2012 (10) TMI 57 - AT - Income Tax

Charitable Trust - Depreciation - dis-allowance under order passed u/s 154 - Revenue contended double deduction i.e. capital expenditure as application of income and depreciation on the same assets which have already been claimed as application of income - Held that - High Court in the case of CIT v Sheth Manilal Ranchhoddas Vishram Bhavan Trust (1992 (2) TMI 51 - GUJARAT HIGH COURT) held that depreciation should be allowed u/s 11(1)(a) for the charitable institutions and societies since income of the Trust is to be computed on commercial basis i.e. as per normal principles of accounting which provides that to arrive at net income, depreciation should be deducted. Therefore, allowance of depreciation by CIT(A) upheld - Decided against Revenue

Summary

Issues:
Claim of double deduction - Capital expenditure and depreciation on the same assets.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax(A)-XXI, New Delhi. The main ground of appeal was regarding the claim of double deduction, specifically capital expenditure as application of income and depreciation on the same assets. The Assessing Officer initially allowed exemption u/s 11 of the Act, assessing the total income as Nil. However, upon realizing that the assessee trust had been wrongly allowed both depreciation and capital expenditure, the Assessing Officer revised the computation of income, assessing taxable income to Rs.6,81,176. The Commissioner of Income Tax(A) then held that the claim of depreciation does not amount to double deduction and allowed the appeal of the assessee society, leading to the appeal by the Revenue before the Tribunal.

Upon hearing both parties, the Departmental Representative argued that allowing both capital expenditure and depreciation on the same assets constitutes double deduction, justifying the Assessing Officer's action under section 154 of the Act. The Departmental Representative further contended that the Commissioner of Income Tax(A) wrongly held that depreciation does not amount to double deduction. However, the Tribunal referenced a judgment by the Hon'ble Jurisdictional High Court of Delhi, emphasizing that depreciation of assets owned by a charitable trust is a necessary deduction on commercial principles.

The Tribunal observed that the Commissioner of Income Tax(A) correctly interpreted the provisions applicable to charitable trusts and societies, stating that income should be computed on commercial principles, which include deducting depreciation to arrive at net income. The Tribunal noted that the Assessing Officer's disallowance of depreciation was based on a wrong interpretation of the Act, and the Commissioner's decision was in line with the principles of accounting and relevant judicial precedents. Consequently, the Tribunal found the Revenue's appeal devoid of merits and dismissed it.

In conclusion, the Tribunal upheld the Commissioner of Income Tax(A)'s decision, emphasizing that depreciation should be deducted to determine the net income of charitable trusts and societies. The appeal by the Revenue was dismissed, and the original order allowing the claim of depreciation was upheld.