2012 (8) TMI 254 - AT - Income Tax

Trust - Disallowance of depreciation for a reason that cost of acquisition of the capital asset on which the claim of depreciation was made, was earlier allowed to the assessee as a deduction, while computing its income under Section 11 of the Income-tax Act Held that - Depreciation on assets of a Trust is to be deducted for the purpose of calculating income of a Trust - depreciation should be allowed even on assets, the cost of which had been allowed as exempt under Section 11 in the preceding years - appeals filed by the assessee stand allowed. Decision of Supreme Court in the case of Escorts Ltd. (1992 (10) TMI 1 - SUPREME COURT) distinguished.

Summary

Issues:
Claim of depreciation on assets previously allowed as deduction under Section 11 of the Income-tax Act, 1961.

Analysis:
The appeal concerned the issue of whether a Trust, holding registration under Section 12A(a) of the Act, could claim depreciation on assets for which the cost of acquisition had been allowed as a deduction under Section 11 of the Act. The Assessing Officer (A.O.) disallowed the claim of depreciation, citing the decision in Escorts Ltd. v. Union of India, which was upheld by the CIT (Appeals). The Appellate Tribunal noted that for a Trust eligible for exemption under Section 11, income arising from property held under Trust constitutes the income of the Trust, which includes income in the commercial sense without reference to specific heads of income. The Tribunal referred to various legal precedents and circulars to establish that depreciation on Trust assets is deductible for calculating income. It highlighted that depreciation is a deduction to arrive at income, while capital expenditure is considered an application of such income. The Tribunal emphasized that the decision in Escorts Ltd. was not directly applicable to Trusts as the provisions for determining taxable income are distinct. Consequently, the Tribunal set aside the lower authorities' orders and directed the A.O. to allow the claim of depreciation.

The Tribunal rejected the argument that allowing the claim of depreciation would result in double deduction, emphasizing that depreciation is essential for arriving at income and is not a duplicate claim of the same amount as application. The Tribunal cited various High Court judgments supporting the deduction of depreciation for Trusts, even on assets whose cost had been exempted under Section 11 in previous years. It further clarified that the provision of computing income under Section 11 requires a commercial basis, which includes deducting depreciation as per normal accounting principles. The Tribunal concluded that the assessee was eligible for claiming depreciation for the relevant assessment years, and accordingly, allowed all four appeals filed by the assessee.