2012 (12) TMI 1070 - AT - Income Tax

Applicability exemption u/s 11 - can depreciation be claimed as application of income - Held that the assessee is eligible for exemption and cannot be assessed as an AOP - when different views are available then views favourable to the assessee should be adopted - the claim of depreciation on fixed assets utilized for the charitable purpose has to allowed while arriving at the income available for application to charitable and religious purposes since the income of the assessee should be computed on the basis of commercial principle - DIT vs. Vishwa Jagriti Mission 2012 (4) TMI 289 (Del.) - Decided in favor of assesse

Summary

Issues Involved:
- Appeal against orders of Commissioner of Income-tax(Appeals) for assessment years 2006-07 and 2008-09.
- Exemption u/s 11 for M/s Jeppiar Educational Trust, M/s Sivaraja Ramalinga Trust, M/s Holy Satellite Town Ltd, and M/s Jet Associates.
- Application of funds for charitable purposes and depreciation claimed.
- Legal principles regarding depreciation on fixed assets utilized for charitable purposes.
- Interpretation of commercial principles in computing income for charitable trusts.

Analysis:

Issue 1: Appeal for Assessment Year 2006-07
The Revenue raised grounds against the CIT(A)'s direction to allow exemption u/s 11 for M/s Jeppiar Educational Trust and M/s Sivaraja Ramalinga Trust. The Revenue contended that CBDT instruction No.1132 was not applicable due to denial of exemption in previous years. However, the ITAT upheld the assessee's eligibility for exemption under sec.11 based on previous Tribunal orders, concluding that the CIT(A)'s decision was legally justified.

Issue 2: Application of Funds and Depreciation
The CIT(A) directed the Assessing Officer to allow exemption under sec.11 by treating depreciation claimed as application of income for charitable purposes in the assessment year 2008-09. The Revenue challenged this decision, citing legal precedents where depreciation was disallowed on assets used for charitable purposes. However, the CIT(A) relied on contrary judgments emphasizing that depreciation should be allowed on fixed assets utilized for charitable purposes to compute income available for charitable activities.

Issue 3: Interpretation of Commercial Principles
The High Courts' decisions in various cases supported allowing depreciation on capital assets for charitable trusts based on commercial principles. The ITAT Chennai also referred to the Supreme Court's ruling in CIT v. Vegetable Products Ltd., stating that views favorable to the assessee should be adopted when different opinions exist. Consequently, the ITAT upheld the CIT(A)'s decision to allow depreciation, affirming that income for charitable trusts should be computed using regular commercial principles.

In conclusion, the ITAT Chennai dismissed the Revenue's appeals for both assessment years, affirming the decisions of the CIT(A) regarding exemption under sec.11 and the allowance of depreciation on fixed assets for charitable purposes. The judgment highlighted the importance of consistent application of legal principles in determining income for charitable trusts.