2009 (6) TMI 983 - AT - Income Tax

Summary

Issues involved:
The issue in this case is whether a charitable institution is entitled to claim depreciation under section 11 of the Income-tax Act.

Summary:

Issue 1: Entitlement to claim depreciation by a charitable institution under section 11 of the Income-tax Act

The Appellate Tribunal ITAT Delhi heard an appeal by the revenue against the order of CIT(A) regarding the entitlement of a charitable institution to claim depreciation of Rs. 15,21,994 under section 11 of the Income-tax Act for the assessment year 2006-07. The Assessing Officer allowed the benefit of section 11 to the assessee, resulting in nil income assessment. However, a controversy arose when the Assessing Officer disallowed the deduction of depreciation, claiming it would result in double deduction as the amount invested in the capital asset was treated as an application of income. The revenue relied on the decision of the Hon'ble Supreme Court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 431 to support its claim that depreciation should not be allowed.

Issue 2: Application of income vs. computation of income for a charitable institution

The Tribunal analyzed the concept of application of income versus computation of income for a charitable institution. It emphasized that the provision relating to compulsory application of income is distinct from the computation of income and should be considered only after the income is determined. The Tribunal referred to previous decisions, including ITO v. Trustees of Marathi Mission [1982] 1 ITD (Bom.) 539, to support the view that determination of income and application of income are separate concepts. The Tribunal rejected the argument that allowing depreciation would result in double deduction, stating that application of income is a condition for exemption and not a deduction from income.

Conclusion:

The Tribunal upheld the order of CIT(A) and dismissed the revenue's appeal, confirming that the charitable institution was entitled to claim depreciation under section 11 of the Income-tax Act.