2015 (11) TMI 629 - AT - Income Tax

Denial of depreciation under section 32(1) - the assessee being a charitable institution has claimed exemption for the cost of asset by means of application of its income - Held that - From the assessment year 2015-16, no depreciation can be allowed in respect of any asset, whose acquisition has been claimed as an application of income. In view of this later legislative insertion which is not applicable to the year under consideration and respectfully following the judgment of the hon ble jurisdictional High Court in the assessee s own case for the immediately preceding assessment year 2015 (8) TMI 89 - DELHI HIGH COURT to hold that depreciation should be allowed separately in the computation of income. - Decided in favour of assessee.

Summary

Issues:
- Denial of depreciation under section 32(1) of the Income-tax Act, 1961 to a charitable institution claiming exemption for the cost of asset by means of application of income.

Analysis:
1. The appeal challenged the denial of depreciation by the Commissioner of Income-tax (Appeals) based on the premise that the assessee, a charitable institution, had already claimed the purchase of the asset as application of income. The Assessing Officer disallowed depreciation, citing it as a double deduction. The Commissioner upheld this decision referring to a judgment by the Delhi High Court. The appeal contested this denial of depreciation.

2. The Tribunal noted that the Delhi High Court had previously allowed depreciation for the assessee in a similar case. The Court clarified that application of income could include the purchase of a capital asset, emphasizing that it does not determine the income derived from the asset. Another judgment by the High Court addressed a similar issue, allowing a charitable institution to claim depreciation on a capital asset even if the amount spent was treated as application of income. The Tribunal highlighted the conflicting judgments but relied on the earlier decision favoring depreciation.

3. The Tribunal acknowledged the legislative amendment effective from April 1, 2015, prohibiting depreciation on assets claimed as application of income. However, since this amendment was not applicable to the year in question, the Tribunal followed the precedent set by the Delhi High Court in the assessee's previous assessment year and allowed the depreciation separately in the computation of income. Consequently, the appeal was allowed in favor of the assessee.

4. The Tribunal's decision aligned with the earlier judgment by the High Court, emphasizing the distinction between application of income and computation of income for a charitable institution. The Tribunal's ruling was based on the legal principles established by the High Court in similar cases, ensuring that depreciation could be claimed independently of the application of income.