2015 (11) TMI 1119 - AT - Income Tax

Claim of depreciation - cost of the asset was allowed under section 11 - Held that - as application income since the assessee is a charitable institution entitled for exemption under section 11. Therefore, the cost of the asset becomes nil. When the cost of the asset becomes nil, there is no question of allowing any depreciation. If the depreciation is allowed then it would amount to double deduction. The income of the charitable institution has to be computed on commercial principle in case the assessee is not claiming exemption under section 11 of the Act. The assessee can also claim depreciation in case the exemption under section 11 was denied by the Assessing Officer. Whatever may be the reasons, since the cost of the asset is nil as the cost was already allowed as application of income, this Tribunal is of the considered opinion that the assessee is not entitled for depreciation. Section 32 of the Act falls in Chapter IV under heading Computation of total income, however, section11 falls in Chapter III which provides for incomes which do not form part of the total income. Therefore, this Tribunal is of the considered opinion that the provisions of section 11 of the Act will override section 32. - Decided against assessee.

Summary

Issues:
Claim of depreciation by a charitable institution.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai involved a dispute regarding the claim of depreciation by a charitable institution for the assessment year 2010-11. The only issue for consideration was whether the assessee, being a charitable institution, was entitled to claim depreciation on a capital asset. The Departmental representative argued that since the cost of acquisition of the asset was fully allowed earlier as application of income, no depreciation should be allowed. The representative cited a judgment of the Kerala High Court to support this argument. On the other hand, the counsel for the assessee contended that depreciation should be allowed as the income of the assessee must be computed on a commercial basis, and any remaining income after depreciation should be allowed as application of income. The counsel also highlighted the existence of divergent opinions on this issue.

Upon considering the submissions from both sides and examining the relevant provisions of the Income Tax Act, particularly section 32 which deals with depreciation, the Tribunal made a detailed analysis. It was noted that the cost of the asset had been allowed as application of income under section 11 of the Act due to the charitable institution's entitlement for exemption under section 11. Consequently, the cost of the asset was considered nil. The Tribunal emphasized that allowing depreciation on an asset with a nil cost would result in double deduction, which is impermissible. Additionally, it was clarified that if an assessee claims exemption under section 11, they cannot simultaneously claim depreciation under section 32. The Tribunal held that the provisions of section 11, falling under Chapter III of the Act, would override section 32, which falls under Chapter IV concerning the computation of total income. Therefore, the Tribunal concluded that the assessee was not entitled to depreciation in this case.

Ultimately, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and restored that of the Assessing Officer, thereby allowing the appeal of the Revenue. The judgment was delivered on June 26, 2015, in Chennai.