Whether the income of the assessee being a Trust can be computed on commercial principles and while doing so whether depreciation on fixed assets can be allowed.
On this issue, there seems to be a consensus of judicial thinking, having regard to the consensus of judicial opinion, we are not inclined to admit the appeal and frame any substantial question of law. There does not appear to be any contrary view plausible on the question raised before us and at any rate no judgment taking a contrary view has been brought to our notice.
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IN THE HIGH COURT OF DELHI
ITA No.140/2012
DIRECTOR OF INCOME TAX
Vs
VISHWA JAGRITI MISSION
Dated: March 29, 2012
JUDGEMENT
Per: R V Easwar:
The respondent-assessee is a society registered under the Societies Registration Act, 1860 vide order in Regn. No. S-24228 dated 10th May, 1993. For the purposes of assessment to income tax it is assessed in the status of “Association of persons”. It had filed an application in Form No.10A on 21st December, 2005 for grant of registration under Section 12A of the Income Tax Act, 1961 (‘Act’ for short). Registration was applied for from the date of incorporation of the society. The application was, however, rejected by the Director of Income Tax (Exemption), Delhi vide order passed on 22nd August, 2006 under Section 12AA(1)(b) of the Act. The registration was rejected not only for the past assessment years but also for the assessment year 2006-07 which is the year in question before us.
2. The assessee appealed to the Income Tax Appellate Tribunal (‘Tribunal’ for short) against the order refusing registration and the Tribunal vide its order dated 25th May, 2007 set aside the order of the refusal of registration and directed the DIT(E) to re-examine the assessee’s claim. The DIT(E) again passed an order on 24th September, 2008 rejecting the claim for registration.
3. In the aforesaid factual background, the assessee’s claim for exemption of its income under Section 11 of the Act was rejected by the Assessing Officer vide order passed by him under Section 143(3) of the Act on 29th December, 2008.
4. The question, however, arose as to how the taxable income of the assessee should be computed. The assessee had declared gross receipts of Rs.12,44,11,646/- on account of donations, profit on sale of land and bank interest. Against the gross receipts, the application of funds for charitable purposes was claimed on account of expenditure incurred towards the purposes of the trust.
5. In the course of the assessment proceedings, the Assessing Officer called upon the assessee to furnish the relevant details of expenses incurred for collecting the donations, bank interest etc. in response to which the assessee submitted that no specific expenses were incurred for the purpose. Taking note of the submission, the Assessing Officer proceeded to compute the income of the assessee as it would be normally computed under the head ‘profits and gains of business’. He then referred to the provisions of Section 37(1) under which any expenditure incurred wholly and exclusively for the purpose of the business was allowed as a deduction in computing the profits and gains of the business. Since the assessee itself had admitted vide its letter dated 26th November, 2008 that no specific expenses were incurred for earning the income, the Assessing Officer was not in a position to allow any deduction on account of the expenses. However, accepting the position that some expenditure would have necessarily been incurred for earning the income, the Assessing Officer estimated the same at Rs.1 lac per month and thus allowed an expenditure of Rs.12 lacs against the gross receipts of Rs.12,44,11,646/- and arrived at the net taxable income of Rs. 12,32,11,650/-.
6. The assessee appealed to the CIT(Appeals) questioning the refusal of the Assessing Officer to allow exemption under Section 11 of the Act in respect of the income. In the alternative, it was claimed that the expenses of Rs.12 lacs allowed as deduction by the Assessing Officer were insufficient to cover the actual expenses incurred by the assessee. It was, inter alia, claimed that in addition to the various expenses incurred for earning the receipts, the Assessing Officer ought to have allowed depreciation of Rs.36,53,818/- on fixed assets utilised for the charitable objects of the trust.
7. By the time the appeal came to be heard by the CIT(Appeals), it appears that the DIT(E), New Delhi had passed an order on 11th September, 2009 granting registration under Section 12AA with effect from the assessment year 1994-95. Relying upon the order, the assessee claimed before the CIT(Appeals) that its income should be allowed exemption under Section 11 of the Act and filed a working of its taxable income as under:-
