2012 (5) TMI 79 - AT - Income Tax

Disallowance of depreciation while computing the income of the assessee-trust assessee filed return admitting NIL income after claiming deduction u/s 11- Held that - Income for the purpose of Section 11 of the Act is the income as per the accounts of the Trust - income in the commercial sense without reference to the heads of income specified in Section 14 - concept of commercial income necessarily envisages deduction of depreciation on assets of the Trust Decided in CIT v. Rao Bahadur Calawala Cunnan Chetty Charities (1979 -TMI - 35614 - MADRAS High Court) in favour of assessee.

Summary

Issues:
Disallowance of depreciation while computing income of the assessee-trust.

Analysis:
The issue in this case revolves around the disallowance of depreciation amounting to Rs. 34,38,417 made by the Assessing Officer while calculating the income of the assessee-trust. The Assessing Officer excluded the depreciation claim as he considered it to be a double deduction, leading to the determination of taxable income at Rs. NIL. The ld. CIT(A) upheld this decision by stating that only actual outgoings should be considered, not notional expenditures like depreciation, while computing income under section 11 of the Act.

The appellant, aggrieved by the CIT(A)'s order, presented an order from the Chennai Bench 'C' in a similar case where depreciation was allowed to the assessee. The Tribunal in that case emphasized that for a Trust eligible for exemption under Section 11, income should be calculated based on commercial income, including deductions like depreciation on Trust assets. The Tribunal cited various judicial precedents and circulars supporting the deduction of depreciation for charitable trusts.

After considering the submissions and the Chennai Bench 'C' order, the Tribunal in this case set aside the lower authorities' decision and deleted the disallowance of depreciation. The Tribunal found no valid reason to deviate from the Chennai Bench 'C' order and concluded that the assessee was entitled to claim depreciation for the assessment year in question.

Therefore, the appeal of the assessee was allowed, and the disallowance of depreciation amounting to Rs. 34,38,417 was deleted based on the principles established by the Chennai Bench 'C' order and the legal provisions governing the computation of income for charitable trusts.