2015 (9) TMI 1645 - AT - Income Tax

Depreciation on fixed asset of assessee trust - HELD THAT - Judgment of Apex Court in the case of Escorts Ltd (1992 (10) TMI 1 - SUPREME COURT) relied on by the AO while making the disallowance is not applicable to a charitable organization, like the assessee in the present case which is registered u/s 12A of the Act, since it pertains to the claim of depreciation under the provisions of section 35 of the Act. As per the proposition laid down in the case of DIT (E) vs. Framjee Cawasjee Institute 1992 (7) TMI 331 - BOMBAY HIGH COURT expenditure on acquisition of depreciable asset was treated as application of income of the trust in the year of acquisition, depreciation is allowable in subsequent years. Disallowance of carry forward of deficit - amount was claimed as set-off against the accumulated carried forward deficit of earlier years - HELD THAT - It is a settled issue that any surplus amount of the current year can be set-off against the brought forward deficit of the earlier years and the same view was even supported by judgment of CIT vs. Institute of Banking 2003 (7) TMI 52 - BOMBAY HIGH COURT . Considering the same, CIT (A) has rightly adjudicated the issue by granting relief to the assessee

Summary

Issues Involved:
1. Disallowance of depreciation on fixed assets.
2. Allowance of carry forward deficit and set off against subsequent years' income.

Issue 1: Disallowance of Depreciation on Fixed Assets:

The appeal by the Revenue challenged the CIT (A)'s decision to allow the appeal of the assessee regarding the disallowance of depreciation on fixed assets. The Revenue contended that the CIT (A) erred in allowing the appeal, citing previous court decisions. The CIT (A) held that the Supreme Court judgment in Escorts Ltd case was not applicable to a charitable organization, as it concerned depreciation under a different section of the Act. The CIT (A) referred to various court decisions supporting the allowance of depreciation even if the entire cost of the asset was treated as application/expenditure in the year of purchase. The Tribunal upheld the CIT (A)'s decision, stating that the judgment in Escorts Ltd was not applicable to the charitable organization, and the allowance of depreciation was justified as per previous court decisions.

Issue 2: Allowance of Carry Forward Deficit and Set Off Against Subsequent Years' Income:

The second issue revolved around the allowance of carry forward deficit and its set off against subsequent years' income. The Revenue appealed the CIT (A)'s decision to grant relief to the assessee on this matter. The CIT (A) allowed the set-off of brought forward deficit against the current year's surplus based on previous court judgments. The Tribunal noted that any surplus amount of the current year could be set off against the brought forward deficit of earlier years, as supported by the jurisdictional High Court's judgment. Consequently, the Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's appeal on grounds 3 to 5.

In conclusion, the Tribunal dismissed the Revenue's appeal against the order of the CIT (A) for the assessment year 2008-2009. The judgment highlighted the applicability of depreciation allowances to charitable organizations, distinguishing them from other entities. Additionally, the decision emphasized the permissibility of setting off deficits against subsequent years' income based on established legal precedents.