2018 (2) TMI 1904 - AT - Income Tax

Exemption u/s 11 12 - depreciation on assets, cost of which were allowed as application of income - HELD THAT - Depreciation could be allowed on assets, cost of which were allowed as application of income, it stands settled by the judgment in the case of Rajasthan and Gujarati Charitable Foundation India 2017 (12) TMI 1067 - SUPREME COURT clearly held that an assessee enjoying exemption under section 11 12 of the Act was entitled to claim depreciation on assets, cost of which was claimed as application of income. Viz-a-viz second question which is on calculation of WDV, Explanation 6 to Sec.43(6). This explanation was introduced by Finance Act, 2008 with retrospective effect from 01.04.2003. It is clear from the above that for working out WDV, depreciation provided in the books of accounts has to be deemed as depreciation actually allowed under the Act, where an assessee was not required to compute his total income. Assessee had considered itself either as an exempt entity under Section 10(22) of the Act or alternatively u/s 11 12. It may be true that for some of the years it would have been denied such exemption. But as far as assessee was concerned it considered itself as a person not required to compute its total income. Assessee could take advantage of the above explanation and the claim of WDV had to be reckoned by considering book depreciation for the years it claimed exemption under Section 10(22) or Sections 11 12 and not depreciation as per Section 32(1). We thus do not find any reason to interfere with the order of CIT (Appeals). A perusal of the assessment orders for the impugned assessment year we find that computation of depreciation has not been clearly done by AO. There is no clarity as to how it was computed. In the circumstances, we are of the opinion that the quantum of depreciation allowable to the assessee for the impugned assessment years requires a revisit by the AO. We therefore set aside the orders of the lower authorities on the aspect of the quantum of depreciation allowable to the assessee for the impugned assessment years and remit it back to AO for consideration afresh in accordance with law. Disallowance for payments made by the assessee to its retired employees - HELD THAT - Assessee had paid pension to retired employees over and above the contribution it made to employees pension and gratuity fund. Assessee had produced evidence to show that such pension payments were directly credited to the bank account of the employees. Assessee had actually paid the amount and genuineness of the payment was never doubted. CIT(Appeals) was justified in allowing such claim u/s.37(1) of the Act as a business outgo. We do not find any reason to interfere with the order of CIT (Appeals). There is no rule which stops an assessee who make payments to an approved pension fund, from making direct pension payments also, if it finds it necessary to do so in business interest. We do not find any reason to interfere with the order of CIT (Appeals) on this aspect also.

Summary

Issues Involved:

1. Allowance of depreciation on Written Down Value (WDV) of assets for assessment years 2009-2010, 2010-2011, and 2012-2013.
2. Computation method for WDV.
3. Disallowance of payments made to retired employees for assessment years 2010-2011 and 2012-2013.

Issue-wise Detailed Analysis:

1. Allowance of Depreciation on WDV of Assets:

The Revenue's grievance was that the Commissioner of Income Tax (Appeals) allowed depreciation on WDV of assets, including those purchased during the period when the assessee enjoyed exemption under Sections 11 & 12 of the Income Tax Act. The Revenue raised two facets: (i) whether WDV for computing depreciation should be based on book depreciation or depreciation allowable under Section 32(1) of the Act, and (ii) whether WDV should exclude the cost of acquisition of assets considered as application of income under Sections 11 & 12 in earlier years.

The Tribunal referenced the case of Rajasthan and Gujarati Charitable Foundation India, where it was held that an assessee enjoying exemption under Sections 11 & 12 is entitled to claim depreciation on assets, even if the cost of such assets was claimed as application of income. Thus, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to allow depreciation on the WDV of assets.

2. Computation Method for WDV:

The Tribunal examined Explanation 6 to Section 43(6) of the Act, which states that for computing WDV, depreciation provided in the books of accounts should be deemed as depreciation actually allowed under the Act. The Tribunal noted that the assessee considered itself exempt under Sections 10(22) or 11 & 12 for various years. Therefore, the assessee could take advantage of Explanation 6, and WDV should be calculated based on book depreciation, not as per Section 32(1) of the Act. The Tribunal did not find any reason to interfere with the Commissioner of Income Tax (Appeals)'s order on this matter.

However, the Tribunal noted a lack of clarity in the Assessing Officer's computation of depreciation and remitted the matter back to the Assessing Officer for fresh consideration.

3. Disallowance of Payments Made to Retired Employees:

For assessment years 2010-2011 and 2012-2013, the Revenue argued that the assessee made direct pension payments to retired employees over and above contributions to approved pension and gratuity funds. The Revenue contended that only contributions to approved funds were allowable, not direct pension payments.

The Tribunal found that the assessee had provided evidence of direct pension payments to retired employees, which were credited to their bank accounts. The genuineness of these payments was not in doubt. The Tribunal held that such payments could be allowed under Section 37(1) of the Act as business outgo, supporting the Commissioner of Income Tax (Appeals)'s decision.

Conclusion:

The Tribunal allowed the Revenue's appeal for the assessment year 2009-2010 for statistical purposes and partly allowed the appeals for assessment years 2010-2011 and 2012-2013 for statistical purposes. The cross objections were dismissed as infructuous. The order was pronounced on February 22, 2018, at Chennai.