Appeal Details
Counselvise Citation
[2012] 119 COUNSELVISE.COM (IT) 7550 (ITAT-JAIPUR)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 month(s) 20 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-01-2012
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Assessment Year
2004-2005
Appeal Filed On
05-05-2011
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.424 & 425/ JP/2011 ASSESSMENT YEAR 2004-05 & 2006-06 PAN: AAALKS 0404 E THE ITO VS. M/S. KRISHI UPAJ MANDI SAMITI WARD- BUNDI BUNDI (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI SUNIL MATHUR ASSESSEE BY : SHRI TANUJ AGARWAL DATE OF HEARING: 23-01-2012 DATE OF PRONOUNCEMENT: 25-01-2012 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED THE APPEALS AGAINST TWO DIFFE RENT ORDERS OF THE LD. CIT(A), KOTA DATED 28-02-2011 FOR THE ASSESSMENT YEAR 2004 -05 AND 2005-06. 2.1 THE GROUND OF APPEAL RAISED BY THE REVENUE IN B OTH THE APPEALS IS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE DEPRECIATIO N ON ASSETS OF RS. 24,61,686/- (FOR THE ASSESSMENT YEAR 2004-05) A ND RS. 20,81,920 (FOR THE ASSESSMENT YEAR 2005-06) ESPECIA LLY WHEN THE SAME WAS ALREADY ALLOWED AS APPLICATION OF INCOME W ITH THE GRANT OF REGISTRATION U/S 12AA(1) OF I.T. ACT, 1961 2.2 WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE HAS BEEN CONSIDERED IN THE CASE OF THE KRISHI UPAJ MANDI SAMITI, BARAN FOR THE ASSESSMENT YEAR 2005-06 AND 2006-07 IN ITA NO. 560 & 561/ JP/2010 VIDE ORDER DATED 06-01-2011. AFTER CONSIDERING VARIOUS 2 DECISIONS, WE HOLD THAT THE DEPRECIATION IS ALLOWAB LE. IT WILL BE USEFUL TO REPRODUCE PARAS 11 TO 23 OF THE ABOVE ORDER. THE DEPRECIATION AS DE BITED IN THE BOOKS WILL BE ALLOWABLE. 11. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V SOCIETY OF THE SISTERS OF ST.ANNE 146 ITR 28 HAD AN OCCASION TO CONSIDER THE FOLLOWING QUESTION OF LAW: WHETHER THE TRIBUNAL IS CORRECT IN HOLDING THAT TH E AMOUNT OF DEPRECIATION DEBITED TO ACCOUNTS OF A CHARITABLE I NSTITUTION IS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPL ICATION TO CHARITABLE AND RELIGIOUS PURPOSES. 12. BEFORE THE HONBLE HIGH COURT, THE CONTENTION O F THE REVENUE IS THAT DEPRECIATION ALLOWANCE BEING A NOTI ONAL EXPENDITURE AND HENCE IT CAN NOT BE ALLOWED TO BE DEBITED TO THE EX PENDITURE OF ACCOUNT OF THE TRUST. ACCORDING TO THE HONBLE HIGH COURT SUCH ASSUMPTION IS ON THE BASIS THAT EXPENDITURE SHOULD NECESSARILY INVOLVE A CTUAL DELIVERY OF OR PARTING WITH THE MONEY. THE EXPENDITURE SHOULD BE U NDERSTOOD AS NECESSARY OUTGOINGS. DEPRECIATION IS A NECESSARY OU TGOING. THE DEPRECIATION, IF IT IS NOT ALLOWED AS A NECESSARY D EDUCTION FOR COMPUTING THE INCOME FROM THE CHARITABLE INSTITUTIONS, THEN T HERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE I NCOME. THE HONBLE HIGH COURT REFERRED TO THE CIRCULAR NO.5-P DATED JULY 19 , 1968 IN WHICH IT WAS STATED AS UNDER :- WHERE THE TRUST DERIVES INCOME HOUSE PROPERTY, INT EREST ON SECURITIES , CAPITAL GAINS, OR OTHER SOURCES, THE WORD INCOME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATION S THEREOF TOWARDS THE PURPOSE OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURR ED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD BE NO TED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDED BACK WILL BEC OME CHARGEABLE TO TAX U/S. 11(3) TO THE EXTENT THAT THE Y REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE OF THE TRUS T. 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). 3 THE HONBLE HIGH COURT AFTER CONSIDERING THE DECI SIONS OF HONBLE ANDHRA PRADESH HIGH COURT AND MADRAS HIG H COURT ANSWERED THE QUESTION AGAINST THE REVENUE. 13. THE HONBLE GUJRAT HIGH COURT IN THE CASE OF CI T V GANGA CHARITY TRUST FUND 162 ITR 612 HAS AN OCCASION TO C ONSIDER AS TO WHETHER INCOME TAX LIABILITY IS TO BE ALLOWED AS DEDUCTION UNDER SECTION 11(1)(A) OF THE I.T.ACT. THE HONBLE HIGH COURT TOOK THE VIEW T HAT DETERMINING THE INCOME WHICH COULD BE ACTUALLY APPLIED OR ACCUMULAT ED FOR THE PURPOSE OF THE TRUST UNDER SECTION 11(1)(A) OF THE ACT, ALL OU TGOINGS INCLUDING THE OUTGOING IN THE NATURE OF PAYMENT OF INCOME TAX MU ST BE DEDUCTED. FOR THIS THE HONBLE HIGH COURT REFERRED TO THE DECISIO NS OF HONBLE ANDHRA PRADESH HIGH COURT AND MADRAS HIGH COURT IN WHICH I T HAS BEEN HELD THAT PROFIT IS TO BE ASCERTAINED ON COMMERCIAL MANNER. 14. THE HONBLE MADHYA PRADESH HIGH COURT IN THE CA SE OF CIT V RAIPUR POLLOTTINE SOCIETY 180 ITR 579 HELD TH T DEPRECIATION IS ALLOWABLE IN RESPECT OF ASSETS OWNED BY THE TRUST. REFERENCE WAS MADE TO THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CIT V SOCIETY OF THE SISTERS OF ST.ANNE (SUPRA). 15. THE HONBLE GUJRAT HIGH COURT IN THE CASE OF CI T V SHETH MANILAL RANCHODDAS VISHRAM BHAVAN TRUST 198 ITR 598 HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF DEPRECIATION AND TH E DIFFERENCE BETWEEN TOTAL INCOME CHARGED AND INCOME TO BE COMPUTED UNDE R CHAPTER-III. THE HONBLE HIGH COURT OBSERVED AS UNDER :- WHETHER DEPRECIATION HAS TO BE ALLOWED AS A NECESS ARY DEDUCTION FOR COMPUTING THE INCOME OF A CHARITABLE INSTITUTION WA S THE QUESTION WHICH CAME UP BEFORE THE KARNATAKA HIGH COURT IN CIT V. S OCIETY OF THE SISTERS OF ST.ANNE [1984] 146 ITR 28. NOTICING THE DIFFEREN CE BETWEEN THE WORD INCOME AND THE EXPRESSION TOTAL INCOME AND THE NECESSITY FOR PROVIDING DEPRECIATION IN ORDER TO MAINTAIN CORRECT ACCOUNTS, THE HIGH COURT HELD THAT 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 PURPOSE S. SAME VIEW HAS BEEN TAKEN BY THE MADHYA PRADESH HIGH COURT IN CIT V. RA IPUR PALLOTTINE SOCIETY [1989] 180 ITR 579. IN CIT V. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARI TIES [1992] 135 ITR 485, THE MADRAS HIGH COURT WAS REQUIRED TO CONSIDER WHETHER, 4 FOR THE PURPOSE OF COMPUTING ACCUMULATION IN EXCESS OF 25 PER CENT, AS LAID DOWN IN SECTION 11(I)(A) OF THE ACT, INCOME HAS TO BE COMPUTED UNDER THE VARIOUS HEADS ENUMERATED IN THE INCOME-TA X ACT. IT HELD THAT THE INCOME FROM THE PROPERTIES HELD UNDER TRUST WOULD H AVE TO BE ARRIVED AT IN THE NORMAL COMMERCIAL MANNER WITHOUT CLASSIFICATION UNDER THE VARIOUS HEADS SET OUT IN SECTION 14. IT HELD THAT THE EXPRE SSION 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 ASSESSM ENT TO TAX BY APPLICATION OF SOME ARTIFICIAL PROVISIONS EITHER GI VING OR DENYING DEDUCTION. IT OBSERVED THAT THE COMPUTATION UNDER T HE DIFFERENT CATEGORIES OR HEADS ARISES ONLY FOR THE PURPOSES OF ASCERTAINI NG THE TOTAL INCOME FOR THE PURPOSES OF CHARGE. THOSE PROVISIONSD 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. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW TAKEN BY THE KARNATAKA, MADHYA PRSDESH AND MADRAS HIGH COURTS. W E, THEREFORE, ANSWER BOTH THE QUESTIONS REFERRED TO US IN THE AFF IRMATIVE AND AGAINST THE REVENUE. 16. THE HONBLE KERALA HIGH COURT IN THE CASE OF CI T V PROGRAMME FOR COMMUNITY ORGANIZATION 228 ITR 620 HE LD THAT 25% AS MENTIONED IN SECTION 11(1)(C) SHOULD BE AMOUNTS DIS CLOSED IN ACCOUNTS OF ASSESSEE AND NOT TOTAL INCOME COMPUTED U/S 2(45) OF THE I.T.ACT. 17. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V BHORUKA PUBLIC WELFARE TRUST 240 ITR 513 HAD ON OCC ASION TO CONSIDER THE ISSUE AS TO WHETHERS DEPRECIATION DEBITED IN ACCOUN TS IS AN OUTGOING. THE HONBLE CALCUTTA HIGH COURT OBSERVED THAT NO PURPOS E WILL BE SERVED TO TAKE A DIFFERENT VIEW AS TAKEN IN THE CASE OF JAYA SHREE CHARITY TRUST BECAUSE TAX EFFECT IS LESS THAN RS.7,000/- AND THE YEAR INVOLVED IS 83-84. HOWEVER THE HONBLE HIGH COURT MADE THE FOLLOWING O BSERVATION :- THOUGH THERE IS A BOARD CIRCULAR AND SOME DECISION S OF THE VARIOUS HIGH COURTS AND EVEN THIS HIGH COURT IN CIT V. JAYASHREE CHARITY TRUST [1986] 159 ITR 280 HAS FOLLOWED THE DECISION OF THE MADRAS HIGH COURT IN CIT V. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES [19 82] 135 ITR 485 AND HELD THAT WHILE COMPUTING THE INCOME OF THE CHA RITABLE TRUST, INCOME TO BE ARRIVED AT IN THE COMMERCIAL MANNER. IT IS TRUE THAT THE VIEW HAS BEEN TAKEN BY VARIOUS HIGH COURTS INCLUDING THIS COURT IN THE CASES REFERRED TO ABOVE THAT IN THE CASE OF A CHARITABLE TRUST INCOME SHOULD BE COMPUTED AND ARRI VED AT IN THE COMMERCIAL MANNER BUT NOWHERE IN THE ACT IT PROHIBI TS TO CALCULATE OR COMPUTE THE INCOME ASS PER THE PROVISIONS OF THE AC T. SECTION 11(1) REFERS 5 TO INCOME AND NOT TOTAL INCOME DEFINED IN SECTION 2 (45) BUT INCOME ITSELF HAS BEEN DEFINED IN THE ACT IN SECTION 2(24) WHY TH E MEANING OF INCOME GIVEN IN SECTION 2(24) SHOULD NOT BE TAKEN FOR INCO ME REFERRED IN SECTION 11(1) OF THE ACT. THEREFORE THE DECISION REFERRED T O ALSO REQUIRES RECONSIDERATION.BUT IN THE CASE IN HAND THE ASSESSM ENT YEAR INVOLVED IS 1983-84, EVEN IF WE DIFFER FROM THE VIEW TAKEN BY T HIS COURT IT WILL TAKE ANOTHER FIVE YEARS TO CONCLUDE. THE TAX EFFECT IS O NLY RS.7,000/-. THEREFORE, NO PURPOSE WILL BE SERVED TO DIFFER ON THIS ISSUE WITH THE VIE WL TAKEN BY THIS COURT IN JAYASHREE CHARITY TRUSTS CASE [1986] 159 ITR 280 A ND WE LEAVE THE ISSUE OPEN TO CONSIDER THIS ISSUE IN THE APPROPRIATE CASE IN FUTURE. 18. THE BOMBAY HIGH COURT IN THE CASE OF CIT V INST ITUTE OF BANKING 264 ITR 110 HAD ON OCCASION TO CONSIDER AS TO WHETHER TRIBUNAL HAS RIGHTLY DIRECTED THE A.O. TO ALLOW DEPRECIATION ON ASSETS RECEIVED ON TRANSFER AND FOR WHICH THE ASSESSEE HAS NOT INCURRE D ANY COST. FURNITURE AND FIXTURES WERE RECEIVED ON TRANSFER FROM ANOTHER TRUST. SINCE COST WAS AHEADY ALLOWED AS DEDUCTION & HENCE DEPRECIATION CL AIMED WILL RESULT IN DOUBLE DEDUCTION WAS THE OBJECTION OF THE REVENUE B EFORE THE HONBLE HIGH COURT. THE HONBLE HIGH COURT GAVE THE FOLLOWI NG FINDING :- AS STATED ABOVE, THE FIRST QUESTION WHICH REQUIRES CONSIDERATION BY THIS COURT IS:(L) WHETHER DEPRECIATION WAS ALLOWABLE ON THE ASSETS, THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCO ME UNDER SECTION 11 IN THE PAST YEARS? IN THE CASE OF CIT V. MUNISUVRAT JA IN [1994] TAX LR 1084 (BOM), THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS A CHARITABLE TRUST. IT WAS REGISTERED AS A PUBLIC CHARITABLE TRUST. IT WAS ALSO REGISTERED WITH THE COMMISSIONER OF INCOME-TAX, PUNE. THE ASSESSEE DERI VED INCOME FROM TEMPLE PROPERTY WHICH WAS A TRUST PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEARS 197 7-78, 1978-79 AND 1979-80, THE ASSESSEE CLAIMED DEPRECIATION ON THE V ALUE OF THE BUILDING AT 2 PER CENT. AND THEY ALSO CLAIMED DEPRECIATION ON FURNITURE AT 5 PER CENT. THE QUESTION WHICH AROSE BEFORE THE COURT FOR DETER MINATION WAS: WHETHER DEPRECIATION COULD BE DENIED TO THE ASSESSEE, AS EX PENDITURE ON ACQUISITION OF THE ASSETS HAD BEEN TREATED AS APPLI CATION OF INCOME IN THE YEAR OF ACQUISITION ? IT WAS HELD BY THE BOMBAY HIG H COURT THAT SECTION 11 OF THE INCOME-TAX ACT MAKES A PROVISION IN RESPE CT OF COMPUTATION OF INCOME OF THE TRUST FROM PROPERTY HELD FOR CHARITAB LE OR RELIGIOUS PURPOSE AND IT ALSO PROVIDES FOR APPLICATION AND ACCUMULAT ION OF INCOME. ON THE OTHER HAND, SECTION 28 OF THE INCOME-TAX ACT DEALS WITH CHARGEABILITY OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND SECTI ON 29 PROVIDES THAT INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH SECTION 30 TO SECTION 43C. THAT, SE CTION 32(1) OF THE ACT 6 PROVIDES FOR DEPRECIATION IN RESPECT OF BUILDING, P LANT AND MACHINERY OWNED BY THE ASSESSEE AND USED FOR BUSINESS PURPOSE S. IT FURTHER PROVIDES FOR DEDUCTION SUBJECT TO SECTION 34. IN THAT MATTER ALSO, A SIMILAR ARGUMENT, AS IN THE PRESENT CASE, WAS ADVANCED ON B EHALF OF THE REVENUE, NAMELY, THAT DEPRECIATION CAN BE ALLOWED AS DEDUCTI ON ONLY UNDER SECTION 32 OF THE INCOME-TAX ACT AND NOT UNDER GENERAL PRIN CIPLES. THE COURT REJECTED THIS ARGUMENT. IT WAS HELD THAT NORMAL DEP RECIATION CAN BE CONSIDERED ON GENERAL PRINCIPLES OR UNDER SECTION 1 1(1)(A) OF THE INCOME- TAX ACT. THE COURT REJECTED THE ARGUMENT ON BEHALF OF THE REVENUE THAT SECTION 32 OF THE INCOME-TAX ACT WAS THE ONLY SECTI ON GRANTING BENEFIT OF DEDUCTION ON ACCOUNT OF DEPRECIATION. IT WAS HELD T HAT INCOME OF A CHARITABLE TRUST DERIVED FROM BUILDING, PLANT AND M ACHINERY AND FURNITURE WAS LIABLE TO BE COMPUTED IN A NORMAL COMMERCIAL MA NNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE A SSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSSETS. IN ALL SUCH CASES, SECTION 32 OF THE INCOME-TAX ACT PROVIDING F OR DEPRECIATION FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROF ESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQ UIRED TO BE COMPUTED UNDER SECTION 11 ON COMMERCIAL PRINCIPLES AFTER PRO VIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME OF THE TRUST. IN VIEW OF THE AFORESTATED JUDGMENT OF THE B OMBAY HIGH COURT, WE ANSWER QUESTION NO. 1 IN THE AFFIRMATIVE, I.E., IN FAVOAUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 19. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DI RECTOR OF INCOME TAX (EXEMPTION) V FRAMJEE CASWASJEE INSTITUT E 109 CTR 463(BOM) HAD AN OCCASION TO CONSIDER THE FOLLOWING QUESTION OF LAW. WHETHER ON THE FACTS AND IN THE CIRCUMSTNCES OF TH E CASE, THE TRIBUNAL WAS RIGHT IN LAW IN DIRECTING THE ITO TO T AKE DEPRECIATION INTO ACCOUNT IN COMPUTING THE INCOME FROM DEPRICABLE ASS ETS WHEN IN FACT THE FULL CAPITAL EXPENDITURE HAD BEEN ALLOWED IN THE YE R OF AQUESTION OF THESE ASSETS. THE HONBLE HIGH COURT OBSERVED AS UNDER : 2. THE ASSESSEE IS A TRUST. ITS INCOME IS DERIVED F ROM DEPRECIABLE ASSETS. THE ASSESSEE TOOK INTO ACCOUNT DEPRECIATION ON THOSE ASSETS IN COMPUTING THE INCOME OF THE TRUST. THE ITO HELD THAT DEPRECIATILON COULD NOT BE TAKEN INTO ACCOUNT BECAU SE FULL CAPITAL EXPENDITURE HAS BEEN ALLOWED IN THE YEAR OF ACQUISI TION OF THE ASSETS. THE ASSESSEE WENT IN APPEAL BEFORE THE AAC WHO REJECTED THE APPEAL. THE TRIBUNAL HAS HOWEVER, ALLOWED THE A PPEAL. THE TRIBUNAL HAS EXPLAINED THE POSITION BY STATING THAT WHEN THE ITO SAYS THAT FULL EXPENDITURE HAS BEEN ALLOWED IN THE YEAR OF THE ACQUISITION OF THE ASSETS, WHAT HE REALLY MEANS IS THAT THE AMOUNT 7 SPENT ON ACQUIRING THESE ASSETS HAD BEEN TREATED AS APPLICATION OF INCOME OF THE TRUST IN THE YEAR IN WHICH THE INCOME WAS SPENT IN ACQUIRING THESE ASSETS. THIS DOES NOT MEAN THAT IN COMPUTING INCOME FROM THOSE ASSETS IN SUBSEQUENT YEARS, DEPRE CIATION IN RESPECT OF THOSE ASSETS CANNOT BE TAKEN INTO ACCOUN T. 3. THE RESPONDENTS HAVE DRAWN OUR ATTENTION TO A CI RCULAR DT. 26 TH NOV., 1968 ISSUED BY THE CBDT UNDER WHICH IT HAS CL ARIFIED THAT IN THE CASE OF A BUSINESS UNDERTAKING HELD UNDER TRUST ITS INCOME WILL BE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDERTAKI NG AND THAT WHERE THE TRUST DEVISE INCOME FROM HOUSE PROPERTY, INTEREST ON SECURITIES, CAPITAL GAINS OR OTHER SOURCES, THE INC OME SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE. 4. WE ARE ALSO INFORMED THAT IN THE EARLIER YEARS W HEN A SIMILAR QUESTION AROSE IN RESPECT OF AN ASSESSEE KNOWN AS L AXMI CHARITABLE TRUST, AN APPLICATION UNDER S. 256(2) WA S REJECTED BY THIS HIGH COURT. IN OUR VIEW, THEREFORE, THE ANSWER TO THE QUESTION IS OBVIOUS. 20. IT IS TRUE THAT LD.D/R HAS PLACED RELIANCE ON T HE DECISION OF THE COCHIN BENCH IN THE CASE OF DEPUTY DIRECTOR OF INCOME TAX (EXEMPTION) V LISSIE MEDICAL INSTITUTIONS IN ITA NO .1010/COCH/2008 DATED 26.10.2010. THE LD.COCHIN BENCH HAS HELD THAT NO DOUBLE DEDUCTION CAN BE ALLOWED IN VIEW OF DECISION OF HONBLE APEX COURT IN THE CASE OF ESCORTS LTD & OTHERS V VOL 199 ITR 43. IN CASE DEPR ECIATION IS ALLOWED WHEN COST HAS ALREADY BEEN ALLOWED THEN IT WILL MEA N DOUBLE DEDUCTION AND FUNDS WILL BE AVAILABLE FOR NON-CHARITABLE WORK WITHOUT PAYING TAX. WE RESPECTFULLY DIFFER WITH THE VIEW OF LD.COCHIN B ENCH AS THE MATTER HAS BEEN CONSIDERED BY VARIOUS HIGH COURTS AND IT HAS B EEN HELD THAT DEPRECIATION IS ALLOWABLE EVEN IF LIST OF ASSET IS TREATED AS APPLICATION OF INCOME.. 21. WE ALSO DRAW ATTENTION TO SECTION 11(1A) WHICH PROVIDES FOR COMPUTATION OF CAPITAL GAIN ON TRANSFER OF ASSE TS BEING PROPERTY HELD UNDER TRUST. IT IS MENTIONED THAT IN CASE WHOLE OF NET CONSIDERATION IS UTILIZED IN ACQUIRING NEW CAPITAL ASSET THEN NO CAP ITAL GAIN OF PART OF NET CONSIDERATION IS UTILIZED FOR ACQUIRING THE NEW CAP ITAL ASSET THEN SO MUCH 8 OF THE CAPITAL GAIN AS IS EQUAL TO THE AMOUNT, ANY, BY WHICH THE AMOUNT SO UTILIZED EXCEEDS THE COST OF TRANSFERRED ASSET. LET US ILLUSTRATE IT COST OF TRANSFERRED ASSET = RS.100/- NET CONSIDERATION = RS.250/- CONSIDERATION UTILIZED FOR NEW CAPITAL ASSET = RS.125 CAPITAL GAIN = RS.150 22. HENCE RS.25 WHICH IS THE DIFFERENCE BETWEEN THE CONSIDERATION UTILIZED AND OF TRANSFERRED ASSET IS TO BE TREATED AS APPLIED FOR CHARITABLE PURPOSE. THE CAPITAL ASSET WHILE ACQUIRE D WAS ALLOWED AS EXPENDITURE BUT THE SAME HAS NOT BEEN TAKEN ZERO FO R THE PUIRPOSE OF COMPUTIONG CAPITAL GAILN TO BE TREATED AS APPLIED F OR CHARITABLE PURPOSE. HONBLE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR O F INCOME TAX (EXEMP) V. GIRDHARI LAL SHEWNARAIN TANTA TRUST 199 ITR 215 HELD THAT NO DEDUCTION U/S 80T IS AVAILABLE FOR COMPUTING CAPITA L GAIN IN THE CASE OF TRUST. 23. THE C.B.D.T. VIDE CIRCULAR NO.72 DATED 06.01.72 EXPLAINED AS TO WHY SECTION 11(A) HAS BEEN INSERTED RETROSPEC TIVELY BY FINANCE (NO.2) ACT 1971 WITH RETROSPECTIVE EFFECT FROM 01.0 4.1962. A TRUST CAN CLAIM EXEMPTION PROVIDED A SPECIFIC POSITION OF INC OME IS APPLIED FOR PURPOSES OF THE TRUST. INCOME INCLUDES CAPITAL GAIN AND HENCE TRUST WILL LOSE EXEMPTION IF SUCH INCOME IS NOT APPLIED. THE R EQUIREMENT THAT THE CAPITAL GAIN ARISING TO BE UTILIZED FOR CHARITABLE PURPOSE WILL HAVE UNINTENDED EFFECT OF PROGRESSIVELY REDUCING THE COR PUS OF THE TRUST AND THE INCOME YIELDED BY IT. HENCE THE CAPITAL GAIN IS TO BE CONSIDERED AS APPLIED FOR CHARITABLE PURPOSE IF THE NET CONSIDERATION IS UTILIZED FOR ACQUIRING ANOTHER CAPITAL ASSET. IF PART OF THE NET CONSIDERA TION IS UTILIZED THEN CAPITAL GAIN TO THE EXTENT OF AMOUNT, WHICH IS IN E XCESS OF NEW CAPITAL ASSET AND COST OF CAPITAL ASSET TRANSFERRED, IS TO BE CONSIDERED AS USED FOR CHARITABLE PURPOSE. BOARD ALSO ADVISED THAT NET CON SIDERATION IN FIXED 9 DEPOSIT WITH BANK FOR A PERIOD OF 6 MONTHS OR ABOVE WOULD BE REGARDED AS UTILIZATION OF THE NET CONSIDERATION FOR ACQUIRING ANOTHER CAPITAL ASSET WITHIN MEANING OF SECTION 11(1A) OF THE ACT. COST O F THE TRANSFERRED ASSET MEANS THE COST OF ACQUISITION OF THE CAPITAL ASSET. THE NET CONSIDERATION IS NOT REGARDED AS CAPITAL GAIN AND COST OF ACQUISITIO N OF CAPITAL ASSET TRANSFERRED IS NOT TREATED AS NIL IF THE ASSET IS A PROPERTY HELD UNDER TRUST. IT IS NOT MENTIONED THAT A CAPITAL ASSET ACQUIRED BY A PPLICATION OF INCOME IS TO BE TREATED DIFFERENTLY WHILE ASCERTAINING THE CA PITAL GAIN. HENCE COST MUST HAVE BEEN TREATED AS APPLICATION OF INCOME BUT THE CAPITAL GAIN IS TO BE ASCERTAINED ON THE BASIS OF NORMAL COMMERCIAL PR INCIPLES. HENCE IN THE CASE OF TRUST THE INCOME WHICH IS REQUIRED TO BE CO NSIDERED APPLIED IN EXCESS OF 85% RECEIPTS IS TO BE ASCERTAINED ON COMM ERCIAL PRINCIPLES AND DEPRECIATION IS TO BE ALLOWED. IN CASE WITHOUT DEPR ECIATION, THE RECEIPTS APPLIED ARE IN EXCESS OF STATUTORY PERCENTAGE THEN ISSUE OF ALLOWABILITY OF DEPRECIATION IS ACADEMIC. IN ABSENCE OF DETAILS NOT FILED BEFORE US, WE ARE UNABLE TO SEE AS IN WHAT CASE OF SAMITI AND IN WHIC H YEAR, THE ISSUE OF DEPRECIATION IS ACADEMIC. 3. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 25-01 -2012. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 25 /01/2012 *MISHRA COPY FORWARDED TO :- 1. THE ITO , WARD- BUNDI 2. M/S KRISHI UPAJ MANDI SAMITI, BUNDI 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.424/JP /11) A.R, ITAT, JAIPUR 10 11
