2016 (6) TMI 1345 - AT - Income Tax

Allowability of depreciation of capital asset acquired for the purpose of carrying out charitable activities and set off of deficit of earlier years against the income of current year - Held that - The assessee is claimed for setting off of excess income over expenditure against the deficit of earlier years is correct. No illegality or infirmity in the order passed by DIT. See COMMISSIONER OF INCOME-TAX VERSUS INSTITUTE OF BANKING PERSONNEL SELECTION 2003 (7) TMI 52 - BOMBAY HIGH COURT - Decided against revenue.

Summary

Issues:
Allowability of deficit carry forward under section 11(1)(a) - Double benefit issue
Allowability of depreciation claim - Disallowance by AO
Interpretation of judgment by CIT(A) and Revenue's appeal

Issue 1: Allowability of deficit carry forward under section 11(1)(a) - Double benefit issue:
The appeal concerned the Revenue challenging the CIT(A)'s order directing the AO to allow the deficit of ?32,76,502 to be carried forward under section 11(1)(a). The Revenue argued that granting such allowance would result in double benefit to the assessee, which was legally impermissible. The CIT(A) relied on judgments from the Rajasthan and Gujarat High Courts to support the allowance of setting off excess income over expenditure against the deficit of earlier years. The ITAT upheld the CIT(A)'s decision, following the Bombay High Court's ruling that such adjustments should be considered as application of income for charitable purposes under section 11(1)(a).

Issue 2: Allowability of depreciation claim - Disallowance by AO:
The assessee claimed depreciation of ?31,58,126, citing the Bombay High Court's decision in CIT vs. Institute of Banking. However, the AO disallowed the claim, leading to an appeal by the assessee before the CIT(A) where the claim was allowed. The Revenue contested this decision, arguing that there was no express provision in the IT Act permitting such a claim. The ITAT examined the jurisdictional High Court's decision in a similar case and ruled in favor of the assessee, upholding the CIT(A)'s decision to allow the depreciation claim.

Issue 3: Interpretation of judgment by CIT(A) and Revenue's appeal:
The Revenue challenged the CIT(A)'s interpretation of the High Court judgments regarding the allowance of deficit carry forward and depreciation claim. The ITAT reviewed the legal precedents cited by both parties and concluded that the CIT(A) had correctly applied the law in allowing the assessee's claims. The ITAT emphasized the application of commercial principles in computing income for charitable trusts and upheld the CIT(A)'s decision based on the judgments of the jurisdictional High Court and similar cases. Consequently, the Revenue's appeal was dismissed, affirming the orders passed by the CIT(A) in favor of the assessee.