2017 (8) TMI 244 - HC - Income Tax

Deductible / Exempted income u/s 10(29) - depreciation to be excluded from the income or not - CIT(A) allowed the computation after excluding depreciation as part of the expenditure and taking gross receipts from warehousing and Inland Container Depot/ Container Freight Station ( ICD/CFS ) - Held that - As evident form the supreme court case in Nectar Beverages Pvt. Ltd. 2009 (7) TMI 5 - SUPREME COURT while explaining the rationale behind insertion of Section 41(2) of the Act, delved into the aspect as to what was the nature of depreciation . It has been emphasized by the Supreme Court that depreciation , by its very nature and as used in Section 41(1) of the Act, is neither loss, nor expenditure, nor trading liability . In other words, irrespective of the provision in which the word depreciation is used, owing to the very nature of the word, it is not a loss or an expenditure or a trading liability. The Court is satisfied that neither the CIT (A) nor the ITAT has committed any legal error in concluding that for the purposes of Section 10(29) of the Act depreciation is not an expense but allowance. No substantial question of law

Summary

Issues:
1. Appeal by Revenue under Section 260A of the Income Tax Act against ITAT's order.
2. Interpretation of deductible income under Section 10(29) of the Act.
3. Whether depreciation should be considered as an expense or an allowance.
4. Application of Supreme Court judgments in Nectar Beverages Pvt. Ltd. and CIT v. Anand Theatres.

Analysis:
1. The High Court considered five appeals filed by the Revenue against the ITAT's common order for various Assessment Years. The main issue was whether ITAT erred in confirming the CIT (A)'s decision regarding the computation of deductible income under Section 10(29) of the Income Tax Act.

2. The Revenue argued that depreciation should be treated as an expense, reducing the tax liability of the Assessee. Both CIT (A) and ITAT, however, relied on the Supreme Court's decision in Nectar Beverages Pvt. Ltd., which emphasized the nature of depreciation not being a loss, expenditure, or trading liability.

3. The Court examined the Supreme Court's analysis in Nectar Beverages Pvt. Ltd., highlighting that depreciation, by its nature, is not a loss, expenditure, or trading liability. The Assessee contended that depreciation is an allowance, not an expense, for the purpose of Section 10(29) of the Act, which the Court accepted.

4. Additionally, the Court referenced another Supreme Court decision in CIT v. Anand Theatres, which explained that depreciation represents the diminution in value of a capital asset to reflect the true picture of the business's real income. The Court concluded that neither CIT (A) nor ITAT committed any legal error in treating depreciation as an allowance for Section 10(29) purposes.

5. Consequently, the Court dismissed the appeals, stating that no substantial question of law arose from the ITAT's order. The applications related to exemptions and delays in refiling were allowed or disposed of accordingly.