Prarthana Education Society, Bangalore V. Dy.DIT, Bangalore

ITA 730/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95287 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 14-05-2015
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: SHRI NARAYANA MURTHY
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition; Benefit of exemption; Revenue expenditure
• Section: 143(3); 234B; 80G; 12A; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.730 (BANG)/2015 (ASSESSMENT YEAR: 2011 - 20 12 ) PPPPPPPP PRARTHANA EDUCATION SOCIETY 17/ 17A, NEAR PETROL BUNK, KADIRENAHALLI, BANASHANKARI II STAGE, PADMANABHANAGAR, APPELLANT BANGALORE -560 070 PAN NO.AAAAP2322D VS THE DEPUTY DIRECTOR OF INCOME - TAX (EXEMPTNS.) CIRCLE -17(2), BANGAL BANGALORE RESPONDENT DATE OF HEARING : 12-10-2015 DATE OF PRONOUNCEMENT : 16-10-2015 APPELLANT BY SHRI SHRI NARAYANA MURTHY, CA RESPONDENT BY DR. P.K.SRIHARI, ADDL.CIT O R D E R PER SHRI G. MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) -14, LTU BANG ALORE DATED 23-02- 2015 FOR THE A.Y.2011-12. 2. THE ASSESSEE HAS RAISED AS MANY AS 14 G ROUNDS AND THE ISSUES EVOLVED FROM THESE GROUNDS ARE THAT (I) WHETHER THE CIT(A) IS RIGHT IN LAW AND FACTS OF THE CASE UPHOLDING THE ACCUMULATION OF INCOME AT 15% OF NET INCOME. (II) WHETHER THE CIT(A) IS RIGHT IN UPHOLDI NG THE DISALLOWANCE OF DEPRECIATION ON ASSETS, THE COST OF WHICH IS ALLOWE D AS APPLICATION OF INCOME IN EARLIER YEARS. (III) WHETHER THE CIT(A) I S RIGHT IN CONFIRMING THE CHARGING OF INTEREST U/S 234B & 234C. ITA NO.730(B)/2015] PAGE 2 OF 16 3. THE BRIEF FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A EDUCATION SOCIETY, ENGAGED IN IMPARTING EDUCATION AND REGISTE RED U/S 12A AND RECOGNISED U/S 80G OF THE INCOME TAX ACT, 1961, FI LED ITS RETURN OF INCOME FOR THE A.Y. 2011-12 DECLARING TOTAL INCOME OF RS. NIL. THE CASE WAS PROCESSED U/S 143(1). SUBSEQUENTLY, THE CASE WA S SELECTED FOR SCRUTINY BY ISSUING STATUTORY NOTICE U/S 143(2). IN RESPONSE TO NOTICES, THE AR OF THE ASSESSEE APPEARED AND FILED THE DETAI LS. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(3) VIDE HI S ORDER DATED 30.01.2014 AND DETERMINED TOTAL INCOME OF RS. 1,31, 19,459/-. 4. THE FIRST ISSUE AGITATED BY THE ASSESSEE FROM TH ESE GROUNDS IS WHETHER THE CIT(A) IS RIGHT IN CONFIRMING THE ACCUM ULATION U/S 11(1)(A) AT 15% OF NET INCOME. 4.1. THE BRIEF FACTS RELATING TO THE ISSUE IS THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING NIL INCOME AFT ER CLAIMING EXEMPTION U/S 11 OF THE INCOME TAX ACT 1961. WHILE FILING THE RETURN OF INCOME, IT HAS CONSIDERED THE GROSS RECEIPTS/INCOME FROM PROPE RTY HELD UNDER TRUST AND CLAIMED 15% ACCUMULATION FROM THE GROSS INCOME AND SPENT THE REMAINING AMOUNT FOR THE OBJECTS OF THE TRUST. DURI NG THE ASSESSMENT PROCEEDINGS U/S143, THE AO ALLOWED THE ACCUMULATION U/S 11(1)(A) AT 15% ON NET INCOME (EXCESS OF INCOME OVER EXPENDITUR E). ITA NO.730(B)/2015] PAGE 3 OF 16 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT THE WORD INCOME IN SECTION 11 REFERS TO GROSS INCOME/RECEIPTS AND NOT THE COMMERCIAL MEANING OF INCOME, I.E. NET INCOME AFTER ALL EXPENS ES. THE ASSESSEE FURTHER CONTENDED THAT IT IS ENJOYING THE BENEFIT O F 12A EXEMPTION AND ONCE, IT IS REGISTERED U/S 12A THE WHOLE OF THE INC OME FROM PROPERTY HELD UNDER TRUST IS ELIGIBLE FOR EXEMPTION AFTER CERTAIN CONDITIONS SET OUT IN SECTION 11. IN SUPPORT OF ITS CONTENTION IT HAS REL IED UPON THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CIT. VS PROGR AMME FOR COMMUNITY ORGANISATION, 248 ITR 1 (SC). THE CIT(A) REJECTED THE ASSESSEE CONTENTIONS AND HELD THAT IN THE CASE OF T RUSTS, WHERE INCOME GENERATING ACTIVITY ARE INVOLVED, THEN ONLY NET INC OME AFTER DEDUCTING ALL REVENUE EXPENDITURE SHALL ONLY BE AVAILABLE FOR APP LICATION OF INCOME. 5.1. AT THE TIME OF HEARING, THE AUTHORISED REPRESE NTATIVE BROUGHT TO OUR NOTICE THAT THE ISSUE INVOLVED IN TH IS CASE IS COVERED BY THE DECISION OF ITAT, BANGALORE BENCH IN ITA NO. 240/B/ 2015 AND 241/B/2015 AND FURNISHED A COPY OF JUDGMENT WHICH I S MARKED AS ANNEXURE A IN PAPER BOOK PAGE NO. 18 TO 28. HE ALSO DREW OUR ATTENTION TO THE HONBLE SUPREME COURT JUDGMENT IN THE CASE O F CIT. VS PROGRAMME FOR COMMUNITY ORGANISATION, (2011) 248 ITR 1 (SC) A ND ARGUED THAT THE ISSUE IS SQUARELY COVERED BY THE HONBLE SUPREME CO URT JUDGMENT. ON THE OTHER HAND, THE DR HEAVILY RELIED UPON THE ORDER OF CIT(A). ITA NO.730(B)/2015] PAGE 4 OF 16 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. WE ALSO CONSIDERED THE CASE LA WS RELIED UPON BY THE LEARNED COUNSELS. ADMITTEDLY, THE ASSESSEE SOCIETY CLAIMING THE BENEFIT OF EXEMPTION U/S 11 FOR THE WHOLE OF INCOME FROM PROPE RTY HELD UNDER TRUST SUBJECT TO CERTAIN CONDITIONS, BEING 85% OF THE INC OME SHOULD BE APPLIED FOR THE OBJECTS AND REMAINING 15% CAN BE SET APART FOR FUTURE PURPOSES SUBJECT TO CERTAIN CONDITIONS. THERE IS NO DISPUTE REGARDING THE OBJECTS OF THE TRUST AND GENUINENESS OF ITS ACTIVITIES BUT, TH E ONLY DISPUTE WITH REGARD TO ACCUMULATION INCOME U/S 11(1)(A), WHETHER IT IS ON GROSS INCOME OF THE TRUST OR NET INCOME (EXCESS OF INCOME OVER E XPENDITURE). THE AO WAS OF THE OPINION THAT INCOME THAT IS AVAILABLE FO R CHARITABLE TRUST FOR APPLICATION U/S 11 IS THE NET INCOME AFTER ALL EXPE NDITURE TO EARN INCOME AND THE CIT(A) WAS CONCURRED WITH THE AO STAND. WE HAVE CONSIDERED THE CASE LAWS CITED BY THE ASSESSEE IN THE LIGHT OF THE FACTS OF THE PRESENT CASE. THE HONBLE SUPREME COURT IN THE CASE OF CIT. VS PROGRAMME FOR COMMUNITY DEVELOPMENT ORGANISATION, (2011) 248 ITR 1, WHILE DEALING WITH THE ISSUE HELD AS UNDER: 2. THE QUESTION THAT REALLY REQUIRES CONSIDERATION IS WHETHER, FOR THE PURPOSE OF S. 11(1)(A) OF THE IT A CT, 1961, THE AMOUNT FOR THE GRANT OF EXEMPTION OF TWENTY-FIV E PER CENT SHOULD BE THE INCOME OF THE TRUST OR IT SHOULD BE I TS TOTAL INCOME AS DETERMINED FOR THE PURPOSES OF ASSESSMENT TO INCOME-TAX. THIS QUESTION HAS TO BE ANSWERED IN THE LIGHT OF THESE FACTS : THE ASSESSEE-TRUST RECEIVED DONATIONS IN THE AGGREGATE SUM OF RS. 2,57,376. IT APPLIED THEREOUT FOR ITS CHARITABLE PURPOSES THE AGGREGATE SUM OF RS. 1,70,3 69 LEAVING A BALANCE OF RS. 87,010. THE QUESTION IS WH ETHER THE ITA NO.730(B)/2015] PAGE 5 OF 16 ASSESSEE IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF RS. 2,57,376 AS IT CONTENDS, OR TWENTY-FIVE PER CENT OF RS. 87,010, AS THE REVENUE APPEARED TO CONTEND. SEC. 11(1)(A) READS THUS : '11. (1)(A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN IN DIA; AND, WHERE ANY SUCH INCOME IS ACCUMULATED OR SET AP ART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTEN T TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EX CESS OF TWENTY-FIVE PER CENT OF THE INCOME FROM SUCH PROPER TY.' 3. HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE PROVISIONS IT IS CLEAR THAT A CHARITABLE OR RELIGIO US TRUST IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF ITS INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PRE SENT PURPOSES, THE DONATIONS THE ASSESSEE RECEIVED, IN T HE SUM OF RS. 2,57,376, WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT THEREOUT. IT IS UNCLEAR ON WHAT BASIS THE REVENUE CONTENDED THAT IT WAS ENTITL ED TO ACCUMULATE ONLY TWENTY-FIVE PER CENT OF RS. 87,010/ -. 7. AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEF ORE THIS TRIBUNAL IN THE CASE OF MARY IMMACULATE SOCIETY VS. DDIT (E), IN ITA NO. 240 & 241/B/2015 AND THE CO-ORDINATE BENCH OF THIS TRIBUNAL WHILE DEALING WITH THE ISSUE IS HELD AS UNDER. THE ISSUE TO BE DECIDED IS THEREFORE AS TO WHETHER FOR THE PURPOSE OF COMPUTING ACCUMULATION O F INCOME OF 15% UNDER SEC.11(1)((A) OF THE ACT, ONE H AS TO TAKE THE GROSS RECEIPTS OR GROSS RECEIPTS AFTER EXPENDITURE FOR CHARITABLE PURPOSE I.E., THE NET ITA NO.730(B)/2015] PAGE 6 OF 16 RECEIPTS. THIS IS ISSUE IS NO LONGER RES INTEGRA AN D HAS BEEN DECIDED BY THE SPECIAL BENCH MUMBAI IN THE CAS E OF BAI SONABAI HIRJI AGIARY TRUST VS. ITO, 93 ITD 0 070 (SB). THE FACTS IN THE AFORESAID CASE WERE THAT THE ASSESSEE WAS A PUBLIC CHARITABLE TRUST ENJOYING EXEMPTION UNDER S. 11 OF THE IT ACT. AS PER THE REQUIREMENT OF S. 11(1) OF THE IT ACT, AS IT PREVAI LED AT THAT POINT OF TIME, THE ASSESSEE HAD TO APPLY 75 PE R CENT OF ITS INCOME FOR THE OBJECTS AND PURPOSES OF THE TRUST AND THE ASSESSEE WAS PERMITTED TO ACCUMULATE OR SET APART UP TO 25 PER CENT OF ITS INCOME, WHICH WA S SUBJECT TO FULFILLMENT OF OTHER CONDITIONS. WHILE CALCULATING THE AFORESAID 25 PER CENT, THE IMPORTAN T QUESTION WHICH AROSE WAS AS TO WHETHER FOR THIS PURPOSE, THE GROSS INCOME EARNED BY THE ASSESSEE IS RELEVANT OR THE INCOME AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF IT ACT. IN OTHER WORDS, WHET HER OUTGOINGS FROM OUT OF GROSS INCOME WHICH ARE IN THE NATURE OF APPLICATION OF INCOME, SHOULD BE FIRST DEDUCTED FROM THE GROSS INCOME AND 25 PER CENT OF ONLY THE REMAINING AMOUNT SHOULD BE ALLOWED TO BE ACCUMULATED OR SET APART. THE SPECIAL BENCH OF THE ITAT ON THE ISSUE HELD AS FOLLOWS:- 9. COMING TO THE MERITS OF THE ISSUE, WE ARE OF THE VIEW THAT THE SAME IS CLEARLY COVERED BY THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PROGRAMME FOR COMMUNITY ITA NOS.240 & 241/BANG/2015 PAGE 9 OF 11 ORGANIZATION (SUPRA). IN THE DECISION, THEIR LORDSHIPS, AFTER TAKING NOTE OF PROVISIONS OF S. 11(1)(A), HAVE HELD AS UNDER : ITA NO.730(B)/2015] PAGE 7 OF 16 'HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE PROVISION, IT IS CLEAR THAT A CHARITABLE OR RELIGIO US TRUST IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF ITS INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PRE SENT PURPOSES, THE DONATIONS THE ASSESSEE RECEIVED, IN T HE SUM OF RS. 2,57,376, WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT T HEREOUT. IT IS UNCLEAR ON WHAT BASIS THE REVENUE CONTENDED T HAT IT WAS ENTITLED TO ACCUMULATE ONLY TWENTY FIVE PER CENT OF RS. 87,010. FOR THE AFORESAID REASONS, THE CIVIL APPEA L IS DISMISSED.' IT IS CLEAR FROM THE ABOVE THAT DEDUCTION OF TWENTY-FIVE PER CENT WAS HELD TO BE ALLOWABLE NOT O N TOTAL INCOME AS COMPUTED UNDER THE IT ACT. ANY AMOUNT OR EXPENDITURE, WHICH WAS APPLICATION OF INCOME, IS NOT TO BE CONSIDERED FOR DETERMINING TWE NTY FIVE PER CENT TO BE ACCUMULATED. THEIR LORDSHIPS, A S NOTED EARLIER, AFFIRMED THE DECISION OF KERALA HIGH COURT IN (1997) 141 CTR (KER) 502 : (1997) 228 ITR 620 (KER) (SUPRA) WHEREIN IT IS HELD AS UNDER : 'AT THE OUTSET, THE STATUTORY LANGUAGE OF S. 11(1)(A) OF THE IT ACT, 1961, RELATES TO THE INCOME DERIVED BY THE TRUST FROM PROPERTY. THE TRUST IS RE QUIRED TO BE WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, AND THE INCOME IS EXPECTED TO HAVE RELATION TO THE EXTE NT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN IN DIA. IT IS THEREAFTER THE STATUTORY PROVISION PROCEEDS F URTHER THAT SUCH INCOME IS NOT TO BE UNDERSTOOD TO BE IN E XCESS OF 25 PER CENT OF THE INCOME FROM SUCH PROPERTIES. IN ITA NO.730(B)/2015] PAGE 8 OF 16 OTHER WORDS, THE VERY LANGUAGE OF THE STATUTORY PROVISION UNDER CONSIDERATION SETS APART 25 PER CEN T OF THE INCOME FROM THE SOURCE OF PROPERTY WITH REFEREN CE TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED FOR SUCH PURPOSES, CHARITABLE OR RELIGIOUS. IN OTHER WORDS, FOR THE PURPOSE OF S. 11(1)(A) OF THE ACT, THE INCOME IN TE RMS OF RELEVANCE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WHICH 25 PER CENT IS SET APART IN ACCORDANCE WIT H THE SPIRIT OF THE STATUTORY PROVISION.' THIS MEANS THAT, WHEN IT IS ESTABLISHED TH AT TRUST IS ENTITLED TO FULL BENEFIT OF EXEMPTION UNDE R S. 11(1), THE SAID TRUST IS TO GET THE BENEFIT OF TWEN TY-FIVE PER CENT AND THIS TWENTY-FIVE PER CENT HAS TO BE UNDERSTOOD AS INCOME OF THE TRUST UNDER THE RELEVAN T HEAD OF S. 11(1). IN OTHER WORDS, INCOME THAT IS NO T TO BE INCLUDED FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME WOULD BE THE AMOUNT EXPENDED FOR PURPOSES OF TRUST IN INDIA. THEIR LORDSHIPS IN THE ABOVE CASE H AVE EMPHASIZED ON THE CLEAR AND UNAMBIGUOUS LANGUAGE OF S. 11(1)(A) AND DECIDED THE MATTER ON THE BASIS OF THE SAME. IT HAS BEEN HELD THAT AS PER THE STATUTOR Y LANGUAGE OF THE ABOVE SECTION THE INCOME WHICH IS T O BE TAKEN FOR PURPOSE OF ACCUMULATION IS THE INCOME DERIVED BY THE TRUST FROM PROPERTY. IF BOTH THE DECISIONS ARE CAREFULLY READ, IT BECOMES EVIDENT THAT ANY EXPENDITURE WHICH IS IN TH E SHAPE OF APPLICATION OF INCOME IS NOT TO BE TAKEN I NTO ACCOUNT. HAVING FOUND THAT TRUST IS ENTITLED TO EXEMPTION UNDER S. 11(1), WE ARE TO GO TO THE STAGE OF INCOME BEFORE APPLICATION THEREOF AND TAKE INTO ACCOUNT 25 PER CENT OF SUCH INCOME. THEIR LORDSHIPS ITA NO.730(B)/2015] PAGE 9 OF 16 HAVE POINTED THAT THE SAME HAS TO BE TAKEN ON 'COMMERCIAL' BASIS AND NOT 'TOTAL INCOME' AS COMPUTED UNDER THE IT ACT. THEIR LORDSHIPS IN THE DECIDED CASE REJECTED THE CONTENTION OF THE REVENUE THAT THE SUM OF RS 1,70,369 WHICH WAS SPENT AND APPLIED BY THE ASSESSEE FOR CHARITABLE PURPOSES WAS REQUIRED TO BE EXCLUDED FOR PURPOSE OF TAKING AMOUN T TO BE ACCUMULATED. HAVING REGARD TO THE CLEAR PRONOUNCEMENT OF THEIR LORDSHIPS OF THE SUPREME COURT, IT IS DIFFICULT TO ACCEPT THAT OUTGOINGS WHICH ARE IN THE NATURE OF APPLICATI ON OF INCOME ARE TO BE EXCLUDED. THE INCOME AVAILABLE TO THE ASSESSEE BEFORE IT WAS APPLIED IS DIRECTED TO BE TA KEN AND THE SAME IN THE PRESENT CASE IS RS. 3,42,174. TWENTY FIVE PER CENT OF THE ABOVE INCOME IS TO BE A LLOWED AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE MADHYA PRADESH HIGH COURT IN PARSI ZORASTRI AN ANJUMAN TRUST VS. CIT (SUPRA). NO REASON WHATSOEVER HAS BEEN GIVEN BY THE REVENUE AUTHORITIES FOR DEDUC TING RS. 2,17,126 IN THIS CASE FOR PURPOSES OF S. 11(1)( A). THE DECISION CITED ON BEHALF OF THE REVENUE DID NOT TAK E INTO ACCOUNT THE DECISION OF THE SUPREME COURT REFERRED TO ABOVE. THE CIRCULAR OF CBDT HAS ALSO BEEN CONSIDERE D BY THE HONBLE KERALA HIGH COURT IN ITS DECISION REFER RED TO ABOVE. ACCORDINGLY THE QUESTION REFERRED TO IS ANSW ERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THE AFORESAID DECISION CLEARLY SUPPORTS THE PLEA OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ACCUMULATION U /S 11(1)(A) OF THE ACT, SHOULD BE ALLOWED AS CLAIMED BY THE ASSESSEE. ITA NO.730(B)/2015] PAGE 10 OF 16 8. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DEC ISION IN THE CASE MENTIONED SUPRA, WE ARE OF THE OPINION THAT TH E ACCUMULATION U/S 11(1)(A) OF THE ACT SHOULD BE ALLOWED AS CLAIMED BY THE ASSESSEE. THEREFORE, THE GROUND RAISED BY THE ASSESSEE ON THI S ISSUE IS ALLOWED. 9. THE NEXT ISSUE THAT ARISES FOR CONSIDERATION FRO M THIS APPEAL IS WHETHER THE CIT(A) IS RIGHT IS UPHOLDING THE DIS ALLOWANCE OF DEPRECIATION ON ASSETS, THE COST OF WHICH IS ALLOWE D AS APPLICATION OF INCOME U/S 11 OF THE ACT. THE ASSESSEE IS A SOCIETY , REGISTERED U/S 12A OF THE INCOME TAX ACT, 1961 FILED ITS RETURN OF INCOM E ADMITTING NIL INCOME AFTER CLAIMING EXEMPTION U/S 11 OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS CLAIMED DEPRECIATION ON ASSETS, THE COST OF WHICH WAS ALLOW ED AS APPLICATION OF INCOME IN EARLIER YEARS. THEREFORE, THE AO DISALLOW ED THE CLAIM OF DEPRECIATION ON THE GROUND THAT CLAIMING DEPRECIATI ON ON ASSETS, THE COST OF WHICH WAS ALREADY ALLOWED AS APPLICATION IN EARL IER YEARS AMOUNTS TO DOUBLE DEDUCTION. IN SUPPORT OF HIS STAND, THE AO R ELIED UPON THE HONBLE SUPREME COURT JUDGMENT IN ESCORTS LTD. VS UOI (1993 ) 199 ITR 43(SC). 10. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT, THE ISSUE OF DEPRECIATION IS SETTLED NOW BY THE DECISION OF HONBLE KARNATAKA HIGH COURT DECISION IN THE CASE OF CIT VS SOCIETY OF SISTERS OF ST. ANN E (1984) 146 ITR 28 ITA NO.730(B)/2015] PAGE 11 OF 16 (KAR), WHEREIN THE HONBLE COURT HELD THAT DEPRECIA TION ON CAPITAL ASSETS, THE COST OF WHICH WAS ALLOWED AS APPLICATION INCOME IN EARLIER YEARS IS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR A PPLICATION FOR CHARITABLE PURPOSE. THE ASSESSEE FURTHER, CONTENDED THAT THE I NCOME OF TRUST CLAIMING EXEMPTION U/S 11 SHOULD BE COMPUTED BY APP LYING COMMERCIAL PRINCIPLES, THEREFORE, DEPRECIATION BEING A PERMISS IBLE DEDUCTION WHILE COMPUTING THE INCOME UNDER THE COMMERCIAL PRINCIPLE S SHOULD BE ALLOWED AS DEDUCTION. THE ASSESSEE CONTENDED THAT THE DECIS ION OF ESCORTS LTD. SUPRA IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, AS IT WAS RENDERED ON A DIFFERENT SET OF FACTS. IN SUPPORT OF ITS CONT ENTION, THE ASSESSEE RELIED UPON THE PLETHORA OF CASE LAWS. THE CIT(A) HOWEVER, REJECTED THE CONTENTIONS RAISED BY THE ASSESSEE AND HELD THAT TH E ALLOWANCE OF DEPRECIATION ON THE ASSETS, THE COST OF WHICH WAS A LREADY ALLOWED AS APPLICATION OF INCOME AMOUNTS TO DOUBLE DEDUCTION I N VIEW OF THE ESCORTS LTD CASE SUPRA. THE CIT(A) ALSO REFERRED TO THE DEC ISION OF HONBLE KERALA HIGH COURT IN THE CASE OF DDIT( E) VS. LISSIE MEDIC AL INSTITUTIONS, 348 ITR 344 (KER) WHEREIN, IT WAS HELD THAT ALLOWING DEPREC IATION ON THE SAME ASSETS, WHEN THE COST OF SUCH ASSETS IS ALLOWED AS APPLICATION OF INCOME AMOUNTS TO DOUBLE DEDUCTION. AGGRIEVED BY THE CIT( A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E ISSUE INVOLVED IN THIS APPEAL ON DEPRECIATION IS SQUARELY COVERED BY THE DECISIONS OF ITAT IN THE CASE OF MARY IMMACULATE SO CIETY VS. DDIT( E) IN ITA NO.730(B)/2015] PAGE 12 OF 16 ITA. NO. 240 & 241/B/2015 AND SUBMITTED A COPY OF T HE ORDER DATED 23.06.2015. THE AR ALSO DREW OUR ATTENTION TO THE J URISDICTIONAL HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS SOCIETY O F SISTERS OF ST. ANNE (1984) 146 ITR 28 (KAR) WHEREIN THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE HONBLE COURT IN FAVOUR OF THE ASSESSEE. THE AR FURTHER RELIED UPON THE PLETHORA OF CASE LAWS. ON THE OTHER HAND, THE D R STRONGLY SUPPORTED THE CIT(A) ORDER. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITAT IN I TA.NO. 240 & 241/B/2015 IN THE CASE OF MARY IMMACULATE SOCIETY V S. DDIT( E) WHEREIN, THE TRIBUNAL HELD THE ISSUE IN FAVOUR OF T HE ASSESSEE AS UNDER. WE HAVE CONSIDERED THE ORDER OF THE AO. IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE ITAT BANGALORE BEN CH IN THE CASE OF DDIT(E) V. CUTCHI MEMON UNION (2013) 60 SOT 260 BANGALORE ITAT, WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL. IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPRECIATION AND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQU IRING THE RELEVANT CAPITAL ASSET, COST OF ACQUISITION WAS CONSIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITION. THE AO TOOK THE VIEW THAT ALLOWING DEPRECIATION WOULD AMOUNT TO ALLOWING DOUBLE DEDUCT ION AND PLACED RELIANCE ON THE DECISION OF HON'BLE SUPR EME 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:- ITA NO.730(B)/2015] PAGE 13 OF 16 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTIO N FOR COMPUTING INCOME OF CHARITABLE INSTITUTIONS, THEN T HERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERI VING THE INCOME AS IT IS NOTHING BUT A DECREASE IN THE V ALUE OF PROPERTY THROUGH WEAR, DETERIORATION, OR OBSOLESCEN CE. SINCE INCOME FOR THE PURPOSES OF SECTION 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 HONBL E KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). IT WAS HELD I N CIT VS. TINY TOTS EDUCATION SOCIETY (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 DEPRECIATION CAN BE CLAIMED BY A CHARITABLE INSTITU TION IN DETERMINING PERCENTAGE OF FUNDS APPLIED FOR THE PUR POSE OF CHARITABLE OBJECTS. CLAIM FOR DEPRECIATION WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 4 3 (SC) HAVE BEEN ITA NOS.240 & 241/BANG/2015 PAGE 5 OF 11 REFERRED TO AND DISTINGUISHED BY THE HONBLE 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. MARKET COMMITTEE, PIPLI, 330 ITR 16 (P&H). THE HONBLE PUNJAB & HARYANA HIGH COURT AFTE R CONSIDERING SEVERAL DECISIONS ON THAT ISSUE AND ALS O THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ESCORTS LTD. (SUPRA), CAME TO THE CONCLUSION THAT ITA NO.730(B)/2015] PAGE 14 OF 16 DEPRECIATION IS ALLOWABLE ON CAPITAL ASSETS ON THE INCOME OF THE CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF T RUSTS IN TERMS OF SECTION 11 OF THE ACT. THE HONBLE PUNJ AB & HARYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LT D. (SUPRA) AND OBSERVED THAT THE HONBLE SUPREME COURT WAS DEALING WITH A CASE OF TWO DEDUCTIONS UNDER DIFFERENT PROVISIONS OF THE ACT, ONE U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITUR E OF A CAPITAL NATURE INCURRED ON SCIENTIFIC RESEARCH U/S. 35(1)(IV) OF THE ACT. THE HONBLE COURT THEREAFTER HELD THAT A TRUST CLAIMING DEPRECIATION CANNOT BE EQUATE D WITH A CLAIM FOR DOUBLE DEDUCTION. THE HONBLE PUNJ AB & HARYANA HIGH COURT HAS ALSO MADE A REFERENCE TO THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF SISTERS OF ANNE, 146 ITR 28 (K AR), WHEREIN IT WAS HELD THAT U/S. 11(1) OF THE ACT, INC OME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INCOME. IN VIEW OF THE AFORESAID DECISION ON THE ISSUE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THE ABOVE ISSUE DOES NOT CALL FOR ANY INTERFERENCE. 22. CONSEQUENTLY, GROUND NO.5 RAISED BY THE REVENUE IS DISMISSED. THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHARANJIV CHARITABLE TRUST (SUPRA) IS CONTRARY T O THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SOCIETY OF SISTERS OF ANNE ITA NOS.240 & 241/BANG/2015 PAGE 6 OF 11 (SUPRA). WE ARE BOUND TO ITA NO.730(B)/2015] PAGE 15 OF 16 FOLLOW THE VIEW OF THE HONBLE KARNATAKA HIGH COURT WHICH IS THE JURISDICTIONAL HIGH COURT AS FAR AS TH E BANGALORE BENCH OF ITAT IS CONCERNED. WE THEREFORE PREFER TO FOLLOW THE DECISION OF THE HONBLE KARNAT AKA HIGH COURT. 15. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SIN CE BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE (NO.2) ACT, 2014 W.E.F. 1.4.2015 BY INSERTI ON OF SUB-SECTION (6) TO SECTION 11 OF THE ACT, WHICH REA DS 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 DETERMI NED WITHOUT ANY DEDUCTION OR ALLOWANCE BY WAY OF DEPRECIATION OR OTHERWISE IN RESPECT OF ANY ASSET, ACQUISITION OF WHICH HAS BEEN CLAIMED AS AN APPLICA TION OF INCOME UNDER THIS SECTION IN THE SAME OR ANY OTH ER PREVIOUS YEAR. 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 VIE W THAT THE ORDER OF THE CIT(A) IS NOT JUST AND PROPER. THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF DEPRECI ATION IS THEREFORE DIRECTED TO BE ALLOWED. CONSEQUENTLY T HE FIRST ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 13. IN VIEW OF THE ABOVE FACTS AND LEG AL POSITION AND RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION IN ITA.NO. 240 & 241/B/2015 SUPRA, WE ARE OF THE OPINION THAT DEPRECIATION ON A SSETS, THE COST OF WHICH ITA NO.730(B)/2015] PAGE 16 OF 16 WAS ALLOWED AS APPLICATION OF INCOME IS TO BE ALLOW ED WHILE COMPUTING THE INCOME AVAILABLE FOR APPLICATION FOR CHARITABLE PUR POSE. THEREFORE, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO ALLO W THE DEPRECIATION. HENCE, THE GROUND RAISED BY THE ASSESSEE ON THIS IS SUE IS ALLOWED. 14. THE NEXT ISSUE CAME UP FOR CONSIDERATION IS WHE THER THE CIT(A) IS RIGHT IN UPHOLDING THE CHARGING OF INTERE ST U/S 234B & 234C. CHARGING INTEREST U/S 234B & 234C IS MANDATORY AND CONSEQUENTIAL, WHEREVER THERE IS A TAX INCIDENCE AND AO HAS NO DIS CRETIONARY POWER ON THIS ISSUE. THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE SAME IS UPHELD. HENCE, THE GR OUND RAISED BY THE ASSESSEE ON THIS ISSUE IS DISMISSED. 15. IN THE RESULT, THE APPEAL FILLED BY THE ASSESSE E IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 16 TH OCTOBER, 2015. SD/- (VIJAY PAL RAO) SD/- (G. MANJUNATHA) ACCOUN JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE: D A T E D : 16-10-2015 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR BY ORDER AR, ITAT, BANGALORE