2012 (9) TMI 1073 - AT - Income Tax

Application of income for the purpose of Section 11 - claiming depreciation on same assets would amount to claiming double deduction for the same amount

Summary

Issues Involved:
1. Disallowance of depreciation claimed by the assessee.
2. Interpretation of double deduction in the context of depreciation.
3. Consideration of earlier tribunal decisions and High Court orders.
4. Application of legal precedents regarding depreciation claims for charitable institutions.

Analysis:

1. Disallowed Depreciation Claim:
The appeal pertains to the disallowance of depreciation claimed by the assessee, a Trust registered under section 12A of the IT Act, for the assessment year 2006-2007. The Assessing Officer disallowed the depreciation claimed by the assessee on the grounds that the amount invested in assets for which depreciation was claimed had already been treated as an application of income under Section 11 of the Act. Consequently, allowing depreciation on the same assets would result in a double deduction. This disallowance led to a negative figure in the return turning into a positive one.

2. Interpretation of Double Deduction:
The crux of the issue lies in determining whether claiming depreciation on assets already considered as an application of income amounts to double deduction. The first appellate authority allowed the assessee's appeal, citing a previous decision by the Hon'ble ITAT, which held that the assessee was indeed entitled to depreciation. The ITAT decision was based on the precedent set by the Hon'ble Bombay High Court in a similar case. The Revenue, however, contested this decision, arguing that the entire amount of the capital asset being treated as an application of income precludes further deduction for depreciation.

3. Consideration of Tribunal and High Court Orders:
The Revenue's appeal raised several grounds challenging the first appellate authority's decision to follow the ITAT's ruling in favor of the assessee. The Revenue pointed out a different decision by the ITAT in another case, emphasizing that the ITAT's decision in the present case was not accepted by the Revenue and an appeal was filed before the High Court of Karnataka. The High Court had granted interim stay and admitted the appeal for consideration of substantial questions of law, creating a conflict in legal interpretations.

4. Application of Legal Precedents for Charitable Institutions:
During the hearing, the Tribunal emphasized the importance of following legal precedents set by jurisdictional High Courts regarding depreciation claims for charitable institutions. Citing decisions by various High Courts, the Tribunal reiterated that the amount of depreciation debited to the accounts of a charitable institution should be deducted to determine the available income for charitable and religious purposes. Relying on these legal precedents, the Tribunal dismissed the Revenue's appeal and upheld the assessee's right to claim depreciation on the assets used for trust activities.

In conclusion, the Tribunal's decision to dismiss the Revenue's appeal was based on the application of legal precedents and interpretations of double deduction in the context of depreciation claims for charitable institutions, as established by previous tribunal and High Court rulings.