2015 (10) TMI 2472 - AT - Income Tax

Disallowance for depreciation in respect of assets, the cost of which is claimed as application - Computation of income u/s 11(1)(a) - Held that - Similar to the case of AP Olympic Association (2014 (2) TMI 988 - ITAT HYDERABAD ), we respectfully follow the decision rendered by the coordinate bench of this Tribunal in the said case, and direct the Assessing Officer to allow the claim of the assessee for depreciation in respect of the assets, the cost of which is claimed by the assessee as application. - Decided in favour of assessee

Summary

Issues:
Disallowance of depreciation claim in respect of assets claimed as application.

Detailed Analysis:

Issue 1: Disallowance of Depreciation Claim
The appeal concerns the disallowance of the assessee's claim for depreciation on assets, the cost of which is claimed as application. The Tribunal examined the issue in light of the assessee's registration under section 12AA of the Income Tax Act and the computation of income under sections 11 and 13. The Tribunal emphasized that the income of a charitable institution must be computed under commercial accounting principles, allowing for depreciation on depreciable assets to determine the income required to be applied for charitable purposes. The Tribunal referenced the decision in the case of AP Olympic Association, Hyderabad, which favored the assessee, discussing the relevant aspects and case laws extensively.

Issue 2: Judicial Precedents and Opinions
Various High Courts, including Kerala, Punjab and Haryana, Gujarat, Madhya Pradesh, and Delhi, have provided judgments supporting the allowance of depreciation for charitable institutions. These judgments highlighted the necessity of depreciation deduction on commercial principles for computing the income available for charitable purposes. The Tribunal noted the consensus among judicial opinions on this matter, emphasizing the importance of preserving the trust's corpus for deriving income and applying it towards charitable activities.

Issue 3: Interpretation of Commercial Income
The Tribunal distinguished the case of Escorts Limited Vs. Union of India, emphasizing that the concept of commercial income, especially regarding depreciation, differs for charitable trusts compared to business entities. It highlighted that depreciation is a necessary charge even under normal commercial accounting principles and should be allowed for charitable institutions to determine the income available for charitable purposes.

Issue 4: Application of Funds and Depreciation
The Tribunal referred to guidelines from the Board Circular and the Institute of Chartered Accountants of India regarding the claim of depreciation for charitable institutions. It emphasized that the claim of depreciation on assets should be allowed unless assets were claimed as deductions in previous years. The Tribunal upheld the principle that double deduction is not permissible but stressed the need for a thorough examination before disallowing depreciation claims.

Conclusion:
The Tribunal, based on the precedents and legal principles discussed, allowed the assessee's appeal, directing the Assessing Officer to permit the depreciation claim for assets claimed as application. The decision was in line with the majority opinion of various High Courts and the principles laid down by the Delhi High Court, supporting the allowance of depreciation for charitable institutions to determine the income available for charitable purposes.

This detailed analysis of the judgment highlights the key issues, legal interpretations, precedents, and the final decision rendered by the Tribunal in favor of the assessee.