2018 (3) TMI 587 - HC - Income Tax

Additional depreciation on hospital equipments - disallowance of claim as Assessee has claimed written down value of assets as Additional depreciation after its useful life - assessee is a charitable trust, running a hospital - Held that - Where a plant and machinery is discarded/ destroyed in the previous year, the amount of money received on sale as such or as scrap or any insurance amount received to the extent it falls short of the written down value is allowed as depreciation, provided the same is written off in the books of account. In this case, the Respondent-Assessee could not sell the hospital equipments as scrap nor the Assessee could use the hospital equipments. Therefore, the written down value of the hospital equipments, was to be allowed as depreciation. This is so, provided the hospital equipment (asset) is written off in its books of accounts. This has been admittedly done i.e. writing off from its books. Thus, the nomenclature, as additional depreciation rather then depreciation, is the only objection of the Revenue. Nomenclature, cannot decide a claim. In any case, this could also be allowed as an expenses under Section 37 of the Act as it is an expenditure incurred wholly and exclusively for carrying out its its activity as a hospital (on application of commercial principles). - Decided against revenue

Summary

Issues:
Challenge to Tribunal's order on additional depreciation claimed by a charitable trust for hospital equipments.

Analysis:
1. Additional Depreciation Claim: The Respondent, a charitable trust running a hospital, claimed additional depreciation of ?83.15 lakhs on hospital equipments that had completed their useful life of 10 years. The Assessing Officer disallowed this claim, stating that the assets should be sold as scrap when outlived their useful life. The disallowed amount was added to the income in the Assessment Order dated 18th December, 2009.

2. Appeal to CIT(A): The Respondent appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who allowed the appeal on 15th March, 2011. The CIT(A) held that the income of the Trust should be computed on commercial principles, as established in previous judgments. Consequently, the claim of additional depreciation was allowed.

3. Tribunal's Decision: The Respondent further appealed to the Tribunal, which upheld the order of the CIT(A) on 20th October, 2014. The Tribunal noted that the additional depreciation was claimed for hospital equipments that couldn't be sold as scrap due to Government Rules. The Tribunal dismissed the Revenue's appeal, emphasizing the need to compute income on commercial principles, as per established legal precedents.

4. Legal Provisions: The Court observed that Section 32(1)(iii) of the Income Tax Act deals with depreciation on plant and machinery. It allows for depreciation when assets are discarded or destroyed, and the written down value is written off in the books of account. In this case, since the hospital equipments couldn't be sold as scrap, and were written off in the books, the Respondent was entitled to claim depreciation.

5. Conclusion: The Court found that the Respondent's claim for additional depreciation was valid, as it was in line with commercial principles and the provisions of the Income Tax Act. The objection raised by the Revenue regarding the nomenclature of the claim was deemed irrelevant. The Court dismissed the appeal, stating that the question raised did not give rise to any substantial legal issue and upheld the decision in favor of the Respondent.