2016 (10) TMI 493 - AT - Income Tax

Rejection of Claim of depreciation on the ground that the cost of asset has already been allowed as application of income in past assessment years - income for charitable purposes - Held that - We find an identical issue had come up before the Tribunal in the case of DCIT Vs. Sanjeevan Vidyalaya Trust (2011 (9) TMI 1113 - ITAT PUNE) wherein the Tribunal after considering the decision of Hon ble Supreme Court in the case of Escorts Ltd. and Others (1992 (10) TMI 1 - SUPREME Court) and following the decision of the Hon ble Bombay High Court in the case of DCIT Framjee Cawasjee Institute (1992 (7) TMI 331 - BOMBAY HIGH COURT) has allowed the claim of depreciation in case of relevant asset which has already been allowed as application of income for charitable purposes. - Decided in favour of assessee.

Issues Involved:
1. Depreciation on assets acquired by a charitable trust.
2. Double deduction on the same asset.
3. Applicability of the Kerala High Court decision in Lissie Medical Institution vs. ACIT.
4. Applicability of the Supreme Court decision in Escorts Ltd. vs. Union of India.

Issue-wise Analysis:

1. Depreciation on Assets Acquired by a Charitable Trust:
The primary issue was whether depreciation on assets, whose cost had already been claimed as an application of income under Section 11(1) of the Income Tax Act in previous years, could be claimed again. The assessee, a Public Charitable Trust registered under the Bombay Public Trust Act, 1950, and also under Section 12A of the Income Tax Act, claimed depreciation of ?2,46,56,825 on capital assets. The Assessing Officer (AO) disallowed this claim, arguing that since the cost of the asset had already been allowed as an application of income, its written down value (WDV) was nil, and thus, no depreciation could be claimed. The AO relied on the Supreme Court decision in Escorts Ltd. and others (199 ITR 43), which stated that double deduction is not permissible under the Income Tax Act unless there is a clear statutory mandate.

2. Double Deduction on the Same Asset:
The AO's contention was that allowing depreciation on the same asset would result in a double deduction, which is not permissible. The AO cited the Supreme Court ruling in Escorts Ltd., which clarified that once a deduction is allowed, depreciation on the same expenditure is not available. However, the CIT(A) and various High Courts, including Bombay, Karnataka, Gujarat, Madhya Pradesh, Punjab & Haryana, and Delhi, have held that depreciation on depreciable assets must be taken into account in computing the income of a trust, even if the amount spent on acquiring such assets had been treated as an application of income in the year of acquisition.

3. Applicability of the Kerala High Court Decision in Lissie Medical Institution vs. ACIT:
The AO referenced the Kerala High Court decision in Lissie Medical Institution vs. ACIT, which held that depreciation on the assets of a charitable trust is not allowable if the cost of the asset is already allowed as an application of income. However, the CIT(A) noted that this decision was contrary to the decisions of multiple other High Courts, which supported the allowance of depreciation. The CIT(A) emphasized that when different High Courts have differing views, the decision favoring the assessee should be followed, as supported by the Supreme Court rulings in CIT vs. Vegetable Products Ltd. and other cases.

4. Applicability of the Supreme Court Decision in Escorts Ltd. vs. Union of India:
The CIT(A) distinguished the case of Escorts Ltd. from the present case, noting that Escorts Ltd. dealt with the deduction of cost under Section 35 for scientific research and subsequent depreciation on the same asset, which is different from the current scenario. The CIT(A) cited the Delhi High Court decision in CIT vs. Vishwa Jagriti Mission and the Punjab & Haryana High Court decision in CIT vs. Market Committee, Pipli, which both held that the Escorts Ltd. decision does not apply to charitable trusts claiming depreciation on assets whose cost has been treated as an application of income.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, allowing the claim of depreciation on the assets, the cost of which had already been allowed as an application of income for charitable purposes. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal. The Tribunal's decision was consistent with previous judgments, including the case of DCIT vs. Sanjeevan Vidyalaya Trust, where similar issues were resolved in favor of the assessee. The appeal filed by the Revenue was dismissed, and the order was pronounced in the open court on 05-10-2016.

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