Jagannatha Shetty, J.—The following question has been referred to this court under s. 256(1) of the I.T. Act, 1961 :

"Whether the Tribunal is correct in holding that the amount of depreciation debited to accounts of a charitable institution is to be deducted to arrive at the income available for application to charitable and religious purposes ?"

2. The assessee is a society known as "The Society of the Sisters of St. Anne, Bangalore". It is a charitable institution running a school. It was assessed as an association of persons for the assessment year 1977-78. The assessee filed a return of income on August 6, 1977, declaring "nil" income. The gross receipt as per income and expenditure statement was shown as Rs. 1,93,185. Expense claimed as allowance under s. 11(1) was shown as Rs. 1,37,389. While arriving at this figure, depreciation of Rs. 5,781 was claimed in the statement of accounts as a debit in respect of the school building. The ITO disallowed that claim stating that depreciation is required to be allowed only when the income is computed under the head "Business" falling under s. 28 of the I.T. Act, 1961. He also observed that what is contemplated u/s. 11(1) is act