2010 (7) TMI 573 - HC - Income Tax

Disallowance - Depreciation - Capital expenditure is considered as application of income - The assessee has been constituted under the provisions of the Punjab Agricultural Marketing Produce Act 1961 to regulate the marketing of agricultural produce - computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge - Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is for the purpose of the exemptions under Chap.III - Decided in the favour of the assessee

Summary

Issues:
1. Allowability of expenditure contributed to HSAM Board under statutory obligation.
2. Allowability of depreciation on fixed assets for charitable trust/institution.

Analysis:

Issue 1:
The appeal involved the question of whether the expenditure of Rs.92,98,533 contributed to the HSAM Board under a statutory obligation was allowable as a deduction. The assessee, a charitable trust under the Punjab Agricultural Produce Market Act, 1961, had made contributions to the Marketing Board as required by the Act. The Assessing Officer disallowed the contribution amount, citing lack of proof of expenditure. However, the CIT(A) allowed the claim, emphasizing that the contributions were in line with statutory requirements. The Tribunal affirmed the CIT(A)'s decision, noting that the funds were utilized for specific purposes as mandated by the Act. The Tribunal's decision was supported by the CIT(A)'s observations regarding the utilization of funds for charitable purposes, which were found to be below the required threshold of 85% of income. The Tribunal's decision was further reinforced by references to relevant case law and the specific provisions of the Act.

Issue 2:
The second issue pertained to the allowability of depreciation on fixed assets for a charitable trust/institution. The revenue contended that allowing depreciation would confer a double benefit since the income of the assessee was already exempt under Sections 11 to 13 of the Income Tax Act, 1961. However, the Tribunal, guided by precedents from various High Courts and the principles of charitable trust taxation, ruled in favor of the assessee. The Tribunal's decision was supported by the distinction drawn from a Supreme Court judgment and the alignment with similar matters where the Tribunal's view was upheld. The Tribunal's decision was further reinforced by the dismissal of the revenue's contentions and the alignment with the principles laid down by various High Courts.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decisions in favor of the assessee on both issues. The Court found the reasoning and decisions of the Tribunal to be in line with established legal principles and precedents, thereby ruling against the revenue and in favor of the assessee.