS ERRED IN ALLOWIN G THE EXEMPTION UNDER SECTION 11 OF THE ACT, WHICH WAS DENIED BY THE AO BECAUSE THE ASSESSEE TRANSFERRED THE NET PROFIT FOR NONCHARITABLE PURPOSES. WE HAVE NOTED THAT ASSESSEE IS JUST TRANSFERRED THE ABOVE MONEY TO THE INFRASTRUCTURE DEVELOPMENT FUND AS WE LL AS GENERAL RESERVE FUND TO BE USED FOR THE PURPOSE OF THE OBJECT OF THE TRUST OF THE ASSESSEE SOCIETY AND NOT FOR ANY OTHER OBJECT OTHER THAN THE OBJECT OF THE SOCIETY. THEREFORE, THE OBSERVATION OF THE LD. ASSESSING OFFICER TO THIS EXTENT IS INCORRECT. FURTHER PAGE 3 OF 18 MORE, THE ASSESSEE HAS MERELY PASSED THE ACCOUNTING ENTRIES IN BOOKS OF ACCOUNTS TRANSFERRING FROM THE EXCESS OF INCOME OVER EXPENDITURE ACCOUNT TO THESE 2 DIFFERENT ACCOUNTS. THEREFORE ACCORDING TO US THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) IN HOLDING THAT ASSESSEE HAS NOT APPLIED THE PROFIT FOR NONCHARITABLE PURPOSES. IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 6. WITH RESPECT TO GROUND NO. 2 OF THE APPEAL OF THE REVENUE AGAINST ALLOWANCE OF THE DEPRECIATION O N FIXED ASSETS THE COST OF WHICH HAS ALREADY BEEN ALLOWED TO THE ASSESSEE AS APPLICATION OF FUNDS ORIGINALLY. HONBLE DELHI HIGH COURTS DECISION IN THE CASE OF DDIT VERSUS INDRAPRASTHA CANCER SOCIETY IN ITA NUMBER 240 /2014 DATED 18/11/2014 SQUARELY COVER ED IS ISSUE IN FAVOUR OF THE ASSESSEE WHERE THE HONBLE DELHI HIGH COURT AFTER CONSIDERING ALL THE CASES RELIED UPON BY THE REVENUE. IN THIS PARTICULAR CASE, INCLUDING THE CASE OF HONBLE SUPREME COURT IN ESCORTS LTD VERSUS UNION OF INDIA, WAS CONSIDERED AND AFTER THAT IT WAS HELD AS UNDER : - 2. THE RESPONDENT - ASSESSEES ARE CHARITABLE INSTITUTIONS TO WHOM SECTIONS 11 TO 13 AND OTHER RELEVANT PROVISIONS OF THE INCOME TAX ACT, 1961 (ACT, FOR SHORT) APPLY. THE ISSUE RAISED IN THE PRESENT APPEALS IS WHETHER A CHARITABLE INSTITUTION, WHICH HAS PURCHASED CAPITAL ASSETS AND TRE ATED THE AMOUNT SPENT DIRECTOR OF INCOME TAX ... VS M/S INDRAPRASTHA CANCER SOCIETY ON 18 NOVEMBER, 2014 INDIAN KANOON - HTTP://INDIANKANOON.ORG/DOC/138934819/ 1 ON PURCHASE OF THE CAPITAL ASSET AS APPLICATION OF INCOME, IS ENTITLED TO CLAIM DEPRECIATION O N THE SAME CAPITAL ASSET UTILISED FOR BUSINESS. REVENUE SUBMITS THAT THIS WOULD AMOUNT TO DOUBLE DEDUCTION. 3. THIS HIGH COURT IN DIRECTOR OF INCOME TAX VERSUS VISHWA JAGRITI MISSION (2013) 262 CTR 558 HAS HELD THAT THE CLAIM FOR DEPRECIATION SHOULD BE ALL OWED AS PER PRINCIPLES RELATING TO COMMERCIAL ACCOUNTANCY, WHEN COMPUTING BUSINESS INCOME. RELIANCE PLACED BY THE REVENUE ON THE DECISION OF THE SUPREME COURT IN ESCORTS LIMITED VERSUS UNION OF INDIA, (1993) 199 ITR 43 (SC), WAS DISPELLED AND DISTINGUISHED . IN ESCORTS LIMITED (SUPRA) THE CLAIM FOR DEPRECIATION UNDER SECTION 32 OF THE ACT WAS DENIED AS THE ENTIRE EXPENDITURE ON THE CAPITAL ASSET HAD BEEN ALLOWED UNDER SECTION 35(2)(IV) OF THE ACT WHILE COMPUTING BUSINESS PROFIT AND LOSS. SECONDLY, THE SUPREM E COURT WAS NOT CONCERNED WITH THE CASE OF A CHARITABLE TRUST/INSTITUTION, AND THE QUESTION AS TO WHETHER INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' SHOULD BE COMPUTED ON COMMERCIAL PRINCIPLES IN ORDER TO DETERMINE THE AMOUNT OF INCOME AVAILABLE FOR APPLICATION FOR CHARITABLE PURPOSES. DECISIONS OF OTHER HIGH COURTS IN CIT VERSUS SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRUST, (1992) 198 ITR 598 (GUJ.), CIT VERSUS RAIPUR PALLOTTINE SOCIETY, (1989) 180 ITR 579 PAGE 4 OF 18 (MP), CIT VERSUS SOCIETY OF THE SISTE RS OF ST. ANNE, (1984) 146 ITR 28 (KAR.), CIT VERSUS TRUSTEE OF H.E.H. THE NIZAM'S SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST, (1981) 127 ITR 378 (AP) AND CIT VERSUS RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES, (1982) 135 ITR 485 (MAD.) WERE REFERRED TO IN AF FIRMATION OF THE LEGAL RATIO. IT WAS, INTER ALIA, HELD: '11. .........THE ONLY QUESTION IS WHETHER THE INCOME OF THE ASSESSEE SHOULD BE COMPUTED ON COMMERCIAL PRINCIPLES AND IN DOING SO WHETHER DEPRECIATION ON FIXED ASSETS UTILISED FOR THE CHARITABLE PURPO SES SHOULD BE ALLOWED. ON THIS ISSUE, THERE SEEMS TO BE A CONSENSUS OF JUDICIAL THINKING AS IS SEEN FROM THE AUTHORITIES RELIED UPON BY THE CIT(APPEALS) AS WELL AS THE TRIBUNAL. IN CIT VS. THE SOCIETY OF THE SISTERS OF ST. ANME (SUPRA), AN IDENTICAL QUESTI ON AROSE BEFORE THE KARNATAKA HIGH COURT. THERE THE SOCIETY WAS RUNNING A SCHOOL IN BANGALORE AND WAS ALLOWED EXEMPTION UNDER SECTION 11. THE QUESTION AROSE AS TO HOW THE INCOME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSES SHOULD BE COMPU TED. JAGANNATHA SETTY, J. SPEAKING FOR THE DIVISION BENCH OF THE COURT HELD THAT INCOME DERIVED FROM PROPERTY HELD UNDER TRUST CANNOT BE THE 'TOTAL INCOME' AS DEFINED IN SECTION 2(45) OF THE ACT AND THAT THE WORD 'INCOME' IS A WIDER TERM THAN THE EXPRESSIO N 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. REFERENCE WAS MADE TO THE NATURE OF DEPRECIATION AND IT WAS POINTED OUT THAT DEPRECIATION WAS NOTHING BUT DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR, DETERIORATION OR OBSOLESCENCE. IT WAS OBSERVED THAT D EPRECIATION, IF NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME OF CHARITABLE INSTITUTIONS, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. THE CIRCULAR NO.5 - P (LXX6) OF 1968, DATED JULY 19,1968 WAS REPRODUCE D IN THE JUDGMENT IN WHICH THE BOARD HAS TAKEN THE VIEW THAT THE INCOME OF THE TRUST SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE. THE CIRCULAR IS AS UNDER: 'WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPERTY, INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHE R 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 PURPOSE OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL E XPENDITURE 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 U/S. 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES 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 EXEMPTION U/S. 11(1).' 4. ACCORDI NGLY, THE APPEAL WAS DISMISSED AFTER OBSERVING THAT NO CONTRARY JUDGMENT HAS BEEN BROUGHT TO THE NOTICE OF THIS COURT. 5. THE HIGH COURT OF KERALA IN LISSIE MEDICAL INSTITUTIONS VERSUS COMMISSIONER OF INCOME TAX, (2012) 348 ITR 344 (KER) HAS TAKEN A DIFFER ENT VIEW, INTER ALIA, HOLDING AS UNDER: '5. IT IS SETTLED POSITION THROUGH SEVERAL DECISIONS OF HIGH COURTS AND SUPREME COURTS THAT WHEN BUSINESS IS HELD IN TRUST BY CHARITABLE INSTITUTIONS INCOME FROM BUSINESS HAS TO BE COMPUTED BY PAGE 5 OF 18 GRANTING DEDUCTIONS PRO VIDED U/S 30 TO 43D AS PROVIDED UNDER S.29 OF THE INCOME TAX ACT. 6. SENIOR COUNSEL SRI.A.K.J.NAMBIAR APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS BEEN FILING INCOME TAX RETURNS FOR SEVERAL YEARS INCLUDING THE ASSESSMENT YEAR 2005 - 2006, AND D ISALLOWANCE IS MADE ONLY FOR THIS YEAR. SINCE BUSINESS INCOME HAS TO BE AS STATED IN S.29 BY GRANTING ALL DEDUCTIONS PROVIDED U/S 30 TO 43D WHICH INCLUDES DEPRECIATION U/S 32, ASSESSEE IS ENTITLED IS THE CASE PRESSED BEFORE US BY THE SENIOR COUNSEL APPEARI NG FOR THE ASSESSEE. WE HAVE NO DOUBT IN OUR MIND THAT BUSINESS INCOME OF CHARITABLE TRUST ALSO HAS TO BE COMPUTED IN THE SAME MANNER AS PROVIDED U/S 29 OF THE INCOME TAX ACT. HOWEVER, THE ISSUE THAT REQUIRES CONSIDERATION IS WHEN THE EXPENDITURE INCURRED FOR ACQUISITION OF DEPRECIABLE ASSETS ITSELF IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES U/S 11(1)(A) OF THE ACT, SHOULD NOT THE COST OF SUCH ASSETS TO BE TREATED AS NIL FOR THE ASSESSEE AND IN THAT SITUATION DEPRECIATION TO BE GRANTED TURN S OUT TO BE NIL. HOWEVER, IF DEPRECIATION PROVIDED IS CLAIMED ON NOTIONAL COST AFTER THE ASSESSEE CLAIMS 100% OF THE COST INCURRED FOR IT AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES, THE DEPRECIATION SO CLAIMED HAS TO BE WRITTEN BACK AS INCOME AVAILAB LE. IN FACT, GOING BY THE SEVERAL DECISIONS OF THE VARIOUS HIGH COURTS, WE ARE SURE THAT BASED ON THESE DECISIONS ALL THE CHARITABLE INSTITUTIONS WILL BE GENERATING UNACCOUNTED INCOME EQUAL TO THE DEPRECIATION AMOUNT CLAIMED ON AN YEAR TO YEAR BASIS WHICH IS NOTHING BUT BLACK MONEY. THIS ASPECT IS NOT SEEN CONSIDERED IN ANY OF THESE DECISIONS. WE, THEREFORE, SOUGHT THE VIEWS FROM THE CENTRAL BOARD OF DIRECT TAXES. SENIOR STANDING COUNSEL SRI.P.K.R.MENON, APPEARING FOR THE REVENUE PRODUCED CLARIFICATION OBTA INED FROM THE CENTRAL BOARD WHEREIN THEY HAVE STATED AS FOLLOWS: 'THE CENTRAL BOARD OF DIRECT TAXES IS OF THE CONSIDERED VIEW THAT WHERE AN ASSESSEE HAS ACQUIRED AN ASSET THROUGH APPLICATION OF INCOME AND HAS ALSO CLAIMED THIS AMOUNT AS EXPENDITURE IN ITS INCOME EXPENDITURE ACCOUNT, DEPRECIATION ON SUCH ASSET WOULD NOT BE ALLOWABLE TO THE ASSESSEE. SUCH NOTIONAL STATUTORY DEDUCTIONS LIKE DEPRECIATION, IF CLAIMED AS DEDUCTION WHILE COMPUTING THE INCOME OF THE 'THE PROPERTY HELD UNDER TRUST' UNDER THE RELEVAN T HEAD OF INCOME, IS REQUIRED TO BE ADDED BACK WHILE COMPUTING THE INCOME FOR THE PURPOSE OF APPLICATION IN THE INCOME EXPENDITURE ACCOUNT. THIS WOULD IMPLY THAT A CORRECT FIGURE OF SURPLUS FROM THE TRUST PROPERTY IS REFLECTED IN THE INCOME & EXPENDITURE A CCOUNT OF THE TRUST TO DETERMINE THE INCOME FOR THE PURPOSE OF APPLICATION UNDER SECTION 11 OF THE INCOME TAX ACT. THIS WOULD REDUCE THE POSSIBILITY OF REVENUE LEAKAGE WHICH MAY BE A CAUSE FOR GENERATION OF BLACK MONEY.' 6. NOTICING THE AFORESAID JUDGMENT AS WELL AS CIRCULAR/CLARIFICATION DATED 2ND FEB, 2012 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, A DIVISION BENCH OF THIS COURT RE - EXAMINED THE ENTIRE ISSUE IN ITA NO. 7/2013, DIRECTOR OF INCOME TAX (EXEMPTION) VERSUS INDIAN TRADE PROMOTION ORGANISATION, AND OTHER CONNECTED MATTERS, DECIDED ON 27TH NOVEMBER, 2013. THE SAID ORDER RECORDS THAT THE BENCH WAS INITIALLY INCLINED TO ACCEPT THE SUBMISSION MADE OF THE REVENUE, BUT FOR SEVERAL REASONS MENTIONED AND RECORDED, DECLINED TO INTERFERE PAGE 6 OF 18 AND REFER THE QUE STION/ RATIO ACCEPTED IN VISHWA JAGRITI MISSION (SUPRA), TO A LARGER BENCH. THIS COURT REFERRED TO THE FOLLOWING EXAMPLE TO EXPLAIN THE CONTROVERSY IN QUESTION: '5. ... IN ORDER TO APPRECIATE THE CONTENTION RAISED BY THE REVENUE, WE WOULD LIKE TO GIVE ONE EXAMPLE WHICH WOULD CLARIFY THE CONTENTION OR THE ISSUE RAISED BEFORE US. AN ASSESSEE, A CHARITABLE INSTITUTION, SAY HAS INCOME FROM PROPERTY HELD UNDER TRUST OF RS.1,00,000/ - . AS PER MANDATE OF CLAUSE A, 85% OF THE SAID AMOUNT I.E. RS.85,000/SHOULD BE SPE NT IN THE SAID FINANCIAL YEAR. THE SAID ASSESSEE SPENDS AND ACQUIRES A CAPITAL ASSET FOR RS.50,000/ - . THE PURCHASE PRICE FOR ACQUISITION OF THE CAPITAL ASSET I.E. RS.50,000/ - IS TREATED AS APPLICATION OF INCOME FOR THE PURPOSE OF CLAUSE A TO SECTION 11(1). ON THE CAPITAL ASSET, THE ASSESSEE ALSO CLAIMS DEPRECIATION SAY @ 20%. ACCORDINGLY, THE ASSESSEE CLAIMS THAT THE APPLICATION OF INCOME WOULD INCLUDE RS.10,000/ - WHICH IS TO BE ALLOWED AS DEPRECIATION AS TO THIS EXTENT, THE ASSET PURCHASED HAS DEPRECIATED. IN OTHER WORDS, RS.60,000/ - IS TO BE TREATED AS APPLICATION OF MONEY FOR THE PURPOSE OF CLAUSE A TO SECTION 11(1).' THEREAFTER, REFERENCE WAS MADE TO THE FOLLOWING QUOTATION FROM THE JUDGMENT OF THE KARNATAKA HIGH COURT IN SOCIETY OF THE SISTERS OF ST. AN NE (SUPRA) : 'IT IS CLEAR FROM THE ABOVE PROVISIONS THAT THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST CANNOT BE THE TOTAL INCOME BECAUSE S. 11(1) SAYS THAT THE FORMER SHALL NOT BE INCLUDED IN THE LATTER, OF THE PERSON IN RECEIPT OF THE INCOME. THE EXP RESSION ' TOTAL INCOME ' HAS BEEN DEFINED UNDER S. 2(45) OF THE ACT TO MEAN ' THE TOTAL AMOUNT OF INCOME REFERRED TO IN S. 5 COMPUTED IN THE MANNER LAID DOWN IN THIS ACT '. THE WORD ' INCOME ' IS DEFINED UNDER S. 2(24) OF THE ACT TO INCLUDE PROFITS AND GAI NS, DIVIDENDS, VOLUNTARY PAYMENT RECEIVED BY TRUST, ETC. IT MAY BE NOTED THAT PROFITS AND GAINS ARE GENERALLY USED IN TERMS OF BUSINESS OR PROFESSION AS PROVIDED U/S. 28. THE WORD ' INCOME ', THEREFORE, IS A MUCH WIDER TERM THAN THE EXPRESSION ',PROFITS AN D GAINS OF BUSINESS OR PROFESSION '. NET RECEIPT AFTER DEDUCTING ALL THE NECESSARY EXPENDITURE OF THE TRUST (SIC). THERE IS A BROAD AGREEMENT ON THIS PROPOSITION. BUT STILL THE CONTENTION FOR THE REVENUE IS THAT THE DEPRECIATION ALLOWANCE BEING A NOTIONAL INCOME (EXPENDITURE ?) CANNOT BE ALLOWED TO BE DEBITED TO THE EXPENDITURE ACCOUNT OF THE TRUST. THIS CONTENTION APPEARS TO PROCEED ON THE ASSUMPTION THAT THE EXPENDITURE SHOULD NECESSARILY INVOLVE ACTUAL DELIVERY OF OR PARTING WITH THE MONEY. IT SEEMS TO U S THAT IT NEED NOT NECESSARILY BE SO. THE EXPENDITURE SHOULD BE UNDERSTOOD AS NECESSARY OUTGOINGS. THE DEPRECIATION IS NOTHING BUT DECREASE IN VALUE OF PROPERTY THROUGH WEAR, DETERIORATION OR OBSOLESCENCE AND ALLOWANCE IS MADE FOR THIS PURPOSE IN BOOK KEEP ING, ACCOUNTANCY, ETC. IN SPICER & PEGLER'S BOOK - KEEPING AND ACCOUNTS, 17TH EDN., PP. 44, 45 & 46, IT HAS BEEN NOTED AS FOLLOWS : 'DEPRECIATION IS THE EXHAUSTION OF THE EFFECTIVE LIFE OF A FIXED ASSET OWING TO ' USE ' OR OBSOLESCENCE. IT MAY BE COMPUTED AS THAT PART OF THE COST OF THE ASSET WHICH WILL NOT BE RECOVERED WHEN THE ASSET IS FINALLY PUT OUT OF USE. THE OBJECT OF PROVIDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE, INCURRED IN ACQUIRING THE ASSET, OVER ITS EFFECTIVE LIFETIME; THE AMOUNT OF THE PROVISION, MADE IN RESPECT OF AN PAGE 7 OF 18 ACCOUNTING PERIOD, IS INTENDED TO REPRESENT THE PROPORTION OF SUCH EXPENDITURE, WHICH HAS EXPIRE D DURING THAT PERIOD. ' 'AT THE END OF ITS EFFECTIVE LIFE, THE ASSETS CEASES TO EARN REVENUE, I.E., THE CAPITAL VALUE HAS EXPIRED AND THE ASSET WILL HAVE TO BE REPLACED OR A SUBSTITUTE FOUND PROVISION FOR DEPRECIATION IS THE SETTING ASIDE, OUT OF THE REVEN UE OF AN ACCOUNTING PERIOD, THE ESTIMATED AMOUNT BY WHICH THE CAPITAL INVESTED IN THE ASSET HAS EXPIRED DURING THAT PERIOD. IT IS THE PROVISION MADE FOR THE LOSS OR EXPENSE INCURRED THROUGH RISING THE ASSET FOR EARNING PROFITS, AND SHOULD, THEREFORE, BE CH ARGED AGAINST THOSE PROFITS AS THEY ARE EARNED. ' 'IF DEPRECIATION IS NOT PROVIDED FOR, THE BOOKS WILL NOT CONTAIN A TRUE RECORD OF REVENUE OR CAPITAL. IF THE ASSET WERE HIRED INSTEAD OF PURCHASED, THE HIRING FEE WOULD BE CHARGED AGAINST THE PROFITS; HAVIN G BEEN PURCHASED THE ASSET IS, IN EFFECT, THEN HIRED BY CAPITAL TO REVENUE, AND THE TRUE PROFIT CANNOT BE ASCERTAINED UNTIL A SUITABLE CHARGE FOR THE USE OF THE ASSET HAS BEEN MADE. MOREOVER, UNLESS PROVISION IS MADE FOR DEPRECIATION, THE BALANCE - SHEET WI LL NOT PRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS ; ASSETS SHOULD BE SHOWN AT A FIGURE WHICH REPRESENT THAT PART OF THEIR VALUE ON ACQUISITION, WHICH HAS NOT YET EXPIRED. ' IN CIT V INDIAN JUTE MILLS ASSOCIATION [1982] 134 ITR 68, THE CALCUTTA HI GH COURT, WHILE CONSTRUCTING THE EXPRESSION ' EXPENDITURE INCURRED ' IN S. 44A OF THE ACT, OBSERVED : 'DEPRECIATION CLAIMED SHALL INCLUDE THE EXPENDITURE INCURRED.' THERE ARE ONLY TWO RECOGNISED METHODS OF ACCOUNTING : (1) CASH BASIS, AND (II) MERCANTILE B ASIS. UNDER THE CASH BASIS ONLY CASH TRANSACTIONS ARE RECORDED. IT IS ONLY CASH RECEIPTS AND CASH PAYMENTS WHICH FIND ENTRIES IN THE BOOKS OF ACCOUNT. MERCANTILE SYSTEM OF ACCOUNTING WAS EXPLAINED BY THE SUPREME COURT IN KESHAV MILLS LTD. V. CIT [1953]23 I TR 230 AT 230 IN THE FOLLOWING WORDS : 'THE MERCANTILE SYSTEM OF ACCOUNTING OR WHAT IS OTHERWISE KNOWN AS THE DOUBLE ENTRY SYSTEM IS OPPOSED TO THE CASH SYSTEM OF BOOK KEEPING UNDER WHICH A RECORD IS KEPT OF ACTUAL CASH RECEIPTS AND ACTUAL CASH PAYMENTS, E NTRIES BEING MADE ONLY WHEN MONEY IS ACTUALLY COLLECTED OR DISBURSED. THAT SYSTEM BRINGS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES LEGALLY DUE AND BEFORE IT, IS ACTUALLY RECEIVED AND IT BRINGS INTO DEBIT EXPENDITURE THE AMOUNT FOR WHICH A LEGAL LIABI LITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED. IT IS NOT IN DISPUTE THAT IF THE MERCANTILE SYSTEM IS FOLLOWED, THE DEPRECIATION ALLOWANCE IN RESPECT OF THE TRUST PROPERTY SHOULD BE ALLOWED. XXXXXXXXXXXXXXXX THE DEPRECIATION IF IT IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME FROM THE CHARITABLE INSTITUTIONS, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. THE BOARD ALSO APPEARS TO HAVE UNDERSTOOD THE ' INCOME ' U/S. 11(1) IN ITS COMMERCIAL SENSE. THE RELEVANT PORTION OF THE CIRCULAR NO. 5 - P (LXX - 6) OF 1968, DATED JULY 19, 1968, READS: 'WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPERTY, INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WORD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIA L SENSE, I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATIONS THEREOF TOWARDS THE PAGE 8 OF 18 PURPOSE OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE.I T SHOULD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDED BACK WILL BECOME CHARGEABLE TO TAX U/S. 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE OF THE TRUST. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TRUS T 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 EXEMPTION U/S. 11(1). ' THIS COURT THEREAFTER REFERRED TO THE CIRCULAR/CLARIFICATION DATED 2ND FEB RUARY, 2012 BY THE CBDT, ISSUED AFTER DECISION OF KERALA HIGH COURT IN LISSE MEDICAL ( SUPRA) AND HAS EXPOUNDED AS UNDER: '9. AFTER THE DECISION OF THE KERALA HIGH COURT IN LISSIE MEDICAL INSTITUTION VS. CIT (SUPRA), THE BOARD ISSUED A FRESH CIRCULAR OR CL ARIFICATION DATED 02.02.2012 AND HAS OBSERVED: 'THE VIEW OF THE CBDT TO BE CONVEYED TO THE COURT IN THIS REGARD IS AS UNDER: THE CENTRAL BOARD OF DIRECT TAXES IS OF THE CONSIDERED VIEW THAT WHERE AN ASSESSEE HAS ACQUIRED AN ASSET THROUGH APPLICATION OF INC OME AND HAS ALSO CLAIMED THIS AMOUNT AS EXPENDITURE IN ITS INCOME EXPENDITURE ACCOUNT, DEPRECIATION ON SUCH ASSET WOULD NOT BE ALLOWABLE TO THE ASSESSEE. SUCH NOTIONAL STATUTORY DEDUCTIONS LIKE DEPRECIATION, IF CLAIMED AS DEDUCTION WHILE COMPUTING THE INCO ME OF 'THE PROPERTY HELD UNDER TRUST' UNDER THE RELEVANT HEAD OF INCOME, IS REQUIRED TO BE ADDED BACK WHILE COMPUTING THE INCOME FOR THE PURPOSE OF APPLICATION IN THE INCOME EXPENDITURE ACCOUNT. THIS WOULD IMPLY THAT A CORRECT FIGURE OF SURPLUS FROM THE TR UST PROPERTY IS REFLECTED IN THE INCOME AND EXPENDITURE ACCOUNT OF THE TRUST TO DETERMINE THE INCOME FOR THE PURPOSE OF APPLICATION UNDER SECTION 11 OF THE INCOME TAX ACT. THIS WOULD REDUCE THE POSSIBILITY OF REVENUE LEAKAGE WHICH MAY BE A CAUSE FOR GENERA TION OF BLACK MONEY.' 10. WE ALSO NOTE THAT THE KERALA HIGH COURT, IN FACT, HAS NOTED THE CLARIFICATIONS WHICH WERE EARLIER ISSUED BY THE BOARD IN RESPECT OF 1968 CIRCULAR. IT IS CLEAR FROM THE REASONING GIVEN BY THE KERALA HIGH COURT THAT THEY HAVE NOT GO NE BY THE EXPRESS LANGUAGE OF SECTION 11(A) AND HAVE PURPOSIVELY INTERPRETED THE PROVISION.' 7. REFERENCE WAS ONCE AGAIN MADE TO THE DECISION OF THE SUPREME COURT IN ESCORTS LIMITED (SUPRA) AND PROVISIONS OF SECTION 35(2B)(C) WERE QUOTED AND IT WAS OBSERVE D THAT THE LANGUAGE OF THE SUB - CLAUSE (C) WAS CLEAR AND LUCID BUT CONSPICUOUSLY DIFFERENT FROM SECTION 11(1) OF THE ACT. IT HAS BEEN OBSERVED IN INDIAN TRADE PROMOTION ORGANISATION (SUPRA) : 11. CLAUSE A OF SECTION 11(1) STIPULATES THAT INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES IS TO BE APPLIED FOR SUCH PURPOSES IN INDIA AND WHERE SUCH INCOME IS SET ASIDE OR ACCUMULATED, IT SHOULD NOT BE IN EXCESS OF 15% OF THE INCOME FROM SUCH PROPERTY. THUS, THERE IS AN EMBA RGO AND PROBATION FROM ACCUMULATING OR SETTING APART INCOME DERIVED FROM PROPERTY HELD UNDER TRUST BEYOND 15% OF INCOME FROM SUCH PROPERTY. IF THERE IS A VIOLATION OF THE SAID PROVISION, PROPORTIONATE INCOME IS DEEMED TO BE TAXABLE AND NOT EXEMPT UNDER SEC TION 11(1). PAGE 9 OF 18 THE LANGUAGE OF THE SECTION IS PECULIAR AND PROCEEDS ON ITS OWN WORDING. THIS ASPECT HAS BEEN HIGHLIGHTED AND POINTED OUT IN THE JUDGMENT OF COMMISSIONER OF INCOME TAX VS. SOCIETY OF THE SISTERS OF ST. ANNE (SUPRA). DECISION IN THE CASE OF ESCO RTS LTD. (SUPRA) WAS CONSIDERED BY THE DELHI HIGH COURT IN DIT VS. VISHWA JAGRITI MISSION (SUPRA) DECIDED ON 29TH MARCH, 2012 AND WAS DISTINGUISHED FOR THE FOLLOWING REASONS. '13. THE JUDGMENT OF THE SUPREME COURT IN ESCORTS LIMITED VS. UNION OF INDIA (SUP RA) HAS BEEN RIGHTLY HELD TO BE INAPPLICABLE TO THE PRESENT CASE. THERE ARE TWO REASONS AS TO WHY THE JUDGMENT CANNOT BE APPLIED TO THE PRESENT CASE. FIRSTLY, THE SUPREME COURT WAS NOT CONCERNED WITH THE CASE OF A CHARITABLE TRUST/INSTITUTION INVOLVING THE QUESTION AS TO WHETHER ITS INCOME SHOULD BE COMPUTED ON COMMERCIAL PRINCIPLES IN ORDER TO DETERMINE THE AMOUNT OF INCOME AVAILABLE FOR APPLICATION TO CHARITABLE PURPOSES. IT WAS A CASE WHERE THE ASSESSEE WAS CARRYING ON BUSINESS AND THE STATUTORY COMPUTAT ION PROVISIONS OF CHAPTER IV - D OF THE ACT WERE APPLICABLE. IN THE PRESENT CASE, WE ARE NOT CONCERNED WITH THE APPLICABILITY OF THESE PROVISIONS. WE ARE CONCERNED ONLY WITH THE CONCEPT OF COMMERCIAL INCOME AS UNDERSTOOD FROM THE ACCOUNTING POINT OF VIEW. EV EN UNDER NORMAL COMMERCIAL ACCOUNTING PRINCIPLES, THERE IS AUTHORITY FOR THE PROPOSITION THAT DEPRECIATION IS A NECESSARY CHARGE IN COMPUTING THE NET INCOME. SECONDLY, THE SUPREME COURT WAS CONCERNED WITH THE CASE WHERE THE ASSESSEE HAD CLAIMED DEDUCTION O F THE COST OF THE ASSET UNDER SECTION 35(1) OF THE ACT, WHICH ALLOWED DEDUCTION FOR CAPITAL EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH. THE QUESTION WAS WHETHER AFTER CLAIMING DEDUCTION IN RESPECT OF THE COST OF THE ASSET UNDER SECTION 35(1), CAN THE ASSE SSEE AGAIN CLAIM DEDUCTION ON ACCOUNT OF DEPRECIATION IN RESPECT OF THE SAME ASSET. THE SUPREME COURT RULED THAT, UNDER GENERAL PRINCIPLES OF TAXATION, DOUBLE DEDUCTION IN REGARD TO THE SAME BUSINESS OUTGOING IS NOT INTENDED UNLESS CLEARLY EXPRESSED. THE P RESENT CASE IS NOT ONE OF THIS TYPE, AS RIGHTLY DISTINGUISHED BY THE CIT(APPEALS).' 12. WE WOULD LIKE TO REPRODUCE SECTION 35 (2B)(C). 'SECTION 35(2B)(A) .................................. (B)......................................................... (C) WH ERE A DEDUCTION ALLOWED FOR ANY PREVIOUS YEAR UNDER THIS SUB - SECTION IN RESPECT OF EXPENDITURE REPRESENTED WHOLLY OR PARTLY BY AN ASSET, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THAT ASSET UNDER [CLAUSE (II) OF SUB - SECTION (1)] OF SECTION 32 FOR THE SA ME OR ANY SUBSEQUENT PREVIOUS YEAR.' 13. THE LANGUAGE OF THE SUB - CLAUSE C TO SECTION 35(2B) IS CONSPICUOUS AND ENTIRELY DIFFERENT AND WORDINGS ARE CLEAR AND LUCID. THE LANGUAGE OF SECTION 11(1), AS NOTICED ABOVE, IS DISTINGUISHED AND NOT WORDED IN A SIMILA R MANNER. IN ESCORTS LTD. (SUPRA), THE SUPREME COURT WAS CONSIDERING THE SAID SPECIFIC PROVISION AND THE WORDINGS THEREIN. WHILE DEALING WITH THE TERM 'EXPENDITURE' AND NOTICING THE LANGUAGE IT WAS HELD THAT NO DUPLICATION OR DOUBLE DEDUCTION SHOULD BE ALL OWED TOWARDS DEPRECIATION IN THE SAME OR SUBSEQUENT YEAR. THUS, THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. LANGUAGE OF EXPLANATION 1 TO SECTION 43(1) CAN ALSO BE REFERRED TO AND WE NOTICE THAT THE LANGUAGE OF THE PAGE 10 OF 18 SAID EXPLANATION IS ABSOLUTELY DIFFERENT F ROM THE LANGUAGE USED IN CLAUSE (A) TO SECTION 11(1). SECTION 11(1)(A) IS A PECULIAR PROVISION WHICH POSTULATES APPLICATION OF INCOME AND IT IS NOT DEALING WITH EXPENDITURE AS SUCH. THE LEGISLATIVE DESIRE IS THAT MONEY SHOULD BE APPLIED FOR THE PURPOSE OF CHARITY. IN ESCORTS LTD.(SUPRA), THE SUPREME COURT HAD OBSERVED THAT THEY WERE CONCERNED WITH EXPENDITURE AND SINCE THE ENTIRE COSTS OF THE CAPITAL ASSETS HAD BEEN ALLOWED AND HAD BEEN SET OFF AGAINST THE BUSINESS PROFIT IN FIVE YEARS OR IN ONE PREVIOUS YE AR, IT WAS UNCONCEIVABLE THAT THE DEPRECIATION SHOULD BE ALLOWED AGAIN ON THE SAME ASSET.' 8. DECISIONS OF OTHER HIGH COURTS IN COMMISSIONER OF INCOME TAX VERSUS TINY TOTS EDUCATION SOCIETY, (2011) 330 ITR 21 (P&H) AND COMMISSIONER OF INCOME TAX VERSUS INS TITUTE OF BANKING, (2003) 264 ITR 110 (BOM.) IN WHICH THE RATIO AS EXPOUNDED IN THE CASE OF VISHWA JAGRITI MISSION (SUPRA) WAS ACCEPTED AND AFFIRMED, WERE NOTICED. REFERRING TO THE DECISION OF THE KERALA HIGH COURT IN LISSIE MEDICAL INSTITUTIONS (SUPRA) IT WAS OBSERVED: 15. 'KERALA HIGH COURT WAS ALSO CONSCIOUS OF THE SAID DECISIONS AND THE FACT THAT SECTION 11(1)(A) HAD BEEN INTERPRETED IN A DIFFERENT MANNER. IT WAS IN THESE CIRCUMSTANCES THAT THE KERALA HIGH COURT IN THE LAST PORTION OF PARAGRAPH 6, AS QU OTED ABOVE, HAS STATED THAT THE ASSESSEE WOULD BE ENTITLED TO WRITE BACK DEPRECIATION AND IF DONE, THE ASSESSING OFFICER WOULD MODIFY THE ASSESSMENT DETERMINING THE HIGHER INCOME AND ALLOW RECOMPUTATION OF DEPRECIATION WRITTEN BACK FOR THE PURPOSE OF APPLI CATION OF INCOME FOR CHARITABLE PURPOSES IN FUTURE OR SUBSEQUENT YEARS. THIS MAY LEAD TO ITS OWN DIFFICULTIES AND PROBLEMS AS SUDDENLY THE ENTIRE DEPRECIATION WRITTEN OFF WOULD HAVE TO BE ADDED FIRST AND THEN IN ONE YEAR SUBSTANTIAL APPLICATION OF INCOME W OULD BE REQUIRED. THIS MAY BE IMPRACTICAL AND WOULD DISTURB THE WORKING OF MANY A CHARITABLE INSTITUTIONS. THE LEGAL INTERPRETATION WHICH HAS CONTINUED SINCE 1984, IF DISTURBED AND IMPLEMENTED, WOULD NOT APPROPRIATELY RESOLVED. CONSISTENCY AND CERTAINTY IS MORE APPROPRIATE. 16. THE EQUALLY PLAUSIBLE AND CONSISTENT INTERPRETATION OF CLAUSE (A) OF SECTION 11(1) OF THE ACT IS THAT INCOME DERIVED FROM PROPERTY MUST BE CALCULATED AS PER THE PRINCIPLES OF THE ACT. THE SAID CLAUSE IS NOT A COMPUTATION PROVISION AN D DOES NOT DISTURB THE 'INCOME' EARNED OR AVAILABLE BUT POSTULATES THAT THE 'INCOME' AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT TO THE EXTENT OF 86% MUST BE APPLIED. APPLICATION OF INCOME MAY INCLUDE PURCHASE OF A CAPITAL ASSET. THE SAID PURC HASE IS VALID AND TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ENSURING COMPLIANCE, I.E., APPLICATION OF MONEY OR FUNDS AND IS NOT A FACTOR WHICH DETERMINES AND DECIDES THE QUANTUM OF INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. COMPUTATION OF INCOME IS S EPARATE AND DISTINCT AND HAS TO BE MADE ON COMMERCIAL BASIS BY APPLYING PROVISIONS OF THE ACT.' 9. TO OUR MIND, THEREFORE, THE ISSUE HAS BEEN EXAMINED IN DEPTH AND DETAIL TWICE AND THUS THERE IS NO ERROR IN THE IMPUGNED ORDERS PASSED BY THE TRIBUNAL. HOWEVER, LEARNED COUNSEL FOR THE REVENUE HAS DRAWN OUR ATTENTION TO THE DECISION DATED 18TH MARCH, 2014 IN ITA NO. 322 - 323/2013 TITLED DIRECTOR OF INCOME TAX (EXEMPTION) VERSUS CHARANJIV CHARITABLE TRUST, WHEREIN IT HAS BEEN HELD: PAGE 11 OF 18 '30. SO FAR AS THE CLAIM OF DEPRECIATION IS CONCERNED THE DECISION OF THE TRIBUNAL CANNOT BE COUNTENANCED. THE TRIBUNAL HAS OVERLOOKED THAT THE COST OF THE ASSETS HAS ALREADY BEEN ALLOWED AS A DEDUCTION AS APPLICATION OF INCOME, AS HELD BY THE CIT (APPEALS ) AS WELL AS THE ASSESSING OFFICER. IT WAS THEIR VIEW THAT ALLOWING DEPRECIATION IN RESPECT OF ASSETS, THE COST OF WHICH WAS EARLIER ALLOWED AS DEDUCTION AS APPLICATION OF INCOME OF THE TRUST, WOULD ACTUALLY AMOUNT TO DOUBLE DEDUCTION ON THE BASIS OF THE R ULING OF THE SUPREME COURT IN ESCORTS LTD. VS. UOI (SUPRA). IN RESPECT OF THE ADDITIONS TO THE FIXED ASSETS MADE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006 - 07, THE CIT (APPEALS) HELD THAT SINCE THE COST OF THE ASSETS WAS NOT ALLOWED AS A DEDUCTION BY WAY OF APPLICATION OF INCOME, DEPRECIATION SHOULD BE ALLOW. THE CIT (APPEALS) HAS THUS MADE A DISTINCTION BETWEEN ASSETS THE COST OF WHICH WAS ALLOWED AS DEDUCTION AS APPLICATION OF INCOME AND ASSETS, THE COST OF WHICH WAS NOT SO ALLOWED. THE TRIBUNAL HAS NOT KEPT THIS DISTINCTION IN VIEW, BUT HAS PROCEEDED TO RELY UPON A JUDGMENT OF THIS COURT IN DIT VS. VISHWA JAGRATI MISSION (SUPRA). IN THE JUDGMENT OF THIS COURT THE QUESTION WAS WHETHER THE INCOME OF THE ASSESSEE, WHICH WAS A CHARITABLE TR UST, SHOULD BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF SO, WHETHER DEPRECIATION ON FIXED ASSETS USED FOR CHARITABLE PURPOSES SHOULD BE ALLOWED AS A DEDUCTION. THIS COURT NOTICED THAT THERE WAS A CONSENSUS OF JUDICIAL OPINION ON THIS ASPECT AND HELD, AFTER REFERRING TO THOSE AUTHORITIES AS WELL AS A CIRCULAR OF THE CBDT ISSUED ON 19.07.1968, THAT WHILE COMPUTING THE INCOME OF THE TRUST AVAILABLE FOR APPLICATION FOR CHARITABLE PURPOSES, DEPRECIATION ON ASSETS USED FOR CHARITABLE PURPOSES SHOULD BE ALLOWED. T HE POINT TO BE NOTICED IS THAT IN THIS JUDGMENT, THIS COURT REFERRED TO AND DISTINGUISHED THE JUDGMENT OF THE SUPREME COURT IN ESCORTS LTD. (SUPRA) ON THE GROUND THAT IN ESCORTS (SUPRA), THE SUPREME COURT WAS CONCERNED WITH A CASE WHERE THE DEDUCTION OF TH E COST OF THE ASSET WAS ALLOWED UNDER SECTION 35(1) AS CAPITAL EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH AND, THEREFORE, NO DEDUCTION FOR DEPRECIATION ON THE VERY SAME ASSETS WAS HELD ALLOWABLE UNDER GENERAL PRINCIPLES OF TAXATION, AS IT WOULD AMOUNT TO DOUBLE DEDUCTION. THE JUDGMENT OF THIS COURT IN DIT VS. VISHWA JAGRATI MISSION REINFORCES THE PRINCIPLE THAT IF THE COST OF THE ASSET HAS BEEN ALLOWED AS DEDUCTION BY WAY OF APPLICATION OF INCOME THEN DEPRECIATION ON THE SAME ASSET CANNOT BE ALLOWED IN THE COMPUTATION OF THE INCOME OF THE TRUST. THE DISTINCTION HAS NOT BEEN KEPT IN VIEW BY THE TRIBUNAL WHICH SEEMS TO HAVE ERRONEOUSLY RELIED ON THE JUDGMENT OF THIS COURT TO DIRECT ALLOWANCE OF DEPRECIATION EVEN IN RESPECT OF ASSETS, THE COST OF WHICH HAS ALR EADY BEEN ALLOWED AS APPLICATION OF INCOME. WE ACCORDINGLY HOLD THAT THE TRIBUNAL WAS NOT JUSTIFIED IN DIRECTING THE ALLOWANCE OF DEPRECIATION IN RESPECT OF SUCH ASSETS.' 10. THE AFORESAID PARAGRAPH REFERS TO THE DECISION IN THE CASE OF VISHWA JAGRITI MISS ION (SUPRA) BUT RATIO WAS DISTINGUISHED ON THE GROUND THAT IN THE SAID CASE THE COURT WAS CONCERNED WITH COMPUTATION OF INCOME OF A CHARITABLE TRUST/INSTITUTION ON COMMERCIAL PRINCIPLES AND IF SO WHETHER DEPRECIATION ON FIXED ASSETS USED FOR CHARITABLE PUR POSES SHOULD BE ALLOWED AS A DEDUCTION. THE CONSENSUS OF JUDICIAL OPINION ON THE SAID ASPECT WAS PAGE 12 OF 18 REFERRED TO. IT IS NOTICEABLE THAT IN CHARANJIV CHARITABLE TRUST (SUPRA) IT STANDS OBSERVED THAT THE TRIBUNAL OVERLOOKED THE FACT THAT THE COST OF ASSET HAD BE EN ALLOWED AS A 'DEDUCTION' AND THEREAFTER DEPRECIATION WAS BEING CLAIMED. THE SAID CASE, THEREFORE, APPEARS TO BE A PECULIAR ONE WHEREIN DEDUCTION AS EXPENDITURE AND DEPRECIATION WAS BEING CLAIMED SIMULTANEOUSLY, WHILE COMPUTING THE TAXABLE INCOME UNDER T HE HEAD 'PROFITS AND GAINS FROM BUSINESS'. THE SAID DECISION DATED 18TH MARCH, 2014 DOES NOT REFER TO THE DECISION IN INDIAN TRADE PROMOTION ORGANISATION (SUPRA) WHICH WAS DECIDED ON 27TH NOVEMBER, 2013. THE JUDGMENT IN THE CASE OF INDIAN TRADE PROMOTION O RGANISATION (SUPRA) WAS NOT CITED AND REFERRED TO. THE JUDGMENT IN THE CASE OF CHARANJIV CHARITABLE TRUST (SUPRA) IS AUTHORED BY THE SAME JUDGE, WHO HAS ALSO AUTHORED THE DECISION IN THE CASE OF VISHWA JAGRITI MISSION (SUPRA). IT IS OBVIOUS THAT IN CHARANJ IV CHARITABLE TRUST (SUPRA), THE DIVISION BENCH COULD NOT HAVE TAKEN A DIFFERENT VIEW ON THE LEGAL RATIO AS INTERPRETED IN VISHWA JAGRITI MISSION (SUPRA). FURTHER, THE DECISIONS IN THE CASE OF VISHWA JAGRITI MISSION AND INDIAN TRADE PROMOTION ORGANISATION (SUPRA) BEING PRIOR IN POINT OF TIME WOULD ACT AS BINDING PRECEDENTS AND COULD NOT HAVE BEEN OVERRULED OR DISSENTED FROM BY A COORDINATE DIVISION BENCH. 11. BY FINANCE (NO. 2) ACT OF 2014, SUB - SECTION (6) TO SECTION 11 STANDS INSERTED WITH EFFECT FROM 1ST APRIL, 2015 TO THE EFFECT THAT WHERE ANY INCOME IS REQUIRED TO BE APPLIED, 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 AN ASSET, THE ACQUISITION OF WHICH HAS BEEN CLAIMED AS APPLICATION OF INCOME UNDER THIS SECTION IN THE SAME OR ANY OTHER PREVIOUS YEAR. THE LEGAL POSITION, THEREFORE, WOULD UNDERGO A CHANGE IN TERMS OF SECTION 11(6), WHICH HAS BEEN INSERTED AND APPLICABLE WITH EFFECT FROM 1ST APRIL, 2015 AND NOT TO THE ASSESSMENT YEARS IN QUESTION. THE NEWLY ENACTED SUB - SECTION RELATES TO APPLICATION OF INCOME. 12. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN THE APPEALS IN THE CASE OF INDRAPRASTHA CANCER SOCIETY, A BUL KALAM AZAD ISLAMIC AWAKENING AND IN THE CASE OF M/S SANSKRITI EDUCATIONAL SOCIETY (ITA NO. 348/2014). SIMILARLY, WE DO NOT THINK IT IS NECESSARY AND REQUIRED THAT WE SHOULD ISSUE NOTICE IN THE APPLICATION FOR CONDONATION OF DELAY FILED IN THE CASE OF M /S SANSKRITI EDUCATIONAL SOCIETY (ITA NOS. 463 AND 464/2014) AS ON MERITS THE REVENUE IS NOT ENTITLED TO SUCCEED. IN THESE APPEALS, THE APPLICATIONS FOR CONDONATION OF DELAY SHALL BE TREATED AS DISMISSED AND AS A SEQUITUR THE APPEALS WILL BE TREATED AS DIS MISSED. 7. ON THIS ISSUE , HON MADRAS HIGH COURT RECENTLY IN DIT V M/S MEDICAL TRUST OF THE SEVENTH DAY ADVENTISTS [ 2017 - TIOL - 1665 - HC - MAD - IT ] HAS HELD AS UNDER : - 2. IN SO FAR AS THE ISSUE IS COMMON ACROSS APPEALS, WE SET OUT BELOW THE QUESTION OF LAW I N T.C.A.NO.475 TO 478 OF 2011 AS REPRESENTATIVE OF THE ISSUE INVOLVED IN ALL APPEALS: - '(A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN ALLOWING DOUBLE DEDUCTION WITHOUT CONSIDERING THE PRINCIPLES LAID DOWN IN 199 ITR 43(S C) ?' PAGE 13 OF 18 3. THE ISSUE BEFORE US RELATES TO THE GRANT OF DEPRECIATION TO AN ENTITY SEEKING EXEMPTION IN TERMS OF SECTION 11 OF THE INCOME TAX ACT. (IN SHORT 'ACT) WHICH DEALS WITH THE ASSESSMENT OF INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES. THE RELEVANT PARTS OF SECTION 11 READ AS FOLLOWS: - 1. (1) SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63, THE FOLLOWING INCOME SHALL NOT BE INC LUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME - (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; A ND, WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF FIFTEEN PER CENT OF THE INCOME FROM SUCH PROPERTY; ....... ....... (4) FOR TH E PURPOSES OF THIS SECTION 'PROPERTY HELD UNDER TRUST' INCLUDES A BUSINESS UNDERTAKING SO HELD, AND WHERE A CLAIM IS MADE THAT THE INCOME OF ANY SUCH UNDERTAKING SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PERSONS IN RECEIPT THEREOF, THE ASSESSING OFF ICER SHALL HAVE POWER TO DETERMINE THE INCOME OF SUCH UNDERTAKING IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT RELATING TO ASSESSMENT; AND WHERE ANY INCOME SO DETERMINED IS IN EXCESS OF THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDERTAKING, SUCH EXCESS S HALL BE DEEMED TO BE APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES. (4A) SUB - SECTION (1) OR SUB - SECTION (2) OR SUB - SECTION (3) OR SUB - SECTION (3A) SHALL NOT APPLY IN RELATION TO ANY INCOME OF A TRUST OR AN INSTITUTION, BEING PROFITS AND G AINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR, AS THE CASE MAY BE, INSTITUTION, AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. (5) THE FORMS A ND MODES OF INVESTING OR DEPOSITING THE MONEY REFERRED TO IN CLAUSE (B) OF SUB - SECTION (2) SHALL BE THE FOLLOWING, NAMELY : - (I)...... (II)...... ....... (6) IN THIS SECTION WHERE ANY INCOME IS REQUIRED TO 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. 4. THE VARIOUS SUB - SECTIONS OF SECTION 11 STIPULATE THE METHODOLOGY FOR COMPUTING THE INCOME APPLIED TO CHARITABLE AND RELIGIOUS PURPOSES AND THE 15% THAT MAY BE ACCUMULATED OR SET APART. THE SECTION ALSO ENVISAGES THE INCL USION OF A BUSINESS UNDERTAKING IN THE PROPERTY HELD UNDER TRUST AND THE DETERMINATION OF INCOME THEREFROM. SUB SECTION 5 SETS OUT THE ACCEPTABLE FORMS AND MODES OF INVESTMENT FOR THE PURPOSES OF PROPER APPLICATION. SUB - SECTION 6, INSERTED BY FINANCE II AC T, 2014 WITH EFFECT FROM 1.4.2015, STATES THAT THE INCOME TO BE DETERMINED FOR THE PURPOSES OF APPLICATION OR ACCUMULATION SHALL NOT INCLUDE A DEDUCTION OR ALLOWANCE BY WAY OF DEPRECIATION OR OTHERWISE IN RESPECT OF ANY ASSET, THE ACQUISITION OF WHICH HAS BEEN CLAIMED AS AN APPLICATION OF AN INCOME UNDER THE PROVISIONS OF SECTION 11 IN THE SAME OR ANY OTHER PREVIOUS YEAR. THE APPLICATION OF THIS SUB - SECTION RETROSPECTIVELY IN REGARD TO ASSESSMENT YEARS PRIOR TO 01.04.2015 IS THE SUBJECT MATTER OF CHALLENGE IN TCA.NO.949 OF 2015 TO WHICH WE SHALL ADVERT PRESENTLY. 5. SECTION 11 WAS INSERTED IN THE INCOME TAX ACT 1961 PROVIDING FOR AN EXEMPTION IN RESPECT OF INCOME FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE AND RELIGIOUS PURPOSES. 'CHARITABLE PURPOSE S IS DEFINED IN TERMS OF SECTION 2(15) OF THE ACT TO MEAN RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE CLAUSE HAS BEEN MODIFIED OVER THE YEARS SUCH THAT IN ITS PRESENT FORM, IT INCLUD ES WITHIN ITS AMBIT YOGA AND THE PRESERVATION OF ENVIRONMENT, MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST. THE OBJECT OF SECTION 11 IS THUS LAUDABLE AND SEEKS TO EXTEND A BENEFIT TO ENTITIES ENGAGING IN ACTIVITY OF A SPECIFIED NATURE. I N THE PRESENT BATCH OF APPEALS THERE IS NO DISPUTE IN THIS REGARD. 6. WE HAVE HEARD MR.J.NARAYANASWAMY APPEARING ON BEHALF OF THE REVENUE AND SEVERAL COUNSELS APPEARING ON BEHALF OF THE ASSESSES AND SET OUT IN BRIEF THE SUBMISSIONS ADVANCED. 7. MR. J.NARAY ANASWAMY WOULD CONTEND THAT THE PROVISIONS OF SECTION 32 GRANTING DEPRECIATION HAVE NOT BEEN MADE SPECIFICALLY APPLICABLE TO SECTION 11. ACCORDING TO HIM, THE PROVISIONS OF SECTION 11 EXTEND A BENEFIT TO AN ASSESSEE BY WAY OF EXEMPTION AND GRANTING DEPRECI ATION IN ADDITION WOULD AMOUNT TO A DOUBLE BENEFIT THAT HAS TO BE SPECIFICALLY CONFERRED. HE WOULD RELY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ESCORTS LIMITED AND ANOTHER VS. UNION OF INDIA AND OTHERS (SC) (1999 ITR 43) WHICH DEALS WITH THE GR ANT OF DEPRECIATION TO AN ASSESSEE ALSO CLAIMING WEIGHTED DEDUCTION UNDER SECTION 35(1) OF THE ACT IN RESPECT OF EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH. 8. THE PROVISION, AS IT ORIGINALLY STOOD, PLACED NO RESTRICTION ON THE CLAIM OF WEIGHTED DEDUCTION SIMULTANEOUS WITH THE CLAIM OF DEPRECIATION. WHILE THIS IS SO, IT WAS FELT THAT SUCH DOUBLE CLAIM WAS NOT THE INTENTION OF LEGISLATURE AND THE PROVISIONS OF SECTION 35(2) (IV) WERE AMENDED TO PROVIDE THAT WHERE A DEDUCTION WAS ALLOWED FOR ANY PREVIOUS YEA R IN TERMS OF SECTION 35(1), NO DEPRECIATION WAS LIABLE TO BE ALLOWED FOR THE SAME OR ANY OTHER PREVIOUS YEAR IN RESPECT OF THAT ASSET. 10.THE AMENDMENT WAS MADE TO OPERATE RETROSPECTIVELY WITH EFFECT FROM 1.4.1962 AND THE SUPREME COURT, WHILE UPHOLDING TH E RETROSPECTIVE APPLICATION OF THE PROVISION STATES THUS: - 'WE THINK THAT ALL MISCONCEPTION WILL VANISH AND ALL THE PROVISIONS WILL FALL INTO PLACE, IF WE BEAR IN MIND A FUNDAMENTAL, THOUGH UNWRITTEN, AXIOM THAT NO LEGISLATURE COULD HAVE AT ALL INTENDED A DOUBLE DEDUCTION IN REGARD TO THE SAME BUSINESS OUTGOING; AND IF IT IS INTENDED IT WILL BE CLEARLY EXPRESSED. IN OTHER WORDS, IN THE ABSENCE OF CLEAR STATUTORY INDICATION TO THE CONTRARY, THE STATUTE SHOULD NOT BE READ SO AS TO PERMIT AN ASSESSEE TWO DEDUC TIONS BOTH UNDER S.10(2)(VI) AND S.10(2)(XIV) UNDER THE 1922 ACT OR UNDER S.32(1)(II) AND 35(2)(IV) OF THE 1922 ACT QUA THE SAME EXPENDITURE.' ...... ..... PAGE 14 OF 18 '15.FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT, EVEN BEFORE THE 1980 - AMENDMENT, TH E ACT DID NOT PERMIT A DEDUCTION FOR DEPRECIATION IN RESPECT OF THE COST OF A CAPITAL ASSET ACQUIRED FOR PURPOSES OF SCIENTIFIC RESEARCH TO THE EXTENT SUCH COST HAS BEEN WRITTEN OFF UNDER S.10(2) (XIV)/35 (1) & (2). PRIOR TO 1968, SUCH ASSETS QUALIFIED FOR AN ALLOWANCE OF ONE - FIFTH OF THE COST OF THE ASSET IN FIVE PREVIOUS YEARS STARTING WITH THAT OF ITS ACQUISITION AND DURING THESE YEARS THE ASSESSEE COULD NOT GET ANY DEPRECIATION IN RELATION THERETO. IN RESPECT OF ASSETS ACQUIRED IN PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1968 - 69 AND THEREAFTER, THEIR COST WAS WRITTEN OFF IN THE PREVIOUS YEAR OF ACQUISITION AND NO DEPRECIATION COULD BE ALLOWED IN THAT YEAR. THIS IS CLEAR FROM THE STATUTE. EQUALLY, IT IS NOT ENVISAGED, AND INDEED, IT WOULD BE MEANINGLESS TO SAY, THAT DEPRECIATION COULD BE ALLOWED ON THEM THEREAFTER WITH A FURTHER ABSURDITY THAT IT COULD BE ALLOWED STARTING WITH THE ORIGINAL COST OF THE ASSET DESPITE ITS USER FOR SCIENTIFIC RESEARCH AND THE ALLOWANCES MADE UNDER THE 'SCIENTIFIC RESEARCH' CL AUSE. IN OUR VIEW, THERE WAS NO DIFFICULTY AT ALL IN THE INTERPRETATION OF THE PROVISIONS. THE MERE FACT THAT A BASELESS CLAIM WAS RAISED BY SOME OVER - ENTHUSIASTIC ASSESSEES WHO SOUGHT A DOUBLE ALLOWANCE OR THAT SUCH CLAIM MAY PERHAPS HAVE BEEN ACCEPTED BY SOME AUTHORITIES IS NOT SUFFICIENT TO ATTRIBUTE ANY AMBIGUITY OR DOUBT AS TO THE TRUE SCOPE OF THE PROVISIONS AS THEY STOOD EARLIER.' 10. RELIANCE WAS PLACED BY MR. NARAYANASWAMY ON PARAGRAPH 7 OF THE JUDGMENT THAT READS AS FOLLOWS: - 'I FIND IT DIFFICULT TO AGREE WITH THE REASONING OF THE ASSESSEES. ACCEDING TO IT WOULD AMOUNT TO PLACING AN UNREASONABLE INTERPRETATION UPON THE RELEVANT PROVISIONS AND TO NEGATING THE INTENTION OF PARLIAMENT. I FIND IT DIFFICULT TO AGREE THAT TH E INDIAN LEGISLATURE - AS ALSO THE PARLIAMENT MADE A CONSCIOUS DEPARTURE FROM THE ENGLISH AMENDMENT WITH THE IDEA OF PROVIDING AN ADDITIONAL BENEFIT TO INDUCE THE INDIAN ASSESSEES TO INVEST MORE IN SCIENTIFIC RESEARCH. I FIND THE ARGUMENT RATHER CONVOLUTED. IF THE INTENTION OF THE LEGI SLATURE/PARLIAMENT WAS TO PROVIDE MORE THAN 100% DEDUCTION, THEY WOULD HAVE SAID SO, AS THEY HAVE DONE IN CASES WHERE THEY PROVIDED FOR WHAT IS CALLED WEIGHTED DEDUCTION'. (FOR EXAMPLE, SEE SECTION 35(B) OF 1961 ACT). A DOUBLE DEDUCTION CANNOT BE A MATTER OF INFERENCE, IT MUST BE PROVIDED FOR IN CLEAR AND EXPRESS LANGUAGE REGARD HAVING TO ITS UNUSUAL NATURE AND ITS SERIOUS IMPACT ON THE REVENUES OF THE STATE. ........ ........ 'THAT THE PARLIAMENT NEVER INTENDED TO PROVIDE FOR A DOUBLE DEDUCTION IS ALSO TH E OPINION OF THE DIRECT TAX LAW COMMITTEE. IN ITS INTERIM REPORT, (DECEMBER, 1977) THE COMMITTEE (POPULARLY KNOWN AS 'CHOKSI COMMITTEE') HAD THIS TO SAY IN PARA 3.29 OF ITS REPORT: '3.29. - OUR ATTENTION HAS ALSO BEEN DRAWN TO CERTAIN ANOMALOUS SITUATIONS I N THE MATTER OF ALLOWANCE OF DEPRECIATION. IN CERTAIN CASES WHERE A FULL DEDUCTION HAS BEEN ALLOWED IN RELATION TO A CAPITAL ASSET UNDER OTHER SECTIONS (AS FOR EXAMPLE, SECTION 35 WHICH PERMITS A DEDUCTION IN RESPECT OF CAPITAL EXPENDITURE FOR SCIENTIFIC R ESEARCH), THE TAX PAYERS HAVE CONTENDED THAT SUCH DEDUCTION IS INDEPENDENT OF THE ALLOWANCE BY WAY OF DEPRECIATION. IN OUR VIEW, THE INTENTION OF THE LEGISLATURE IS NOT TO ALLOW A DOUBLE DEDUCTION (OF 20%) IN RESPECT OF THE SAME ASSET, ONCE UNDER SECTION 3 5 AND, AGAIN, BY WAY OF DEPRECIATION UNDER SECTION 35. IF AND TO THE EXTENT THAT THERE IS ANY ANOMALY OR CONTRARY VIEW POSSIBLE ON A CONSTRUCTION OF SECTION 35, WE RECOMMEND THAT THE LAW SHOULD BE CLARIFIED TO PROVIDE THAT NO DEPRECIATION UNDER SECTION 35 SHALL BE ALLOWABLE IN RESPECT OF CAPITAL EXPENDITURE FOR SCIENTIFIC RESEARCH QUALIFYING FOR DEDUCTION UNDER SECTION 35. 11. HE WOULD ARGUE THAT THAT GRANTING DEPRECIATION SIMULTANEOUS WITH EXEMPTION UNDER SECTION 11 WOULD RESULT IN A RELIEF OVER AND ABOVE 100 % OF THE INCOME WHICH WAS NOT PERMISSIBLE UNDER STATUTE. 12. OUR ATTENTION WAS DRAWN TO THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS VS. COMMISSIONER OF INCOME TAX, KOCHI, (348 ITR 344) = 2012 - TIOL - 303 - HC - KERALA - IT WHICH HAD CONCLUDED THE ISSUE IN FAVOUR OF THE REVENUE. THE KERALA HIGH COURT HAD THIS TO SAY; 'IN FACT THE NET EFFECT IS THAT AFTER WRITING OFF FULL VALUE OF THE CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND WHEN THE ASSESSEE AGAIN CLAIMS THE SAME AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL CLAIM BECOMES CAS H SURPLUS AVAILABLE WITH THE ASSESSEE, WHICH GOES OUTSIDE THE BOOKS OF ACCOUNTS OF THE TRUST UNLESS IT IS WRITTEN BACK WHICH IS NOT DONE.' ......... ........... 'WE HAVE NO DOUBT IN OUR MIND THAT BUSINESS INCOME OF CHARITABLE TRUST ALSO HAS TO BE COMPUTED IN THE SAME MANNER AS PROVIDED U/S 29 OF THE INCOME TAX ACT. HOWEVER, THE ISSUE THAT REQUIRES CONSIDERATION IS WHEN THE EXPENDITURE INCURRED FOR ACQUISITION OF D EPRECIABLE ASSETS ITSELF IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES U/S 11(1)(A) OF THE ACT, SHOULD NOT THE COST OF SUCH ASSETS TO BE TREATED AS NIL FOR THE ASSESSEE AND IN THAT SITUATION DEPRECIATION TO BE GRANTED TURNS OUT TO BE NIL. HOW EVER, IF DEPRECIATION PROVIDED IS CLAIMED ON NOTIONAL COST AFTER THE ASSESSEE CLAIMS 100% OF THE COST INCURRED FOR IT AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES, THE DEPRECIATION SO CLAIMED HAS TO BE WRITTEN BACK AS INCOME AVAILABLE. IN FACT, GOING B Y THE SEVERAL DECISIONS OF THE VARIOUS HIGH COURTS, WE ARE SURE THAT BASED ON THESE DECISIONS ALL THE CHARITABLE INSTITUTIONS WILL BE GENERATING UNACCOUNTED INCOME EQUAL TO THE DEPRECIATION AMOUNT CLAIMED ON AN YEAR TO YEAR BASIS WHICH IS NOTHING BUT BLACK MONEY. THIS ASPECT IS NOT SEEN CONSIDERED IN ANY OF THESE DECISIONS.' 13. THE CONTENTIONS OF THE LEARNED COUNSELS FOR THE ASSESSEES ARE AS FOLLOWS: (I) MR. SRIDHAR WOULD STATE THAT IN COMPUTING THE INCOME OF AN ENTITY ATTRACTING THE PROVISIONS OF SECTION 11, THE PRINCIPLES OF COMMERCIAL ACCOUNTING WERE LIABLE TO BE FOLLOWED. HE WOULD RELY ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES (1982) (135 ITR 485) = 2003 - TIOL - 984 - HC - MAD - IT AND BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. INSTITUTE OF BANKING PERSONNEL SELECTION (2003) (264 ITR 110) . A DISTINCTION WAS SOUGHT TO BE MADE BETWEE N COMPUTATION IN TERMS OF SECTION 2(45) DEFINING 'TOTAL INCOME, AND COMPUTATION OF 'INCOME IN TERMS OF SECTION 11 OF THE ACT. REFERRING TO THE SCHEME OF SECTION 11, HE WOULD CONTEND THAT THE PROVISIONS THEREOF CONSTITUTED A COMPLETE CODE WHICH TOOK INTO ACCOUNT THE APPLICATION OF DEPRECIATION AS A COMMERCIAL PRINCIPLE AND NOT NECESSARILY ONE OF ACCOUNTANCY. 14. MR. J. BALACHANDER WOULD REFER TO THE DECISIONS OF THE KERALA HIGH COURT IN CATHOLIC DIOCESE OF TIRUVALLA V. STATE OF KERALA (209 ITR 596) AND AND HRA PRADESH HIGH COURT IN CIT V.TRUSTEE OF H.E.H.NIZAMM'S SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST (127 ITR 378) , IN SUPPORT OF HIS SUBMISSION THAT COMMERCIAL PRINCIPLES OF ACCOUNTING ARE TO BE APPLIED IN COMPUTING INCOME FOR THE PURPOSES OF SECTION 11. HE W OULD REFER TO THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IN SHORT ICAI) TO THE EFFECT THAT DEPRECIATION WAS A MANDATORY CHARGE IN THE COMPUTATION OF INCOME OF A TRUST. 15. MR.N. DEVANATHAN WOULD DISTINGUISH THE FACT S OF ESCORTS (SUPRA) FROM THE PRESENT CASE ON THE GROUND THAT BY VIRTUE OF GRANTING WEIGHTED DEDUCTION UNDER SECTION 35, THE ASSET ITSELF WAS EFFACED WHICH IS NOT THE CASE IN AN ASSESSMENT PAGE 15 OF 18 UNDER SECTION 11 OF THE ACT. HE WOULD ALSO POINT OUT THAT THE DEPAR TMENT HAD FILED PETITIONS FOR SPECIAL LEAVE CHALLENGING THE DECISIONS OF THE PUNJAB AND HARYANA HIGH COURT FAVOURING THE ASSESSEE THAT HAD BEEN DISMISSED WHEREAS, THE SPECIAL LEAVE PETITIONS FILED BY THE ASSESSEE CHALLENGING THE DECISION OF THE KERALA HIGH COURT AND OTHER CASES FOLLOWING THE DECISION OF THE KERALA HIGH COURT IN LISSIE MEDICAL INSTITUTIONS (SUPRA) HAD BEEN ADMITTED BY THE SUPREME COURT. THUS ACCORDING TO HIM, THE SUPREME COURT HAD CLEARLY RECOGNIZED THE ERROR IN THE DECISION OF THE KERALA HI GH COURT. 16. MR. R. KUMAR, APPEARING FOR THE ASSESSEE/RESPONDENT IN TCA.NO.993 OF 2015 WOULD POINT OUT THAT THE ORDERS OF THE INCOME TAX APPELLATE TRIBUNAL IN THE SAME ASSESSEE'S CASE FOR THE PREVIOUS YEARS ON THE IDENTICAL ISSUE, HAD CONSIDERED THE JUDGM ENT OF THE SUPREME COURT IN ESCORTS AND HAD DISTINGUISHED THE SAME. THE AFORESAID ORDERS OF THE TRIBUNAL DATED 25.03.2011 HAVE ATTAINED FINALITY. THUS, WHILE ADOPTING THE ARGUMENTS OF OTHER COUNSELS, HE WOULD ADD THAT THE PRINCIPLE OF CONSISTENCY STOOD VIO LATED IN HIS CASE. 17. MR.N.V.BALAJI, WOULD ADDRESS US SPECIFICALLY ON ACCOUNTING STANDARD 6 DEALING WITH DEPRECIATION ACCOUNTING ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND MADE MANDATORY ON OR AFTER 1.4.1995 IN THE FOLLOWING TERMS: 'THE REFERENCE TO COMMERCIAL, INDUSTRIAL OR BUSINESS ENTERPRISES IN THE AFORESAID PARAGRAPH IS IN THE CONTEXT OF THE NATURE OF ACTIVITIES CARRIED ON BY THE ENTERPRISE RATHER THAN WITH REFERENCE TO ITS OBJECTS. IT IS QUITE POSSIBLE THAT AN ENTERPRISE HAS CHARIT ABLE OBJECTS BUT IT CARRIES ON, EITHER WHOLLY OR IN PART, ACTIVITIES OF A COMMERCIAL, INDUSTRIAL OR BUSINESS NATURE IN FURTHERANCE OF ITS OBJECTS. THE BOARD BELIEVES THAT ACCOUNTING STANDARDS APPLY IN RESPECT OF COMMERCIAL, INDUSTRIAL OR BUSINESS ACTIVITIE S OF ANY ENTERPRISE, IRRESPECTIVE OF WHETHER IT IS PROFIT ORIENTED OR IS ESTABLISHED FOR CHARITABLE OR RELIGIOUS PURPOSES. ACCOUNTING STANDARDS WILL NOT, HOWEVER, APPLY TO THOSE ACTIVITIES WHICH ARE NOT OF COMMERCIAL, INDUSTRIAL OR BUSINESS NATURE, (E.G., AN ACTIVITY OF COLLECTING DONATIONS AND GIVING THEM TO FLOOD AFFECTED PEOPLE.) IT IS ALSO CLARIFIED THAT EXCLUSION OF AN ENTITY FROM THE APPLICABILITY OF THE ACCOUNTING STANDARDS WOULD BE PERMISSIBLE ONLY IF NO PART OF THE ACTIVITY OF SUCH ENTITY WAS COMME RCIAL, INDUSTRIAL OR BUSINESS IN NATURE. FOR THE REMOVAL OF DOUBTS, IT IS CLARIFIED THAT EVEN IF A VERY SMALL PROPORTION OF THE ACTIVITIES OF AN ENTITY WAS CONSIDERED TO BE COMMERCIAL, INDUSTRIAL OR BUSINESS IN NATURE, THEN IT COULD NOT CLAIM EXEMPTION FRO M THE APPLICATION OF ACCOUNTING STANDARDS. THE ACCOUNTING STANDARDS WOULD APPLY TO ALL ITS ACTIVITIES INCLUDING THOSE WHICH WERE NOT COMMERCIAL, INDUSTRIAL OR BUSINESS IN NATURE.' 18. THIS WAS CLARIFIED BY THE 'TECHNICAL GUIDE ON INTERNAL AUDIT FOR NOT - FOR PROFIT ORGANIZATIONS ISSUED BY THE INTERNAL AUDIT STANDARDS BOARD OF THE ICAI RECOMMENDING THAT THE ACCOUNTING STANDARDS SETTING OUT WHOLESOME PRINCIPLES OF ACCOUNTING INCLUDING DEPRECIATION SHOULD BE FOLLOWED BY ALL NON - PROFIT ORGANISATIONS IRRESPECTIVE OF WHETHER ANY PART OF THEIR ACTIVITY MIGHT BE COMMERCIAL, INDUSTRIAL OR BUSINESS IN NATURE. 19. WE HAVE HEARD THE ARGUMENTS IN DETAIL AND CAREFULLY PERUSED THE DOCUMENTS RELIED UPON AS WELL AS CASE LAW CITED. 20. DEPRECIATION, AS DEFINED IN SPICER AND PE GLER'S BOOK - KEEPING AND ACCOUNTS IS THE MEASURE OF THE EXHAUSTION OF THE EFFECTIVE LIFE OF A FIXED ASSET OWING TO USE OR OBSOLESCENCE DURING A GIVEN PERIOD. IT MAY BE REGARDED AS THAT PART OF THE COST OF THE ASSET WHICH WILL NOT BE RECOVERABLE WHEN THE ASS ET IS FINALLY PUT OUT OF USE. THE OBJECT OF PROVIDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE INCURRED IN ACQUIRING THE ASSET OVER ITS EFFECTIVE LIFETIME, AND THE AMOUNT OF PROVISION MADE IN RESPECT OF AN ACCOUNTING PERIOD IS EXTENDED TO REPRESENT TH E PROPORTION OF SUCH EXPENDITURE WHICH HAS EXPIRED DURING THAT PERIOD. 21. THE NECESSITY OF PROVIDING FOR DEPRECIATION EMANATES FROM THE FACT THAT ONCE AN ASSET CEASES TO BE EFFECTIVE, IT WILL HAVE TO BE REPLACED. PROVIDING FOR DEPRECIATION WOULD ENSURE SE TTING ASIDE OUT OF THE REVENUE OF AN ACCOUNTING PERIOD, THE ESTIMATED AMOUNT BY WHICH THE CAPITAL INVESTMENT HAS EXPIRED DURING THAT PERIOD. THIS PROVISION, INCURRED FOR THE USE OF THAT ASSET FOR THE PURPOSE OF EARNED PROFIT SHOULD BE CHARGED AGAINST THOSE PROFITS AS AND WHEN EARNED. SPICER, AND PEGLER, AT PAGE 45, STATES AS FOLLOWS: - 'IF DEPRECIATION IS NOT PROVIDED FOR, THE BOOKS WILL NOT CONTAIN A TRUE RECORD OF REVENUE OR CAPITAL. IF THE ASSET WERE HIRED INSTEAD OF PURCHASED, THE HIRING FEE WOULD BE CHA RGED AGAINST THE PROFITS; HAVING BEEN PURCHASED, THE ASSET IS, IN EFFECT, THEN HIRED BY CAPITAL TO REVENUE, AND THE TRUE PROFIT CANNOT BE ASCERTAINED UNTIL AN ANALOGOUS CHARGE FOR THE USE OF THE ASSET HAS BEEN MADE. MOREOVER, UNLESS PROVISION IS MADE FOR D EPRECIATION, THE BALANCE SHEET WILL NOT PRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS, SINCE THE ASSETS WILL BE SHOWN AT AN AMOUNT WHICH IS IN EXCESS OF THE TRUE AMOUNT OF THE UNEXPIRED EXPENDITURE INCURRED ON THEIR ACQUISITION.' 22. THE CLAIM OF DE PRECIATION IS THUS PART OF STANDARD ACCOUNTING PRACTICE WHICH IS REQUIRED FOR FAIR PRESENTATION OF A COMPANY'S FINANCIALS. THE COMPUTATION OF INCOME IN THE CASE OF AN ENTITY TO WHICH SECTION 11 IS APPLICABLE WOULD BE IN TWO STAGES. FIRSTLY, THE DETERMINATI ON OF THE PROFIT ARRIVED AT, WHICH WOULD BE THE TOTAL RECEIPTS NET OF EXPENDITURE AND DEPRECIATION INCURRED IN EARNING THE RECEIPTS, AND SECONDLY THE STAGE OF APPLICATION TO CHARITABLE/RELIGIOUS OBJECTS. THE TWO STAGES ARE DISTINCT AND ARE REQUIRED TO BE C OMPLIED WITH CONSECUTIVELY IN ORDER TO DETERMINE THE CORRECT INCOME AND ITS APPLICATION. 23. THE QUESTION BEFORE THE SUPREME COURT IN THE MATTER OF ESCORTS RELATED TO DUEL CLAIMS UNDER SECTION 35 OF THE ACT IN RELATION TO THE SAME ASSET THE FIRST, WEIGHT ED DEDUCTION AND THE SECOND, DEPRECIATION. THUS, TWO BENEFITS WERE EXTENDED IN RESPECT OF THE VERY SAME ASSET. WE ARE FACED WITH AN ENTIRELY DIFFERENT AND DISTINCT POSITION IN THE PRESENT BATCH OF APPEALS ONE THAT INVOLVES A CLAIM FOR EXEMPTION IN RESPEC T OF INCOME EARNED FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES. WE SEE NO DOUBLE BENEFIT THAT IS EXTENDED TO THE ASSESSEE IN THIS REGARD. 24. TRUTH TO TELL, THIS COURT IN THE MATTER OF CALAVALA CUNNAN CHARITIES, HAS DECIDED THE QUESTION NOW UND ER CONSIDERATION IN FAVOUR OF THE ASSESSEE AND WE COULD WELL HAVE DECIDED THIS BATCH OF APPEALS SIMPLY ON THE STRENGTH OF THE AFORESAID DECISION. WE ARE HOWEVER PERSUADED TO PROCEED FURTHER WITH THE DISCUSSION SINCE A CONFLICTING VIEW HAS BEEN EXPRESSED BY THE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS (SUPRA). THOUGH THE ATTENTION OF THE DIVISION BENCH OF THE KERALA HIGH COURT WAS DRAWN TO THE DECISION IN RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES (SUPRA) AND SEVERAL DECISIONS ALONG SIM ILAR LINES, THE COURT WAS PERSUADED TO TAKE A CONTRARY VIEW PREFERRING TO FOLLOW THE RATIONALE OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ESCORTS (SUPRA). 25. AS NOTED BY US EARLIER, THE JUDGMENT OF THE SUPREME COURT IN ESCORTS TURNS ON AN ENTIREL Y DIFFERENT POSITION OF LAW AND WOULD NOT IMPACT THE ISSUE BEING DISCUSSED IN THE PRESENT CASE. 26. WE ARE SUPPORTED IN OUR VIEW BY A PLETHORA OF DECISIONS OF VARIOUS HIGH COURTS - THE BOMBAY HIGH COURT IN THE CASE OF CIT V. MUNISUVRAT JAIN (1994 TAX LAW R EPORTER 1084) AND DIT (EXEM) VS. FRAMJEE CAWASJEE INSTITUTE (109 CTR 463); KARNATAKA HIGH COURT IN CIT VS. SOCIETY OF THE SISTERS OF ST.ANNE (146 ITR 28); MADHYAPRADESH HIGH COURT IN CIT VS. RAIPUR PALLOTTINE SOCIETY (180 ITR 579); GUJARATH HIGH COURT IN C IT VS. SHETH MANILAL RACHHNODDAS VISHRAM BHAVAN TRUST 198 ITR 598 = 2003 - TIOL - 944 - HC - AHM - IT ; PUNJAB AND HARYANA HIGH COURT IN CIT VS. MARKET COMMITTEE PIPLI (330 ITR 16) AND C IT VS. TINY TOTS EDUCATION SOCIETY (330 ITR 21) = 2010 - TIOL - 550 - HC - P&H - IT ; PAGE 16 OF 18 MADHYAPRADESH HIGH COURT IN CIT VS. DEVI SAKUNTALA THARAL CHARITABLE FOUNDATION (358 ITR 452) AND T HE CALCUTTA HIGH COURT IN CIT VS. SILLUGURI REGULATED MARKET COMMITTEE (366 ITR 51). IN ADDITION, THE DELHI HIGH COURT IN DIT VS. VISHWA JAGRITI MISSION 262 CTR 558 = 2012 - TIOL - 271 - HC - DEL - IT AND THE KARNNATAKA HIGH COURT IN DIT (EXEM) VS AL - AMEEN CHARITABLE FUND TRUST (2016) 67 TAXMAN N.COM 160 = 2016 - TIOL - 463 - HC - KAR - IT HAVE ACCEPTED THE CLAIM OF THE ASSESSEE DISTINGUISHING BOTH THE JUDGMENT OF THE SUPREME COURT IN ESCORTS AS WELL AS THAT OF THE KER ALA HIGH COURT. 27.IN VIEW OF THE DISCUSSION ABOVE, THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. TCA.NO.949 OF 2015 28. T.C.A.NO.949 OF 2015 HAS BEEN FILED BY THE ASSESSEE RAISING THE FOLLOWING TWO SUBSTANTIAL QUESTION S OF LAW. '1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN DISALLOWING THE CLAIM OF DEPRECIATION ON ASSETS ACQUIRED BY WAY OF APPLICATION OF FUNDS IN THE EARLIER YEARS, CONTRARY TO JUDGMENTS OF SEVERAL HIGH COURTS? 2. WHETH ER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS RIGHT IN LAW IN HOLDING THAT THE EXCESS APPLICATION OF THE EARLIER YEAR COULD NOT BE SET OFF AGAINST THE INCOME OF THE CURRENT YEAR CONTRARY TO THE JUDGMENT OF THIS HONOURABLE COURT IN T HE CASE OF MATRISEVA TRUST (2000) 242 ITR 20(MAD)? 29. LEARNED SENIOR COUNSEL APPEARING FOR M/S.ST. THOMAS ORTHODOX SYRIAN CATHEDRAL PARISH TRUST, THE ASSESSEE, MRS. PUSHYA SITARAMAN WOULD CONTEND THAT THE EXCESS APPLICATION OF EARLIER YEARS WAS LIABLE TO SET OFF AGAINST THE INCOME OF THE CURRENT YEAR AND RELIED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MATRISEVA TRUST (242 ITR 20) . WHILE SRI.J.NARAYANASWAMY, LEARNED COUNSEL APPEARING FOR THE DEPARTMENT DOES NOT SERIOUSLY OBJECT TO THE ARGUMENT ADVANCED ON MERITS, HE WOULD RAISE A TECHNICAL OBJECTION TO THE EFFECT THAT IN THE PRESENT CASE, THE CLAIM WAS MADE UNDER A REVISED RETURN. T HE ORIGINAL RETURN OF INCOME WAS FILED ONLY ON 31.10.2007 BEYOND 31.10.2006 WHEN IT WAS DUE AND AS SUCH WOULD DEBAR THE CONSIDERATION OF THE CLAIM MADE IN THE REVISED RETURN. 30. RECORDS REVEAL THAT THE ORIGINAL RETURN WAS FILED ON 31.10.2007 AND A REVISED RETURN WAS FILED ON 19.2.2008. NOTICE UNDER SECTION 148 WAS ISSUED ON 13.9.2010, IN RESPONSE TO WHICH, THE ASSESSEE FILED THE ORIGINAL RETURN DATED 31.10.2007. IN THE COURSE OF RE - ASSESSMENT, THE ASSESSING AUTHORITY REJECTS THE REVISED RETURN ON THE GROUN D THAT IT IS INADMISSIBLE IN VIEW OF THE PROVISIONS OF SECTION 139(5) REQUIRING THE ORIGINAL RETURN TO HAVE BEEN FILED WITHIN TIME. HE THUS, DOES NOT TAKE COGNIZANCE OF THE REVISED RETURN AND PROCEEDS ON THE BASIS OF THE ORIGINAL RETURN WHICH HAD OMITTED T O TAKE INTO ACCOUNT THE EXCESS APPLICATION OF PREVIOUS YEARS AS APPLICATION FOR THE PRESENT YEAR AND THE ASSESSMENT WAS COMPLETED ON THE BASIS OF THE ORIGINAL RETURN ALONE. THE COMMISSIONER OF INCOME TAX (APPEALS), ADJUDICATED THE ISSUE ON MERITS, DECIDING THE SAME AGAINST THE ASSESSEE WHICH ORDER WAS CONFIRMED BY THE INCOME TAX APPELLATE TRIBUNAL. 31. A RECENT AMENDMENT TO SECTION 139(5) READS THUS; 'FOLLOWING SUB - SECTION (5) SHALL BE SUBSTITUTED FOR THE EXISTING SUBSECTION( 5) OF SECTION 139 BY THE FINANC E ACT, 2016 W.E.F. 1.4.2017. (5) IF ANY PERSON, HAVING FURNISHED A RETURN UNDER SUB - SECTION (1) OR SUB - SECTION (4), DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT THEREIN, HE MAY FURNISH A REVISED RETURN AT ANY TIME BEFORE THE EXPIRY OF ONE YEAR FORM THE EN D OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT, WHICHEVER IS EARLIER.' 32. THE IMPORT OF THE ABOVE AMENDMENT IS THAT A RETURN MAY BE REVISED BOTH IN CASES OF ORIGINAL RETURNS FILED UNDER SUB SECTION (1) OR UNDER SUB SECTION (4 ) WITHIN THE EXTENDED PERIOD OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE COMPLETION OF ASSESSMENT, WHICHEVER IS EARLIER. THE AMENDMENT IS INTENDED TO CONFER A BENEFIT ON AN ASSESSEE AND THE RETROSPECTIVE APPLICATION THEREOF HAS TO BE EXAMINED BY THE ASSESSING AUTHORITY. WE REMAND THIS ISSUE TO THE FILE OF THE ASSESSING AUTHORITY FOR THE LIMITED PURPOSE OF EXAMINING THE APPLICABILITY OF THE AMENDMENT EXTRACTED ABOVE. IF THE AMENDMENT IS FOUND APPLICABLE TO THE ASSESSEE, THE RATIONALE O F THE DECISION OF THIS COURT IN MATRISEVA (SUPRA) SHALL BE APPLIED ON MERITS. 33. ADVERTING TO QUESTION NO.1, THE TRIBUNAL HAS, IN DENYING THE BENEFIT OF DEPRECIATION TO THE ASSESSEE, APPLIED THE PROVISIONS OF SUB SECTION 6 OF SECTION 11 READING AS FOLLOWS ; '(6) IN THIS SECTION WHERE ANY INCOME IS REQUIRED TO 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 A SSET, ACQUISITION OF WHICH HAS BEEN CLAIMED AS AN APPLICATION OF INCOME UNDER THIS SECTION IN THE SAME OR ANY OTHER PREVIOUS YEAR. .... 34.THE SHORT POINT THAT ARISES FOR DECISION IS WHETHER THE PROVISIONS OF SECTION 11(6) INSERTED BY FINANCE (NO.2) ACT, 2014 W.E.F. 1.4.2015, OPERATE PROSPECTIVELY WITH EFFECT FROM ASSESSMENT YEAR 2015 - 16 OR RETROSPECTIVELY WITH RESPECT TO EARLIER YEARS AS WELL. IN THIS REGARD, M/S.PUSHYA SITARAMAN, LEARNED SENIOR COUNSEL AND OTHER LEARNED COUNSELS APPEARING FOR THE ASSESSE S REFER TO THE PROVISIONS OF CIRCULAR 1 OF 2015 DATED 21.1.2015 (371 ITR (ST) 0022) CONTAINING EXPLANATORY NOTES TO THE PROVISIONS OF FINANCE (NO.2) ACT, 2014. THE RELEVANT PORTION OF THE CIRCULAR READS AS FOLLOWS; '7.3 SEVERAL ISSUES HAD ARISEN IN RESPECT OF THE APPLICATION OF EXEMPTION REGIME TO TRUSTS OR INSTITUTIONS IN RESPECT OF WHICH CLARITY IN LAW WAS REQUIRED. 7.4 THE FIRST ISSUE WAS REGARDING THE INTERPLAY O F THE GENERAL PROVISION OF EXEMPTIONS WHICH ARE CONTAINED IN SECTION 10 OF THE INCOME - TAX ACT VIS - - VIS THE SPECIFIC AND SPECIAL EXEMPTION REGIME PROVIDED IN SECTIONS 11 TO 13 OF THE SAID ACT. AS INDICATED ABOVE, THE PRIMARY OBJECTIVE OF PROVIDING EXEMPTIO N IN CASE OF CHARITABLE INSTITUTION IS THAT INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST SHOULD BE APPLIED AND UTILIZED FOR THE OBJECT OR PURPOSE FOR WHICH THE INSTITUTION OR TRUST HAS BEEN ESTABLISHED. IN MANY CASES IT HAD BEEN NOTED THAT TRUSTS OR I NSTITUTIONS WHICH ARE REGISTERED AND HAVE BEEN AVAILING BENEFITS OF THE EXEMPTION REGIME TO NOT APPLY THEIR INCOME, WHICH IS DERIVED FROM PROPERTY HELD UNDER TRUST, FOR CHARITABLE PURPOSES. IN SUCH CIRCUMSTANCES, WHEN THE INCOME BECOMES TAXABLE, A CLAIM OF EXEMPTION UNDER GENERAL PROVISIONS OF SECTION 10 IN RESPECT OF SUCH INCOME IS PREFERRED AND TAX ON SUCH INCOME IS AVOIDED. THIS DEFEATS THE VERY OBJECTIVE AND PURPOSE OF PLACING THE CONDITIONS OF APPLICATION OF INCOME, ETC., IN RESPECT OF INCOME DERIVED F ROM PROPERTY HELD UNDER TRUST IN THE FIRST PLACE. 7.4.1 SECTIONS 11, 12 AND 13OF THE INCOME - TAX ACT ARE SPECIAL PROVISIONS GOVERNING INSTITUTIONS WHICH ARE BEING GIVEN BENEFIT OF TAX EXEMPTION. IT IS THEREFORE IMPERATIVE THAT ONCE A PERSON VOLUNTARILY OPTS FOR THE SPECIAL DISPENSATION IT SHOULD BE GOVERNED BY THESE SPECIFIC PROVISIONS AND SHOULD NOT BE ALLOWED FLEXIBILITY OF BEING GOVERNED BY OTHER PAGE 17 OF 18 GENERAL PROVISIONS OR SPECIFIC PROVISIONS AT WILL. ALLOWING SUCH FLEXIBILITY HAS UNDESIRABLE EFFECTS ON THE OB JECTS OF THE REGULATIONS AND LEADS TO LITIGATION. . .. 7.6 APPLICABILITY. - THESE AMENDMENTS TAKE EFFECT FROM 1ST APRIL, 2015 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2015 - 2016 AND SUBSEQUENT ASSESSMENT YEARS. 35. PARA 7.6 OF THE C IRCULAR STATES THAT THE AMENDMENT WOULD APPLY TO ASSESSMENT YEAR 2015 - 16 AND SUBSEQUENT ASSESSMENT YEARS. RELIANCE WAS PLACED ON THE JUDGMENT OF THE SUPREME COURT IN CIT VS. ALOM EXTRUSIONS LTD (2009) AND CIT VS VATIKA TOWNSHIP (367 ITR 466) = 2014 - TIOL - 78 - SC - IT - CB FOR THE PROPOSITION THAT AN AMENDMENT THAT INCREASES THE LIABILITY OF AN ASSESSEE IS LIABLE TO BE APPLIED ONLY PROSPECTIVELY. MR. NARAYANASWAMY WOULD OBJECT STATING THAT THE AMENDMENT HAD BEEN INSERTED TO A CORRECT AN EXISTING ANOMALY AND THUS WAS CLEARLY CLARIFICATORY, AND CONSEQUENTLY RETROSPECTIVE IN OPERATION. 36. WE DO NOT AGREE WITH THE REVENUE. THE AMENDMENT, INSERTED SPECIFICALLY WITH EFFECT FROM ASSE SSMENT YEAR 2015 - 2016 SEEKS TO DISTURB A VESTED RIGHT THAT HAS ACCRUED TO THE ASSESEE. THE AMENDMENT DOES NOT PURPORT TO BE CLARIFICATORY, ON THE OTHER HAND THE EXPLANATORY MEMORANDUM MAKES IT APPLICABLE ONLY W.E.F. A Y 2015 - 16 AND APPLICATION OF THE AMEND MENT RETROSPECTIVELY WOULD CERTAINLY LEAD TO A GREAT DEAL OF HARDSHIP TO THE ASSESSEE. WE ARE THUS OF THE VIEW THAT THE PROVISIONS OF SECTION 11(6) OF THE ACT INSERTED WITH EFFECT FROM 1.4.2015 SHALL OPERATE PROSPECTIVELY WITH RESPECT TO ASSESSMENT YEAR 20 15 - 2016 ONLY. 8. THEREFORE IN VIEW OF THE ABOVE TWO DECISIONS OF THE HONBLE HIGH COURTS, WE REVERSE THE FINDING OF THE LOWER AUTHORITY AND DIRECT THE LD. ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF THESE 3701380/ - BEING THE AMOUNT OF DEPRECIATION CLAIME D BY THE ASSESSEE ON THE ASSETS ON WHICH DEDUCTION IS APPLICATION OF INCOME HAS ALREADY BEEN GRANTED. IN THE RESULT GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS DISMISSED . 9. GROUND NO. 3 OF THE APPEAL OF THE REVENUE IS WITH RESPECT TO THE CAUTION MONEY FOR WHICH NO DETAILS WERE FURNISHED BY THE ASSESSEE. THE BRIEF FACTS OF THE CASE IS THAT ASSESSEE HAS RECEIVED RS. 3.27 LAKHS. DURING THE YEAR ON ACCOUNT OF CAUTION MONEY WHICH ARE HELD BY THE LD. ASSESSING OFFICER AS BUSINESS. AS THE LD. CIT APPEAL HAS ALREADY HELD THAT ASSESSEE IS NOT CARRY ON ANY BUSINESS BUT CARRYING ON ACTIVITIES OF EDUCATION COVERED UNDER SECTION 2 (15) OF THE INCOME TAX ACT, WHICH IS REMAINED UNCHALLENGED THE AMOUNT OF CAUTION FEE IS ALSO PART OF THE EDUCATIONAL ACTIVITIES. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) IN HOLDING THAT CAUTION MONEY IS FOR THE EDUCATIONAL ACTIVITIES AND PART OF THAT ON WHICH EXEMPTION CANNOT BE DENI ED. IN THE RESULT GROUND NO. 3 OF THE APPEAL OF THE REVENUE IS DISMISSED. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 /09/2017. - SD/ - - SD/ - ( I.C.SUDHIR ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18/ 09/2017 A K KEOT COPY FORWARDED TO PAGE 18 OF 18 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI