2012 (12) TMI 1087 - AT - Income Tax

Summary

Issues involved:
The judgment addresses the allowability of depreciation in relation to capital expenditure under section 11 of the Income Tax Act and the set off of deficit of earlier years against the income of the current year.

Depreciation on Capital Expenditure:
The appellant, a charitable institution registered under section 12A of the Act, claimed depreciation on capital expenditure incurred for charitable objectives. The Assessing Officer (AO) disallowed the depreciation, considering the volume of business from trade exhibitions as dominant and not incidental to the charitable trust. However, the Commissioner of Income Tax (Appeals) [CIT(A)] directed the AO to allow depreciation on capital expenditure, citing a previous Tribunal decision in the appellant's favor for a different assessment year. The Tribunal upheld that capital expenditure for trust objectives should be considered as application of income, and any resulting asset used for business is eligible for depreciation. The Tribunal also referenced a judgment by the High Court of Bombay supporting this view. Despite a conflicting judgment from the High Court of Andhra Pradesh, the Tribunal, being bound by the jurisdictional High Court's decision, ruled in favor of allowing depreciation on the capital expenditure.

Set Off of Deficit of Earlier Years:
The AO treated the loss from exhibition activities as a business loss due to its significant contribution to total receipts and lack of separate accounting. However, the CIT(A) deemed the exhibition activities as incidental to the trust's main objectives and directed the set off of losses from exhibitions against other income. Additionally, the CIT(A) instructed the AO to set off the deficit of earlier years against the income of the current year, following a High Court of Bombay decision. The Tribunal upheld the CIT(A)'s directives, emphasizing that excess expenditure or deficit from earlier years should be considered as application of income in subsequent years, in line with the High Court's ruling.

Conclusion:
The Tribunal dismissed the revenue's appeal, allowing both the grounds in favor of the assessee based on the legal principles discussed and the precedents set by the High Court of Bombay. The decision was made in the absence of representation from the assessee during the appeal hearing.