2014 (1) TMI 1632 - AT - Income Tax

Disallowance of depreciation - Held that - Amount of depreciation debited to the account of Charitable Institutions is to be allowed as deduction to arrive at the income available for application to charitable or religious purposes. Accordingly the disallowance made by the Assessing Officer on account of depreciation of 2, 79, 58, 973/- as claimed by the assessee is hereby deleted Following the judgment of Hon ble Delhi High Court in the case of Director of Income Tax Vs. Raguvanshi Charitable Trust in 2010 (7) TMI 158 - DELHI HIGH COURT the appellant society is allowed to carry forward the deficit of the current year and to set off the same against the income of the subsequent years - Decided against Revenue.

Summary

Issues:
1. Disallowance of depreciation claimed as application of income under section 12 of the Income Tax Act, 1961.
2. Allowance of carry forward of excess application and set off against future income under section 11 of the Income Tax Act, 1961.

Analysis:
1. The issue in this case revolves around the disallowance of depreciation claimed as application of income under section 12 of the Income Tax Act, 1961. The Revenue contended that depreciation, being notional expenditure, cannot be debited as an expense and should not be considered as application of income. The Revenue argued that depreciation is a specific allowance provided under section 32 for the calculation of income under the head "Business and Profession," whereas section 11 deals with "Income from property held under the Trust." The Revenue relied on various legal positions and court decisions to support its contention that depreciation should not be allowed as application of income. However, the Appellate Tribunal disagreed with the Revenue's argument and held that the amount of depreciation debited to the account of Charitable Institutions should be allowed as a deduction to arrive at the income available for application to charitable or religious purposes. The Tribunal referred to a judgment passed by the Hon'ble ITAT, Delhi Bench-H, and upheld the allowance of depreciation claimed by the assessee, thereby deleting the disallowance made by the Assessing Officer.

2. The second issue pertains to the allowance of carry forward of excess application and set off against future income under section 11 of the Income Tax Act, 1961. The assessee claimed the carry forward of excess application made during the year and from earlier years to be set off against future income. The Revenue challenged this claim, arguing that as per the provisions of section 11, no such carry forward of excess application is allowable. However, the Ld. CIT (A) allowed the carry forward of the deficit of the current year and set off against the income of subsequent years based on the judgment of the Hon'ble Delhi High Court in a specific case. The Ld. Dr could not provide any contrary decision, leading to the upholding of the Ld. CIT (A)'s order and the dismissal of the Revenue's appeal. The Tribunal found no infirmity in the order of the first appellate authority and decided against the Revenue on this ground as well.

In conclusion, the Appellate Tribunal upheld the allowance of depreciation claimed as application of income and the carry forward of excess application set off against future income, based on legal interpretations and precedents cited during the proceedings. The Tribunal's decision was in favor of the assessee, rejecting the Revenue's contentions and affirming the orders of the lower authorities.