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2011 (8) TMI 703 - AT - Income TaxCharitable societies/Institutions/Trusts registered u/s 12A of the Act- Dis-allowance of depreciation- Double deduction by way of claiming depreciation on the fixed assets as well as claiming cost of assets as an application of income u/s 11 of the Act - Held that - In the present appeals the claim of depreciation is after application of more than 85% of the income therefore the claim of depreciation has remained for academic interest only. It is not the case that depreciation has been claimed by the assessee to cover up the application of income as specified under the Act. If that would have been case then the contention raised by the Revenue would have some force. Depreciation is a statutory allowance not confined expressly to diminution in value of the asset by the reason of wear & tear only. A charitable trust is entitled to depreciation in respect of asset held by it. - Decided in favor of the assessee.
Issues Involved:
1. Whether the first appellate authority erred in directing the Assessing Officer to allow depreciation claimed by the assessees. 2. Whether the claim of depreciation by the assessees amounts to double deduction as per the decision of the Apex Court in the case of Escorts Ltd./J.K. Synthetics Ltd. v. Union of India. Detailed Analysis: Issue 1: Depreciation Allowance by First Appellate Authority The Revenue's primary contention was that the first appellate authority erred in directing the Assessing Officer to allow depreciation amounts claimed by the assessees, which were previously disallowed based on the decision of the Apex Court in Escorts Ltd. The assessees, being charitable societies/institutions/trusts, claimed depreciation on fixed assets, which the Assessing Officer disallowed, arguing it resulted in double deduction. The first appellate authority, however, allowed the depreciation claims, leading to the Revenue's appeals. Issue 2: Double Deduction Argument The Revenue argued that allowing depreciation on assets, the cost of which had already been treated as an application of income under Section 11 of the Income Tax Act, amounted to double deduction. They relied on the Apex Court's decision in Escorts Ltd., which prohibits double deductions. The assessees countered by citing Tribunal decisions in similar cases, which upheld the allowance of depreciation despite the initial application of asset costs as income. Tribunal's Consideration and Conclusion: 1. Section 12A and Section 11 Analysis: - The Tribunal reviewed Section 12A, which prescribes conditions for the applicability of Sections 11 and 12, and Section 11, which deals with income from property held for charitable or religious purposes. - It was noted that the assessees had complied with the provisions of Section 11(2), applying more than 85% of their income towards charitable purposes before claiming depreciation. - The Tribunal found that the Assessing Officers did not dispute the assessees' claims of fund utilization as per Section 11. 2. Depreciation as a Statutory Allowance: - The Tribunal emphasized that depreciation is a statutory allowance representing the diminution in the value of an asset, not an actual outgoing of funds. - It cited the jurisdictional High Court's decision in CIT v. Raipur Pallottine Society, which supports the entitlement of charitable trusts to depreciation on assets held. 3. No Double Deduction: - The Tribunal clarified that the claim of depreciation did not result in double deduction since the application of income exceeded 85% before the depreciation claim. - It distinguished the present case from the Escorts Ltd. decision, noting that the depreciation claim was made after the application of income, making it an academic interest only. 4. Compliance with Section 11(2): - The Tribunal reiterated that the assessees had duly complied with Section 11(2) and that the depreciation claim did not cover up any shortfall in the application of income. 5. Supporting Case Laws: - The Tribunal referenced several case laws, including Addl. CIT v. A.L.N. Rao Charitable Trust and CIT v. Radhaswami Satsang Sabha, to support its view that the application of income does not equate to actual spending and that accumulations beyond the prescribed percentage can also earn exemption under Section 11(2). 6. Final Decision: - The Tribunal found no infirmity in the first appellate authority's decision to allow the depreciation claims. - Consequently, the appeals by the Revenue were dismissed. Summary: The Tribunal dismissed the Revenue's appeals, upholding the first appellate authority's decision to allow depreciation claims by the assessees. It concluded that the depreciation claims did not result in double deduction and that the assessees had complied with the provisions of Section 11(2) of the Income Tax Act. The Tribunal's decision was supported by relevant case laws and a detailed analysis of the statutory provisions.
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