2014 (5) TMI 1173 - AT - Income Tax

Exemption u/s 11 - disallowance of depreciation - violation of provisions of sec. 13(1)(c) by making payment to the wife (Ms. Meenakshi Sundararajan) of founder of the trust - Held that - In the present case, the assessee trust has been created on 1.2.1961. This is before the commencement of the Income-tax Act, 1961. As per Clauses 36 to 41 of the Memorandum of Association of the assessee trust, Ms. Meenakshi Sundararajan is entitled for honorarium in rendering services to the benefits of the assessee society. Therefore, as rightly argued by the learned counsel, the payment made to Ms. Meenakshi Sundararajan is covered by the said exemption. - Exemption allowed - Decided in favor of assessee. Claim of depreciation - double benefit - Held that - In fact, there is no question of double benefit. An assessee is getting the benefit of application of funds for charitable purposes from the income computed according to normal accounting practices. Accordingly, it is to be seen that there is no clash between providing depreciation allowance and recognizing the application of funds for charitable purposes. Decided in favor of assessee.

Summary

Issues:
1. Eligibility for deduction under sec.11
2. Permissibility of depreciation claim

Eligibility for deduction under sec.11:
The appeal pertains to the assessment year 2010-11, challenging the order of the Commissioner of Income-tax(Appeals) regarding the denial of exemption under sec.11. The assessee, a society engaged in educational activities, declared NIL income for the year. The Assessing Officer disallowed a depreciation claim and found a payment made to the founder's wife, triggering a violation of sec.13(1)(c) and disentitling the assessee to exemption under sec.11. The Commissioner of Income-tax(Appeals) upheld this decision, leading to the second appeal. The assessee argued that the payment to the founder's wife was in compliance with the trust's terms established before the Income-tax Act, 1961, thus qualifying for exemption under sec.11. The ITAT Chennai concurred, holding that the lower authorities erred in denying the exemption. Consequently, the assessing authority was directed to grant all available exemptions under sec.11.

Permissibility of depreciation claim:
The issue of depreciation allowance was also scrutinized. Citing a previous ITAT Chennai judgment, the ITAT referred to the distinction between computing income and applying funds for charitable purposes. Depreciation is allowed in the first segment, akin to any other assessee, from which funds for charitable purposes are derived. The ITAT emphasized that recognizing depreciation does not clash with acknowledging charitable fund application. Consequently, the Assessing Officer was instructed not to disallow the depreciation claimed by the assessee. As a result, the appeal was allowed, and the order was pronounced in open court in May 2014 at Chennai.