2014 (1) TMI 1269 - AT - Income Tax

Deletion of depreciation u/s 32 of the Act Charitable institution eligible for depreciation u/s 32 falling under Profits and gains from business and profession Held that - The decision in Commissioner Of Income-Tax Versus Sheth Manilal Ranchhoddas Vishram Bhavan Trust 1992 (2) TMI 51 - GUJARAT High Court followed - the income of the assessee-trust has to be computed on commercial principles and therefore, depreciation has to be allowed - allowing the deduction on purchase of assets as application of income u/s.11(1) is not equivalent to allowing deduction for the purpose of computing income, but in fact, the income remains same and the only effect of considering acquisition of asset as application of income is that such income is treated as exempt income thus, it cannot be said that allowing exemption u/s.11(1) of the Act in respect of acquisition of asset on this basis that it is application of income is akin to allowing deduction of an expenditure but it is in fact an incentive provision allowing the charitable-trust the benefit of having exempt income - depreciation has to be allowed as per the decision of Hon ble Gujarat High Court which is binding on us and it is not resulting into allowing of double deduction Decided against Revenue.

Issues Involved:
1. Deletion of disallowance of depreciation by the Commissioner of Income-Tax (Appeals).
2. Alleged double deduction on assets for which cost has already been allowed as a deduction.
3. Availability of depreciation deduction under Section 32 for a charitable trust.
4. Whether the Commissioner of Income-Tax (Appeals) should have upheld the Assessing Officer's order.
5. The Revenue's plea to set aside the Commissioner of Income-Tax (Appeals) order and restore the Assessing Officer's order.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Depreciation:
The Commissioner of Income-Tax (Appeals) [CIT(A)] deleted the disallowance of depreciation amounting to Rs. 10,37,852/- for Assessment Year (AY) 2008-09 and Rs. 8,41,331/- for AY 2009-10. The CIT(A) relied on various judgments, including those from the Hon'ble ITAT, Ahmedabad "B" Bench, and the Hon'ble High Court of Gujarat, which have consistently allowed depreciation for charitable trusts. The CIT(A) concluded that depreciation should be allowed even if the cost of the assets had been treated as an application of income.

2. Alleged Double Deduction:
The Revenue argued that allowing depreciation on assets, the cost of which has already been allowed as a deduction on account of application of income, would amount to double deduction. They cited the Hon'ble Supreme Court's decision in the case of Escorts Ltd., 199 ITR 43, and the Kerala High Court's decision in Lissie Medical Institutions vs. CIT, 348 ITR 344. However, the CIT(A) and ITAT found that these judgments were distinguishable. The ITAT noted that the Hon'ble Punjab & Haryana High Court had distinguished the Escorts Ltd. case, and the Gujarat High Court's binding judgment in CIT vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust, 198 ITR 598, supported the allowance of depreciation.

3. Availability of Depreciation Deduction under Section 32 for Charitable Trusts:
The ITAT affirmed that depreciation is allowable for charitable trusts under Section 32, even if their income is not assessable under the head "Profit and Gains from business and profession." The ITAT cited multiple judgments, including those from the Hon'ble Madhya Pradesh High Court and the Hon'ble Bombay High Court, which supported the view that depreciation should be allowed to preserve the corpus of the trust.

4. Whether the CIT(A) Should Have Upheld the Assessing Officer's Order:
The Revenue contended that the CIT(A) should have upheld the Assessing Officer's (AO) order. However, the ITAT found that the CIT(A) had correctly followed judicial precedents and binding judgments from higher courts. The ITAT noted that the AO's reliance on the Escorts Ltd. case was misplaced, as the issue had been distinguished by other High Courts.

5. Revenue's Plea to Set Aside the CIT(A) Order:
The ITAT dismissed the Revenue's appeals, finding no infirmity in the CIT(A)'s order. The ITAT emphasized that the CIT(A) had correctly followed the binding judgment of the Gujarat High Court and other relevant judicial precedents. The ITAT concluded that the CIT(A) was right in allowing the depreciation and that this did not result in double deduction or revenue leakage.

Conclusion:
The appeals by the Revenue were dismissed, and the ITAT upheld the CIT(A)'s order allowing depreciation for the charitable trust. The ITAT found that the CIT(A) had correctly applied judicial precedents and binding judgments, and there was no basis for the Revenue's claims of double deduction or the need to restore the AO's order.

← Previous Next →