2016 (7) TMI 1561 - AT - Income Tax

Exemption u/s 11 - whether the assessee trust is entitled to the claim of depreciation on capital assets, expenditure in respect of which has already been claimed by the assessee as application of income - HELD THAT - Hon ble Bombay High Court in the case of CIT vs. Institute of Banking Personnel Selection 2003 (7) TMI 52 - BOMBAY HIGH COURT has held that a trust can claim deprecation on assets, even if, cost of assets has been fully allowed as application of income under section 11 of the Act in past years and that there is no question of double deduction in allowing the depreciation in respect of assets acquired and used by the trust. Assessment t of trust - Assessee trust entitlement to claim the carry forward and set off of deficit of earlier years on account of excess expenditure/application of income - in the case of DIT(E) vs. Najam Baug Trust 2015 (1) TMI 1438 - BOMBAY HIGH COURT has, while relying upon the decision in the case of Institute of Banking Personnel Selection (supra) has held that the assessee is entitled to claim carry forward losses/deficit on account of excess expenditure/application of income in earlier years. We further find that the Tribunal has also discussed in the own case of assessee, the effect of the amendment brought vide Finance (No.2) Act, 2014 in section 11(6) of the Act wherein it has been provided that depreciation will not be allowed while computing application of income w.e.f. April 1, 2015. The Tribunal while relying upon the decision of the Hon ble Delhi High Court in the case of Indra Prasstha Cancer Society 2014 (11) TMI 733 - DELHI HIGH COURT that the amended provisions are applicable w.e.f. the assessment year 2015-16 and the same will not have any applicability for the assessment years prior to A.Y. 2015-16. The Ld. D.R. has also fairly admitted that both the issues are squarely covered in favour of the assessee

Summary

Issues:
1. Entitlement to claim depreciation on capital assets already claimed as application of income.
2. Entitlement to claim carry forward and set off of deficit on account of excess expenditure/application of income.

Analysis:

Issue 1 - Depreciation on Capital Assets:
The case involves a charitable trust registered under section 12A of the Income-tax Act, 1961, which invested in fixed assets and claimed application of income along with depreciation on the same fixed assets. The Assessing Officer contended that allowing depreciation would result in double deduction. The Commissioner of Income Tax (Appeals) (CIT(A)) favored the assessee, leading to the Revenue appealing against this decision. The key question was whether the trust could claim depreciation on assets for which the cost had already been allowed as application of income. The Appellate Tribunal noted that previous decisions, including those of the Hon'ble Bombay High Court, supported the trust's right to claim depreciation on such assets without risking double deduction. The Tribunal emphasized that there was no prohibition on claiming depreciation for assets acquired and used by the trust, even if the cost had been fully allowed as application of income in past years.

Issue 2 - Carry Forward and Set Off of Deficit:
The second issue revolved around whether the trust could claim carry forward and set off of deficits from earlier years due to excess expenditure or application of income. The Tribunal referred to a case involving Najam Baug Trust where the Hon'ble Bombay High Court upheld the right of the assessee to carry forward losses on account of excess expenditure from previous years. Additionally, the Tribunal discussed an amendment in section 11(6) of the Act brought by the Finance (No.2) Act, 2014, which disallowed depreciation while computing application of income from April 1, 2015. However, the Tribunal clarified that this amendment was applicable only from assessment year 2015-16 onwards and did not impact previous assessment years. The Department acknowledged that both issues were decisively in favor of the assessee based on various decisions of the Jurisdictional High Court and the Tribunal's own ruling in the assessee's case.

In conclusion, the Appellate Tribunal upheld the order of the CIT(A) as it found no flaws in the decision. The appeal by the Revenue was dismissed, affirming the trust's entitlement to claim depreciation on capital assets and carry forward deficits from earlier years based on established legal precedents and interpretations of relevant provisions.