2011-VIL-731-ITAT-IND
Income Tax Appellate Tribunal INDORE
IT APPEAL NOS. 516, 517, 529 AND 531 (IND.) OF 2010
Date: 17.08.2011
ASSISTANT COMMISSIONER OF INCOME TAX-1(1), BHOPAL
Vs
BHOPAL CAMPION SCHOOL SOCIETY
Keshave Saxena and Arun Dewan for the Appellant.
Anil Khabya for the Respondent.
BENCH
JOGINDER SINGH, R.C. SHARMA, JJ.
JUDGMENT
Joginder Singh, Judicial Member. –
This bunch of four appeals by the Revenue is directed against the different orders of the learned Commissioner of Income Tax (Appeals)-I, Bhopal, dated 15.4.2010, 15.4.2010, 15.4.2010 and 12.4.2010, respectively, on the common ground that on the facts and in the circumstances of the case, the ld. first appellate authority erred in directing the Assessing Officer to allow depreciation of Rs. 48,91,869/-, Rs. 49,71,180/-, Rs. 67,94,496/- & Rs. 1,96,75,742/-, respectively, as claimed by the respective assessee, which was correctly disallowed by the Assessing Officer relying on the decision of Apex Court in the case of Escorts Ltd./J.K. Synthetics Ltd. v. Union of India [1992] 65 Taxman 420/[1993] 199 ITR 43.
2. During the hearing of this appeal, we have heard Shri Keshave Saxena, CIT/DR along with Shri Arun Dewan, ld. Sr. DR and Shri Ajay Chajjed, Advocate and Shri Anil Khabya, Ld. Counsel for assessee. The crux of arguments on behalf of the Revenue is that in view of the decision from the Hon'ble Apex Court in the case of Escorts Ltd. (supra), no double deduction is allowable to the present assessees. On the other hand, the ld. representatives for the respective assessee contended that the Tribunal in the case of National Centre of Human Settlement & Environment v. Joint. CIT [IT Appeal No.163/(Ind.) of 2009 for assessment year 2006-07] & Bhopal School of Social Science v. Asstt. CIT [IT Appeal No.164 (Ind.) of 2009] vide order dated 19.6.2009 decided the issue in favour of the assessee by following the decision in Asstt. CIT v. M.P. Madhyam [IT Appeal No.712 (Ind.) of 2004], assessment year 2004-05 and Asstt. CIT v. Society of Pillar [IT Appeal No.59 (Ind.) of 2008, dated 18.7.2008], wherein, the decision in the case of Escorts Ltd. (supra), relied upon by the assessee, was also considered.
3. We have considered the rival submissions and perused the material available on file. Since the issue involved in all the appeals is identical, as canvassed by ld. representatives of both sides, these appeals were heard together, therefore, for the sake of convenience and brevity, the impugned appeals can be disposed of by this common and consolidated order. The brief facts are that the assessees are charitable societies/institutions/trusts claimed depreciation on the fixed assets amounting as mentioned hereinabove (as applicable to the respective appeal). The assessees were also granted registration u/s 12A of the Act. In their Income & Expenditure A/c, these assessees claimed depreciation of the impugned amounts on the ground that the assessee claimed cost of assets as an application of income u/s 11 of the Act. The stand of the Revenue is that such claim of depreciation on such assets tantamount to double deduction. The ld. Assessing Officer of the respective appeal placed reliance upon the decision from Hon'ble Apex Court in the case of Escorts Ltd. (supra) and disallowed depreciation. The respective assessee carried these assessments in appeal before the ld. first appellate authority wherein the issue was decided in favour of the assessees and is further under challenge before this Tribunal by the Revenue. Before coming to any conclusion, we are reproducing hereunder section 12A which prescribes conditions for applicability of section 11 & 12 of the Act.
12A. Conditions for applicability of sections 11 and 12.—(1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:—
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA :
Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,—
(i) from the date of the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;
(ii) from the 1st day of the financial year in which the application is made, if the Commissioner is not so satisfied:
Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;
(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the Commissioner and such trust or institution is registered under section 12AA;
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
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(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.
We are also reproducing here under section 11 of the I. T. Act, 1961 which deals with income from property held for charitable or for religious purposes.
11. Income from property held for charitable or religious purposes.—(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;
(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property;
(c) income derived from property held under trust—
(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and
(ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India:
Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;
(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.
Explanation.—For the purposes of clauses (a) and (b),—
(1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income;
(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount—
(i) for the reason that the whole or any part of the income has not been received during that year, or
(ii) for any other reason, then—
(a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and
(b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount,
may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.
(1A) For the purposes of sub-section (1),—
(a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:—
(i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain ;
(ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset;
(b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:—
(i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain;
(ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset.
Explanation.—In this sub-section,—
(i) "appropriate fraction" means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes;
(ii) "cost of the transferred asset" means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55;
(iii) "net consideration" means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(1B) Where any income in respect of which an option is exercised under clause (2) of the Explanation to sub-section (1) is not applied to charitable or religious purposes in India during the period referred to in sub-clause (a) or, as the case may be, sub-clause (b), of the said clause, then, such income shall be deemed to be the income of the person in receipt thereof—
(a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received; or
(b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.
(2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:—
(a) such person specifies, by notice in writing given to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years;
(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5):
Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded:
Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words "ten years" at both the places where they occur, the words "five years" had been substituted.
Explanation.—Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.]
(3) Any income referred to in sub-section (2) which—
(a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or
(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or
(c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof,
(d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10,
shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.
(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the Assessing Officer under clause (a) of sub-section (2):
Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of sub-section (3) of section 11:
Provided further that in case the trust or institution, which has invested or deposited its income in accordance with the provisions of clause (b) of sub-section (2), is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which such trust or institution was dissolved.
(4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes.
(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.
(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely :—
(i) investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government;
(ii) deposit in any account with the Post Office Savings Bank;
(iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank).
Explanation.—In this clause, "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);
(iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);
(v) investment in any security for money created and issued by the Central Government or a State Government;
(vi) investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government;
(vii) investment or deposit in any public sector company:
Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company,—
(A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company;
(B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such company;
(viii)deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India and which is eligible for deduction under clause (viii) of sub-section (1) of section 36;
(ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36;
(ixa)deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India.
Explanation.—For the purposes of this clause,—
(a) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;
(b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);
(c) "urban infrastructure" means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport;
(x) investment in immovable property.
Explanation.—"Immovable property" does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;
(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);
(xii) any other form or mode of investment or deposit as may be prescribed.
If both the aforementioned sections are kept in juxtaposition and analysed, sub-section (2) to section 11 speaks about application of 85% of income referred to in clause (a) or clause (b) of sub-section (1) read with Explanation to that sub-section to charitable or religious purposes out of accumulated income meaning thereby the society/institution or the trust, as the case may be, has to apply 85% of income of the previous year. If this provision is applied to the present appeals, we find that the ld. Assessing Officers himself/herself have mentioned that the statement of Income & Expenditure A/c was furnished by assessee wherein utilisation of funds was shown to be more than 85% before claim of depreciation. The relevant portion of the same is reproduced hereunder:
"During the course of assessment proceedings, the assessee was asked to furnish details of depreciation claimed. The assessee has submitted that -
The society is registered u/s 12AA of the IT Act. A Statement showing receipts and utilization of funds is enclosed. The utilization of the income is more than 85% before claim of depreciation."
However, the Assessing Officer did not controvert assessee's claim of utilisation of fund as per provisions of section 11 for the object of assessee's society. We ourselves have verified the application of income, for the objects of assessee's society, and found that same was in order in terms of section 11 of I.T. Act. In view of the aforementioned uncontroverted finding, one clear fact is oozing out that the assessees have duly complied with the provisions of section 11(2) of the Act. So far as charitable nature is concerned, the present assessees have already been granted registration u/s 12A of the Act and the same is still continuing. It is not the case that depreciation has been claimed by the assessee to cover up the application of income as specified under the Act. If that would have been case then the contention raised by the Revenue would have some force. We are hundred per cent in agreement with the contention of the ld. CIT/DR that there should be no double deduction but in the present appeals, there is no double deduction because the requirement of the Act is application of income within specified limit but in the present appeals, the claim of depreciation is after application of more than 85% of the income, therefore, the claim of depreciation has remained for academic interest only.
4. Even otherwise, depreciation allowance is a concession granted by the State in the computation of income based on many factors relevant to the wholesome fiscal administration. Depreciation represents the diminution in the value of an asset when applied to the purpose of making profit or gain. Depreciation is thus related to an asset and is a notional loss as against actual loss in the sense of outgoing of a business, meaning thereby, depreciation is a statutory allowance not confined expressly to diminution in value of the asset by the reason of wear & tear only. A charitable trust is entitled to depreciation in respect of asset held by it. Our view is fortified by the decision from Hon'ble jurisdictional High Court in the case of CIT v. Raipur Pallottine Society [1990] 50 Taxman 233 (MP). Explanation 5 to section 32 (1) takes effect only on & from 1.4.2002 which was inserted by the Finance Act, 2001.
5. We further find from the application of income, while denying depreciation to the assessees by the ld. Assessing Officer, that in the case of Bhopal Companion School Society, as per Income & Expenditure A/c, though total income is Rs. 5,21,92,490/-. The Expenditure is Rs. 3,70,75,013/- and addition to fixed asset is Rs. 1,67,55,570/-, thus, the only amount remained with the assessee is Rs. 16,38,093/-. Thus, at this stage itself, the assessee has applied more than 85% of the income and the disallowance of depreciation is to the tune of Rs. 48,91,869/- which is after claim of application of income thereby it is not a case of double deduction. Identical is the situation in the case of remaining assessees. In view of these facts, we are of the considered opinion that since there is no double deduction, therefore, the decision in the case of Escort Ltd. (supra) is not applicable to the facts of the present appeals. The ld. CIT(A) while coming to a particular conclusion has followed various decisions from the Tribunal and even discussed the decision in the case of Escorts Ltd. (supra), therefore, we find no infirmity in the stand of the ld. CIT(A).
6. Even otherwise, we are aware that if section 11(1)(a) has been fully exploited and there is still accumulated income lack to be dealt with sub-section (2) of section 11 can be pressed in service and if it is complied with, such additional accumulated income beyond the prescribed percentage can also earn exemption u/s 11(2) of the Act as was held in Addl. CIT v. A.L.N. Rao Charitable Trust [1995] 216 ITR 697/83 Taxman 252 (SC). It is not correct to equate the word "applied" with the word "spent". If the Legislature intended that the amount actually be spent, there was nothing preventing it from using that word as was held in CIT v. Trustees of HEH, the Nizam's Charitable Trust [1981] 131 ITR 497/7 Taxman 178 (AP) & CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All). The 'accumulation' contemplated u/s 11(1)(a) has to be a conscious accumulation and not just a mass of unspent or unapplied profit. Additional condition by way of Explanation to section 11(2) inserted w.e.f. 1.4.2003 is intended to apply only to accumulations in excess of 15% u/s 11(2) and not to accumulations up to 15% u/s 11(1)(a). This view is fortified by the ratio laid down in DIT (Exemption) v. Bagri Foundation [2010] 192 Taxman 309 (Delhi), the ratio laid down in CIT v. Programme for Community Organisation [2001] 248 ITR 1/116 Taxman 608 (SC) and the ratio laid down in S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 230 ITR 636/96 Taxman 635 (SC). In order to satisfy the requirement of section 11(2)(b), the investment must necessarily come out to the current year's income. An investment made in the past obviously cannot satisfy this requirement. This view is further fortified from the decision in CIT v. Indian National Theatre Trust [2008] 305 ITR 149/169 Taxman 42 (Delhi). Therefore, in view of uncontroverted finding that the respective assessee duly complied with section 11(2) of the Act and the depreciation was claimed after application of more than 85% of income, therefore, we find no infirmity in the stand of the ld. CIT(A), consequently, these appeals of the Revenue are having no merit, therefore, dismissed.
Finally, the appeals of the Revenue are dismissed.
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