1994-VIL-62-ITAT-DEL

Equivalent Citation: ITD 050, 472, TTJ 050, 494,

Income Tax Appellate Tribunal DELHI

Date: 06.07.1994

MAHILA SIDH NIRMAN YOJNA.

Vs

INSPECTING ASSISTANT COMMISSIONER.

BENCH

Member(s)  : G.  AGARWAL., VIMAL GANDHI.

JUDGMENT

Per G.D. Agarwal, Accountant Member --These two appeals, one by the assessee and another by the revenue are directed against the order of CIT(A)-XIV, New Delhi. For the sake of convenience both the appeals are disposed of by this common order.

Departmental Appeal:

2. The only ground taken in the departmental appeal is as under:

"On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the depreciation is allowable during the year."

The assessee debited depreciation of Rs. 5,19,580 in the income and expenditure account. The Assessing Officer (hereinafter referred to as the AO) disallowed the claim of depreciation on the ground that the entire capital expenditure on acquiring fixed asset was allowable under section 11 in earlier years, therefore, the question of allowing depreciation does not arise.

3. On appeal, the CIT(A) directed the Assessing Officer to allow depreciation following the decision of the Hon'ble Delhi High Court in the case of Ghalib Institute [ITA No. 2314 (Delhi) of 1983] as also Karnataka High Court, in the case of CIT v. Society of Sisters of St. Anne [1984] 146 ITR 28. Against the order of CIT(A) revenue is in appeal before us.

4. At the time of hearing before us the learned DR relied upon the order of Assessing Officer and submitted that when the entire capital expenditure itself is allowable under section 11, in the year when fixed asset was acquired the disallowance of depreciation by the Assessing Officer was justified. She further submitted that again allowing of depreciation would amount to double deduction on the same asset.

5. On the other hand the learned counsel for the assessee submitted that depreciation is allowable in the case of trust and in this respect he relied upon the order of Karnataka High Court in Society of Sisters of St. Anne's case and Madhya Pradesh High Court--CIT v. Raipur Pallottine Society [1989] 180 ITR 579.

6. We have carefully considered the arguments of both the sides. In the case of Society of the Sisters of St. Anne's case, their Lordship of Karnataka High Court have held as under:

"If depreciation is not allowed as a necessary deduction for computing the income of a charitable institution, then there can be no way to preserve the corpus of the trust for deriving the income. Therefore, the amount of depreciation debited in the amounts of charitable institution is to be deducted to arrive at the income available for application to charitable and religious purposes."

The above view is followed by the Madhya Pradesh High Court in the case of Raipur Pallottine Society's case in which their Lordships have held :

"Depreciation is the exhaustion of the effective life of a fixed asset owing to "use" or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure incurred in acquiring the asset over the effective lifetime and the amount of provision made in respect of an accounting period is intended to represent the proportion of such expenditure which has expired during that period. If depreciation is not allowed as a necessary deduction in computing the income of a charitable trust. A charitable trust then there would be no way to preserve the corpus of the trust. A charitable trust is, therefore, entitled to depreciation in respect of the assets owned by it."

7. The DR did not bring to our notice any decision in which contrary view was taken. However, she argued that if an asset is already allowed as an expenditure in the year of acquisition of asset itself, depreciation cannot be allowed on the same asset. Her argument also finds support from the Hon'ble Supreme Court's decision in the case of Echjay Industries (P.) Ltd. v. Union of India [1993] 199 ITR 43. In that case their Lordships were examining the issue whether on the assets, which were used for scientific research and were allowed as an outgoing under section 35(1)(iv), can depreciation be allowed, in that year or in subsequent year. Their Lordships have held :

"There is a fundamental though unwritten axiom that no Legislature could have at all intended a double deduction in regard to the same business outgoing, and, if it is intended it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary the statute should not be read so as to permit an assessee two deductions--both under section 10(2)(vi) and section 10(2)(xiv) of the 1922 Act or both under section 32(1)(ii) and section 35(1)(iv) of the 1961 Act. These provisions mandate that the assessee should, in a case where the assessee qualifies for both the allowances, be granted the special allowance for scientific research and not the routine annual one for depreciation. Even before the 1980 Amendment, the 1961 Act did not permit a deduction for depreciation in respect of the cost of a capital asset acquired for purposes of scientific research to the extent that such cost had been written off under section 10(2)(xiv) of the 1922 Act or under section 35(1) and (2) of the 1961 Act, and there was no difficulty at all in the interpretation of the provisions. The 1980 Amendment has effected no change at all in the provisions except to set out more clearly and categorically what the provisions said even earlier."

That the ratio of the above case, squarely applies when entire value of asset is allowed as an expenditure under section 11. In that case the assessee will not be entitled to claim depreciation on same asset. However, the DR could not show us that full value of asset was in fact allowed under section 11 in the year of acquisition of asset. Merely because the entire value of asset is allowable as an expenditure under section 11, will not be sufficient to deny the claim of depreciation unless the value of asset had been actually allowed as an expenditure under section 11. If It has not been so allowed in the year of acquisition the assessee will be entitled to depreciation, as held by Hon'ble Karnataka and Madhya Pradesh High Courts in the decisions cited supra.

8. In view of above, we direct the Assessing Officer to verify in respect of each asset on which depreciation is claimed, whether the value of such asset was in fact allowed under section 11. If yes, then the depreciation will not be allowed on such asset. If the value of asset was not allowed as an expenditure under section 11, he will allow depreciation thereon as per rates applicable to those assets.

Assessee's appeal:

9. In assessee's appeal the assessee has taken eight grounds. However, the grounds were found to be argumentative and not in conformity with ITAT Rules. The assessee was asked to modify the same. The modified grounds of appeal are as under:

"1. That on the facts and in the circumstances of the case, the CIT(A) erred in holding that the appellant Trust does not satisfy the condition of section 12A of the Income-tax Act.

2. That on the facts and in the circumstances of the case, the CIT(A) erred in holding that the donation of Rs. 3,91,678 was not covered within the meaning of section 2(24)(iia) which is not attracted. The import of the CIT(A)'s order is not clear.

3. That on the facts and in the circumstances of the case, the CIT(A) should have held that the voluntary donation of Rs. 3,91,678 is not to be treated as the income of the Trust under section 12 as it was given as a corpus donation.

4. That on the facts of the case, the CIT(A) should have held that the Assessing Officer was not correct in holding that in no circumstances the corpus donation could be used for any on-capital expenditure of the Trust."

During the year under appeal, the assessee has received donation of Rs. 3,91,678 from a foreign organisation Association for the International World Plan Executive Counsel, Holland. It was claimed by the assessee that the foreign institution made the donation in the corpus of the society and hence this amount is not to be included in the total income. The assessee had filed copy of letter from the donor stating that donation was in the corpus of the society. The Assessing Officer treated this donation as income on the grounds:

(i) The trust is not yet registered under section 12A. Even the application for registration was delayed. The application was filed on 3-6-1981, while it should have been filed prior to February 1979.

(ii) The assessee has utilized the donation for meeting day-to-day obligation instead of keeping the same as capital. Thus we hold that the donation cannot be accepted as donation towards corpus. He also observed that donor and donee both institutions are meant to promote the Programmes' propounded by Maharishi Mahesh Yogi and therefore donor institution had given the donation towards corpus to save assessee (donee) from liabilities of income-tax.

10. Assessee's appeal on this point was rejected by CIT(A). The CIT(A) held that the character of appellant trust as to whether it is charitable or not is yet to be determined on the basis of its application under section 12A. In the circumstances the provision of section 2(24)(iia) are not attracted.

11. At the time of hearing before us it is pleaded by the assessee's counsel that the assessee has made an application for registration of trust under section 12A as back as on 3-6-1981. If the Department could not decide the said application in a period of 13 years, it is not the fault of the assessee. He further submitted that the Deptt. cannot take the advantage of its own Inaction. Regarding the utilization of corpus donation towards meeting day-to-day expenses it is submitted by him that the assessee is carrying on certain activities as per the object of the society. If for any reason, the receipt from those activities falls short of the expenditure on those activities, the short fall has to be met out from trust funds or donation towards corpus. He pointed out from balance-sheet that donation towards corpus are credited to trust fund account. He also submitted that allegation of the Assessing Officer that donor has given the donation towards corpus to save the assessee from liabilities of income-tax, is without any material on record and made only on the basis of presumption and suspicion. He also relied upon the decision of ITAT, Delhi Bench [IT appeal No. 2692 (Delhi) of 1988] in the case of Mahila Dhyan Vidya Peeth and Dharma Pratishthanam v. ITO [1985] 11 ITD 40.

12. On the other hand the learned DR relied upon the orders of authorities below. She submitted that unless the trust is registered under section 12A any receipt towards donation including donation towards corpus will be its income liable to income-tax.

13. We have carefully gone through the orders of authorities below, the judgments referred to and arguments of both the sides. Before deciding the issue it would be worth mentioning that all receipts are not income. It is only the receipt, which has the character of 'income' is chargeable to tax. The Income-tax Act, 1962 defines the word income in sub-section (24) of section 2. Its clause (iia) is the relevant clause which considers voluntary contribution received by trust. This clause at relevant time reads as under :

"2(24) - Income includes--

(i)

(ii)

(iia) Voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes not being contribution made with a specific direction that they shall form part of the corpus of the trust or institution."

Similar provision is in section 12 also which reads as under:

"12. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly."

From a plain reading of above two provisions it would be that voluntary contributions received by a trust are income subject to exception, i.e., contribution received towards corpus. To put it differently, all voluntary contributions received by the trust, other than contribution towards corpus, are income in the hands of recipient. We also find support from the decision of this Bench in the case of Dharma Pratishthanam's case. The Hon'ble Members after examining the issue in detail had held as under:

"It, therefore, follows by a combined reading of section 2(24)(iia) and section 12 that voluntary contributions received by a trust created wholly for charitable or religious purposes other than contributions made towards the corpus will be deemed to be the income derived from the property held under trust and the provisions of section 11 and section 13 are made to apply. Now even if voluntary contributions are received by a trust which are not specifically earmarked for the corpus, if they satisfy the requirements of section 11, they continue to enjoy the exemption provided for under section 11. To put it simply, a voluntary contribution received by a charitable or religious trust will earn exemption (a) if it is received with a specific direction that it forms part of the corpus of the trust, or (b) it satisfies the requirements of section 11. If either of these conditions are satisfied, the exemption from the levy of tax is available."

14. Now, coming to the point raised by the Assessing Officer and learned DR that since trust is not yet registered under section 12A, receipt of voluntary contributions towards corpus will be income liable to tax, we hold that even if the trust is not registered under section 12A, contributions toward 'corpus' is not liable to tax because the receipt (i.e., donation towards corpus) itself is not income. So claiming exemption under section 11 does not arise. Moreover, in this case, the assessee has applied for registration under section 12A as back as on 3-6-1981. It is claimed by the assessee that the said application is still pending and has not been disposed of so far. To verify the latest position this Bench has directed the learned DR on 15-3-1993 to ascertain and let them know what has happened to assessee's application under section 12A said to have been filed on 3-6-1981 and if it is still pending the CIT or the concerned authority should dispose it of. The learned DR informed that Bench on 28-7-1993 that in pursuance to Bench's direction a letter was written to Director of Income-tax (Exemption) on the same date, however, no reply is received by her so far. Even till the date of hearing before us i.e. 15-6-1994 the DR was unable to let us know the fate of application filed by the assessee. However, it is not denied by the Assessing Officer or the DR that the assessee filed an application on 3-6-1981. The Assessing Officer has observed in the order that the application filed by the assessee was late by more than an year. However, even if the application was late, it has to be disposed of. If the concerned authority was pleased not to condone the delay, he could have rejected the application. However by not deciding the application in number of years and denying the benefit to the assessee only on the ground that it is not registered, would be unfair. It would amount to giving punishment to the assessee on account of inaction of the Department.

15. Another contention of the revenue is that the utilization of the donation received towards corpus, for meeting day-to-day obligation will change the character of donation and make it liable for income-tax. This issue was also considered by this Bench in the case of Dharma Pratishthanam 11 ITD 40. After examining the issue in depth, it was held :--

"We have read the relevant sections carefully and we find nothing in those sections even remotely suggesting the above view. Section 2(24) when it provided that the voluntary contribution should be made with a specific direction that they shall form part of the corpus of the trust or institution, in order that it is not to be treated as income, it was laying emphasis on the wish, will and desire of the donor. The donor must grant it with a direction that it shall form part of the corpus. The section did not either by implication, or overtly or otherwise, enjoin upon the trust that the trustee shall retain it for even as corpus, even if when an occasion arises that in order to keep the trust alive and to prevent if from failure, it should not spend any amount out of it. If a donor donates money with a specific direction that it shall form part of the corpus, the trustee is expected to honour the wish of the donor. But if the trustee utilizes it for a different purpose, then it is a simple case of breach of trust for which delinquency, the trustee can be proceeded against under the Indian Trusts Act, 1882, or other appropriate legislation but that is not to say that for the misbehaviour of the trustee, the trust loses exemption under the Act."

16. In view of the above, we hold that the donation received towards corpus of Rs. 3,91,678 is not Income chargeable to tax.

17. The assessee has also filed an application for raising additional ground of appeal reading as under:

"On the facts and circumstances of the case Commissioner of Income-tax (Appeals) erred in holding that rest of the grounds of appeal were not pressed and dismissing them as withdrawn."

18. An affidavit of Shri Prem Prakash, CA who appeared before the CIT(A) on behalf of the assessee is also filed before us. In the affidavit he has deposed that he had not given up or withdrawn any grounds of appeal. It is submitted by the learned counsel that the additional ground be admitted and the CIT(A) may be directed to dispose of these grounds which were left by him undecided.

19. After hearing both the sides and without going into the controversy, whether or not the assessee's counsel had withdrawn those grounds, we feel, it would be in furtherance of justice to direct the CIT(A) to decide those grounds on merit, which were dismissed by him as not pressed. The DR also did not object to such proposition. Accordingly, we admit the additional ground and direct the CIT(A) to decide the grounds which were not decided by him as not pressed.

20. Both the appeals are disposed of as above.

 

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