Director of IT v. Vishwa Jagriti Mission

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The Tax Publishers2012 TaxPub(DT) 1742 (Del-HC) : (2012) 045 (I) ITCL 0526 : (2013) 262 CTR 0558 : (2012) 073 DTR 0195 INCOME TAX ACT, 1961 --Charitable trust--Computation of incomeAllowability of depreciation--The assessee had declared gross receipts of Rs.12,44,11,646 on account of donations, profit on sale of land and bank interest. Against the gross receipts, the application of funds for charitable purposes was claimed on account of expenditure incurred towards the purposes of the trust. Accepting the position that some expenditure would have necessarily been incurred for earning the income, the assessing officer estimated the income at Rs.1 lac per month and thus allowed an expenditure of Rs.12 lacs against the gross receipts of Rs.12,44,11,646/- and arrived at the net taxable income of Rs. 12,32,11,650/-. Assessee claimed that in addition to the various expenses incurred for earning the receipts, the assessing officer ought to have allowed depreciation of Rs.36,53,818/- on fixed assets utilised for the charitable objects of the trust. Held: In computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. This court is not inclined to admit the appeal and frame any substantial question of law since none arises from the order of the Tribunal. There is no dispute that the assessee has been granted registration under section 12AA vide order dated 11-9-2009 and, therefore, it was entitled to exemption of its income under section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so, whether depreciation on fixed assets utilised for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(A) as well as the Tribunal. In CIT v. Society of the Sisters of St. Anme, an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the total incomeÃ¢â‚¬ as defined in section 2(45) and that the word incomeÃ¢â‚¬ is a wider term than the expression profits and gains of business or professionÃ¢â‚¬. Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. Circular No.5-P (LXX-6) of 1968, dated 19-5-1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. [Para 11] A similar view was earlier expressed by the Andhra Pradesh High Court in CIT v. Nizam's Suppl. Religious Endowment Trust (1981) 127 ITR 378 (AP) : 1981 TaxPub(DT) 297 (AP-HC) and by the Madras High Court in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad) : 1982 TaxPub(DT) 157 (Mad-HC). The Madhya Pradesh High Court in CIT v. Raipur Pallottine Society has held, following the judgment of the Karnataka High Court cited above, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came, to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. [Para 12] Having regard to the consensus of judicial opinion on the precise question that has arisen in the present appeal, Court is not inclined to admit the appeal and frame any substantial question of law. There does not appear to be any contrary view plausible on the question raised and at any rate, no judgment taking a contrary view has been brought to notice. In the circumstances, this court declines to admit the present appeal and dismisses the same with no order as to costs. [Para 14] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1742 (Del-HC) : (2012) 045 (I) ITCL 0526 : (2013) 262 CTR 0558 : (2012) 073 DTR 0195

INCOME TAX ACT, 1961

--Charitable trust--Computation of incomeAllowability of depreciation--The assessee had declared gross receipts of Rs.12,44,11,646 on account of donations, profit on sale of land and bank interest. Against the gross receipts, the application of funds for charitable purposes was claimed on account of expenditure incurred towards the purposes of the trust. Accepting the position that some expenditure would have necessarily been incurred for earning the income, the assessing officer estimated the income at Rs.1 lac per month and thus allowed an expenditure of Rs.12 lacs against the gross receipts of Rs.12,44,11,646/- and arrived at the net taxable income of Rs. 12,32,11,650/-. Assessee claimed that in addition to the various expenses incurred for earning the receipts, the assessing officer ought to have allowed depreciation of Rs.36,53,818/- on fixed assets utilised for the charitable objects of the trust. Held: In computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes.

This court is not inclined to admit the appeal and frame any substantial question of law since none arises from the order of the Tribunal. There is no dispute that the assessee has been granted registration under section 12AA vide order dated 11-9-2009 and, therefore, it was entitled to exemption of its income under section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so, whether depreciation on fixed assets utilised for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(A) as well as the Tribunal. In CIT v. Society of the Sisters of St. Anme, an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the total incomeÃ¢â‚¬ as defined in section 2(45) and that the word incomeÃ¢â‚¬ is a wider term than the expression profits and gains of business or professionÃ¢â‚¬. Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. Circular No.5-P (LXX-6) of 1968, dated 19-5-1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. [Para 11] A similar view was earlier expressed by the Andhra Pradesh High Court in CIT v. Nizam's Suppl. Religious Endowment Trust (1981) 127 ITR 378 (AP) : 1981 TaxPub(DT) 297 (AP-HC) and by the Madras High Court in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad) : 1982 TaxPub(DT) 157 (Mad-HC). The Madhya Pradesh High Court in CIT v. Raipur Pallottine Society has held, following the judgment of the Karnataka High Court cited above, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came, to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. [Para 12] Having regard to the consensus of judicial opinion on the precise question that has arisen in the present appeal, Court is not inclined to admit the appeal and frame any substantial question of law. There does not appear to be any contrary view plausible on the question raised and at any rate, no judgment taking a contrary view has been brought to notice. In the circumstances, this court declines to admit the present appeal and dismisses the same with no order as to costs. [Para 14]