2013 (1) TMI 1025 - AT - Income Tax

Eligibility to claim depreciation as an application of income for the purpose of claiming exemption under Section 11 12 - Held that - Hon ble P H High Court in the decisions of Market Committee, Pipli(2010 (7) TMI 374 - Punjab and Haryana High Court ) and of M/s.Tiny Tots Education Society (2010 (7) TMI 377 - Punjab and Haryana High Court ) had held clearly in favour of the assessee that depreciation was allowable as utilization for the purpose of computing exempt income under sections 11 12 of the Act. Thus Ld. CIT(A) was justified in directing the A.O. to consider the claim of depreciation as a part of utilization of the assessee. - Decided against revenue.

Summary

Issues:
- Eligibility of a trust for claiming depreciation as part of the application of income while seeking exemption under sections 11 & 12 of the Income Tax Act, 1961.

Analysis:
1. The Revenue appealed against the decision of the CIT allowing the assessee trust to claim depreciation along with capital expenditure as part of its application for charitable purposes under sections 11 & 12 of the Income Tax Act. The Assessing Officer had disallowed the depreciation claim, citing precedents from the jurisdictional High Court and the Supreme Court.

2. The CIT(A) upheld the assessee's position, referencing decisions from the Punjab & Haryana High Court in favor of allowing depreciation as a utilization for computing exempt income. The contention was that charging depreciation did not amount to a double deduction, as argued by the Revenue.

3. The Revenue, before the ITAT, relied on a judgment from the Kerala High Court which held that a notional claim of depreciation on assets already claimed as income application was impermissible. However, the assessee argued that in cases of conflicting opinions among High Courts, the view favoring the assessee should prevail, citing a Co-ordinate Bench decision supporting the allowance of depreciation.

4. The ITAT analyzed the various High Court decisions and the precedents cited by the parties. It noted that the Kerala High Court's stance conflicted with the Punjab & Haryana High Court decisions, which supported allowing depreciation for computing income of charitable institutions. The ITAT emphasized the commercial income concept, which necessitates deducting depreciation on trust assets for income calculation, as per accounting principles.

5. The ITAT concluded that in the absence of a unanimous view among High Courts, the decision favoring the assessee should be followed until the jurisdictional High Court rules otherwise. Therefore, it upheld the CIT(A)'s direction to allow the depreciation claim as part of the assessee's income utilization, dismissing the Revenue's appeal.