Pallavi Educational Society, Hyderabad V. Asst.DIT(E)-III, Hyderabad

ITA 482/HYD/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2278 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S SRINIVAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Charitable institution; Cost of acquisition; Capital expenditure
• Section: 133A; 12A; 12AA; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 482HYD/2013 ASSESSMENT YEAR: 2009-10 PALLAVI EDUCATIONAL SOCIETY, HYDERABAD. PAN AAATP 3593M VS. ASST. DIRECTOR OF INCOME-TAX (E) III, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI S. SRINIVAS DATE OF HEARING 25-10-2017 DATE OF PRONOUNCEMENT 13-12-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: 1. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)- IV, DATED 11/01/2013, HYDERABAD RELATING TO AY 2009-10. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS RUNNING AN EDUCATIONAL INSTITUTION IN THE NAME OF PALLAVI MODE L SCHOOL AT SECUNDERABAD AND HAS BEEN GRANTED REGISTRATION U/S 12A OF THE ACT W.E.F. 01/04/1995. IT FILED ITS RETURN OF INCOME ON 30/09/2009 CLAIMING EXEMPTION U/S 11 AND ADMITTED NIL INCOME. A SURVEY U/S 133A WAS CONDUCTED IN THE CASE OF THE ASSESSEE ON 21/10/2011 . THE AO REJECTED THE CLAIM OF EXEMPTION U/S 11 ON THE GROU ND THAT ASSESSEE HAS GIVEN ADVANCE TO M/S SHALIVAHANA ASSOCIATES, IN WHICH, ONE OF THE TRUSTEE IS HOLDING SUBSTANTIAL INTERESTAND ALSO DISALLOWED THE 2 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. DEPRECIATION CLAIMED BY THE ASSESSEE. HE ASSESSED T HE TOTAL INCOME OF THE ASSESSEE AT RS. 60,95,011/-. 3. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL B EFORE THE CIT(A), THE CIT(A) UPHELD THE ACTION OF THE AO WITH REGARD TO DENIAL OF EXEMPTION U/S 11 ON THE GROUND THAT IT HAS GIVEN AD VANCE TO M/S SHALIVAHANA ASSOCIATES OF RS. 32,07,995/- AND DISA LLOWANCE OF DEPRECIATION. CIT(A) ALLOWED THE CLAIM OF EXEMPTION U/S 11 WITH REGARD TO CONTRIBUTIONS TO THE BUILDING FUND OF RS. 3,20,000/-. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS ERRONEOUS TO THE EXTENT IT IS PREJUDIC IAL TO THE APPELLANT HEREIN. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THERE WAS ANY VIOLATIONS TO THE PROVIS IONS OF SEC.13(L)(C) OF THE I.T. ACT AND THAT THE APPELLANT IS NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE I.T. ACT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN D ISALLOWING DEPRECIATION IN RESPECT OF THE FIXED ASSETS AND ON THE EXPENDITURE INCURRED FOR ACQUISITION OF ASSETS. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT FOR COMPUTATION OF INCOME DEPRECIATION IS ALLOWABLE AS DEDUCTION AND WHEREAS FOR THE PURPOSE OF CONSIDERIN G UTILIZATION THE COST OF ACQUISITION HAS TO BE CONSIDERED. 5. GROUND NO. 1 IS GENERAL IN NATURE. 6. WITH REGARD TO GROUND NO. 2, IT IS OBSERVED THA T AS PER THE ASSESSEES BALANCE SHEET, AN ADVANCE OF RS. 32,07,9 95/- HAD BEEN GIVEN TO M/S SHALIVAHANA ASSOCIATES IN WHICH SRI M. KOMARAIAH, SECRETARY OF THE ASSESSEE, WAS A PARTNER. THE ASSES SEE EXPLAINED THAT A RUNNING ACCOUNT HAD BEEN MAINTAINED BETWEEN THE ASSESSEE AND THE SAID FIRM, THAT THE FIRM HAD PROVIDED INTER EST FREE ADVANCES TO THE SOCIETY THROUGH THE ENTIRE YEAR AND THAT IF THE TRANSACTIONS WERE 3 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. VIEWED IN THEIR ENTIRETY, THERE WAS NO OVERALL BENE FIT TO THE FIRM. THE AO REJECTED THE EXPLANATION OF THE ASSESSEE AND HEL D THAT SECTION 13(3) MANDATES THAT NO LOANS SHOULD BE GIVEN TO AN Y OF THE SPECIFIED PERSONS FOR ANY AMOUNT OR ANY PERIOD. THE AO ALSO H ELD THAT NEITHER ANY INTEREST HAD BEEN PAID TO THE ASSESSEE FOR THE LOAN GIVEN NOR ANY SECURITY ATTACHED TO THE BALANCE PAYABLE. THE AO, THEREFORE, HELD THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SE CTION 13(1)(C) AND HENCE, ASSESSEE WAS NOT ENTITLED TO EXEMPTION U/S 1 1 OF THE ACT. 7. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMIT TED THAT THE ASSESSEE HAD AVAILED INTEREST FREE ADVANCES FROM SH ALIVAHANA ASSOCIATES FOR MOST PART OF THE YEAR, THAT THE TRAN SACTIONS WERE IN THE NATURE OF RECEIPTS AND PAYMENTS IN A RUNNING ACCOUN T, THAT BEGINNING WITH A CREDIT BALANCE OF RS. 27,92,005/- ON 1.4.200 8, THE ASSESSEE HAD PAID RS. 75,00,000/- ON 31.3.2009 WHICH RESULTE D IN DEBIT BALANCE OF RS. 32,07,995/- AT THE END OF THE YEAR. THE AR S UBMITTED THAT ALL THE TRANSACTIONS WERE INTEREST FREE AND THEY HAD NO T RESULTED IN ANY NET BENEFIT TO SHALIVAHANA ASSOCIATES AND THEREFORE , THERE WAS NO VIOLATION OF SEC. 13(1)(C). THE AR SUBMITTED THAT H AD INTEREST BEEN CHARGED ON THESE TRANSACTIONS, THE INTEREST PAYABLE BY THE ASSESSEE WOULD HAVE BEEN RS. 4,63,122/- AND INTEREST RECEIVA BLE WOULD HAVE BEEN RS, 1,274/- SO THAT IT WAS THE TRUST WHICH WAS A BENEFITED THROUGH THESE TRANSACTIONS. THE AR ALSO SUBMITTED T HAT THE REFERENCE BY THE AO TO SECTION 13(2)(A) WAS INAPPROPRIATE SIN CE THE TRANSACTIONS WERE EFFECTED IN A RUNNING ACCOUNT AND WERE NOT IN THE NATURE OF A LOAN. THE AR RELIED ON FEW CASE LAW BEFORE THE CIT( A), WHICH WERE MENTIONED AT PAGE 4 OF CIT(A)S ORDER. 8. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT THE AR OF THE ASSESSEE HAS NOT SPECIF IED THE NATURE OF TRANSACTIONS WHICH THE ASSESSEE HAD UNDERTAKEN WITH SHALIVAHANA ASSOCIATES WHICH RESULTED IN MAINTAINING THE RUNNIN G ACCOUNT. HE FURTHER OBSERVED THAT WITHOUT ANY SUCH FINANCIAL TR ANSACTIONS IN THE 4 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. COURSE OF WHICH MONEY WAS PAID OR RECEIVED FROM SHA LIVAHANA ASSOCIATES, THE TRANSACTION WITH THIS PARTY NECESSA RILY TAKES THE CHARACTER OF A LOAN ACCOUNT AND HAS TO BE EXAMINED IN THE LIGHT OF THE RELEVANT PROVISIONS OF SECTION 13. AS REGARDS THE C LAIM OF THE ASSESSEE THAT THERE WAS NO BENEFIT TO SHALIVAHANA A SSOCIATES SINCE MONEY WAS PAYABLE BY THE ASSESSEE AND NOT VICE VERS A, THE CIT(A) OBSERVED THAT THE CLAIM OF THE AR IS WITHOUT ANY ME RIT AS SECTION 13(2)(A) APPLIES TO A SITUATION WHERE ANY PARTY OF THE INCOME OR PROPERTY OF THE TRUST IS LENT TO A SPECIFIED PERSON FOR ANY PERIOD DURING THE PREVIOUS YEAR. IN VIEW OF THE ABOVE OBS ERVATIONS THE CIT(A) FURTHER ANALYZED THE ISSUE WITH CASE LAW AND HELD THAT THE LOAN TO SHALIVAHANA ASSOCIATES WAS IN VIOLATION OF SECTI ON 13(2)(A) AS A RESULT OF WHICH THE ASSESSEE CEASES TO BE ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. 9. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT IN CASE OF FUND REQUIREMENT ASSESSEE HAD AVAILED INTEREST FREE ADVANCES FROM SHALIVAHANA ASSOCIATES FOR MOST PART OF THE YEAR AN D IT SUBMITTED A STATEMENT SHOWING THAT THEIR TRANSACTIONS WITH SHAL IVAHANA ASSOCIATES FOR THE YEAR UNDER CONSIDERATION. HE SU BMITTED THAT ASSESSEE HAS PAID AN AMOUNT OF RS. 75 LAKHS TO SHAL IVAHANA ASSOCIATES ON THE LAST DATE OF THE YEAR, BY SUCH PA YMENT, THE OUTSTANDING AMOUNT OF THE ADVANCE ACCOUNTS BECOMES RECEIVABLE TO THE EXTENT OF RS. 32,07,995/-. THIS IS NOTHING BUT RUNNING ACCOUNT. FURTHER HE SUBMITTED THAT, IN CASE, INTEREST IS TO BE CHARGED ON THE ABOVE TRANSACTION, ASSESSEE MUST HAVE PAID RS. 4,15 ,213/- AS INTEREST AND MUST HAVE RECEIVED RS. 1,143/-. HE SUB MITTED THAT IT CLEARLY DEMONSTRATES THAT REAL BENEFIT WAS ENJOYED BY THE ASSESSEE AND NOT BY SHALIVAHANA ASSOCIATES. HE SUBMITTED THA T THESE TRANSACTIONS CANNOT BE BROUGHT U/S 13(2)(A) OF THE ACT. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING CASE LAW: 1. VEMPATI CHINNA SATYAM KUCHIPUDI, [2011] 10 ITR 2 01 (CHENNAI) 2. CIT VS. KAMALA TOWN TRUST, [2005] 279 ITR 89 (AL L.) 5 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. 3. DIT VS. PARIWAR SEWA SANSTHAN, [2002] 254 ITR 26 8 (DELHI) 4. CIT VS. 21 ST SOCIETY FOR IMMACULATE CONCEPTION, [2000] 241 ITR 193 (MADRAS) 5. ADIT VS. MOHAMMED SADHAK TRUST, [2014] 63 SOT 99 (CHENNAI TRIBUNAL) 10. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 11. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD AND CASE LAW RELIED ON BY THE LD. AR. IT IS OBSERVED THAT ASSESSEE HAS RECEIVED ADVANCES FROM SHALIVAHANA ASS OCIATES REGULARLY FOR ITS REQUIREMENT AND WHENEVER THERE IS SURPLUS, THE ASSESSEE USED TO RETURN THE ADVANCES. TO THIS EFFEC T, A COPY OF THE LEDGER ACCOUNT IS PLACED ON RECORD (REFER PAGES 27 TO 42 OF PAPER BOOK). WE FIND THAT ASSESSEE HAS ISSUED TWO CHEQUES ON THE LAST DATES OF THE YEAR (30 TH & 31 ST MARCH, 2009) FOR RS. 50 & 25 LAKHS RESPECTIVELY IN FAVOUR OF SHALIVAHANA ASSOCIATES (R EFER PAGE 42 OF THE PAPER BOOK). SINCE CHEQUES WERE ISSUED ON THE LAST DATES OF THE FY, THE OUTSTANDING BALANCE AT THE END OF THE YEAR BECO MES RECEIVABLE FOR THE FIRST TIME TO THE EXTENT OF RS. 32,07,995/-. IT IS CLEAR FROM THE RECORD THAT THE FUNDS REMITTED TO THE CONCERN IN WH ICH THE TRUSTEE IS HOLDING SUBSTANTIAL INTEREST. WHETHER INCOME IS SO USED OR APPLIED IS A QUESTION TO BE DECIDED ON THE FACTS AND CIRCUMSTA NCES OF EACH CASE. THE LEGISLATURE, HOWEVER, ALSO CREATES A FICT ION AND ENUMERATES IN CLAUSE (A) TO (H) OF SUB-SECTION (2), A LIST OF CIRCUMSTANCES IN WHICH THE INCOME SHALL BE DEEMED TO HAVE BEEN USED OR APP LIED FOR THE BENEFIT OF SPECIFIED PERSONS. THE CLAUSE (A) DEALS WITH ANY PART OF INCOME OR PROPERTY IS LENT OR CONTINUES TO BE, TO A NY PERSON REFERRED IN SUB-SECTION (3) OF SECTION 13 FOR ANY PERIOD DUR ING PY WITHOUT ADEQUATE SECURITY OR INTEREST OR BOTH. IN THE GIVEN CASE, THE ASSESSEE HAS LENT THE FUNDS WITHOUT ANY SECURITY OR INTEREST . IT IS WORTH TO NOTE THE MEANING OF LEND EXPLAINED BY HONBLE AP HIGH COURT IN THE CASE OF CIT/CWT VS. POLISETTY SOMASUNDARAM CHARITIES [19 90] 183 ITR 377 (AP). THE HONBLE HIGH COURT DISCUSSED THE DIST INCTION BETWEEN 6 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. LEND AND INVEST AND POINTED OUT THAT IN COMMERC IAL PARLANCE LENDING IS ASSOCIATED WITH ADVANCING MONEY FOR AN ASSURED RETURN AT AN AGREED RATE OF INTEREST RETURNABLE ON DEMAND OR WITHIN SPECIFIED PERIOD WITH MINIMAL RISK, WHILE, THE EXPRESSION IN VEST IN A BROAD SWEEP TAKES IN LENDING ALSO, BUT, IT CAN BE CONSIDE RED AS CONFINED TO LAYING OUT THE AMOUNT IN A VENTURE WITH A PROFIT MO TIVE AND WITH NO PROMISE OF ASSURED RETURN INVOLVING RISK. FROM THE ABOVE, IT IS CLEAR THAT LENT MEANS ADVANCING MONEY FOR AN ASSURED RE TURN WITH MINIMAL RISK. IN THE GIVEN CASE, THE ASSESSEE HAS NOT LENT ANY MONEY AS PER COMMERCIAL INTENTION. IT HABITUALLY TAKING ADVANCES FROM THE CONCERN AND IN QUID-PRO-QUO, IT HAS ADVANCED MONEY TO THE OTHER CONCERN WITHOUT ANY RETURN. ON VERIFICATION, WE NOTICED THA T THE PEAK ADVANCES TAKEN BY ASSESSEE IS TO THE EXTENT OF RS. 42,92,005 /- AND MOST PART OF THE YEAR, ASSESSEE OWED TO THE OTHER CONCERN. IT I S PERTINENT TO NOTE THAT FOR 364 DAYS, ASSESSEE HAS UTILIZED THE FUNDS AND ON THE LAST DAY OF THE YEAR, IT HAS ADVANCED TO THE OTHER CONCERN I N QUID-PRO-QUO. IN OUR CONSIDERED VIEW, THIS IS UNREASONABLE ON THE PA RT OF THE AO TO DENY THE BENEFIT U/S 11. THE INTENTION OF THE LEGIS LATURE TO INTRODUCE THE STRICT RULES AND FICTION IN SECTION 13(2) IS TO SAFEGUARD THE INCOME AND ASSETS OF THE TRUST. IN THE GIVEN CASE, THERE I S NO SUCH DANGER TO THE INCOME OR TO THE ASSETS OF THE TRUST. ONE HAS T O APPLY THE PROVISIONS PARTICULARLY THE BENEFICIAL PROVISION WI TH THE OPEN MIND AND HEART. CONSIDERING THE ABOVE DISCUSSION AND ON THE GROUND OF REASONABLENESS, WE ALLOW THE GROUND RAISED BY THE A SSESSEE AND DIRECT THE AO TO ALLOW THE EXEMPTION U/S 11, WHICH IS LAWFULLY AVAILABLE TO THE ASSESSEE. 11.1 WITH REGARD TO THE SUBMISSION OF THE LD. AR AN D RELYING ON THE CASE LAW, WE REJECT THE CASE LAW AS THEY ARE NOT RE LEVANT TO THE FACTS ON HAND, ALSO DISTINGUISHED BY THE LD. CIT(A) IN HI S ORDER AND WE ALSO REJECT THE CONCEPT OF APPLYING THE NOTIONAL INTERES T. 7 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. 12. AS REGARDS GROUND NO. 3 REGARDING DISALLOWANCE OF CLAIM OF DEPRECIATION OF RS. 10,11,041/-, THE AO OBSERVED TH AT DEPRECIATION HAD BEEN CLAIMED BY THE ASSESSEE ON ASSETS, THE COS T OF WHICH HAD ALREADY BEEN CLAIMED AS APPLICATION OF INCOME. THE AO, THEREFORE, HELD THAT THIS WOULD AMOUNT TO DOUBLE DEDUCTION IN VIEW OF THE DECISION IN THE CASE OF ESCORTS LTD. VS. UOI, 199 I TR 43 (SC) AND DISALLOWED THE DEPRECIATION. 13. THE CIT(A) FOLLOWING THE DECISION OF THE ITAT, HYDERABAD IN THE CASE OF ACIT VS. SRI VENKAT SAI EDUCATIONAL SOCIETY AND OTHERS (ITA NO. 1440/HYD/2011 AND OTHERS DATED 09/04/2012) UPHE LD THE DISALLOWANCE OF DEPRECIATION. 14. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. WE HAVE CONSIDERED THE ESCORTS LTD. (SUP RA), ON WHICH RELIANCE PLACED BY THE LD. DR, WHEREIN THE HONBLE SUPREME COURT HAS ADJUDICATED THAT THE ASSESSEE CANNOT CLAIM DOUB LE BENEFIT CLAIMING DEDUCTION U/S 32 AND U/S 35 AT THE SAME TI ME. THE INTENTION OF LEGISLATURE IS NOT TO EXTEND DOUBLE BENEFIT BY O BSERVING THAT THE DEDUCTION OF THE ALLOWANCE ON SCIENTIFIC RESEARCH A SSETS AND THAT OF DEPRECIATION ARE BASICALLY OF THE SAME NATURE INTEN DED TO ENABLE THE ASSESSEE WRITE OFF CERTAIN ITEMS OF CAPITAL EXPENDI TURE AGAINST HIS BUSINESS PRIORITY. THIS DECISION CANNOT BE APPLIED IN THE PRESENT CASE BECAUSE THE ASSESSEE IS NOT INTO BUSINESS AND ITS P ROFITS ARE EXEMPT. THE ASSETS ACQUIRED ARE OUT OF APPLICATION OF CAPIT AL FUNDS AND THE DEPRECIATION IS CALCULATED TO DETERMINE THE ACTUAL INCOME OVER EXPENDITURE. THE ALLOWABILITY OF DEDUCTION OF DEPRE CIATION IN THE CASE OF A CHARITABLE / RELIGIOUS TRUST IS SUPPORTED BY A NUMBER OF OTHER LEGAL PRECEDENTS BY HONBLE COURTS ARE AS FOLLOWS : 1. CIT VS MARKET COMMITTEE, PIPLI [2011] 330 ITR 1 6 (P&H) IN THIS CASE, THE ASSESSEE WAS REGISTERED UNDER SEC TION 12AA OF THE INCOME-TAX ACT, 1961, AS A CHARITABLE TRUST. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON TH E GROUND THAT SINCE THE INCOME OF THE ASSESSEE WAS EXEMPT FR OM TAX 8 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. UNDER SECTIONS 11 TO 13, ALLOWING DEPRECIATION TO A SCERTAIN WHETHER 85 PER CENT OF FUNDS WERE APPLIED FOR PURPO SES OF TRUST, WOULD AMOUNT TO CONFERRING DOUBLE BENEFIT. THIS VIE W 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 ANO THER ORDER OF THE TRIBUNAL. ON FURTHER APPEAL BY THE REVENUE BEFORE THE HIGH CO URT, DISMISSING THE APPEAL, IT WAS HELD THAT THE INCOME OF THE ASSESSEE BEING EXEMPT, THE ASSESSEE WAS ONLY CLAIMI NG 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. THERE WAS NO DOUBLE DEDUCTIO N CLAIMED BY THE ASSESSEE. IT COULD NOT BE HELD THAT DOUBLE B ENEFIT WAS GIVEN IN ALLOWING THE CLAIM FOR DEPRECIATION FOR CO MPUTING INCOME FOR PURPOSES OF SECTION 11. 2. CIT VS INSTITUTE OF BANKING [2003] 264 ITR 110 ( BOM) IN THIS CASE, THE ASSESSEE CLAIMED DEPRECIATION WHI CH WAS REJECTED BY THE ASSESSING OFFICER (AO) ON THE GROUN D THAT CAPITAL EXPENDITURE INCURRED, DURING THE ACCOUNTING YEAR, WAS ALLOWED AS A DEDUCTION FROM THE INCOME OF THE ASSES SEE. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO ALLO WED THE APPEAL OF THE ASSESSEE. ON FURTHER APPEAL BEFORE TH E TRIBUNAL, BY THE DEPARTMENT, THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). ON APPEAL AGAINST THE DECISION OF THE TRIBUNAL, IT WAS HELD BY THE HON. HIGH COURT THAT THE TRIBUNAL WAS RIGHT IN LAW IN DIRECTING THE AO TO ALLOW DEPRECIATION ON THE ASSET S, THE COST OF WHICH HAD BEEN FULLY ALLOWED AS APPLICATION OF INCO ME UNDER SECTION 11 IN THE PAST YEARS. IN THIS CONNECTION, THE RELEVANT PART OF THE HEAD N OTE ON PAGES 110 AND 111 IS REPRODUCED AS FOLLOWS : NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIMA TE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSES SEE ON GENERAL PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME-TAX ACT, 1961. INCOME OF A CHARITABLE TRUST DERIVED FRO M BUILDING PLANT AND MACHINERY AND FURNITURE IS LIABLE TO BE C OMPUTED 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 DEPRECIA TION, FOR COMPUTATION OF INCOME DERIVED FROM BUSINESS OR PROF ESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST IS REQUIRED TO BE COMPUTED UNDER SECTION 11ON COMMERCIAL PRINCIPLE S AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM THE GROSS INCOME OF THE TRUST. 9 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIE R YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YE AR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUS T FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAD BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF TH E ACT AND SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE I NCOME OF THE TRUST UNDER SECTION 11(1)(A). 3. DIT (E) VS FRAMJEE CAWASJEE INSTITUTE [1993] 109 CTR 463 (BOM) IT WAS HELD IN THIS CASE THAT DEPRECIATION ON DEPRE CIABLE ASSETS HAD TO BE TAKEN INTO ACCOUNT IN COMPUTING INCOME OF THE TRUST, ALTHOUGH THE AMOUNT SPENT ON ACQUIRING SUCH ASSETS HAD BEEN TREATED AS APPLICATION OF INCOME OF THE TRUST IN TH E YEAR IN WHICH ASSETS WERE ACQUIRED. 4. CIT VS SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRUST [1992] 198 ITR 598 (GUJ) IT WAS HELD IN THIS CASE THAT THE INCOME FROM THE P ROPERTIES HELD UNDER TRUST HAS TO BE ARRIVED AT IN THE NORMAL COMM ERCIAL MANNER WITHOUT CLASSIFICATION UNDER THE VARIOUS HEA DS SET OUT IN SECTION 14 OF THE INCOME-TAX ACT, 1961. THE EXPRESS ION INCOME HAS TO BE UNDERSTOOD IN THE POPULAR OR GEN ERAL SENSE AND NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED 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 P URPOSES OF CHARGE. THOSE PROVISIONS CANNOT BE INTRODUCED TO FI ND OUT WHAT THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRU ST TO BE EXCLUDED FROM THE TOTAL INCOME IS, FOR THE PURPOSE OF THE EXEMPTIONS UNDER CHAPTER III. THE AMOUNT OF DEPRECI ATION DEBITED TO THE ACCOUNTS OF THE CHARITABLE INSTITUTI ON HAS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPL ICATION TO CHARITABLE AND RELIGIOUS PURPOSES. 5. CIT VS TINY TOTS EDUCATION SOCIETY [2011] 330 IT R 21 (P&H) IN THIS CASE THE ASSESSEE WAS A CHARITABLE INSTITUT ION 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 OFFIC ER DISALLOWED THE DEPRECIATION ON THE GROUND THAT THE INCOME OF THE ASSESSEE BEING EXEMPT, CLAIM FOR DEPRECIATION W OULD AMOUNT TO TAKING OF DOUBLE BENEFIT. THE COMMISSIONE R (APPEALS) HELD THAT DEDUCTION FOR COMPUTING INCOME TO PRESERVE 10 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. THE CORPUS OF THE TRUST WAS PERMISSIBLE AND DID NOT AMOUNT TO DOUBLE BENEFIT. THIS VIEW WAS UPHELD BY THE TRIBUNA L OBSERVING THAT APPLICATION OF INCOME WAS NOT COMPUTATION OF I NCOME OF THE CHARITABLE INSTITUTION. THEREFORE, THE QUESTION WHE THER DEPRECIATION WAS TO BE ALLOWED OR NOT, HAD NOTHING TO DO WITH THE APPLICATION OF INCOME. THE INCOME WAS ALWAYS TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND AS PER THE SY STEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, SUBJECT ALWAYS TO THE STATUTORY PROVISIONS. ON FURTHER APPEAL BY THE REVENUE BEFORE THE HIGH CO URT, DISMISSING THE APPEAL, IT WAS HELD THAT THE ASSESSE E WAS NOT CLAIMING DOUBLE DEDUCTION ON ACCOUNT OF DEPRECIATIO N. THE INCOME OF THE ASSESSEE BEING EXEMPT, THE ASSESSEE W AS ONLY CLAIMING THAT DEPRECIATION SHOULD BE REDUCED FROM T HE INCOME FOR DETERMINING THE PERCENTAGE OF FUNDS WHICH HAD T O BE APPLIED FOR THE PURPOSES OF THE TRUST. IT COULD NOT BE HELD THAT DOUBLE BENEFIT WAS GIVEN IN ALLOWING THE CLAIM FOR DEPRECI ATION FOR COMPUTING INCOME FOR PURPOSES OF SECTION 11. 6. CIT VS RAO BAHADUR CALAVALA CUNNAN CHETTY CHARIT IES [1982] 135 ITR 485 (MAD) IT WAS, INTER-ALIA HELD IN THIS CASE THAT THE INCOM E FROM THE PROPERTIES OF THE TRUST WOULD HAVE TO BE ARRIVED AT IN A NORMAL COMMERCIAL MANNER WITHOUT CLASSIFICATION UNDER VARI OUS HEADS SET OUT IN SECTION 14 OF THE ACT. IT WAS ALSO HELD IN THIS CASE THAT THE EXPRESSION INCOME HAS TO BE UNDERSTOOD IN THE POPULAR OR GENERAL SENSE AND N OT IN THE SENSE IN WHICH THE INCOME IS ARRIVED AT FOR THE PUR POSE OF ASSESSMENT TO TAX BY APPLICATION OF SOME ARTIFICIAL PROVISIONS EITHER GIVING OR DENYING DEDUCTION. IT WAS FURTHER OBSERVED THAT THE COMPUTATION UNDER THE DIFFERENT CATEGORIES OR H EADS, ARISES ONLY FOR THE PURPOSES OF ASCERTAINING THE TOTAL INC OME FOR THE PURPOSES OF CHARGE. THUS, PROVISIONS CAN NOT BE INT RODUCED TO FIND OUT THAT THE INCOME DERIVED FROM THE PROPERTY HELD UNDER THE TRUST TO BE EXCLUDED FROM THE TOTAL INCOME IS, FOR THE PURPOSE OF EXEMPTIONS UNDER CHAPTER III. IN VIEW OF THE AFORESAID REASONS, IT IS CLEARLY EST ABLISHED THAT A CHARITABLE / RELIGIOUS TRUST IS ENTITLED TO DEDUCTI ON OF DEPRECIATION ALLOWANCE AND SUCH A DEDUCTION DOES NOT AMOUNT TO D OUBLE BENEFIT OR DOUBLE DEDUCTION. ACCORDINGLY, WE DELETE THE DISALL OWANCE MADE ON THIS COUNT AND GROUND IS ACCORDINGLY ALLOWED. 11 ITA NO. 482 /HYD/2013 PALLAVI EDUCATIONAL SOCIETY, HYD. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 13 TH DECEMBER, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED: 13 TH DECEMBER, 2017 KV COPY TO:- 1) PALLAVI EDUCATIONAL SOCIETY, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2) ADIT(E) - III, HYDERABAD 3) CIT(A) IV, HYD. 4) (DIT (E), HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER