2014 (5) TMI 1178 - AT - Income Tax

Disallowance of depreciation to assessee-trust - depreciation cannot be allowed to the assessee being a trust as the full value of the assets had already been allowed as capital expenses during the earlier years and considered as application of income of the trust - Held that - CIT(A) deleted the disallowance made by the AO in accordance with the judgmentof CIT Vs. Market Committee 2010 (7) TMI 374 - PUNJAB AND HARYANA HIGH COURT and no contrary decision was brought to our notice. We therefore do not see any merit in these grounds of the departmental appeal. Addition on account of interest from bank - as credited to earmarked fund account ignoring the fact that it is a revenue receipt and ought to have been credited to Income and Expenditure Account - Held that - Issue to be decided in favour of the assessee by following the decision in the case of Sukhdeo Charity Estate Vs. Income Tax Officer 1991 (5) TMI 47 - RAJASTHAN HIGH COURT . Donations received in kind were not income for the purpose of Section 12(1) - Held that - In the present case it is an admitted fact that the assessee received the donations in kind and the same could not be applied accumulated or invested therefore it cannot be treated as income. Therefore the CIT(A) was fully justified in reversing the observations of the Assessing Officer. We do not see any infirmity in the order of the CIT(A) on this issue.

Issues Involved:
1. Deletion of disallowance of depreciation.
2. Treatment of interest from bank as income.
3. Treatment of cash donations as corpus fund.
4. Treatment of donations received in kind as income.

Issue-Wise Detailed Analysis:

1. Deletion of Disallowance of Depreciation:
The first issue pertains to the deletion of disallowance of depreciation amounting to Rs. 23,33,987/-. The Assessing Officer disallowed the depreciation on the grounds that the full value of the assets had already been allowed as capital expenses in earlier years and considered as application of income of the trust. The CIT(A) deleted the disallowance, relying on prior decisions for assessment years 2006-07 to 2008-09 and the judgment of the Hon'ble Punjab & Haryana High Court in CIT Vs. Market Committee, which held that there was no double deduction in allowing depreciation for computing income under Section 11. The ITAT upheld the CIT(A)'s decision, finding no merit in the department's appeal.

2. Treatment of Interest from Bank as Income:
The second issue involves the addition of Rs. 61,75,469/- on account of interest from bank deposits earmarked for specific purposes. The Assessing Officer considered this interest as revenue receipt and included it in the income. The CIT(A) deleted this addition, referencing prior decisions and rulings from various High Courts, including the Rajasthan High Court in Sukhdeo Charity Estate Vs. Income Tax Officer, which held that such interest should not be included in the income of the trust. The ITAT agreed with the CIT(A), citing the Hon'ble Karnataka High Court in Director of Income-Tax (Exemptions) & Another Vs. Sri Ramakrishna Seva Ashrama, which clarified that voluntary contributions with specific directions are treated as capital and not liable to tax.

3. Treatment of Cash Donations as Corpus Fund:
The third issue is the addition of Rs. 1,34,65,953/- on account of cash donations not credited to the income and expenditure account. The Assessing Officer treated these donations as income, while the CIT(A) deleted the addition, stating that the donations were for specific purposes and thus formed part of the corpus fund under Section 12(1) read with Section 11(1)(d). The ITAT upheld the CIT(A)'s decision, referencing multiple High Court rulings that corpus funds are not part of the income.

4. Treatment of Donations Received in Kind as Income:
The fourth issue concerns the treatment of donations received in kind (gold and silver jewellery) as income. The Assessing Officer treated these as deemed income under Section 12(1). The CIT(A) reversed this, stating that voluntary contributions in kind do not come under the definition of income under Section 2(24) and cannot be applied, accumulated, or invested, thus not forming part of the income. The ITAT upheld this view, agreeing that the donations in kind could not be treated as income.

Conclusion:
The ITAT dismissed the department's appeal and the assessee's cross objection. The CIT(A)'s decisions on all issues were upheld, confirming that the depreciation disallowance was rightly deleted, the interest from bank deposits and cash donations were correctly treated as corpus funds, and the donations in kind were not to be considered as income.

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