DCIT, Bangalore V. M/s National Educational Foundation, Bangalore

ITA 888/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7673 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 29-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K BIJU JT
• Assessee Lawyers: V CHANDRASEKHAR
• Keywords: Capital asset; Depreciation; Charitable institution; Capital expenditure
• Section: 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.888/BANG/2016 ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX (E), CIRCLE I, BANGALORE. VS. M/S. NATIONAL EDUCATIONAL FOUNDATION, NO.11/2, IBH PRAKASHANA, 2 ND FLOOR, NEW JHC COMPLEX, 5 TH MAIN ROAD, GANDHINAGAR, BANGALORE 560 009. PAN: AAATN 2782J APPELLANT RESPONDENT APPELLANT BY : SHRI M.K. BIJU, JT. CIT(DR)(ITAT) RESPONDENT BY : SHRI V. CHANDRASEKHAR, ADVOCATE DATE OF HEARING : 21.08.2017 DATE OF PRONOUNCEMENT : 24.08.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- I) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCE S, THE CIT(A) IS CORRECT IN LAW IN NOT CONSIDERING THE BOARD CIRC ULAR ON THIS ISSUE I.E. BOARD CIRCULAR NO. 12-(PXX-7 OF 1968} DA TED 26.11.1968, ON WHICH THE AO PLACED RELIANCE FOR DIS ALLOWANCE OF ACCUMULATION /SET APART OF INCOME U/S 11(L)(A), WHE REIN IT IS CLEARLY EXPLAINED THAT IF A TRUST FAILS TO COMPLY W ITH ACCUMULATION PROVISIONS U/S 11(2), THEN THE ENTIRE INCOME ACCUMU LATED WOULD BE LIABLE TO ASSESSMENT U/S 11(3), INCLUDING 15% OF INCOME SET APART OR ACCUMULATED U/S L1{L)(A), AND, THEREFORE, RENDERED A PERVERSE DECISION. ITA NO.888/BANG/2016 PAGE 2 OF 12 II) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW IN HOLDING THAT THE PROVISIONS OF SUB-SECTION (I) AND (2) OF SECTION 11 OPERATE INDEPENDENTLY, AND, T HEREFORE, DISALLOWANCE OF ACCUMULATION U/S 11(2) HAS NO EFFEC T ON ALLOWANCE OF 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-APART/ACCUMULATION ON TH E 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. 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 SURP LUS 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 FACT THAT IF THE GROSS RECEIPTS ARE CONSIDERED AS INCOME WITHIN THE MEANIN G 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(1)(A). ON THE OTHER HAND, IT IS NOT THE CASE OF THE ASSESSEE TO ARGUE THAT FOR THE PURPOSE OF CLAIMING 15% OF INCOM E SET- APART/ACCUMULATION, INCOME TO BE RECKONED ON THE BA SIS OF GROSS RECEIPTS, BUT IN THE EVENT OF ASSESSEE LOSING THE E XEMPTION, THE INCOME WILL BE RECOGNIZED ON THE BASIS OF NET SURPL US/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 MED ICAL INSTITUTIONS VS. C/T (348 ITR 344) HAS HELD THAT DE PRECIATION CANNOT BE ALLOWED ON ASSETS, WHERE COST OF SUCH ASS ETS HAS ALREADY BEEN ALLOWED AS APPLICATION OF INCOME IN TH E YEAR OF ACQUISITION/ PURCHASE OF ASSET. (II) THE CIT(A) HAS FAILED TO APPRECIATE THAT THE H ON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. & ANOTHER VS. UNION OF INDIA (199 ITR 43), WHILE DEALING WITH THE ISSUE OF ALLOWANCE ITA NO.888/BANG/2016 PAGE 3 OF 12 OF EXPENDITURE ON SCIENTIFIC RESEARCH U/S 35(L)(IV) [CORRESPONDING TO SECTION 10(2) (XIV) OF THE I.T. ACT, 1922] HELD THAT ANY EXPENDITURE OF A CAPITAL NATURE (OR INCURRED TOWARD S PURCHASE OF CAPITAL ASSETS) ON SCIENTIFIC RESEARCH ALLOWED AS D EDUCTION U/S 35(1)(IV) CANNOT BE ALLOWED ONCE AGAIN 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 LEGIS LATURE COULD HAVE AT ALL INTENDED A DOUBLE DEDUCTION IN REGARD T O THE SAME BUSINESS OUTGOING AND IF IT IS INTENDED, IT WOULD B E CLEARLY EXPRESSED IN THE STATUTE ITSELF. ACCORDINGLY, IT WA S HELD THAT EVEN IN ABSENCE OF CLEAR STATUTORY INDICATION TO CONTRAR Y, STATUTE SHOULD NOT BE READ SO AS TO PERMIT AN ASSESSEE TWO DEDUCTI ONS I.E. ONCE IN THE FORM OF EXPENDITURE INCURRED TOWARDS PURCHASE O F CAPITAL ASSETS AND SECONDLY, IN THE FORM OF DEPRECIATION ON SUCH CAPITAL ASSETS. IT WAS ALSO HELD THAT EVEN BEFORE THE AMEND MENT OF THE ACT IN THE FORM OF INSERTION OF CLAUSE (IV) OF SUB SECT ION (2) OF SECTION 35 BY FINANCE ACT, 1980, PROHIBITING ALLOWANCE OF D EPRECIATION, THE ACT DID NOT PERMIT A DEDUCTION FOR DEPRECIATION IN RESPECT OF COST OF CAPITAL ASSET ACQUIRED FOR THE PURPOSE OF S CIENTIFIC RESEARCH TO THE EXTENT SUCH COST HAD BEEN WRITTEN OFF/ CLAIM ED AS DEDUCTION. II) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW WITHOUT APPRECIATING THE FACT THA T THE ISSUE OF APPLICATION OF INCOME MORE THAN THE INCOME COMPUTED DOES NOT ARISE, EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCU RRED HUGE AMOUNT OF CAPITAL EXPENDITURE SOURCED OUT OF BORROW ED OR CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME. HOWEVER, EXPENDITURE INCURRED OUT OF THE ABOVE SOUR CES CANNOT BE TERMED AS APPLICATION OF FUNDS OUT OF THE INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR INASMUCH AS LOAN BORROWE D DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED BY THE ASS ESSEE, CORPUS FUND DONATION DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION L1(L)(D) AND 15% OF INCOME SET APART IN EARLIER ASS ESSMENT YEAR CANNOT BE CONSTRUED AS INCOME OF THE CURRENT YEAR A ND 15% SET APART OUT OF THE CURRENT YEAR INCOME IS ALSO EXCLUD ED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INCOME IS FULLY UTILIZED RATH ER THAN CLAIMING EXCESS EXPENDITURE EITHER REVENUE OR CAPITAL OVER A ND 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/C ORPUS FUND DONATIONS/15% SET APART OF EARLIER YEARS, THE INCOM E OF THE ITA NO.888/BANG/2016 PAGE 4 OF 12 ASSESSEE CANNOT BE CONVERTED 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. NET RECEIPTS VS. GROSS RECEIPTS I) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW IN NOT CONSIDERING THE BOARD CIRC ULAR ON THIS ISSUE I.E. BOARD CIRCULAR NO. 12-(PXX-7 OF 1968) DA TED 26.11.1968, ON WHICH THE AO PLACED RELIANCE FOR DIS ALLOWANCE OF ACCUMULATION /SET APART OF INCOME U/S 11(1)(A), WHE REIN IT IS CLEARLY EXPLAINED THAT IF A TRUST FAILS TO COMPLY W ITH ACCUMULATION PROVISIONS U/S 11(2), THEN THE ENTIRE INCOME ACCUMU LATED 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 DECISION U/S 35(1)(IV) ON THE GROUND THAT THE AMENDMENT ONLY SET OUT MORE CLEARLY AND CATEGORICALLY WHAT TH E PROVISION INTENDED EVEN EARLIER. III). THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ISSUE INVOLVED IN RESPECT OF CAPITAL EXPENDITURE ON SCIEN TIFIC RESEARCH U/S 35(1)(IV) IS SIMILAR TO THAT OF ISSUE INVOLVED IN RESPECT OF ALLOWANCE OF EXPENDITURE INCURRED TOWARDS PURCHASE OF CAPITAL ASSETS FOR CHARITABLE PURPOSES AS APPLICATION OF IN COME U/S L1(L)(A). ACCORDINGLY, THE LAW LAID DOWN BY THE HON 'BLE SUPREME COURT IS SQUARELY APPLICABLE TO TAXATION OF CHARITA BLE/ RELIGIOUS TRUST OR INSTITUTION 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 OF DEPRE CIATION TO CHARITABLE/ RELIGIOUS TRUST OR INSTITUTION ON THE V ALUE OF ASSETS WHICH HAS ALREADY BEEN ALLOWED AS APPLICATION OF IN COME U/S 11(1) BY INSERTING SUB-SECTION (6) OF SECTION 11, W .E.F 01.04.2015, SUCH AMENDMENT CANNOT BE CONSTRUED AS E FFECTIVE 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 CATEGORICALLY WHAT THE LEGISLATURE HAD INTENDED AND CONVEYED U/S 11(1) EVEN EARLIER TO THE SAID AME NDMENT. AS SUCH, THE AMENDMENT SHALL BE CONSIDERED AS CLARIFIC ATORY IN NATURE MAKING IT CLEAR THAT THE ASSESSEE IS NOT ENTITLED T O CLAIM DOUBLE DEDUCTION IN RESPECT OF SAME EXPENDITURE U/S 11(1) AS APPLICATION OF INCOME AND ALSO DEPRECIATION SIMULTANEOUSLY. ITA NO.888/BANG/2016 PAGE 5 OF 12 CARRY FORWARD OF EXCESS APPLICATION : I). WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT WITHOUT APPRECIATING THE FACT THAT THE N ORMAL COMPUTATION OF INCOME UNDER RESPECTIVE HEADS AS ENV ISAGED U/S 15 TO 59 ARE NOT APPLICABLE TO THE COMPUTATION OF I NCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PUR POSE OF CLAIMING EXEMPTION UNDER SECTION 11, 12 AND 13 AND; THEREFOR E, THE PROVISIONS RELATING TO SETOFF OF LOSS FROM ONE SOUR CE AGAINST THE INCOME FROM ANOTHER SOURCE, SET-OFF OF LOSS FROM ON E HEAD AGAINST INCOME FROM ANOTHER HEAD AND CARRY FORWARD AND SET- OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YEARS AS ENVISAGED U/S 70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS/IN STITUTIONS. II). WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE CIT(A) IS CORRECT IN LAW WITHOUT APPRECIATING THE FACT THAT T HE ISSUE OF APPLICATION OF INCOME MORE THAN THE INCOME COMPUTED DOES NOT ARISE, EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCU RRED HUGE AMOUNT OF CAPITAL EXPENDITURE SOURCED OUT OF BORROW ED OR CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME. HOWEVER, EXPENDITURE INCURRED OUT OF THE ABOVE SOUR CES CANNOT BE TERMED AS APPLICATION OF FUNDS OUT OF THE INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR INASMUCH AS LOAN BORROWE D DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED BY THE ASS ESSEE, CORPUS FUND DONATION DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION 11(1)(D) AND 15% OF INCOME SET APART IN EARLIER ASS ESSMENT YEAR CANNOT BE CONSTRUED AS INCOME OF THE CURRENT YEAR A ND 15% SET APART OUT OF THE CURRENT YEAR INCOME IS ALSO EXCLUD ED FROM INCOME AVAILABLE FOR APPLICATION. AS SUCH, THE CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INCOME IS FULLY UTILIZED RATH ER THAN CLAIMING EXCESS EXPENDITURE EITHER REVENUE OR CAPITAL OVER A ND 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/C ORPUS 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 MADE NIL. HENCE, THE CARRY FORWARD OF EXCESS APPLICATION OF INCOME AS CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED. 2. THOUGH THE GROUNDS RAISED BY THE REVENUE ARE OF ARGUMENTATIVE TYPE, BUT THE CONTROVERSY INVOLVED IN THIS APPEAL R ELATE ONLY WITH RESPECT TO ITA NO.888/BANG/2016 PAGE 6 OF 12 DISALLOWANCE OF DEPRECIATION, DENIAL OF CARRY FORWA RD DEFICIT OF CURRENT YEAR TO SUBSEQUENT YEARS AND ACCUMULATION U/S. 11(1)(A) ON NET INSTEAD OF GROSS RECEIPTS. 3. THE LD. DR HAS PLACED RELIANCE UPON THE ORDER OF THE AO, WHEREAS THE ASSESSEE PLACED RELIANCE ON THE CIT(A)S ORDER WITH THE SUBMISSION THAT THE CIT(A) HAS ADJUDICATED ALL THE ISSUES IN T HE LIGHT OF JUDGMENTS OF HON'BLE JURISDICTIONAL HIGH COURT AND OTHER HIGH CO URTS AND ALSO THE ORDER OF TRIBUNAL OF BANGALORE BENCH. 4. WITH REGARD TO ACCUMULATION U/S. 11(1)(A) ON NET INSTEAD OF GROSS RECEIPTS, WE FIND THAT THE CIT(APPEALS) HAS ADJUDIC ATED THE ISSUE IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF JYOTHY CHARITABLE TRUST IN ITA NO.662/BANG/2016 AND OTHER ORDERS OF THE TRIBUNAL, WHEREIN IT HAS BE EN HELD THAT ACCUMULATION IS TO BE COMPLETED U/S. 11(1 )(A) OF THE ACT ON GROSS RECEIPTS AND NOT ON NET RECEIPTS. THE RELEVANT OB SERVATION OF THE CIT(APPEALS) IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 3.2 IN VIEW OF THE DISCUSSION AS ABOVE, I AM, THE REFORE, IN AGREEMENT WITH THE AO THAT THE EXPENDITURE NECESSAR ILY INCURRED FOR EARNING THE EDUCATIONAL RECEIPTS NEEDS TO BE RE DUCED IN ORDER TO ARRIVE AT THE ACTUAL INCOME WHICH WAS AVAILABLE FOR APPLICATION TO CHARITABLE PURPOSES. THE ACCUMULATION HAS, THERE FORE, BEEN RIGHTLY CALCULATED AT 15% OF THE NET RECEIPTS. 3.3 HOWEVER, JURISDICTIONAL ITAT ORDER IN THE CASE OF M/S. JYOTHI CHARITABLE TRUST IN ITA NO. 662/BANG/2015 AN D ST. CHARLES MEDICAL SOCIETY NIRMAL HOSPITAL VS. DDIT(EX EMPTION) CIRCLE 17(2), BANGALORE IN ITA NO.364/BANG/2015 DT. 09.10.2015, MARY IMMACULATE SOCIETY ITA 240 & ITA NO.888/BANG/2016 PAGE 7 OF 12 241/BANG/2015 DECIDED THE SAME IN FAVOUR OF THE ASS ESSEE AND THE GROSS RECEIPTS SHOULD BE CONSIDERED AND NOT NET RECEIPTS. 3.4 THE DEPARTMENT HAS FILED AN SLP IN THE HON'BLE HIGH COURT ON SIMILAR ISSUE. RESPECTFULLY FOLLOWING THE JURISDICTIONAL ITAT ORDER, THIS GROUND OF ASSESSEE IS ALLOWED. 5. SINCE NO SPECIFIC ERROR IN THE ORDER OF CIT(APPE ALS) IS POINTED OUT, WE CONFIRM HIS ORDER. 6. WITH REGARD TO THE ISSUE OF DISALLOWANCE OF DEPR ECIATION, IT IS NOTICED THAT THAT THE CIT(APPEALS) HAS EXAMINED THE ISSUE I N THE LIGHT OF JUDGMENT OF KERALA HIGH COURT IN THE CASE OF DDIT(E) ERNAKULAM V. LISSIE MEDICAL INSTITUTION, 348 ITR 334 AND ALSO THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF DIT(E) V. CHARANJIV CHARITABLE TRUST, 223 TAXMAN 71 AND ALSO THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT V. SOCIETY OF THE SISTERS OF ST. ANNE , 146 ITR 28 (KAR) , BESIDES THE VARIOUS ORDERS OF TRIBUNAL IN WHICH IT HAS BEEN HELD THAT A SSESSEE IS ELIGIBLE FOR DEPRECIATION BESIDES EXEMPTION. THE RELEVANT OBSER VATIONS OF THE CIT(APPEALS) IS EXTRACTED HEREUNDER:- 4.1 FOLLOWING THE RATIO LAID DOWN IN THIS CASE, IT IS CLEAR THAT THE TRUST CANNOT BE ALLOWED TO CLAIM DEPRECIATION O N THE ASSETS, THE INVESTMENT ON WHICH HAS BEEN FULLY ALLOWED AS A PPLICATION OF INCOME UNDER SECTION 11 OF THE ACT IN THE EARLIER Y EARS. THIS ISSUE HAD ALSO COME UP BEFORE THE KERALA HIGH COURT IN TH E CASE OF DDIT (E) ERNAKULAM VS LISSIE MEDICAL INSTITUTION, ( 2012) 348 ITR 344 AND BEFORE THE DELHI HIGH COURT IN THE CASE OF DIT(EXEMPTION) VS. CHARANJIV CHARITABLE TRUST [2014 ] 223 TAXMAN 71, IN WHICH THE ISSUE HAS BEEN DECIDED AGAI NST THE ASSESSEE. IN BOTH THESE CASES THE MATTER BEFORE THE HON'BLE COURTS WAS SPECIFICALLY ON THE ISSUE OF CLAIM OF DEPRECIAT ION BY TRUSTS LEADING TO DOUBLE DEDUCTION IN RESPECT OF THE SAME ASSETS. IN THIS ITA NO.888/BANG/2016 PAGE 8 OF 12 REGARD THE HON'BLE DELHI HIGH COURT HAS CLEARLY HEL D THAT WHERE, IN CASE OF A TRUST COST OF ASSET HAS BEEN ALLOWED A S DEDUCTION BY WAY OF APPLICATION OF INCOME; THEN DEPRECIATION ON SAME ASSET CANNOT BE ALLOWED IN COMPUTATION OF INCOME OF TRUST . 4.2 CONSIDERING THE FACTS OF THE CASE AND THE RATI ON LAID DOWN BY THE HON'BLE COURTS, AS DISCUSSED ABOVE, GRANTING OF DEPRECIATION TO THE TRUSTS ON THE SAME ASSETS, THE INVESTMENT ON WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCO ME UNDER SECTION 11 OF THE ACT IN THE EARLIER YEARS, IN MY V IEW, WOULD CERTAINLY AMOUNT TO CLAIM OF DOUBLE DEDUCTION. 4.3 HOWEVER, THE APPELLANT HAS RELIED ON THE DECIS ION OF THE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF C IT V /S SOCIETY OF THE SISTERS OF ST. ANNE, REPORTED IN (1984) 146 ITR 28 (KAR). IN THIS CASE IT WAS HELD THAT - 'THE REVENUE HAD ASSUMED THAT EXPENDITURE SHOULD NECESSARILY INVOLVE ACTUAL DELIVERY OF OR PARTING W ITH THE MONEY. HOWEVER, IT NEED NOT NECESSARILY BE SO. EXPENDITURE SHOULD BE UNDERSTOOD AS NECESSARY OUTGOINGS. DEPRECIATION IS NOTHING BUT DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR AND TEAR, DETERIORAT ION OR OBSOLESCENCE AND ALLOWANCE IS MADE FOR THIS PURPOSE IN BOOK-KEEPING, ACCOUNTANCY, ETC. FURTHER, THERE ARE ONLY TWO RECOGNISED METHODS OF ACCOUNTING, CASH BASIS AN D MERCANTILE BASIS, AND IT IS UNDISPUTED THAT IF THE MERCANTILE SYSTEM IS FOLLOWED, DEPRECIATION ALLOWAN CE IN RESPECT OF THE TRUST PROPERTY WOULD BE ALLOWED. ALSO NOTWITHSTANDING THE REVENUE'S CONTENTION TO THE CON TRARY, THERE IS NOTHING IN SECTION 11 WHICH DEBARS A CHARI TABLE INSTITUTION FROM MAINTAINING ACCOUNTS ON MERCANTILE BASIS. THAT APART, IF DEPRECIATION IS NOT ALLOWED A S A NECESSARY DEDUCTION FOR COMPUTING THE INCOME OF THE CHARITABLE INSTITUTIONS, THEN THERE IS NO WAY TO PR ESERVE THE CORPUS OF THE TRUST FOR DERIVING THE INCOME. ACCORDINGLY, THE AMOUNT OF DEPRECIATION DEBITED TO T HE EXPENDITURE ACCOUNT SHOULD BE DEDUCTED TO ARRIVE AT THE ASSESSEE'S INCOME AVAILABLE FOR APPLICATION FOR CHA RITABLE AND RELIGIOUS PURPOSES'. 4.4 A SIMILAR VIEW IN THE MATTER WAS ALSO TAKEN BY THE HON'BLE ITAT, BANGALORE, IN THE CASE OF KARNATAKA REDDY JAN ASANGHA IN ITA NO. 220/BANG/2012 AND KARNATAKA STATE MUSLIM FE DERATION IN ITA NO. 37/BANG/2013. THEREFORE, KEEPING IN VIEW THE ITA NO.888/BANG/2016 PAGE 9 OF 12 PRINCIPLE OF JUDICIAL DISCIPLINE AND THEREFORE, RES PECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT, BANGALORE, IN THE CASE OF DDIT (EXEMPTIONS) V. CUTCHI MEMON UNION (SUPRA), JYOTHI CHARITABLE TRUST IN 60 TAXMAN.COM 165 BANGAL ORE, ACIT VS CITY HOSPITAL CHARITABLE TRUST IN 42 ITR (TRIB) 583 BANGALORE AND OTHER CASES STATED ABOVE, I HOLD THAT THE APPEL LANT IS ELIGIBLE FOR DEPRECIATION OF RS.4,16,23,162/- CLAIMED FOR TH E YEAR UNDER REFERENCE. THE GROUNDS OF APPEAL WITH REGARD TO ISS UE OF CLAIM OF DEPRECIATION, ARE ACCORDINGLY, ALLOWED. 7. SINCE NO SPECIFIC ERROR IN THE ORDER OF CIT(APP EALS) IS POINTED OUT, WE CONFIRM HIS ORDER. 8. WITH REGARD TO DENIAL OF CARRY FORWARD OF DEFICI T OF CURRENT YEAR TO SUBSEQUENT YEAR, IT IS NOTICED THAT THE CIT(APPEALS ) HAS EXAMINED THIS ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMEN TS IN WHICH IT HAS BEEN HELD THAT ASSESSEE IS ENTITLED TO CARRY FORWARD OF EXCESS AMOUNT SPENT TO SUBSEQUENT YEARS. THE RELEVANT OBSERVATION OF THE C IT(APPEALS) IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 5.2 I HAVE CONSIDERED THE APPELLANT'S SUBMISSION S AS ABOVE BUT AM UNABLE TO AGREE WITH IT SINCE THE EXCESS APPLICA TION COMPUTED IN ANY YEAR CANNOT BE CONSTRUED AS 'LOSS' IN THE MA NNER AKIN TO LOSSES COMPUTED UNDER THE HEAD 'INCOME FROM BUSINES S AND PROFESSION'. UNDER THE IT ACT ONLY THE LATTER IS AL LOWED TO BE CARRIED FORWARD FOR A CERTAIN NUMBER OF YEARS TO BE SET OFF AGAINST FUTURE PROFITS. AS PER THE PROVISIONS OF SECTIONS 1 1 TO 13 THERE IS NO SCOPE FOR COMPUTING ANY 'LOSS' FROM PROPERTY HEL D UNDER TRUST WHOLLY FOR CHARITABLE AND RELIGIOUS PURPOSES. THERE IS NO PROVISION ALSO FOR SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE, OR SET OFF OF LOSS FROM ONE HE AD AGAINST INCOME FROM ANOTHER HEAD. THE CARRY FORWARD AND SET OFF OF LOSS AGAINST INCOME OF SUBSEQUENT YEARS AS PER SECTION 7 0 TO 79 IS ALSO NOT PROVIDED FOR. ITA NO.888/BANG/2016 PAGE 10 OF 12 5.3 IN VIEW OF THE ABOVE IT APPEARS ERRONEOUS TO T RANSPORT THE CONCEPTS OF COMPUTATION OF 'INCOME FROM BUSINESS AN D PROFESSION' TO THE INCOME FROM PROPERTY HELD UNDER TRUST MERELY ON THE SUPERFICIAL ARGUMENT THAT THE INCOME IN THE LATTER CASE IS TO BE ARRIVED AT USING COMMERCIAL PRINCIPLES AND THAT THE LOSS, IF ANY, SHOULD ALSO BE ACCEPTED FOR FUTURE SET OFF. IN OTHE R WORDS, THE FACT OF COMPUTING INCOME AS PER COMMERCIAL PRINCIPLES DO ES NOT HAVE AN AUTOMATIC SIAMESE TWIN OF CARRY FORWARD OF LOSSE S AS CLAIMED BY THE APPELLANT, SINCE THE LATTER HAS TO BE EXPRES SLY PROVIDED FOR UNDER THE LAW. INFACT, THE LANGUAGE OF THE SECTION WHICH REFERS TO INCOME 'APPLIED' TO CHARITABLE/RELIGIOUS PURPOSE IN INDIA ALSO SUGGESTS THIS CONCLUSION. THE USE OF THE TERM 'APPL IED' IN THE PAST TENSE IS NOT ACCIDENTAL. INFACT, IT IS MEANT TO EXP RESS CLOSURE OF APPLICATION BY THE END OF THE FINANCIAL YEAR. IN FU TURE APPLICATION, AS CONTENDED BY THE APPELLANT, WAS ENVISAGED IN THE PROVISION THE APPROPRIATE WORDS TO BE USED WOULD BE 'TO BE APPLIE D'. 5.4 AS PER THE SCHEME OF SEC.11 THE COMPUTATION OF TOTAL INCOME BY THE AO IS A FIRST STEP AND THE APPLICATIO N OF INCOME FOR CHARITABLE PURPOSE IS THEREAFTER MADE EXEMPT. IF TH E LOSS OR DEFICIT AROSE IN THE COMPUTATION OF TOTAL INCOME I.E., IN T HE FIRST STAGE, THAT ALONE COULD BE CARRIED FORWARD. IN THE INSTANT MATTER, THE DEFICIT ARISES AS A RESULT OF EXCESS SPENDING FOR C HARITABLE PURPOSES. SUCH EXCESS CANNOT FORM PART OF THE TOTAL INCOME/LOSS AND HENCE THE SAME CANNOT BE CARRIED FORWARD. 5.5 A REVERSE CONNECTION AS EVIDENT FROM THE DECIS ION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. IND IAN NATIONAL THEATRE TRUST (2008) 305 ITR 149 ALSO SUPPORTS THIS CONCLUSION. AS PER THIS ORDER, FOR THE PURPOSE OF CLAIMING EXEM PTION U/S. 11(2), THE INCOME ACCUMULATED SHOULD BE DERIVED FRO M THE PROPERTY IN THE RELEVANT ASSESSMENT YEAR. THE EXEMP TION U/S, L1(L)(A) AND SEC.11(2) ARE INDEPENDENT AND THE ASSE SSEE CAN CLAIM EXEMPTION UNDER EITHER OF THESE TWO. IT IS, THEREFO RE, EVIDENT THAT THE SAME RATIO WILL EQUALLY APPLY WHEN A TRUST SEEK S EXEMPTION ON THE BASIS OF APPLICATION OF INCOME AS IT IS THE SAME INCOME WHICH IS SOUGHT TO BE ACCUMULATED. WHEN INCOME ACCU MULATED IN AN EARLIER YEAR CANNOT QUALIFY FOR EXEMPTION U/S.11 (2), THE EXCESS INCOME APPLIED IN EARLIER ASSESSMENT YEAR WILL ALSO NOT QUALIFY FOR EXEMPTION. 5.6 THE HON'BLE ITAT BOMBAY IN CASE OF ITO VS TRUS TEES OF SRI SATYA SAI TRUST (33 ITD 320) HAVE ALSO AFFIRMED THE AO'S ITA NO.888/BANG/2016 PAGE 11 OF 12 POSITION HOLDING THAT THE DEFICIT ARISING ON ACCOUN T OF APPLICATION OF FUNDS/SUMS WHICH ARE NOT IN THE NATURE OF INCOME IS NOT CAPABLE OF BEING CARRIED FORWARD. SIMILARLY, THE HO N'BLE ITAT DELHI IN PUSHPAVATI SINGHANIA RESEARCH INSTITUTE FO R LIVER, RENAL AND DIGESTIVE DISEASES VS DDIT (E) (29 SOT 316) HAV E HELD THAT ANY EXCESS EXPENDITURE INCURRED BY A CHARITABLE INS TITUTION IN EARLIER YEARS CANNOT BE ALLOWED TO BE CARRIED FORWA RD AND SET OFF AGAINST THE INCOME OF SUBSEQUENT YEARS. 5.7 CONSIDERING THE DISCUSSION IN THE PRECEDING PA RAGRAPHS AND THE JUDICIAL DECISIONS AS ABOVE, I FIND NO REAS ON TO INTERFERE WITH THE AO'S CONCLUSION IN THIS MATTER. HOWEVER, J URISDICTIONAL ITAT ORDER IN THE CASES OF ACADEMY OF LIBERAL EDUCA TION IN ITA NO. 687/B/14 DT. 20.02.2015 AND M/S. JYOTHY CHARITA BLE TRUST IN ITA NO. 662/BANG/2015 DT 11.06.2015 HAS HELD THAT T HE ASSESSEE IS ENTITLED TO CARRY FORWARD THE EXCESS OF AMOUNT S PENT TO THE SUBSEQUENT YEARS. 9. SINCE NO SPECIFIC ERROR IN THE ORDER OF CIT(APPE ALS) IS POINTED OUT, WE CONFIRM HIS ORDER. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF AUGUST, 2017. SD/- SD/- ( JASON P. BOAZ ) ( SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 24 TH AUGUST, 2017. / D ESAI S MURTHY / ITA NO.888/BANG/2016 PAGE 12 OF 12 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.