The ACIT, 1(2), Bhopal V. THE BHOPAL CAMPION SCHOOL SOCIETY, Bhopal

ITA 335/IND/2014

• Counselvise Citation: 33522714 RSA 2014
• Duration Of Justice: 1 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: AJAY K CHHAJED
• Keywords: Capital asset; Depreciation; Charitable institution; Benefit of exemption; Capital expenditure
• Section: 143(3); 12A; 12AA; 32; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO. 335/IND/2014 A. Y. : 2009-10 ACIT, 1(2) BHOPAL CAMPION SCHOOL SOCIETY, BHOPAL VS BHOPAL APPELLANT RESPONDENT PAN NO.AAATB0913F APPELLANT BY : SHRI R.A.VERMA, DR RESPONDENT BY : SHRI AJAY K. CHHAJED, ADV. DATE OF HEARING : 07 . 10 .2015 . DATE OF PRONOUNCEMENT : 03.11. 2015 ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 2 2 O R D E R PER GARASIA, J.M. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-I, BHOPAL , DATED 18.02.2014. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A SOCIETY REGISTERED WITH REGISTRAR OF SOCIETIES VIDE CERTIFICATE NO. 2701 DATED 01.04.1972. THE SOCIETY IS ENGAGED IN ED UCATIONAL ACTIVITIES BY RUNNING EDUCATIONAL SCHOOL IN THE NAM E OF BHOPAL CAMPION SCHOOL AT BHOPAL. THE SOCIETY IS ALSO REGIS TERED U/S 12A OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAD F ILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2009-10 ON 25. 06.2009 DECLARING NIL INCOME. THE CASE WAS SELECTED FOR SCR UTINY BY ISSUING NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 19 61, AND ASSESSMENT U/S 143(3) WAS COMPLETED ON 18.11.2011 A T NIL INCOME, AFTER DISALLOWING CLAIM OF DEPRECIATION ON FIXED ASSETS. THE AO NOTED THAT THE ASSESSEE HAD CLAIMED DEPRECIA TION OF RS. 84,33,079/- ON FIXED ASSETS. THE AO FURTHER NOT ED THAT THE ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 3 3 SOCIETY HAD BEEN CLAIMING THE COST OF ASSETS TO BE FULLY ALLOWABLE AS APPLICATION OF INCOME YEAR AFTER YEAR AND, THEREFORE, AS PER THE AO THERE WAS NO LOGIC OF ALLO WING DEPRECIATION ONCE THE SOCIETY HAD BEEN ALLOWED THE COST OF SUCH CAPITAL ASSETS. THE AO FURTHER NOTED THAT IN F ACT THIS AMOUNTS TO PASSING DOUBLE BENEFIT TO THE ASSESSEE I .E. FIRSTLY WHEN THE ASSET WAS PURCHASED AND THE COST IS ALLOWE D AS APPLICATION AND SECONDLY WHEN YEAR AFTER YEAR THE D EPRECIATION IS ALLOWED IN COMPUTING THE SURPLUS OF INCOME OVER EXPENDITURE AND CALCULATING INCOME U/S 11 AND 12 OF THE INCOME-TAX ACT, 1961. THE AO ALSO RELIED UPON THE D ECISION OF HON'BLE APEX COURT IN THE CASE OF ESCORTS LIMITED V S. UNION OF INDIA,(1993) 199 ITR 43. IN THIS CASE, THE COURT HA S OBSERVED THAT A DOUBLE DEDUCTION CANNOT BE A MATTER OF INFER ENCE, IT MUST BE PROVIDED FOR IN CLEAR AND EXPRESS LANGUAGE; REGARD BEING TO ITS UNUSUAL NATURE AND ITS SERIOUS IMPACT ON THE REVENUES OF THE STATES. THE AO STATED THAT SINCE TH E ASSESSEE HAD BEEN ENJOYING THE BENEFIT OF EXEMPTION OF SECTI ON 11 FOR THE LAST MANY YEARS AND TO COMPUTE THE SPECIFIED PE RCENTAGE ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 4 4 OF APPLICATION OF INCOME, IT HAD BEEN GETTING THE B ENEFIT OF APPLICATION IN THE CREATION OF FIXED ASSETS. AS PER THE AO, ALLOWING DEPRECIATION ON THE FIXED ASSETS AGAIN WOU LD DEFINITELY TANTAMOUNT TO DOUBLE DEDUCTION. THE AO FURTHER NO TED THAT THE APEX COURT HELD IN THE CASE CITED ABOVE THAT HA D ALLOWANCE OF DEPRECIATION BEEN THE INTENTION OF THE LEGISLATU RE, WITHIN THE AMBIT OF APPLICATION OF INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT, IT WOULD HAVE MENTIONED IT EXPRESSLY AN D IN UNAMBIGUOUS TERMS, AS THIS GIVES THE ASSESSEE DOUBL E DEDUCTION. IN VIEW OF THE ABOVE, THE AO MADE DISALL OWANCE OF DEPRECIATION OF RS. 84,33,079/- AND ADDED TO THE RE TURNED INCOME OF THE ASSESSEE SOCIETY. 3. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) DELETED THE DISALLOWANCE OF DEPRECIATION BY OBSERVI NG AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND FACTS OF THE CASE. IT MAY BE NOTED THAT IT HAS BEEN HELD IN VARIOUS JUDICIAL DECISIONS OF ITAT ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 5 5 AND HIGH COURTS THAT DEPRECIATION MUST BE ALLOWED TO THE CHARITABLE INSTITUTIONS BECAUSE INCOME DERIVED FROM THE TRUST HAS TO BE DETERMINED IN COMMERCIAL SENSE. IT HAS ALSO BEEN OBSERVED BY THE HON'BLE COURTS THAT IF THE DEPRECIATION IS NOT ALLOWABLE AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME FROM THE CHARITABLE INSTITUTION, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. THE EXPENDITURE SHOULD BE UNDERSTOOD AS A NECESSARY OUTGOING AND NOT MERELY ACTUAL EXPENDITURE ON PARTING WITH MONEY. EXPENDITURE INCURRED, THEREFORE, INCLUDES THE CLAIM OF DEPRECIATION. THEREFORE, THE CHARITABLE TRUST IS ENTITLED TO DEPRECIATION IN RESPECT OF THE ASSETS OWNED BY IT. IT HAS ALSO BEEN HELD THAT THE RATIO OF THE ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 6 6 DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. VS. UNION OF INDIA (1993) 199 ITR 43 (SC) IS NOT APPLICABLE IN THE CASE OF CHARITABLE INSTITUTION/TRUST. IT WILL BE RELEVANT TO REFER SOME DECISIONS OF THE HON'BLE HIGH COURTS WHEREIN, IT HAS BEEN HELD THAT CHARITABLE INSTITUTION/TRUST IS ENTITLED TO DEPRECIATION IN RESPECT OF ASSETS OWNED BY IT AND THE DEPRECIATION IS A NECESSARY DEDUCTION IN COMPUTING THE INCOME OF THE CHARITABLE TRUST. (I) IN CIT V, SHETH MANILAL RANCHODDAS VISHRAM BHAVAN TRUST/1992/ 198 ITR 0598- /GUJ./, THE HON'BLE GUJARAT HIGH COURT OBSERVED AS UNDER (HEAD NOTES) :-- 'THE INCOME FROM THE PROPERTIES HELD UNDER TRUST HAVE TO BE ARRIVED AT IN THE NORMAL COMMERCIAL MANNER WITHOUT CLASSIFICATION UNDER THE VARIOUS ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 7 7 HEADS SET OUT IN SECTION 14 OF THE INCOME-TAX ACT, 1961. THE EXPRESSION 'INCOME' HAS TO BE UNDERSTOOD IN THE POPULAR OR GENERAL SENSE AND NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED AT FOR THE PURPOSE OF ASSESSMENT TO LAX BY APPLICATION OF SOME ARTIFICIAL PROVISIONS EITHER GIVING OR DENYING DEDUCTION. THE COMPUTATION UNDER THE DIFFERENT CATEGORIES OR HEADS ARISES ONLY FOR THE PURPOSES OF ASCERTAINING THE TOTAL INCOME FOR THE PURPOSES OF CHARGE. THOSE PROVISIONS CANNOT BE INTRODUCED TO FIND OUT WHAT THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST TO BE EXCLUDED FROM THE TOTAL INCOME IS, FOR THE PURPOSE OF THE EXEMPTIONS UNDER CHAPTER III. THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF 'FIE CHARITABLE INSTITUTION HAS TO BE DEDUCTED 10 ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSES. ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 8 8 CIT V. SOCIETY OF THE SISTERS OF SI. ANNE [1984) 146 ITR 28 (KAR): CIT V. RAIPUR PALLOTTINE SOCIETY [1989) 180 ITR 579 (MP) AND CIT V. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES [1982} 135 ITR 185 (MAD) FOLLOWED' (II) THE HON'BLE BOMBAY HIGH COURT HAD AN OCCASION TO CONSIDER THIS ISSUE IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. INSTITUTE OF BANKING (2003) 264 ITR 0110/ BOM.]. THE FACTS IN BRIEF IN THIS CASE AND DECISION OF HON'BLE HIGH COURT ARE AS UNDER (RELEVANT PORTION OF HEAD NOTES) :- 'NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSESSEE ON GENERAL PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME-TAX ACT, 1961. INCOME OF A CHARITABLE TRUST DERIVED FROM BUILDING, ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 9 9 PLANT AND MACHINERY AND FURNITURE IS LIABLE TO BE COMPUTED IN A NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CASES, SECTION 32 OF THE ACT PROVIDING FOR DEPRECIATION, FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROFESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM THE GROSS INCOME OF THE TRUST. .. . THE ASSESSEE WAS A TRUST REGISTERED UNDER ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 10 10 THE BOMBAY PUBLIC TRUST' ACT AND SECTION 12A OF THE INCOME-TAX ACT. THE OBJECT OF THE ASSESSEE WAS CHARITABLE IN NATURE. THE INCOME OF THE ASSESSEE WAS EXEMPT UNDER SECTION 11 OF THE INCOME-TAX ACT. THE ASSESSEE HAD CLAIMED DEPRECIATION WHICH WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT CAPITAL EXPENDITURE INCURRED DURING THE ACCOUNTING YEAR WAS ALLOWED AS A DEDUCTION FROM THE INCOME OF' THE ASSESSEE. FURTHER, THE ASSESSEE HAD CLAIMED DEPRECIATION ON FURNITURE AND FIXTURES TO THE TUNE OF RS. 49,453 AT 10 PER CENT OF THE WRITTEN DOWN VALUE WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAID ASSETS HAD BEEN RECEIVED BY THE ASSESSEE ON TRANSFER FROM NATIONAL INSTITUTE OF BANK MANAGEMENT. ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 11 11 THAT INSTITUTE WAS A CHARITABLE TRUST. ITS INCOME WAS ALSO EXEMPT UNDER SECTION 11 OF THE INCOME-TAX ACT. THE ASSESSING OFFICER DID NOT ALLOW DEPRECIATION ON FIXTURES AND FURNITURE'S ON THE GROUND THAT FULL DEDUCTION HAD BEEN ALLOWED IN RESPECT OF CAPITAL COST OF FURNITURE AND FIXTURES AND IF THE DEPRECIATION WAS ALLOWED, AS CLAIMED BY THE ASSESSEE, IT WOULD RESULT IN DOUBLE DEDUCTION. IN THIS REFERENCE, THE HON'BLE HIGH COURT HELD AS UNDER :- HELD, (I) THAT THE TRIBUNAL WAS RIGHT IN LAW IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE ASSETS, THE COST 0/ WHICH HAD BEEN FULLY ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 12 12 ALLOWED AS APPLICATION OF INCOME UNDER SECTION 11 IN THE PAST YEARS. CIT V. MUNISUVARAT JAIN [1994) TAX LR 1084 (BAM) FOLLOWED. (II) THAT THE TRIBUNAL WAS JUSTIFIED IN LAW IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION OF RS. 49,453 ON ASSETS RECEIVED ON TRANSFER, WHEN THE ASSESSEE HAD NOT INCURRED THE COST OF ACQUIRING THE ASSETS. DIRECTOR OF INCOME-TAX (EXEMPTION) V. FRAMJEE CAWASJEE INSTITUTE [1993) 109 CTR 463 (BOM)FOLLOWED. (III) THE HON'BLE PUNJAB & HARYANA HIGH COURT ALSO CONSIDERED THIS ISSUE IN DETAIL IN THE CASE OF COMMISSIONER OF INCOME-TAX V, MARKET COMMITTEE, PIPLI (2011) 330 ITR 0016-( P & H ). THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 13 13 WAS REGISTERED UNDER SECTION 12AA OF THE INCOME- TAX ACT, 1961, AS A CHARITABLE TRUST. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON THE GROUND THAT SINCE THE INCOME OF THE ASSESSEE WAS EXEMPT FROM TAX UNDER SECTIONS 11 TO 13, ALLOWING DEPRECIATION TO ASCERTAIN WHETHER 85 PER CENT OF FUNDS WERE APPLIED FOR PURPOSES OF TRUST WOULD AMOUNT TO CONFERRING DOUBLE BENEFIT. THIS VIEW WAS AFFIRMED BY THE COMMISSIONER (APPEALS). THE APPEAL OF THE ASSESSEE TO THE TRIBUNAL WAS ALLOWED ON A STATEMENT THAT THE MATTER WAS COVERED IN FAVOUR OF THE ASSESSEE BY ANOTHER ORDER OF THE TRIBUNAL. ON APPEAL FILED BY THE DEPARTMENT THE HON'BLE HIGH COURT DISMISSING THE APPEAL, HELD AS UNDER: - 'THAT THE INCOME OF THE ASSESSEE BEING EXEMPT, THE ASSESSEE WAS ONLY CLAIMING THAT DEPRECIATION SHOULD BE REDUCED FROM THE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHICH ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 14 14 HAD TO BE APPLIED FOR THE PURPOSES OF THE TRUST. THERE WAS NO DOUBLE DEDUCTION CLAIMED BY THE ASSESSEE. IT COULD NOT BE HELD THAT DOUBLE BENEFIT WAS GIVEN IN ALLOWING THE CLAIM FOR DEPRECIATION FOR COMPUTING INCOME/OR PURPOSES A/SECTION 11. CIT V. RAIPUR PALLOTTINE SOCIETY [1989) 180 ITR 579 (MP), CIT V. RAO BAHODUR CATAVALA CUNNAL CHETTY CHARITIES, (1982) 135 ITR 485 (MAD), CIT VS. SETH MANILAL RACHHODDAS VISHRAM BHAWAN TRUST, [1992) 198 ITR 598 (GUJ), CIT V. SOCIETY OF THE SISTERS OF ST. ANNE [1984] 146 ITR 28 (KARN) AND CIT V. INSTITUTE OF BANKING [2003) 264 ITR 110 (BORN) RELIED ON. ESCORTS LTD. V. UOI (I 993) 199 ITR .J3 (SC) DISTINGUISHED. ' (IV) SIMILARLY, IN THE CASE OF COMMISSIONER OF INCOME-TAX V, TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 0021- (P&H) , THE HON'BLE PUNJAB ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 15 15 & HARYANA HIGH COURT HAS EXPRESSED THE SAME VIEW. THE BRIEF FACTS OF THIS CASE ARE THAT THE ASSESSEE WAS A CHARITABLE INSTITUTION REGISTERED UNDER SECTION 12AA OF THE INCOME- TAX ACT, 1961. IN ITS ACCOUNTS, THE ASSESSEE CALCULATED DEPRECIATION FOR THE PURPOSE OF SHOWING THE AMOUNT UTILIZED. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON THE GROUND THAT THE INCOME OF THE ASSESSEE BEING EXEMPT, CLAIM FOR DEPRECIATION WOULD AMOUNT TO TAKING OF DOUBLE BENEFIT. THE COMMISSIONER (APPEALS) HELD THAT DEDUCTION FOR COMPUTING INCOME TO PRESERVE THE CORPUS OF THE TRUST WAS PERMISSIBLE AND DID NOT AMOUNT TO DOUBLE BENEFIT. THIS VIEW WAS UPHELD BY THE TRIBUNAL OBSERVING THAT APPLICATION OF INCOME WAS NOT COMPUTATION OF INCOME OF THE CHARITABLE INSTITUTION. THEREFORE, THE QUESTION WHETHER DEPRECIATION WAS TO BE ALLOWED OR NOT HAD ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 16 16 NOTHING TO DO WITH THE APPLICATION OF INCOME. THE INCOME WAS ALWAYS TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND AS PER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, SUBJECT ALWAYS TO THE STATUTORY PROVISIONS. ON APPEAL :- HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE WAS NOT CLAIMING DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATION. THE INCOME OF THE ASSESSEE BEING EXEMPT, THE ASSESSEE WAS ONLY CLAIMING THAT DEPRECIATION SHOULD BE REDUCED FROM THE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHICH HAD TO BE APPLIED FOR THE PURPOSES OF THE TRUST. IT COULD NOT BE HELD THAT DOUBLE BENEFIT WAS GIVEN IN ALLOWING THE CLAIM JAR DEPRECIATION FOR COMPUTING INCOME FOR PURPOSES OF SECTION 11. (V) IN THE CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE, (1984) 146 ITR 0028 (KARN), THE HON'BLE ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 17 17 KARNATAKA HIGH COURT HAS ALSO HELD AS UNDER :- 'IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME OF A CHARITABLE INSTITUTION, THEN THERE CAN BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. THEREFORE, THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF A CHARITABLE INSTITUTION IS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSES. (VI) IT MAY BE NOTED THAT THE HON'BLE JURISDICTIONAL HIGH COURT OF MADHYA PRADESH HAS ALSO EXPRESSED THE SAME VIEW IN THE CASE OF CIT VS, RAIPUR PALLOTINE SOCIETY (1989) 180 ITR 579 (MP) AND IN THE CASE OF CIT VS. SHRI GUJRATI SAMAJ (REGD.) (2011) 64 DTR (MP) 76. IN THE CASE OF CIT VS. SHRI GUJRATI SAMAJ, THE HON'BLE ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 18 18 HIGH COURT OBSERVED AS UNDER :- '6. WE FIND THAT THE QUESTION, WHETHER A CHARITABLE TRUST IS ENTITLED TO DEPRECIATION UNDER S. 32 OF THE ACT IN RESPECT OF ASSETS OWNED BY IT, WAS DEALT WITH BY A DIVISION BENCH OF THIS COURT IN CIT VS. RAIPUR PALLOTINE SOCIETY (1989) 80 CTR 127: (1999) 180 ITR 579 (MP) BY PLACING RELIANCE OIL A DIVISION BENCH JUDGMENT 0/ KARNATAKA HIGH COURT IN CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE (1984 39 CTR (KAR) 9 : (1984) 146 ITR 28 (KAR) AND HAS HELD THAT DEPRECIATION IS NOTHING BUT DECREASE IN VALUE OF PROPERLY THROUGH WEAR, DETERIORATION OR OBSOLESCENCE AND ALLOWANCE IS MADE FOR THIS PURPOSE IN BOOK KEEPING ACCOUNTANCY, ETC. IT 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 ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 19 19 FINALLY PUT OUT OF USE. THE OBJECT OF PROVIDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE, INCURRED IN ACQUIRING THE ASSETS, OVER ITS EFFECTIVE LIFETIME; THE AMOUNT OF THE PROVISION, MADE IN RESPECT OF AN ACCOUNTING PERIOD, IS INTENDED TO REPRESENT THE PROPORTION OF SUCH EXPENDITURE, WHICH HAS EXPIRED DURING THAT PERIOD. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION IN COMPUTING THE INCOME OF A CHARITABLE TRUST, THEN THERE WOULD BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST. A CHARITABLE TRUST IS, THEREFORE, ENTITLED TO DEPRECIATION IN RESPECT OF THE ASSETS OWNED BY IT. (ALSO SEE SPICER AND PEGLER'S BOOK KEEPING AND ACCOUNTS, 17TH EDN. PP. - 44, 45 AND 46). 7. HAVING REGARD TO THE AFORESAID SETTLED LEGAL POSITION IN OUR CONSIDERED VIEW, THE TRIBUNAL HAS RIGHTLY DECIDED THE ISSUE ABOUT DISALLOWANCE OF CLAIM OF DEPRECIATION WHILE ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 20 20 COMPUTING THE INCOME OF CHARITABLE TRUST AND HAS RIGHTLY HELD THAT THE ASSESSEE BEING A CHARITABLE TRUST IS ENTITLED FOR CLAIM OF DEPRECIATION ON THE ASSETS OWNED BY IT. WE, ACCORDINGLY, AFFIRM THE VIEW TAKEN BY THE TRIBUNAL IN THAT REGARD. ' THEREFORE, CONSIDERING THE WELL SETTLED LEGAL POSITION ON THE ISSUE AND RESPECTFULLY FOLLOWING THE DECISIONS OF HIGH COURTS SPECIALLY THE JURISDICTIONAL HIGH COURT OF MADHYA PRADESH, WHICH IS BINDING, IT IS HELD THAT THE APPELLANT IS ENTITLED FOR CLAIM OF DEPRECIATION ON THE ASSETS OWNED BY IT. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE APPELLANT'S CLAIM OF DEPRECIATION WHILE COMPUTING INCOME OF THE APPELLANT UNDER SECTION 11 OF THE ACT. THUS, THE DISALLOWANCE OF DEPRECIATION OF RS. 84,33,079/- MADE BY THE AO IS DELETED. ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 21 21 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE JURISDICTIONAL HIGH COURT IN THE C ASE OF CIT VS. RAIPUR PALLOTINE SOCIETY, 180 ITR 579 (MP) ON THE ISSUE OF ALLOWABILITY OF DEPRECIATION CLEARLY HELD THAT IT I S ALLOWABLE DEDUCTION. 5. IN THE CASE OF M/S. ESCORTS LIMITED VS. UNION OF I NDIA, 199 ITR 43, THE CONTROVERSY WAS WHETHER THE ASSESSE E WOULD BE ENTITLED TO DEDUCTION FOR DEPRECIATION, WHEN THE ENTIRE COST OF THE ASSETS HAS BEEN ALLOWED AS DEDUCTION U/S 35. THEREFORE, THE HON'BLE SUPREME COURT HELD IN THAT CASE THAT FU RTHER DEDUCTION U/S 32 CANNOT BE ALLOWED. IT IS FURTHER A RGUED THAT THAT WAS THE CASE OF INCOME UNDER THE HEAD 'BUSINES S', WHILE IN THE INSTANT CASE, INCOME IS TO BE COMPUTED OF A CHARITABLE TRUST, WHICH IS EXEMPT FROM TAX. IN VIEW OF THE ABO VE, HE ARGUED THAT IT IS MISNOMER TO SAY THAT DOUBLE DEDUC TION IS ALLOWED TO THE TRUST. HE PLACED RELIANCE ON THE DEC ISION OF CIT ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 22 22 VS. RAIPUR PALLOTTINE SOCIETY, 180 ITR 579 ( M.P.), WHEREIN IT IS HELD THAT - ' 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 AND THE AMOUNT OF PROVISION MADE IN RESPECT OF AN ACCOUNTING PERIOD IS INTENDED TO REPRESENT THE PROPORTION OF SUCH EXPENDITURE WHICH HAS EXPIRED DURING THAT PERIOD. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION IN COMPUTING THE INCOME OF A CHARITABLE TRUST, THEN THERE WOULD BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST. A CHARITABLE TRUST IS, THEREFORE, ENTITLED TO DEPRECIATION IN RESPECT OF THE ASSETS OWNED BY IT.' ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 23 23 IN THE CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST . ANNE, [1984] 146 ITR 28 (KAR), WHEREIN IT IS HELD THAT IF DEPREC IATION IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME OF A CHARITABLE INSTITUTION, THEN THERE CAN BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. TH EREFORE, THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF A CHARITABLE INSTITUTION IS TO BE DEDUCTED TO ARRIVE AT THE INCO ME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSE S. IN THE CASE OF CIT VS. SHETH MANILAL RANCHHODDAS VI SHRAM BHAVAN TRUST, (1992) 198 ITR 598 (GUJ), WHEREIN IT IS HELD THAT- 'THE INCOME FROM THE PROPERTIES HELD UNDER TRUST HAVE TO BE ARRIVED AT IN THE NORMAL COMMERCIAL MANNER WITHOUT CLASSIFICATION UNDER THE VARIOUS HEADS SET OUT IN SECTION 14 OF THE INCOME-TAX ACT, 1961. THE EXPRESSION 'INCOME' HAS TO BE UNDERSTOOD IN THE POPULAR OR GENERAL SENSE AND NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 24 24 AT FOR THE PURPOSE OF ASSESSMENT TO TAX BY APPLICATION OF SOME ARTIFICIAL PROVISIONS EITHER GIVING OR DENYING DEDUCTION. THE COMPUTATION UNDER THE DIFFERENT CATEGORIES OR HEADS ARISES ONLY FOR THE PURPOSES OF ASCERTAINING THE TOTAL INCOME FOR THE PURPOSES OF CHARGE. THOSE PROVISIONS CANNOT BE INTRODUCED TO FIND OUT WHAT THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST TO BE EXCLUDED FROM THE TOTAL INCOME IS, FOR THE PURPOSE OF THE EXEMPTIONS UNDER CHAPTER III. THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF THE CHARITABLE INSTITUTION HAS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSES. ' AS PER THE RECOGNIZED PRINCIPLE OF ACCOUNTANCY IN C OMMERCIAL SENSE FOR DETERMINING THE INCOME DERIVED FROM THE T RUST, THE INCOME THAT IS LEFT IS THE RESIDUE THAT IS AVAILABLE FOR APPLICATION, AFTER ALLOWING OF THE EXPENDITURE AND DEPRECIATION ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 25 25 IS ONE SUCH EXPENDITURE RECOGNIZED UNDER LAW, THE BENE FIT OF THAT ALLOWANCE CANNOT BE DENIED TO THE ASSESSEE. FU RTHER, THE OBJECT FOR PROVIDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE INCURRED IN ACQUIRING THE ASSETS OVER I TS EFFECTIVE LIFE TIME AND THE AMOUNT OF PROVISION MADE IN RESPE CT AN ACCOUNTING PERIOD IS INTENDED TO REPRESENT THE PROPORTION OF SUCH EXPENDITURE WHICH HAS EXPIRED DURING THE PERIO D. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION IN COMPUTING THE INCOME OF A CHARITABLE TRUST, THEN TH ERE WOULD BE NO WAY TO PRESERVE THE CORPUS OF THE TRUST. THUS , A CHARITABLE INSTITUTION/TRUST IS ENTITLED TO DEPRECIATION IN RESPECT OF THE ASSETS OWNED BY IT. RESPECTFULLY FO LLOWING THE ABOVE DECISION IN THE CASE OF CIT VS. RAIPUR PALLOT INE SOCIETY, (SUPRA), WE DISMISS THE APPEAL OF THE REVENUE. ACIT,1(2), BHOPAL VS. BHOPAL CAMPION SCHOOL SOCIETY , BHOPAL, I.T.A.NO. 335/IND/2014 A.Y. 2009-10 26 26 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 3 RD NOVEMBER, 2015. SD/- (B. C. MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 3 RD NOVEMBER, 2015. CPU* 1421