2014 (10) TMI 967 - AT - Income Tax

Disallowing depreciation on fixed assets to assessee trust - Held that - We find that the assessee has given sufficient reasons for claiming the same in support certificates were filed which were also before the lower authorities. The assessee is running a hospital. The assets which have outlived their lives cannot be sold as scrap as per the rules governing the hospital the assessee was left with no choice but to claim the same as additional depreciation. The Hon ble High Court of Bombay in the case of Institute of Banking Personnel Selection (2003 (7) TMI 52 - BOMBAY High Court) has laid down the ratio that the income of the Trust is required to be computed u/s. 11 on commercial principles. Claim of carry forward of deficit to be set off against the income of the subsequent years - Held that - As the income has to be computed on commercial principles like business loss which is allowed to be carried forward and set off with the profit of subsequent years. Similarly the deficit in the case of a trust is allowed to be carried forward to be set off in subsequent years. That being so findings of the Ld. CIT(A) need no interference. - Decided against revenue

Summary

Issues involved:
1. Disallowance of depreciation on fixed assets
2. Carry forward of deficit and set off against income of subsequent years

Detailed Analysis:
Issue 1: Disallowance of depreciation on fixed assets
The case involved a charitable trust running a hospital that claimed additional depreciation on assets that had outlived their useful life. The Assessing Officer (AO) disallowed the claim as the assets should have been sold as scrap according to the AO. The AO also disallowed the deficit as an application of income based on a Supreme Court decision. The trust appealed, and the CIT(A) allowed the depreciation claim and carry forward of deficit. The CIT(A) relied on certificates certifying the assets' useful life completion and the principle of computing trust income on commercial principles. The ITAT upheld the CIT(A)'s decision, stating that the trust's income should be computed on commercial principles, allowing the depreciation claim.

Issue 2: Carry forward of deficit and set off against income of subsequent years
The ITAT further explained that like business losses, deficits in a trust can be carried forward and set off against income in subsequent years. The ITAT emphasized that the CIT(A)'s decision aligns with the principle of allowing deficits to be carried forward for set off in subsequent years. Consequently, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision on both issues.

In conclusion, the ITAT upheld the CIT(A)'s decision, allowing the depreciation claim on fixed assets and the carry forward of deficit for set off against income in subsequent years, based on the commercial principles governing trust income computation.