Commissioner of Income Tax vs Tiny Tots Education Society

Adarsh Kumar Goel, J.—This appeal has been preferred by the Revenue u/s 260A of the Income Tax Act, 1961 (for short, ""the Act"")

against the order dated June 2, 2009 of the Income Tax Appellate Tribunal, New Delhi in I. T. A. No. 3182/Del/2008 for the assessment year

2006-07, proposing to raise the following substantial question of law:

Whether, on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was right in law in confirming the order of

the learned Commissioner of Income Tax (Appeals) in directing the Assessing Officer in allowing depreciation of Rs. 15,21,994 even though the

deduction u/s 11 was already allowed in respect of the same asset, which amounts to double deduction and is in contravention of the hon''ble

Supreme Court decision in the case of Escorts Limited and Others Vs. Union of India and others, .

The Assessee is registered u/s 12AA of the Act as a charitable institution. In its accounts, the Assessee calculated depreciation for the purpose

of showing the amount utilized. The Assessing Officer disallowed the depreciation on the ground that the Assessee being exempt, claim for

depreciation will amount to taking of double benefit. However, the Commissioner of Income Tax (Appeals) accepted the appeal of the Assessee.

It was held that deduction for computing income to preserve corpus of the trust was permissible and did not amount to double benefit. This view

has been upheld by the Tribunal with the following observations:

We have given careful thought to the submissions made before us. As already noted, the Assessee is a charitable institution and its income has

been taken to be fully exempt. Assessment has been made at nil income. In our view, the Assessee has not claimed any double deduction. The

provision relating to compulsory application of income is altogether a different concept and would come into play only after the income is

determined. Application of income is not computation of income of the charitable institution. Therefore, the question whether depreciation is to be

allowed or not has nothing to do with the application of income. Income is always to be computed on commercial principles and as per the system

of accounting followed by the Assessee, subject always to the statutory provisions.

We have heard learned Counsel for the Revenue and perused the record.

Learned Counsel for the Revenue submits that in view of the judgment of the hon''ble Supreme Court in Escorts Limited and Others Vs. Union

of India and others, , the Assessee could not claim deduction when its income was exempt, as it will amount to getting double benefit.

We are unable to accept the submission.

The matter was discussed in our recent judgment dated July 5, 2010 in I. T. A. No. 535 of 2009 CIT v. Market Committee, Pipli [2011] 330

ITR 16 (P and H). After referring to the judgments in Commissioner of Income Tax Vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust, and

Commissioner of Income Tax Vs. Institute of Banking Personnel Selection (IBPS), , Commissioner of Income Tax Vs. Rao Bahadur Calavala

Cunnan Chetty Charities, , Commissioner of Income Tax, Karnataka-I Vs. Society of the Sisters of St. Anne, and COMMISSIONER OF

Income Tax Vs. RAIPUR PALLOTTINE SOCIETY., , the judgment of the hon''ble Supreme Court in Escorts Limited and Others Vs. Union of

India and others, , was held not to be applicable to the situation where depreciation was claimed by a charitable institution in determining

percentage of funds applied for the purposes of charitable objects. It was observed (page 20 supra):

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 Limited and Others Vs. Union of India and others, 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 Assessee.

In view of the above, we are unable to hold that the questions proposed by the Revenue are substantial questions of law.

Accordingly, the appeal is dismissed.