2018 (3) TMI 1461 - AT - Income Tax

Depreciation of assets acquired by assessee trust - the capital expenditure is treated as application of income for charitable purposes - Held that - The income of the Trust is required to be computed under section 11on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. Also it also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. See CIT III, Pune Versus Rajasthan And Gujarati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT - Decided in favour of assessee

Summary

Issues Involved:
Appeal against CIT(A)'s order on assessment under Section 143(3) of the Income-tax Act, 1961 for the assessment year 2012-13.

Analysis:

Issue 1: Depreciation Disallowance
The Assessing Officer's grievance was regarding the disallowance of depreciation amounting to ?66,11,344 by the CIT(A). The Hon'ble Supreme Court had addressed similar cases where the Income Tax Department challenged the grant of depreciation to charitable institutions under Section 32 of the Act. The Court clarified that treating capital expenditure as application of income for charitable purposes did not preclude claiming depreciation. Referring to precedents, including the Bombay High Court's ruling, the Court emphasized that depreciation is a legitimate deduction for computing real income, even for charitable trusts. The Court upheld the view that depreciation can be claimed irrespective of assets being treated as application of income under Section 11. Consequently, the Tribunal affirmed the CIT(A)'s decision in favor of the assessee.

Issue 2: Legislative Amendment and Depreciation Carry Forward
The judgment highlighted a legislative amendment in Section 11(6) of the Act, effective from Assessment Year 2015-2016, addressing the issue of depreciation for charitable institutions. The Delhi High Court clarified that the amendment is prospective. Moreover, the Tribunal reiterated that once depreciation is allowed, the assessee is entitled to carry forward the depreciation. Citing the consistency of views across various High Courts, except for a dissenting opinion from the High Court of Kerala, the Tribunal dismissed the appeal, aligning with the principles established by the Hon'ble Supreme Court and confirming the CIT(A)'s order.

In conclusion, the Tribunal dismissed the appeal based on the principles laid down by the Hon'ble Supreme Court, affirming the grant of depreciation to charitable institutions and the entitlement to carry forward depreciation. The judgment emphasized the legality of claiming depreciation despite capital expenditure being treated as income application for charitable purposes, in line with established precedents and legislative amendments.