Date: Tue, May 8, 2012 at 5:18 PM
Subject: Re: NashiCAs Case law please
To: nashicas@googlegroups.com
[2012] 21 taxmann.com 45 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'C'
GKR Charities
v.
Deputy Director of Income-tax (Exemptions)-I
N.S. SAINI, ACCOUNTANT MEMBER
AND VIKAS AWASTHY, JUDICIAL MEMBER
IT APPEAL NO.1812 (MDS.) OF 2011
[ASSESSMENT YEAR 2007-08]
APRIL 30, 2012
ORDER
N.S. Saini, Accountant Member - This is an appeal filed by the assessee against the order of the ld. CIT(A)-XII, dated 22.9.2011.
2. The sole grievance of the assessee in this appeal is that the ld.CIT(A) erred in confirming the disallowance of depreciation of Rs. 34,38,417/- made by the Assessing Officer while computing the income of the assessee-trust.
3. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee filed return of income for assessment year 2007-08 admitting NIL income after claiming deduction u/s 11 of the Act. The Assessing Officer, in his order u/s 143(3), while calculating the application of 85% of the trust's income, excluded the assessee's claim of depreciation as the entire capital expenditure itself was treated as application of income. He observed that allowance of depreciation u/s 11(1)(a) amounts to double deduction. Since the revenue expenditure after excluding the depreciation claim of the assessee and deferred revenue expenditure together with the capital expenses were more than 85% of the trust's income as per the provisions of section 11(1)(a) of the Act, the Assessing Officer allowed the assessee's claim being exemption of income and determined the taxable income at Rs. NIL.
4. Being aggrieved by the order of the Assessing Officer, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee by observing that the courts have held that the actual outgoings while earning income of the trust are to be taken into account while determining the income of the trust u/s 11 of the Act. Items like depreciation which are not the actual outgoings but a notional expenditure provided u/s 32 of the Act cannot form part of the allowable expenditure while computing the income of the trust for the purposes of section 11.
5. The ld. A.R of the assessee filed before us copy of the order of the Chennai Bench 'C' in the case of M/s Sri Rengalatchumi Educational Trust in I.T.A.No.681/Mds/2010 and others, order dated 25.3.2011, and submitted that the issue was covered in favour of the assessee by the said order of the Tribunal.
6. On the other hand, the ld. DR supported the orders of the lower authorities.
7. After considering the rival submissions and perusing the materials available on record, we find that the Tribunal in the above mentioned case, while deciding the similar issue, has allowed the claim of depreciation to the assessee by observing as under:
"5. We have perused the orders and heard the rival contentions. For the purpose of determining the income of a Trust eligible for exemption under Section 11 of the Act, income arising from property held under Trust, constitutes the income of the Trust. It will mean income from property, business, dividends, interest on securities or other interest. In other words, the income for the purpose of Section 11 of the Act is the income as per the accounts of the Trust. It means, income in the commercial sense, without reference to the heads of income, specified in Section 14 of the Act, i.e. the book income and not total income as defined in Section 2(45) of the Act. This position is confirmed in CIT v.Trustees of H.E.H. Nizam's Supplemental Religious Endowment Trust [1981] 127 ITR 378 (A.P.), CIT v. Rao Bahadur Calawala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad.) and CIT v. Estate of V.L. Ethiraj [1982] 136 ITR 12 (Mad.). This position is also confirmed by the CBDT vide its Circular No.5-P (LXX-6) dated 19th June, 1968. The concept of commercial income necessarily envisages deduction of depreciation on assets of the Trust. Depreciation on assets of a Trust is to be deducted for the purpose of calculating income of a Trust. This is because of the fact that the concept of commercial income necessarily envisages deduction of depreciation on assets of the Trust. Even reasonable depreciation on assets and interest on Sinking Fund or Repairs Reserve are to be deducted as held by the Mumbai Bench of this Tribunal in Balkan-Ji-Bari (1979) 2 Taxman 377 (Bom.). Hon'ble Bombay High Court had rejected a reference application of the Revenue in the case of CIT v. Framjee Cawasjee Institute[1993] 109 CTR 463, holding that the answer to the question whether depreciation was allowable to a charitable Trust was self-evident, even if the capital value of the assets on which depreciation was claimed had been allowed as a deduction under Section 11, as an application of income for religious or charitable purposes. Once again in CIT v.Institute of Banking Personnel Selection (IBPS) 264 ITR 110, Hon'ble Bombay High Court held that depreciation should be allowed even on assets, the cost of which had been allowed as exempt under Section 11 in the preceding years. Their Lordship also held that depreciation should be allowed even on assets received on transfer from another charitable Trust on which no cost was borne by the assessee Trust. Other High Courts which have also taken the view that depreciation is deductible are Hon'ble Karnataka High Court in the case of CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 and Hon'ble Madhya Pradesh High Court in the case of CIT v. Rajpur Pallottine Society [1989] 180 ITR 579. In CIT v. Seth Manilal Ranchhoddas Vishram Bhovan Trust [1992] 105 CTR (Guj) 303 it was held by Hon'ble Gujarat High Court that depreciation should be allowed while computing such income under Section 11(i)(a) of the Act. Assessing Officer's stand that 'provision of computation of income under Section 11' does not contain any provision which may entitle an assessee to claim weighted deduction for any expenses incurred' is not acceptable as Section 11 provides that the income of the Trust is to be computed on commercial basis i.e. as per normal accounting principles. Normal Accounting Principles clearly provide for deducting depreciation to arrive at income. Income so arrived at (after deducting depreciation) is to be applied for charitable purpose. Capital expense is application of the income so determined. So there is no double deduction or double claim of the same amount as application. Thus depreciation is to be deducted to arrive at income and it is not application of income. No doubt, Department has relied on the decision of the Supreme Court in the case ofEscorts Ltd. (supra). However, in this case the issue before Hon'ble Supreme Court was that whether both depreciation under Section 32 and capital expenditure on scientific research under Section 35(1)(iv) can be claimed as deduction. Reference to this decision cannot be drawn as in the case of Escorts (supra) both were deductions under the head 'business income' whereas in case of a charitable Trust depreciation is a deduction to arrive at income and capital expenditure is application of such income. The aforesaid decision in the case of Escorts Ltd. cannot be applied to determine taxable income for a Trust as the provisions to determine taxable income of the Trust are totally different and normal provisions for computing income under five heads cannot be applied. Thus the assessee is eligible for claiming depreciation for all these assessment years. The orders of the authorities below are set aside and the A.O. is directed to allow the claim of depreciation. "
8. The ld. DR could not point out any good reason not to follow the above order of the Tribunal. No distinguishing features could also be pointed out by him. He could not also bring any material on record to show that the above order of the Tribunal was reversed in appeal by the higher forum. Therefore, following the above quoted decision of the Tribunal, we set aside the orders of the lower authorities and delete the disallowance of the depreciation of Rs. 34,38,417/-.
9. In the result, the appeal of the assessee is allowed.
Dear All,Can anybody send me following case law ?Regards--
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