2012 (4) TMI 605 - AT - Income Tax

Disallowance of depreciation claimed as a part of utilization for impugned assessment year by assessee trust - Held that - We set aside the orders of the authorities below and direct that assessee s claim with regard to depreciation while computing its exemption under Section 11 of the Act be allowed.

Summary

Issues Involved:

Disallowance of depreciation claimed as a part of utilization for the purpose of applying deduction under Section 11 of the Income-tax Act, 1961.

Detailed Analysis:

1. Background and Assessee's Claim:
The assessee, a society registered under Section 12AA of the Income-tax Act, 1961, returned NIL income and included depreciation as part of the 85% utilization for claiming deduction under Section 11. The Assessing Officer (A.O.) disallowed the depreciation claim, arguing that it would result in double deduction since the capital expenditure had already been claimed as application of income. The A.O. relied on the Supreme Court decision in Escorts Ltd. v. Union of India (199 ITR 43).

2. Appeal to CIT(Appeals):
The assessee's appeal to the Commissioner of Income Tax (Appeals) [CIT(A)] was unsuccessful. The CIT(A) cited the jurisdictional High Court decision in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities (135 ITR 485), which emphasized that income for Section 11 should be understood in a normal commercial manner, thus disallowing the depreciation claim.

3. Tribunal's Consideration:
The Tribunal considered precedents, notably the decision of the co-ordinate Bench in Sri Mariamman Educational Health and Charitable Trust v. ACIT, which supported the assessee's claim based on the Punjab & Haryana High Court decision in CIT v. Tiny Tots Education Society (330 ITR 21). The Tribunal noted that similar issues had been resolved in favor of the assessee in past cases.

4. Revenue's Argument:
The Department, supporting the A.O.'s disallowance, reiterated reliance on the Supreme Court decision in Escorts Ltd., arguing that allowing depreciation would amount to double deduction.

5. Tribunal's Findings:
The Tribunal found that the issue of whether depreciation can be claimed as utilization under Section 11 was settled in favor of the assessee by the Punjab & Haryana High Court in Tiny Tots Education Society. The Tribunal referenced the co-ordinate Bench's decision, which discussed similar facts and upheld the assessee's claim for depreciation.

6. Comparative Case Law Analysis:
The Tribunal analyzed several case laws:
- Bombay High Court in CIT v. Institute of Banking Personnel Selection (264 ITR 110) supported the view that depreciation could be claimed even if the capital expenditure was treated as application of income.
- The Tribunal also considered the Punjab & Haryana High Court's detailed reasoning in Tiny Tots Education Society, which distinguished the Supreme Court's decision in Escorts Ltd., stating that it did not apply to charitable institutions claiming depreciation for determining funds applied for charitable purposes.

7. Conclusion:
The Tribunal concluded that the assessee's claim for depreciation was valid and directed the A.O. to allow the depreciation while computing the exemption under Section 11. The Tribunal emphasized that no contrary material or higher court orders were presented by the Revenue to justify a different view.

Result:
The appeal of the assessee was allowed, and the orders of the lower authorities were set aside, directing the A.O. to allow the depreciation claim.

Order Pronouncement:
The order was pronounced in the open court on 10th April, 2012.