Taxap/9/2017 Of Commissioner Of Income Tax v. Gujarat Maritime Board

C/TAXAP/9/2017 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 9 of 2017 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALASd/-andHONOURABLE MR. JUSTICE BHARGAV D. KARIASd/-================================================================1Whether Reporters of Local Papers may be allowedNOto see the judgment ?2To be referred to the Reporter or not ?NO3Whether their Lordships wish to see the fair copyNOof the judgment ?4Whether this case involves a substantial questionNOof law as to the interpretation of the Constitutionof India or any order made thereunder ?================================================================COMMISSIONER OF INCOME TAX VersusGUJARAT MARITIME BOARD ================================================================ Appearance:MRS MAUNA M BHATT for the Appellant.MR SN SOPARKAR, SR.ADVOCATE with MR G H VIRK for the Opponent. ================================================================ CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 17/02/2020 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This Tax Appeal under Section 260A of the Income Tax Act,1961, is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, 'C'Bench, Ahmedabad, dated 27[th] April 2016, in the ITANo.2933/Ahd/2009 for the Assessment Year 2003-04. 2.On 16[th] January 2017, a coordinate bench of this Courtpassed the following order : “1. Leave to replace the order of assessment. 2. Feeling aggrieved and dissatisfied with the impugnedjudgment and order passed by the learned Income TaxAppellate Tribunal dated 27.04.2016 passed in ITA No.2933/Ahd/2009 for assessment year 2003-04, Revenuehas preferred the present Tax Appeal for the followingproposed substantial questions of law: (A) Whether the assessee was not duty bound to givedetails of the premium received on sale of assets andwhen no details were furnished by assessee, theAssessing Officer was not right in calculating therevenue recognized in the relevant year as thepremium was received for the period of 10 years to20/25. when the assessee is assessed u/s. 11 (1) ofthe Act? (B) Whether, on the facts and in the circumstances ofthe case, the Appellate Tribunal is correct in law inconfirming the decision of CIT (A) and deleting additionof Rs.20,68,73,968=00 on account of depreciation,when the assessee is assessed u/s. 11 (1) of the Act? 3. We have heard Shri Manish Bhatt, learned advocateappearing on behalf of Revenue and Mr. S.N. Soparkar,learned counsel with Mr. G.H. Virk, appearing on behalf ofthe assessee. 4. Now so far as proposed question No. A is concerned, it isrequired to be noted that, as observed by the learnedTribunal, the assessee was following cash method ofaccountancy and upto the preceding year of assessment,the income of the assessee was exempted under Section 10(20A) of the Income Tax Act being the local authority. Theyear under consideration was the first year after theexemption period was over. Therefore, the learned Tribunalhas rightly held that, no addition was called for, ofRs.12,92,00,000=00 on account of Revenue recognition ofthe premium received on allotment of plots by way ofspreading the revenue for a period of 10/20/25 years onthe basis of AG (Audit) Report. The learned Tribunal hasheld in Para No. 10.3 as under:- 4. Now so far as proposed question No. A is concerned, it isrequired to be noted that, as observed by the learnedTribunal, the assessee was following cash method ofaccountancy and upto the preceding year of assessment,the income of the assessee was exempted under Section 10(20A) of the Income Tax Act being the local authority. Theyear under consideration was the first year after theexemption period was over. Therefore, the learned Tribunalhas rightly held that, no addition was called for, ofRs.12,92,00,000=00 on account of Revenue recognition ofthe premium received on allotment of plots by way ofspreading the revenue for a period of 10/20/25 years onthe basis of AG (Audit) Report. The learned Tribunal hasheld in Para No. 10.3 as under:- “We have heard the rival contentions and perused thematerial on record. The issue arising in this groundhas raised pursuant to report of AG (Audit), Rajkotrelating to Premium Grant and Capital Receipt forbeing not recognized as revene so far and thesuggestion was made to spread the premium for 25years on account of waterfront/jetty and 10 years inthe case of Alang. In our view, the above note of AG(Audit) refers to the presentation of the financialstatements so that the true income gets reflected in theyear under consideration, because the impugned premium of Rs.131 crores was not pertaining to onespecific year but was for many years and thesuggestion was made to bifurcate the amount on thebasis of lease period. It is worthwhile to mention herethat we have already held that the assessee is notcarrying on any business activity, rather carrying oncharitable activities in the form of providing servicesrelating to general public utility which in the casebefore us relates to maintaining of ports in the State ofGujarat. We further observe that both the lowerauthorities have not appreciated the fact that theaccounts of the assessee were being maintained oncash basis upto Financial Year 2001-02 and certainlyin the case of the assessee who carries on cash basisof accounting of what is received in a year has to beaccounted for and there is no concept of bifurcating orapportioning any advance premium received. Further,it is also undisputed fact that the appellant Board wascovered under the provisions of Section 10 (20A) of theAct as a Local Authority upto Assessment Year2002-2003 and the income was exempt under thissection and certainly whatever amount which havebeen received prior to 01.04.2002 gets coveredtherein. Therefore, in our view, no addition was calledfor Rs.12,92,00,000=00 on account of Revenuerecognition of the premium received on allotment ofplots by way of spreading the revenue for a period of10/20/25 years on the basis of AG (Audit) Report.Thus, this ground of assessees appeal is alsoallowed.” 5. We are in complete agreement with the view taken by thelearned Tribunal. Under the circumstance, the presentAppeal qua question No. A is dismissed, as no substantialquestion of law arise. 6. Now so far as question No. B is concerned, as the factthat, other Appeal involving the same question of law beingTax Appeal No. 615/2012 is admitted by the Division Benchof this Court, the present Appeal is ADMITTED to considerthe following substantial question of law: (B) Whether, on the facts and in the circumstances ofthe case, the Appellate Tribunal is correct in law inconfirming the decision of CIT (A) and deleting additionof Rs.20,68,73,968=00 on account of depreciation,when the assessee is assessed u/s. 11 (1) of the Act? 7. To be heard with Tax Appeal No. 615 of 2012. 8. Shri G.H. Virk, learned advocate waives service of noticeof admission on behalf of respondent.” 6. Now so far as question No. B is concerned, as the factthat, other Appeal involving the same question of law beingTax Appeal No. 615/2012 is admitted by the Division Benchof this Court, the present Appeal is ADMITTED to considerthe following substantial question of law: (B) Whether, on the facts and in the circumstances ofthe case, the Appellate Tribunal is correct in law inconfirming the decision of CIT (A) and deleting additionof Rs.20,68,73,968=00 on account of depreciation,when the assessee is assessed u/s. 11 (1) of the Act? 7. To be heard with Tax Appeal No. 615 of 2012. 8. Shri G.H. Virk, learned advocate waives service of noticeof admission on behalf of respondent.” 3.Thus, we are called upon to consider the substantialquestion of law as formulated in paragraph no.6 of the orderpassed by this Court dated 16[th] January 2017 referred to above.We may note that the Tax Appeal No.615/2012 is alreadydisposed of due to low tax effect. It appears that the substantialquestion of law as formulated in paragraph no.6, which isadmitted, is required to be re-framed considering the facts of thecase as under : “Whether in facts and circumstances of the case, the IncomeTax Appellate Tribunal was correct in holding that theassessee is entitled to depreciation as per the Income TaxAct, 1961 as application of income while determining theincome under Section 11(1) of the Income Tax Act, 1961?” 4.The facts giving rise to the present Appeal may besummarized as under : 4.1)The Gujarat Maritime Board, i.e. the respondent assessee,filed its return of income disclosing the income at Nil for theAssessment Year 2004-2005. The respondent-assessee is astatutory body governed by the Gujarat Maritime Board Act,1981, and is engaged in the activity of advancement of generalpublic utility by way of administering, control and managingminor ports in the State of Gujarat. The CIT, Gandhinagar, byorder dated 15[th] June 2005, has granted registration underSection 12AA of the Act, 1961 with retrospective effect from 1[st]April 2002. 4.2)It appears that the return of the respondent-assessee wasprocessed under Section 143(1)(a) of the Act, 1961 on 22[nd]March 2005. However, thereafter, the notice under Sections143(2) and 143(1) of the Act, 1961, were issued. The AssessingOfficer, after considering the reply of the assessee to the issuesraised during the assessment proceedings, completed theassessment under Section 143(3) of the Act, 1961 by order dated29[th] December 2006. 4.3)The Assessing Officer determined the total income atRs.1,16,09,23,464=00 and taxed 85% thereof under Section11(1) of the Act, 1961 amounting to Rs.44,21,89,898=00 atregular rate as AOP and the deemed income under Section 13 ofthe Act, 1961 amounting to Rs.71,87,33,565=00 at maximummarginal rate for taxation purpose. While determining theincome of the respondent-assessee, the Assessing Officer did notallow the claim of the respondent-assessee for depreciation asclaimed by the assessee being Rs.52,67,27,832=00 and reworkedthe depreciation allowable of Rs.42,29,21,795=00, differencebeing Rs.10,39,06,037=00 4.4)The assessee, being aggrieved and dissatisfied by theassessment order, preferred appeal before the CIT (Appeals)raising various grounds including denying the claim ofdepreciation of Rs.10,39,06,037=00. The CIT (Appeals), afterconsidering the provisions of sub-section (6) of Section 43 of theAct, 1961, held as under : “The second ground of appeal is as follows: “Learned Addl. CIT has erred in law and on facts in denyingthe claim of depreciation of Rs.10,39,06,037." 3.1As para 7 of the assessment order, Assessing Officerwanted to know basis of W.D>V. as on 01/04/2002because he felt that as per Explanation 5 to section 32(1)(ii)irrespective of the fact that whether the assessee hasprovided the depreciation or not, the same will have to betaken into account for W.D.V. in the next year. Since the “The second ground of appeal is as follows: “Learned Addl. CIT has erred in law and on facts in denyingthe claim of depreciation of Rs.10,39,06,037." 3.1As para 7 of the assessment order, Assessing Officerwanted to know basis of W.D>V. as on 01/04/2002because he felt that as per Explanation 5 to section 32(1)(ii)irrespective of the fact that whether the assessee hasprovided the depreciation or not, the same will have to betaken into account for W.D.V. in the next year. Since the assessee did not clarify to him, the Assessing Officerproceeded on the assumption that the depreciationpertaining to assessment year 2002-03 has not been takeninto account for working out the Gross Block as on01/04/2002 and consequently proceeded to rework thedepreciation allowable. As per Assessing Officer'scomputation, depreciation allowable to the appellant isRs.42,29,21,795/- in respect of Rs.52,67,27,832/-, thedifference being of Rs.10,39,06,037/-. 3.2The appellant's reply in the context is as follows: "We are enclosing herewith as Annexure-12 decision of Hon.ITAT, Rajkot bench in Kandla Port Trust vs. ACIT CircleGandhidham, Kutch incidentally for A.Y. 2003-04 i.e. thesame year as in appeal before your goodself. AO raised this issue for the first time in his letter dated20/12/2007 and also handed over to us personally on thesame day at 1730 hrs, when we appeared before him. On the top of it, on noting side of the file he instructed tosubmit all the details latest by 27/12/2007 was failingwhich he would take as if we had nothing to submit25/12/2007 was the only day left. Further, nowhere from his above letter he disclosed hisintention to disallow depreciation in contravention ofprovisions of section 43(6)(b) read with section 43(6)(b] of theIncome-tax Act, 1961. Had he disclosed his intention, we would have elaboratelysubmitted in the matter along with the enclosed decision forhis ready reference. 3.3In his rejoinder dated 25/03/2008, the AssessingOfficer/D.R. drew attention to the proposed amendment inF.Y. 2008 wherein as per Explanation 6 to section 43 "costof asset" has been amended for such assessee's where theincome of the assessee was exempt from taxation before therelevant assessment year. It was stated that the assesseewas the exempt from taxation before the relevantassessment year. It was stated that the assessee was the“Local Authority” till assessment year 2002-03 and itsincome was not taxable and therefore this amendment willapply to the calculation of “cost of asset” for assessmentyear 2003-04 as the amendment has been proposed withretrospective effect. It was stated that in view of thisdevelopment, the calculation of the depreciation in theassessment order needs to be further reduced and theAuthorised/Representative/Departmental Representativeprovided the computation whereby this claim comes toRs.36,86,34,716/- and the consequent excess claim ofdepreciation is quantified as Rs.15,80,93,116/-. It wasfurther stated that the decision of ITAT, Rajkot Bench in thecase of Kandla Port Trust (supra) is no more applicable. 3.4In this counter comments dated 15[th] April 2008, theAuthorised Representative has stated that the depreciationhad been claimed as per the law applicable and that even on the day that submission has been given the proposal isstill at a stage of Bill. As and when the bill becomes the Act,the appropriate action shall be taken. 3.4In this counter comments dated 15[th] April 2008, theAuthorised Representative has stated that the depreciationhad been claimed as per the law applicable and that even on the day that submission has been given the proposal isstill at a stage of Bill. As and when the bill becomes the Act,the appropriate action shall be taken. 3.5The issue has been given serious consideration. Ithink, in view of the chronology of events as detailed out,the matter rests conclusively. The Finance Bill 2008 standspassed by the Parliament and have received assent of thePresident and have consequently become the Act. Therefore,in principle, the mandate of Explanation 6 to section 43needs to be taken into account for computing depreciation.As per this Explanation, following three adjustmentneeded to be made in such assessees who were notrequired to compute their total income for the purpose of thisAct: (a)The actual cost of asset has to be adjusted by anyamount attributable to revaluation or such assets in thebooks of accounts; (b) The amount of depreciation provided for precedingprevious year in the books of accounts shall be deemed tobe the depreciation actually allowed under this Act forcomputing the cost of asset; and (c) Depreciation allowed under clause (b) has to be adjustedfor the depreciation attributable to revaluation of assets. 3.5.1 It is clear that for whatever reasons the AssessingOfficer, while computing the depreciation, did not havecomplete data available and computed the same, primarilykeeping clause (b) of the explanation in view. Therefore, the computation of depreciation will require a relook at theappeal effect stage to see whether (a) & (b) of thisExplanation are also applicable or not. 3.5.2 Therefore, to sum up, the contention of the AssessingOfficer that depreciation as claimed is not correct is upheld.Prima facie his disallowance working at Rs.15,80,93,116/-appeals to be correct. However, the same shall recomputedas per provisions or Explanation 6 to section 43 at theappeal effect stage after giving due opportunity to theappellant. Prima facie it appears that this will result inenhancement on this ground of appeal.” 4.5)Thus, the CIT (Appeals) upheld the order of the AssessingOfficer holding that the depreciation as claimed is not correctand observed that the computation of depreciation requires are-look at the appeal effect stage to see whether the clauses (a)and (b) of the Explanation 6 to Section 43 of the Act, 1961, areapplicable or not. The CIT (Appeals), ultimately, reworked theincome of the respondent-assessee by way of enhancement asunder : “5.19 Based on that understanding and keeping in viewrelevant change in value of figures in various claims, I thinkit appropriate to compute the total income in the appellateorder itself. Income from business as per sec.11(4) Income as per books C/TAXAP/9/2017 JUDGMENT Add : Rs.64,96,00,374 (i)DepreciationforseparateconsiderationRs.9,83,87,745 (ii)Payment to GOG, claimed as Water Rs.44,38,23,000Front royalty not allowable.Front royalty not allowable. (iii)Income not disclosed on account of Rs.12,92,00,000“Premium on Plots”“Premium on Plots” ---------------------------- Rs.67,14,10,745 Rs.1,32,10,11,119 Less : Depreciation as computed by A.O. Rs.36,86,34,716 Rs.95,23,76,403 =============== Income deemed not applied for purposes of the Board Rs.95,23,76,403 (–) Rs.64,96,00,374 = Rs.30,27,76,028 Application of income of the trust derived Rs.64,96,00,374from various sources Income derived from business Rs. NIL Total Rs.64,96,00,374 Less : Application : Addition to fixed assetsRs.20,68,73,986 Rs.44,27,26,388 Less : 15% of income allowed for accumulation u/s.11(1) (15% of Rs.64,96,00,374)Rs.9,74,40,056 ------------------------------ Balance income deemed not applied for (B) Rs.34,52,86,332================the purpose of the trust (iii)Income not disclosed on account of Rs.12,92,00,000“Premium on Plots”“Premium on Plots” ---------------------------- Rs.67,14,10,745 Rs.1,32,10,11,119 Less : Depreciation as computed by A.O. Rs.36,86,34,716 Rs.95,23,76,403 =============== Income deemed not applied for purposes of the Board Rs.95,23,76,403 (–) Rs.64,96,00,374 = Rs.30,27,76,028 Application of income of the trust derived Rs.64,96,00,374from various sources Income derived from business Rs. NIL Total Rs.64,96,00,374 Less : Application : Addition to fixed assetsRs.20,68,73,986 Rs.44,27,26,388 Less : 15% of income allowed for accumulation u/s.11(1) (15% of Rs.64,96,00,374)Rs.9,74,40,056 ------------------------------ Balance income deemed not applied for (B) Rs.34,52,86,332================the purpose of the trust Hence the income deemed not applied for the purposes of Board is Rs.30,27,76,028 (A) + Rs.34,52,86,332 (B) = Rs.64,80,62,360 5.20. It may be noted that – (i)This figure is the same as computed by the AssessingOrder in his rejoinder dated 25/03/2008. However, thesame is subject to rectification on account of change incomputation of depreciation figure, if any. (ii)The Assessing Officer's treatment of payment made toGovernment of Gujarat amounting to Rs.44,38,23,000/- hasnot been treated as application of appellate's income. 5.21. Hence, to sum up this composite ground, theappellant's income is assessed at Rs.64,80,62,360/- as against Rs.38,79,23,874/- assessed by Assessing Officerand as against Nil declared by the appellant in its return ofincome. 5.22. In the result, the appeal results in enhancement ofincome. Since the enhancement has resulted due tocomputation provided by the Assessing Officers, which wasdue confronted to the Authorised Representative, noseparate enhancement notice for this enhanced income.” 4.6)The assessee, being aggrieved by the aforesaid orderpassed by the CIT (Appeals), preferred appeal before the IncomeTax Appellate Tribunal by raising various grounds. The Tribunalframed the substantial issues to be decided in the appeal asunder : “6.The assessee has raised various grounds of appealwhich are inter-connected, but in our view followingsubstantive issues have been taken up by the assessee. 1.The ld. CIT(A) has erred in confirming the view takenby the Assessing Officer in holding that the activities carriedout by the appellant were in the nature of business and notcharitable activity for advancement of the object of generalpublic utility. 2.The ld. CIT(A) has erred in law and on facts inconfirming the disallowance of Rs.44,38,23,000/- by notallowing it as application of income without appreciating thefact that this amount of Rs.44,38,23,000/- has been spent towards waterfront charges/royalty paid to Government ofGujarat. 3.Alternatively, ld. CIT(A) has erred in not appreciatingthe assessment of the appellant, being a charitableinstitution, and further applying the provisions of Section43B of the Income-tax Act on the payment ofroyalty/waterfront charges paid to Gujarat Governmentafter the due date of filing of return of the Trust. 4.The ld. CIT(A) has erred in framing assessment at anincome of Rs.64,80,62,360/- by clubbing income under twoprovisions of Section 22(1) of the Act and also u/s.11(4) ofthe Act, without appreciating that the said income is beingassessed twice. 5.The ld. CIT(A) has erred in confirming the additionmade by the Assessing Officer of Rs.12,92,00,000/- asnotional income on account of premium of Alang plots. 6.The ld. CIT(A) has erred in granting deduction foraccumulation u/s. 11(1) of the Act only on net surplus andnot on its gross receipts. 7.The ld. CIT(A) has erred in not allowing the deductionin relation to increase in the fixed assets being application ofincome amounting to Rs.20,68,73,986/-. 8.The ld. CIT(A) has erred in framing assessment u/s.11(1) without granting depreciation amounting toRs.36,86,34,716/-” 5.The ld. CIT(A) has erred in confirming the additionmade by the Assessing Officer of Rs.12,92,00,000/- asnotional income on account of premium of Alang plots. 6.The ld. CIT(A) has erred in granting deduction foraccumulation u/s. 11(1) of the Act only on net surplus andnot on its gross receipts. 7.The ld. CIT(A) has erred in not allowing the deductionin relation to increase in the fixed assets being application ofincome amounting to Rs.20,68,73,986/-. 8.The ld. CIT(A) has erred in framing assessment u/s.11(1) without granting depreciation amounting toRs.36,86,34,716/-” 4.7)From the issues framed by the Tribunal referred to above,we are concerned with the Issues nos.7 and 8, for which thesubstantial question of law is framed while admitting the appealand re-framed as stated herein above. The Tribunal, whiledealing with the Issues nos.7 and 8, has held as under : “12. Next, we deal with the substantive ground Nos. 7 & 8,which as under: 7. The ld. CIT(A) has erred in not allowing thededuction in relation to increase in the fixed assetsbeing application of income amounting toRs.20,68,73,986/-. 8. The ld. CIT(A) has erred in framing assessment u/s11(1) without granting depreciation amounting toRs.36,86,34,716/-. 12.1 As regards the claim of depreciation as per Income-taxAct, we observe that while framing the assessment order,the ld. Assessing Officer determined the income under theprovisions of Section 11(1) of the Act by adding back thedepreciation claim in the books of accounts atRs.9,83,87,745/- and allowing the application of incometowards fixed assets at Rs.52,67,27,832/- and also againgiving credit towards application of income by allowingdepreciation as per books at Rs.9,83,87,745/-; whereaswhile determining income as per the provisions of Section11(4) of the Income-tax Act, treating assessee-charitable-trust, as a business undertaking, firstly added the depreciation as per books at Rs.9,83,87,745/- to the netprofit shown in the Annual Audit Report and then allowingdeduction of the depreciation as per Income-tax Act atRs.42,28,21,795/-. On the other hand, ld. CIT(A), whileframing his appellate order, again calculated the incomeu/s. 11(1) of the Act and u/s. 11(4) of the Act. Ld. CIT(A)and while determining the income u/s 11(1) of the Act, didnot add back the depreciation claim in the books of accountsand simply allowed the addition to fixed assets during theyear at Rs.20,68,73,986/-. Whereas, while determining theincome u/s 11(4) of the Act, the ld. CIT(A) firstly addeddeprecation as per books at Rs.9,83,87,745/- and gavededuction to the depreciation as per Income-tax Actcalculated by the ld. Assessing Officer atRs.36,86,34,716/-. 12.2 Now the assessee is in appeal before the Tribunalagainst the order of the ld. CIT(A) for not granting deductionfor depreciation as per Income-tax Act at Rs.36,86,34,716/-while determining the income u/s 11(1) of the Act. Here, wewould like to mention that we have no information on recordabout any appeal being filed by the Revenue for theAssessment Year 2003-04 against the order of the ld. CIT(A)dated 18.08.2009. From going through the orders of thelower authorities, we observe that the assessee has showndepreciation as per books of accounts calculated onstraight-line method at Rs.9,83,87,745/- and the assesseehas calculated depreciation as per Income-tax Act atRs.52,67,27,832/-. We also observe that the ld. AssessingOfficer while framing the assessment order u/s 143(3) of the Act has allowed depreciation as per Income-tax Act atRs.42,28,21,795/- and has allowed the same whilecalculating income u/s 11(4) of the Act and thereafter, theld. Assessing Officer revised the figure of depreciation asper Income-tax Act vide his letter dated 28.12.2007,communicated to ld. CIT(A) and the revised figure ofdepreciation shown therein was at Rs.36,86,34,716/-. Theld. CIT(A), while framing his appellate order, has allowedthe depreciation as per Income-tax Act at Rs.36,86,34,716/-while computing income of appellant-trust has business u/s11(4) of the Act. From our above observation, one fact whichemanates out clearly is that figure of depreciation as perIncome-tax Act has changed frequently and there is avariation in the final figure determined by the assessee aswell as Department about the depreciation calculated as perIncome-tax Act. 12.3 As regards the allowability of addition to fixed assetsat Rs.20,68,73,986/- as application of income, thereremains no dispute because the ld. CIT(A), whiledetermining the income u/s 11(1) of the Act, has himselfallowed the addition to fixed assets at Rs.20,68,73,986/- asdeduction towards application of income and therefore, thissubstantive ground needs no further adjudication on thisground relating to allowability of deduction in relation toincrease in the fixed assets being application of incomeamounting to Rs.20,68,73,968/-, as it has already decidedin favour of the assessee by ld. CIT(A) and therefore nointerference is called for in the ld. CIT(A)'s order for thisground. 12.4 Now the next issue which we have to examine iswhether the assessee is eligible for deduction ofdepreciation as per Income-tax Act while determiningthe income under the provisions of Section 11(1) of theAct. In this regard it will be appropriate to refer theprovisions of Section 11(1) of the Act and further forthe sake of ready reference, Section 11(1) isreproduced hereunder: "11. (1) Subject to the provisions of sections 60 to 63,the following income shall not be included in the totalincome of the previous year of the person in receipt ofthe income-- (a) income derived from property held under trustwholly for charitable or religious purposes, to theextent to which such income is applied to suchpurposes in India; and, where any such income isaccumulated or set apart for application to suchpurposes in India, to the extent to which the income soaccumulated or set apart is not in excess of fifteen percent of the income from such property; (b) income derived from property held under trust inpart only for such purposes, the trust having beencreated before the commencement of this Act, to theextent to which such income is applied to suchpurposes in India; and, where any such income isfinally set apart for application to such purposes in India, to the extent to which the income so set apart isnot in excess of fifteen per cent of the income fromsuch property; (c) income derived from property held under trust-- (i) created on or after the 1st day of April, 1952, for acharitable purpose which tends to promoteinternational welfare in which India is interested, tothe extent to which such income is applied to suchpurposes outside India, and (ii) for charitable or religious purposes, created beforethe 1st day of April, 1952, to the extent to which suchincome is applied to such purposes outside India:" India, to the extent to which the income so set apart isnot in excess of fifteen per cent of the income fromsuch property; (c) income derived from property held under trust-- (i) created on or after the 1st day of April, 1952, for acharitable purpose which tends to promoteinternational welfare in which India is interested, tothe extent to which such income is applied to suchpurposes outside India, and (ii) for charitable or religious purposes, created beforethe 1st day of April, 1952, to the extent to which suchincome is applied to such purposes outside India:" From going through the aforesaid provisions of Section 11(1)of the Act, it may be seen that income derived from propertyheld under a trust, wholly for charitable or religiouspurposes, will be exempt to the extent to which such incomeis applied towards objects of the trust in India and, wheresuch income is accumulated or set apart for applicationtowards such objects in India, then the same will also beexempt to the extent to which the income so accumulated orset apart, provided the same is not in excess of 15% of suchincome from the property. Besides, in this connection, theprovisions of Section 11(2) as well as Section 11 (3) of theAct are also relevant. It is also quite clear that the scheme oftaxation of charitable/religious trust is quite different fromthe taxation of other taxable entities under the Act, because the application of income and/or the accumulation of suchincome for the purposes of the objects of the trust, isrelevant. The term used in section 11(1) of the Act, the"income" and not "total income", which is applicable for thepurposes of taxation of other taxation of other taxableentities under the Act. The word "income" should beunderstood in its commercial sense, i.e., book income, whichnecessarily envisages deduction of depreciation on theassets of the trust. In the present context, it has to be clearlyunderstood if the depreciation is not allowed as a necessary deduction in computing the income of thecharitable/religious trusts, then there would be no way topreserve the corpus of the trust and therefore, a charitable/religious trust is entitled to depreciation in respect of theassets owned by it. 12.5 This view gets further supported by the decision ofHon'ble Madhya Pradesh High Court in the case of CIT vs.Raipur Pallottine Society, reported in [1989] 180 ITR 579(MP), wherein it has held that the charitable trust is entitledto depreciation in respect of asset owned by it. It wasfurther held that depreciation is the exhaustion of theeffective life of a fixed asset owing to "use" or obsolescence.It may be computed as that part of the cost of the assetwhich will not be recovered when the asset is finally put outof use. The object of providing for depreciation is to spreadthe expenditure incurred in acquiring the asset over itseffective lifetime and the amount of provision made inrespect of an accounting period is intended to represent theproportion of such expenditure which has expired during that period. If depreciation is not allowed as a necessarydeduction in computing the income of a charitable trust, thenthere would be no way to preserve the corpus of the trust. Acharitable trust is, therefore, entitled to depreciation inrespect of the assets owned by it. that period. If depreciation is not allowed as a necessarydeduction in computing the income of a charitable trust, thenthere would be no way to preserve the corpus of the trust. Acharitable trust is, therefore, entitled to depreciation inrespect of the assets owned by it. 12.6 We further observe that the Hon'ble Gujarat High Courtin the case of CIT vs. Sheth Manilal Ranchhoddas VishramBhavan Trust, reported in [1992] 198 ITR 598 (Guj), it washeld that the income from the properties held under trusthas to be arrived at in the normal commercial mannerwithout classification under the various heads set out insection 14 of the Income-Tax Act. The expression “income"has to be understood in the popular or general sense andnot in the sense in which the income is arrived at for thepurpose of assessment to tax by application of someartificial provisions either giving or denying deduction. Thecomputation under the different categories or heads arisesonly for the purposes of ascertaining the total income for thepurposes of charge. Those provisions cannot be introducedto find out what the income derived from the property heldunder trust to be excluded from the total income is, for thepurpose of the exemptions under Chapter III. The amount ofdepreciation debited to the accounts of the charitableinstitution has to be deducted to arrive at the incomeavailable for application to charitable and religiouspurposes. 12.7 Respectfully relying on the decision of the Hon'bleMadhya Pradesh High Court in the case of Raipur Pallottine Society (supra) and decision of Gujarat High Court in thecase Sheth Manilal Ranchhoddas Vishram Bhavan Trust(supra), we are for the considered view that the assessee isentitled to deprecation as per the Income-tax Act asapplication of income while determining income u/s 11(1) ofthe Act. However, in the present case, due to the variation offigures of depreciation as per Income-tax Act in between theassessee as well as Department, it will be appropriate to setaside the matter to the file of the ld. Assessing Officer for thelimited purpose of calculating the correct amount ofdeprecation as per Income-tax Act for the year under appeal.It is needless to mention that proper opportunity of beingheard to be given to the assessee and both the partiesshould arrive at a consonance on the correct figure ofdepreciation as per Income-tax Act and the same should beallowed as application of income for the purposes ofdetermining income u/s 11(1) of the Act. Accordingly, thisground of the assessee is allowed for statistical purposes.” 5.Thus, the Tribunal, after due consideration of theprovisions of Section 11(1) of the Act, 1961, held that theaddition to the fixed assets at Rs.20,68,73,986=00 as deductionand application of income has already been allowed by the CIT(Appeals) and, therefore, the said ground need not beadjudicated. The Revenue did not prefer any appeal before theTribunal against the allowance of addition to the fixed asset atRs.20,68,73,986=00 as deduction towards application of income.Therefore, the amount referred to in the question proposed bythe Revenue does not arise from the impugned order. The onlyissue which requires to be examined is, whether, while determining the income under the provisions of Section 11(1) ofthe Act, 1961, the assessee is eligible for deduction ofdepreciation as per the provisions of the Act, 1961, or not? 6.It is therefore, necessary to refer to the provisions ofSection 11(1) of the Act, which reads thus : “11. Income from property held for charitable or religiouspurposes. (1)Subject to the provisions of Sections 60 to 63, thefollowing income shall not be included in the total income ofthe previous year of the person in receipt of the income --- determining the income under the provisions of Section 11(1) ofthe Act, 1961, the assessee is eligible for deduction ofdepreciation as per the provisions of the Act, 1961, or not? 6.It is therefore, necessary to refer to the provisions ofSection 11(1) of the Act, which reads thus : “11. Income from property held for charitable or religiouspurposes. (1)Subject to the provisions of Sections 60 to 63, thefollowing income shall not be included in the total income ofthe previous year of the person in receipt of the income --- (a) income derived from property held under trust wholly forcharitable or religious purposes, to the extent to which suchincome is applied to such purposes in India; and, where anysuch income is accumulated or set apart for application tosuch purposes in India, to the extent to which the income soaccumulated or set apart is not in excess of fifteen per centof the income from such property; (b) income derived from property held under trust is partonly for such purposes, the trust having been created beforethe commencement of this Act, to the extent to which suchincome is applied to such purposes in India; and, where anysuch income is finally set apart for application to suchpurposes in India, to the extent to which the income so setapart is not in excess of fifteen per cent of the income fromsuch property; (c) income derived from property held under trust--- (i) created on or after the 1[st] day of April, 1952, for acharitable purpose which tends to promote internationalwelfare in which India is interested, to the extent to whichsuch income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1[st]day of April, 1952, to the extent to which such income isapplied to such purposes outside India : Provided that the Board, by general or special order, hasdirected in either case that it shall not be included in thetotal income of the person in receipt of such income; (d) income in the form of voluntary contributions made witha specific direction that they shall form part of the corpus ofthe trust or institution.” 7.On perusal of the above provisions of Section 11(1), it isclear that any public charitable or religious Trust is entitled toexemption of income derived from the property held under suchTrust wholly for charitable or religious purposes subject to thecondition that such income is applied to such purposes in Indiaor such income is accumulated or set apart for applicationtowards the object of the Trust. It is also subject to furthercondition that such accumulated or set apart of income forapplication should not exceed fifteen per cent of the incomefrom such property. 8.Sub-sections (2) and (3) of Section 11 are also relevant soas to determine the exempt income in the hands of any publiccharitable or religious Trust. Sub-sections (2) and (3) of Section11 read thus : “(2) Where eighty-five per cent of the income referred to inclause (a) or clause (b) of sub-section (1) read with theExplanation to that sub-section is not applied, or is notdeemed to have been applied, to charitable or religiouspurposes in India during the previous year but isaccumulated or set apart, either in whole or in part, forapplication to such purposes in India, such income soaccumulated or set apart shall not be included in the totalincome of the previous year of the person in receipt of theincome, provided the following conditions are complied with,namely :- (a) such person specifies, by notice in writing given to theAssessing Officer in the prescribed manner, the purpose forwhich the income is being accumulated or set apart and theperiod for which the income is to be accumulated or setapart, which shall in no case exceed ten years; (b) the money so accumulated or set apart is invested ordeposited in the forms or modes specified in sub-section (5): (a) such person specifies, by notice in writing given to theAssessing Officer in the prescribed manner, the purpose forwhich the income is being accumulated or set apart and theperiod for which the income is to be accumulated or setapart, which shall in no case exceed ten years; (b) the money so accumulated or set apart is invested ordeposited in the forms or modes specified in sub-section (5): Provided that in computing the period of ten years referredto in clause(a), the period during which the income could notbe applied for the purpose for which it is so accumulated orset apart, due to an order or injunction of any court, shall beexcluded : Provided further that in respect of any income accumulatedor set apart on or after the 1[st] day of April, 2001, theprovisions of this sub-section shall have effect as if for thewords 'ten years' at both the places where they occur, thewords 'five years' had been substituted.” “(3) Any income referred to in sub-section (2) which --- (a) is applied to purposes other than charitable or religiouspurposes as aforesaid or ceases to be accumulated or setapart for application thereto, or (b) ceases to remain invested or deposited in any of theforms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is soaccumulated or set apart during the period referred to inclause (a) of that sub-section or in the year immediatelyfollowing the expiry thereof, (d) is credited or paid to any trust or institution registeredunder section 12AA or to any fund or institution or trust orany university or other educational institution or anyhospital or other medical institution referred to in sub-clause(iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) ofclause (23C) of section 10, shall be deemed to be the income of such person of theprevious year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested ordeposited or credited or paid or, as the case may be, of theprevious year immediately following the expiry of the periodaforesaid.” 9.The plain reading of the provisions of Section 11 of the Act,1961, would indicate that it provides for computation of incomefrom the property held for charitable or religious purposes. It is,therefore, necessary to take into consideration the import of theword “income”, which is defined under Section 2(24) of the Act,1961, which provides that income includes profits and gains,dividend, voluntary contributions, etc., whereas Section 2(45) ofthe Act, 1961, defines the “total income”, which means the totalamount of income referred to in Section 5 computed in themanner laid down in the Act, 1961. Thus, computing the incomeof a public charitable and religious Trust is different than thecomputation of total income under the provisions of the Act,1961, for other entities. 10.The Tribunal has rightly relied upon the decision ofMadhya Pradesh High Court in the case of CIT vs. RaipurPallottine Society, reported in (1989)180 ITR 579 (M), wherein, itis held that a public charitable Trust is entitled to depreciationin respect of the assets owned by it. 11.This Court, in the case of CIT v. Sheth ManilalRanchhoddas Vishram Bhavan Trust, reported in (1992)198 ITR598 (Guj), held that income from the properties held under thepublic Trust has to be arrived at in the normal commercialmanner without classification under the various heads set out in Section 14 of the Act, 1961. The Court has observed as under : 10.The Tribunal has rightly relied upon the decision ofMadhya Pradesh High Court in the case of CIT vs. RaipurPallottine Society, reported in (1989)180 ITR 579 (M), wherein, itis held that a public charitable Trust is entitled to depreciationin respect of the assets owned by it. 11.This Court, in the case of CIT v. Sheth ManilalRanchhoddas Vishram Bhavan Trust, reported in (1992)198 ITR598 (Guj), held that income from the properties held under thepublic Trust has to be arrived at in the normal comm