The order of the Bench was delivered by
Jason P. Boaz (Accountant Member)- This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)- 14, LTU, Bangalore dated June 30, 2016 for the assessment year 2006-07.
2. Briefly stated, the facts of the case are as under :
2.1 The assessee, an association of persons (trust) engaged in the promotion and development of cricket in the State of Karnataka, filed its return for the assessment year 2006-07 on October 31, 2006 declaring nil income. The case was taken up for scrutiny and the assessment was completed under section 143(3) of the Income-tax Act, 1961 (in short "the Act") vide order dated December 19, 2008 disallowing the depreciation claimed by the assessee by following the decision of the hon'ble Kerala High Court in the case of Lissie Medical Institutions v. CIT [2012] 348 ITR 344 (Ker).
2.2 Aggrieved by the order of assessment dated December 19, 2008 for the assessment year 2006-07, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals)-14, Bangalore challenging the Assessing Officer's action in disallowing the assessee's claim for depreciation. The learned Commissioner of Income-tax (Appeals) vide the impugned order dated June 30, 2016 allowed the assessee's appeal following, inter alia, the decision of the hon'ble Karnataka High Court in the case of DIT (Exemptions) v. Al-Ameen Charitable Fund Trust [2016] 383 ITR 517 (Karn) ; [2016] 67 taxmann.com 160 (Kar).
3. 3.1 The Revenue, being aggrieved by the order of the Commissioner of Income-tax (Appeals)-14, Bangalore, has preferred this appeal raising the following grounds challenging the learned Commissioner of Income-tax (Appeals)'s order in allowing the assessee's claim of depreciation :
Disallowance of depreciation :
(i) The Commissioner of Income-tax (Appeals) has failed to appreciate the fact that the hon'ble Kerala High Court in the case of Lissie Medical Foundation v. CIT [2012] 348 ITR 344 (Ker) has held that depreciation cannot be allowed on assets, where the cost of such assets has already been allowed as depreciation of income in the year of acquisition/purchase of asset.
(ii) The Commissioner of Income-tax (Appeals) has failed to appreciate that the hon'ble Supreme Court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 43 (SC), while dealing with the issue of allowance of expenditure on scientific research under section 35(1)(iv) (corresponding section 10(2)(xiv) of the Indian Income-tax Act, 1922) held that any expenditure of a capital nature (or incurred towards purchase of capital assets) on scientific research allowed as deduction under section 35(1)(iv) cannot be allowed once again as deduction in the form of depreciation on such capital assets. While doing so, it was observed by the hon'ble Supreme Court that no Legislature could have at all intended a double deduction in regard to the same business outgoing and if it is intended, it would be clearly expressed in the statute itself. Accordingly, it was held that even in the absence of clear satisfactory indication to the contrary, the statute should not be read so as to permit an assessee two deductions i.e., once in the form of expenditure incurred towards purchase of capital assets and secondly, in the form of depreciation on such capital assets. It was also held that even before the amendment of the Act in the form of insertion of clause (iv) of sub-section (2) of section 35 by the Finance Act, 1980, prohibiting allowance of depreciation, the Act did not permit a deduction for depreciation in respect of cost of capital asset acquired for the purpose of scientific research to the extent such cost had been written off/claimed as deduction under section 35(1)(iv) on the ground that the amendment only set out more clearly and categorically what the provision intended even earlier.
(iii) The Commissioner of Income-tax (Appeals) has failed to appreciate the fact that the issue involved in respect of capital expenditure on scientific research under section 35(1)(iv) is similar to that of issue involved in respect of allowance of expenditure incurred towards purchase of capital assets for charitable purposes as application of income under section 11(1)(a). Accordingly. the law laid down by the hon'ble Supreme Court is squarely applicable to the taxation of charitable/religious trust or institution under sections 11, 12 and 13 of the Income-tax Act.
(iv) Though the Finance (No. 2) Act, 2014 has amended has amended the Income-tax Act, 1961, with regard to non-allowance of depreciation to charitable/religious trust or institution on the value of assets which has already been allowed as depreciation of income under section 11(1) by inserting sub-section (6) of section 11, with effect from April 1, 2015, such amendment cannot be construed as effective prospectively inasmuch as in accordance with the ratio laid down by the hon'ble Supreme Court in the case of Escorts Ltd. v. Union of India (supra), the amendment only set out more clearly and categorically what the Legislature had intended and conveyed under section 11(1) even earlier to the said amendment. As such, the amendment shall be considered as clarificatory in nature making it clear that the assessee is not entitled to claim double deduction in respect of some expenditure under section 11(1) as application of income and also depreciation simultaneously."
3.2 The learned Departmental representative for the Revenue was heard in support of the grounds raised (supra) and strong reliance was placed on the finding of the Assessing Officer ("the AO"), in the order of assessment for the assessment year 2006-07.
3.3 Per contra, the learned authorised representative for the assessee submitted that the issue in dispute, i.e., the assessee's claim for depreciation has been considered and is squarely covered in favour of the assessee by the binding decision of the hon'ble Karnataka High Court in the case of Al-Ameen Charitable Fund Trust [2016] 383 ITR 517 (Karn) (supra) which has been relied upon by the learned Commissioner of Income-tax (Appeals) to allow the assessee's appeal. Reliance was also placed on the decision of the co-ordinate Bench of this Tribunal in the case of Asst. CIT (Exemption) v. Vishwachetan Foundation IBMR [2016] 48 ITR (Tirb) 481 (Bang) (I. T. A. No. 957/Bang/2015 dated May 20, 2016).
3.4.1 We have heard the rival contentions and perused and carefully considered the material on record including the judicial pronouncements cited. The learned authorised representative has pointed out that the issue in dispute before us, is now covered by the decision of the hon'ble jurisdictional High Court of Karnataka in the case of Al-Ameen Charitable Fund Trust reported in [2016] 383 ITR 517 (Karn) ; [2016] 67 taxmann.com 160 (Karn). We find that the hon'ble jurisdictional High Court in the case of DIT (E) v. Al-Ameen Charitable Fund Trust (supra) has held that while acquiring the capital assets, what is allowed as exemption is the income out of which such acquisition is made and when depreciation deduction is allowed in the subsequent years, it is for the losses or expenses representing the wear and tear of such capital amount that is incurred. If the same is not allowed, then there is no way to preserve the corpus of the trust for deriving its income. While rendering this finding the hon'ble Karnataka High Court has distinguished the decision of the hon'ble Kerala High Court in the case of Lissie Medical Institutions [2012] 348 ITR 344 (Ker) and has followed its own decision in the case of CIT v. Society of Sisters of St. Anne [1984] 146 ITR 28 (Karn) and of the hon'ble apex court in the case of CIT v. Vatika Township P. Ltd. [2014] 367 ITR 466 (SC).
3.4.2 The relevant finding of the hon'ble High Court in the case of Al- Ameen Charitable Fund Trust (supra) in paragraphs 15 to 25 of the order are extracted hereunder (pages 522 to 528 of 383 ITR) :
"The question involved in this case is no more res integra. This question was considered by this court as far back as in the year 1984, in the case of Society of the Sister's of St. Anne (supra) wherein the Division Bench of this court has held thus (page 31 of 146 ITR) :
'9. It is clear from the above provisions that the income derived from property held under trust cannot be the total income because section. 11(1) says that the former shall not be included in the latter, of the person in receipt of the income. The expression "total income" has been defined under section 2(45) of the Act to mean "the total amount of income referred to in section 5 computed in the manner laid down in this Act". The word "income" is defined under section2(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 under section 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).
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 under stood 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 and Pegler's Book-keeping and Accounts, 17th Edn., pp. 44, 45 and 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."'
Similar view is taken by the other High Courts viz., Gujarat, Punjab and Haryana, Delhi, Madras, Calcutta and Madhya Pradesh in the following judgments :
(1) DIT (Exemption) v. Framjee Cawasjee Institute [2014] 227 Taxman 266 (Mag.)/49 taxmann.com 22 (Bom) ;
(2) CIT v. Raipur Pallottine Society [1989] 180 ITR 579 (MP) ; [1990] 50 Taxman 233 (MP) ;
(3) CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598 (Guj) ; [1993] 70 Taxman 228 (Guj)
(4) CIT v. Bhoruka Public Welfare Trust [1999] 240 ITR 513 (Cal)/106 Taxman 311 (Cal)
(5) CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad) and
(6) CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P&H)
Allowing depreciation in subsequent years, on the capital asset, which has already availed the benefit of deduction in computing the income of the trust in the year of its acquisition is considered by the Punjab and Haryana High Court in the case of Market Committee, Pipli (supra) and held thus (page 20 of 330 ITR) :
'In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by learned counsel for the Revenue. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. The judgment of the hon'ble Supreme Court in Escorts Ltd., (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the asses see.'
The High Court of Bombay in the case of CIT v. Institute of Banking [2003] 264 ITR 110 (Bom) after placing reliance on the judgment of CIT v. Munisuvrat Jain [1994] Tax LR 1084 (Bom) on an identical issue held (page 114 of 264 ITR) :
'In that matter also, a similar argument, as in the present case, was advanced on behalf of the Revenue, namely, that depreciation can be allowed as deduction only under section 32 of the Income-tax Act and not under general principles. The court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income-tax Act. The court rejected the argument on behalf of the Revenue that section 32 of the Income-tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a charitable trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income-tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the trust. In view of the aforestated judgment of the Bombay High Court, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Department.'
The judgment in Escorts Ltd.'s (supra) was rendered by the apex court in the context of section 10(2)(vi) and section 10(2)(xiv) of the 1922 Act or under section 32(1)(ii) and section 35(2)(iv) of the 1961 Act. It was the case of the assessee claiming a specified percentage of the written down value of the asset as depreciation besides claiming deduction in 5 consecutive years of the expenditure incurred on the acquisition of the capital asset used for scientific research. In such circumstances, the apex court held thus (page 57 of 199 ITR) :
'There is an apparent plausibility about these arguments, particularly in the context of the alleged departure in the language used in section 10(2)(xiv) from that employed in section 20 of the U. K. Finance Act, 1944. We may, however, point out that the last few underlined words of the English statute show that there is really no difference between the English and Indian Acts ; the former also in terms prohibits depreciation only so long as the assets are used for scientific research. In our opinion, the other provisions of the Act to which reference has been made-some of which were inserted after the present controversy started-are not helpful and we have to construe the real scope of the provisions with which we are concerned. We think that all misconception will vanish and all the provisions will fall into place, if we hear in mind a fundamental, through 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) under the 1922 Act or under sections 32(1)(ii) and 35(2)(iv) of the 1961 Act-qua the same expenditure. Is then the use of the words "in respect of the same previous year" in clause (d) of the proviso to section 10(2)(xiv) of the 1922 Act and section 35(2)(iv) of the 1961 Act contra-indication which permits a disallowance of depreciation only in the previous years in which the other allowance is actually allowed. We think the answer is an emphatic 'no' and that the purpose of the words above referred to is totally different. If, as contended for by the assessees, there can be no objection in principle to allowances being made under both the provisions as their nature and purpose are different, then the interdict disallowing a double deduction will be meaningless even in respect of the previous years for which deduction is allowed under section 10(2) (xiv)/section 35 in respect of the same asset. If that were the correct principle. The assessee should logically be entitled to deduction by way of depreciation for all previous years including those for which allowance have been granted under the provision relating to scientific research. The statute does not permit this. The restriction imposed would, therefore, be illogical and unjustified on the basis suggested by the assessees. On the other hand, if we accept the principle we have outlined earlier viz., that, there is a basic legislative scheme, unspoken but clearly underlying the Act, that two allowances cannot be, and are not intended to be, granted in respect of the same asset or expenditure, one will easily see the necessity for the limitation imposed by the quoted words. For, in this view, where the capital asset is one of the nature specified, the assessee can get only one of the two allowances in question but not both.'
Section 11 of the Act deals with application of income different from revenue expenditure or allowance. Thus, the judgment of the apex court in the case of Escorts Ltd. (supra) is distinguishable and as such is not applicable to the charitable trusts where income is to be computed under Chapter III of the Act. Accordingly, the judgment of Lissie Medical Institutions case (supra) based on Escorts Ltd.'s case (supra), is not applicable to the facts of the present case.
It is also to be noticed that while in the year of acquiring the capital asset, what is allowed as exemption is the income out of which such acquisition of asset is made and when depreciation deduction is allowed in the subsequent years, it is for the losses or expenses representing the wear and tear of such capital asset incurred if, not allowed then there is no way to preserve the corpus of the trust for deriving its income as held in Society of the Sisters of St. Anne's case (supra). This judgment of the co-ordinate Bench of this court is binding on us and we have no reasons to disturb the settled position of law at this length of time/depart from the said reasoning. As such, the arguments advanced by the Revenue apprehending double deduction is totally misconceived.
Section 11(6) inserted with effect from April 1, 2015 by the Finance (No. 2) Act, 2014, 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 been claimed as an application of income under this section in the same or any other previous year.'
The plain language of the amendment establishes the intent of the Legislature in denying the depreciation deduction in computing the income of charitable trust is to be effective from April 1, 2015. This view is further supported by the Notes on Clauses in Finance (No.2) Bill, 2014, memo explaining the provisions and circulars issued by the Central Board of Direct Taxes in this regard. Clause No. 7 of the Notes on Clauses reads thus (see [2014] 365 ITR (St.) 103, 109) :
'Clause 7 of the Bill seeks to amend section 11 of the Income-tax Act relating income from property held for charitable or religious purposes. The existing provisions of the aforesaid section contain a primary condition that for grant of exemption in respect of income derived from property held under trust, such income should be applied for the charitable purposes in India, and where such income cannot be so applied during the previous year, it has to be accumulated in the prescribed modes. It is proposed to insert sub-sections (6) and (7) in the said section so as to provide that-
(i) 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 been claimed as an application of income under this section in any previous year, and
(ii) where a trust or an institution has been granted registration under clause (b) of sub-section (1) of section 12AA or has obtained registration at any time under section 12A (as it stood before is amendment by the Finance (No.2) Act, 1996) and the said registration is in force for any previous year, then, nothing contained in section 10 (other than clause (1) and clause (23C) thereof) shall operate to exclude any income derived from the property held under trust from the total income of the person in receipt thereof for that previous year.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years.'
The Memo explaining the provisions in Finance (No. 2) Bill, 2014 reads thus (see [2014] 365 ITR (St.) 149, 171) :
'The second issue which has arisen is that the existing scheme of section 11 as well as section 10(23C) provides exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation etc., is claimed and such amount of notional deduction remains to be applied for charitable purpose. Therefore, double benefit is claimed by the trusts and institutions under the existing law. The provisions need to be rationalised to ensure that double benefit is not claimed and such notional amount does not excluded from the condition of application of income for charitable purpose.'
Paragraphs 7.5, 7.5.1, 7.6 of the Central Board of Direct Taxes Circular reported in [2015] 371 ITR (St.) 22 makes it clear that the said amendment shall take effect from April 1, 2015 and will accordingly apply in relation to the assessment year 2015-16 and subsequent assessment years.
The Constitution Bench of the apex court in Vatika Township (P.) Ltd.'s case (supra), had laid down general principles concerning retrospectivity in paragraphs 33 and 34, and the same is extracted hereunder (page 487 of 367 ITR) :
'We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India v. Indian Tobacco Association [2005] 5 RC 379 ; [2005] 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra [2006] 6 SCC 289. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here.
In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.'
The apex court in the said judgment, while interpreting the proviso, whether to be applied retrospectively or prospectively, has considered the Notes on Clauses appended, the Finance Bill and the understanding of the Central Board of Direct Taxes in this regard. The apex court has also taken cognizance of the fact that the Legislature is fully aware of 3 concepts in so far as amendments made to a statute :
(i) prospective amendments with effect from a fixed date ;
(ii) retrospective amendments with effect from a fixed anterior date ; and
(iii) clarificatory amendments which are prospective in nature.
Keeping in view, the aforesaid principles enunciated by the apex court, in Vatika Township (P.) Ltd.'s case (supra), it would be safely held that section 11(6) of the Act is prospective in nature and operates with effect from April 1, 2015. This is further clarified when compared with certain other provisions which have been made retrospectively in the same Finance Act."
3.4.3 Respectfully following the judgment of the hon'ble jurisdictional High Court in the case of Al-Ameen Charitable Fund Trust (supra), we do not find any error or illegality requiring our interference in the impugned order of the learned Commissioner of Income-tax (Appeals), in allowing the assessee's claim for depreciation. Consequently, finding the grounds/appeal of the Revenue to be devoid of merit, we dismiss the same.
4. In the result, the Revenue's appeal for the assessment year 2006-07 is dismissed.