2011 (8) TMI 1174 - AT - Income Tax

Disallowance of depreciation to assessee trust - Held that - The income of the assessee being exempt the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust. There was thus no double deduction claimed by the assessee.

Summary

Issues:
Disallowance of depreciation claimed by the assessee for the assessment year 2007-08.

Analysis:
The appeal by the department in this case pertains to the assessment year 2007-08 and focuses on the disallowance of depreciation claimed by the assessee. The Assessing Officer disallowed the depreciation of &8377; 58,24,330/- as he believed the assets on which depreciation was claimed were already allowed as application of income from the trust property under section 11 of the Income Tax Act. The assessee, however, argued that the depreciation was permissible based on the judgment of the Bombay High Court in CIT vs. Institute of Banking. The High Court's decision allowed both capital expenditure on assets and depreciation on those assets as legitimate deductions. The Supreme Court's stance against double deduction, as highlighted in the case of Escorts Ltd. vs. Union of India, was also considered. The Punjab & Haryana High Court, in a subsequent case, supported the allowance of depreciation for a charitable trust, emphasizing that it does not lead to double benefit when determining the percentage of funds applied for trust purposes. In line with these precedents, the ITAT Mumbai affirmed the CIT(A)'s decision, dismissing the appeal by the revenue.

This judgment underscores the nuanced interpretation of tax laws concerning the allowance of depreciation for charitable trusts. The conflicting principles of avoiding double deductions and ensuring legitimate deductions for computing real income were carefully weighed. The ITAT Mumbai's decision aligned with the precedents set by the Bombay High Court and the Punjab & Haryana High Court, emphasizing the distinction between claiming depreciation for trust purposes and seeking double benefits. The case highlights the importance of judicial precedents and the application of legal principles to determine the admissibility of deductions in tax assessments.