DCIT, Udupi V. M/s Manipal Academy of Higher Education, Manipal

ITA 658/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90034 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 06-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 15-05-2014
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI CITII
• Assessee Lawyers: SAJJAN KUMAR TULSIYAN
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition; Tax effect; Capital expenditure
• Section: 115JB; 12AA; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.658(B)/2014 (ASSESSMENT YEAR : 2011-12) THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1, UDUPI APPELLANT VS M/S MANIPAL ACADEMY OF HIGHER EDUCATION, UNIVERSITY BUILDING, MADHAV NAGAR, MANIPAL PAN NO.AAAJM0078Q RESPONDENT REVENUE BY : SHRI FARHAT HUSSAIN QURESHI, CIT-II ASSESSEE BY : SHRI SAJJAN KUMAR TULSIYAN, ADVOCATE DATE OF HEARING : 06-07-2015 DATE OF PRONOUNCEMENT : 24-07-2015 O R D E R PER SHRI VIJAY PAL RAO, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 17- 03-2014 OF CIT(A), MYSORE FOR THE ASSESSMENT YEAR 2 011-12. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS; 1. THE ORDER OF THE LD.CIT(A) IS AGAINST LAW AND FACTS OF THE CASE. ITA NO.658(B)14 2 DEPRECIATION : 2.1. THE LD.CIT(A) ERRED IN ALLOWING THE ASSESSEE S CLAIM FOR DEPRECIATION ON ASSETS PUT INTO USE DURING THE ACCOUNTING YEAR RELEVANT TO THIS ASST. YEAR EVEN THOUGH THE EN TIRE COST OF THESE ASSETS HAVE BEEN CLAIMED BY THE ASSESSEE AS APPLICATION OF INCOME FOR CHARITABLE ACTIVITIES. 2.2 THE LD.,CIT(A) ERRED IN NOT FOLLOWING THE RAT IO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF ESCOR TS LTD AND ANOTHER VS UNION OF INDIA 199 ITR 43 WHEREIN IT IS HELD THAT A DOUBLE DEDUCTION CANNOT BE PRESUMED IN THE A BSENCE OF A CLEAR STATUTORY INDICATION. 2.3 THE LD,CIT(A) FAILED TO TAKE COGNIZANCE OF THE FACT THAT ALLOWING OF TOTAL COST OF THE ASSET AS AN APPL ICATION OF INCOME AND ALLOWING OF DEPRECIATION ON THE VALUE OF SUCH ASSETS IN THE SAME YEAR RESULTS IN DO8UBLE DEDUCTIO N AND IS NOT ADMISSIBLE IN THE ABSENCE OF CLEAR STATUTORY IN DICATION. 2.4 THE LD,CIT(A) ERRED IN NOT FOLLOWING THE RATIO LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT IN THE CAS E OF LISSIE MEDICAL INSTITUTION ITA NO.42OF 2011 DATED 1 7-02-2012 WHEREIN IT IS HELD THAT IN ORDER TO REFLECT THE TRU E INCOME TO BE AVAILABLE FOR APPLICATION FOR CHARITABLE PURPOSES, THE ASSESSEE SHOULD WRITE BACK IN THE ACCOUNTS THE DEPR ECIATION AMOUNT TO FORM PART OF INCOME TO BE ACCOUNTED FOR APPLICATIONS FOR CHARITABLE PURPOSES. 2.5 THE LD.CIT(A) FAILED TO CONSIDER THAT THE DEC ISION IN THE CASE OF IT VS INSTITUTE OF BANKING 264 ITR 110( BOM.) IS REGARDING ALLOWING OF DEPRECIATION ON ASSETS HOSE V ALUE WAS ITA NO.658(B)14 3 ALLOWED IN THE PRECEDING YEARS AS AN APPLICATION OF INCOME, AND NOT ON ALLOWING OF DEPRECIATION IN THE SAME ASS ESSMENT YEAR IN WHICH THE COST WAS ALLOWED AS AN APPLICATIO N OF INCOME AND, THEREFORE, IS DISTINGUISHABLE. 2.6 THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND T HAT OF AO BE RESTORED BY PLACING RELIANCE ON THE RECENT JU DGMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF DIT(EXEM PTION) VS CHARANJIV CHARITABLE TRUST DATED 18.3.2014 IN ITA N O.321 TO 323/2013 WHEREIN IT IS HELD THAT TRIBUNAL WAS NOT J USTIFIED IN DIRECTING THE ALLOWANCE OF DEPRECIATION IN RESPECT OF ASSETS, THE COST OF WHICH HAS BEEN ALLOWED AS DEDUCTION AS APPLICATION OF INCOME OF THE TRUST. CARRY FORWARD OF DEFICIT 3.1 THE LD. CIT(A) ERRED IN DIRECTING THE AO TO AL LOW CARRY FORWARD OF DEFICIT OF ASSESSMENT YEARS 201-02 AND O NWARDS FOR SET OFF AGAINST THE SURPLUS OF ASST.YEAR 2006- 07, WHEN THERE IS NO PROVISION IN THE IT ACT TO ALLOW CARRY FORWARD OF SUCH DEFICIT, AND THE NUMBER OF YEARS FOR WHICH SUC H CARRY FORWARD OF DEFICIT FOR SET OFF CAN BE ALLOWED. TH E LD.CIT(A) ERRED IN NOT SPECIFYING THE PROVISIONS OF THE IT AC T, WHILE DIRECTING THE AO TO ALLOW CARRY FORWARD OF DEFICIT. 3.2 THE LD.CIT(A) ERRED IN PLACING RELIANCE ON THE DECISION IN THE CASE OF CIT VS INSTITUTE OF BANKING 264 ITR 110(BOM.) FOR ALLOWING CARRY FORWARD AND SET OFF OF DEFICIT O F EARLIER YEARS, EVEN THOUGH THE SAID DECISION WAS NOT PURSUE D IN FURTHER APPEAL IN VIEW OF NIL TAX EFFECT INVOLVED, AND AS PER SEC.268A THE SAID DECISION IS NOT BINDING IN RESPEC T OF THIS ASSESSEE. THE LD.CIT(A) ALSO ERRED IN FAILING TO TAKE ITA NO.658(B)14 4 CONGNIZANCE OF THE DECISION OF HONBLE APEX COURT I N THE CASE OF UNION OF INDIA VS DHARMENDRA TEXTILES PROCESSORS (2008) 306 ITR 277(SC) WHEREIN THE APEX COURT HELD THAT T HE HONBLE HIGH COURTS CAN ONLY INTERPRET THE LAW AND NOT LEGISLATE, AND LEGISLATIVE CASUS OMISSUS CANNOT BE SUPPLIED BY JUDICIAL INTERPRETATIVE PROCESS. GAIN ON REVALUATION OF INVESTMENTS 4.1 THE LD. CIT(A) ERRED IN NOT CONSIDERING THE F ACT THAT DURING THE YEAR THE ASSESSEE HAS GAINED AN AMOUNT O F RS.71,46,120/- ON REVALUATION OF INVESTMENTS WHICH IS CREDITED TO THE INCOME AND EXPENDITURE ACCOUNT. 4.2 THE LD.CIT(A) ERRED IN NOT TAKING COGNIZANCE O F THE FACT THAT ASSESSEE CANNOT ADOPT DUAL METHOD OF VAL UATION OF INVESTMENTS I.E ONE FOR COMPUTING THE INCOME AND EX PENDITURE ACCOUNT AND OTHER FOR ARRIVING AT THE INCOME FOR IN COME TAX PURPOSE. 4.3 THE LD.CIT(A) ERRED IN NOT TAKING COGNIZANCE O F THE FACT THAT IN THE AY: 2001-02 THE PROVISION DEBITED IN THE INCOME AND EXPENDITURE ACCOUNT WAS DISALLOWED, PROV ISION BEING NOT AN ALLOWABLE EXPENDITURE WHEREAS THE FACT IN THE ASSESSEES CASE FOR THE YEAR UNDER CONSIDERATION IS THAT GAIN ON REVALUATION OF INVESTMENTS IS ACCOUNTED FOR IN T HE BOOKS OF ACCOUNTS BUT REDUCED FROM THE COMPUTATION OF INCOME FOR INCOME TAX PURPOSE. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING THE ORDERS OF CIT(A) MAY BE SET ASI DE ON THESE POINTS AND THAT OF AO BE RESTORED. ITA NO.658(B)14 5 6. THE APPLICANT CRAVES LEAVE, TO ADD DELETE, AMEND OR MODIFY ANY OF THE GROUNDS OF APPEAL 3. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY SPECIFIC FINDING FOR ADJUDICATION. 4. GROUND NO.2 IS REGARDING CLAIM OF DEPRECIATION O N THE ASSET PUT INTO USE. 4.1 THE ASSESSEE IS A REGISTERED CHARITABLE TRUST W ITH THE OBJECT OF PROMOTING EDUCATION AND ADVANCED STUDIES IN MEDICIN E, SCIENCE ETC. THE ASSESSEE TRUST WAS GRANTED REGISTRATION U/S 12AA OF THE IT ACT, 1961 AND ALSO RECEIVED APPROVAL FOR EXEMPTION U/S 10(23C)(VI ) OF THE IT ACT, 1961. THE ASSESSEE FILED ITS RETURN OF INCOME SHOWING NIL INCOME AND EXCESS OF EXPENDITURE OVER THE INCOME. THE AO COMPLETED THE A SSESSMENT U/S 143(3). DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE AO NOTED THE ASSESSEE CLAIMED DEPRECIATION ON THE ASSETS, EVEN T HOUGH THE ENTIRE COST OF THE ASSETS WERE CLAIMED BY THE ASSESSEE APPLICA TION OF INCOME AND EXEMPT U/S 11 OF THE IT ACT, 1961. THUS, THE AO WA S OF THE VIEW THAT CLAIMING CAPITAL EXPENDITURE AS APPLICATION OF INCO ME AND AGAIN CLAIMING DEPRECIATION ON THE SAME AMOUNT RESULTS IN DOUBLE D EDUCTION. THE AO PLACED RELIANCE ON THE JUDGMENTS OF THE HONBLE SUP REME COURT IN CASE OF M/S ESCORTS LTD AND ANOTHER 199 ITR 43 AS WELL AS T HE DECISION OF THE HONBLE KERALA HIGH COURT IN CASE OF LISSIE MEDICAL INSTITUTIONS VS CIT, COCHIN 348 ITR 344 AND HELD THAT DOUBLE DEDUCTION C ANNOT BE ALLOWED. ITA NO.658(B)14 6 ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF DEPRECI ATION TO THE TUNE OF RS.70,40,56,376/-. 5. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN CASE OF ACI T VS SHRI ADICHUNCHUNAGIRI SHIKSHANA TRUST 19 ITR(TRIB.) 828 . 6. BEFORE US, THE LEARNED DR HAS STRONGLY SUPPORTE D THE ORDER OF THE AO AND PLACED RELIANCE ON THE JUDGMENTS OF THE HON BLE KERALA HIGH COURT IN CASE OF LISSIE MEDICAL INSTITUTIONS, (SUPR A. THE LEARNED DR HAS POINTED OUT THAT THE HONBLE KERALA HIGH COURT HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE BY CONSIDERING ALL THE DECISIO NS WHICH WERE RELIED UPON BY THIS TRIBUNAL IN CASE OF ACIT VS ADICHUNCHU NAGIRI SHIKSHANA TRUST (SUPRA). 7. THE LEARNED DR SUBMITTED THAT THE HONBLE HIGH COURT HAS OBSERVED THAT WHEN THE EXPENDITURE INCURRED FOR ACQ UISITION OF DEPRECIABLE ASSETS ITSELF IS TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE U/S 11(1)(A) OF THE IT ACT, 1961 THAN, THE COST OF SUCH ASSET SHOULD BE TREATED AS NIL. 8. THE LEARNED DR HAS THUS, CONTENDED THAT WHILE T HE INCOME OF THE TRUST HAS TO BE COMPUTED IN COMMERCIAL SENSE AND TH E CAPITAL EXPENDITURE WAS ALLOWED AS APPLICATION OF INCOME FO R CHARITABLE PURPOSE, ITA NO.658(B)14 7 THAN, THE CLAIM OF DEPRECIATION ON SUCH EXPENDITURE IS NOT PERMISSIBLE BEING A DOUBLE DEDUCTION. 9. ON THE OTHER HAND, LEARNED AR HAS SUBMITTED THA T THE DECISION OF HONBLE SUPREME COURT IN CASE OF M/S ESCORTS LTD (SUPRA) IS NOT APPLICABLE IN CASE OF A TRUST BECAUSE THE SAID DECI SION WAS ON THE ISSUE OF ALLOWABILITY OF CLAIM OF DEPRECIATION ON AN EXPENDI TURE ON WHICH THE CLAIM U/S 35 WAS ALSO MADE AND ALLOWED. IN THE CASE IN HA ND, THERE IS NO DOUBLE CLAIM OF DEPRECIATION. THEREFORE, THERE IS NO BAR IN ALLOWING THE DEPRECIATION ON THE CAPITAL EXPENDITURE FOR ACQUIRI NG THE ASSETS WHICH WERE PUT TO USE FOR CHARITABLE PURPOSES. THE LEARN ED AR HAS SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DEC IDED BY VARIOUS DECISIONS OF THE HONBLE HIGH COURTS AS WELL AS BY THIS TRIBUNAL. HE HAS RELIED UPON THE FOLLOWING DECISIONS; 1. CIT VS INSTITUTE OF BANKING 264 ITR 110.(BOM.) 2. CIT VS MANAV MANGAL SOCIETY 328 ITR 421(P&H) 3. CIT VS SOCIETY OF THE SISTERSOF ST.ANNE 146 ITR 28 4.ACIT VS SHRI ADICHUNCHUNAGIRI SHIKSHANA TRUST 19 ITR (TRIB.)828 5. CIT VS SHETH MANILAL RANCHHODDAS VISHRAM BHAVAN TRUST 198 ITR 598 (GUJ.) 6. CIT VS MAHARANA OF MEWAR CHARITABLE FOUNDATION 1 64 ITR 439 (RAJ.) ITA NO.658(B)14 8 7. CIT VS RAO BAHADUR CALAVALA CUNNAN CHETTY CHARIT IES 135 ITR 485(MAD.) 8. CIT VS TRUSTEE OF H.E.H THE NIZAMS SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST 127 ITR 378.(A.P) 10. THE LEARNED AR THAN REFERRED THE RECENT DECISIO NS OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL DATED 20-03-2015 IN CASE OF ACIT VS CITY HOSPITAL CHARITABLE TRUST, BANGALORE IN ITA NO.676( B)/2014 AND SUBMITTED THAT THE TRIBUNAL AFTER CONSIDERING THE J UDGMENT OF THE HONBLE KERALA HIGH COURT IN CASE OF LISSIE MEDICAL INSTITU TIONS (SUPRA) HAS DECIDED THIS ISSUE IN FAVOUR OF ASSESSEE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. SO FAR AS THE FACTS RELATING T O THIS ISSUE OF CLAIM OF DEPRECIATION ARE CONCERNED, THERE IS NO DISPUTE THA T THE ASSESSEE INCURRED AN EXPENDITURE FOR ACQUISITION OF THE ASSET TO THE TUNE OF RS.411,14,20,599/- AND CLAIMED THE SAME AS APPLICAT ION OF INCOME. THERE IS NO DISPUTE BEFORE US ON THE SAID CLAIM OF APPLICATION OF INCOME. SINCE THE ASSESSEE ALSO CLAIMED DEPRECIATION OF RS. 70,40,56,376/-ON SUCH CAPITAL ASSET THE AO DISALLOWED THE CLAIM OF DEPREC IATION ON THE GROUND THAT IT WOULD AMOUNT TO DOUBLE DEDUCTION. WE FIND THAT THE HONBLE KERALA HIGH COURT IN CASE OF LISSIE MEDICAL INSTIT UTE (SUPRA) HELD THAT THE CLAIM OF DEPRECIATION ON CAPITAL EXPENDITURE FOR AC QUIRING OF THE ASSET WOULD AMOUNT TO DOUBLE DEDUCTION WHEN THE ASSESSEE HAS ALREADY ITA NO.658(B)14 9 CLAIMED THE SAID CAPITAL EXPENDITURE AS APPLICATION OF INCOME. WE FIND THAT IN A SERIES OF OTHER JUDGMENTS INCLUDING THE J UDGMENTS OF THE HONBLE BOMBAY HIGH COURT AND HONBLE PUNJAB & HARYANA HIGH COURT AS WELL AS THE OTHER DECISIONS AS RELIED UPON BY THE LEARNED A R, A CONTRARY VIEW HAS BEEN TAKEN BY HOLDING THAT THE CLAIM OF DEPRECIATIO N ON THE CAPITAL EXPENDITURE WOULD NOT AMOUNT TO DOUBLE DEDUCTION EV EN IF THE SAID CAPITAL EXPENDITURE WAS CLAIMED AS DEDUCTION ON ACC OUNT OF APPLICATION OF INCOME. THUS, IT IS CLEAR THAT THERE ARE DIVERGENT VIEWS BY DIFFERENT HIGH COURTS ON THIS ISSUE HOWEVER, THE JUDGMENT AND RULI NGS OF THE JURISDICTIONAL HIGH COURT IS BINDING ON THIS TRIBUN AL. IN CASE OF CIT VS SOCIETY OF THE SISTERS OF ST. ANNE 146 ITR 28 (SUPR A) THE HONBLE JURISDICTIONAL HIGH COURT WHILE DEALING WITH THE IS SUE OF ALLOWABILITY OF CLAIM OF DEPRECIATION HAS HELD AS UNDER; 13. IT IS CLEAR FROM THE ABOVE PROVISIONS THAT THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST CANNOT BE TH E TOTAL INCOME BECAUSE S. 11(1) SAYS THAT THE FORMER SHALL NOT BE INCLUDED IN THE LATTER, OF THE PEROSN IN RECEIPT OF THE INCOME. THE EXPRESSION '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 GAINS, DIVIDENDS, VOLUNTARY PAYMENT RECEIVED BY TRUST, ETC. IT MAY BE NOTED THAT PROFITS AND GAINS ARE GENERALL Y USED IN TERMS OF BUSINESS OR PROFESSION AS PROVIDED U/S. 28 . THE WORD 'INCOME', THEREFORE, IS A MUCH WIDER TERM THAN THE EXPRESSION ITA NO.658(B)14 10 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. NET RECEIPT AFTER DEDUCTING ALL THE NECESSARY EXPENDITURE OF THE TRUS T (SIC). 14. 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 A LLOWED TO BE DEBITED TO THE EXPENDITURE ACCOUNT OF THE TRUST. TH IS CONTENTION APPEARS TO PROCEED ON THE ASSUMPTION THAT THE EXPEN DITURE SHOULD NECESSARILY INVOLVE ACTUAL DELIVERY OF OR PA RTING WITH THE MONEY. IT SEEMS TO US THAT IT NEED NOT NECESSARILY BE SO. THE EXPENDITURE SHOULD BE UNDERSTOOD AS NECESSARY OUTGO INGS. THE DEPRECIATION IS NOTHING BUT DECREASE IN VALUE OF PR OPERTY THROUGH WEAR, DETERIORATION OR OBSOLESCENCE AND ALLOWANCE I S MADE FOR THIS PURPOSE IN BOOK KEEPING, 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 LI FE OF A FIXED ASSET OWING TO 'USE' OR OBSOLESCENCE. IT MAY BE COM PUTED AS THAT PART OF THE COST OF THE ASSET WHICH WILL NOT BE REC OVERED 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 ACCOUNTING PERIOD, IS INTENDE D TO REPRESENT THE PROPORTION OF SUCH EXPENDITURE, WHICH HAS EXPIR ED DURING THAT PERIOD.' 'AT THE END OF ITS EFFECTIVE LIFE, THE ASSETS CEASE S TO EARN REVENUE, I.E., THE CAPITAL VALUE HAS EXPIRED AND THE ASSET W ILL HAVE TO BE REPLACED OR A SUBSTITUTE FOUND. PROVISION FOR DEPRE CIATION IS THE SETTING ASIDE, OUT OF THE REVENUE OF AN ACCOUNTING PERIOD, THE ESTIMATED AMOUNT BY WHICH THE CAPITAL INVESTED IN T HE ASSET HAS EXPIRED DURING THAT PERIOD. IT IS THE PROVISION MAD E FOR THE LOSS OR EXPENSE INCURRED THROUGH USING THE ASSET FOR EAR NING PROFITS, ITA NO.658(B)14 11 AND SHOULD, THEREFORE, BE CHARGED AGAINST THOSE PRO FITS AS THEY ARE EARNED.' 'IF DEPRECIATION IS NOT PROVIDED FOR, THE BOOKS WIL L NOT CONTAIN A TRUE RECORD OF REVENUE OR CAPITAL. IF THE ASSET WER E HIRED INSTEAD OF PURCHASED, THE HIRING FEE WOULD BE CHARGED AGAIN ST THE PROFITS; HAVING BEEN PURCHASED, THE ASSET IS, IN EF FECT, THEN HIRED BY CAPITAL TO REVENUE, AND THE TRUE PROFIT CANNOT B E ASCERTAINED UNTIL A SUITABLE CHARGE FOR THE USE OF THE ASSET HA S BEEN MADE. MOREOVER, UNLESS PROVISIN IS MADE FOR DEPRECIATION, THE BALANCE SHEET WILL NOT PRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS; ASSETS SHOULD BE SHOWN AT A FIGURE WHICH REPRESENTS THAT PART OF THEIR VALUE ON ACQUISITION, WHICH HAS NOT YET EXPIR ED.' 15. IN CIT V. INDIAN JUTE MILLS ASSOCIATION [1982] 134 ITR 68, THE CALCUTTA HIGH COURT, WHILE CONSTRUING THE EXPRESSIO N 'EXPENDITURE INCURRED' IN S. 44A OF THE ACT, OBSERVED : 'DEPRECIATION CLAIMED SHALL INCLUDE THE EXPENDITURE INCURRED.' 16. THERE ARE ONLY TWO RECOGNISED METHODS OF ACCOUN TING : (I) CASH BASIS, AND (II) MERECANTILE BASIS. UNDER THE C ASH BASIS ONLY CASH TRANSACTIONS ARE RECORDED. IT IS ONLY CASH REC EIPTS AND CASH PAYMENTS WHICH FIND ENTRIES IN THE BOOKS OF ACCOUNT . MERCANTILE SYSTEM OF ACCOUNTING WAS EXPLAINED BY THE SUPREME C OURT IN KESHAV MILLS LTD. V. CIT [1953] 23 ITR 230 AT 230 IN THE FOLLOWING WORDS : 'THE MERCANTILE SYSTEM OF ACCOUNTING OR WHAT IS OTH ERWISE 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, ENTRIES BEI NG MADE ONLY WHEN MONEY IS ACTUALLY COLLECTED OR DISBURSED. THAT SYSTEM BRINGS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECO MES LEGALLY ITA NO.658(B)14 12 DUE AND BEFORE IT IS ACTUALLY RECEIVED AND IT BRING S INTO DEBIT EXPENDITURE THE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED.' 17. IT IS NOT IN DISPUTE THAT IF THE MERCANTILE SYS TEM IS FOLLOWED, THE DEPRECIATION ALLOWANCE IN RESPECT OF THE TRUST PROPERTY SHOULD BE ALLOWED. 18. MR. SRINIVASAN, HOWEVER, URGED THAT THERE ARE E NOUGH INDICATIONS IN S. 11 TO EXCLUDE THE MERCANTILE SYSTEM OF ACCOUNTING. THE LEARNED COUNSEL RELIED UPON S. 11(1)(A) AND S. 11(4) IN SUPPORT OF HIS CONTENTION. WE DO NOT THINK THAT THERE IS ANYTHING IN THESE SUB-SECTIONS TO SUPPORT THE CONTE NTION OF MR. SRINIVASAN. EXPLANATION TO S. 11(1)(A) , ON THE CONTRARY, TAKES NOTE OF THE INCOME NOT RECEIVED IN A PARTICULAR YEA R. IT LENDS SUPPORT TO THE CONTENTION OF THE ASSESSEE THAT ACCO UNTING NEED NOT BE ON CASH BASIS ONLY. SECTION 11(4) IS NOT INTENDED TO EXPLAIN HOW THE ACCOUNTS OF THE BUSINESS UNDERTAKIN G SHOULD BE MAINTAINED. IT IS INTENDED ONLY TO BRING TO TAX THE EXCESS INCOME COMPUTED UNDER THE PROVISIONS OF THE I.T.ACT IN RESPECT OF BUSINESS UNDERTAKING. 19. THE DEPRECIATION IF IT IS NOT ALLOWED AS A NECE SSARY DEDUCTION FOR COMPUTING THE INCOME FROM THE CHARITA BLE INSITUTIONS, THEN THERE IS NO WAY TO PRESERVE THE C ORPUS OF THE TRUST FOR DERIVING THE INCOME. THE BOARD ALSO APPEA RS TO HAVE UNDERSTOOD THE 'INCOME' U/S. 11(1) IN ITS COMMERCIA L 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 WO RD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATION S THEREOF ITA NO.658(B)14 13 TOWARDS THE 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. IT SHOU LD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDED BACK WIL L BECOME 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 TR UST FROM OUT OF THE INCOME COMPUTED IN THE AFORESAID MANNER, SHO ULD 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).' 20. IN CIT V. TRUSTEE OF H. E. H. THE NIZAM 'S SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST [1981] 127 ITR 378, THE A NDHRA PRADESH HIGH COURT HAS ACCEPTED THE ACCOUNTS MAINTA INED IN RESPECT OF THE TRUST IN CONFORMITY WITH THE PRINCIP LES OF ACCOUNTANCY FOR THE PURPOSE OF DETERMINING THE INCO ME DERIVED FROM THE PROPERTY HELD IN TRUST. 21. IN CIT V. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES [1982] 135 ITR 485 AT 495, THE MADRAS HIGH COURT OBSERVED : 'THE INCOME FROM THE PROPERTIES HELD UNDER TRUST WO ULD HAVE TO BE ARRIVED AT IN THE NORMAL COMMERCIAL MANNER WITHOUT REFERENCE TO THE PROVISIONS WHICH ARE ATTRACTED BY S. 14 .' 22. IN THE RESULT, WE ANSWER THE QUESTION IN THE AF FIRMATIVE AND AGAINST THE REVENUE. 12. A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING 264 ITR 110(SUPRA) AS WELL AS BY ITA NO.658(B)14 14 THE HONBLE P&H HIGH COURT AND IN CASE OF CIT VS MA NAV MANGAL SOCIETY 328 ITR 421 (SUPRA). THE VIEW TAKEN IN THE CASE OF INSTITUTE OF BANKING (SUPRA) HAS BEEN RE-AFFIRMED BY THE HONBLE BOMBAY HIGH COURT IN THE RECENT DECISION DATED 23-03-015 IN CASE OF DIT(EXE MPTION), MUMBAI VS VILLE PARLE KELAVANI MANDAL, MUMBAI BY OBSERVING IN PARA-6 AS UNDER; 6. AS FAR AS QUESTION NO.4 IS CONCERNED, THIS COUR T HAS REPEATEDLY HELD THAT THERE IS NOTHING LIKE DOUBLE D EDUCTION. WHEN THE ASSESSEE HAS ACQUIRED AN ASSET FROM THE IN COME OF THE TRUST AND THEREAFTER THE AMOUNT THAT IS CLAI MED IS THE DEPRECIATION ON THE USE OF THE ASSETS, SUCH DEPRECI ATION CLAIM DOES NOT MEAN DOUBLE DEDUCTION. THE DEDUCTIO N EARLIER CLAIMED IS TOWARDS APPLICATION OF FUNDS OF THE TRUST FOR ACQUIRING ASSETS. THE LATTER IS DEPRECIATION A ND IT IS PERMISSIBLE DEDUCTION CONSIDERING THE USE OF THE AS SETS. THIS HAS BEEN CLARIFIED REPEATEDLY BY THIS COURT. IF ANY REFERENCE IS REQUIRED THEN THE CASE OF CIT VS INSTI TUTION OF BANKING PERSONNEL SELECTION (IBPS) (2003) 264 ITR 1 10/131 TAXMAN.386(BOM.) IS ENOUGH. 12.1 THEREFORE, IN VIEW OF THE JUDGMENT OF THE HO NBLE JURISDICTIONAL HIGH COURT IN CASE OF SOCIETY OF THE SISTERS OF ST. ANNE (SUPRA) AS WELL AS VARIOUS DECISIONS AS RELIED UPON BY THE LEARNED AR, WE HAVE NO REASON TO TAKE A DIVERGENT VIEW FROM THE VI EW TAKEN BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF SHRI ADI CHUNCHUNAGIRI ITA NO.658(B)14 15 SHIKSHANA TRUST (SUPRA) AS WELL AS IN CASE OF CITY HOSPITAL CHARITABLE TRUST (SUPRA), WHEREIN THE CO-ORDINATE BENCH OF THI S TRIBUNAL HAS DECIDED AN IDENTICAL ISSUE IN PARA-7 TO 9 AS UNDER; 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, W HO RELIED ON THE ORDER OF AO. WE HAVE CONSIDERED THE ORDER OF THE AO. IDENTICAL ISSUE ITA NO.676/BANG/2014 PAGE 4 OF 11 C AME UP FOR CONSIDERATION BEFORE ITAT BANGALORE BENCH IN THE CA SE OF DDIT(E) V. CUTCHI MEMON UNION (2013) 60 SOT 260 BANGALORE I TAT, WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS T RIBUNAL. IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPRECIATION A ND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE RELEVANT CAPITAL ASSET, COST OF ACQUISITION WAS CON SIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITIO N. THE AO TOOK THE VIEW THAT ALLOWING DEPRECIATION WOULD AMOUNT TO ALL OWING DOUBLE DEDUCTION AND PLACED RELIANCE ON THE DECISION OF HO N'BLE SUPREME COURT IN ESCORTS LTD. (SUPRA). THE CIT(A), HOWEVER, ALLOWED THE CLAIM OF ASSESSEE. ON FURTHER APPEAL BY THE REVENUE , THE TRIBUNAL HELD AS FOLLOWS:- 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTIO N FOR COMPUTING INCOME OF CHARITABLE INSTITUTIONS, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME AS IT IS NOTHING BUT A DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR, DET ERIORATION, OR OBSOLESCENCE. SINCE INCOME FOR THE PURPOSES OF SECT ION 11(1) HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER, THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHI LE COMPUTING SUCH INCOME. IT WAS SO HELD BY THE HONBLE KARNATAK A HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. AN NE 146 ITR 28 ITA NO.658(B)14 16 (KAR). IT WAS HELD IN CIT VS. TINY TOTS EDUCATION S OCIETY (2011) 330 ITR 21 (P&H) , FOLLOWING CIT VS. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 THAT DEPREC IATION CAN BE CLAIMED BY A CHARITABLE INSTITUTION IN DETERMINING PERCENTAGE OF FUNDS APPLIED FOR THE PURPOSE OF CHARITABLE OBJECTS . CLAIM FOR DEPRECIATION WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 1 99 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUISHED BY THE HON BLE COURT IN THE AFORESAID DECISIONS. 21. THE ISSUE RAISED BY THE REVENUE IN THE GROUND O F APPEAL IS THUS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. M ARKET COMMITTEE, PIPLI, 330 ITR 16 (P&H). THE HONBLE PUN JAB & HARYANA HIGH COURT AFTER CONSIDERING SEVERAL DECISI ONS ON THAT ISSUE AND ALSO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA), CAME TO THE CONCLUSIO N THAT DEPRECIATION IS ALLOWABLE ON CAPITAL ASSETS ON THE INCOME OF THE CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUN DS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF TRUSTS IN TERMS OF SECTION 11 OF THE ACT. THE HONBLE PUNJAB & HARYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) AND OBSERVED THAT THE HONBLE SUPREME COURT WAS DEALING WITH A CASE OF TWO DEDUCTIONS UNDER DIFFERE NT PROVISIONS OF THE ACT, ONE U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITURE OF A CAPITAL NATURE INCURRED ON SCIENTI FIC RESEARCH U/S. 35(1)(IV) OF THE ACT. THE HONBLE COURT THEREAFTER HELD THAT A TRUST CLAIMING DEPRECIATION CANNOT BE EQUATED WITH A CLAI M FOR DOUBLE DEDUCTION. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS ALSO MADE A REFERENCE TO THE DECISION OF THE HON'BLE KAR NATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF SISTERS OF A NNE, 146 ITR 28 (KAR), WHEREIN IT WAS HELD THAT U/S. 11(1) OF THE A CT, INCOME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMO UNT OF ITA NO.658(B)14 17 DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHI LE COMPUTING SUCH INCOME. IN VIEW OF THE AFORESAID DECISION ON T HE ISSUE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THE ABO VE ISSUE DOES NOT CALL FOR ANY INTERFERENCE. 22. CONSEQUENTLY, GROUND NO.5 RAISED BY THE REVENUE IS DISMISSED. 8. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SINC E BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE ( NO.2) ACT, 2014 W.E.F. 1.4.2015 BY INSERTION OF SUB-SECTION (6 ) TO SECTION 11 OF THE ACT, WHICH READS AS UNDER:- (6) IN THIS SECTION WHERE ANY INCOME IS REQUIRED T O BE APPLIED OR ACCUMULATED OR SET APART FOR APPLICATION, THEN, FOR SUCH PURPOSES THE INCOME SHALL BE DETERMINED WITHOUT ANY DEDUCTIO N OR ALLOWANCE BY WAY OF DEPRECIATION OR OTHERWISE IN RE SPECT 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. 9. AS ALREADY STATED, THE AFORESAID AMENDMENT IS PROSPECTIVE AND WILL APPLY ONLY FROM A.Y. 2015-16. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF THE VIEW THAT THE O RDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY GR OUNDS NO.2 TO 2.5 RAISED BY THE REVENUE ARE DISMISSED. FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONA L HIGH COURT IN CASE OF SOCIETY OF THE SISTERS OF ST. ANNE AS WELL AS THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL, WE DO NOT FIND ANY ERROR OR ANY ILLEGALITY IN THE ORDER OF THE CIT(A), QUA THIS ISSUE. ITA NO.658(B)14 18 13. GROUND NO.3 REGARDING CARRY FORWARD OF DEFICIT. THE ASSESSEE CLAIMED A TOTAL DEFICIT OF RS.933,27,87,598/- INCLU SIVE OF CURRENT YEAR DEFICIT TO BE CARRY FORWARD FOR SETTING UP OF THE S AME AS APPLICATION OF INCOME IN SUBSEQUENT ASSESSMENT YEARS. THE AO REJE CTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IN THE INCOME TAX ACT, THERE IS NO PROVISION OF CARRY FORWARD OF EXCESS OF EXPENDITURE OVER INCOME. 14. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THIS TRIBUNAL DATED 16- 0 2-2010 IN CASE OF DR. T.M.A PAI FOUNDATION IN ITA NO.486 TO 491(B)/2009. THE CIT(A) HAS ALSO TAKEN NOTE OF THE FACT THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 THIS ISSUE WAS DECIDED BY THE CIT(A) IN FAV OUR OF THE ASSESSEE. 15. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEA RNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE IN CASE OF DR.T.M.A PAI FOUNDATION, MA NIPAL. THE LEARNED AR OF THE ASSESSEE ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL IN CASE OF CIT VS CITY HOSPITAL CHARITABLE TRUST, BANGALORE (S UPRA). WE NOTE THAT THE TRIBUNAL IN CASE OF CITY HOSPITAL CHARITABLE TR UST, WHILE DEALING WITH THE ISSUE OF CARRY FORWARD OF EXCESS EXPENDITURE OV ER INCOME HAS HELD THAT IN PARA-14 AS UNDER; ITA NO.658(B)14 19 14. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11 (1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFF ECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR R ELIGIOUS PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS AR ISEN. THE APPLICATION FOR CHARITABLE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH T HE INCOME IS ADJUSTED TO MEET THE EXPENSES INCURRED FOR CHARI TABLE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURPOSES HAVE BEEN INCURRED IN THE EARLIER YEARS AN D THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUBSEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURP OSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SET-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEARS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME OF SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION 164 ITR 439 (RAJ); CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ.). IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION 264 ITR 110 (BOM), IT WAS HELD THAT IN CA SE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11 , EXCESS ITA NO.676/BANG/2014 PAGE 9 OF 11 OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST INCOME OF SUB SEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLICATION OF I NCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOW ABLE ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ADIT 248 ITR 368 (MAD), THE HON BLE MADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUST HAS TO ITA NO.658(B)14 20 BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL P RINCIPLES, THAT S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCURRED ON RELIGIOUS OR CHARITABLE PURPOSES IN EAR LIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUB SEQUENT YEAR. THE PRINCIPLE THAT THE LOSS INCURRED UNDER ON E HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FROM THE SAM E HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRED W AS FOR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITU RE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSE QUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE OF LOSS OF A N EARLIER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUE NT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CA N ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO I NCUR THAT EXPENDITURE, THE TRUST SHOULD HAVE AN INCOME. SO LO NG AS THE EXPENDITURE INCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDITURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF WHICH THAT EXPENDITURE IS INCURR ED, WOULD NOT BE LIABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN EARLIER YEAR IS ADJUSTED AGAINST THE INCOME OF A LATER YEAR , IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES FROM THE INCOME OF THE SUBS EQUENT YEAR, ITA NO.676/BANG/2014 PAGE 10 OF 11 EVEN THOUG H THE ACTUAL EXPENDITURE WAS IN THE EARLIER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HAD B EEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPE NDITURE THAT CAN BE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. THE HIGH COUR T RELIED ON THE DECISION IN THE CASE OF CIT VS. SOCIETY OF S ISTERS OF ST. ANNE 146 ITR 28 (KAR.). ITA NO.658(B)14 21 15.1 AS IT IS CLEAR FROM THE ABOVE DECISION THAT TH E CO-ORDINATE BENCH OF THIS TRIBUNAL HAS FOLLOWED THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN CASE OF CT VS MAHARANA OF MEWAR CHARI TABLE FOUNDATION 164 ITR 439(RAJ.) AS WELL AS THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN CASE OF CIT VS INSTITUTE OF BANKING - 264 ITR 110 (SUPRA). ACCORDINGLY, FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH IN THE CASE OF CITY HOSPITAL CHARITABLE TRUST, BANGALORE(SUPRA), W E UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. 16. GROUND NO.4 REGARDING GAIN ON REVALUATION OF IN VESTMENTS TREATED AS INCOME OF THE ASSESSEE. DURING THE COURS E OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS DEDU CTED A SUM OF RS.71,46,120/- FROM ITS GROSS INCOME. ON QUERY, THE ASSESSEE EXPLAINED THAT THE GAIN ON REVALUATION OF INVESTMENTS AS PER THE MARKET VALUE AS ON 31-03-2011 WAS ACCOUNTED HOWEVER, IT WAS NOT ACTUAL LY REALIZED. THE ASSESSEE CLAIMED THAT IT IS ONLY A BOOK ADJUSTMENT AND NO REAL INCOME WAS REALIZED AND HENCE, THE SAME WAS REDUCED FROM THE G ROSS RECEIPTS. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND ADDED BACK THE SAID AMOUNT TO THE ASSESSEES RETURNED INCOME. 17. ON APPEAL, THE CIT(A) DELETED THE ADDITION MADE BY THE AO. ITA NO.658(B)14 22 17.1 WE HAVE HEARD THE LEARNED DR AS WELL AS LEARNE D AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LE ARNED AR HAS RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN C ASE OF INDO RAMA SYNTHETICS (I) LTD VS CIT 330 ITR 363 (SC) AND SUBM ITTED THAT IT IS ONLY A NOTIONAL GAIN ON REVALUATION OF THE ASSET WITHOUT A CTUAL REALIZATION. WE FIND THAT THOUGH, THE JUDGMENT OF THE HONBLE SUPRE ME COURT IS IN RELATION TO BOOK PROFIT U/S 115JB AND AN ADJUSTMENT ON ACCOU NT OF INCREASE IN THE RESERVES DUE TO REVALUATION OF THE ASSET, HOWEVER, THE OBSERVATIONS OF THE HONBLE SUPREME COURT ARE RELEVANT ON THE POINT OF ACTUAL INCREASE IN THE INCOME. THE RELEVANT OBSERVATION AND CONCLUSION OF THE HONBLE SUPREME COURT ARE IN PARAS -20-25 ARE AS UNDER; 20. BOOK PROFIT IS NOT DEFINED IN THE ACT. IT IS I NCOME COMPUTED UNDER THE COMPANY LAW. BY VIRTUE OF THE MAT PROVISIONS, IN THE CASE OF A COMPANY WHOSE TOTA L INCOME AS COMPUTED UNDER THE NORMAL PROVISIONS OF T HE ACT IS LESS THAN 30% OF THE BOOK PROFIT, THE TOTAL INCO ME CHARGEABLE TO TAX WILL BE 30% OF THE BOOK PROFIT AS COMPUTED. FOR THE PURPOSES OF SECTION 115J , BOOK PROFIT WILL BE THE NET PROFIT AS SHOWN IN THE P & L ACCOUNT PREPARED IN AC CORDANCE WITH THE PROVISIONS OF SCHEDULE VI TO COMPANIES ACT , 1956 AFTER CERTAIN ADJUSTMENTS. THE NET PROFIT WILL BE I NCREASED BY INCOME TAX PAID OR PAYABLE, AMOUNT CARRIED TO ANY R ESERVE, PROVISION MADE FOR LIABILITIES ETC. PROVIDED THE AM OUNT(S) IS DEBITED TO THE P & L ACCOUNT. THE AMOUNT SO ARRIVED AT IS TO ITA NO.658(B)14 23 BE REDUCED BY ITEM (I) TO ITEM (VII) INCLUDING AMOU NTS WITHDRAWN FROM RESERVES, IF ANY SUCH AMOUNT IS CRED ITED TO P & L ACCOUNT. CLAUSES (I) TO (VII) OF THE EXPLANAT ION TO SECTION 115JB(2) REPRESENT ITEMS OF REDUCTION FROM THE NET PROFITS. CLAUSE (I) MANDATES REDUCTION FOR THE AMOUNT(S) WIT HDRAWN FROM THE RESERVES EARLIER CREATED, PROVIDED SUCH AM OUNT(S) IS CREDITED TO P & L ACCOUNT. SUCH CREDIT IS MANDATED SO THAT THE TRUE WORKING RESULT GETS REFLECTED IN THE FINAN CIAL STATEMENT OF THE ASSESSEE-COMPANY. THE SAID CLAUSE (I) CONTEMPLATES ONLY THOSE RESERVES WHICH ACTUALLY AFF ECT THE NET PROFITS AS SHOWN IN THE P & L ACCOUNT (SEE ALSO CLAUSE (II) FOR COMPARISON). THE OBJECT OF VARIOUS CLAUSES (I) TO CLAUSE (VII) IS TO FIND OUT THE TRUE WORKING RESULT OF THE ASSESSEE- COMPANY. 21. IN THE PRESENT CASE, THE ADJUSTMENT MADE IN THE P & L ACCOUNT WAS AS PER ACCOUNTING STANDARDS 6 AND 10 RE AD WITH GUIDANCE NOTE ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH IS IN CONFORMITY WITH SECTION 211 OF THE COMPANIES ACT. THE SAID ADJUSTMENT WAS PRIMARILY IN THE NATURE OF CONTRA ADJUSTMENT IN THE P & L ACCOUNT AND NOT A CASE OF EFFECTIVE CREDIT IN THE P & L ACCOUNT (AS CONTEMPLATED IN CLAUSE (I) OF EXPLANATI ON). THE CREDIT IN THE P & L ACCOUNT IMPLIES THAT THE P & L ACCOUNT PER SE HAS BEEN EFFECTIVELY CREDITED BY THE SAID AMOUNT . THUS, THE AMOUNT WITHDRAWN FROM ANY RESERVE MUST IN EFFEC T IMPACT THE NET PROFIT AS SHOWN IN THE P & L ACCOUNT . AS PER ACCOUNTING PRINCIPLES, THE CONTRA ADJUSTMENT DOES N OT AT ALL AFFECT ANY PARTICULAR ACCOUNT TO WHICH IT HAS BEEN CARRIED. ITA NO.658(B)14 24 UNLESS AN ADJUSTMENT HAS THE EFFECT OF INCREASING T HE NET PROFIT AS SHOWN IN THE P & L ACCOUNT, THAT ENTRY CA NNOT BE SAID TO BE A CREDIT TO THE P & L ACCOUNT AND, THERE FORE, THOUGH THE AMOUNT HAS BEEN LITERALLY CREDITED TO TH E P & L ACCOUNT, HOWEVER, IN SUBSTANCE THERE IS NO CREDIT T O P & L ACCOUNT. MAT PROVISIONS WERE INTRODUCED AS NUMBER O F ZERO TAX COMPANIES HAD GROWN. IT WAS FOUND THAT COMPANIE S HAD EARNED SUBSTANTIAL BOOK PROFITS AND HAD PAID HUGE DIVIDENDS BUT PAID NO TAX. IN THE PRESENT CASE, HAD THE ASSESSEE DEDUCTED THE FULL DEPRECIATION FROM THE PR OFIT BEFORE DEPRECIATION DURING THE ACCOUNTING YEAR ENDI NG 31.3.2001, IT WOULD HAVE SHOWN A LOSS AND IN WHICH EVENT IT COULD NOT HAVE PAID THE DIVIDENDS AND, THEREFORE, T HE ASSESSEE CREDITED THE AMOUNT TO THE EXTENT OF THE A DDITIONAL DEPRECIATION FROM THE REVALUATION RESERVE TO PRESEN T A MORE HEALTHY BALANCE SHEET TO ITS SHAREHOLDERS ENABLING THE ASSESSEE POSSIBLY TO PAY OUT A GOOD DIVIDEND. IT IS PRECISELY TO TAX THESE KINDS OF COMPANIES THAT MAT PROVISIONS HAD BEEN INTRODUCED. THE OBJECT OF MAT PROVISIONS IS TO BRING OUT THE REAL PROFIT OF THE COMPANIES. THE THRUST IS TO FIND OUT THE REAL WORKING RESULTS OF THE COMPANY. THUS, THE REDU CTION SOUGHT BY THE ASSESSEE UNDER CLAUSE (I) TO THE EXPL ANATION TO SECTION 115JB(2) IN RESPECT OF DEPRECIATION HAS BEEN RIGHTLY REJECTED BY THE AO. 22. TAKE THE FACTS OF THE PRESENT CASE. AS STATED A BOVE, THE REVALUATION RESERVE OF RS.288,58,19,000/- WAS CREAT ED DURING EARLIER ASSESSMENT YEAR 2000-01. DURING THE ACCOUNTING YEAR ENDING 31.3.2001 (ASSESSMENT YEAR 2 001- ITA NO.658(B)14 25 02), THE PROFITS OF ASSESSEE STOOD AT RS.120,18,97, 000/- WHEREAS DEPRECIATION STOOD AT RS.127,57,06,000/-. DEPRECIATION IS A NO-CASH CHARGE AGAINST THE PROFIT S. THUS, COMPANY HAD A LOSS OF RS.7,38,09,000/- (I.E. RS.127,57,06,000/- OF DEPRECIATION AS AGAINST PROFI T OF RS.120,18,97,000/-). HOWEVER, BY WITHDRAWING RS.26,11,74,000/-, BEING THE DIFFERENTIAL DEPRECIAT ION, FROM THE REVALUATION RESERVE OF RS.288,58,19,000/-(WHICH IS ONLY A NOTIONAL ADJUSTMENT ENTRY TO BALANCE BOTH SIDES O F THE BALANCE SHEET) AND REDUCING IT FROM THE DEPRECIATIO N OF RS.127,57,06,000/-, THE ASSESSEE ARTIFICIALLY BRING S DOWN THE DEPRECIATION ONLY TO RS.101,45,32,000/- WHICH I S THEN DEDUCTED FROM THE PROFITS BEFORE DEPRECIATION AMOUN TING TO RS.120,18,97,000/- SO THAT THERE IS A PROFIT OF RS.18,73,65,000/-. THIS IS HOW THE LOSS OF RS.7,38, 09,000 GOT CONVERTED TO PROFIT OF RS.18,73,65,000/-. THUS, THE FINANCIAL STATEMENT FOR THE YEAR ENDING 31.3.2001 I S MADE TO LOOK HEALTHY. 23. THE REASONS GIVEN HEREINABOVE ARE IN ADDITION T O THE REASONS GIVEN BY THE AUTHORITIES BELOW WHILE REJECT ING THE CLAIM OF THE ASSESSEE. 24. THE MATTER COULD BE EXAMINED FROM ANOTHER ANGLE . TO RECAPITULATE THE FACTS, THE FIXED ASSETS OF THE ASS ESSEE WERE REVALUED IN THE EARLIER ASSESSMENT YEAR 2000-01 (I. E. FINANCIAL YEAR ENDING 31.3.2000) AND AMOUNT OF ENHANCEMENT IN VALUATION WAS RS.288,58,19,000/- WHI CH WAS CREDITED TO THE REVALUATION RESERVE. IN OTHER WORDS, AT ITA NO.658(B)14 26 THE TIME OF REVALUATION OF ASSETS, THE SAID FIGURE OF RS.288,58,19,000/- WAS ADDED TO THE HISTORICAL COST OF ASSETS ON THE ASSET SIDE OF THE BALANCE SHEET AND I N ORDER TO EQUALIZE BOTH SIDES OF THE BALANCE SHEET THE REVALU ATION RESERVE TO THAT EXTENT WAS CREATED ON THE LIABILITY SIDE. THUS, THE FIGURE OF PROFIT REMAINED UNTOUCHED SO FAR AS T HE REVALUATION OF ASSETS TO THE TUNE OF RS.288,58,19,0 00/- IS CONCERNED. THE PROFITS WERE NOT INCREASED BY THE SA ID AMOUNT WHEN THE ASSET WAS REVALUED. DURING THE ASSESSMENT YEAR IN QUESTION, I.E., ASSESSMENT YEAR 2001-02, AN AMOUNT OF RS.26,11,74,000/-, BEING THE DIFFERENT IAL DEPRECIATION, WAS TRANSFERRED OUT OF THE SAID REVAL UATION RESERVE OF RS.288,58,19,000/- AND CREDITED TO THE P & L ACCOUNT WHICH THE A.O. DISALLOWED BY PLACING RELIAN CE ON THE PROVISO TO CLAUSE (I) OF THE EXPLANATION TO SECTION 115JB(2) . CONSEQUENTLY, THE A.O. ADDED BACK THE SAIDAMOUNT OF RS.26,11,74,000/- TO THE NET PROFITS. WE AGREE WITH THE A.O. UNDER THE PROVISIONS, AS THEY THEN EXISTED, CERTAIN ADJUSTMENTS WERE REQUIRED TO BE MADE TO THE NET PRO FIT AS SHOWN IN THE P & L ACCOUNT. ONE SUCH ADJUSTMENT STI PULATED THAT THE NET PROFIT SHALL BE REDUCED BY THE AMOUNT( S) WITHDRAWN FROM ANY RESERVES, IF ANY SUCH AMOUNT IS CREDITED TO THE P & L ACCOUNT. THUS, IF THE RESERVE S CREATED HAD GONE TO INCREASE THE BOOK PROFITS IN ANY YEAR W HEN THE PROVISIONS OF SECTION 115JB WERE APPLICABLE, THE ASSESSEE BECAME ENTITLED TO REDUCE THE AMOUNT WITHDRAWN FROM SUCH RESERVES IF SUCH WITHDRAWAL IS CREDITED TO P & L AC COUNT. NOW, FROM THE ABOVE FACTS, IT IS CLEAR THAT NEITHER THE SAID ITA NO.658(B)14 27 AMOUNT OF RS.288,58,19,000/- NOR RS.26,11,74,000/- HAD EVER GONE TO INCREASE THE BOOK PROFITS IN THE SAID YEAR ENDING 31.3.2000 (BEING THE FINANCIAL YEAR). THUS, WHEN SU CH AMOUNT(S) HAS NOT GONE TO INCREASE THE BOOK VALUE A T THE TIME OF CREATION OF RESERVE(S), THERE IS NO QUESTIO N OF REDUCING THE AMOUNT TRANSFERRED FROM SUCH REVALUATION RESERV ES TO THE P & L ACCOUNT. THUS, THE PROVISO TO CLAUSE (I) OF T HE EXPLANATION TO SECTION 115JB(2) COMES IN THE WAY OF THE CLAIM FOR REDUCTION MADE BY THE ASSESSEE. IN OUR VI EW, THE REDUCTION UNDER CLAUSE (I) TO THE EXPLANATION COULD HAVE BEEN AVAILED ONLY IF SUCH REVALUATION RESERVE HAD GONE T O INCREASE THE BOOK PROFITS. AS THE AMOUNT OF REVALUATION RESE RVES HAD NOT GONE TO INCREASE THE BOOK PROFITS AT THE TIME I T WAS CREATED, THE BENEFIT OF REDUCTION CANNOT BE ALLOWED . ONE MORE FACT NEEDS TO BE HIGHLIGHTED. IN THIS CASE, AS INDICATED ABOVE, THE REVALUATION RESERVE STOOD CREATED DURING THE EARLIER ASSESSMENT YEAR 2000-01. IT HAS BEEN VEHEME NTLY ARGUED ON BEHALF OF THE ASSESSEE THAT CREATION OF S UCH RESERVE DID NOT IMPACT THE PROFITS OF THAT YEAR. TH E FACTS ENUMERATED HEREINABOVE SHOWS THAT THOUGH THE PROFIT WAS NOT IMPACTED, DEPRECIATION AS THE HEAD OF A/C. WAS IMPACTED. BY INTER PLAY OF THE BALANCE SHEET ITEMS WITH PROFIT & LOSS A/C. ITEMS THE ASSESSEE, AS STATED ABOVE, HA S SOUGHT TO PROJECT THE LOSS OF RS.7,38,09,000/- AS PROFIT O F RS.18,73,65,000/-. THUS, IT IS CLEAR THAT MERE REVALUATION OF ASSET W OULD NOT INCREASE INCOME OR RECEIPT OF THE ASSESSEE, UNTIL AND UNLESS THE SAID GAIN OF ITA NO.658(B)14 28 REVALUATION IS REALIZED. THEREFORE, THE GAIN ON RE VALUATION OF THE ASSET/INVESTMENTS WITHOUT ACTUAL REALIZATION CANNOT BE TREATED AS INCOME OF THE ASSESSEE. ACCORDINGLY, THIS GROUND OF REVEN UES APPEAL IS DISMISSED. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF JULY, 2015. SD/- SD/- (JASON P BOAZ) (VIJA Y PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER D A T E D : 24-07-2015 PLACE: BANGALORE AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE