2011 (4) TMI 601 - HC - Income Tax

Disallowance - Application of income - Depreciation - Commissioner of Income-Tax, Hisar Vs. Market Committee, Narwana (2010 -TMI - 204482 - PUNJAB AND HARYANA HIGH COURT) and Commissioner of Income Tax, Karnal Vs. Market Committee, Pipli (2010 -TMI - 202247 - Punjab and Haryana High Court) - Accordingly it was decided against the revenue

Summary

Issues:
1. Allowability of expenditure contributed to HSAM Board under statutory obligation
2. Double deduction for depreciation on capital assets
3. Justification of allowing depreciation on capital assets
4. Benefit of accumulation of income without proper resolution

Issue 1: Allowability of expenditure contributed to HSAM Board under statutory obligation
The appeal raised questions regarding the allowance of expenditure of Rs.65,52,109 contributed to HSAM Board under statutory obligation as per Section 27 of the Punjab Agricultural Produce Market Act, 1961. The key concern was the lack of evidence to prove the actual incurring of such expenditure and whether it falls under the definition of charitable purposes under Section 2(15) of the Income Tax Act, 1961. The judgment referred to previous decisions where similar issues were addressed, leading to the conclusion that no substantial question of law arises in this regard.

Issue 2: Double deduction for depreciation on capital assets
The appeal questioned the justification of allowing depreciation on capital assets when the corresponding assets had already been allowed as 'application of income' for exemption under Section 11 of the Income Tax Act. The concern was that allowing further depreciation on these assets might result in double deduction for the same expenditure. The judgment referenced previous court decisions to establish that such double deductions are not permissible unless there is a clear statutory indication allowing it, leading to the dismissal of the appeal in this aspect.

Issue 3: Justification of allowing depreciation on capital assets
The appeal raised doubts about the justification of allowing depreciation on capital assets, particularly in the context of a previous decision by the Hon'ble Apex Court in the case of Escorts India Ltd. (199 ITR 43). The concern was whether permitting depreciation on the same assets would amount to two deductions on the same expenditure. The judgment cited relevant court rulings to support the position that unless there is a clear statutory indication, the statute should not be interpreted to allow such double deductions, resulting in the dismissal of the appeal on this issue.

Issue 4: Benefit of accumulation of income without proper resolution
The final issue questioned the validity of allowing the benefit of accumulation of income amounting to Rs.1,98,42,581 without a proper resolution being filed before the return and with vague purposes mentioned. The judgment referenced a previous court decision to establish that this issue was covered against the revenue, leading to the dismissal of the appeal in this regard.

In conclusion, the High Court dismissed the appeal as it found that no substantial question of law arose in the issues raised by the revenue, citing previous judgments that addressed similar concerns and established legal precedents in the interpretation of relevant provisions of the Income Tax Act, 1961.