ITAT - BANGALORE

SRI JNANAKSHI EDUCATIONAL ... VS INCOME TAX OFFICER (EXEMPTION)... ON 27 JUNE, 2018

ITA.751 & 552/BANG/2017

Summarised Judgement (Scroll for Complete Judgement)

These are two appeals filed by the Revenue and the assessee respectively against the order of the CIT (A) -14, dt.27.12.2016, for the assessment year 2012-13.

Facts of the Case:

The facts of the case are, the assessee is a recognised and registered charitable trust entitled to exemption u/s.11 of the Act. While completing the assessment the AO, for the purpose of allowing statutory deduction of 15% reduced the amount applied for the objects of the trust from the gross receipts. Feeling aggrieved by this the assessee filed an appeal before the CIT (A).

Observation of AO:

The AO, in case of the appellant, has applied the principles of commercial accounting and identified the expenses such as salary, rent, establishment charges etc. as expenses incurred for earning the gross receipts. The AO has nowhere stated that these outgoings are expenditures for charitable purpose as mentioned in the ITAT order in ITA.751 & 552/Bang/2017 Page - 4 case of Jyothy Charitable Trust.

The AO's insistence on "book profit"/ "net income" simultaneously implies that the 85% expenses representing items debited to the I&E account as charitable application by the appellant, has, not been considered by the Hon'ble ITAT which has proceeded as if the application to charitable purpose is undisputed and the only dispute is whether the gross prior to such application or the net after reducing such application is to form the base for 15% surplus calculation.

Judgement:

It may be pertinent to mention here that the Hon'ble Supreme Court upheld the view of the Bombay High Court and has disagreed with the view taken by the Kerala High Court in the matter of Lissie Medical Institutions (supra). In view of the above, we do not find any merit in the appeal of the Revenue and accordingly the same is dismissed.

In the result, appeal of the assessee is allowed and the appeal of the Revenue is dismissed.

-------------------------------------------------

Complete Judgement

Income Tax Appellate Tribunal - Bangalore

SRI JNANAKSHI EDUCATIONAL ... VS INCOME TAX OFFICER (EXEMPTION)... ON 27 JUNE, 2018

ITA.751 & 552/BANG/2017

IN THE INCOME TAX APPELLATE TRIBUNAL

BENGALURU BENCH 'C', BENGALURU

BEFORE SHRI. INTURI RAMA RAO, ACCOUNTANT MEMBER

AND

SHRI. LALIET KUMAR, JUDICIAL MEMBER

I.T.A No.751/Bang/2017

(Assessment Year : 2012-13)

Income-tax Officer (Ex),

Ward - 3, Bengaluru ..........................Appellant

vs.

Shri. Jnanakshi Educational Institution Trust,

Sri Rajarajeshwarinagar, Bengaluru.............Respondent

PAN : AAATJ3472H

I.T.A No.552/Bang/2017

(In I.T.A.No.751/Bang/2017)

(Assessment Year : 2012-13)

(By the Assessee)

Assessee by : Shri. Ashok Kulkarni, Advocate

Revenue by : Dr. P. V. Pradeep Kumar, Addl. CIT

Heard on : 11.06.2018

Pronounced on : 27.06.2018

ORDER

PER LALIET KUMAR, JUDICIAL MEMBER :

These are two appeals filed by the Revenue and the assessee respectively against the order of the CIT (A) -14, dt.27.12.2016, for the assessment year 2012-13.

   

Grounds of the Revenue are as under :

Assessee's appeal :

02. The facts of the case are, the assessee is a recognised and registered charitable trust entitled to exemption u/s.11 of the Act. While completing the assessment the AO, for the purpose of allowing statutory deduction of 15% reduced the amount applied for the objects of the trust from the gross receipts. Feeling aggrieved by this the assessee filed an appeal before the CIT (A).

03. The CIT (A( has not granted any relief to the assessee. For the purpose of record, we may reproduce para 10.1 to 10.8 of the CIT (A), as under :

10.1 This question is not involved in the appellant's present matter since the AO has clearly held that he is not computing the income as per provisions of the IT Act, which would be operational in Chapter IV's head-wise consideration of income. Instead, the AO held that sec 11 and 13, coming as they do under Chapter III of the IT Act (which deals with income not forming part of total income), required a commercial determination of the income available for application to charitable purpose. For the ITAT "the issue to be decided as to whether for the purpose of computing accumulation of income of 15% u/s 11(1)(a) of the Act, one has to take the gross receipts or the gross receipts after expenditure for charitable purpose i.e net receipts." In the appellant's case the issue is different. It is of identifying the income as per commercial principles which would then be available for application to charitable purpose.

10.2 The AO, in case of the appellant, has applied the principles of commercial accounting and identified the expenses such as salary, rent, establishment charges etc. as expenses incurred for earning the gross receipts. The AO has nowhere stated that these outgoings are expenditures for charitable purpose as mentioned in the ITAT order in ITA.751 & 552/Bang/2017 Page - 4 case of Jyothy Charitable Trust. The AO's insistence on "book profit"/ "net income" simultaneously implies that the 85% expenses representing items debited to the I&E account as charitable application by the appellant, has, not been considered by the Hon'ble ITAT which has proceeded as if the application to charitable purpose is undisputed and the only dispute is whether the gross prior to such application or the net after reducing such application is to form the base for 15% surplus calculation.

10.3 As per the AO's understanding, the application as required u/s 11(1)(a) would also have to be determined with reference to the same income on which the 15% accumulation was calculated (for him the book profit represented this base). Contrary to the Hon'ble ITAT's understanding in Jyothy Charitable Trust the AO has not accepted the assessee's claim of accumulation at 15% out of gross income, but he has also not proceeded towards 15% of "income as computed in accordance with the provisions of the IT Act". He has only proceeded to "commercially determined income" which is the understanding underlying all the orders of the Hon'ble Apex Court discussed above. From this fundamental rupture of understanding the conclusion of the Hon'ble ITAT that has followed, therefore, does not address the facts and issues in the appellant's matter. Hence, respectfully not followed.

10.4 In fact, there is no contradiction between the AO's position and the major observations of the Hon'ble ITAT in Jyothy Charitable Trust as evident from the following:

"Having found that trust is entitled to exemption under s.11(1), we are to go to the stage of income before application thereof and taken into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and not 'total income" as computed under the IT Act."

10.5 Since the issues are clearly distinguishable this case law is considered inapplicable in the present case. Since the Hon'ble ITAT considered the fact before it as being covered by the Apex Court's ITA.751 & 552/Bang/2017 Page - 5 decision in case of Programme for Community Organization the differentiation from the appellant's case is further sharpened.

10.6 An analysis of the statutory position, the judicial decision the arguments of the AO and the appellant point to the undisputed conclusion that three concepts are at the heart of this dispute-"Income" as used in section 11 and 12 without a specific definition; "total income as per IT Act" which is defined in section 2(45) and which, as per all judicial decisions discussed above is different from "income" of Section 11 and 12; "Income determined as per commercial principles" is the attribute given by the Courts, the departmental circular and the AO for understanding "income" as per section 11 and 12. It clearly emerges from the judicial decisions cited above that only this last income is the one available for application to charitable purposes.

10.7 If income is to be determined commercially the computation of income in terms of book profit by following normal commercial principle of prudence, matching concept etc. would be relevant. Following this approach we cannot support the assessee's view that expenses laid out/applied for earning income are to be considered as application of income. This issue has not been covered in any of the judicial decisions discussed above. The property held under Trust in the appellant case is the operational school and the net income available from the running of the institution would be available for application to charitable purpose.

10.8 In the light of the above discussion, I respectfully differ from the decision in the case laws cited above as well as the decision taken by my predecessor on this matter in many cases. I, accordingly, find no reason to interfere with the AO's order.

04. The Ld. AR has submitted that the issue is no more res integra and has been settled by the decision of the Tribunal in the case of Sri Rajarajeshwari Devasthana Trust v, ITO (Ex) -1 ITA.751 & 552/Bang/2017 Page - 6 [ITA.116/Bang/2015, dt.11.06.2015] and Public Education Society v. DDIT (Ex) [ITA.664/Bang/2015, dt.25.08.2015], wherein the Tribunal in both the decisions has relied upon the decision of the Hon'ble Supreme Court in CIT v. Programme for Community Organisation [248 ITR 1] and decided in favour of the assessee.

05. Per contra the Ld. DR relies upon the order passed by the lower authorities.

06. We have heard the rival contentions and gone through the record as also the decisions cited before us. In our view the issue is covered in favour of the assessee by virtue of the decisions of the Tribunal referred hereinabove and more particularly the judgment of the Hon'ble Supreme Court in the matter of Programme for Community Organisation (supra), wherein it is held as under :

3. The question that really requires consideration is whether, for the purposes of section 11(1)(a) of the Income-tax Act, 1961 ('the Act'), the amount for the grant of exemption of twenty-five per cent should be the income of the trust or it should be its total income determined for the purposes of assessment to income-tax. This question has to be answered in the light of these facts: the assessee-trust received donations in the aggregate sum of Rs. 2,57,376. It applied thereout for its charitable purposes the aggregate sum of Rs. 1,70,369 leaving a balance of Rs. 87,010. The question is whether the assessee is entitled to accumulate twenty-five per cent of Rs. 2,57,376, as it contends, or twenty-five per cent of Rs. 87,010, as the revenue appeared to contend. Section 11(1)(a) reads thus :

"11. Income from property held for charitable or religious purposes.--(1)(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 ITA.751 & 552/Bang/2017 Page - 7 accumulated or set apart is not in excess of twenty-five per cent of the income from such property;"

4. Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations, the assessee received, in the sum of Rs. 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the revenue contended that it was entitled to accumulate only twenty-five per cent of Rs. 87,010.

5. For the aforesaid reasons, the civil appeal is dismissed.

In view of the above, we find force in the contention raised by the Ld. AR. Therefore following the decisions of the coordinate bench as well as the binding judgment of the Hon'ble Supreme Court as above, we allow the ground raised by the assessee.

07. Assessee's appeal is allowed.

Revenue's appeal :

08. The first ground is in respect of carry forward of losses to the extent of Rs.2,95,64,190/-.

09. The Ld. DR has submitted before us that the assessee did not allow the carry forward of expenditure for adjustment against income of assessment years where surplus income was available and held that the exemption in terms of Section 11, 12 and 13 / 10(23C) would be allowable only for application against current year's income. For that purpose, the Ld. DR relies upon Section 11 to 13 of the Act which does not expressly allow the carry forward of losses in respect of a particular year/ ITA.751 & 552/Bang/2017 Page - 8

10. Per contra, the Ld. AR relies upon the decision of the Tribunal in the matter of ACIT v. City Hospital Charitable Trust [(2013) 42 ITR (Trib) 583], DCIT v. Manipal Academy of Higher Education [(2015) 44 ITR (Trib) 18], TMA Pai Foundation v. DIT [ITA.486 to 491/Bang/2009, dt.16.02.2009]. In the matter of Manipal Academy (supra) in paras 11 to 12.1 has held as under :

11. We have heard the rival submissions as well as relevant material on record. So far as the facts relating to this issue of claim of depreciation are concerned, there is no dispute that the assessee incurred an expenditure for acquisition of the asset to the tune of Rs.411,14,20,599/- and claimed the same as application of income. There is no dispute before us on the said claim of application of income. Since the assessee also claimed depreciation of Rs.70,40,56,376/-on such capital asset the AO disallowed the claim of depreciation on the ground that it would amount to double deduction. We find that the Hon'ble Kerala High Court in case of Lissie Medical Institute (supra) held that the claim of depreciation on capital expenditure for acquiring of the asset would amount to double deduction when the assessee has already claimed the said capital expenditure as application of income. We find that in a series of other judgments including the judgments of the Hon'ble Bombay High Court and Hon'ble Punjab & Haryana High Court as well as the other decisions as relied upon by the learned AR, a contrary view has been taken by holding that the claim of depreciation on the capital expenditure would not amount to double deduction even if the said capital expenditure was claimed as deduction on account of application of income. Thus, it is clear that there are divergent views by different High Courts on this issue however, the judgment and rulings of the jurisdictional High Court is binding on this Tribunal. In case of Society of the Sisters of St. Anne (supra) the Hon'ble jurisdictional High Court while dealing with the issue of allowability of claim of depreciation has held as under;

'13. It is clear from the above provisions that the income derived from property held under trust cannot be the total income because s. 11(1) says that the former shall not be included in the latter, of the perosn in receipt of the income. The expression "total income" has been defined under s. 2(45) of the Act to mean "the total amount of income ITA.751 & 552/Bang/2017 Page - 9 referred to in s. 5 computed in the manner laid down in this Act". The word "income" is defined under s. 2(24) of the Act to include profits and gains, dividends, voluntary payment received by trust, etc. It may be noted that profits and gains are generally used in terms of business or profession as provided u/s. 28. The word "income", therefore, is a much wider term than the expression "profits and gains of business or profession". Net receipt after deducting all the necessary expenditure of the trust (sic).

14. There is a broad agreement on this proposition. But still the contention for the Revenue is that the depreciation allowance being a notional income (expenditure ?) cannot be allowed to be debited to the expenditure account of the trust. This contention appears to proceed on the assumption that the expenditure should necessarily involve actual delivery of or parting with the money. It seems to us that it need not necessarily be so. The expenditure should be understood as necessary outgoings. The depreciation is nothing but decrease in value of property through wear, deterioration or obsolescence and allowance is made for this purpose in book keeping, accountancy, etc. In Spicer & Pegler's Book-keeping and Accounts, 17th Edn., pp. 44, 45 & 46, it has been noted as follows :

"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 its effective lifetime; the amount of the provision, made in respect of an accounting period, is intended to represent the proportion of such expenditure, which has expired during that period."

"At the end of its effective life, the assets ceases to earn revenue, i.e., the capital value has expired and the asset will have to be replaced or a substitute found. Provision for depreciation is the setting aside, out of the revenue of an accounting period, the estimated amount by which the capital invested in the asset has expired during that period. It is the provision made for the loss or expense incurred ITA.751 & 552/Bang/2017 Page - 10 through using the asset for earning profits, and should, therefore, be charged against those profits as they are earned."

"If depreciation is not provided for, the books will not contain a true record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against the profits; having been purchased, the asset is, in effect, then hired by capital to revenue, and the true profit cannot be ascertained until a suitable charge for the use of the asset has been made. Moreover, unless provision is made for depreciation, the balance sheet will not present a true and fair view of the state of affairs; assets should be shown at a figure which represents that part of their value on acquisition, which has not yet expired."

15. In CIT v. Indian Jute Mills Association [1982] 134 ITR 68, the Calcutta High Court, while construing the expression "expenditure incurred" in s. 44A of the Act, observed : "depreciation claimed shall include the expenditure incurred."

16. There are only two recognised methods of accounting : (i) cash basis, and (ii) merecantile basis. Under the cash basis only cash transactions are recorded. It is only cash receipts and cash payments which find entries in the books of account. Mercantile system of accounting was explained by the Supreme Court in Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 at 230 in the following words :

"The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed."

17. It is not in dispute that if the mercantile system is followed, the depreciation allowance in respect of the trust property ITA.751 & 552/Bang/2017 Page - 11 should be allowed.

18. Mr. Srinivasan, however, urged that there are enough indications in s. 11 to exclude the mercantile system of accounting. The learned counsel relied upon s. 11(1)(a) and s. 11(4) in support of his contention. We do not think that there is anything in these sub-sections to support the contention of Mr. Srinivasan. Explanation to s. 11(1)(a), on the contrary, takes note of the income not received in a particular year. It lends support to the contention of the assessee that accounting need not be on cash basis only. Section 11(4) is not intended to explain how the accounts of the business undertaking should be maintained. It is intended only to bring to tax the excess income computed under the provisions of the I.T.Act in respect of business undertaking.

19. The depreciation if it is not allowed as a necessary deduction for computing the income from the charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The Board also appears to have understood the "income" u/s. 11(1) in its commercial sense. The relevant portion of the Circular No. 5-P (LXX-6) of 1968, dated July 19, 1968, reads : "Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word 'income' should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s. 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent. of the latter, if the trust is to get the full benefit of the exemption u/s. 11(1)."

20. In CIT v. Trustee of H. E. H. The Nizam's Supplemental Religious Endowment Trust [1981] 127 ITR 378, the ITA.751 & 552/Bang/2017 Page - 12 Andhra Pradesh High Court has accepted the accounts maintained in respect of the trust in conformity with the principles of accountancy for the purpose of determining the income derived from the property held in trust.

21. In CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 at 495, the Madras High Court observed :

"The income from the properties held under trust would have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by s. 14."

22. In the result, we answer the question in the affirmative and against the Revenue'.

12. A similar view has been taken by the Hon'ble Bombay High Court in the case of Institute of Banking (supra) as well as by the Hon'ble P&H High Court and in case of Manav Mangal Society (supra). The view taken in the case of Institute of Banking (Supra) has been re- affirmed by the Hon'ble Bombay High Court in the recent decision dated 23-03-015 in case of DIT(Exemption) v. Ville Parle Kelavani Mandal [2015] 378 ITR 593/232 Taxman 499/58 taxmann.com 288 Mumbai by observing inpara-6 as under;

"6. As far as question no.4 is concerned, this Court has repeatedly held that there is nothing like double deduction. When the assessee has acquired an asset from the income of the trust and thereafter the amount that is claimed is the depreciation on the use of the assets, such depreciation claim does not mean double deduction. The deduction earlier claimed is towards application of funds of the trust for acquiring assets. The latter is depreciation and it is permissible deduction considering the use of the assets. This has been clarified repeatedly by this Court. If any reference is required then the case of CIT v. Institution of Banking Personnel Selection (IBPS) [2003] 264 ITR 110/131 Taxman 386(Bom.) is enough". 12.1 Therefore, in view of the judgment of the Hon'ble jurisdictional High Court in case of Society of the Sisters of St. Anne (supra) as well as various decisions as relied upon by the learned AR, we have no reason to take a divergent view from the view taken by the co- ordinate bench of this Tribunal in case of Shri Adichunchunagiri Shikshana Trust (supra) as well as in case of City Hospital Charitable ITA.751 & 552/Bang/2017 Page - 13 Trust (supra), wherein the co-ordinate bench of this Tribunal has decided an identical issue in para-7 to 9 as under;

'7. We have heard the submissions of the ld. DR, who relied on the order of AO. We have considered the order of the AO. Identical issue ITA No.676/Bang/2014 Page 4 of 11 came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union [2013] 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of assessee. 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 deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. 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 while computing such income. It was so held by the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT v. Tiny Tots Education Society [2011] 330 ITR 21 (P&H), following CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable 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 referred to and distinguished by the Hon'ble Court in the aforesaid decisions.

21. The issue raised by the revenue in the ground of appeal ITA.751 & 552/Bang/2017 Page - 14 is thus no longer res integra and has been decided by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H). The Hon'ble Punjab & Haryana High Court after considering several decisions on that issue and also the decision of the Hon'ble Supreme Court in the case of 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 trusts in terms of section 11 of the Act. The Hon'ble Punjab & Haryana High Court made a reference to the decision of the 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 different 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 the Act. The Hon'ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon'ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held 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 issue, 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."

8. We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of sub-section (6) to section 11 of the Act, which reads as under:- "(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has ITA.751 & 552/Bang/2017 Page - 15 been claimed as an application of income under this section in the same or any other previous year."

9. As already stated, the aforesaid amendment is prospective and will apply only from A.Y. 2015-16. In view of the above legal position, we are of the view that the order of the CIT(A) does not call for any interference. Consequently grounds No.2 to 2.5 raised by the Revenue are dismissed'. Following the judgment of the Hon'ble jurisdictional High Court in case of Society of the Sisters of St. Anne (supra) as well as the decision of the co- ordinate bench of this Tribunal, we do not find any error or any illegality in the order of the CIT(A), qua this issue.

It was submitted by the Ld. AR that the decision of the coordinate bench is squarely applicable to the facts of the present case and hence this ground of the Revenue is required to be dismissed.

11. We have heard the rival contentions and perused the record. In our view the decision rendered by the Tribunal in the matter of Manipal Academy (supra) is squarely applicable to the facts of the case and we have no reason to deviate from the settled position of law. We dismiss this ground of the Revenue.

12. Ground.1 (b) and (c) pertains to disallowance of depreciation.

13. In this regard the Ld. DR submitted that the assessee has debited the depreciation of Rs.9,25,699/- to the Income and Expenditure account for AY 2011-12. AO was of the opinion that since the capital expenditure on the asset on which depreciation was claimed had already been allowed as application of income in the earlier years and therefore allowing the depreciation would amount to double benefit. The AO relied upon the judgment of the Hon'ble Supreme Court in the matter of Escorts Ltd [199 ITR 43] and also ITA.751 & 552/Bang/2017 Page - 16 on the Hon'ble Kerala High Court judgment in the matter of Lissie Medical Institutions v. CIT [(2012) 348 ITR 344].

14. Per contra, the Ld. AR relies upon the following decisions : Karnataka High Court :

• DIT (Ex) & Other v. Al Ameen Charitable Fund Trust [(2016) 383 ITR 517] 

• CIT Vs. Society of Sisters of St. Anne (1984) 146 ITR 28. ITAT, Bangalore in the case of

• Jyothy Charitable Trust (2015)60 taxman.com 165 dt. 11.06.2015. ACIT vs. Adi Chinchunagiri Shikshana Trust 775 Bang 2009

• DDIT(Exemptiosn) Vs. Cutchi Memon Union (2013) 38 taxman.com 276 dt. 14.08.2013 Other High Courts:

• CIT Vs. Market Committee Pipli (2012) 330 ITR 16 (P & H) 

• CIT Vs. Tiny Tots Education Society (2011) 330 ITR 21 (P & H)

• CIT Vs. Munisuvrat Jam (1994) TLR 1084 (Bombay HC)

• CIT Vs. Framjee Cawasjee Instititue 109 CTR 463 (Bombay)

• CIT Vs. Raipur Pallottine Society (1989) 180 ITR 571 (MP)

- No way to preserve corpus of trust.

• CIT Vs. Seth Manual Ranchoddas Vishram Bhavan Trust (1992) 198 ITR 598 (Guj)

• CIT Vs. Bheruka Public Welfare Trust (1999) 240 ITR 513 (Cal.) - followed Rao Calavala (Mad.)

• CIT Vs. Rao Bahadur Calavala Cunnan Chetty Charities 135 ITR 485 (Mad.) It was submitted by the Ld. AR that the issue is covered in favour of the assessee by virtue of the decision of the coordinate bench in Jyothy Charitable Trust (supra) and also by the recent judgment of the Hon'ble Supreme Court in the matter of CIT v. Rajasthan and Gujarati Charitable Foundation [(2018) 402 ITR 441].

15. We have heard the rival submissions and perused the record.

In our view after the categorical and authoritative pronouncement by the Hon'ble Supreme Court in Rajasthan and Gujarati Charitable Foundation (supra), wherein the Hon'ble Supreme Court while answering the question no.2 has held as under :

4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depreciation on those assets in computing the income of the Trust. The ITO held that depreciation could not be taken into account because, full capital expenditure had been allowed in the year of acquisition of the assets. The assessee went in appeal before the Assistant Appellate Commissioner. The Appeal was rejected. The Tribunal, however, took the view that when the ITO stated that full expenditure had been allowed in the year of acquisition of the assets, what he really meant was that the amount spent on acquiring those assets had been treated as 'application of income' of the Trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. This view of the Tribunal has been confirmed by the Bombay High Court in the above judgment. Hence, Question No. 2 is covered by the decision of the Bombay High Court in the above Judgment. Consequently, Question No. 2 is answered in the Affirmative i.e., in favour of the assessee and against the Department."

2. After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same.

3. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. CIT [2012] 24 taxmann.com 9/209 Taxman 19 (Mag.)/348 ITR 344 (Ker.)'.

4. It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.

5. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.

It may be pertinent to mention here that the Hon'ble Supreme Court upheld the view of the Bombay High Court and has disagreed with the view taken by the Kerala High Court in the matter of Lissie Medical Institutions (supra). In view of the above, we do not find any merit in the appeal of the Revenue and accordingly the same is dismissed.

16. In the result, appeal of the assessee is allowed and the appeal of the Revenue is dismissed.

Order pronounced in the open court on 27th day of June, 2018.

            Sd/-                                                       Sd/-

   (INTURI RAMA RAO)                               (LALIET KUMAR)

  ACCOUNTANT MEMBER                         JUDICIAL MEMBER

Bengaluru

Dated   : 27.06.2018

     Copy to:

     1. The assessee

     2. The Assessing Officer

     3. The Commissioner of Income-tax

     4. Commissioner of Income-tax(A)

     5. DR

     6. GF, ITAT, Bangalore

 By order

 Senior Private Secretary,

 Income Tax Appellate Tribunal,

 Bangalore.