Commissioner Of Income Tax (Exemptions), 3Rd Floor, Kailashheights, Lal Kothi, Tonk Road, Jaipur v. Mahima Shiksha Samiti, A

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR 1.D.B. Income Tax Appeal No. 262 / 2017 Commissioner of Income Tax (Exemptions), 3rd Floor, KailashHeights, Lal Kothi, Tonk Road, Jaipur ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----RespondentConnected With 2. D.B. Income Tax Appeal No. 263 / 2017 Commissioner of Income Tax (Exemptions), 3rd Floor, KailashHeights, Lal Kothi, Tonk Road, Jaipur ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 3.D.B. Income Tax Appeal No. 708 / 2008 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent Connected With 4. D.B. Income Tax Appeal No. 107 / 2009 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 5. D.B. Income Tax Appeal No. 67 / 2010 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 6. D.B. Income Tax Appeal No. 68 / 2010 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 7. D.B. Income Tax Appeal No. 70 / 2010 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 8. D.B. Income Tax Appeal No. 126 / 2011 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 9. D.B. Income Tax Appeal No. 118 / 2012 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 10. D.B. Income Tax Appeal No. 235 / 2012Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 11. D.B. Income Tax Appeal No. 101 / 2014 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent 12. D.B. Income Tax Appeal No. 115 / 2014 Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Mahima Shiksha Samiti, A-18, Shanti Path, Tilak Nagar, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer Jain For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 03/10/2017 1.Since, this group of matters relate to the same assessee, thematter was heard on 23.9.2017, however, a review applicationwas filed and in view of that the matter was recalled and nowfollowing questions are raised for our consideration:- 1.Appeal No. 708/2008 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. 1.Appeal No. 708/2008 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. (iv) Whether, in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in deleting the addition of disallowance ofinterest u/s. 36(1)(iii) despite of the fact thatassessee failed to discharge its onus of furnishing theevidence of use of the assets.” (2)Appeal No. 107/2009 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. (iv) Whether, in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in deleting the addition of disallowance ofinterest u/s. 36(1)(iii) despite of the fact thatassessee failed to discharge its onus of furnishing theevidence of use of the assets.” (3)Appeal No. 67/2010 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. (iv) Whether, in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in deleting the addition of disallowance ofinterest u/s. 36(1)(iii) despite of the fact thatassessee failed to discharge its onus of furnishing theevidence of use of the assets.” (4)Appeal No. 68/2010 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) of the I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (4)Appeal No. 68/2010 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) of the I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. (iv) Whether, in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in deleting the addition of disallowance ofinterest u/s. 36(1)(iii) despite of the fact thatassessee failed to discharge its onus of furnishing theevidence of use of the assets.” (5) Appeal No. 70/2010 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. (iv) Whether, in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in deleting the addition of disallowance ofinterest u/s. 36(1)(iii) despite of the fact thatassessee failed to discharge its onus of furnishing theevidence of use of the assets.” (6)Appeal No. 126/2011 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn by way of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. (iv) Whether, in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in deleting the addition of disallowance ofinterest u/s. 36(1)(iii) despite of the fact thatassessee failed to discharge its onus of furnishing theevidence of use of the assets.” (7)Appeal No. 118/2012 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (7)Appeal No. 118/2012 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. (iv) Whether, in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in deleting the addition of disallowance ofinterest u/s. 36(1)(iii) despite of the fact thatassessee failed to discharge its onus of furnishing theevidence of use of the assets.” (8) Appeal No. 235/2012 “ (i) Whether in the facts and circumstances of thecase the ITAT was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the fact that the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the ITAT was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the ITAT was justified in law in deleting additionmade for foreign travelling expenses u/s 37 of theAct despite of the fact that the assessee failed toprove the justification of these expenses. (iv) Whether, in the facts and circumstances of thecase the ITAT was justified in law and has actedperversely in deleting the addition of disallowance ofinterest u/s. 36(1)(iii) despite of the fact thatassessee failed to discharge its onus of furnishing theevidence of use of the assets. (v) Whether on the facts and in the circumstances ofthe case, the ITAT was justified in holding that theprovisions of Section 60 of Income Tax Act, 1961cannot be invoked in the present case despite thefact that the referred society, i.e., Ankur UdhodhakSamiti was not filing returns of income and was notregistered under Section 12A of the Act?” (9) Appeal No. 101/2014 “(i) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in directing togrant approval u/s 80G(5) holding that the activitiesof the society as charitable despite of the fact thatthe society is controlled and managed by one familyand the motive is to earn profit which cannot be heldto be charitable as defined u/s.2(15) of the Act.” (10) Appeal No. 115/2014 “ (i) Whether in the facts and circumstances of thecase the Tribunal was justified in law and has actedperversely in allowing the benefit of section 11(1) ascharitable trust to the assessee despite of the factthat the huge surpluses earned was withdrawn byway of payments to the persons referred u/s 13(3) ofthe I.T. Act. (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. 2.In two appeals no.262/2017 & 263/2017, the appeal are admitted on the following substantial question of law:- Appeal No.262/2017 (ii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in allowability ofdepreciation of assets u/s 32 even where the samehad already been claimed as application of income inthe previous years. (iii) Whether, in the facts and circumstances of thecase the Tribunal was justified in law in deletingaddition made for foreign travelling expenses u/s 37of the Act despite of the fact that the assessee failedto prove the justification of these expenses. 2.In two appeals no.262/2017 & 263/2017, the appeal are admitted on the following substantial question of law:- Appeal No.262/2017 (i) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inconfirming the decision of Ld. CIT (A) in allowing theassessee’s claim of exemption u/s 11 even thoughprovisions of section 13 are attracted? (ii) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inconfirming the decision of Ld. CIT (A) in allowingsalary expenses to the member of Bakshi Familywhich is higher than reasonable? (iii) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inallowing contribution made to Jaipur NationalUniversity during the year under consideration asapplication of income u/s 11 of the Act despite of thefact that the assistance provided to JNU is theviolation of bye laws of society as well as violation ofprovision of Sec.13(1)(c) and 13(2) of the IT Act? (iv) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inconfirming the decision of ld. CIT(A) in allowingforeign traveling expenses inspite of the fact that theassessee society failed to prove that these expenseswere incurred for the objects of society? (v) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inholding that the assessee is eligible to claimdeduction of depreciation of Rs.62,73,413/- on theassets which were claimed as application u/s 11 atthe time of purchase? (vi) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inallowing the depreciation without appreciating thefact that the application of 100% expenditure of the capital assets is already allowed as capitalexpenditure hence further allowance of depreciationon the same capital asset would amount to doubleallowance? (vii) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inallowing the depreciation without appreciating thefact that the assessee has not carried out thebusiness activities but the receipts utilized for charity.As there was no business, the claim of depreciationwas not allowable, the deprecation is allowable onlyin the case of business or profession or in case of“income from other sources”? Appeal No.263/2017 (i) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inconfirming the decision of Ld. CIT (A) in allowing theassessee’s claim of exemption u/s 11 even thoughprovisions of section 13 are attracted? (ii) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inconfirming the decision of Ld. CIT (A) in allowingsalary expenses to the member of Bakshi Familywhich is higher than reasonable? (iii) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inallowing contribution made to Jaipur NationalUniversity during the year under consideration asapplication of income u/s 11 of the Act despite of thefact that the assistance provided to JNU is theviolation of bye laws of society as well as violation ofprovision of Sec.13(1)(c) and 13(2) of the IT Act? (ii) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inconfirming the decision of Ld. CIT (A) in allowingsalary expenses to the member of Bakshi Familywhich is higher than reasonable? (iii) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inallowing contribution made to Jaipur NationalUniversity during the year under consideration asapplication of income u/s 11 of the Act despite of thefact that the assistance provided to JNU is theviolation of bye laws of society as well as violation ofprovision of Sec.13(1)(c) and 13(2) of the IT Act? (iv) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inholding that the assessee is eligible to claimdeduction of depreciation of Rs.62,73,413/- on theassets which were claimed as application u/s 11 atthe time of purchase? (v) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inallowing the depreciation without appreciating thefact that the application of 100% expenditure of thecapital assets is already allowed as capitalexpenditure hence further allowance of depreciation on the same capital asset would amount to doubleallowance? (vi) Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is right inallowing the depreciation without appreciating thefact that the assessee has not carried out thebusiness activities but the receipts utilized for charity.As there was no business, the claim of depreciationwas not allowable, the deprecation is allowable onlyin the case of business or profession or in case of“income from other sources”? 3.Since, the matters involved common question of law andfacts, they are decided by this common judgment. 4.The facts of the case are that the respondent assesseenamely Mahima Shiksha Samiti is engaged in imparting education,medical facility and other general public utility and for this purposethe assessee is running two educational institutions i. SeedlingPublic School, Jawahar Nagar and ii. Seeding Modern High School,Mahaveer Nagar. 4.1The assessee is a society registered under Rajasthan SocietyRegistration Act, 1958 and is further registered u/s 12AA of theAct w.e.f. 17.12.1990. For the relevant assessment year on15.10.2010, the assessee filed its return declaring total incomeNIL after claiming exemption u/s 11(1)(a) of the Act. The case ofassessee was selected for scrutiny and for that notice u/s143(2)/142(1) were issued from time to time and assessee incompliance thereto attended the proceedings and furnished therequired details. After considering the return of income and thedetails filed during the course of assessment proceedings, the ld. AO vide his order dt.25.3.2013, completed the assessment u/s143(3) at the income of Rs.8,46,93,400/- 5.Counsel for the appellant contended in view of provisions ofSection 10 (x), 23 (c) and Section 11 of the Income Tax Act. Thecontention which has been raised is that the provisions of Section11 and Section 23 (3) would stand on a different footing andbenefits which are conferred u/s 11 will not be available in a casewhich are granted in Sec. 23(3). 5.1To support of his arguments, Mr. Jain has taken us Sec.2(13)of the IT Act which reads as under:- (13) " business" includes any trade,commerce or manufacture or anyadventure or concern in the nature oftrade, commerce or manufacture; 5.2He has also taken us to the definition of Charitable purposeas defined u/s 2(15) which reads as under:- “charitable purpose” includes relief ofthe poor, education, yoga, medicalrelief, preservation of environment(including watersheds, forests andwildlife)andpreservationofmonuments or places or objects ofartistic or historic interest, and theadvancement of any other object ofgeneral public utility. 5.1To support of his arguments, Mr. Jain has taken us Sec.2(13)of the IT Act which reads as under:- (13) " business" includes any trade,commerce or manufacture or anyadventure or concern in the nature oftrade, commerce or manufacture; 5.2He has also taken us to the definition of Charitable purposeas defined u/s 2(15) which reads as under:- “charitable purpose” includes relief ofthe poor, education, yoga, medicalrelief, preservation of environment(including watersheds, forests andwildlife)andpreservationofmonuments or places or objects ofartistic or historic interest, and theadvancement of any other object ofgeneral public utility. Provided that the advancement of anyother object of general public utilityshall not be a charitable purpose, if itinvolves the carrying on of any activityin the nature of trade, commerce orbusiness, or any activity of renderingany service in relation to any trade,commerce or business, for a cess or feeor any other consideration, irrespectiveof the nature of use or application, or retention, of the income from suchactivity, unless— (i) such activity is undertaken in thecourse of actual carrying out of suchadvancement of any other object ofgeneral public utility; and (ii) the aggregate receipts from suchactivity or activities during the previousyear, do not exceed twenty per cent ofthe total receipts, of the trust orinstitution undertaking such activity oractivities, of that previous year. 5.3He also taken us to the following provisions of the Act:- Section 11 Income from property held forcharitable or religious purposes . (1)Subject to the provisions of sections 60 to63, the following income shall not be includedin the total income of the previous year of theperson in receipt of the income- (a) 3 income derived from property held undertrust wholly for charitable or religiouspurposes, to the extent to which such incomeis applied to such purposes in India; and,where any such income is accumulated or setapart for application to such purposes in India,to the extent to which the income soaccumulated or set apart is not in excess oftwenty- five per cent of the income from suchproperty; (b)income derived from property held undertrust in part only for such purposes, the trusthavingbeencreatedbeforethecommencement of this Act, to the extent towhich such income is applied to such purposesin India; and, where any such income is finallyset apart for application to such purposes inIndia, to the extent to which the income so setapart is not in excess of twenty five per cent oftheincomefromsuchproperty;](c)income[ 4] derived] from property held undertrust-(i)created on or after the 1st day ofApril, 1952 , for a charitable purpose whichtends to promote international welfare in whichIndia is interested, to the extent to which such income is applied to such purposes outsideIndia, and (ii)for charitable or religious purposes, createdbefore the 1st day of April, 1952 , to the extentto which such income is applied to suchpurposes outside India: Provided that the Board, by general or specialorder, has directed in either case that it shallnot be included in the total income of theperson in receipt of such income; (d)1 income in the form of voluntarycontributions made with a specific directionthat they shall form part of the corpus of thetrust or institution.] 13. 1 Section 11 not to apply in certain cases 2. (1)Nothing contained in section 11[ 3] or section12] shall operate so as to exclude from thetotal income of the previous year of the personin receipt thereof-(a)any part of the incomefrom the property held under a trust for privatereligious purposes which does not enure for thebenefit of the public; Provided that the Board, by general or specialorder, has directed in either case that it shallnot be included in the total income of theperson in receipt of such income; (d)1 income in the form of voluntarycontributions made with a specific directionthat they shall form part of the corpus of thetrust or institution.] 13. 1 Section 11 not to apply in certain cases 2. (1)Nothing contained in section 11[ 3] or section12] shall operate so as to exclude from thetotal income of the previous year of the personin receipt thereof-(a)any part of the incomefrom the property held under a trust for privatereligious purposes which does not enure for thebenefit of the public; (b)in the case of a trust- for charitablepurposes or a charitable institution created orestablished after the commencement of thisAct, any income thereof if the trust orinstitution is created or established for thebenefit of any particular religious community orcaste; (c)in the case of a trust for charitable orreligious purposes or a charitable or religiousinstitution, any income thereof- (i)if such trust or institution has been createdor established after the commencement of thisAct and under the terms of the trust or therules governing the institution, any part of suchincome enures, or (ii)if any part of such income or any propertyof the trust or the institution (whenevercreated or established) is during the previousyear used or applied, directly or indirectly forthe benefit of any person referred to in sub-section (3): Provided that in the case of a trust or institution created or established before thecommencement of this Act, the provisions ofsub- clause (ii) shall not apply to any use orapplication, whether directly or indirectly, ofany part of such income or any property of thetrust or institution for the benefit of any personrefer- red to in sub- section (3), if such use orapplication is by way of compliance with amandatory term of the trust or a mandatoryrule governing the institution: Provided furtherthat in the case of a trust for religious purposesor a religious institution (whenever created orestablished) or a trust for charitable purposesor a charitable institution created orestablished before the commencement of thisAct, the provisions of sub- clause (ii) shall notapply to any use or application, whetherdirectly or indirectly, of any part of suchincome or any property of the trust orinstitution for the benefit of any personreferred to in sub- section (3) in so far as suchuse or application relates to any period beforethe 1st day of June, 1970 ; (d) 1 in the case of a trust for charitable orreligious purposes or a charitable or religiousinstitution, any income thereof, if for anyperiod during the previous year- (i)any funds of the trust or institution areinvested or deposited after the 28th day ofFebruary, 1983 otherwise than in any one ormore of the forms or modes specified in sub-section (5) of section 11; or (ii)any funds of the trust or institution investedor deposited before the 1st day of March, 1983otherwise than in any one or more of the formsor modes specified in sub- section (5) ofsection 11 continue to remain so invested ordeposited after the 30th day of November,1983 ; or (iii)any shares in a company[ not being aGovernment company as defined in section 617of the Companies Act, 19563 (1 of 1956 ), or acorporation established by or under a Central,.State or Provincial Act are held by the trust orinstitution after the 30th day of November,1983. (i)any funds of the trust or institution areinvested or deposited after the 28th day ofFebruary, 1983 otherwise than in any one ormore of the forms or modes specified in sub-section (5) of section 11; or (ii)any funds of the trust or institution investedor deposited before the 1st day of March, 1983otherwise than in any one or more of the formsor modes specified in sub- section (5) ofsection 11 continue to remain so invested ordeposited after the 30th day of November,1983 ; or (iii)any shares in a company[ not being aGovernment company as defined in section 617of the Companies Act, 19563 (1 of 1956 ), or acorporation established by or under a Central,.State or Provincial Act are held by the trust orinstitution after the 30th day of November,1983. The following income shall be chargeable toincome-tax under the head "Profits and gainsof business or profession",— (i) the profits andgains78 of any business or profession78 whichwas carried on by the assessee at any timeduring the previous year ; (ii) anycompensation78 or other payment due to78 orreceived by78 ,— (a) any person, by whatevername called, managing the whole orsubstantially the whole of the affairs of anIndian company, at or in connection with thetermination of his management or themodification of the terms and conditionsrelating thereto; (b) any person, by whatevername called, managing the whole orsubstantially the whole of the affairs in India ofany other company, at or in connection withthe termination of his office or the modificationof the terms and conditions relating thereto ; (c) any person, by whatever name called,holding an agency in India for any part of theactivities relating to the business of any otherperson, at or in connection with thetermination of the agency or the modificationof the terms and conditions relating thereto ;79[(d) any person, for or in connection withthe vesting in the Government, or in anycorporation owned or controlled by theGovernment, under any law for the time beingin force, of the management of any property orbusiness ;] Section 29. Income from profits and gains ofbusiness or profession, how computed Theincome referred to in section 28 shall becomputed in accordance with the provisionscontained in sections 30 to 1 43D]. 5.5 He further contended that in view of decision of Supreme Court in Escorts Limited and anr. vs. Union of India & ors. reportedin 199 ITR 49 wherein it has been held as under:- Section 32(1)(ii) provides for depreciation.As under the 1922 Act, it is allowed at apercentage of the written down value ofcertain capital assets employed in thebusiness. The topic of scientific researchexpenditure is dealt with by Section 35.Section 35(1) provides for the deduction offour types of expenditure on scientific research and what we are concerned with isthe deduction provided under Section 35(1)(iv), which is to the following effect: (iv) in respect of any expenditure of a capitalnature on scientific research related to thebusiness carried on by the assessee, suchdeduction as may be admissible under theprovisions of Sub-section (2). Sub-section (2) provides that, for thepurposes of Clause (iv) of Sub-section (1),one-fifth of the capital expenditure incurredin any previous year shall be deducted forthat previous year; and the balance of theexpenditure shall be deducted in equalinstallments in each of the four immediatelysucceeding previous years. There is anexplanation which is not relevant for ourpresent purposes. Reading Section 35(2)further, it provides in Clauses (iv) and (v) asfollows: (iv) where a deduction is allowed for anyprevious year under this section in respect ofexpenditure represented wholly or partly byan asset, no deduction shall be allowedunder Clauses (i), (ii) and (iii) of Sub-section(1) of Section 32 for the same previous yearin respect of that asset; Sub-section (2) provides that, for thepurposes of Clause (iv) of Sub-section (1),one-fifth of the capital expenditure incurredin any previous year shall be deducted forthat previous year; and the balance of theexpenditure shall be deducted in equalinstallments in each of the four immediatelysucceeding previous years. There is anexplanation which is not relevant for ourpresent purposes. Reading Section 35(2)further, it provides in Clauses (iv) and (v) asfollows: (iv) where a deduction is allowed for anyprevious year under this section in respect ofexpenditure represented wholly or partly byan asset, no deduction shall be allowedunder Clauses (i), (ii) and (iii) of Sub-section(1) of Section 32 for the same previous yearin respect of that asset; (v) where the asset mentioned in Clause (ii)is used in the business after it ceases to beused for scientific research related to thatbusiness, depreciation shall be admissibleunder Clauses (i), (ii) and (iii) of Sub-section(1) of Section 32. 5. Reference must also be made toExplanation 1 to Section 43(1) in thiscontext. It read as follows at the relevanttime: Explanation : Where an asset is used inbusiness after it ceases to be used forscientific research related to that businessand a deduction has to be made underClause (i), Clause (ii) or Clause (iii) of Sub-section (1) or Sub-section (1A) of Section 32in respect of that asset, the actual cost of theasset to the assessee, as reduced by theamount of any deduction allowed underClause (iv) of subsection (1) of Section 35 orunder any corresponding provision of theIndian Income-tax Act, 1922 (11 of 1922). 6. From the above it will be seen that theprovisions of Section 32(1)(ii) and Section35(2)(i)(iv) and (v) read with Explanation 1to Section 43(1) virtually repeat theprovisions contained in Section 10(2)(vi) andSection 10(2)(xiv) of the 1922 Act, so thatthe question earlier posed still loomed in thebackground of 1961 Act. 7. In 1968 there was an amendment in theprovisions of Section 35(2). The Sub-sectionwas amended to read as follows: (2) For the purposes of Clause (iv) ofsubsection (1),: (i) in a case where such capital expenditureis incurred before the 1st day of April, 1967,one-fifth of the capital expenditure incurredin any previous year shall be deducted forthat previous year; and the balance of theexpenditure shall be deducted in equalinstallments for each of the four immediatelysucceeding previous years; (i-a) in a case where such capitalexpenditure is incurred after the 31st day ofMarch, 1967, the whole of such capitalexpenditure incurred in any previous yearshall be deducted for that previous year. The effect of this amendment was only toprovide that the entire amount of capitalexpenditure incurred in relation to scientificresearch was allowed as a deduction in oneyear instead of being spread over a period offive years as was the position earlier. 10. At this stage, the Finance (No. 2) Act,1980 intervened. It amended Section 35(2)(iv) to read as follows: (iv) where a deduction is allowed for anyprevious year under this section in respect ofexpenditure represented wholly or partly byan asset, no deduction shall be allowedunder Clauses (i), (ii) and (iii) of Sub-section(1) of Section 32 for the same or any otherprevious year in respect of that asset. The Finance Act made this amendmentretrospective w.e.f. 1-4-62, that is, the dateof the commencement of the 1961 Act. The contention on behalf of the assesseeswas that the allowances in respect of 10. At this stage, the Finance (No. 2) Act,1980 intervened. It amended Section 35(2)(iv) to read as follows: (iv) where a deduction is allowed for anyprevious year under this section in respect ofexpenditure represented wholly or partly byan asset, no deduction shall be allowedunder Clauses (i), (ii) and (iii) of Sub-section(1) of Section 32 for the same or any otherprevious year in respect of that asset. The Finance Act made this amendmentretrospective w.e.f. 1-4-62, that is, the dateof the commencement of the 1961 Act. The contention on behalf of the assesseeswas that the allowances in respect of depreciation on the one hand and in respectof capital expenditure on scientific researchon the other are two totally different andindependent heads of allowances. One is anotional allowance to provide for the wearand tear of a capital asset employed in thebusiness as the years roll by; the other is anallowance for actual expenditure of a capitalnature granted, on the eve of our country'sindependence, in order to give fillip to newindustrial innovations and the developmentof indigenous know-how and techniques byproperplanningonresearchanddevelopment by various business houses. Itis therefore suggested that there is nothingabsurd in construing the statutes act asproviding cumulatively for both types ofdeductions in respect of the same capitalasset. The only limitations on this right arethe two placed by the statute itself. The firstlimitation, contained in Clause (d) of theproviso to Section 10(2)(xiv) and Section35(2)(iv) is that both the deductions cannotbe claimed "for the same previous year" inrespect of the same capital asset. The secondlimitation is found in Clause (e) of theproviso to Section 10(2)(xiv) and Section35(2)(v) which say that if a capital assetused for scientific research ceases to be soused but is thereafter brought into abusiness for use therein, the actual cost forpurposes of granting depreciation in respectof the asset thereafter should be taken asthe amount of its original cost reduced by theamount of deductions allowed under Section10(2)(xiv) or Section 35(2). In other words,the contention of the assessee was and isthat both the types of allowances arepermissible under the statute except to theextent limited by Clauses (d) and (e) of theproviso to Section 10(2)(xiv) of the 1922 Actand reproduced in Clauses (iv) and (v) ofSection 35(2) of the 1961 Act. 9. Before us it is claimed on behalf of theassessee that this interpretation of thestatutory provisions is very clear, patent andunambiguous. It is alleged that, despite this,some Income-tax Officers started disallowingthe claim of depreciation in respect of suchcapital assets even in previous years during 9. Before us it is claimed on behalf of theassessee that this interpretation of thestatutory provisions is very clear, patent andunambiguous. It is alleged that, despite this,some Income-tax Officers started disallowingthe claim of depreciation in respect of suchcapital assets even in previous years during which no deduction was claimed or allowedunder Section 10(2)(xiv) or Section 35(2),contrary to the clear language of Clause (d)of Section 10(2)(xiv) and Section 35(2)(iv).These orders were reversed on appeal eitherby the Appellate Commissioner or by theTribunal. It was suggested that thesedecisions were almost unanimously in favourof the assessee but the department persistedin pursuing the matter up to the stage of theHigh Court. Only one reference on this topiccame up before the High Courts and isreflected in the decision of the KarnatakaHigh Court, reported as CIT v. IndianTelephoneIndustriesLtd.MANU/KA/0158/1980MANU/KA/0158/1980 :[1980]126ITR548(KAR) . This was areference of the year 1977 made at theinstance of the Commissioner of Income-taxand the Commissioner of Income-tax lost thisreference. The High Court re-affirmed theposition contended for by the assessee as theone and only possible interpretation of thestatutory provisions. It is, therefore,contended that there was, and could havebeen, no doubt that an assessee was entitledto claim depreciation allowance in respect ofsuch assets in respect of previous yearsother than those in which an allowance hadbeen allowed under the other head. We shallrevert later to this aspect of the matter. 24. The Revenue says that the deductionprovided by Section 35(1)(iv) is in thealternative to the deduction provided by Cls.(i), (ii) and (iii) of Sub-section (1) and Sub-section (1A) of Section 32. If one is availedof, the other is not available, not only duringthe year or years in which the deductionunder Section 35(1)(iv) is availed of, butpermanently. The reason, according to them,is obvious: if both are allowed to be availedof, it amounts to grant of 200% deduction.viz., 100% under Section 35(1)(iv) andanother 100% under Sub-sections (1) and(1A) of Section 32. This is totally outside thecontemplation of the Act, they say. On theother hand, the case of the assessees is thatthe bar created by Clause (iv) of Sub-section(2) applies only to that previous year orthose previous years during which the saidexpenditure is allowed as a deduction. Thatis the express language of the clause. The bar does not extend beyond the year oryears in which the deduction under Section35(1)(iv) is , availed. There is no reason --more so in a ' taxing enactment -- to extendthe said bar beyond the limit prescribed bythe statute. They say, if the intention of theParliament was to bar the claim ofdepreciation in respect of such asset for alltime to come, nothing was easier than to sayso in clear words, as was done by Sub-section (4) of Section 20 of U.K. Finance Act,1944. It is pointed out that Clause (xiv) ofSub-section (2) of Section 10 was introducedin the Indian Income-tax Act within twoyears of the introduction of a similarprovision in the English Act, evidentlyinspired by the Amendment in the EnglishAct. But while incorporating the saidprovision, a conscious departure was madeby the Indian Legislature, say the assessees.Having regard to the scant investment inscientific research in India, it is submitted,the legislature must have thought itnecessary to provide an . additionalinducement over and