DCIT, Bangalore V. M/s B S & G Foundation, Bangalore

ITA 884/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7507 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 29-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMAMEENAKSHHI
• Assessee Lawyers: R T BALASUBRAMANYAM
• Keywords: Capital asset; Depreciation; Charitable institution; Benefit of exemption; Revenue expenditure; Capital expenditure
• Section: 143(3); 12A; 32; 10; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.884/ BANG/2016 (ASST. YEAR 2011-12) THE DY. COMMISSIONER OF INCOME-TAX (EXEMPTIONS), BENGALURU. . APPELLANT VS. M/S B S & G FOUNDATION, 502, 2 ND FLOOR, 5 TH C MAIN, 5 TH CROSS, 2 ND BLOCK, HRBR LAYOUT, KALYANNAGAR, BANGALORE. . RESPONDENT PAN AAATB6131D. APPELLANT BY : SMT. PADMAMEENAKSHHI, JCIT RESPONDENT BY : SHRI R.T BALASUBRAMANYAM, C.A DATE OF HEARING : 28-9-2017 DATE OF PRONOUNCEMENT : 4-10-2017 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF THE CIT(A)-14, LTU, BANGALORE DATED 22.02.2016 FOR ASSE SSMENT YEAR 2011-12. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UN DER:- ITA NO.884/B/16 2 2.1 THE ASSESSEE IS A TRUST REGISTERED U/S. 12A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) VIDE ORDER DATED 22. 10.2000 AND RUNNING AN EDUCATIONAL INSTITUTION IN THE NAME OF INDIAN IN STITUTE OF JOURNALISM & NEW MEDIA, PROVIDING ONE YEAR PG DIPLOMA IN PRINT AND WEB JOURNALISM. FOR ASSESSMENT YEAR 2011-12, THE ASSES SEE FILED ITS RETURN OF INCOME ON 24.02.2012 DECLARING NIL INCOME . THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED U/S. 143(3) OF THE ACT VIDE ORDER DATED 11.03.2014; WHEREIN THE AS SESSING OFFICER (I) RESTRICTED THE ACCUMULATION U/S 11 OF THE ACT UPTO THE EXTENT OF 15% OF NET RECEIPTS ONLY; (II) DISALLOWED DEPRECIATION CLA IMED ON FIXED ASSETS AND (III) DID NOT ALLOW THE ASSESSEES CLAIMING FOR CARRY FORWARD OF EXCESS APPLICATION OF INCOME FOR SET OFF AS APPLICA TION AGAINST INCOME OF SUBSEQUENT YEARS. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSES SMENT YEAR 2011- 12 DATED 11.03.2014, THE ASSESSEE PREFERRED AN APPE AL BEFORE THE CIT(A)-14, LTU, BANGALORE ON THE ABOVE THREE ISSUE S; I.E. (I) DISALLOWANCE OF DEPRECIATION; (II) THE RESTRICTION ACCUMULATION U/S. 11(1)(A) OF THE ACT ON NET INSTEAD OF GROSS RECEIPT S AND (III) THE DENIAL OF CARRY FORWARD OF EXCESS APPLICATION FOR SET OFF AS APPLICATION AGAINST INCOME OF SUBSEQUENT YEARS. THE LD. CIT(A) ALLOWE D THE ASSESSEES APPEAL ON THE AFORESAID ISSUES (SUPRA) VIDE THE IMP UGNED ORDER DATED 22.02.2016. 3. AGGRIEVED BY THE ORDER OF THE CIT(A)-14, LTU, BA NGALORE DATED 22.02.2016 FOR ASSESSMENT YEAR 2011-12, THE R EVENUE HAS PREFERRED THIS APPEAL, RAISING THE FOLLOWING GROUND S:- ITA NO.884/B/16 3 NET RECEIPTS VS. GROSS RECEIPTS I) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, T HE CIT(A) IS CORRECT IN LAW IN NOT CONSIDERING THE BOA RD CIRCULAR ON THIS ISSUE I.E. BOARD CIRCULAR NO. 12-( PXX- 7 OF 1968) DATED 26.11.1968, ON WHICH THE AO PLACED RELIANCE FOR DISALLOWANCE OF ACCUMULATION /SET APAR T OF INCOME U/S 11(1)(A), WHEREIN IT IS CLEARLY EXPLAINE D THAT IF A TRUST FAILS TO COMPLY WITH ACCUMULATION PROVISIONS U/S 11(2), THEN THE ENTIRE INCOME ACCUMULATED WOULD BE LIABLE TO ASSESSMENT U/S 11(3) , INCLUDING 15% OF INCOME SET APART OR ACCUMULATED U/ S 11(1)(A), AND, THEREFORE, RENDERED A PERVERSE DECIS ION. II) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW IN HOLDING THAT THE PROVIS IONS OF SUB-SECTION (1) AND (2) OF SECTION 11 OPERATE INDEPENDENTLY, AND, THEREFORE, DISALLOWANCE OF ACCUMULATION U/S 11(2) HAS NO EFFECT ON ALLOWANCE O F SET APART/ACCUMULATION U/S 11(1)(A). III) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW IN IGNORING THE FACT THAT IN CASE THE ASSESSEE IS CLAIMING 15% OF INCOME SET-APA RT/ ACCUMULATION ON THE BASIS OF GROSS RECEIPTS, THE ASSESSEE SHALL PRODUCE EVIDENCE THAT SUCH AMOUNT IS INVESTED IN THE MODES SPECIFIED U/S 11(5) R.W,S. ITA NO.884/B/16 4 13(1)(D)(I). HOWEVER, AS THE NET SURPLUS AVAILABLE IN THE HANDS IS LESS THAN 15% OF GROSS RECEIPTS, THE ASSESSEE WILL NOT BE IN A POSITION TO INVEST HIGHER AMOUNT/MORE THAN NET SURPLUS IN THE MODES SPECIFIED U/S 11(5). IV) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW IN NOT CONSIDERING THE FAC T THAT IF THE GROSS RECEIPTS ARE CONSIDERED AS INCOME WITH IN THE MEANING OF SECTION 11(1)(A), THEN IN THE EVENT OF ASSESSEE LOSING THE EXEMPTION DUE TO VIOLATION OF CONDITIONS STIPULATED U/S 13, THEN THE ENTIRE GROSS RECEIPTS BEING THE INCOME IS LIABLE TO BE TAXED, WH ICH IS GROSSLY UNJUSTIFIED AND UNVIABLE AND BEYOND THE PURVIEW OF SECTION 11(I)(A). ON THE OTHER HAND, IT IS NOT THE CASE OF THE ASSESSEE TO ARGUE THAT FOR THE PURP OSE OF CLAIMING 15% OF INCOME SET-APART/ACCUMULATION, INCOME TO BE RECKONED ON THE BASIS OF GROSS RECEIPT S, BUT IN THE EVENT OF ASSESSEE LOSING THE EXEMPTION, THE INCOME WILL BE RECOGNIZED ON THE BASIS OF NET SURPLUS/BOOK PROFITS RATHER THAN GROSS RECEIPTS. DISALLOWANCE OF DEPRECIATION: (I). THE CIT(A) HAS FAILED TO APPRECIATE THE FACT T HAT THE HON'BLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INTUITIONS VS. CIT (348 ITR 344) HAS HELD T HAT DEPRECIATION CANNOT BE ALLOWED ON ASSETS, WHERE COS T ITA NO.884/B/16 5 OF SUCH ASSETS HAS ALREADY BEEN ALLOWED AS APPLICAT ION OF INCOME IN THE YEAR OF ACQUISITION/ PURCHASE OF A SSET. (II). THE CIT(A) HAS FAILED TO APPRECIATE THAT THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNION OF INDIA (199 ITR 43), WHILE DEAL ING WITH THE ISSUE OF ALLOWANCE OF EXPENDITURE ON SCIEN TIFIC RESEARCH U/S 35(1)(IV) [CORRESPONDING TO SECTION 10 (2) (XIV) OF THE I.T. ACT, 1922] HELD THAT ANY EXPENDIT URE OF A CAPITAL NATURE (OR INCURRED TOWARDS PURCHASE OF CAPITAL ASSETS) ON SCIENTIFIC RESEARCH ALLOWED AS DEDUCTION U/S 35(1)(IV) CANNOT BE ALLOWED ONCE AGAI N AS DEDUCTION IN THE FORM OF DEPRECIATION ON SUCH CAPITAL ASSETS. WHILE DOING SO, IT WAS OBSERVED BY THE HON'BLE SUPREME COURT THAT NO LEGISLATURE COULD HAV E AT ALL INTENDED A DOUBLE DEDUCTION IN REGARD TO THE SAME BUSINESS OUTGOING AND IF IT IS INTENDED, IT WO ULD BE CLEARLY EXPRESSED IN THE STATUTE ITSELF. ACCORDI NGLY, IT WAS HELD THAT EVEN IN ABSENCE OF CLEAR STATUTORY INDICATION TO CONTRARY, STATUTE SHOULD NOT BE READ SO AS TO PERMIT AN ASSESSEE TWO DEDUCTIONS I.E. ONCE IN T HE FORM OF EXPENDITURE INCURRED TOWARDS PURCHASE OF CAPITAL ASSETS AND SECONDLY, IN THE FORM OF DEPRECI ATION ON SUCH CAPITAL ASSETS. IT WAS ALSO HELD THAT EVEN BEFORE THE AMENDMENT OF THE ACT IN THE FORM OF ITA NO.884/B/16 6 INSERTION OF CLAUSE (IV) OF SUB SECTION (2) OF SECT ION 35 BY FINANCE ACT, 1980, PROHIBITING ALLOWANCE OF DEPRECIATION, THE ACT DID NOT PERMIT A DEDUCTION FO R DEPRECIATION IN RESPECT OF COST OF CAPITAL ASSET ACQUIRED FOR THE PURPOSE OF SCIENTIFIC RESEARCH TO THE EXTENT SUCH COST HAD BEEN WRITTEN OFF/ CLAIMED AS DEDUCTION U/S 35(1)(IV) ON THE GROUND THAT THE AMENDMENT ONLY SET OUT MORE CLEARLY AND CATEGORICAL LY WHAT THE PROVISION INTENDED EVEN EARLIER. III). THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ISSUE INVOLVED IN RESPECT OF CAPITAL EXPENDITUR E ON SCIENTIFIC RESEARCH U/S 35(1)(IV) IS SIMILAR TO THA T OF ISSUE INVOLVED IN RESPECT OF ALLOWANCE OF EXPENDITU RE INCURRED TOWARDS PURCHASE OF CAPITAL ASSETS FOR CHARITABLE PURPOSES AS APPLICATION OF INCOME U/S 11(1)(A). ACCORDINGLY, THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IS SQUARELY APPLICABLE TO TAXATION OF CHARITABLE/ RELIGIOUS TRUST OR INSTITUT ION U/S 11, 12 AND 13 OF THE I.T. ACT. (IV). THOUGH THE FINANCE ACT, 2014 HAS AMENDED THE INCOME TAX ACT, 1961 WITH REGARD TO NON-ALLOWANCE O F DEPRECIATION TO CHARITABLE/ RELIGIOUS TRUST OR INST ITUTION ON THE VALUE OF ASSETS WHICH HAS ALREADY BEEN ALLOW ED ITA NO.884/B/16 7 AS APPLICATION OF INCOME U/S 11(1) BY INSERTING SUB - SECTION (6) OF SECTION 11, W.E.F 01.04.2015, SUCH AMENDMENT CANNOT BE CONSTRUED AS EFFECTIVE PROSPECTIVELY INASMUCH AS IN ACCORDANCE WITH THE RA TIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNION OF INDIA (SUPRA), THE AMENDMENT ONLY SET OUT MORE CLEARLY AND CATEGORICAL LY WHAT THE LEGISLATURE HAD INTENDED AND CONVEYED U/S 11(1) EVEN EARLIER TO THE SAID AMENDMENT. AS SUCH, THE AMENDMENT SHALL BE CONSIDERED AS CLARIFICATORY IN NATURE MAKING IT CLEAR THAT THE ASSESSEE IS NOT ENT ITLED TO CLAIM DOUBLE DEDUCTION IN RESPECT OF SAME EXPENDITURE U/S 11(1) AS APPLICATION OF INCOME AND ALSO DEPRECIATION SIMULTANEOUSLY. CARRY FORWARD OF EXCESS APPLICATION: I). WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CLT(A) IS CORRECT WITHOUT APPRECIATING THE FACT THA T THE NORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENVISAGED U/S 15 TO 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PURPOSE OF CLAIMING EXEMP TION UNDER SECTION 11, 12 AND 13 AND, THEREFORE, THE PROVISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOU RCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF LOSS HORN ONE HEAD AGAINST INCOME FROM ANOTHER HEAD AND ITA NO.884/B/16 8 CARRY FORWARD AND SET-OFF OF LOSS AGAINST THE INCOM E OF SUBSEQUENT YEARS AS ENVISAGED U/S 70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS/INSTITUTION S. II) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW WITHOUT APPRECIATING THE F ACT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN T HE COME COMPUTED DOES NOT ARISE, EXCEPT IN A CASE WHER E THE ASSESSEE HAS INCURRED HUGE AMOUNT OF CAPITAL EXPENDITURE SOURCED OUT OF BORROWED OR CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME. HOWEVER, EXPENDITURE INCURRED OUT OF THE ABOV E SOURCES CANNOT BE TERMED AS APPLICATION OF FUNDS OU T OF THE INCOME EARNED IN A PARTICULAR ASSESSMENT YEA R INASMUCH AS LOAN BORROWED DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED BY THE ASSESSEE, CORPUS FUND DONATION DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION 11(1)(D) AND 15% OF INCOME 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 INCOME IS ALSO EXCLUDED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INCOME IS FULL Y UTILIZED RATHER THAN CLAIMING EXCESS EXPENDITURE EI THER REVENUE OR CAPITAL OVER AND ABOVE THE INCOME SO AS TO ITA NO.884/B/16 9 CLAIM EXCESS APPLICATION OR DEFICIT/LOSS TO BE CARR IED FORWARD TO SUBSEQUENT ASSESSMENT YEARS. EVEN IN THE CASE OF EXCESS APPLICATION BY VIRTUE OF BORROWED FUNDS/CORPUS FUND DONATIONS/15% SET APART OF EARLIE R YEARS, THE INCOME OF THE ASSESSEE CANNOT BE CONVERT ED TO LOSS BUT AT BEST IT CAN BE MADE NIL. HENCE, THE CARRY FORWARD OF EXCESS APPLICATION OF INCOME AS CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED. / 4. NET RECEIPTS VS. GROSS RECEIPTS FOR COMPUTATION OF ACCUMULATION 4.1 THE LD DR FOR REVENUE WAS HEARD IN SUPPORT OF T HE GROUNDS RAISED (SUPRA). 4.2 PER CONTRA, THE LD. AR FOR THE ASSESSEE SUBMIT TED THAT THERE WAS NO ERROR ON THE PART OF THE LD. CIT(A) IN HOLDING THAT ACCUMULATION OF INCOME U/S. 11(1)(A) OF THE ACT IS TO BE ALLOWED AT 15% ON GROSS RECEIPTS AS CLAIMED BY THE ASSESSEE AND NOT ON NET RECEIPTS AS CONTENDED BY REVENUE. IT IS SUBMITTED THAT THIS VE RY ISSUE HAS BEEN CONSIDERED BY A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF MARY IMMACULATE SOCIETY V DDIT(EXEMPTIONS), BANGALORE IN ITS ORDER IN ITA NOS. 240 & 241/BANG/2015 DATED 23.06.2015 AND THE DECISION RENDERED THEREIN ON THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE. ITA NO.884/B/16 10 4.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS REFERRED TO. THE ISSUE FOR ADJUDICA TION BEFORE US IS WHETHER THE LD. CIT(A) WAS RIGHT IN DIRECTING THE A O TO ALLOW THE ASSESSEE ACCUMULATION OF INCOME FOR APPLICATION TO THE EXTENT OF 15% OF GROSS RECEIPTS U/S. 11(1)(A) OF THE ACT. 4.3.2 THE ASSESSEE CLAIMED ACCUMULATION OF INCOME FOR APPLICATION FOR CHARITABLE PURPOSES U/S. 11(1)(A) OF THE ACT AT 15% OF GROSS RECEIPTS FOR THE YEAR UNDER CONSIDERATION. THE ASS ESSING OFFICER (AO) HOWEVER, WAS OF THE VIEW THAT ACCUMULATION W ILL BE ALLOWED ONLY TO THE EXTENT OF 15% OF THE NET RECEIPTS I.E.; GROSS RECEIPTS LESS REVENUE EXPENDITURE AND NOT ON THE GROSS RECEIPTS A S CLAIMED BY THE ASSESSEE. ON APPEAL, THE LD. CIT(A) ALLOWED THE AS SESSEES CLAIM THAT IT IS TO BE ALLOWED ACCUMULATION OF INCOME FOR APPL ICATION FOR CHARITABLE PURPOSES TO THE EXTENT OF 15% OF GROSS R ECEIPTS U/S. 11(1)(A) OF THE ACT AND NOT 15% OF NET RECEIPTS AS HELD BY T HE AO. 4.3.3 THE ISSUE TO BE DECIDED BY US IS AS TO WHETHE R FOR THE PURPOSE OF ACCUMULATION OF INCOME FOR APPLICATION FOR CHARITAB LE PURPOSES U/S. 11(1)(A) OF THE ACT IS TO BE ALLOWED AT 15% OF GROS S RECEIPTS OR NET RECEIPTS I.E.; GROSS RECEIPTS LESS REVENUE EXPENDIT URE. WE FIND THAT THE ISSUE IN QUESTION WAS CONSIDERED AND ADJUDICATED BY A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MARY IMMACULAT E SOCIETY AND IN ITS ORDER IN ITA NOS. 240 & 241/BANG/2015 DATED 23. 06.2015 HELD THAT THE ASSESSEE IS TO BE ALLOWED ACCUMULATION OF INCOME FOR APPLICATION FOR CHARITABLE PURPOSES U/S. 11(1)(A) O F THE ACT AT 15% OF ITA NO.884/B/16 11 GROSS RECEIPTS FOLLOWING THE DECISION OF THE ITAT S PECIAL BENCH IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST V ITO, 93 IT D 0070 (SB). IN ITS ORDER (SUPRA), THE CO-ORDINATE BENCH HAS HELD A S UNDER AT PARAS 15 AND 16 THEREOF:- 15. THE ISSUE TO BE DECIDED IS THEREFORE AS TO WHE THER FOR THE PURPOSE OF COMPUTING ACCUMULATION OF INCOME OF 15% UNDER SEC.11(1)((A) OF THE ACT, ONE HAS TO TAKE THE GROSS RECEIPTS OR GROSS RECEIPTS AFTER EXPENDITURE FOR CH ARITABLE PURPOSE I.E., THE NET RECEIPTS. THIS IS ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE SPECIAL BENCH M UMBAI IN THE CASE OF BAI SONABAI HIRJI AGIARY TRUST VS. I TO, 93 ITD 0070 (SB). THE FACTS IN THE AFORESAID CASE WERE THA T THE ASSESSEE WAS A PUBLIC CHARITABLE TRUST ENJOYING EXE MPTION UNDER S. 11 OF THE IT ACT. AS PER THE REQUIREMENT O F S. 11(1) OF THE IT ACT, AS IT PREVAILED AT THAT POINT OF TIM E, THE ASSESSEE HAD TO APPLY 75 PER 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 C ENT OF ITS INCOME, WHICH WAS SUBJECT TO FULFILLMENT OF OTHER C ONDITIONS. WHILE CALCULATING THE AFORESAID 25 PER CENT, THE IM PORTANT QUESTION WHICH AROSE WAS AS TO WHETHER FOR THIS PUR POSE, THE GROSS INCOME EARNED BY THE ASSESSEE IS RELEVANT OR THE INCOME AS COMPUTED IN ACCORDANCE WITH THE PROVISION S OF IT ACT. IN OTHER WORDS, WHETHER OUTGOINGS FROM OUT OF GROSS INCOME WHICH ARE IN THE NATURE OF APPLICATION OF IN COME, 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:- ITA NO.884/B/16 12 '9. COMING TO THE MERITS OF THE ISSUE, WE ARE OF TH E VIEW THAT THE SAME IS CLEARLY COVERED BY THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PROGRA MME FOR COMMUNITY ORGANIZATION (SUPRA). IN THE DECISIO N, THEIR LORDSHIPS, AFTER TAKING NOTE OF PROVISIONS OF S. 11 (1)(A), HAVE HELD AS UNDER: HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE P ROVISION, IT IS CLEAR THAT A CHARITABLE OR RELIGIOUS TRUST IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF ITS INCOME DERIV ED FROM PROPERTY HELD UNDER TRUST. FOR THE PRESENT PURPOSE S, THE DONATIONS THE ASSESSEE RECEIVED, IN THE SUM OF RS. 2,57,346/- WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT THEREOUT. IT IS UN CLEAR ON WHAT BASIS THE REVENUE CONTENDED THAT IT WAS ENTITL ED TO ACCUMULATE ONLY TWENTY FIVE PER CENT OF RS. 87,010. FOR THE AFORESAID REASONS, THE CIVIL APPEAL IS DISMISSED. IT IS CLEAR FROM THE ABOVE THAT DEDUCTION OF TWENTY -FIVE PER CENT WAS HELD TO BE ALLOWABLE NOT ON TOTAL INCOME A S COMPUTED UNDER THE IT ACT. ANY AMOUNT OR EXPENDITU RE, WHICH WAS APPLICATION OF INCOME, IS NOT TO BE CONSI DERED FOR DETERMINING TWENTY FIVE PER CENT TO BE ACCUMULATED. THEIR LORDSHIPS, AS NOTED EARLIER AFFIRMED THE DECISION O F KERALA HIGH COURT IN (1997) 141 CTR (KER) 502: (1997) 228 ITR 620 (KER) (SUPRA) WHEREIN IT IS HELD AS UNDER: ITA NO.884/B/16 13 AT THE OUTSET, THE STATUTORY LANGUAGE OF S. 11(1)(A ) OF THE IT ACT, 1961, RELATES TO THE INCOME DERIVED BY THE TRU ST FROM PROPERTY. THE TRUST IS REQUIRED TO BE WHOLLY FOR C HARITABLE OR RELIGIOUS PURPOSES, AND THE INCOME IS EXPECTED TO H AVE RELATION TO THE EXTENT TO WHICH SUCH INCOME IS APPL IED TO SUCH PURPOSES IN INDIA. IT IS THEREAFTER THE STATUTORY PROVISION PROCEEDS FURTHER THAT SUCH INCOME IS NOT TO BE UNDE RSTOOD TO BE IN EXCESS OF 25 PER CENT OF THE INCOME FROM SUCH PROPERTIES. IT OTHER WORDS, THE VERY LANGUAGE OF T HE STATUTORY PROVISION UNDER CONSIDERATION SETS APART 25 PER CEN T OF THE INCOME FROM THE SOURCE OF PROPERTY WITH REFERENCE T O THE EXTENT TO WHICH SUCH INCOME IS APPLIED FOR SUCH PUR POSES, CHARITABLE OR RELIGIOUS, IN OTHER WORDS, FOR THE PU RPOSE OF S. 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELEVAN CE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WHICH 25 PER CENT IS SET APART IN ACCORDANCE WITH THE SPIRIT OF THE S TATUTORY PROVISION. THIS MEANS THAT, WHEN IT IS ESTABLISHED THAT TRUST IS ENTITLED TO FULL BENEFIT OF EXEMPTION UNDER S. 11(1), THE SAID TRUST IS TO GET THE BENEFIT OF TWENTY-FIVE PER CENT AND THIS TW ENTY-FIVE PER CENT HAS TO BE UNDERSTOOD AS INCOME OF THE TRUST UN DER THE RELEVANT HEAD OF S. 11(1), IN OTHER WORDS, INCOME T HAT IS NOT TO BE INCLUDED FOR THE PURPOSE OF COMPUTING THE TOT AL INCOME WOULD BE THE AMOUNT EXPENDED FOR PURPOSES OF TRUST IN INDIA. THEIR LORDSHIPS IN THE ABOVE CASE HAVE EMPHASIZED O N THE CLEAR AND UNAMBIGUOUS LANGUAGE OF S. 11(1)(A) AND D ECIDED THE MATTER ON THE BASIS OF THE SAME. IT HAS BEEN H ELD THAT AS PER THE STATUTORY LANGUAGE OF THE ABOVE SECTION THE INCOME ITA NO.884/B/16 14 WHICH IS TO BE TAKEN FOR PURPOSE OF ACCUMULATION IS THE INCOME DERIVED BY THE TRUST FROM PROPERTY. IF BOTH THE DECISIONS ARE CAREFULLY READ, IT BECOME S EVIDENT THAT ANY EXPENDITURE WHICH IS IN THE SHAPE OF APPLI CATION OF INCOME IS NOT TO BE TAKEN INTO ACCOUNT. HAVING FOU ND THAT TRUST IS ENTITLED TO EXEMPTION UNDER S. 11(1), WE A RE TO GO TO THE STAGE OF INCOME BEFORE APPLICATION THEREOF AND TAKEN INTO ACCOUNT 25 PER CENT OF SUCH INCOME. THEIR LORDSHIP S HAVE POINTED THAT THE SAME HAS TO BE TAKEN ON COMMERCIA L BASIS AND NOT TOTAL INCOME AS COMPUTED UNDER THE IT ACT . THEIR LORDSHIPS IN THE DECIDED CASE REJECTED THE CONTENTI ON OF THE REVENUE THAT THE SUM OF RS. 1,70,369 WHICH WAS SPEN T 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 L ORDSHIPS OF THE SUPREME COURT, IT IS DIFFICULT TO ACCEPT THA T OUTGOINGS WHICH ARE IN THE NATURE OF APPLICATION OF INCOME AR E TO BE EXCLUDED. THE INCOME AVAILABLE TO THE ASSESSEE BEF ORE IT WAS APPLIED IS DIRECTED TO BE TAKEN AND THE SAME IN THE PRESENT CASE IS RS. 3,42,174. TWENTY FIVE PER CENT OF THE ABOVE INCOME IS TO BE ALLOWED AS A DEDUCTION. SIMI LAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE MADHYA PRADESH H IGH COURT IN PARSI ZORASTRIAN ANJUMAN TRUST VS. CIT (SU PRA). NO REASON WHATSOEVER HAS BEEN GIVEN BY THE REVENUE AUTHORITIES FOR DEDUCTING RS. 2,17,126 IN THIS CASE FOR PURPOSES OF S. 11(1)(A). THE DECISION CITED ON BEH ALF OF THE ITA NO.884/B/16 15 REVENUE DID NOT TAKE INTO ACCOUNT THE DECISION OF T HE SUPREME COURT REFERRED TO ABOVE. THE CIRCULAR OF C BDT HAS ALSO BEEN CONSIDERED BY THE HONBLE KERALA HIGH COU RT IN ITS DECISION REFERRED TO ABOVE. ACCORDINGLY THE QUESTI ON REFERRED TO IS ANSWERED IN THE AFFIRMATIVE AND IN F AVOUR OF THE ASSESSEE. 16. THE AFORESAID DECISION CLEARLY SUPPORTS THE PL EA OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ACCUMULATION U/S. 11(1)(A) OF THE ACT SHOULD BE ALL OWED AS CLAIMED BY THE ASSESSEE. 4.3.4 RESPECTFULLY FOLLOWING THE DECISION OF THE C O-ORDINATE BENCH IN THE CASE OF MARY IMMACULATE SOCIETY (SUPRA), WE HOL D AND DIRECT THE AO THAT THE ACCUMULATION U/S. 11(1)(A) OF THE ACT I S TO BE ALLOWED AT 15% OF GROSS RECEIPTS, AS CLAIMED BY THE ASSESSEE. CONSEQUENTLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 5. CLAIM FOR DEPRECIATION 5.1 IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD CLAIMED DEPRECIATION ON FIXED ASSETS. ON EXAMINATION THEREO F, THE AO WAS OBSERVED THAT THE ASSESSEE HAD CLAIMED DOUBLE DEDUC TION BY FIRST SHOWING THE OUTLAY FOR ACQUISITION OF THE CAPITAL A SSETS AS APPLICATION OF INCOME AND THEREAFTER, ALSO CLAIMED DEPRECIATION ON THE CAPITAL ASSETS. THE AO REJECTED THE ASSESSEES CLAIM OF DE PRECIATION PLACING RELIANCE ON THE DECISIONS OF THE HONBLE COURT IN T HE CASE OF ESCORTS AND ANOTHER VS. UOT & OTHERS (199 ITR 43) AND THE D ECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MED ICAL INSTITUTIONS ITA NO.884/B/16 16 (348 ITR 344) (KERALA). ON APPEAL, THE LD CIT(A) A LLOWED THE ASSESSEES CLAIM FOLLOWING, INTER ALIA, THE DECISIO N OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASES OF KARNATAKA RE DDY JANASANGHA IN ITA NO.220/BANG/2011; JYOTHI CHARITABLE TRUST IN 60 TAXMANN.COM 165, BANGALORE AND CITY HOSPITAL CHARITABLE TRUST I N 42 ITR (TRIB) 583, BANGALORE. 5.2 THE LD DR FOR REVENUE WAS HEARD IN SUPPORT OF T HE GROUND RAISED (SUPRA) AND PLACED RELIANCE ON THE ORDER OF THE AO ON THIS ISSUE. IT WAS SUBMITTED THAT THE EXPENDITURE INCUR RED ON ACQUISITION OF THE CAPITAL ASSET HAS ALREADY BEEN CLAIMED AS EXEMP T ON ACCOUNT OF APPLICATION OF INCOME AND THEREFORE DEPRECIATION ON CLAIMED ON CAPITAL ASSETS CANNOT BE ALLOWED AS IT WOULD AMOUNT TO ALLOWING THE ASSESSEE DOUBLE DEDUCTION. 5.3.1 ACCORDING TO THE LD AR FOR THE ASSESSEE THE I SSUE IN RESPECT OF THE CLAIM OF DEPRECIATION IS COVERED BY THE DECISIO N OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF DIT(E) VS. AL-A MEEN CHARITABLE TRUST AND OTHERS (383 ITR 517) (KAR) VIDE ORDER DAT ED 22/2/2016. THE LD AR ALSO INTER ALIA PLACED RELIANCE ON THE FO LLOWING DECISIONS OF THE CO-ORDINATE BENCH: (I) MOOGAMBIGAI CHARITABLE TRUST VS. ADDL. CIT (EX EMPTION) IN ITA NO.1224/BANG/2015 DATED 13/7/2016; (II) ITO EXEMPTION VS. SHARADDHA TRUST IN ITA NO.899/BANG/2016 DATED 7/4/2017, (III) JYOTHI CHARITABLE TRUST VS. DCIT (EXEMPTION) IN ITA NO.622/BANG/2015 DATED 14/8/2015. ITA NO.884/B/16 17 5.3.2 IT WAS SUBMITTED THAT THE ISSUE IN DISPUTE I. E CLAIM OF DEPRECIATION ON FIXED ASSETS IS ALSO COVERED BY TH E ABOVE ORDERS OF THE VARIOUS CO-ORDINATE BENCHES OF THIS TRIBUNAL. 5.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. WE FIND THAT THE ISSUE OF CL AIM OF DEPRECIATION BY A CHARITABLE TRUST U/S 11 OF THE ACT HAS BEEN CO NSIDERED AND HELD IN FAVOUR OF THE ASSESSEE BY VARIOUS CO-ORDINATE BENCH ES OF THIS TRIBUNAL AS CITED (SUPRA) AND ALSO BY THE HONBLE KARNATAKA HIGH COURT, IN THE CASE OF DIT(EXEMPTION) VS. AL-AMEEN CHARITABLE FUND TRUST & OTHERS (383 ITR 517) (KAR). IN THE CASE OF MOOGAMB IGAI CHARITABLE AND EDUCATION TRUST VS. ADIT (EXEMPTION), THE CO-OR DINATE BENCH IN ITS ORDER IN ITA NO.1224/BANG/2015 DATED 13/7/2016 AT PARA 11 THEREOF HAS HELD AS UNDER:- 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN A SERIES OF DECISIONS. IN THE CASE OF M/S CMR JANARDHANA TRU ST (SUPRA), THE TRIBUNAL HAS AGAIN CONSIDERED AND DECI DED THIS ISSUE IN PARAS 15 TO 17 ASUNDER: 15. WE HAVE HEARD THE SUBMISSIONS OF THE ID. OR, W HO RELIED ON THE ORDER OF CIT)A) AND THE DECISION OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF DIT(E) VS. ITA NO.884/B/16 18 CHARANJIV CHARITABLE TRUST (2014) 83 TAXMANN.COM 30 0 (DELHI). WE HAVE CONSIDERED THE ORDER OF THE CIT(A) . IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE IT AT BANGALORE BENCH IN THE CASE OF DDIT(E) V. CUTCHI ME MON UNION (2013) 60 SOT 260 BANGALORE ITAT, WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL, IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPREDATION AN D THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TI ME OF ACQUIRING THE RELEVANT CAPITAL ASSET, COST OF ACQUI SITION WAS CONSIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITION. THE AO TOOK THE VIEW THAT ALLOWING DEPREDATION WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTI ON AND PLACED RELIANCE ON THE DECISION OF HONBLE SUPR EME COURT IN ESCORTS LTD. (SUPRA), THE CIT(A) HOWEVER, ALLOWED THE CLAIM OF ASSESSES. 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 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 VALUE 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 ITA NO.884/B/16 19 COMPUTING SUCH INCOME, IT WAS SO HELD BY THE HON'BL 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) 33 0 ITR 16 (P&H) (2011) 238 CTR (P&H) 103 THAT DEPRECIATION CAN BE CLAIMED BY A CHARITABLE INSTITUTION IN DETER MINING PERCENTAGE OF FUNDS APPLIED FOR THE PURPOSE OF CHAR ITABLE OBJECTS. CLAIM FOR DEPRECIATION WILL NOT AMOUNT TO DOUBLE BENEFIT, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC) HAVE BEEN REFE RRED TO AND DISTINGUISHED BY THE HON'BLE COURT IN THE AFORE SAID DECISIONS. 21. THE ISSUE RAISED BY THE REVENUE IN THE GROUND O F APPEAL IS THUS NO LONGER RES INTEGRA AND HAS BEEN D ECIDED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF CIT VS. MARKET COMMITTEE, PIPLI, 330 ITR 16 (P&H ). THE HON'BLE PUNJAB & HARYANA HIGH COURT AFTER CONSIDERING SEVERAL DECISIONS ON THAT ISSUE AND ALS O THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F ESCORTS LTD. (SUPRA), CAME TO THE CONCLUSION THAT 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 HON'BLE PUNJAB & ITA NO.884/B/16 20 HARYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF ME HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD . (SUPRA) AND OBSERVED THAT THE HON'BLE 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 SCIENTIFIC RESEARCH U/S. 35(1)(IV) OF T HE ACT. THE HON'BLE COURT THEREAFTER HELD THAT A TRUST CLAI MING DEPRECIATION CANNOT BE EQUATED WITH A CLAIM FOR DOU BLE DEDUCTION THE HON'BLE PUNJAB & HARYANA HIGH COURT H AS ALSO MADE A REFERENCE TO THE DECISION OF THE HON'BL E KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ANNE, 146 ITR 28 (KAR), WHEREIN IT WAS H ELD THAT U/S. 11(1) OF THE ACT, INCOME 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 IS SUE, 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.' 16. IT IS NO DOUBT TRUE THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHARANJIV CHARITABLE TRUST (SUPRA) HAS TAKEN A CONTRARY VIEW BUT THEN WHEN TWO VIEWS ARE POSSIBLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO B E ITA NO.884/B/16 21 FOLLOWED, THE DECISION OF THE HON'BLE PUNJAB & HARY ANA HIGH COURT IS IN FAVOUR OF THE ASSESSEE AND HAS FOL LOWED THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SOCIETY OF SISTERS OF ANNE (SUPRA). THE INTERPRETATION TO THE CONTRARY GIVEN BY THE CIT(A) ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SOCIETY OF SISTERS OF ANNE (SUPRA) CANNOT THEREF ORE BE ACCEPTED. WE MAY ALSO ADD THAT THE LEGAL POSITION H AS SINCE BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY TH E FINANCE (NO.2) ACT, 2014 W.E.F 1.4.2015 BY INSERTIO N OF SUBSECTION (6) TO SECTION 11 OF THE ACT, WHICH READ S AS UNDER:- '(6) IN THIS SECTION WHERE ANY INCOME IS RE QUIRED TO BE APPLIED OR ACCUMULATED OR SET APART FOR APPLI CATION, 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 OTHER PREVIOUS YEAR. 17. AS ALREADY STATED, THE AFORESAID AMENDMENT IS PROSPECTIVE AND WILL APPLY ONLY FROM AX. 201546. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF THE VIEW THAT T HE ORDER OF THE CIT(A) HAS TO BE REVERSED. CONSEQUENTLY GROUNDS NO,4 & 5 RAISED BY THE ASSESSEE ARE ALLOWED. ITA NO.884/B/16 22 THERE IS NO DISPUTE THAT THE AMENDMENT OF SECTION 1 1(6) OF THE ACT BY THE FINANCE ACT, 2014 IS PROSPECTIVE W.E F. 1.42015 AND THEREFORE THE SAID AMENDED PROVISION IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION. FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL, W E DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE. 5.4.2 RESPECTFULLY FOLLOWING THE DECISION OF THE HO NBLE KARNATAKA HIGH COURT IN THE CASE OF AL-AMEEN CHARITABLE FUND TRUST & OTHERS (383 ITR 517), WHEREIN THE HONBLE HIGH COURT HAS D ISTINGUISHED THE DECISION OF THE HONBLE KERALA HIGH COURT IN LISSIE MEDICAL INSTITUTIONS (SUPRA) AND ALSO FOLLOWING THE DECISIO N OF THE CO-ORDINATE BENCH IN THE CASE OF M/S MOOGAMBIGAI CHARITABLE & EDUCATIONAL TRUST, IN ITA NO.1224/BANG/2015 DATED 13/7/2016, WE FIND NO MERIT IN THE GROUND RAISED BY REVENUE ON THIS ISSUE AND C ONSEQUENTLY UPHOLD THE ORDER OF THE LD CIT(A) IN DIRECTING THE AO TO ALLOW THE ASSESSEES CLAIM FOR DEPRECIATION. 6. CARRY FORWARD OF EXCESS APPLICATION OF INCOME F OR SET OFF AS APPLICATION AGAINST INCOME OF SUBSEQUENT YEARS 6.1 THE LD DR FOR REVENUE WAS HEARD IN SUPPORT OF T HE GROUND RAISED (SUPRA) AND SUBMITTED THAT CARRY FORWARD OF SURPLUS FUNDS FOR APPLICATION AGAINST INCOME IN SUBSEQUENT YEARS IS N OT PERMISSIBLE SINCE THERE IS NO SPECIFIC PROVISION IN THIS REGARD IN EITHER SECTIONS 11 AND 13 OF THE ACT WHICH ARE IN RESPECT OF ASSESSMEN T OF TRUSTS AND, ITA NO.884/B/16 23 THEREFORE, CONTENDED THAT ASSESSEES CLAIM BE REJEC TED. STRONG SUPPORT WAS PLACED TO THE ORDERS OF THE AO ON THIS ISSUE. 6.2 ACCORDING TO THE LD AR FOR THE ASSESSEE, THERE IS NO ERROR IN THE IMPUGNED ORDER OF THE LD CIT(A) ON THIS ISSUE, AS T HE ASSESSEE IS ENTITLED TO CARRY FORWARD THE EXCESS/SURPLUS APPLIC ATION OF FUNDS FOR SET OFF AS APPLICATION AGAINST INCOME OF SUBSEQUENT YEA RS. IT IS SUBMITTED THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF ITO (EXEMPTION) VS. SHRADDHA TRUST IN ITA NO.899/BANG/2 016 DATED 7/4/2017 CITY HOSPITAL CHARITABLE TRUST (2015) 42 I TR (TRIB) 583 BANGALORE AND JOYTHI CHARITABLE TRUST IN 60 TAXMANN .COM 165, BANGALORE. 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. WE FIND THAT THE ISSUE BEFOR E US OF CARRY FORWARD OF SURPLUS APPLICATION OF INCOME TO SUBSEQU ENT YEARS IS COVERED BY THE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF JYOTHI CHARITABLE TRUST (60 TAXMANN. COM 165) AND THE CASE OF ITO (EXEMPTION) VS. SHRADDHA TRUST IN ITA NO.899/BANG/2016 DATED 7/4/2017. IN THE CASE OF SH RADDHA TRUST (SUPRA) THE CO-ORDINATE BENCH AT PARA 8 OF ITS ORDE R HAS HELD AS UNDER:- 8. THE FINAL GROUNDS OF APPEAL RELATES TO CARRY FORWARD OF EXCESS APPLICATION OF INCOME TO SUBSEQUE NT YEARS. THIS ISSUE IS COVERED AGAINST THE REVENUE BY COORDINATE BENCH OF TRIBUNAL IN THE CASE OF DEPUTY ITA NO.884/B/16 24 1)/RECTOR OF INCOME-TAX VS. JYOTHY CHARITABLE TRUST (60 TAXRNAMM.COM 165). THE RELEVANT PART OF THE ORDER, IS REPRODUCED BELOW: 14. WE HAVE CONSIDERED HI SUBMISSION. SECTION 11(1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION T O THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITABLE PURPOSES A CONTEMPLATED IN SECTION 11(1 )(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJU STED TO MEET THE EXPENSES INCURRED FOR CHARITABLE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURPOSES HAVE BEEN INCURRED IN THE EARLIER YEARS A ND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT SEAR, THE INCOME OF SUCH SUBSEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIO N IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN O THER WORDS, THE SETOFF 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 L ATER SEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN T HE CASE OF CIT V. MAHARANA OF MEWAR CHARITABLE FOUNDATION [1987] 164 ITR 439/[1986] 29 TAXMAN 476 (RAJ) AND CIT VS. PLOT SWEATAMBER MURLI PUJAK JAIN MANDAL [1995[ 211 ITR 293 (GUJ.). IN CIT V, INSTIT UTE ITA NO.884/B/16 25 OF BANKING PERSONNEL SELECTION [2003] 264 ITR 110/131 TAXMAN 386 (BOM.) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11 , EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST INCOME AT SUBSEQUENT YEARS AND SU CH ADJUSTMENT WOULD TIE APPLICATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UNDER S. II IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ASST. DIT [2001] 248 ITR 368/[1999] 105 TAXMAN 719 (MAD.), THE HONBLE MADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUS T HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRINCIPLES, THAT S. II IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCURRED ON RELIGIOUS OR CHARITABLE PURPOSES IN EARLIER YEAR OR YEARS CAN HE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUEN T YEAR. THE PRINCIPLE THAT THE LOSS INCURRED TINDER O NE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FROM TH E SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITU RE INCURRED WAS FOR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDE NCE OF LOSS OF AN EARLIER YEAR BEING SET OFF AGAINST TH E PROFIT OF A SUBSEQUENT YEAR. THE OBJECT OF THE RELIGIOUS A ND ITA NO.884/B/16 26 CHARITABLE TRUST CAN ONLY HE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO INCUR THAT EXPENDITURE, THE TRUST SHOULD HAVE AN INCOME. SO LONG AS THE EXPENDI TURE 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 INC URRED IN AN EARLIER YEAR IS ADJUSTED AGAINST THE INCOME O F A LATER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD IN CURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES FR OM THE INCOME OF THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLIER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDIT URE HAD BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUE NT YEAR. THE EXPENDITURE THAT CAN BE SO ADJUSTED CAN O NLY HE EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RELIED ON THE DECISION IN THE CASE OF SOCIETY OF SISTER OF ST. ANNE (SUPRA). RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE A BOVE DECISION WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 6.3.2 FOLLOWING THE AFORESAID DECISION OF THE CO-OR DINATE BENCH IN THE CASE OF SHRADDHA TRUST IN ITA NO.899/BANG/2016 DATE D 7/4/2017, WE UPHOLD THE ORDER OF THE LD CIT(A) IN DIRECTING THE AO TO ALLOW THE ITA NO.884/B/16 27 ASSESSEES CLAIM FOR CARRY FORWARD OF SURPLUS APPLI CATION OF INCOME FOR SET OFF AS APPLICATION AGAINST INCOME OF SUBSEQUENT YEARS. CONSEQUENTLY, FINDING NO MERIT IN THIS GROUND RAISE D BY REVENUE, WE DISMISS THE SAME. 7. IN THE RESULT, REVENUES APPEAL FOR ASST. YEA R 2011-12 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH OCTOBER, 2017 . SD/- SD/- (SUNIL KUMAR YADAV) (JASON P BOA Z) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE DATED : 4/10/2017 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVA TE SECRETARY, ITAT, BANGALORE.