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2013 (12) TMI 163 - AT - Income TaxDepreciation on capital expenditure - Double deduction or not - Held that - Following CIT v Institute of Banking 2003 (7) TMI 52 - BOMBAY High Court - The income of the trust is required to be computed under section 11 on commercial principles, without reference to the heads of the income specified under section 14 of the Act - As per the CBDT Circular No.5-P (LXX-6) issued dated 19th June, 1968 - The income of the trust is to be computed on the commercial basis i.e. as per normal accounting principles which clearly provide for deducting depreciation to arrive at income. The income so arrived at (after deducting the depreciation) is to be applied for charitable purpose. Capital expense is application of the income so determined. The application of the income so determined cannot be stated to be a deduction to arrive at the income. The depreciation is to be deducted to determine the income under section 11 of the Act and it is not an application of income - There is no double deduction as claimed by the DIT(E) - Decided in favour of assessee.
Issues:
1. Invocation of section 263 of the Income Tax Act by the Director of Income-tax (Exemptions). 2. Disallowance of depreciation claimed by the assessee-trust as application of funds towards the trust's objects. 3. Interpretation of judicial precedents regarding the treatment of depreciation in the computation of income for a trust. Issue 1: Invocation of Section 263: The appeal was against the order of the Director of Income-tax (Exemptions) invoking section 263 of the Income Tax Act. The Director noticed that the assessee-trust had claimed capital expenditure and depreciation as application of funds towards the trust's objects, which was considered by the Director as a double deduction. The Director relied on the Supreme Court judgment in Escorts Limited case, stating that if the entire investment on capital assets is allowed as a deduction, then no depreciation on the same asset should be allowed. The Director issued a show-cause notice proposing to disallow the depreciation amount, leading to the appeal by the assessee. Issue 2: Disallowance of Depreciation: The assessee argued against the invocation of revisionary jurisdiction under section 263, contending that when two views are possible and the Assessing Officer had chosen one view, section 263 should not be invoked. The assessee maintained that the income of the trust should be computed under section 11 on commercial principles, entitling the trust to claim depreciation. The Director, however, disagreed with the assessee's contentions, asserting that allowing depreciation on assets where the entire investment had been deducted would result in double deduction. The Director set aside the assessment order and directed the disallowance of depreciation, leading to the appeal before the Tribunal. Issue 3: Interpretation of Judicial Precedents: The Tribunal analyzed various judicial precedents to determine the treatment of depreciation in the computation of income for a trust. The Tribunal highlighted that the income of the trust should be computed on commercial principles, allowing for the deduction of depreciation to arrive at the income to be applied for charitable purposes. The Tribunal cited judgments from different High Courts and the CBDT Circular to support the position that depreciation should be allowed in computing the income of a trust. The Tribunal distinguished the Supreme Court judgment relied upon by the Director, emphasizing that the provisions for determining taxable income for a trust are distinct from those for business income. Ultimately, the Tribunal held in favor of the assessee, allowing the claim for depreciation and overturning the Director's decision to disallow it. This detailed analysis of the legal judgment from the Appellate Tribunal ITAT Bangalore covers the issues of invoking section 263, disallowance of depreciation, and the interpretation of judicial precedents regarding the treatment of depreciation in the computation of income for a trust.
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