2010 (8) TMI 544 - HC - Income Tax

Depreciation - in CIT v. Market Committee, Pipli, 2010 -TMI - 202247 - Punjab and Haryana High Court - assessee is not claiming double deduction on account of depreciation as has been suggested by learned counsel for the Revenue - It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11 - Decided against the revenue

Summary

Issues:
1. Whether depreciation on capital assets is to be considered as application of income for charitable purpose?
2. Whether the claim for depreciation by a society registered under section 12AA of the Income-tax Act should be allowed?

Analysis:
Issue 1: The main issue in this case was whether depreciation on capital assets is to be considered as an application of income for charitable purposes. The appellant, a society registered under section 12AA of the Income-tax Act, claimed depreciation on capital assets, which was disallowed by the Assessing Officer. The Tribunal, however, allowed the claim for depreciation, stating that it had to be allowed on business principles for determining the extent of application of income to comply with statutory requirements. The Tribunal emphasized that depreciation is a concession granted by the state in the computation of income and is essential for a true picture of the real income. It cited various legal precedents to support its decision, including the decision of the Hon'ble Supreme Court in the case of CIT v. Alps Theatre and the judgment of the Hon'ble Madhya Pradesh High Court in Raipur Pallottine Society case.

Issue 2: The second issue revolved around whether the claim for depreciation by a society registered under section 12AA of the Income-tax Act should be allowed. The revenue contended that the Tribunal erred in upholding the claim for depreciation, relying on the judgment of the Hon'ble Supreme Court in Escorts Ltd.'s case. However, the Tribunal's decision was supported by the learned counsel for the assessee. The High Court, after considering the arguments, upheld the Tribunal's decision, stating that the judgment in Escorts Ltd.'s case was distinguishable. It noted that the assessee was not claiming double deduction on account of depreciation but was only seeking a reduction in income to determine the percentage of funds to be applied for trust purposes. The Court held that there was no double benefit in allowing the claim for depreciation for computing income under section 11, and thus ruled in favor of the assessee.

In conclusion, the High Court dismissed the appeals, affirming the Tribunal's decision to allow the claim for depreciation by the society registered under section 12AA of the Income-tax Act. The Court held that depreciation is a legitimate deduction necessary for a true reflection of income and that the judgment in Escorts Ltd.'s case did not apply in the present scenario.