2016 (7) TMI 710 - HC - Income Tax

Depreciation on assets put into use - assets have been claimed by the assessee as an application of income for charitable activities - Held that - Allowing exemption on the application of income on the capital asset acquired during the relevant year and further, allowing depreciation in the subsequent years, at any stretch of imagination, could not be construed as double deduction. Allowing depreciation in subsequent years, on the capital asset, which has already availed the benefit of deduction in computing the income of the trust in the year of its acquisition is considered by the Punjab and Haryana High Court in the case of Market Committee, Pipli (2010 (7) TMI 374 - Punjab and Haryana High Court ) and held that the income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the assessee. It is also to be noticed that while in the year of acquiring the capital asset, what is allowed as exemption is the income out of which such acquisition of asset is made and when depreciation deduction is allowed in the subsequent years, it is for the losses or expenses representing the wear and tear of such capital asset incurred if, not allowed then there is no way to preserve the corpus of the Trust for deriving its income as held in Society of Sisters of St.Anne 1983 (8) TMI 44 - KARNATAKA High Court . This judgment of co-ordinate Bench of this Court is binding on us and we have no reasons to disturb the settled position of law at this length of time/depart from the said reasoning. As such, the arguments advanced by the Revenue apprehending double deduction is totally misconceived. Section 11 6 of the Act is prospective in nature denying the depreciation deduction in computing the income of Charitable Trust and operates with effect from 01.04.2015. This is further clarified when compared with certain other provisions which have been made retrospectively in the same Finance Act. - Decided against revenue

Summary

Issues Involved:

1. Whether depreciation on assets put into use during the accounting year can be claimed by the assessee, despite the entire cost of these assets being claimed as an application of income for charitable activities.
2. Applicability of the amendment made in 2012 to the Income Tax Act concerning the entitlement of depreciation on assets put to use.

Issue-wise Detailed Analysis:

1. Depreciation on Assets for Charitable Activities:

The primary issue revolves around whether the Tribunal was justified in law in allowing the assessee's claim for depreciation on assets put into use during the accounting year, even though the entire cost of these assets was claimed as an application of income for charitable activities. The Court referenced its previous decision in the case of The Director of Income Tax Vs. Al-Ameen Charitable Fund Trust, where it was established that depreciation is allowable under Section 11 of the Act, and there is no double claim of capital expenditure. The Court noted that the income derived from property held under trust cannot be the total income because Section 11(1) of the Act states that such income shall not be included in the total income of the person in receipt of the income. Depreciation is considered a necessary outgoing and is allowed to be debited to the expenditure account of the trust, as it represents the wear and tear of the capital asset.

2. Applicability of the 2012 Amendment:

The Court also addressed the applicability of the amendment made in 2012 to the Income Tax Act, which inserted Section 11(6) effective from 01.04.2015. This amendment states that income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. The Court held that the plain language of the amendment indicates that it is to be effective from 01.04.2015 and not retrospectively. This view was supported by the Notes on Clauses in the Finance Bill, 2014, and the Central Board of Direct Taxes circulars. The Court further referenced the Supreme Court's judgment in Vatika Township P. Ltd., which laid down general principles concerning retrospectivity, emphasizing that amendments imposing a burden or liability are presumed to be prospective unless clearly stated otherwise.

Conclusion:

The Court concluded that the Tribunal was correct in allowing depreciation under Section 11 of the Act, and there was no double claim of capital expenditure. The amendment made in 2012 to the Income Tax Act was held to be prospective in nature, effective from 01.04.2015. Consequently, the appeal was dismissed, and the question of law was answered in favor of the assessee and against the Revenue.