Assistant Commissioner of Income Tax, (Exemptions), Circle-1, Mangaluru V. M/s Manipal Academy of Higher Education, Manipal

ITA 780/BANG/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5087 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 13-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Question of law; Capital expenditure
• Section: 32; 12; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE-PRESIDENT AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 7 80 /BANG/201 8 ASSESSMENT YEAR : 201 3 - 1 4 THE ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS), CIRCLE 1, MANGALURU. VS. M/S. MANIPAL ACADEMY OF HIGHER EDUCATION, UNIVERSITY BUILDING, MANIPAL 576 104. PAN: AAAJM0078Q APPELLANT RESPONDENT ASSESSEE BY : SMT. SHEETAL BORKAR, ADVOCATE RE VENUE BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 1 0 . 10 .2018 DATE OF PRONOUNCEMENT : 17 . 10 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AND THE SAME IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-10, BANGALORE DATED 27.12.2017 FOR AS SESSMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE FA CT THAT THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENV ISAGED U/S 15 TO 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PURPOSE OF CLA IMING EXEMPTION UNDER SECTION 11, 12 AND 13 AND, THEREFORE, THE PRO VISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF LOSS FROM ONE HEAD AGAINST INCOM E FROM ANOTHER HEAD AND CARRY FORWARD AND SETOFF OF LOSS AGAINST T HE INCOME OF SUBSEQUENT YEARS AS ENVISAGED U/S70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS/INSTITUTIONS. II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE FA CT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN THE INCOME COMPUTED DOES NOT ARISE EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCURRED HU GE AMOUNT OF CAPITAL EXPENDITURE SOURCED OUT OF BORROWED OR CORP US DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME? (EXP ENDITURE INCURRED OUT OF THE ABOVE SOURCES HOWEVER CANNOT BE TERMED A SS APPLICATION OF FUNDS OUT OF THE INCOME EARNED IN A PARTICULAR ASSE SSMENT YEAR INASMUCH AS LOAN BORROWED DOES NOT FALL UNDER THE C ATEGORY OF INCOME EARNED BY THE ASSESSEE, CORPUS FUND DONATION DOES N OT COME UNDER ITA NO.780/BANG/2018 PAGE 2 OF 8 INCOME BY VIRTUE OF SECTION 11(1)(D) AND 15% OF INC OME SET APART IN EARLIER ASSESSMENT YEAR CANNOT BE CONSTRUED AS INCO ME OF THE CURRENT YEAR AND 15% SET APART OUT OF THE CURRENT YEAR INCO ME IS ALSO EXCLUDED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INCOME IS F ULLY UTILIZED RATHER THAN CLAIMING EXCESS EXPENDITURE EITHER REVENUE OR CAPITAL OVER AND ABOVE THE INCOME SO AS TO CLAIM EXCESS APPLICATION OR DEFICIT/LOSS TO BE CARRIED FORWARD TO SUBSEQUENT ASSESSMENT YEARS. EVE N IN THE CASE OF EXCESS APPLICATION BY VIRTUE OF BORROWED FUNDS/CORP US FUND DONATIONS/15% SET APART OF EARLIER YEARS, THE INCOM E OF THE ASSESSEE CANNOT BE CONVERTED TO LOSS BUT AT BEST IT CAN BE M ADE NIL. HENCE, THE CARRY FORWARD OF EXCESS APPLICATION OF INCOME AS CL AIMED BY THE ASSESSEE CANNOT BE ALLOWED)? 3. THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT O RDER WHEREAS THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CIT(A). SHE ALS O SUBMITTED THAT BOTH THE ISSUES INVOLVED IN PRESENT APPEAL ARE COVERED I N FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RE NDERED IN THE CASE OF PCIT VS. MANGALORE JESUIT EDUCATION SOCIETY IN ITA NO. 552 OF 2017 DATED 14.08.2018. SHE SUBMITTED A COPY OF THIS JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT. SHE POINTED OUT THAT THIS WAS A SUBSTA NTIAL QUESTION OF LAW RAISED BEFORE HON'BLE KARNATAKA HIGH COURT AS PER Q UESTION NO. 2 THAT WHETHER THE TRIBUNAL IS RIGHT IN LAW IN HOLDING THA T THE ASSESSEE IS ENTITLED TO CLAIM FOR CARRY FORWARD AND SET-OFF OF UNABSORBED D EFICIT WITHOUT APPRECIATING THAT THE PROVISIONS OF SECTIONS 70 TO 80 OF IT ACT ARE NOT APPLICABLE TO TRUSTS AS THEY ONLY DEAL WITH CARRY FORWARD AND SET OFF OF LOSS AND NOT EXCESS EXPENDITURE OR DEFICIT. THEREAFTER, SHE FURTHER PO INTED OUT THAT AS PER PARA 17 OF THIS JUDGEMENT OF HON'BLE KARNATAKA HIGH COUR T, IT HAS BEEN HELD THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF COGNATE BENCH OF HON'BLE KARNATAKA HIGH COURT RENDE RED IN THE CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE AS REPORTED IN 146 ITR 28. THEREAFTER, SHE DRAWN OUR ATTENTION TO PARA 18 OF THIS JUDGEMEN T AND POINTED OUT THAT IN THIS PARA, HON'BLE KARNATAKA HIGH COURT HAS ALSO CO NSIDERED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT ALSO RENDERED IN THE C ASE OF CIT VS. INSTITUTE OF BANKING AS REPORTED IN 264 ITR 110. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THE FIRST ISSUE IN DISPUTE IS REGARDING DISALLOWANCE OF DEPRECIATION O F RS. 95,37,11,460/- MADE BY THE AO AND IT IS NOTED BY CIT(A) IN PARA 5. 2.3 OF HIS ORDER THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS TRIBUNAL ITA NO.780/BANG/2018 PAGE 3 OF 8 ORDERS AS NOTED IN THIS PARA. FOR THE SAKE OF READ Y REFERENCE, PARAS 5.2.2 AND 5.2.3 FROM THE ORDER OF CIT(A) ARE REPRODUCED H EREIN BELOW. 5.2.2 THE HON'BLE ITAT, BANGALORE HAS DECIDED THE I SSUE OF ALLOWABILITY OF DEPRECIATION IN FAVOUR OF THE APPEL LANT IN THE FOLLOWING CASES OF CHARITABLE TRUSTS: NAME ITA NO DATE ACIT VS SHRI ADICHUNCHANAGIRI SHIKSHANA TRUST 774 & 775/ 2011 03 .08.2012 KARNATAKA REDDY JANASANGHA, VS DIT(E) 220/2011 07.09.2012 DDIT (E) VS CUTCHI MEMON UNION 878/2012 14.08.2013 KARNATAKA STATE MUSLIM FEDERATION VS DIT(E) 37/2013 09.10.2013 ACIT VS MEDICAL RELIEF SOCIETY OF SOUTH CANARA 1713/2013 10.12.2014 ACIT VS CITY HOSPITAL CHARITABLE TRUST 6762014 20.03.2015 SADVIDYA EDUCATIONAL INSTITUTION VS ADDL CIT 604,60 5&324/2011 28.03.2014 SUNNAH EDUCATIONAL & CHARITABLE TRUST VS CIT 1794 / 2013 31.10.2014 ITO (E) WARD-1, MANGALURU VS OUR LADY OF MILAGRES CHURCH 138/ 2015 11.06.2015 KRUPANIDHI EDUCATION TRUST VS DIT ( E) 495/ 2014 20.02.2015 5.2.3 IN VIEW OF THE BINDING DECISIONS OF THE HON'B LE HIGH COURT OF KARNATAKA AND THE HON'BLEITAT, BANGALORE, I HEREBY DIRECT THE AO TO ALLOW APPELLANT'S CLAIM OF DEPRECIATION AMOUNTING T O RS.95,37,11,460/-ON FIXED ASSETS DURING THE YEAR AS APPLICATION OF INCOME. 5. THIS IS ALSO NOTED BY CIT(A) IN PARA 5.2.1 OF HI S ORDER THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF DIT(EXEMPTION) V S. AL-AMEEN CHARITABLE FUND TRUST AS REPORTED IN (2016) 67 TAXMANN.COM 160 (KAR) ALSO. BEFORE US, THE LD. AR OF ASSESSEE PLACED RELIANCE ON A REC ENT JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF PCIT V S. MANGALORE JESUIT EDUCATION SOCIETY (SUPRA) WHEREIN IT WAS HELD THAT IN THE DECISION OF THE COGNATE BENCH OF HON'BLE KARNATAKA HIGH COURT IN TH E CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE (SUPRA), IT WAS HELD THAT EVEN THE DEPRECIATION NOT INVOLVING ANY CASH OUTFLOW IS ALSO IN THE CHARACTER OF EXPENDITURE AND THEREFORE, SUCH DEPRECIATION IS NOT HING BUT DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR AND TEAR, DETERIORAT ION OR OBSOLESCENCE AND THE ALLOWANCE MADE FOR THAT PURPOSE IN THE BOOKS OF ACCOUNTS WERE DEEMED TO BE THE APPLICATION OF FUNDS FOR THE PURPOSE OF S ECTION 11 OF IT ACT. ITA NO.780/BANG/2018 PAGE 4 OF 8 6. THE SECOND ISSUE INVOLVED IN THE PRESENT CASE IS REGARDING CARRY FORWARD OF UNABSORBED DEFICIT OF CURRENT YEAR ALONG WITH UNABS ORBED BROUGHT FORWARD DEPRECIATION DEFICIT AGGREGATING TO RS. 1348,93,41, 223/-. WHILE DECIDING THIS ISSUE IN FAVOUR OF THE ASSESSEE, THE CIT(A) HA S RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS AS NOTED BY HIM IN PARAS 5. 3.1 AND 5.3.2 OF HIS ORDER. HENCE THESE PARAS FROM THE ORDER OF CIT(A) ARE ALSO REPRODUCED HEREIN BELOW FOR READY REFERENCE. 5.3.1 THE SUBMISSION OF THE APPELLANT WITH REGARD T O CARRY FORWARD OF EXCESS APPLICATION OF INCOME OF THE APPELLANT WAS C ONSIDERED. IN THE ASSESSMENT ORDER ITSELF THE AO HAS ADMITTED THAT SO FAR THE ISSUE OF CARRY FORWARD OF LOSS IS IN THE FAVOUR OF THE APPEL LANT. THE HON'BLE ITAT, BANGALORE BENCH IN THE FOLLOWING CASES ALLOWE D THE ABOVE ISSUE OF CARRY FORWARD OF EXCESS APPLICATION TO THE SUBSE QUENT YEAR AS APPLICATION OF INCOME. A) ACIT VS. MANIPAL HOTEL & RESTAURANT MANAGEMENT COLL EGE TRUST (ITA NO.1142/BANG/2013), DATED 31.10.2014 ASS ESSMENT YEAR 2010-2011. B) DCIT VS. MANIPAL ACADEMY OF HIGHER EDUCATION, MANIP AL (ITA. NO.658(B)/2014, DATED 24.7.2015 (ASSESSMENT Y EAR 2011- 2012) C) ACIT VS. DR.T.M.A. PAI FOUNDATION, (ITA NO.1140/BAN G/2013, VIDE ITS ORDER DATED 21.3.2014 (ASSESSMENT YEAR 201 0-2011) D) ACIT VS CITY HOSPITAL CHARITABLE TRUST IN ITA 676/ 2014 DATED 20.03.2015 E) ACIT VS MEDICAL RELIEF SOCIETY OF SOUTH CANARA IN I TA 1713/ 2013 DATED 10.12.2014. 5.3.2 RESPECTFULLY FOLLOWING THE BINDING DECISIONS OF THE JURISDICTIONAL ITAT IN THE ABOVE CASES, I HEREBY DIRECT THE AO TO ALLOW SET OF EXCESS APPLICATION OF INCOME AGAINST CURRENT YEAR'S INCOME AND ALSO ALLOW CARRY FORWARD OF EXCESS APPLICATION TO SUBSEQUENT Y EARS. 7. AS PER PARA 4 OF THE JUDGEMENT OF HON'BLE KARNAT AKA HIGH COURT RENDERED IN THE CASE OF PCIT VS. MANGALORE JESUIT EDUCATION SOC IETY (SUPRA), IT IS NOTED BY HON'BLE KARNATAKA HIGH COURT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ANOTHER JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT(EXEMPTIONS) AND ANOTHER VS. OHIO UNIVERSITY CHRIST COLLEGE IN ITA NOS. 312 & 313/2016 DATED 17.07.2018 . THE RELEVANT PARAS OF THIS JUDGEMENT BEING PARAS 16 TO 18 ARE REPRODUC ED BY HON'BLE KARNATAKA HIGH COURT AND THE SAME ARE REPRODUCED HE REIN BELOW FOR READY REFERENCE. ITA NO.780/BANG/2018 PAGE 5 OF 8 16. IN SO FAR AS THE SECOND QUESTION PROPOSED BY TH E REVENUE, QUOTED ABOVE IS CONCERNED ALSO, WE FIND THAT THE TRIBUNAL' S FINDINGS IN THIS REGARD DO NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THE SAID FINDINGS ARE QUOTED BELOW FOR READY REFERENCE: '5.1 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED APPLICATION OF INCOME ON ACCOUNT OF EXPENDITURE OF EARLIER YEARS, WHICH HAS BEEN BROUGHT FORWARD AND SET OFF IN THE YEAR UNDER CONSIDERATION . THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT THER E IS NO EXPRESS PROVISION IN THE ACT PERMITTING THE ADJUSTMENT OF E ARLIER YEARS BROUGHT FORWARD EXPENSES AS APPLICATION OF INCOME I N THE CURRENT YEAR. ACCORDING TO THE ASSESSING OFFICER, THE APPLI CATION OF INCOME FOR CHARITABLE PURPOSES MUST BE DURING THE RELEVANT PREVIOUS YEAR. SINCE THE INCOME OF THE TRUST IS EXEMPT FROM TAX, T HE QUESTION OF DEFICIT DOES NOT ARISE AND ALSO THE TRUST IS REQUIR ED TO UTILIZE 85% OF THE INCOME OF THE PREVIOUS YEAR FOR CHARITABLE PURP OSES DURING THE YEAR. IN THIS VIEW OF THE MATTER AND FOR THE ABOVE REASONS, THE ASSESSING OFFICER DISALLOWED THE ASSESSEE'S CLAIM O F EXPENDITURE OF EARLIER YEARS BEING BROUGHT FORWARD AND SET OFF DUR ING THE YEAR. 5.2 ON APPEAL, THE LEARNED CIT (APPEALS) ALLOWED TH E AMORTIZATION OF THE EXPENDITURE AS CLAIMED BY THE ASSESSEE AND D ELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY PLACI NG RELIANCE ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF THE SISTERS OF ST. ANNE REPORTED IN 1 46 ITR 28 (1984) AND CBDT CIRCULAR NO. 5-P(LXX)-6 OF 1968. 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH T HE LEARNED DEPARTMENTAL REPRESENTATIVESFOR REVENUE AND THE LEA RNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUD INGTHE JUDICIAL PRONOUNCEMENTS CITED. THE FACTS OF THE ISSUE BEFORE US IS THAT THE ASSESSEE HAD INCURRED CERTAIN PRELIMINARY EXPENDITU RE IN THE YEAR OF SETTING UP OF THE. TRUST. THE SAME IS AMORTISED BY THE ASSESSEE TRUST OVER A PERIOD OF 5 YEARS FROM THE YEAR OF INCURRING OF EXPENDITURE. THE FACT OF AMORTIZATION WAS NOT DISPUTED BY THE AS SESSING OFFICER IN THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2007 -08 WHERE THE ENTIRE AMOUNT WAS ADDED BACK CLAIMING 1/ 5 TH OF THE EXPENDITURE. THE UN-AMORTIZED EXPENDITURE HAS BEEN BROUGHT FORWA RD AND SET OFF AS APPLICATION OF INCOME IN SUBSEQUENT YEARS, INCLU DING THE ASSESSMENT YEARS 2008-09 AND 2009-10 WHICH ARE UNDE R CONSIDERATION. 5.3.2 WE FIND THAT THE ISSUE BEFORE US IS DIRECTLY RELATED TO THE ISSUE DECIDED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SISTERS OF ST. ANNE (SUPRA) CITED BY THE ASSESSEE. IN THE S AID CASE, THE HON'BLE KARNATAKA HIGH COURT AT PARAS 8 TO 10 THERE OF HAS HELD AS UNDER : - XXXXXXX.. ITA NO.780/BANG/2018 PAGE 6 OF 8 5.3.3 FURTHER, THE CBDT CIRCULAR NO.5-P (LXX)-6 OF 1968 CITED BY THE ASSESSEE MAKES IT CLEAR THAT INCOME SHOULD BE U NDERSTOOD IN ITS COMMERCIAL SENSE : IN THE CASE OF TRUSTS ALSO AND T HEREFORE THE COMMERCIAL PRINCIPLE ENUNCIATED BY THE HON'BLE KARN ATAKA HIGH COURT IN THE ABOVE REFERRED CASE OF SISTERS OF ST. ANNE (SUPRA) APPLIES TO TRUSTS AS WELL. IN VIEW OF THE FACTUAL A ND LEGAL MATRIX OF THIS ISSUE IN THE CASE ON HAND AS DISCUSSED ABOVE, WE CONCUR WITH THE DECISION OF THE LEARNED CIT (APPEALS) IN CANCEL LING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND IN A LLOWING THE AMORTIZATION OF EXPENSES. CONSEQUENTLY, GROUND NO.B (1 TO 6) OF THE REVENUE'S APPEAL FOR ASSESSMENT YEAR 2008-09 AN D GROUND NO.0 FOR ASSESSMENT YEAR 2009-10 ARE DISMISSED.' 17. IN OUR OPINION, THE MATTER IS SQUARELY COVERED BY A DECISION OF THE COGNATE BENCH OF THIS COURT IN THE CASE OF CIT VS. SOCIETY OF THE SISTERS OF ST. ANNE (1984) 16 TAXMAN 400 (KAR.) AND (1984) 146 ITR 28, WHEREIN THE CONGNATE BENCH OF THIS COURT HELD T HAT EVEN. THE DEPRECIATION NOT INVOLVING ANY CASH OUTFLOW IS ALSO IN THE CHARACTER OF EXPENDITURE AND THEREFORE SUCH DEPRECIATION IS NOTH ING BUT DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR AND TEAR, DET ERIORATION OR OBSOLESCENCE AND THE ALLOWANCE MADE FOR THAT PURPOS E IN THE BOOKS OF ACCOUNTS WERE DEEMED TO BE THE APPLICATION OF FUNDS FOR THE PURPOSE OF SEC. 11 OF THE ACT. THE RELEVANT PORTION OF THE SAID JUDGMENT IS ALSO QUOTED BELOW FOR READY REFERENCE: '11. MR. SRINIVASAN, HOWEVER, URGED THAT THERE ARE ENOUGH INDICATIONS IN SECTION 11 TO EXCLUDE THE MERCANTILE SYSTEM OF ACCOUNTING. THE LEARNED COUNSEL RELIED UPON SECTION S 11(1)(A) AND 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 SECTION 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 ONLY BE ON CASH BASIS. SECTION 11(4) IS NOT INTENDE D TO EXPLAIN HOW THE ACCOUNTS OF THE BUSINESS UNDERTAKING SHOULD BE MAINTAINED. IT IS INTENDED ONLY TO BRING TO TAX THE EXCESS INCOME COM PUTED UNDER THE PROVISIONS OF THE ACT IN RESPECT OF BUSINESS UNDERT AKING. 12. THE DEPRECIATION IF IT IS NOT ALLOWED AS NECESS ARY DEDUCTION FOR COMPUTING THE INCOME FROM THE CHARITABLE INSTITUTIO NS, THEN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERI VING THE INCOME. THE BOARD ALSO APPEARS TO HAVE UNDERSTOOD THE 'INCO ME' UNDER SECTION 11(1) IN ITS COMMERCIAL SENSE. THE RELEVANT PORTION OF THE CIRCULAR NO.5XX-6 OF 1968, DATED 19.61968 (SEE TAXM ANN'S DIRECT TAXES CIRCULARS, VOL. 1, 1980 EDN. P.85) 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 TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ITA NO.780/BANG/2018 PAGE 7 OF 8 ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD B E NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDED BACK WILL BEC OME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE O F THE TRUST. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TR UST FROM OUT OF THE INCOME, COMPUTED IN THE AFORESAID MANNER, SHOUL D NOT BE LESS THAN 75 PER CENT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION UNDER SECTION 11(1).' 13. IN CIT V. TRUSTEE OF H.E.H. THE NIZAM'S SUPPLEMENTALRELIGIOUS ENDOWMENT TRUST (1981) 127 I TR 378, THE ANDHRA PRADESH HIGH COURT HAS ACCEPTED THE ACCOUNTS MAINTAINED IN RESPECT OF THE TRUST IN. CONFORMITY WITH THE PRI NCIPLES OF ACCOUNTANCY FOR THE PURPOSES OF DETERMINING THE INC OME DERIVED FROM THE PROPERTY HELD IN TRUST.' 18. IN VIEW OF THE AFORESAID FINDINGS OF THE LEARNE D TRIBUNAL, ALLOWING ANY EXPENDITURE OF THE EARLIER YEAR WHICH HAS BEEN BROU GHT FORWARD AND SET OFF IN THE YEAR UNDER CONSIDERATION, IS A JUSTIFIED FINDIN G OF FACT BASED ON THE CORRECT INTERPRETATION OF LAW AND THE JUDGMENT RELIED UPON BY IT RENDERED BY THE COGNATE BENCH. THEREFORE, THE SAME DOES NOT CALL FO R INTERFERENCE. A SIMILAR VIEW WAS ALSO TAKEN BY THE DIVISION BENCH OF BOMBAY HIGH COURT IN COMMISSIONER OF INCOME-TAX V. INSTITUTE OF BANKING (2003) 264 ITR 110, WHEREIN THE DIVISION BENCH OF BOMBAY HIGH COURT HEL D THAT THE 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 R ELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUS T IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION. OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR. THE RELEVANT PORTION OF THE SAID JUDGMENT OF BOMBAY HIGH COURT IS ALSO QUOTED B ELOW FOR READY REFERENCE : 'NORMAL DEPRECIATION CAN BE CONSIDERED AS A LEGITIM ATE DEDUCTION IN COMPUTING THE REAL INCOME OF THE ASSESSEE ON GENERA L PRINCIPLES OR UNDER SECTION 11(1)(A) OF THE INCOME-TAX ACT, 1961. INCO ME OF A CHARITABLE TRUST DERIVED FROM BUILDING, PLANT AND MACHINERY AND FURN ITURE IS LIABLE TO BE COMPUTED IN A NORMAL COMMERCIAL MANNER ALTHOUGH THE TRUST MAY NOT BE CARRYING ON ANY BUSINESS AND THE ASSETS IN RESPECT WHEREOF DEPRECIATION IS CLAIMED MAY NOT BE BUSINESS ASSETS. IN ALL SUCH CAS ES, SECTION 32 OF THE ACT PROVIDING FOR DEPRECIATION, FOR COMPUTATION OF INCO ME DERIVED FROM BUSINESS OR PROFESSION IS NOT APPLICABLE. HOWEVER, THE INCOME OF THE TRUST LS REQUIRED TO BE COMPUTED UNDER SECTION 11 ON COMM ERCIAL PRINCIPLES AFTER PROVIDING FOR ALLOWANCE FOR NORMAL DEPRECIATI ON AND DEDUCTION THEREOF FROM THE GROSS INCOME OF THE TRUST. 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 CH ARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EA RNED BY THE TRUST IN THE ITA NO.780/BANG/2018 PAGE 8 OF 8 SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICA TION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAD BEEN MADE HAVING REGARD TO THE BENEV OLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND SUCH ADJUSTM ENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION 11(1)(A). 8. RESPECTFULLY FOLLOWING THESE VARIOUS JUDICIAL PR ONOUNCEMENTS INCLUDING THAT OF HON'BLE KARNATAKA HIGH COURT, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF CIT(A) IN ANY OF THE ISSUES WHICH ARE RAIS ED BY THE REVENUE BEFORE US. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) VICE-PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 17 TH OCTOBER, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.