2010 (7) TMI 377 - HC - Income Tax

Charitable purpose Application of Income to charitable objects depreciation Claim to depreciation for determination percentage of funds to be applied for purposes of trust permissible Not a case of double benefit

Summary

Issues:
1. Whether the Income-tax Appellate Tribunal was right in confirming the order directing the Assessing Officer to allow depreciation even though deduction under section 11 was already allowed?

Analysis:
The appeal involved a dispute regarding the allowance of depreciation to a charitable institution registered under section 12AA of the Income-tax Act, 1961. The Assessing Officer disallowed the depreciation, arguing that it would result in a double benefit for the assessee. However, the Commissioner of Income-tax (Appeals) accepted the appeal, stating that the deduction for computing income to preserve the trust's corpus was permissible and did not amount to a double benefit. The Tribunal upheld this view, emphasizing that the application of income is distinct from the computation of income, and depreciation should be allowed based on commercial principles and accounting practices followed by the assessee.

The Revenue contended, citing a Supreme Court judgment, that allowing depreciation when the income is exempt would lead to a double benefit. However, the Court rejected this argument, referencing a recent judgment in CIT v. Market Committee, Pipli, and various other cases to establish that the situation at hand, where depreciation was claimed by a charitable institution to determine the percentage of funds applied for charitable purposes, did not amount to a double deduction. The Court distinguished the Supreme Court's decision in Escorts Ltd., stating that in this case, the assessee was not seeking double deduction but merely reducing income by claiming depreciation to calculate the percentage of funds for charitable objectives. Consequently, the Court ruled in favor of the assessee, holding that no double benefit was being conferred by allowing the claim for depreciation for income computation under section 11.

In conclusion, the Court dismissed the appeal, stating that the questions proposed by the Revenue did not constitute substantial questions of law. The judgment highlighted the distinction between claiming depreciation for income computation and the application of income for charitable purposes, ultimately ruling in favor of the assessee and upholding the Tribunal's decision to allow depreciation for the charitable institution.