2017 (11) TMI 1158 - HC - Income Tax

Depreciation on the asset which were claimed as application u/s 11 at the time of purchase - double deduction - Held that - Now the issue is squarely covered as stated by counsel for the respondent in case of Commissioner of Income Tax-II vs. Krishi Upaj Mandi Samiti 2015 (3) TMI 11 - RAJASTHAN HIGH COURT wherein held Section 32(1) of the Act of 1961 provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. Income of a charitable trust like the present assessee derived from the depreciable heads is also liable to be computed on commercial basis, however, while doing so it is to be kept in mind that ultimately assessee is a charitable institution and its income for tax purposes is required to be determined by taking into consideration provisions of Section 11 of the Act of 1961 after extending normal depreciation and deductions from its gross income. In computing the income of a charitable institution/trust depreciation of assets owned by such institution is a necessary deduction on commercial principles, hence, the amount of depreciation has to be deducted to arrive at the income available - Decided in favour of the assessee

Summary

Issues:
- Appeal against Tribunal's order on depreciation deduction eligibility
- Appeal against Tribunal's order on expenses disallowance

Analysis:

Issue 1: Appeal against Tribunal's order on depreciation deduction eligibility
The appellant challenged the Tribunal's decision confirming the CIT(A)'s order regarding the eligibility of depreciation deduction. The questions of law framed by the Court focused on whether the assessee could claim depreciation on assets previously claimed as application u/s 11 at the time of purchase. The Court referred to previous judgments to support the allowance of depreciation on capital assets for which capital expenditure was already provided. Citing cases like Commissioner of Income Tax-II vs. Krishi Upaj Mandi Samiti, the Court emphasized that depreciation of assets owned by charitable institutions must be deducted to determine taxable income. The Court also relied on decisions like Director of Income Tax v. Framjee Cawasjee Institute and CIT vs. Institute of Banking Personnel to support the Tribunal's decision to allow depreciation claimed by the assessee.

Issue 2: Appeal against Tribunal's order on expenses disallowance
The appellant contested the Tribunal's decision on disallowing certain expenses, including job work charges, soil testing, surveying charges, and directors' remuneration. Referring to the case of Commissioner of Income Tax vs. Mahima Shiksha Samiti, the Court held that the Tribunal's findings on these issues were based on factual considerations and not questions of law. The Court dismissed the appeal, stating that no substantial question of law emerged from the Tribunal's order. Additionally, the Court referred to precedents like Murari Lal Khandelwal vs. CIT to support the decision that the Tribunal's findings on reasonable salary payments were factual and did not warrant interference.

In conclusion, the Court upheld the Tribunal's decisions, ruling in favor of the assessee against the department in both appeals. The judgments provided clarity on the eligibility of depreciation deductions for charitable institutions and emphasized the importance of factual considerations in determining expenses and salary payments.