2015 (5) TMI 1017 - AT - Income Tax

Depreciation on the asset and the investment made on such asset allowed as application of income under Section 11 - double deduction - Held that - Depreciation is the exhaustion of the effective life of a fixed asset owing to use or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective lifetime; the amount of the provision, made in respect of an accounting period, is intended to represent the proportion of such expenditure, which has expired during that period. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. See CMS Educational & Charitable Trust 2013 (4) TMI 771 - ITAT CHENNAI - Decided in favour of the assessee.

Summary

Issues:
1. Claim of depreciation on an asset previously allowed as application of income under Section 11 of the Income-tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai was against the order of the Commissioner of Income Tax (Appeals)-I, Coimbatore, dated 18.07.2014. The main issue was regarding the claim of depreciation on an asset for which the investment had been allowed as application of income under Section 11 of the Income-tax Act, 1961. The Departmental Representative argued that since the investment in the capital asset was allowed under Section 11, the assessee could not claim depreciation on the same asset. The representative relied on the judgment of the Kerala High Court in Lissie Medical Institutions v. CIT to support this argument.

Upon considering the submissions and the available material, the Tribunal had to determine whether an asset for which the investment was allowed as application of income under Section 11 could still be eligible for depreciation under the Income-tax Act. While the Kerala High Court in Lissie Medical Institutions case held that such an asset is not eligible for depreciation, conflicting opinions existed. The Delhi High Court in Usha Jagriti Mission and the Punjab & Haryana High Court in CIT v. Market Committee, Pipli, allowed depreciation even when the investment was treated as application of income under Section 11. The Chennai Bench of the Tribunal consistently followed the view favoring the assessee, as seen in previous cases like Coimbatore Welfare Association, M/s CMS Educational & Charitable Trust, and M/s Kongunadu Arts & Science College. Given this consistent approach, the Tribunal upheld the order of the CIT(Appeals) allowing depreciation on the asset in question.

In conclusion, the Tribunal dismissed the appeal of the Revenue and confirmed the order of the CIT(Appeals) allowing depreciation on the asset previously treated as application of income under Section 11. The decision was pronounced on 8th May 2015 in Chennai.