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2010 (10) TMI 667 - AT - Income TaxCharitable Trust - Simultaneous claim of exemption u/s 11 and depreciation u/s 32 i.e double deduction - Claim of Depreciation on capital assets allowed as application of income - Held that - allowance thereof on the same capital expenditure, i.e., which already stands allowed as deduction by way of application of income, in computing income under the Act, which is to accord with the principles of commercial accounting, is not permissible, even if the depreciation is to be allowed under the Act, serve as it does the same purpose and is on the same footings, citing our reasons for the same in detail, drawing extensive support from the decision in the case of Escorts Ltd. & Othrs. v. UOI (1992 -TMI - 5386 - SUPREME Court) holding of the same as squarely covering the proposition. - Double deduction not allowed - decided in favor of revenue.
Issues Involved:
1. Deduction of Depreciation for Charitable Institutions. 2. Applicability of Section 14A. 3. Rates of Depreciation. 4. Relevance of CIT v. Queen's Educational Society. 5. Non-answering of Specific Grounds by CIT(A). Detailed Analysis: 1. Deduction of Depreciation for Charitable Institutions: The primary issue was whether depreciation, a non-cash charge, should be allowed in computing the income of a public charitable institution under Section 11(1) of the Income-tax Act. The Commissioner of Income-tax (Appeals) [CIT(A)] allowed the deduction, relying on several case laws, including CIT vs. Society of the Sisters of St. Anne, CIT vs. Raipur Pallottine Society, and CIT vs. S.M.R. Vishram Bhavan Trust. The CIT(A) argued that the income of a charitable trust should be computed on commercial principles, including depreciation as a legitimate deduction. However, the Appellate Tribunal found that allowing depreciation on assets whose cost had already been claimed as an application of income would amount to a double deduction, which is not permissible under the Act. The Tribunal referenced the Supreme Court's decision in Escorts Ltd. & Ors. v. Union of India, which established the rule of non-double deduction for the same expenditure. The Tribunal held that the absence of an express provision for non-double deduction does not imply its permissibility, as the fundamental principle is that no legislature intends a double deduction unless explicitly stated. 2. Applicability of Section 14A: The Revenue argued that allowing depreciation would violate Section 14A, which disallows expenditure incurred in relation to income not includable in total income. The Tribunal noted that depreciation is an expenditure and should be charged against profits. However, it concluded that allowing depreciation on assets already accounted for as application of income would indeed result in a double deduction, thus supporting the Revenue's stance. 3. Rates of Depreciation: The Tribunal addressed whether depreciation should be calculated at rates prescribed under the Act or based on the useful life of the assets. It concluded that for assets of a business undertaking held under trust, the rates under the Act would apply. For other assets, normative rates based on realistic assessment of useful life should be used. 4. Relevance of CIT v. Queen's Educational Society: The Revenue cited CIT v. Queen's Educational Society, which dealt with the eligibility criteria for educational institutions under Section 10(23)(iiiad). The Tribunal found this case irrelevant to the issue of depreciation for charitable institutions under Section 11, as there was no charge of misapplication of assets or violation of the institution's charter. 5. Non-answering of Specific Grounds by CIT(A): The assessee raised additional grounds before the CIT(A), which were not specifically addressed because the entire claim for depreciation was allowed. The Tribunal agreed with the CIT(A)'s approach, stating that the additional grounds were essentially different arguments supporting the same issue. Since the primary issue was resolved, there was no need to address these additional grounds separately. Conclusion: The Tribunal concluded that allowing depreciation on assets whose cost had already been claimed as an application of income would result in a double deduction, which is impermissible. The Tribunal reversed the CIT(A)'s decision and upheld the Assessing Officer's (AO) action of disallowing the depreciation claim. The assessee's Cross Objection was dismissed as the CIT(A) had effectively addressed the primary issue, rendering the additional grounds moot. The Revenue's appeal was allowed, and the assessee's Cross Objection was dismissed.
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